Latest / The Learning Corner by Precursor / Episode #99: The Death of VC’s Short Kings, Seed Valuations Need a Correction

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Episode #99: The Death of VC’s Short Kings, Seed Valuations Need a Correction · The Learning Corner by Precursor

• 0:00
  The biggest risk in venture is that bending spoons is closer to being right about these
• 0:04
  values.
• 0:04
  We could be wrong by an order of magnitude.
• 0:07
  And if we're off by an order of magnitude, a lot of money will be lit on fire.
• 0:11
  And if we're off by, like, a multiple, you know, if some of these companies that we think
• 0:14
  are worth 50,000,000,000 are in fact worth 15, it's probably actually okay.
• 0:17
  But if they're worth 2 or 5, we've got real problems.
• 0:20
  And I don't know when we're gonna find out the public valuations because most of these
• 0:24
  companies seem uninterested in going public.
• 0:27
  It's the week of October 12.
• 0:29
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:34
  Welcome to the Learning Corner by Precursor.
• 0:36
  I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will
• 0:40
  be talking through the articles and Goodreads that caught our team's attention over the past
• 0:44
  week.
• 0:45
  Our first piece this week comes from Kyle Harrison on his investing one on one newsletter
• 0:49
  titled the death of venture capitals, short Kings.
• 0:53
  The two firms that built their entire identity around staying small on purpose have both
• 0:58
  scaled up within the same year.
• 0:59
  We had Benchmark raise 2,000,000,000 in June, including its first ever growth fund, and Union
• 1:05
  Square Ventures just announced $900,000,000, the largest fund vehicle in its history after
• 1:10
  Fred Wilson said back in 2010 that USC would never raise a large fund.
• 1:14
  Kyle's read is that this was less a change of religion and more response to the value chain
• 1:19
  of capital where the decisive rounds now happen downstream and are owned by giants.
• 1:23
  So the only way to protect your founders is to be big enough to sit at that table.
• 1:28
  He also pushes on whether more capital actually creates more companies, setting Roloff's point
• 1:33
  that there are still only about $20,000,000,000 exits a year despite venture dollars growing
• 1:39
  roughly five times over the decade.
• 1:42
  Charles wanted your more general reactions to some of the folks who did pave the way for
• 1:46
  similar sized fun vehicles now moving into a new era in their strategies.
• 1:50
  Yeah.
• 1:51
  I think about the James Bond movie, never say never again.
• 1:54
  And I think in venture, it's very difficult to say, like, you'll never do something.
• 1:58
  The world changes.
• 1:59
  You know, we talked about this in our team meeting.
• 2:01
  I do think it's interesting that both of these strategy changes were made as part of a
• 2:06
  generational leadership transition.
• 2:08
  I wonder if that has created space to reevaluate some of the core tenets.
• 2:14
  It's very hard.
• 2:15
  As someone who runs Valiant, I could say, it's very hard to abandon principles or beliefs that
• 2:19
  you held when you started even if the information around you changes.
• 2:22
  I think the central question in venture right now is, is it really different this time?
• 2:27
  And I think in the four camp, there's two things I think about.
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  One is AI does feel like the biggest tech shift I've seen since the Internet itself in terms of
• 2:35
  magnitude.
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  And second, in my entire career in venture, I've never seen a protracted decline in assets
• 2:42
  made available to the industry.
• 2:43
  If invested dollars go up on average every year, it doesn't mean there aren't years like
• 2:47
  2008 where you have pullbacks or 2022.
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  If it's generally up into the right, then it's unlikely that venture is going to voluntarily
• 2:55
  become a smaller asset class.
• 2:57
  And if AI is a big megatrend, you could say, okay.
• 2:59
  Well, that would suggest that maybe even just adjusting as benchmarks and adjusting for
• 3:03
  inflation, fund sizes should get larger because the dollar today punches differently than the
• 3:07
  dollar than it used to.
• 3:08
  And, you know, with Cursor and SpaceX, the scale of the outcomes is different.
• 3:12
  That's like the bull case.
• 3:13
  The skeptical case is we're in a bubble, and in a bubble, it always feels like this time it's
• 3:17
  different, and people abandon all of their rules.
• 3:19
  There's always a group of people who hold out for a long time and capitulate right at the
• 3:23
  top.
• 3:24
  Because at the top, it feels like those are what I call expensive beliefs.
• 3:27
  And holding on to, like, fun size and round size and and discipline, when everyone else has
• 3:32
  abandoned it, when you're the last person on Discipline Island, it's really hard.
• 3:35
  And so I think for both of these firms though, if I were in their shoes, I would have done the
• 3:39
  same thing.
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  Because if you're a benchmark and it really isn't different, and you realize $2,000,000,000
• 3:44
  is too much, you can just raise less next time.
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  No one's gonna fault you.
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  And given their historical track record, my hunch is they'll get a mulligan if for some
• 3:52
  reason the $2,000,000,000 is too much and they can't return it.
• 3:56
  They won't get an infinite mulligan, but I think they've earned the right Right.
• 3:58
  To revisit.
• 3:59
  And same thing for USV.
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  And if it is different, you've gotta learn how to manage a fund of that size.
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  And I think we've the venture world, in my opinion, is going through another bifurcation,
• 4:09
  which is that firms for whom it's important to be a lead firm and write the check they need to
• 4:14
  kinda drive the agenda on the round, and people who are happy being a part of the party.
• 4:18
  And so I think if you're gonna be a lead firm, you have to have a fund that's big enough to
• 4:22
  speak for the amount of capital that founders want in the universe of founders you wanna
• 4:26
  compete for.
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  And if you're a firm that doesn't wanna lead, I think you just have a lot more flexibility in
• 4:30
  terms of, like, check size and entry point.
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  I think it's pretty clear that Benchmark and USV, I think, culturally are firms that are
• 4:36
  accustomed to being the firm of record that leads around.
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  That's their personality.
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  That's their reason for being.
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  They believe that they're good at that work.
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  And so for them to just say, we're no longer gonna lead.
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  We're just gonna tack out a check.
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  That's not the ethos of why those firms were created or even I think how they view
• 4:49
  themselves and their role in the ecosystem.
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  And so I think we are seeing the sorting adventure where there are firms who are like,
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  hey, look.
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  Even at seed, you're like, hey, I might need to write a 5 to $10,000,000 seed check to, like,
• 4:59
  lead around for a for a small seed round.
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  I might need a check-in that That might mean you need a 3 to $500,000,000 seed fund to do 30
• 5:06
  to 40 companies per fund at that size to...
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  And have some modest reserves for the next round versus a firm who's like, I just wanna
• 5:13
  get in.
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  I'm not gonna take a board seat.
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  We're not ownership oriented.
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  We're access oriented.
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  Firms like that can exist at anywhere from 25 to a 100,000,000 in size.
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  And I think that is, like, the new bifurcation that's happening in venture.
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  We already had the bifurcation of, like, big firms and small firms, and now I think we're
• 5:29
  having the second bifurcation of firms that wanna lead and firms that are, like, happy to
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  participate.
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  Well, certainly, if you participate at the a,
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  makes
• 5:36
  logical sense to size up because...
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  I mean, we'll talk about it in two pieces down for Navdi from Lightspeed writes about this.
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  Because that graduation rate has dropped so much from c to series a, you have to be in the
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  series a's.
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  That matters.
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  And so much of that has to come down to how large of a check can you write, which is
• 5:52
  different than the game prior.
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  Do you feel like your perspective on leading at the earliest stages has evolved?
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  There was a time when, again, like, a 500 k check was a lead check-in a pre seed round or
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  whatever we're calling it now.
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  I think generally, like, there's two jobs of...
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  Well, are many jobs.
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  Two of the big jobs of a lead investor are to set terms and price and to catalyze other
• 6:13
  people coming into a round by your participation.
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  A good lead does both of those things.
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  And I think there was a period of time when pre seed rounds were small, where a 500 k check
• 6:22
  from a highly regarded pre seed firm could actually catalyze a round.
• 6:26
  But, again, a $10,000,000 pre seed round, a $5,000,000 check does...
• 6:30
  It does nothing.
• 6:31
  It does not probably dramatically increase the probability that that company will successfully
• 6:34
  raise.
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  And so I think in that world, you're like, oh, well, a fund that can write checks to that size
• 6:38
  can certainly get into many, many great rounds, but probably won't lead them.
• 6:42
  And so I think about that a lot as it pertains to our firm.
• 6:45
  And, you know, one thing I was talking to Marina about this week is there is a world in
• 6:48
  which you could say, well, what if we're really going into another bifurcation, which is there
• 6:53
  are firms that invest at valuations below 1,000,000,000 and firms that invest at
• 6:57
  valuations above 1,000,000,000.
• 6:58
  And you're like, wow.
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  That's a crazy range.
• 7:00
  10 posts to a bill.
• 7:01
  You're like, but in the grand scheme of things, those are all various different ways to get to
• 7:06
  100 x returns.
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  And the argument might be that, like, look.
• 7:09
  There's early stage investing, which is pre billion, and then there's, like, later stage.
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  Has nothing to do with traction or risk profile and everything to do with entry point and
• 7:19
  capital deployment.
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  And I think it would be wild that the website that says we invest at sub $1,000,000,000
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  valuations.
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  And you'd be like, well, how do you make sense of those?
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  You're just like, the market doesn't make any sense right now.
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  Kyle closes the piece by saying that as capital concentrates at the top, a long tail of
• 7:35
  companies that mega funds can't see gets bigger and more underserved.
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  So the folks who may be sitting at, like, 9 figure exit value or just, like, hover around
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  the sub multiple billion in valuation.
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  And he says somebody is going to eventually figure out how to serve it.
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  I read that piece and said, well, isn't that traditional venture general enough?
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  Isn't that how it's always worked?
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  Just the long tail and venture in those size exits?
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  And there are plenty of firms already built to serve those outcomes, and we've talked about
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  this.
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  Most of them are struggling to raise right now.
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  So how are we as an ecosystem ecosystem wrestling with that dynamic?
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  Does it matter that there's data out there that there are only $20,000,000,000 exits a year
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  that exist in the market?
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  How do you make sense of it all?
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  I had, like, so many thoughts when I got to the end that post.
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  Was like, part of the problem is whoever's gonna solve that problem probably shouldn't
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  call their firm a venture capital firm.
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  Because I think nobody wants to be playing small ball in venture.
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  And I think if you're like, oh, I'm a venture capital fund but I'm like shooting for little
• 8:32
  x's, everyone's like, so you're a loser.
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  I'd say...
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  I think we'll see it back.
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  Oh, so you can't win at the main thing.
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  So you're, like, in the minor leagues.
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  And it might be a very lucrative financial decision.
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  I think from an ego and reputation thing, think most VCs would be like, well, I don't wanna be
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  in the backwater minor leagues.
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  I didn't sign up for the shot for that.
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  But if you had a different firm or different firm construct that was called something else,
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  you could become really good at, like, you know, I think about, like, lower middle market
• 8:59
  I wish you just called to say that.
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  Don't call themselves like baby private equity or or little...
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  They're just like, oh, we're gonna carve out a new sector, and we're
• 9:07
  gonna, like,
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  maybe tea.
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  And so I think somebody will figure out...
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  Also, I think if you're a founder, you're like, well, so I don't want the loser b team capital
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  either.
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  So someone's gonna have to, like, brand and describe this type of capital in a new and
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  interesting way that attracts good founders.
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  But it's work that needs to be done.
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  But I think what we haven't solved for yet is it's unclear to me that all of this king making
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  is gonna actually produce kings in the end.
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  We have a lot of very, very highly valued companies.
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  We're essentially the same five or six people are investing in the same companies, and
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  they're just like, well, this is the one we all want to win, and we think it's gonna be worth a
• 9:42
  lot of money.
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  And I'm like, none of these companies are being exposed to the scrutiny of people who are less
• 9:47
  enthusiastic about tech or have the ability to put their money into other categories.
• 9:51
  And again, I think I told one of our largest LPs over the weekend, the biggest risk in
• 9:56
  venture is that bending spoons is closer to being right about these values.
• 10:00
  We could be wrong by an order of magnitude.
• 10:02
  And if we're off by, like, an order of magnitude, a lot of money will be lit on fire.
• 10:06
  And if we're off by, like, a multiple, it's probably...
• 10:08
  Like, you know, if some of these companies that we think are worth 50,000,000,000 are in fact
• 10:11
  worth 15, it's probably actually okay.
• 10:13
  But if they're worth, like, 2 or 5, we've got real problems.
• 10:16
  And I don't know when we're gonna find out the public valuations because most of these
• 10:20
  companies seem uninterested in going public.
• 10:23
  It feels like we're just in one holding pattern until something happens in the right direction
• 10:26
  and the wrong direction.
• 10:28
  Nobody feels like they need to shake it up.
• 10:29
  But I I do think we could end up in this very fascinating world where there are actually...
• 10:35
  Talk about back to the future.
• 10:36
  There are two ways to make money and venture.
• 10:39
  One is to keep your funds small and participate in this medium sized 500...
• 10:43
  We'll say 500,000,000 to $5,000,000,000 exit world.
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  And as a GP or someone who's a who's a carrier participant at a fund, you might end up making
• 10:50
  a lot of money for yourself personally.
• 10:51
  You will have earned it through being a good investor.
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  The other one is you just keep raising gigantic funds.
• 10:57
  You make a boatload of cash on fees, and maybe there's never a...
• 11:02
  Like, I don't know when we will ever be done with the 2021 batch of companies.
• 11:06
  It's 2026 when we're recording this.
• 11:09
  Most of...
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  A lot of those companies are still alive.
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  They still have cash.
• 11:12
  People are carrying them on their books with TGPI.
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  Nobody knows what they're actually worth.
• 11:17
  And we might not know till the end of the decade.
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  When 2021 happened, I was like, well, we're not gonna find out tomorrow.
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  But I was like, by 2025, I would have thought we would have known more.
• 11:25
  Which means whatever's happening now, my hunch is we won't know until the end of the decade.
• 11:30
  Character AI filed for bankruptcy, but I was like, but wasn't Character...
• 11:34
  Mean, no offense to anybody or sir.
• 11:35
  Wasn't that over a long time ago after the Aqua license deal?
• 11:40
  Wasn't that kind of...
• 11:41
  But it still took a few years.
• 11:43
  And I'm sure the people who worked there were working on it.
• 11:44
  It still took a few years to get to resolution on it.
• 11:46
  And part of that has to do with we have an entire infrastructure of funds that are set up
• 11:51
  to make sure that those companies, like, don't go to zero right away.
• 11:54
  They have, like, a long ramp, and I think that makes sense for them.
• 11:57
  To your point of, like, the bifurcation of two different structures of what quote unquote
• 12:01
  venture or whatever we're gonna call it looks like, the bigger funds, I think, have figured
• 12:05
  out quite quickly what ways to start getting more creative around how to make sense of the
• 12:09
  fees, how to continue to make money in other ways.
• 12:12
  We've seen GC do it, acquisitions of hospitals, all the different types of business models that
• 12:16
  they can set up in relationship with startups, Thrive, same thing, which I think makes tons of
• 12:20
  sense once you become an RIA.
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  Like, you have to start thinking about more creative ways.
• 12:24
  But you're making me think, like, okay.
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  Now there's an opening for the smaller, mid sized funds.
• 12:29
  Have to figure out where they want to become creative.
• 12:32
  Because maybe you're right.
• 12:33
  The old traditional version of what true on true venture capital looks like might be
• 12:37
  evolving in the same way that private equity did.
• 12:39
  And I think if you think about what would you care about if you were going to build one of
• 12:44
  those firms, it's actually a different environment.
• 12:47
  I would argue in a theoretical world where I were gonna design one of those firms, I would
• 12:50
  say, well, the first thing I'm gonna get rid of is any assumption that the primary way we're
• 12:54
  gonna make money from these companies is through IPO or m and a.
• 12:57
  Let's just get rid of that, and maybe you take some of the tools of private equity.
• 13:02
  I mean, it's hard to do dividend recaps and some of these other things if the companies
• 13:05
  don't produce underlying cash flow.
• 13:06
  But when you just say, hey.
• 13:07
  I'm not building all of these companies to sell.
• 13:10
  Some of them, I'm going to build, they're gonna become profitable, and, like, we are going...
• 13:14
  The the returns profile looks different, but the toolkit you can use
• 13:17
  Yeah.
• 13:18
  Is really different, which is why I think whoever decides to tackle this should really
• 13:22
  spend a year figuring out what am I gonna call this new asset class, and how am I gonna
• 13:26
  differentiate it from what venture capital is.
• 13:28
  Not in a way that, like, throws venture capital under the bus, but in a way that, like, I can
• 13:32
  carve out a new lane.
• 13:33
  You know, I listen.
• 13:34
  One of the best events I went to last year was the Stanford GSB investing summit.
• 13:38
  The fascinating thing was just hearing people from the early days of private equity be like,
• 13:41
  no one, like, knew what it was.
• 13:43
  We had to sort of define it and describe it.
• 13:45
  And I think in some ways, this is gonna create the opportunity for somebody.
• 13:49
  But I think if you think like, oh, I'm gonna redefine venture, you're gonna get stuck in the
• 13:53
  loop of
• 13:53
  Yeah.
• 13:54
  All of the strictures that we grew up with.
• 13:56
  And I think you have to say, I'm gonna define a new style of investing that's designed for the
• 14:00
  companies that are not gonna be 10,000,000,000,000 in stock.
• 14:04
  And, like, I'm gonna create an investment model and investment vehicle that speaks to those
• 14:08
  companies, but also invest in high quality assets.
• 14:11
  And it's
• 14:11
  all cyclical.
• 14:11
  I think of the rush into search funds as well.
• 14:14
  As like, yeah.
• 14:15
  Actually, I personally could make 10 times more money than working at a Blackstone or BlackRock
• 14:20
  if I just found a smaller business that I can own outright, take smaller amounts of capital.
• 14:24
  I don't need $600,000,000.
• 14:27
  I need 20.
• 14:28
  No.
• 14:28
  I need five.
• 14:29
  Yeah.
• 14:30
  I'll buy up a couple of, like, garden nurseries, and I'll run them.
• 14:33
  And I personally will have more life changing wealth than some of the MDs who sit there.
• 14:38
  So...
• 14:38
  And now people, I would say, like, search fund model has, like, moved out of favor.
• 14:41
  Like, people have to figure out where do they wanna sit within that space, so it never stays
• 14:45
  as stagnant as you think.
• 14:47
  I think in most things in finance, a lot of the returns go to the people who get in early.
• 14:53
  And I think a lot of people had feelings about...
• 14:56
  I think it was Doug Leone's thing about the the Novocaine...
• 14:59
  Like the...
• 15:00
  I didn't want the Novocaine thing.
• 15:01
  But the other thing he said was like a monkey could have made money in venture capital.
• 15:04
  I don't think that's true, but I do think what he was describing and getting as, there was a
• 15:09
  time where this industry was not well understood and it was very inefficient because
• 15:13
  founders didn't have access to much information and there wasn't much capital.
• 15:16
  So if you were a startup founder who wanted to raise money, you had relatively few choices of
• 15:21
  whose money you would take, and those firms were generally more like a cabal.
• 15:25
  Were They gonna give you roughly the same pricing, and they made a lot of money because
• 15:28
  there was an inefficient...
• 15:28
  And now I'd say venture capital is, like, a pretty efficient, well understood market.
• 15:32
  And so the question is, if you were to start today, where can you find these inefficiencies?
• 15:36
  And I think one area is this notion of the companies that are, like, quote, unquote, too
• 15:40
  small for venture, but not profitable enough for PE.
• 15:43
  Is there a firm model in there for these early stage growth companies that someone will
• 15:48
  pioneer and build a whole new either sub asset class and venture.
• 15:52
  Just like seed was a sub asset class and venture because most people thought it was bad
• 15:56
  work.
• 15:56
  So it takes like, I think, a creative mind and a new model.
• 16:00
  But I think somebody will crack the code because I think there are entrepreneurs who
• 16:03
  need that capital, who need more of that capital.
• 16:05
  Our next and last piece since they're so meaty this week comes from Nnamdi Irregulum titled
• 16:11
  Valuations Need a Correction.
• 16:13
  It's a follow-up to his earlier essay on taking stock of the seed stage.
• 16:17
  His argument is that the private valuations we all quote are not really valuations at all.
• 16:21
  They're financing prices Yep.
• 16:22
  Observed only for the narrow slice of companies that successfully raise, and only at the moment
• 16:28
  they raise.
• 16:29
  Once you correct for that selection bias and estimate the value of every active seed
• 16:34
  company, not just the ones transacting, you get a chart that he calls and he constructed,
• 16:39
  quote, up, down, and to the right, that tells the real story.
• 16:43
  From 2010 to 2017, the aggregate value of the seed market and the number of active seed
• 16:48
  companies grew in lockstep, essentially one line.
• 16:51
  Yep.
• 16:51
  And then they split.
• 16:53
  The value exploded in 2021.
• 16:56
  It was corrected and has partially recovered while the seed population peaked in 2022 and
• 17:00
  has shrunk every quarter since, which means the entire recovery is valuation driven.
• 17:06
  Yep.
• 17:07
  His read is that it feels unhealthy for prices to be
• 17:10
  up
• 17:10
  while quantities are down with value concentrating in a smaller and smaller group of
• 17:15
  companies.
• 17:16
  And he points to the same story playing out in the S and P 500 where Apollo last year
• 17:20
  published a report and flagged that index gains are concentrated in the max seven and AI names.
• 17:26
  His warning is simple.
• 17:27
  When only winners transact, prices can keep rising even as the market underneath them
• 17:33
  deteriorates.
• 17:34
  Nambi says the eye popping seed numbers are essentially irrelevant to what the median seed
• 17:39
  company is worth.
• 17:39
  My question is, does that matter in the game of venture that we're
• 17:43
  all playing
• 17:44
  right now?
• 17:44
  It does.
• 17:45
  And I think a lot about that old saying, the market can remain irrational longer than you
• 17:50
  can remain liquid.
• 17:51
  And I think we're in one of these moments, because a lot of people are like, well, this
• 17:54
  doesn't make any sense.
• 17:55
  And I'm like, well, if you need to fundraise or participate in this market, all that matters is
• 18:00
  the current conditions.
• 18:01
  If you get like, oh, this is a bubble, when it pops, I'm like, but what if you're not around?
• 18:04
  What if your firm's not liquid?
• 18:05
  What if you're not like...
• 18:06
  So part of this is you have to be around on the other side.
• 18:09
  I think what Nnamdi described is what it feels like, which is like more money for fewer
• 18:12
  companies and seed.
• 18:13
  And it is this weird bimodal distribution, like you can raise a lot of money or no money, and
• 18:18
  that's kind of the world.
• 18:19
  I think the other thing I think about a lot from this article is I talked to LPs, and
• 18:24
  they're like, well, who does these little seed rounds?
• 18:26
  Everything I read about are these $50,000,000 hunt.
• 18:29
  I go, well, you read about them because they're rare.
• 18:33
  But it's this weird information feedback loop.
• 18:35
  These eye popping seed rounds happen and they get written about because they're rare and
• 18:39
  because they're surprising, which resets the casual reader or even the informed reader's
• 18:45
  perspective on, like, well, what does good look like?
• 18:47
  I had a founder, you know, this weekend who emailed me and was like, well, I'm gonna raise
• 18:50
  an $8,000,000 series a.
• 18:51
  Was like, I don't know anybody who does those anymore.
• 18:53
  And she was like, what do you mean?
• 18:54
  I go, no.
• 18:54
  That's, like, not a thing anymore.
• 18:56
  That's a seed round.
• 18:57
  And the finalist was like, well, I already raised a seed round.
• 18:59
  I go, I'm simply telling you that if you go to market with an $8,000,000 seed round, that
• 19:03
  might absolutely be the right amount of capital for your company, and I don't know that many
• 19:08
  people wanna participate in a seed round that small in the venture ecosystem.
• 19:11
  If there were some alternative capital provider or somewhere else, maybe, and I think this has
• 19:17
  real consequences for founders.
• 19:18
  I think we now live in a world where people infer company quality from ability and size of
• 19:24
  fundraise.
• 19:25
  If you're a good company, you're supposed to raise a lot of money at a high price.
• 19:28
  You're like, what if you can't use it?
• 19:30
  What if you can't manage it?
• 19:31
  And I think this has been happening for five years, but it's really accelerated.
• 19:34
  There were all these things written about the joy of capital efficiency and how all of these,
• 19:38
  like, low costs were gonna make...
• 19:40
  Could create this amazing universe where companies could be created for less money and
• 19:43
  could sell for less money and everybody would make more money.
• 19:46
  And I think what ended up happening is that funds were like, well, I'm gonna go raise a lot
• 19:49
  more money, so I don't care about capital efficiency.
• 19:51
  And in some ways, it's antithetical to my objective, which is to deploy capital.
• 19:55
  And so I think we're finding ourselves in this world where if you're a founder who needs less
• 19:58
  capital, there are actually fewer traditional venture capitalists who are interested in
• 20:02
  hearing that story because most people's job is to move money in large blocks.
• 20:06
  I just had that conversation with a founder yesterday.
• 20:08
  I was like, I think it's gonna be easier for you to go out and raise three to five than it
• 20:11
  is to be raising a sub million.
• 20:13
  I think you're gonna have to just aggregate a bunch of angels.
• 20:15
  You won't get a single institutional VC.
• 20:17
  If you do, like, it'll be a small check maybe, but you might as well just go out and raise
• 20:21
  three to five.
• 20:21
  It will take a shorter amount of time if your market is big enough.
• 20:24
  We are in the bubble.
• 20:25
  We are in venture.
• 20:26
  Like, that's how our careers are made.
• 20:27
  So we understand that just because something is priced a specific way does not really mean all
• 20:33
  too much.
• 20:34
  I think there used to be a time where it did.
• 20:36
  I love the quote that he said.
• 20:37
  He compared it both to housing prices.
• 20:40
  Like, imagine if only the most expensive houses on the block got sold.
• 20:43
  That's right.
• 20:44
  Is that how you would think the whole housing market is priced, or is it just a small few?
• 20:49
  And then he also had a good one on, like, voting.
• 20:51
  Quote, rather than the always on debate we see in public markets for private, it's like an
• 20:56
  electoral debate.
• 20:57
  It's infrequent, and it's unrepresentative, a media spectacle rather than an informative
• 21:01
  exchange.
• 21:02
  And like elections, the voting only happens once in a while.
• 21:07
  I feel like if we're gonna have more and more of these mega rounds, these trillion dollar
• 21:11
  valuations at earlier and earlier stages, do you think people at one point will call for
• 21:16
  more of an audit process on what's going on to drive and and and make sense of the valuations
• 21:21
  or no?
• 21:21
  Like, well, it doesn't work for the ecosystem we live in.
• 21:24
  I think there's that...
• 21:25
  I mean, how many how many cliches can I throw in here?
• 21:28
  The weighing machine versus voting machine analogy.
• 21:30
  I think to some extent, there was this really strong argument that the private markets and
• 21:35
  public markets are in fact different animals.
• 21:38
  And I think that was easier to make that argument when you're like, a, companies of
• 21:41
  consequence eventually go public.
• 21:43
  And b, like, the companies that are private are kind of small and inconsequential.
• 21:47
  Those two things went together.
• 21:48
  And now you're sort of like, well, for some of these companies...
• 21:50
  Like, for some of them, I know that they're being audited.
• 21:52
  They're they're already going through audits.
• 21:54
  They're just not public because these are companies that plan to go public, so they're
• 21:57
  doing the training wheels thing.
• 21:58
  But I I wonder if, you know, there is a world where, like, this distinction over time between
• 22:03
  the public and private markets goes away.
• 22:05
  And people are just like, look.
• 22:06
  They're just companies.
• 22:07
  They're small companies and big companies.
• 22:08
  And instead of having public company accounting and private company accounting, we're gonna
• 22:12
  have big company accounting, which is gonna be like, hey.
• 22:14
  If you're making more than x dollars, you gotta report and do all these things, especially as
• 22:18
  there's more retail investor access to private markets.
• 22:23
  I think it's gonna be...
• 22:24
  And look.
• 22:24
  I think eventually, in order to fulfill the ambitions of the owners of these gigantic asset
• 22:30
  management firms that practice venture capital, they're gonna need to hit retail just like
• 22:34
  private equity did.
• 22:35
  And so...
• 22:35
  And look.
• 22:36
  Some of those for...
• 22:36
  I think some of those fund managers aspiration is to take those platforms public.
• 22:40
  Ironically, none of their underlying portfolios wanna go public, but maybe the funds that
• 22:43
  invested in them have more of an incentive or interest in doing so.
• 22:46
  I think we'll I think we'll see.
• 22:49
  But I don't know, Mia.
• 22:49
  I think it's interesting to me that there's really no money coming out of the system.
• 22:53
  And everyone's like, well, Anthropic and OpenAIM, like, well, they have to actually go
• 22:56
  public.
• 22:57
  It was supposed to happen this year for both of them.
• 22:59
  Now maybe one of them, but maybe not.
• 23:02
  The, you the year is...
• 23:02
  We're getting close to the end of the year.
• 23:04
  I don't know how much longer our industry and our business can continue to deploy capital and
• 23:10
  point to TVPI and not send bigger chunks of money home.
• 23:13
  There's a set of firms that I think have been given longer leashes than others, but those
• 23:17
  leashes aren't infinite.
• 23:18
  Hospitals have to be built.
• 23:19
  Dorms have to be built.
• 23:21
  Pension pension obligations have to be met.
• 23:23
  Like, it's not all fairy dust.
• 23:25
  I will say and close with this that it feels like the old version of Venture.
• 23:30
  There was math.
• 23:31
  There was math attached multiples to kind of get to evaluation?
• 23:34
  It existed across every industry, and there was, like, a time of which there were shining
• 23:38
  benchmarks of which to uphold it.
• 23:40
  I think people forget that this is a...
• 23:42
  This is an emerging industry, and the underwriting principles of it are still to be
• 23:46
  determined.
• 23:47
  And so so much of the valuations are just based off of, like, purely spectacle of of, I think
• 23:53
  if this all makes sense, this could replace every single white collar job.
• 23:56
  So that's how I'm underwriting it.
• 23:58
  But then it leaves out all the different assumptions you have to do because we've never
• 24:02
  seen it come in full circle yet.
• 24:04
  Like, we're still in the early inning.
• 24:06
  And also, like, people are just like, oh, the best companies always felt expensive and were
• 24:10
  misunderstood.
• 24:11
  I'm like, that was true of Facebook.
• 24:12
  That was true of...
• 24:13
  But so so were bubble era companies.
• 24:16
  Yeah.
• 24:16
  So, like, it's true in both directions.
• 24:18
  It's like, yes.
• 24:18
  The best companies often turn out to be far more valuable than we think, and the ability
• 24:24
  for the market to sustain bubble valuations is oftentimes stronger and longer than we think,
• 24:30
  and both those things can be true.
• 24:31
  Well, we are all out of time.
• 24:32
  Thank you, Charles, for jumping in.
• 24:34
  Thank you to our listeners and subscribers for joining as well.
• 24:36
  Please like, share with friends, and we'll talk with you all next week.
• 24:40
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• 24:41
  Bye.
• 24:41
  Bye.