Latest / The Learning Corner by Precursor / Episode #97: Rob Go of NextView on Seed VC's Existential Crisis

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Episode #97: Rob Go of NextView on Seed VC's Existential Crisis · The Learning Corner by Precursor

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  What is true for everybody is that the bar is really, really high.
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  Because back to my first point, the market is maturing.
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  Right?
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  And so there's almost no strategy out there where you can have b plus execution and get a
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  results.
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  There was a time fifteen years ago where within seed stage investing, I think you could
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  absolutely do it.
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  But today, I think those those opportunities are very, very few and far between.
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  You can really be executing at a high level no matter what you're doing.
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  It's the week of September 28.
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  Welcome to the Learning Corner, a Precursor Ventures podcast.
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  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 about the good reason articles that caught our team's attention over the past week.
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  We're also lucky enough to have Robko from Next View on the pod this week, whose writing we've
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  featured so many times since podcast inception.
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  So it's super exciting to have you on.
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  Rob, welcome to the podcast.
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  Thank you so much for having me, and I appreciate you reading and sharing stuff that I
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  write.
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  It's always nice to know that other folks admire or see some similar things in the
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  market, so I appreciate that.
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  And we're gonna dive into so many of those pieces for the next thirty minutes.
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  But Rob, do you mind for the listeners just giving a run up on yourself, background on
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  Nextview, thesis of the fund, all of that good stuff?
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  Yeah.
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  I'm one of the founders of a fund called Nextview.
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  We're a pre seed and seed focused venture fund.
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  We started originally in the East Coast, but we have offices now in Boston, New York, and San
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  Francisco, and we invest across the country.
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  And we tend to be application layer investors, you know, the heritage of the firm.
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  We were all operators, entrepreneurs at high growth Internet companies.
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  You know, we kinda take that sensibility into how we invest.
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  And we typically invest a relatively small number of companies per year, so try to be
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  really engaged and hands on with everything that we're we're a part of.
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  Jumping right into it, like I mentioned in the intro, we've been featuring stuff that you've
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  written for a while now.
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  Almost over a year ago, you wrote a piece that CBC is facing an existential crisis, not like a
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  normal down cycle, but more of a structural shift.
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  And you named four forces behind it.
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  Industry maturation, YC, maybe some other accelerators there, the mega funds, and the
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  power law becoming consensus, and the AI platform shift favoring infrastructure
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  overseas.
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  So sitting here almost at the close of 2026, do you feel a little bit more alarmed or less
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  alarmed since when you wrote it?
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  And which maybe of those forces has proven to be the strongest over time?
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  I think that all those things are still roaring away as as true as ever.
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  And, you know, it's no surprise to me that, I don't know, was it last week that Netflix is
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  going
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  Surprising.
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  Sort of
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  angel mode, private mode?
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  Yep.
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  I mean, that's there's a lot of these trends that we're seeing in the market, right, as
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  folks respond to these different challenges for CVC.
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  So I think there are two forces in particular that are pretty pretty pronounced.
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  And I describe it as like the convergence of two things that weren't consensus becoming
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  consensus.
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  So first is the power law.
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  And, you know, we rewind the clock like a year ago or fifteen years ago when Peter Thiel was
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  doing his like CS lectures, and the power law was a secret.
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  And, you know, most people underestimated the that dynamic within actually, all markets, but
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  specifically with venture markets.
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  And now we've gone, like, really hard the other way.
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  People are just massively zealots about the power a lot, and that really is reflected in in
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  how they invest.
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  The second is AI, and, you know, there was a time not that long ago when everybody was
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  wondering what's the next next thing gonna be, and they were searching for it.
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  And now, everybody, a 100000000%, believe that the next next thing is AI, and it is gonna be
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  unprecedented in so many ways.
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  And so I think it's the convergence of those two things that have really, you know,
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  propelled us to to where we are today.
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  It's funny.
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  Our AGM is in six or seven weeks.
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  I've been thinking about all this, and I to Rob's point, I told someone this weekend, it's
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  hard to be a seed investor when the one unitary mega trend in AI infra happens to be a very
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  difficult thing for your model to accommodate.
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  And I think it's even in some ways, I think it's gotten even harder because it's not just
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  that the initial rounds are so big.
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  It's that the compound rate at which the follow on rounds happen is really hard to keep up
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  with.
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  So you can have a company that raises at 300, like, wow, that's expensive.
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  Then it's a billion, then a quarter later, it's 5,000,000,000, and you're like, wow, well, if
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  you got in at 300, you're up 20 x and all the tranching.
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  And it's just, I think, a very difficult time if your business model whether you're a seed VC
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  or not, if your business model doesn't accommodate AI infra, I'd argue you have a
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  challenged business model and venture right now.
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  Until people's attention shift to some other category, whether that's physical AI or
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  robotics or just a broader acknowledgment that there are other things beyond AI and for that
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  matter.
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  Well, the compounding piece, Rob, that was like your follow-up to the piece that you had
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  written.
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  It was two different worldviews, Classic venture versus super compounder, and you can't
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  really sit in the middle.
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  Straddling both is a worse position to be in.
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  Are you still holding that belief pretty tightly heading into the end of the year?
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  I think that the mistake is to, like, not know what game you're playing to just kind of
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  meander your way through the market.
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  I kind of think that there's actually sort of three different paths, and one is play the
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  super compounder game.
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  Right?
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  So, like, everybody's looking for the same thing.
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  Let's just go try to do that thing.
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  Certain profiles of founders, certain types of companies, very, very narrow.
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  You know, that's a reasonable game to play.
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  There are some funds who do that.
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  The second is classic VC, which I would say is go search for diamonds in the rough.
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  Right?
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  Other markets, different profiles of founders, things that are out of favor, hopefully invest
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  in rounds that are rational for your model and and and get rewarded for that.
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  That's sort of path number two.
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  Path number three is try to do things completely differently.
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  Right?
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  Invest in companies that maybe seed strapped, will never raise future follow on funding.
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  Maybe they're shooting for a different style of outcome that that could work for your model.
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  And I think that I'm seeing, you know, there's some early stage funds that are doing this.
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  There's some mid and later stage funds that do some flavor of this.
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  That that's sort of like a a third a third path.
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  And so, you know, I think you gotta play one of those three, or or maybe there's something I
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  haven't thought of, but they're pretty distinct strategies.
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  And the super compounding one that feels like not an easy game to play, but an easy one to
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  communicate to co investors, to LPs, For the other two buckets, the ones seed strapping or
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  areas that just it feels like no one's paying as much attention to, do you find it harder to
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  just get the the drum going as to getting co investors around the table for some companies
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  that you're you know are gonna be strong, but not in the areas that they're looking into or
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  the corners that they're spending time?
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  Like, how do you kind of communicate that out also to your founders who you know that you
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  believe in, but funding risk is just something that shifts and changes every day?
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  I mean, there's the the those are some of the realities.
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  Right?
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  Like, the two data points that make this really challenging is, you know, the price of entry is
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  really, really high across the board, actually.
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  Like, it's most pronounced in the thing that everybody wants to invest in, but even in the
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  median, the median entry valuation has, like, doubled, I think, in the last Yep.
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  Six years or so. So that
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  So that makes it tough.
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  And then to your point, the downstream financing risk is pretty high.
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  You know, I think the median seed to series graduation rate has gone from, like, just under
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  50% to something like twenty three percent, I think, at least a three year survival rate in
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  the last few years.
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  So that's a that's a pretty stark reality.
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  So even if you're trying to play the the classic seed game, you're trying to find
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  diamonds in the rough, entering them at a reasonable price, making sure that those
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  companies get enough momentum and either become consensus companies or have the signs of that
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  so that they can raise follow on financing.
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  I mean, that's just a really, really significant challenge.
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  Charles, maybe a question for you.
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  Do you feel like there are some funds who are forced into one bucket the other?
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  Like, do you actually have control over your own fate about where you wanna spend time?
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  I think you'd certainly have choices.
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  I don't think all of these choices are pleasant.
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  I think it's just like we've always been a generalist fund.
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  I've had a lot of LPs who told me like, oh, I have like the specialist fund for health care
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  or for education or for some vertical.
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  When all of the returns feel like they're gonna be concentrated in one theme, in AI infra,
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  whether that turns out to be the case or not, we well, time will tell.
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  I think the trigger thing is like, what if you have a specific thesis on a vertical that
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  doesn't allow you to invest in AI infra?
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  And I have some friends who've been very hardcore specialist funds.
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  They've built their brands and reputations on being known for expertise in a vertical.
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  Basically, throw those playbooks away and just say, well, what's the point of being a
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  specialist in x if the consensus is that the companies that matter are not in my strike
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  zone?
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  And, you know, we I think we spent a lot of the last two years talking about founders being
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  legible to capital.
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  I think funds have to be legible to LPs.
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  And I think the the challenge with some of the models that Rob mentioned is they're new and
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  unproven.
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  So if you do the super compounder thing, you end up in the companies that LPs have heard
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  about from the other big funds or that they've read about in the news.
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  And whether you own, you know, one basis point in those companies or whatever, you're you're
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  on the cap table and the things that you're in feel of the moment.
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  If you have lots of other great companies that are maybe doing well on the business metrics,
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  you actually need limited partners who have the energy, time, and focus to go deep to get to
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  understand those companies.
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  If you're one person responsible for all privates, maybe that's too much to ask of that
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  individual.
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  There's also, I think, a a track record in survivorship bias.
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  Yeah.
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  Right?
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  Because, you know, let's say you do find an LP and they're they're bought in.
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  They're like, you know what?
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  We're gonna allocate some percentage of our fund to like non AI infra stuff, you know, what
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  are AI applications or, you know, something something very different.
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  They would still rather invest in a manager who historically got into the AI infra stuff and
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  are now pivoting into this other other area.
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  That is almost like an easier bet to make than somebody who's been focused on this other area
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  the whole time, but didn't get the halo of having had success in the AI infra side of
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  things.
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  Right?
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  So like, it's pretty difficult.
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  And there will be folks who have had that for pure survivorship bias, who will have that
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  success and will say, okay, now I'm selling this other story.
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  That's actually a lot easier to say yes to.
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  So there's, like, a bit of just living long enough to tell the tale that exists.
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  To some degree.
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  And it's also a numbers game.
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  Right?
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  There will be, you know, folks who, even if it wasn't no particular insight of their own, they
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  happen to make a couple investments in these markets that had such huge tailwinds, and now
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  they're moving on to something else, and, like, they they can tell story.
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  Moving on to another piece that you wrote, Four Approaches to Early Stage Ventures, we kinda
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  talked about a couple minutes ago, but it was back in March.
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  And argues that classic seeds, specialist seed, mega funds, and accelerators can all coexist,
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  and that winning is just executing your model very well.
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  Do you still believe that that all these different models can coexist even where we are
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  in the market today, where you feel like the market's headed in the next couple of years?
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  I mean, I think it's reasonable to think that those different models can exist.
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  I think some do come in and out of favor over time, and, you know, to your point in
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  survivorship, sometimes you just have to get through the period where it's, you know, looks
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  pretty grim for what it is you're doing.
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  You know, there was a long time where investor weren't really in favor.
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  Right?
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  And, you know, now they're having they're having their moment.
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  So I feel like those those areas are gonna come to go.
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  What is true though for everybody is that the bar is really, really high.
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  Because back to my first point, the market is maturing.
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  Right?
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  And so there's almost no strategy out there where you can have, you know, b plus execution
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  and get the results.
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  There was a time fifteen years ago where within seed stage investing, I think you could
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  absolutely do it.
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  But today, I think those those opportunities are very, very few and far between.
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  You could really be executed at a high level no matter what you're doing.
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  And fifteen years ago, was that due to less private capital being in the market?
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  What do you feel like that was due to, the biggest change?
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  I think there's a lot less capital in the market.
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  Yeah.
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  And I think that we were in a segment with an institutional seed investing that was
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  nonconsensus.
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  A lot of folks did not believe that that was a way that you could you could invest profitably,
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  but there were a lot of trends that led that to show success, invite a lot of a lot more
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  capital into the industry, and erode some of those those rents.
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  I just remember when I first joined Uncor, like, seed was not cool.
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  There weren't that many seed funds.
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  And also, the big multi stage funds were like, this is not a corner of venture that we need to
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  be in.
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  So like, we could be in this business, but we don't really need to.
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  Those folks kinda do their own thing.
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  It's a small scale business.
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  And I think the thing I think about a lot is what typically tends to unlock most finance
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  businesses is somebody figures out how to scale them in ways that weren't.
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  In some ways, venture's living through what many other sectors of finance have done, which
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  is like you have this cottage industry that's a boutique that has well established playing
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  rules that people kind of understand and we're like the people who are in it do quite well.
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  And then someone comes in and says, well, if it's great with a dollar, I bet it'd be amazing
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  with a $100.
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  And the infusion of that capital changes the dynamics of that business.
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  And I think that's really what happened.
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  It continues that with seed is that people are running these experiments.
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  Well, like, what's a seed?
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  A seed round is whatever the founder says it is.
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  So we now have seed rounds that are bigger than series c rounds used to be, 102, all and
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  they're seed rounds because the founders say so.
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  As I told someone, there's no vocabulary police in Venture.
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  You can call anything what you want.
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  And I think that creates, like, massive disruption for people who started their
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  businesses at a time with a different set of constraints.
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  I think that the pressure then for the seed manager is, like, you just gotta be flexible.
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  You have to be more creative about how you go about doing your job.
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  Fifteen years ago, it's I I likened this to, you know, one or a small number of people with,
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  like, a magnifying glass walking around the field and be like, oh, there's a diamond.
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  I'll I'll take that.
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  That's not gonna work anymore.
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  Right?
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  But there probably is something that will work.
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  You just gotta play a different game.
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  And we can talk about all these dynamics being insiders within VC, but how do you communicate
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  these larger changes to founders who are in your own portfolio, who you maybe had invested
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  in maybe two years ago.
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  They had a round, and the goalpost have completely changed.
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  How do you feel like you're having these conversations?
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  Folks within your portfolio, and then, again, founders that maybe you're just having
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  conversations with now, but you can kind of read the crystal ball and and see what the
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  future might look like for them.
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  Yeah.
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  I think it's very, very difficult to escape the reality that in order to raise subsequent
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  rounds of financing, you need to somehow position yourself as having the potential to be
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  one of these eight anointed supercompounders.
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  Mhmm.
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  And if you cannot do that, there is gonna be very, very little capital for you.
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  You know, how do you communicate with founders?
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  I think founders are aware of this.
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  They're definitely paying attention.
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  They they read, you know, the same things we all read, and, you know, it's a lifeblood of
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  their company.
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  I think a lot of it for our job is to help founders make the call early while they have
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  some degrees of freedom to maybe take an alternate path.
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  Right?
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  So because I think there is capital out there for different types of companies, but it needs
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  to be very clear that you're on a different path.
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  Right?
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  So if the if the goal after a seed is like, look, we're gonna be profitable either with the
• 14:10
  capital we have or with just a few million bucks more.
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  I think there's capital for that, but it's gotta be really clear that that's gonna be what
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  you're gonna be able to do with a high degree of success.
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  What's not gonna work is the company that is running hot, but isn't gonna be able to raise
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  traditional venture around.
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  And I don't know, three months before, they're like, oh, we're we're now gonna take this
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  different path.
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  And you're just like, there's there's nothing about this business that that is consistent
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  with, you know, a different way of building a company as opposed to, like, the traditional
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  high growth kind of venture typical venture scale.
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  If I'm a founder listening to the podcast right now, my next question is probably how early are
• 14:44
  you gonna be able to see that within my business from your perspective?
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  Yeah.
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  That's a great question.
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  Again, from the seed perspective, when we're investing, it's before there's, like,
• 14:54
  significant product market fit.
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  Right?
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  And so everyone is sort of on board.
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  The the name of the game here is let's find something that has this like explosive
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  potential.
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  And so if you never find that thing, then it's, you know, you just never find that thing.
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  The trap is when you come upon something that is good but not great Yeah.
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  Or good but is not gonna be legible to downstream capital.
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  I actually think that the job of the seed investor is to really help founders understand
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  that early.
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  Because if you build something that there's product market fit.
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  It's just not gonna be, you know, explosive in the way that the market is expecting.
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  There's still a lot of value there, but it's the job of your seed investor to be able to,
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  like, give you the coaching to be able to make that call, like, relatively early.
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  Hopefully, twelve months before you run out of capital.
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  Back to you, Charles.
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  What do think about
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  it?
• 15:36
  Yeah.
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  I think that I've just been thinking on your question.
• 15:39
  Yeah.
• 15:39
  I think that two things that have become harder are one is, I think conversations around
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  bridges and extensions are very different now.
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  Used to be that, like, oh, like, fundraising is, like, linear.
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  If you can make some more progress, maybe two to four more quarters of continued execution
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  will change people's perception of the business.
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  I think now we live in this, like, Tam Maxing world where people are like, you're either
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  working on a problem that's deemed to be big enough and of scale, or you're not.
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  And if you're not, two to three more quarters of execution probably doesn't change people's
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  perception of the business.
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  So I find that follow on conversations are much harder.
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  And second, I think we live and breathe this stuff every day.
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  And even the most plugged in founders I know are usually three to six months behind whatever
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  the internal conversation is in venture.
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  I've had people who are like, alright, we raised the seed round two years ago.
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  We needed to get to 1,500,000 in ARR by the time we're done.
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  And they show up proudly.
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  We got to two.
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  And I'm like, well, nobody cares.
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  And they're like, what do you mean?
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  I'm like, well, in this environment, two years to get to that level of rep entertainment does
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  not make you an outlier.
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  And if you just say the job is to find the top 1% of companies, bar to be a top 1% of company
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  has never been higher.
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  And I don't think founders always know how quickly that bar is rising because they're busy
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  building.
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  And they tend to think about fundraising when it's time to raise money.
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  And we think about fundraising all the time.
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  And even the dynamics around what works in fundraising have shifted so much.
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  And like we see it again from the inside.
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  I just hopped off a call with a founder in our portfolio.
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  First round, did very well without a deck.
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  Didn't have to raise.
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  This round, like, where conversations are heading, similar.
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  And he was like, should I create a deck?
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  They're these are all preemptive conversations.
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  And and maybe a previous world, I'd say, like, I like when you run a full fundraising process
• 17:20
  where it's all structured.
• 17:21
  I'm like, honestly, if you didn't need one now, you probably don't need one if conversations
• 17:25
  are headed where it's going.
• 17:26
  Like, maybe have a memo.
• 17:27
  I don't know.
• 17:27
  But that option doesn't exist for every type of founder.
• 17:30
  And I think that's where a lot of founders live in the in between and in the unknown of what
• 17:34
  bucket do I fit in and what sort of benefits do I get to leverage in my process that are
• 17:40
  unknown to me right now.
• 17:41
  It's just a very shifting game.
• 17:44
  Last thing I wanna ask about or have a conversation on back in July, Rob, you posted
• 17:49
  another piece called where do you live on the valuation curve?
• 17:52
  And it pointed out that funds drift down the valuation curve and and meaning from a from a
• 17:56
  price standpoint and different percentiles of where folks fall.
• 17:59
  They drift down the curve without meaning to.
• 18:01
  They're pulled down by check size and by ownership targets rather than strategy.
• 18:05
  Every investor here is making an implicit bet either that their judgment has gotten better
• 18:10
  than the competition or that this segment is less efficient.
• 18:13
  Does it feel like buying below the median still works as seed gets more efficient from your
• 18:20
  perspective.
• 18:20
  I mean,
• 18:21
  I think that in a way, it probably might be more attractive than it used to be because
• 18:26
  there's such a extreme concentration into a small number of companies and and types of
• 18:30
  companies.
• 18:31
  But I think my point in that post was, again, you don't want your strategy to happen to you.
• 18:36
  And, you know, when folks were investing, let's say, however many years ago, five or six years
• 18:42
  ago, and your typical round was, like, 20.
• 18:46
  I don't think anybody doing those deals said to themselves, I am investing in the median price.
• 18:51
  I think every single one of those investors would say, I'm investing in certainly the top
• 18:56
  quartile company in terms of, you know, demand.
• 18:58
  No nobody's saying this is a diamond in the rough at Twenty Post five or six years ago.
• 19:01
  If you're still investing anywhere in that that range right now, you're investing in the median
• 19:06
  company.
• 19:06
  Right?
• 19:07
  So either you've decided the median company is now where I wanna be, or you let the tail wag
• 19:13
  the dog and you said, well, I'm trying to own x percent with this size check size, which means
• 19:17
  I'm only doing these kinds of deals.
• 19:19
  And without even knowing it, you're investing in a fundamentally different type of business.
• 19:22
  But if you're investing in a different type of business, I think that the way that you think
• 19:25
  about downstream risk, the way that you you think about your own judgment and lens, like,
• 19:30
  should shift pretty dramatically if you were to do that intentionally.
• 19:33
  But I don't know if everyone has done that intentionally.
• 19:34
  I totally feel everything that Rob just said because I think that was for us.
• 19:38
  The tension for the last few years is like we had a model that was constructed on a certain
• 19:42
  set of entry price ranges that worked for a really long time.
• 19:45
  And then at some point, it's like, oh, there are things that are beyond the horizon for us.
• 19:48
  And the question is always like, well, do you stretch and re underwrite the model, or do you,
• 19:53
  like, stick to your guns?
• 19:54
  And I have some friends who are just like, nope.
• 19:55
  We're sticking to our guns.
• 19:56
  We are gonna to Rob's point, we're gonna keep the parameters the same, and we still believe
• 20:00
  we can find great stuff.
• 20:02
  I have other friends who've thrown all parameters out the window and just say we will
• 20:05
  chase whatever works.
• 20:06
  And I think the question is, you know, like, we've seen some pretty far outlier multibillion
• 20:11
  dollar tens of billion dollar outcomes.
• 20:13
  The question is, have outcomes grown as fast as valuations?
• 20:17
  And that's where I sometimes wonder, like, yes, if you can find a Cursor or an open router, by
• 20:22
  all means, you should do those companies.
• 20:24
  I don't know that we knew that those companies were those companies when they got started.
• 20:27
  Even if you look at the price at which Cursor got done in the beginning, it didn't look like
• 20:31
  a far outlier.
• 20:32
  So I'm I'm very curious as to whether we as an industry have gotten better at determining
• 20:37
  which companies ex ante are most likely to be successful and we should therefore pay up
• 20:41
  versus the ones that are actually diamonds in the rough.
• 20:44
  I'm not sure that we've gotten better as quick as we think we have at identifying the ones
• 20:48
  that are likely to work.
• 20:49
  I think we've gotten good at identifying the founder characteristics of companies that we
• 20:53
  wanna pay up for, which I think isn't quite the same thing.
• 20:56
  There's an interesting data point, forgot who put it up, that showed that the probability of
• 21:00
  a 10 x was uncorrelated to entry price.
• 21:03
  Yeah.
• 21:03
  Do you remember that?
• 21:04
  Maybe that's fine.
• 21:04
  Yeah.
• 21:05
  Yeah.
• 21:05
  I thought that was actually a really fascinating analysis.
• 21:07
  Well, we are all out of time today.
• 21:08
  We could probably talk about these things all day, but thank you, Rob, for jumping in and for
• 21:13
  all the writing that you've contributed to the podcast also over the past couple of years.
• 21:16
  We really, really loved it.
• 21:17
  Thank you, Charles, for jumping in.
• 21:19
  Thank you to our listeners for hopping in as well.
• 21:20
  Please like and subscribe, and we will talk with you all next week.
• 21:23
  Thank you.
• 21:23
  Bye.
• 21:24
  Thanks so much.