Latest / The Learning Corner by Precursor / Episode #65: I See Dead VCs, Tech Media Echo Chambers, VC-Backed Startups' Status Collapse

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Episode #65: I See Dead VCs, Tech Media Echo Chambers, VC-Backed Startups' Status Collapse · The Learning Corner by Precursor

• 0:00
  It's fine with me if you say, I don't know how this is gonna work out.
• 0:02
  But here's what I'm watching.
• 0:03
  Here's what I'm learning.
• 0:04
  I don't know how it's gonna work out either.
• 0:05
  But just saying it's all gonna be fine, that to me, I think I'm more sensitive to as an LP
• 0:09
  personally when I'm talking to folks now.
• 0:12
  Denial of reality, which to me is a little bit of a red flag.
• 0:15
  It's the week of February 2.
• 0:17
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:24
  Welcome to Learning Corner by Precursor.
• 0:27
  I'm Mia Farnam, and I'm joined by our GP and managing partner, Charles Hudson, where we will
• 0:32
  be talking through the articles and Goodreads that caught our team's attention over the past
• 0:36
  week.
• 0:37
  For our first topic, Beazer Clarkson from Sapphire Partners wrote a blog post on LinkedIn
• 0:41
  titled, I see dead VCs.
• 0:43
  And instead of just Charles and me chatting this one through, we have something 10 times
• 0:47
  better.
• 0:48
  Beazer herself joining the pod.
• 0:50
  Welcome, Beazer.
• 0:51
  Thanks so much for jumping in today.
• 0:53
  Oh, thanks much for having me.
• 0:54
  I love your guys' pod.
• 0:55
  It's an honor to be here.
• 0:56
  Along with being a partner at Sapphire, you're also the cofounder of OpenLP, a GP LP insights
• 1:02
  resource powered by Sapphire Partners and the cohost of another great podcast, Origins.
• 1:08
  But your blog post, I see DeadBCs, it was an analysis that your team conducted on the
• 1:13
  current market as it pertains to fund managers with the key highlight that for the first time
• 1:17
  in twenty plus years, we're facing the first substantial firm contraction across venture.
• 1:22
  And the title of the piece is derived from that phenomenon.
• 1:25
  According to PitchBook, more than 10,000 VC firms technically exist, but fewer than half of
• 1:30
  them are actually investing.
• 1:32
  The rest are what we call zombie funds, and you walk through the odds of survival as a fund
• 1:37
  manager.
• 1:37
  And while raising fund one is incredibly challenging for anyone, it's clear that
• 1:42
  building a repeat flywheel of funds thereafter is equally so.
• 1:45
  There were some strong data points, one of which was only half of all fund ones survive to
• 1:49
  raise a second fund.
• 1:51
  Another one was roughly 17% of firms make it to fund four, which is deemed established.
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  And then fewer than 5% of funds make it to fund eight, with less than 1% growing to become
• 2:03
  franchise funds thereafter.
• 2:06
  The statistic that fewer than 5% of fund managers reaching that fund eight really
• 2:11
  reinforces how difficult it is to build an enduring fund franchise.
• 2:16
  Beazer wanted to ask you first, what are the biggest shifts in expectations as you graduate
• 2:22
  fund over fund that make it so hard to stay in the market?
• 2:25
  Well, thank you.
• 2:26
  And, you know, I lived this and I've been doing ventures since the February.
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  It is still shocking to me how hard it is.
• 2:32
  For what it's worth, think it's hard.
• 2:33
  That's why we run the numbers because it helps us to really dig into what's going on.
• 2:37
  And when I think about your question, I first and foremost, I think there is a bit of an
• 2:41
  expectation evolution.
• 2:42
  I think you're right in how you would phrase that.
• 2:44
  And I was trying to think through the different parts of it because the nonnegotiable is always
• 2:48
  what deals are you doing.
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  But over time, you get a lot more clarity as an LP into the strength of the deals.
• 2:54
  And it doesn't have to be everybody's cup of tea, but how are the companies doing?
• 2:57
  So the first pass is really a lot more around, did you say what you're gonna do?
• 3:00
  And people that deviate immediately from their pitch deck, I know I'm being very I'm gonna
• 3:04
  stereotype and overgeneralize here, that's really hard.
• 3:07
  So there's always some missteps right there.
• 3:09
  And so the doing what you said you do is important, and then understanding over time who
• 3:14
  your LP base is and what they expect that to mean from how your firm matures as far as is it
• 3:19
  adding people?
• 3:20
  Is it adding operational capacity?
• 3:22
  What's in line with their expectations?
• 3:23
  And if you're seeing something that they're not seeing, that is completely typical.
• 3:27
  It happens all the time, but bring them along on the journey.
• 3:30
  Because the places where I think I've seen things break, clearly bad investing does not
• 3:34
  help.
• 3:34
  Let's just be blunt.
• 3:35
  Doesn't work if your companies aren't successful.
• 3:38
  But I've also seen funds lean into areas of momentum and try to take on too many things.
• 3:44
  Too big of an expansion, too many pivots, too many now we're this, now we're that.
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  And then when things go sideways because the market changes outside of whatever they can do
• 3:52
  or some of their best weren't great, you can lose your LP base.
• 3:56
  Because the underlying portion of this is there is an art to LP management.
• 4:00
  And if you're an established name, it does look like everything's easy.
• 4:03
  I bet even they would say there's an art to it.
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  But certainly the first four to five years, and you guys could actually explain it a lot better
• 4:09
  from on the ground what that art looks like, but you have to bring your LP base along with
• 4:13
  you or bring in new people.
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  And the the cognizance of that and just working with it, I think, is also part of what trips
• 4:18
  people up.
• 4:19
  Charles, do you wanna speak on the GP side on boots on the ground there?
• 4:22
  Yeah.
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  He's one of the first people I pitched when I was first getting started.
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  So I think in the beginning, as a fund manager, oftentimes, LPs will tell you things, but you
• 4:30
  don't hear it because you don't understand the way they communicate, or you don't understand
• 4:34
  what it is that they're trying to tell you about your firm, your model, or Beezer is far
• 4:38
  more clear than many people I've I've spoken with.
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  I also just think it's hard to know who your people are when you're starting a fund manager
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  because all of your friends will say, hey, have you talked to so and so LP?
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  And it could be some big massive fund of funds that wants to do funds that are 250,000,000 or
• 4:52
  greater.
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  Objectively, an amazing LP, but probably not right for your $15,000,000 fund one.
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  So I think what ends up happening is it's kind of like being in a startup that's doing
• 5:02
  customer discovery.
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  You have this thesis of who you think is gonna find your fund interesting.
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  And I think the other thing is there's the, like, people who like your strategy, and
• 5:11
  there's the people who like you as a person.
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  And sometimes there's not a perfect overlap between those two categories.
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  And what I always tell people in the beginning is figure out who really understands and
• 5:22
  believes in your strategy.
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  Like, for us, we found a pocket of LPs early who were like, your portfolio construction
• 5:27
  doesn't concern us.
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  We think for what you're doing, this makes sense.
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  And I think it takes a lot of time management.
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  Mean, a year or two to figure out what are the leading indicators that an LP I'm talking to is
• 5:37
  gonna find the thing I'm doing.
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  It could be strategy.
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  It could be portfolio construction.
• 5:40
  It could be team construction.
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  It could be specialist versus generalist.
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  Like, there's a bunch of things that once you figure out our fund works for people who like
• 5:48
  this bundle of attributes.
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  But I think in the beginning as a fund manager, you don't even know how to articulate what that
• 5:52
  bundle of of is.
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  So you're kind of stumbling around trying to find people who will say yes, and it's very
• 5:57
  inefficient.
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  Very inefficient.
• 5:58
  And that's just speaking specifically about being an emerging manager.
• 6:01
  Charles, I know we've internally talked about what does it look like when you evolve and
• 6:05
  become quote unquote established, that 14% who make it actually to this quote unquote
• 6:09
  established fund cohort.
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  So from your perspective, what sets apart that 14% who make it to fund four into this group
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  that I think people still struggle with knowing, am I actually established even though
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  I've raised successfully four funds in?
• 6:24
  No.
• 6:24
  I agree with you.
• 6:24
  It's it still feels very early days.
• 6:26
  I would also say this is a old person caveat.
• 6:29
  It used to be funds raised every three to four years.
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  So by fund four, you're over a decade in.
• 6:34
  And especially in 2021, and even now, there's such a compression.
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  You can be fund four and be five years old.
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  You may have an established LP base, which is what people use to determine do you have
• 6:45
  institutional LPs to determine if you're emerging or established?
• 6:47
  But you could still be very new.
• 6:49
  And I think what people don't always appreciate is that LPs wanna understand how companies have
• 6:54
  grown.
• 6:54
  You know, if you're investing your fund three, but you just have a brand new company, it's a
• 6:58
  pre seed.
• 6:58
  It's it's a legit baby.
• 7:00
  Yeah.
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  And so it's gonna be really hard for the LPs to diligence what that means.
• 7:04
  And so I think sometimes these fundraising challenges are a service.
• 7:07
  One hand's running in, the other hand's like, woah, I'm trying to understand what's going on.
• 7:11
  And again, I I get the need to fundraise when it's the present because trying to raise when
• 7:16
  there's no money feels terrible.
• 7:17
  You see these folks just getting stuck in some of these challenges because LPs yeah.
• 7:21
  Charles, you said it so well.
• 7:22
  We speak a different language.
• 7:23
  Yeah.
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  And
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  Not intentionally, but we do.
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  It's like most languages.
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  Once you learn how to decode it, it is actually quite clear what people are telling you.
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  It's just you don't have the key.
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  And, you know, most of our first set of funds were two years apart, and we moved to three
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  just because I realized in a world where it takes four years to get from pre seed to series
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  a, you might need two full fund cycles to know what happened two fund cycles ago.
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  I was like, well, if you can make that more like three, at least by the time you go out for
• 7:49
  the third fund, you know something about the portfolio and the first fund.
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  And, you know, we had the fortune of being born as a firm at a time when things were good from
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  sort of 2014 to 2020, and there wasn't as much concern.
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  And, you I'd say the last five years, it's been the opposite.
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  There's a lot of about, like, hey, decisions made in a different era on a different time
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  period.
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  Are those decisions still as good as we thought they were two or three years ago?
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  And I know, Charles, you released a piece on kind of exploring two different deserts.
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  So one, when you were an emerging manager now that you're established.
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  And I know you mentioned Beezer, especially in the beginning of the days, but anything else
• 8:18
  you wanna kind of glean in as you think about what established fund means?
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  The other part that I think I really respect is a lot of things to juggle as a GP.
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  Because part of what LPs will also start looking at as funds evolve from four, five, and
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  six is what's the team and how's the team growing and what's the strength of the next
• 8:34
  next generation?
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  Is that relevant?
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  Is it not relevant?
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  You can start dissecting track record.
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  That's a lot to be doing while you're still just trying to do great deals.
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  And then to Terrell's point, the market can shift as to what they want to fund when.
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  Is consumer in?
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  Is fintech in?
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  Are your companies gonna have it's just a lot.
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  I mean, we legitimately appreciate it.
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  It is a lot.
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  And that's part of what I think is the pressure points from, like, four to eight, these things
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  because you do have more time, and then rightly or wrongly, LPs will perceive with data, I can
• 9:03
  start doing analysis.
• 9:05
  Yeah.
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  And they'll ask a bunch of questions, and it depends on what people like.
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  Some people like a lot of TVPI.
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  Some people like consistency.
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  You can complain about the exit market.
• 9:13
  All those things.
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  It is kinda jarring because I feel like when you're on funds one, two, three, and depending
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  on to Beza's point, if you raise them in in rapid succession, I think there's this, like, I
• 9:21
  just wanna stay alive and remain a venture capitalist phase where I think the questions of
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  succession, firm building, they feel very, like, academic because who cares about fund
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  five if I can't get fund two done?
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  And, yes, I wanna think about the bench and talent, but I'm on fund three and I can barely
• 9:38
  cover the firm's operating expenses with our fee.
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  And so it it's really funny.
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  This weekend, one of my GP mentees called me.
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  They're gonna hire their first associate, and they had all these questions.
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  And I could just tell they were really anxious, and they're like, you seem very calm.
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  Well, I've hired I've done this six times.
• 9:53
  And so I remember how nervous I was the first time I brought somebody onto our team in an
• 9:58
  investing role.
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  Now that I've done it a bunch of times, it just isn't as stressful of a thing for me as it is
• 10:03
  for you.
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  So I'm trying to put myself back into that mindset.
• 10:06
  And all of a sudden, as you know me, I spend a lot of my time now thinking much more about the
• 10:10
  firm, the people we have on our team.
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  Are they in the right roles?
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  Am I doing everything I can to learn what I wanna learn about them as investors?
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  Am I giving them enough opportunity to demonstrate taste?
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  These are not things I spent nearly as much time on five years ago.
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  And our LPs ask us different questions.
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  They don't ask me as much about, do you think you're gonna get the next fund?
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  It's like, well, are you sure they're keeping your fund the same size?
• 10:30
  And is there enough capital in the model for the other people on your team to also they're
• 10:34
  just really different questions.
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  And in some ways, it's like starting over because now all the quest I had good answers
• 10:38
  for all the old questions because you get a decade to practice and learn.
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  Now I'm like, we have new questions.
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  And the answers are are different, and they're not as programmatic.
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  They end up being more personal.
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  More about like, what do you want, and what have you learned about yourself as a fund
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  manager in the last decade, and how do you wanna apply those lessons to the next ten
• 10:54
  years?
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  Last question for you, Biezer.
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  This is the first substantial industry wide contraction and venture in over twenty years.
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  So from an LP point of view, has that changed how you diligence fund managers both on a net
• 11:06
  new investment landscape and then also from a follow on perspective?
• 11:10
  On one hand, no, and on one hand, yes.
• 11:12
  And the no part is we've used the same rubric for underwriting funds since day one, and that
• 11:17
  has not changed.
• 11:18
  So people are probably bored of hearing me say this, but we underwrite series a risk to a
• 11:21
  three x and anything earlier to a five x, and that has not changed.
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  Doesn't matter what we're doing.
• 11:26
  Follow on initial, whatever.
• 11:28
  I think and this is what Charles was saying before is just very present.
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  A part of this is even if folks are new, because we manage the CalSTRS emerging manager
• 11:35
  program, so we're specifically trying to do new folks, and some folks do not have the
• 11:39
  experience set.
• 11:40
  But are they thinking and learning all the time?
• 11:42
  Because this market is fast, and there's a vast amount to know.
• 11:46
  And there's I think as you get older in the industry, a lot of people that I really respect
• 11:50
  realize they have to learn all the time.
• 11:52
  So it's not that it's different, it's just I'm more acute to listening for this.
• 11:55
  Are people really listening and learning about what they need to do and do it differently
• 12:00
  because I don't know what's coming down the road with AI tomorrow?
• 12:03
  And part of that's also the very present in the market today where there is clearly follow on
• 12:08
  funding preference to certain kinds of companies.
• 12:10
  And that's just one example, but just how much are people thinking and looking at what they're
• 12:14
  funding and just being aware that it's true versus kind of a denial of reality, which to me
• 12:19
  is a little bit of red flag.
• 12:20
  It's fine with me if you say, I don't know how this is going work out, but here's what I'm
• 12:23
  watching, here's what I'm learning.
• 12:24
  I don't know how it's going to work out either.
• 12:26
  But just saying it's all going to be fine and especially for folks that are not right in the
• 12:30
  sweet spot of AI funding land and even that has kind of its own downsides.
• 12:34
  That to me, I think I'm more sensitive to as an LP personally when I'm talking to folks now.
• 12:39
  Because I don't know if they've ever seen it slow down, but that doesn't feel true to me.
• 12:43
  Well, certainly a very exciting time to be an LP.
• 12:45
  Thank you, Beazer, for stopping in.
• 12:47
  Can't wait to feature more of your rating on the Learning Corner.
• 12:49
  It's always so wonderful when we see some stuff that you publish.
• 12:51
  But that's so kind of you to say, and you know I love chatting with you all.
• 12:54
  I learn from you every day.
• 12:55
  Our next topic is titled why tech and media is complicated by Ohm Malik, outlining why comms
• 13:01
  across tech, startups, and venture have largely become echo chambers with little of importance
• 13:07
  actually making it to print, Om pins the problem on access journalism.
• 13:11
  And while that form of journalism had existed for years, it's emerging in new forms, so AI
• 13:16
  podcasts, short form interviews, and more.
• 13:18
  What he says is missing is contextual skepticism and rigorous questioning, but those
• 13:23
  certainly have no place in this access journalism market because they defeat the very
• 13:27
  purpose it was built upon.
• 13:29
  It feels like nearly every tech news outlet is focused more on velocity than bringing their
• 13:33
  audiences tangible information they can digest and walk away from knowing what the opinion was
• 13:38
  or at least the largest takeaway.
• 13:40
  He harkens back to the nineties when tech journalists would publish nothing but hot
• 13:43
  startups and their latest financings, company concepts, and the characters behind them when
• 13:47
  it didn't matter if anything was true.
• 13:49
  The system being in motion was really the only thing that mattered.
• 13:52
  And he closed the piece with, don't hate the player.
• 13:55
  Play the game.
• 13:56
  Like I said, velocity trumps everything.
• 13:59
  We've talked about media cross venture in a couple of different episodes and how there are
• 14:03
  clear games that media has to play in order to optimize on clicks, reshares, subscribers.
• 14:08
  It makes me wonder, did it ever really matter when your company or product got featured in
• 14:13
  some media outlet?
• 14:14
  Or has it always truly felt more contrived?
• 14:17
  Honestly, I think back to the early days of TechCrunch.
• 14:21
  And I think about when Arrington was running TechCrunch, he had an opinion.
• 14:26
  And he would sometimes, maybe at his own peril, be like, this is a dumb idea.
• 14:31
  And it was a dangerous thing to do because you can imagine, it's the first thing they teach
• 14:36
  you in media training is never go on sixty minutes or whatever the sixty minutes
• 14:40
  equivalent is in the modern era because you don't know what their you don't know their
• 14:44
  angle.
• 14:44
  And there are a few I won't name.
• 14:46
  There are a few journalists in tech who I know a lot of comms people say avoid this person
• 14:50
  literally because they ask hard questions.
• 14:52
  And if this person calls you, you should be, like, really on your toes because the problem
• 14:57
  is if you do that enough, people stop talking to you.
• 14:59
  And if people stop talking to you there you know, there's a very clear counterpoint to
• 15:03
  this, which is Bad Blood, the book.
• 15:05
  There are no none of the sources that you would normally wanna go to could talk to this person.
• 15:10
  I think about the student writer at Stanford who took down the president.
• 15:14
  He didn't have great access.
• 15:16
  So I think part of the problem is the appetite for this stuff is there creating this as as
• 15:22
  Ohm.
• 15:22
  So, like, creating these artifacts, it's hard.
• 15:25
  And increasingly, what I've found is a lot of the tech voices that I enjoy reading the most
• 15:30
  are independent.
• 15:31
  Eric Newcomer, pay for his stuff.
• 15:33
  Casey Newton, I pay for his stuff.
• 15:35
  It was interesting.
• 15:36
  The thing I enjoyed reading most about Moltbuch was Casey's piece.
• 15:40
  Yeah.
• 15:40
  Mostly because he expressed some level of skepticism that this is a good idea.
• 15:44
  There's two things I wish we had in tech journalism that are gone.
• 15:48
  One was people who were more interested in, like, what is this company?
• 15:51
  Oh, that's a good point.
• 15:52
  You read some of these posts and the most salient thing you take away is that this
• 15:56
  company raised a lot of money from a really famous venture firm.
• 15:59
  You're like, what does the product do?
• 16:00
  Oh, it's an agentic AI har you're just like, but what is what does that even mean?
• 16:04
  And I think sometimes the amount of money you've raised, the places where the company the
• 16:08
  LinkedIn profile of the founders is what matters and the substance of, like, what is
• 16:12
  this company building and why does it matter is lost.
• 16:16
  And I do think in a lot of ways, Cluelly was some kind of hypothesis of this because so many
• 16:21
  companies I talked to were like, did you see what Cooley did?
• 16:23
  I'm like, well, you couldn't miss it.
• 16:24
  They successfully broke through the noise floor, which is incredibly difficult to do.
• 16:28
  And everyone's like, well, we gotta do what they do.
• 16:30
  I'm like, but guys, we don't actually know if breaking through the noise floor is gonna
• 16:33
  translate it to a product or service that people care about once they know about it.
• 16:37
  And we've seen this before when the Dollar Shave Club video came out.
• 16:40
  Everybody said, we wanna make one.
• 16:41
  I'm like, but most of you guys aren't funny and entertaining.
• 16:43
  Michael Dubit, it's not gonna work for you in the same way.
• 16:45
  And also we've seen it before.
• 16:47
  And so I think tech journalism in a lot of ways has turned into marketing, and not because I
• 16:51
  think the journalists themselves are marketers, because I think companies and VC firms treat it
• 16:55
  as a marketing event.
• 16:57
  And the other thing that Ohm kind of alludes to, but I don't think he gives himself enough
• 17:00
  credit for, we don't have as many tech journalists who've been doing this long enough
• 17:05
  to really have sources.
• 17:06
  Natasha Mascarenas and Katie Rove, and there's, like, a handful of people.
• 17:10
  I'm missing other journalists who I really respect.
• 17:13
  But I think it takes time to build the relationship to have sources, and you have to
• 17:17
  be willing to say the emperor has no clothes sometimes, and I'm not Yeah.
• 17:20
  Entirely sure where the audience is for that.
• 17:23
  And I also say, like, a lot of VC firms decided the solution was to go direct.
• 17:27
  And in many ways, we live in this world where there really isn't any, like, authoritative
• 17:30
  tech news public.
• 17:32
  Like, early on, TechCrunch was pretty authoritative.
• 17:34
  You had VentureBeat, and had some other but, like, there were a handful of outlets.
• 17:38
  That's an authoritative place.
• 17:39
  That is like the New York Times of tech.
• 17:40
  And now I don't think we really have that.
• 17:42
  We have a bunch of Substacks and beehives and people who only post on Twitter and people who
• 17:47
  only I look at somebody like our friend Peter Walker.
• 17:50
  He's pretty authoritative on the state of venture financing, maybe more authoritative
• 17:55
  than PitchBook, and he writes on LinkedIn.
• 17:56
  So And I just think we live in this weird media landscape where most of the companies being
• 18:01
  covered don't want tough questions, and there's a plethora of friendly outlets.
• 18:07
  And to the extent that people have hard questions or skepticism, I only find it in
• 18:11
  group chats.
• 18:12
  I don't find it in public.
• 18:13
  Just with access journalism and media today being so much of a self fulfilling flywheel,
• 18:18
  what is the adequate amount of time and effort placed on curating an image in different media
• 18:24
  outlets?
• 18:25
  If you're a founder, like, is it zero?
• 18:27
  Is it the classic VC term?
• 18:29
  It depends.
• 18:30
  What do you think?
• 18:31
  I had a very funny lunch conversation with one of our colleagues, not at our firm, a different
• 18:36
  firm.
• 18:37
  And I was at their office, and this person was complaining that the CEO of their company
• 18:41
  spends too much time in front of the camera, and this person was at Davos.
• 18:46
  And I was like, yeah.
• 18:46
  But we're watching him at Davos right now in your office.
• 18:49
  While you're complaining, we're, like, watching this person in in Davos.
• 18:52
  Again, I think most people if you're not in venture, you don't spend all day thinking about
• 18:56
  tech.
• 18:56
  Most people are thinking about their children, their families, other things.
• 18:59
  And I do think you can break through.
• 19:01
  I I do think in some ways, for a lot of people, if you said, what is AI?
• 19:06
  They'd be, well, ChatGPT equals AI.
• 19:08
  And they're like, why?
• 19:09
  Well, because OpenAI is like the most visible company.
• 19:11
  It's the thing that most people associate, and they probably never heard a lot of people never
• 19:14
  heard of Claude.
• 19:14
  Maybe they've heard of Gemini.
• 19:15
  Mhmm.
• 19:16
  And I think that's partially because OpenAI is so closely linked with the category.
• 19:20
  They have AI in their name, for goodness sake.
• 19:22
  And I think there's just a lot of value in being visible.
• 19:26
  You look at Elon Musk.
• 19:27
  He he impacts his companies by being visible, I think in in ways positive and potentially
• 19:31
  negative.
• 19:31
  And I think this I think this stuff matters, only if there's substance behind it.
• 19:36
  And I worry there are some founders who chase the objective without having any substance to
• 19:40
  put behind it.
• 19:41
  Like early stage founders wanting to announce pre seed or seed.
• 19:44
  How much time would you wanna place on that and chasing around a reporter to do that?
• 19:47
  I mean, it's funny.
• 19:48
  I told them, like, it's great to have public links out there when people look for your
• 19:51
  company.
• 19:52
  I don't think it does what it used it used to be like a real moment.
• 19:56
  You'd get like a big pop.
• 19:57
  There'd be a lot of attention paid to you.
• 19:58
  My sense is that that doesn't happen anymore because tech attention is so much more
• 20:02
  fragmented, which is why I think you've seen more companies do the, like, soft focus
• 20:06
  LinkedIn funding announcement launch video.
• 20:09
  I'm sure they'll
• 20:09
  be in
• 20:10
  word.
• 20:10
  Yeah.
• 20:10
  We're gonna go the other way.
• 20:11
  It's gonna be jiggly iPhone video.
• 20:14
  Hey.
• 20:14
  We all like, I'm I'm on my way to the office.
• 20:16
  Mean, I'm through all of these different phases.
• 20:18
  Somebody will riff.
• 20:19
  We we had the concert poster style fundraising announcements.
• 20:22
  Those were a novel for a while.
• 20:23
  I think people's desire to break through the noise will constantly cause them to try new
• 20:28
  experiments.
• 20:29
  Don't know that any of them will work, but I expect people to continue to try.
• 20:33
  Well, our last piece is an essay by Michael Dempsey titled VC backed startups are low
• 20:38
  status.
• 20:39
  From a substack on my mind, the core argument is that venture backed startups have undergone
• 20:43
  the same status collapse that investment banking experienced in the February.
• 20:48
  They've become the default path for ambitious people, which paradoxically makes them
• 20:53
  unremarkable.
• 20:54
  Large VC firms now operate like investment banks, deploying billions into consensus ideas,
• 21:00
  while founders optimize for legibility rather than genuine conviction.
• 21:04
  This creates what we talked about earlier, a doom loop where institutions fund only what
• 21:08
  makes sense in partner meetings and founders build really only what's fundable.
• 21:12
  And then the founder identity itself, once implying contrarian vision and real risk, has
• 21:17
  completely faded.
• 21:19
  Unlike finance's clear two thousand and eight crisis moment, tech faces something a little
• 21:23
  bit more insidious, cultural exhaustion from a diffuse of mix of goodwill erosion, dehumanized
• 21:29
  investor relationships, political vilification.
• 21:32
  Dempsey argues that we're at an inflection point where vibes have become the competitive
• 21:37
  advantage, talking through the differences between Anthropic and OpenAI and how that
• 21:41
  attracts and deflects talent.
• 21:43
  And the path forward from his perspective is pretty murky.
• 21:45
  Founders will maximize extraction while they can.
• 21:48
  Capital selection will become an identity statement, and some will abandon the VC model
• 21:52
  entirely as AI reduces capital requirements.
• 21:55
  And the uncomfortable reality is that talented people are almost frozen between knowing the
• 21:59
  current system is broken and not yet seeing what replaces it.
• 22:02
  Gen z has only known the start up mill.
• 22:05
  Millennials kinda built this machine and will mostly extract value quietly, and then Gen
• 22:10
  Alpha possibly might reject the entire thing without guilt or nostalgia at all.
• 22:15
  It's hard because we both live in bubbles where it does feel like becoming a founder is still
• 22:19
  very much celebrated, but I do see the future of what Michael is predicting coming to life.
• 22:24
  So wanted to pause for your thoughts on this one.
• 22:26
  I think he's spot on, and I think it's hard to remember, but, like, once a time once about a
• 22:32
  time, like, when investment banking was a boutique business.
• 22:35
  It was hard to get into.
• 22:36
  The banks themselves were not publicly traded.
• 22:39
  They were private partnerships.
• 22:40
  And I think you can't scale prestige.
• 22:43
  And I think part of what made those careers prestigious is the jobs were hard to get and
• 22:46
  the industry was small.
• 22:47
  Sounds a lot like venture.
• 22:49
  Private equity, I think, went through the same thing.
• 22:51
  There was a period of time where private equity was this small cottage industry and people made
• 22:55
  a lot of money and it was hard to get into.
• 22:56
  And then private equity scaled.
• 22:58
  And it's not that it became unprocedures, but it's like, oh, you're another banker who worked
• 23:02
  at Goldman who now works in PE.
• 23:04
  Shocking.
• 23:05
  I think in some ways, venture and venture backed startups are going through the same
• 23:09
  things as we industrialize the venture business.
• 23:11
  Yeah.
• 23:11
  The venture used to be a small business.
• 23:13
  There used to not be that many VCs.
• 23:15
  Again, it was small.
• 23:16
  People made a lot of money.
• 23:17
  It was elite.
• 23:17
  It was hard to get into.
• 23:18
  And now it doesn't have all of those features largely because as an industry, we have
• 23:23
  attempted to industrialize and scale the model.
• 23:26
  And now, you know, venture firms look like a lot more like other private asset managers than
• 23:32
  they do, like, something different.
• 23:34
  And venture backed startups have become kind of industrialized.
• 23:37
  We crank them out on a regular basis.
• 23:39
  We have these playbooks.
• 23:40
  It's not remarkable to meet somebody.
• 23:42
  I remember the first time I met somebody who's like, I'm quitting my job to go into crypto.
• 23:45
  I'm like, have you lost your mind?
• 23:47
  That at the time felt like a very risky, crazy thing to do.
• 23:51
  I still think it's kind of risky and crazy.
• 23:53
  To me, like, right now, there isn't an equivalent.
• 23:55
  And I think what what makes these things important is there's very little perceived risk
• 23:59
  with joining a venture backed startup today.
• 24:01
  Twenty years ago, if you were like, hey.
• 24:03
  I I have an MBA from Stanford or Michigan or Harvard, and instead of going to consulting or
• 24:07
  banking, I'm gonna go to a startup, people would have been like, that's crazy.
• 24:10
  Why would you do that?
• 24:11
  You're gonna make no money.
• 24:12
  Also, there was a real sacrifice.
• 24:14
  You didn't make any money, and there was a chance your equity would be worth nothing, and
• 24:17
  you still had student loan payments to make.
• 24:19
  And now, like, going to a venture backed startup just for the most part isn't that
• 24:22
  risky.
• 24:22
  And especially if you're a younger generation, maybe the worst case scenario is that, I don't
• 24:27
  know, you go to a startup, doesn't do well, but you got to say that you were part of it Yeah.
• 24:30
  During
• 24:30
  During the cycle.
• 24:31
  Mhmm.
• 24:32
  You were there.
• 24:33
  Yeah.
• 24:33
  And that's my last question.
• 24:34
  Do you believe in Michael's statement that vibes will essentially become the competitive
• 24:37
  advantage?
• 24:38
  And I'm thinking specifically about younger generations when they think about roles to
• 24:41
  take, especially joining VC backed startups.
• 24:44
  Think if you're a part of the nihilism, like, nothing matters.
• 24:46
  None of this is real.
• 24:47
  None of it's serious, and vibes is the only thing.
• 24:49
  I do think you do have some very stark contrast between the public perception of Anthropic
• 24:55
  versus the public perception of OpenAI.
• 24:57
  They feel like different companies, and I I've never worked to either companies.
• 25:00
  I couldn't tell you culturally what it feels like, but we had, like, Google and Yahoo back
• 25:04
  in the day.
• 25:04
  Sometimes with these companies that are doing the same thing but have different culture, and
• 25:08
  I I do think people are gonna say, where do I feel like I fit in?
• 25:11
  And And if you think about is I was just my friend.
• 25:13
  Whose zip up do you wanna wear on the bus?
• 25:16
  And what judgments are people gonna make about you as a person based on the company's name on
• 25:20
  the sleeve of your zip up jacket in San Francisco?
• 25:23
  And I do think people care about that because I think these they wanna be affiliated with
• 25:27
  brands.
• 25:27
  And I think there are cool brands and there are uncool brands.
• 25:30
  And I think there are cool startup brands and uncool startup brands.
• 25:34
  And I think a lot of people are like, I wanna be associated with the cool brand.
• 25:37
  And we're still in a place where I think if you get to make the decision between wearing an
• 25:41
  OpenAI hoodie or an anthropic one, I think you're in a good
• 25:44
  Yeah.
• 25:44
  Right.
• 25:44
  Life's working out for you.
• 25:46
  Well, we're all the time.
• 25:46
  Thank you, Charles, for jumping in.
• 25:48
  Thank you to our listeners for jumping in
• 25:49
  as well.
• 25:49
  We'll talk with
• 25:50
  you all next week.
• 25:51
  Please share with your friends in the meantime.
• 25:52
  Thank you.
• 25:53
  Bye.