Latest / The Learning Corner by Precursor / Episode #26: Bradley Tusk Says VC Is Dead, Investor Learnings From The Last Overheated Market

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Episode #26: Bradley Tusk Says VC Is Dead, Investor Learnings From The Last Overheated Market · The Learning Corner by Precursor

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  I do think in good markets, people are a little more forgiving of founder quality, but in
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  tougher markets, it's the only thing that matters.
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  So you might as well just always make it matter, and then you never have to worry about
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  the market sort of landscape.
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  It's the week of March 31.
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  Welcome to the Learning Corner, a 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 our GP 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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  Topic number one is a piece from TechCrunch's equity podcast featuring longtime political
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  strategist and venture investor Bradley Tusk of Tusk Ventures.
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  In the podcast, he shares that after raising three traditional venture funds, he will not be
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  raising a fourth.
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  It's important to note that Tusk Ventures is just one of Bradley's successful endeavors with
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  Tusk's strategies, a well known political consultancy being another one of which will
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  live on.
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  It was actually through the success of Bradley's political consultancy and strong
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  track record of offering equity for services that caused him to pause, take a look at the
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  job of a fund manager, and really decide if he wanted to continue down that road.
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  In fact, he acknowledged on the podcast that he was generating more returns across those arms
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  than the traditional venture model was creating and coupled with things that we talk a lot
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  about on this pod, having to manage the wishes of LPs, run the fund admin and back house
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  operations, Bradley seemed really confident about his new plans ahead.
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  What stood out to me the most is that he's sharing this after making the switch, not in
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  the hypothetical what if time frame that we often hear from people encouraging alternative
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  paths.
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  I thought it was specifically refreshing to hear Tess say, I tried traditional VC, and
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  actually, this hybrid model makes the most sense for my skills and how I can add value.
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  So curious, Charles, if you've seen other people quietly pivot to this model and how you
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  think it fits into the broader landscape of early stage venture and startup growth.
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  I read the article and listened to the podcast.
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  I thought it was great.
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  I find it really refreshing when people talk more about the business.
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  Having been on the Screen Door investment committee, this is one of the things I'm
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  constantly testing for is trying to figure out, do people really understand what they're
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  signing up for?
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  Is this something that they truly get?
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  Because me as you and I know, this is a three pronged job.
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  There's the fundraising piece of going out and raising money and dealing with LPs.
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  There's a fund management piece, and there's the investing piece.
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  And oftentimes, before you become a fund manager, it's hard to know which of those three
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  things will come naturally to you and you'll enjoy and which of those things will feel more
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  like a job and require more motivation to get them done.
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  And I thought the cool thing about Bradley's interview was he didn't reject the fact that
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  being a fund manager requires you to manage LPs, be cognizant of their liquidity needs,
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  fundraise, run a fund.
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  He's only been sort of like, if that's the job, I'm not sure that that's what I wanna do.
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  And in a lot of ways, that reminded me of the conversation I've had with a lot of operator
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  led funds, particularly those that were raised in 2019 or 2020 when things were pretty hot and
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  where founders felt like, hey.
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  I can scale my angel investing that I've been doing on the side and also run my company.
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  And a lot of those folks, I think in the last couple years when I've talked to them, have
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  said, you know, running a company and building a fund is really hard.
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  You know, I gotta do audits k one.
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  I gotta fundraise.
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  I gotta think about liquidity timelines for LPs.
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  The angel ring was more fun because I wrote checks, and when the money came back, great,
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  but I didn't have all this admin overhead.
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  And a lot of those folks have decided to either go back to being angels, go back to being
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  scouts, or simply just focus on their own companies.
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  And I think it's healthy for people to have the experience of trying the whole job and figure
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  out what parts of this work for me.
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  And if I think about some of my own peers, whether it's Chris Howard with what he's done
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  with Ritual, or if I think about what Hunter and Satya have done with the latest evolution
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  of homebrew, I think you're seeing a bunch of people earn the right to sort of look at the
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  model and say, these are the parts of it that make sense to me.
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  I wanna continue to work with founders, but I wanna do it in a way that feels like authentic
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  and matches where I am in my life, what I want out of this job, and to sort of tweak or tinker
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  with the model.
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  And I think it's great.
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  And I think it's pretty rare to find somebody who's been as successful as Bradley to talk as
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  openly and honestly about the parts of the job that maybe just were less interesting.
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  I found his story particularly interesting because he has such a tangible track record of
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  delivering real strategic value, so, like, helping Uber navigate regulatory hurdles city
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  by city.
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  In that context, I think swapping services for equity really does feel like a very real and
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  very fair exchange.
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  But it also made me think about how a lot of other funds market themselves as also being
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  value add or promise an entire suite of services that the moment a check is written,
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  they're available to you as a founder.
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  But in reality, I do think very few people can actually deliver that at the level that Bradley
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  can, and overpromising that kind of support I've seen can actually backfire and hurt a
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  founder's trust and, honestly, progress.
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  Though I know at Precursor, we don't brand ourselves as a massive platform fund, but I
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  know we genuinely try to be helpful at every point along the founder's journey.
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  So how do you think we draw the line between offering meaningful founder first support and
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  then slipping into this territory of marketing speak, which is common across the industry?
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  Yeah.
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  Boy, I feel like for pre seed companies, you don't need a platform.
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  You need to find product market fit.
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  And if we could build a platform that would help people find product market fit, that'd
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  probably be an investment I'd make.
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  I'm skeptical that there's a way to do that as an investor.
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  But I do think there are people like Bradley who have really specialty expertise in a domain
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  that's relevant.
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  So I think if you're dealing in a regulated industry, someone who's got a proven track
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  record at both the national and the local level, it's a valuable partner to have, and
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  it's probably worth trading some equity for access to that.
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  I think about also some perseverance when it comes to navigating the sort of insurance
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  selling through the employer channel.
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  There's some folks on the GTM side who I think are have really proven expertise when it comes
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  to go to market.
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  And then there's some other folks who I think have a proven experience in recruiting.
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  They can actually really overdeliver on that.
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  But I think the generic services platforms, I've never really understood those and the
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  value prop because I think when they first came out, whether it was first round or entries, and
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  a lot of founders said, wow.
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  This is an amazing offering.
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  But I don't think they all stopped and asked, like, well, there are many of us in the
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  portfolio and a few of these resources.
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  Like, how are these gonna be allocated?
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  And I think most of these firms are pretty strategic with where and how they allocate
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  their internal platform resources.
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  And in many cases, you have to earn access to those resources through performance.
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  And for me, the question's always been, if you need help with marketing if I were a founder, I
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  would always ask, do I wanna use this firm's in house person, or do I wanna go into the
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  marketplace and find a best of breed person?
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  In some cases, the firm's person is the right person.
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  In other cases, that person isn't.
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  And I think over time, founders have gotten better at asking the tough questions of people
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  who have platforms.
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  Like, hey.
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  Tell me what your platform team has done to win.
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  Show me some examples, and let me talk to the founders that you helped to see if their story
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  about success matches what you're telling me.
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  So I think they're a really effective marketing weapon, particularly for first time founders,
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  but it's never been something I thought was part of our offering as a pre seed fund.
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  And I think at the earliest stages, I know that every fund will say that they offer sounding
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  board support, but there is definitely such thing as bad sounding board support.
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  And I find that that can be extremely destructive as well.
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  But oftentimes, sounding board support at the early stages is the one mechanism that you can
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  probably use to help you get to the next stage, and that's truly built on trust and just having
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  a strong relationship with your investor.
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  To your example of kind of these larger platforms and capabilities that are offered.
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  I know that there are some founders who almost feel, like, overwhelmed by them and and don't
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  wanna bother the investors too much to navigate them.
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  I don't think this is the purpose at all, but I I've heard from one founder, like, I don't
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  wanna signal that I need all this support, which then destroys the entire purpose for what
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  it's built.
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  But it goes back to the fact of bounding board support, a strong relationship, and just trust
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  is oftentimes some of the most important tools you can have in the toolkit at the earliest
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  stages.
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  My general view is we should do fewer things but do them better.
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  And to their credit, like, we have companies that have taken money from some of the big
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  platform firms, and I've been in board meetings where the CEO has said, hey.
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  The a sixteen z team or the Excel team or whatever big firm was helped us with these
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  specific customer intros.
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  They helped us with these things.
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  They brought in somebody who helped us with the model.
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  So I don't wanna discount the services.
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  But to the point I said before, I think if we're gonna do them well, it takes a real
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  investment of time, people, and resources.
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  And I don't think consistently that everybody does that.
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  Well, our next topic comes from a very brief but great LinkedIn post by Rob Goh, cofounder
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  and partner at Nextview.
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  He shares some really grounded lessons from investing through the last overheated cycle
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  when deals move fast and valuations soared.
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  It really was easy to get swept up in the momentum.
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  So his four takeaways really hit home for me.
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  Number one, chasing bargains didn't work.
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  It was better to keep your same lens and pay a higher price for a great company than to lower
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  your standards just to get something at a good value.
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  Two, the human element does matter.
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  When markets are hot, investors often overlook true founder investor fit, trust, and personal
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  chemistry, and Rob does feel like it'll come back to bite you later.
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  Third, deploying slowly often wins.
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  The funds that waited for the right pitches and didn't rush to deploy capital, they most likely
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  outperformed.
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  And then fourth, traction still tells the story.
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  So great product market fit shines in any market, and companies that grew fast and
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  aggressively through the frenzy are often the ones that emerged the strongest.
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  I think Rob's comments about the temptation to chase normal deals at normal prices was really
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  interesting.
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  Easy to tell yourself that you're being disciplined in the moment, but in hindsight, it
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  might just mean you're lowering the bar.
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  So curious to get your perspective here thinking about the last time the market felt a
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  little overheated and then right now.
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  The crazy thing is the last time the market felt this overheated wasn't that long ago.
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  Three years ago.
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  Yeah.
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  And it's funny because we've always been a firm that's emphasized entry price as part of our
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  model.
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  A lot of our LPs ask me, hey.
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  In 2020 and 2021, you did kinda hold the line on price.
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  Do you think that was a good decision?
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  And what I've told them is I'm not sure, but I went into it saying prices are going up.
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  We're more or less holding the line on entry price.
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  I recognize that we are creating a situation where there could be adverse selection in a
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  portion of that portfolio because in a hot market, if everybody's raising at higher
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  prices, there's the possibility that those that are raising at reasonable prices are doing so
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  only because they have no other options.
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  Now the one thing I've learned is it's probably true that we do have a bit of adverse selection
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  in that portfolio based on the early data.
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  But the other thing that I always have to remind myself about Inventor is oftentimes the
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  bad news shows up earlier than the good news.
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  And I'd also argue some of the companies that raised at above market prices also raised more
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  money.
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  So the fact that those companies haven't failed or died yet doesn't mean that they will
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  ultimately be successful.
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  And so there are certainly some cases I can think of in the last cycle where I was maybe a
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  little too strict on price, and we probably should have said yes.
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  Well, the outcome being that we probably would have made money but made less money than we
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  would have if we'd entered at a rational point.
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  And I think in this cycle, it's way more important because the price inflation and AI
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  companies, it feels to me at the seed and pre seed stage, is much greater than what we saw
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  for SaaS companies.
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  And so I do think it's generally a good practice to say if you're in the market, you
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  should have some sense of what the market price is for the kinds of companies you wanna bid on,
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  and it's probably better to pay a little bit more, but also to raise the bar in terms of the
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  amount of conviction you have to have the team and the people in order to say yes.
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  And probably the biggest thing I've changed about the way I invest since '21 is I've gotten
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  a lot more granular about what we're looking for in people, and it's a mix of quantitative
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  things like the amount of zero to one startup experience they've had as a founder, as an
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  employee before starting the company, to more qualitative things to, like, do I really think
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  this person's gonna be able to lead and inspire a team of 10 to 15 people in the next twenty
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  four months?
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  And I do think in good markets, people are a little more forgiving of downward quality, but
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  in tougher markets, it's the only thing that matters.
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  So you might as well just always make it matter, and then you never have to worry about
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  the market sort of landscape.
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  And so I think this whole question about when do you overpay and playing the game on the
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  field is really hard.
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  And I also think the flip side is always easy to tell yourself, well, these are the prices
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  that it takes to get into these companies.
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  I'm like, but that doesn't mean you're gonna make any money.
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  Somebody's like, oh, you know, really hot deals with people from OpenAI or Anthropic are
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  getting done at this price.
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  And if I wanna do those deals, that's the price.
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  I'm like, that's cool.
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  That doesn't mean it's a good investment.
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  For me, it always comes back to there ought to be things where under our model, which is
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  fairly entry price sensitive, there will always be categories, founder profiles that are high
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  quality and fit our model.
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  But it also might mean that whatever the hot thing is doesn't fit our model, and we should
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  do less of it than everybody else.
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  And that's sort of how I've been thinking about AI.
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  I'm like, there are a lot of companies I've met that are interesting.
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  But at 50 posts, I'm like, that's not really our strategy or model.
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  So it doesn't mean we'll do none of those, but we're certainly not gonna do a fund full of
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  them.
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  Yeah.
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  I feel like I know the answer.
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  But could you think of a time when you met a founder who was really wonderful and very
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  spectacular, and their business model was very unique, and you had an idea of the price in
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  your brain and it went a a bit over, do you feel like if you had anchored yourself at a
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  different price, you would have gotten over the line or do you feel like it didn't matter in
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  the end?
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  Wow.
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  That's a super tough question.
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  I can think of a handful of cases where I wanted to do something at eight, and the
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  founder wanted to do it at twelve.
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  And I'm like, it doesn't sound like a huge difference.
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  It's a 50% premium over the price that I wanna pay.
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  And I said, you know, in the grand scheme of things, it's probably better to be in this
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  company than to get the price that I want.
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  Yeah.
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  I'll also say there have been companies I've met that are raising at twenty and twenty five,
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  and I'm like, that is an ultra premium valuation.
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  It kind of demands outperformance.
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  And the one thing I found that is sometimes odd as a VC, when we've done these expensive deals,
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  they've then gone out they've they've done the seat at 25, and they've done the a at 40.
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  And they're like, wow.
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  Like or 50 post.
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  You're like, that's pretty great.
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  But doesn't it feel great?
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  Yeah.
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  Because you're like, I paid such a high entry price that the short and, look, we're not in
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  the short term markup game, but it just doesn't feel as great when you're like, oh, I could
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  have maybe waited three years, gotten a bunch of data, and paid twice the price.
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  Would it have been worth it?
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  I always tell you, like, I'm always trying to discount back to what do I think the end game
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  looks like and what are the way points along the way and just getting in at this point.
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  So, you know, 10% of the time, I'll just say we're gonna be price agnostic.
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  This is a team we wanna work with, and we're a price taker.
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  Third, ninety percent of the things we invest in, I expect the price to conform to our model.
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  Rob also mentioned that in these hotter markets, investors sometimes wanna write a
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  check without really making an emotional commitment.
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  That line really stuck with me, especially when so much of what we do at Precursor hinges on
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  being a real thought partner.
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  So as a solo GP with, like, a million other hats that you wear at the fund every day, how
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  have you been able to catch yourself from actually entering into that mode?
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  I think one thing that I've learned over time is different between investors and founders.
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  I think a lot of founders, like, I got money from this firm, so I'm going to get the full
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  experience of being a member of their portfolio.
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  I think investors are sometimes like, look.
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  There's companies where I wrote a lead check and took a board seat, and there's companies
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  where I wrote an experiment check or a scout, like, whatever euphemism.
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  It's a small check that maybe doesn't come with a lot of attention attached to it.
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  And I've had founders who've gotten upset and, like, this person's not that engaged.
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  I don't get and I'm like, well, they wrote you a 50 check.
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  To them, that is not a check that rises to the level of, like, paying a lot of attention.
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  And historically, what I found is some of those checks can create the worst of all worlds.
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  They're never gonna be financially meaningful to your firm, but they can create a lot of
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  damage reputational with LPs.
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  So I'm like, well, why write them?
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  Also, I think sometimes there's a temptation to apply a lower standard to small checks.
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  So this is why I've tried to keep our house check the house check and not say, oh, you
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  should write the full check.
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  But if you kinda like the person, you're curious, like, throw in 50 k.
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  I just think it's better to spend the time and try to get comfortable.
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  Like, in most cases where I've written 50 k checks, it's because of the round dynamics.
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  I've wanted to write two fifty or 500, and the person's told me, I don't have that for you.
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  Yeah.
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  I have less, and I'd rather be in the company than not in the company.
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  And that's been sort of the trade off I've made.
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  This is why I've been, like, very resistant to sort of saying, well, we'll just throw in 25 k.
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  Unless me have one specific example.
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  Sometimes we do have repeat founders who are just like, I don't plan to ask you for
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  anything.
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  I have zero expectation.
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  I simply would like you on the cap table.
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  I'm offering you the opportunity to join our cap table, but this isn't gonna be a high touch
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  relationship.
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  Any advice for founders who are maybe navigating those conversations with investors
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  and maybe get the sense that maybe the investor on the other side isn't really emotionally
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  attached to the investment.
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  And it could be just, like, don't overthink it, but curious to know what you think.
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  I always tell people on the founder side, most VCs have spent a lot of time figuring out what
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  size checks they wanna write and what ownership they sort of, quote, unquote, need to make the
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  math work for their fund.
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  If you are in the power alley of that and you're, like, getting an on model check, you're
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  gonna fit in nicely in the portfolio.
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  And if you're not, you should just be aware that you're an outlier.
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  And there's a chance that as an outlier, you won't get the same treatment.
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  You won't get the same attention.
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  You won't get the same mindshare with that firm that you would if you were a full size check.
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  And sometimes that's okay, but don't go in, I think, with full size expectations if you're
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  getting, like, a more modest check.
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  Well, are all out of time today.
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  Thank you, Charles, for stopping by, and thank you to our listeners for joining in.
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  Please like and subscribe, and we will talk with you all next week.
• 16:59
  Thank you.
• 16:59
  Bye.
• 17:00
  Bye.