Latest / The Learning Corner by Precursor / Episode #91: AI Rocketship or Left for Dead, The Worst VC Introduction, To Be or To Do

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Episode #91: AI Rocketship or Left for Dead, The Worst VC Introduction, To Be or To Do · The Learning Corner by Precursor

• 0:00
  Ten years ago, I always believed if you build a good company, there will be an investor who's
• 0:04
  interested in what you're doing.
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  I don't know that I believe that in this environment.
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  I think you could build a very interesting company that is not touching AI, not touching
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  defense or energy deep tech.
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  And there might actually not be anybody who has money and conviction to fund the company.
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  It's the week of August 17.
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  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:27
  Welcome to the Learning Corner by Precursor.
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  I'm Mia Farnam, and I'm joined by RGP and managing partner, Charles Hudson, where we will
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  be talking through the articles and Goodreads that caught our team's attention over the past
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  week.
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  We're also back in the AngelList studio right in Jackson Square.
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  AngelList build software for investors to back world changing startups, and we're so lucky
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  we've got them in the portfolio and neighbors down the street.
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  For our first Goodread this week, we're looking at a recent post on LinkedIn from Matt Turk
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  from Firstmark.
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  He shares pretty bluntly that in startup land right now, you're either an AI native rocket
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  ship or you're basically left for dead regardless of how good your company actually
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  is.
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  The rocket ship path sounds exciting until you zoom in and realize it means being in a
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  permanent fundraising mode at ever higher and scarier valuations, locked in a constant death
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  march with competitors for customers and sacrificing gross margins along the way.
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  Trick notes this dynamic has been building for a while, but feels like it just escalated
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  another notch.
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  There's a lot of chatter in the comment section from full support to his post to calling out
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  specific industries that don't fall into either bucket.
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  What rang true was that this is a phenomenon everyone is seeing in today's market.
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  Last week, we talked about how the lack of series a investors filling in the gap for
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  companies that used to fit their traditional scope.
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  So this feels somewhat connected.
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  Yeah.
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  Someone in the comments actually pushed back on the left for dead framing in the comments with
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  this quote, Left for Dead by hype EBCs.
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  Sure.
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  But you could still be a solid company with good fundamentals, having a balanced life, and
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  paying your small team well.
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  This sounds super appealing in theory, but how does it actually play out in practice for a
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  founder trying to decide if that's even an option for the company?
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  Yeah.
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  I feel like this is this week's theme Yeah.
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  Which is sort of with all the concentration happening in venture and all of the attention
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  being paid to these mega rounds at hype AI companies.
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  If you're not one of them, it's sort of like, who cares about what I'm doing?
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  Yeah.
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  And I I was telling one of our teammates this week, how do you even advise your portfolio
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  companies in a world where it's this binary, you're either this heat seeking missile Yeah.
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  Or people are coming after you because they wanna give you money, or it's like nobody
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  cares.
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  Yeah.
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  And I think so much adventure was built not in a binary world, but, oh, there's this gradient.
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  There's companies that are super interesting, companies that are kind of interesting,
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  companies that are a little interesting.
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  And your fundraising mileage may vary based on where you are.
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  And now it feels like it is very binary.
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  It's either you are on meme, on trend, of the moment with good metrics and everybody runs to
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  give you money, or you're just not.
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  And I think that comment is right.
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  And that only pertains to, like, high PVCs.
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  Right.
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  But high PVCs have a lot of the investment capital.
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  So if you need capital for your business and you're really off trend, it's a really hard
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  time.
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  Raise.
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  And if you're a founder and you're offered that opportunity to continue to raise, I think it's
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  a pretty hard thing to actually turn it down, especially if it's coming to you in the droves
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  that it is, especially for the rounds that I can think of where you jump quickly from
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  thinking you're gonna do a $3,000,000 round to, like, a 9,000,000 round just because the
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  interest is there.
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  So it's easier said than done.
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  Yeah.
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  And then for the other flip of the coin, I feel like I mean, you wrote this piece a while ago,
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  like, getting off the VC train.
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  Yeah.
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  My question is, is that a choice?
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  Like, do you when do you get to exercise that?
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  How do you not, I don't know, view it as not a sign of failure, but a sign of, like, slowed
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  progress?
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  Because I think previously, that wasn't the way.
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  Like, you would have a landing spot getting off the VC train wasn't necessarily something that
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  you had to decide between.
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  So how do you think through that?
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  My friend this weekend was like, we live in this weird Panopticon where everybody stares at
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  these big fundraising Mhmm.
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  Milestones and these numbers.
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  And he's like, the only solution is to look away.
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  But that's, like, easier said than done, particularly if you live in San Francisco and
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  you're building something in AI.
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  There are many, many good companies that raise all the time.
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  And they raise all the time not because they need the money, but because people wanna give
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  it.
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  They wanna give it to them because they think those are the companies that matter.
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  So to some extent, it's kinda hard to look away from the Panoptic, kind of if you're in San
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  Francisco or if you're in one of these, like, white hot venture markets and to not view it as
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  a failure.
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  And I tell people, look, if you get profitable and you can control your own destiny, you can
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  frame it as a choice.
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  It might not actually be a choice, but at least you can frame it as a choice.
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  I'm very curious to see what happens.
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  We have a bunch of companies in our portfolio that are not of the moment, that are executing
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  really well, and don't need venture capital.
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  And many of those founders seem very happy to not have to participate in the popularity
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  contest that is sort of chasing these ever high valuations.
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  And I'm very curious to see how those businesses turn out.
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  To your last comment of folks who can reach profitability and basically grow on their own
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  accords, that was another comment that somebody had of you can strive for something like eight
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  to 10% margins for years instead of chasing a hot valuation.
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  And the argument that this person said was that slower growth is the trade off for nobody being
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  able to pull out the rug Yeah.
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  Under you.
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  Even if you execute that path well, I guess, what are the trade offs that you give up by
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  pursuing that?
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  I think right now, there are very few downside stories.
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  Right now, everyone who raises money, either you don't hear about them raise again or they
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  raise again at a higher valuation.
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  So the apparent cost, everyone's like, theoretically, you're closing off options and
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  this is hard.
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  And I'm like, yes.
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  There will be a moment of reckoning where suddenly people realize, wow, we overpaid for a
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  bunch of this stuff.
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  That will become the problem of the people running those companies.
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  Actually, not the problem of the people who funded those companies.
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  Yeah.
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  People who funded those companies will stay on the board, will dutifully show up, but their
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  minds will be elsewhere.
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  They'll be focused on physical AI or whatever the next hot thing is.
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  But the founders who are running those companies will have to find a way to work this
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  out.
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  And if you don't believe me, go talk to some of the people who raised twenty twenty one mega
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  rounds who are still running their companies at really high valuations, who still feel an
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  obligation to turn those companies into something of value.
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  Yeah.
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  That is not easy.
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  Yeah.
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  But I think it's hard to not do that when the only narrative is, well, things just only go
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  up.
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  Yeah.
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  And I think in today's market, if you're one of the companies that has raised mega rounds, you
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  definitely face maybe different issues.
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  I don't find them to be money issues.
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  That's right.
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  Heightened levels of scrutiny.
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  Like, I could list you four or five companies over the past two months where that is the
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  case.
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  Yeah.
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  But it's not like they're gonna flare out and burn through $20,000,000 in five months.
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  And honestly, if they did, I bet there'd be a line of people waiting to invest.
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  But the problems that exist for them are ones that they're going to have to reckon through in
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  the future.
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  I don't know if necessarily from investors, they think about those issues when they jump
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  into these rounds.
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  I think if you're an investor for many people, like, your intentions span for the company is
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  unfortunately correlated with progress.
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  Yeah.
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  And if you think about it, if you're a partner at a big venture fund, you do a hot deal.
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  If the hot deal works out, you stay on the board.
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  Yes.
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  If the hot deal doesn't work out, you stay on the board, but maybe you bring in your
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  associate to learn how board works.
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  And by workout, Charles, what do you what does that mean to you?
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  Just has another round with a markup or?
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  I think if you feel like this is the company that you wanna be associated with for financial
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  or career reasons.
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  Yeah.
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  This is a company that's gonna be of consequence and will matter.
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  Then you you stick with it.
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  Mhmm.
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  And if not, you're like, well, we have an obligation, but my time is valuable. My
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  My time could be spent chasing the next hot company.
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  Maybe I bring in my associate.
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  My associate gets to learn how to be a board member on this company that isn't doing well.
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  Partners and investors have far more flexibility to move on Mhmm.
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  In many cases than founders do.
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  Mhmm.
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  Not that founders don't find replacements and bring oftentimes, that's a longer, harder slog
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  for the founder than it is for the investor.
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  Yeah.
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  It goes back to, I guess, the next the last piece that we will talk about it.
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  For investors, this is a very different game than it is for founders.
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  And so playing in big rounds means a very different thing than it does.
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  Well, our next good read this week is from Vinny Loria, founding partner at Golden Gate
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  Ventures, titled the worst person to introduce you to a VC.
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  The core argument is that one of the worst people to introduce you to a new investor is a
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  VC who has already passed on your company.
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  The reason is not about access at all.
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  It's about signaling.
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  When an investor makes an introduction, the first thing the receiving investor asks is why?
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  What do they know that I don't?
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  And what decision have they already made?
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  A VC who passed carries their reasons with them, and those reasons become the frame
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  through which the next investor sees your company before you even had a conversation.
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  Benny's core reframe is that access is not the scarce resource in fundraising.
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  Credible signal is.
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  Yeah.
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  And the best introduction often comes not from another investor, but from a founder that the
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  VC has already backed.
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  One of the call outs of the piece that I like the most was his note that, quote, a warm intro
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  can sometimes make you colder.
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  Not every introduction is created equally.
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  And he even said, a warm introduction from the wrong person can be worse than no introduction
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  at all.
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  Charles, what in your mind could be a wrong person from your standpoint?
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  We welcome a really large amount of cold inbound when it comes through.
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  But we've been talking about what makes introductions more compelling in this
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  environment than previous ones.
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  So wanted your opinion there.
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  I do think people and Vinny mentioned that he's like, look, if an existing investor invest
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  introduce me to one of their own portfolio companies, they're doing their job and I
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  understand it, but I also don't expect that person to necessarily be objective.
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  And I think that's important.
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  I think for a long time, people were well, founders aren't neutral.
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  I'm like, well, founders aren't always neutral.
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  A lot of founders I know are like, oh, I'm introducing to this other founder I know.
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  I put $5,000 into their God as an angel.
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  So I think you really have to do your work to figure out in what context is this person
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  making Mhmm.
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  The intro.
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  And I think there's this idea that, like, you can find the perfect signal.
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  I've just generally found the best intros for me are from people who actually understand what
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  we're trying to do as a firm and who get our model.
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  It's funny when this post came out, was like, wait, doesn't everybody know that you shouldn't
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  get an intro?
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  Was like, oh, no.
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  Every five to ten years, we get a new crop of founders who haven't heard that.
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  That's it.
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  And I had somebody this weekend email me a company.
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  They're like, I met this company.
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  It wasn't that interesting to me, but I'm passing it on to you.
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  And I'm like, why?
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  Like, what do you think of me?
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  Why?
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  And I think that person was trying to be helpful to that founder.
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  Yeah.
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  I will sometimes tell people, I'm passing on your company.
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  But do you know who you should go talk to?
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  You should go talk to person x.
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  But I shouldn't make the intro because I already made a decision.
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  You should find Mhmm.
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  The best path you have into person x because I think they'll be interested in what you're
• 11:00
  doing.
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  And that's probably the ideal way to do it.
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  But I don't know.
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  I always go back and look at our performance.
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  Some of the best companies we've invested in have come from very weak connections.
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  Yeah.
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  It's funny.
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  I tell all our portfolio company founders, I don't expect you to do any work on these
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  intros.
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  If somebody wants to get in touch with me and you know the person, just make the intro.
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  I'm not secretly grading you behind the scenes.
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  But if you're like, this person is my best friend.
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  This person worked at our company.
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  This person is one of the smart.
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  If you have something positive to say, by all means, do it.
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  But I don't expect you to take the pitch meeting and give me a memo Yeah.
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  Before I take the meeting.
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  Just make the intro.
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  Yeah.
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  I've recently been getting a lot of folks who and I'm curious to get your perspective on it.
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  Junior partners or principals at their firms, they'll send me a deal and they'll say, like, I
• 11:47
  wasn't able to get this through, but I'm gonna do my own angel check into it.
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  I'm gonna invest.
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  And there's multiple ways that I can evaluate that.
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  Mhmm.
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  I always think about in the context of knowing where they work of, like, yeah, thinking about
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  your fund size.
• 11:59
  Yeah.
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  I understand why this didn't work.
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  Like, I have one deal that I did previously where, like, I know the fund size of the folks
• 12:05
  who referred it to me.
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  They're like, I need this to be much much much much much bigger outcome.
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  I have no doubt that it's gonna be a 2 to $3,000,000,000 outcome, but my fund is
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  $10,000,000,000.
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  I can't do that and then have to eat every single round.
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  I want somebody to do this though.
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  And I was like, okay.
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  That makes sense.
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  Yeah.
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  I don't know how often to interpret it though when it's somebody who's still building their
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  angel check portfolio and passing it on to me because I do have the ability to write smaller
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  checks Mhmm.
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  Just because of our fund size.
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  I still haven't figured out how to grapple with that.
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  And I think that the answer is it's investor by investor evaluation.
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  I'm not running an angel check.
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  I'm not running an angel portfolio, so it's very different.
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  I think for angels, we've said this.
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  Yeah.
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  If you're an angel, I think when you invest, you should assume you're not getting that money
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  back.
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  Like, I think you should be
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  happy Yep.
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  To just know that you're part of the journey.
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  That's very different than being an institutional VC.
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  Totally.
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  Also, I realized I do have good friends in series a who are like, I like this company.
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  It's too early.
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  Don't I know this person well enough to stretch and make an exception, so I'm sending it to
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  you.
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  I like those.
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  I like those.
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  Those are totally fine.
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  I think the harder is when it's a peer.
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  When it's another seed fund who's just like, I met this team.
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  They were great.
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  We didn't invest.
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  You should meet them.
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  I'm like, well, if they were so great, you You do it.
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  So I I don't make those intros.
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  Mhmm.
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  Sometimes founders will ask me.
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  I'll just tell them, this isn't gonna help you and let me tell you why.
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  Yeah.
• 13:22
  I actually wish that that was the more transparent thing we did, which was I do know
• 13:25
  that person.
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  I can't extend that intro.
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  You need to find another way in.
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  And this is kind of the reasoning why.
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  There is signal attached to it even if I'm not putting it in the note that I feel a specific
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  way.
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  It's just how people interpret it.
• 13:38
  Yeah.
• 13:39
  It's funny too.
• 13:39
  Like, I had someone who asked me for an LP intro and they're like, what do you think?
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  I'm like, I know that person, but I think you have a better intro if you found someone who's
• 13:47
  in their portfolio.
• 13:48
  Like, a fund manager they've already said yes to.
• 13:50
  Yeah.
• 13:50
  And I was like, I can make the intro for you, but I don't think I'm the strongest path for
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  you.
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  So It's the same for jobs.
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  Same for jobs.
• 13:58
  Like, I I we had a previous intern who asked for an intro.
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  And I was like, I could totally make that intro for you.
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  I know that you have somebody in your network.
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  I can know them by name
• 14:06
  Yeah.
• 14:07
  Who's a stronger intro.
• 14:08
  And you you don't wanna hit this person from all different sides if you wanna be strategic
• 14:12
  about it.
• 14:13
  So the the math of it all and the art of it doesn't change all too much.
• 14:17
  Yep.
• 14:18
  Our last piece is a Substack essay titled To Be or To Do by Michelle Bowles.
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  And it uses military legend John Boyd as the lens to examine what Silicon Valley is actually
• 14:29
  rewarding right now.
• 14:31
  Boyd was arguably the most impactful figure in modern aerial warfare.
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  Someone who never made general because he refused to play the status game.
• 14:39
  Posing the question, are you working to be someone important versus do something
• 14:46
  important?
• 14:46
  Michelle applies the fork directly to the current startup market where the incentive
• 14:50
  structure has shifted towards rewarding the performance of building over the building
• 14:55
  itself.
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  The biggest round, the highest valuation, the most visible presence across media.
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  She introduces the kamikaze round, a term coined by Trey Stevens, where the oversized
• 15:06
  check that was supposed to buy options ends up buying obligations and closing off your exits.
• 15:11
  We just talked about this.
• 15:13
  The piece is not an argument against big outcomes, but an argument that discipline is
• 15:17
  how you get the biggest ones pointing to Palantir, Androle, and SpaceX as proof that
• 15:22
  unglamorous early work is what eventually makes the marketing credible.
• 15:28
  The to be or to do framing feels like it applies equally to investors.
• 15:35
  Where do you see the investor equivalent of chasing status over substance playing out in
• 15:40
  the market right now?
• 15:41
  I think we're in a giant status game Yeah.
• 15:44
  Right now.
• 15:45
  And I think it's because of this gigantic feedback loop that we're in.
• 15:49
  Right now, it feels like we're in some weird AI super cycle.
• 15:53
  So it feels like the best thing to do is invest only in AI companies.
• 15:57
  Every quarter, it seems like the thing to invest in an AI is some new like, now, it's
• 16:02
  harness.
• 16:03
  It'll be something To else next be front edge on the hot thing because growth rounds are
• 16:08
  compounding, you can get into companies very late and still get very, very, very good
• 16:13
  multiples on what are relatively low risk assets.
• 16:16
  And then you can go tell everybody that you're an investor in that company.
• 16:19
  Anytime I tell people we've made an investment in something that isn't an AI company, they're
• 16:23
  always like, why would you do that?
• 16:24
  Because I think this founder is really talented.
• 16:26
  I think they're solving an important problem.
• 16:27
  I think they're gonna build consequential company.
• 16:29
  But all of the incentives right now, whether it's LinkedIn shares or Twitter follows or
• 16:36
  TikTok, all of the incentives right now are to chase attention and status.
• 16:41
  Yeah.
• 16:42
  And I was reading a a post that was a follow-up to the FIA stuff and it was really about, like,
• 16:48
  we've so glamorized being a founder or being an investor that the cult of personality, the
• 16:54
  lists, all of the metadata, and all the meta media created around it.
• 16:58
  It's funny.
• 16:58
  I remember when my dad once told me, once you have a twenty four hour sports network like
• 17:02
  ESPN, you need to talk about sports Mhmm.
• 17:04
  All day long.
• 17:05
  And I feel like venture and AI and tech have gotten to a place where the media cycle is so
• 17:10
  hungry.
• 17:10
  There always has to be something to talk about.
• 17:13
  So I don't know.
• 17:13
  I think it's very hard right now too to be independent.
• 17:15
  If you wanna be a founder who's independent, you've gotta find VCs who wanna do things that
• 17:20
  aren't of the moment.
• 17:21
  But those people also have to have raised money from people who also want them doing things
• 17:25
  that aren't of the moment.
• 17:26
  And that's like a two hop, low conditional probability event.
• 17:31
  And like a today problem, if you're an investor, is always thinking about upstream
• 17:37
  funding risk.
• 17:38
  That's a today problem.
• 17:40
  Way more today than it was years ago.
• 17:42
  Yeah.
• 17:43
  I used to be like, you'll figure it out and you've got, like, two to three years to figure
• 17:47
  it out and somebody will be there.
• 17:49
  Again, all the conversations we've had before, if you're in kind of like an off market, off
• 17:53
  thesis category, my question is, you could have something working, but I don't know who's
• 17:58
  actually gonna be around Yeah.
• 18:00
  To fund you even if it does.
• 18:02
  It doesn't make me move away from those spaces.
• 18:05
  Within specific categories, that's where I've found really tight circle of super talented
• 18:10
  people.
• 18:11
  But it does incorporate new things into my diligence process as to, like, even from an
• 18:16
  investor standpoint, how can I be helpful to you when we reach that point?
• 18:19
  Like, who do I know on the venture debt side?
• 18:20
  Who would I know, like, on a credit side?
• 18:22
  Like, these are very different things that we didn't have to do five, ten years ago.
• 18:25
  Ten years ago, always believed if you build a good company, there will be an investor who's
• 18:30
  interested in what you're doing.
• 18:32
  I don't know that I believe that in this environment.
• 18:34
  I think you could build a very interesting company that is not touching AI, not touching
• 18:40
  defense or energy deep tech.
• 18:42
  And there might actually not be anybody who has money and conviction to fund the the company.
• 18:46
  Yeah.
• 18:46
  What do you think about there is a specific threshold that people were saying of a specific
• 18:50
  growth rate of like a 100 x or something.
• 18:52
  The chances of you continuing that success are quite high.
• 18:55
  That's something that I feel like has happened over the past two years.
• 18:57
  Yep.
• 18:57
  Like, what do you think about that?
• 19:00
  Well, we've also gotten to this weird world where conditional on getting to a billion
• 19:03
  dollars.
• 19:03
  My assumption is you will become a $10,000,000,000
• 19:06
  company.
• 19:06
  That was it.
• 19:06
  Yeah.
• 19:07
  And if you to become a $10,000,000,000 company, my conditional expectation is you'll become at
• 19:10
  least a 20 to $50,000,000,000 company.
• 19:13
  Like, there are very few fallen stars in that cohort.
• 19:15
  And I think just money right now is consolidating around perceived winners.
• 19:19
  Unless you're born at a billion, which some people are.
• 19:21
  Getting to there means you probably are directionally doing something right.
• 19:25
  And right now, you can really compound it.
• 19:27
  I look at Hicks.
• 19:28
  I look at all these rounds that get announced of companies that are tripling in under a year
• 19:32
  at growth stage.
• 19:33
  That's normally the the domain of seed investors, not of growth investors.
• 19:37
  So also right now, there's so many incentives that just say, just jump on the ships that have
• 19:42
  already sailed.
• 19:42
  Get on the things that are working.
• 19:44
  Stick with them.
• 19:45
  You don't need to show courage, bravery, go off the beaten track.
• 19:48
  Like, the the beaten track is doing quite well right now.
• 19:51
  Do you feel like you have to play into that game though?
• 19:53
  To a point.
• 19:53
  Is that wrong to say that?
• 19:55
  I think setting the slider at zero would be very hard.
• 19:58
  Yes.
• 19:59
  Unless you're just like, it's all my own money.
• 20:01
  I'm I'm evergreen.
• 20:02
  I can do whatever I want.
• 20:03
  I don't care.
• 20:04
  Yeah.
• 20:04
  Or I have a set of LPs who backed me specifically because I'm like anti hype or non
• 20:09
  consensus.
• 20:09
  Or I think the more compelling thing is I think I found the next thing already.
• 20:13
  Yeah.
• 20:14
  And I'm already there and other people aren't.
• 20:16
  Whatever comes after AI until the I'm already there.
• 20:20
  And I'm making those investments now before anybody else realizes that these are the
• 20:23
  companies that I'm
• 20:24
  in.
• 20:24
  Mhmm.
• 20:24
  Well, we are out of time.
• 20:26
  Thank you, Charles.
• 20:27
  Thank you, AngelList, for learning up our studio.
• 20:29
  We'll get to do this again next week.
• 20:31
  Thank you to our listeners for jumping in as well.
• 20:33
  Please like and subscribe, and we will talk with you all next week.
• 20:36
  Thank you.
• 20:36
  Bye.
• 20:37
  Bye.