SPEAKER_00: jason i know you're in mourning how are you holding up uh with the knicks uh we had a great season

SPEAKER_02: it was a battle of attrition uh you know if we had had our full complement of all-stars og mitch

SPEAKER_03: randall uh at heart we would have demolished the pacers they would have been swept or gentleman's

SPEAKER_04: uh sweep we've made it through this uh series i was looking to come to a game with you jason i'm

SPEAKER_05: in new york in a couple weeks but we had you got to get deeper in the season in the playoffs

SPEAKER_02: i you know i got lucky i got to go to two of the games versus the the 76ers uh with david adelman uh who's one of the owners and a friend now and that was a great rivalry i'm sure that

SPEAKER_03: rivalry will happen next year in the pacers uh you know now they're on our list but anyway this

SPEAKER_11: isn't this week in knickerbockers or the nba this is liquidity where we talk about we have the conference

SPEAKER_12: coming up in two weeks yes we'll be in napa in two weeks what's the latest on the conference it's just a great group we got a last minute surge of people who wanted to come we tried to accommodate

SPEAKER_13: as many as possible i'm trying to keep it i was trying to keep it to 100 it's probably like more like a 125 right now but it's just gps and lps high net worth individuals who are angel investors and lps and then everybody in between and it's just a way for us as a community to get together have important discussions without founders in the room without service providers in the room just focused on that lpgp startup investing and support uh system and how we look at the world

SPEAKER_02: and it's going to be a lot of like sunday monday tuesday night poker late at night uh you know activities incredible restaurants incredible presentations and just really like a really well utilized 72 hours of your life so you get in there sunday night we end on wednesday with a brunch it's just really productive uh in terms of work so if you're going to take a couple of days off and you're a gp or an lp this is the event to go to i'm going to do it twice a year i want to bring it to

SPEAKER_18: uh maybe la new york abu dhabi dubai you know other places in the world where people are getting into capital management and so yeah i'm going to be looking for partners around the world to do this

SPEAKER_23: very cool people have been asking me what the buy-in is for the poker games um we're going to

SPEAKER_24: have like i think five or six tables this year there'll be two or three tables dedicated to learning

SPEAKER_13: the big game will probably be 100 200 and these are all points we're not playing for actual cash it's

SPEAKER_30: points it's not molly's game it's not molly's game low stakes everything for charity yeah uh and

SPEAKER_10: it'll just be a lot of fun excellent well uh we have a great show today i'm excited to get started

SPEAKER_32: let's do it this week in startups is brought to you by squarespace turn your idea into a new website go to squarespace.com twist for a free trial when you're ready to launch use offer code twist to save 10 off your first purchase of a website or domain open phone create business phone numbers for you and your team that work through an app on your smartphone or desktop twist listeners can get an extra 20 off any plan for your first six months at openphone.com twist and lemon.io hire pre-vetted remote developers get 15 off your first four weeks of developer time at lemon.io twist welcome back to

SPEAKER_38: this week's liquidity podcast with me today i have michael eisenberg from olive next we have jaimi mattis from invariantes a venture fund of funds of course we have jason calacanis from the launch fund i'm your moderator david weisberg co-founder of 10x capital today we have several great topics to discuss pitchbook has released data detailing the breakdown of ai investments by category a well-known ceo lashes out at vc hypocrisy we discuss and we take a look at fundraising by region bay areas in first place but there are several surprising results let's dive right in pitchbook has released data summarizing the total amount of capital invested in ai in 2023 across several different use cases we talk about those use cases often on the show we have vertical applications which have raised 27.8 billion in 2023 with horizontal platforms taking down 27.1 billion autonomous machines raising 3 billion and ai and ml semiconductors raising 2.4 billion michael you're right in the thick of the ai ecosystem what's your strategy at olive when it comes to ai and what kind

SPEAKER_04: of startups are you looking to back so we've actually been doing this ai thing since 2013 in fact in the original slide of the first olive fundraising deck we talked about it we went out to pitch lps the argument we made was just like benchmark capital where i was previously got started in 1994 when the internet came along so it was time for a new fund in israel to take advantage of this ai machine vision deep learning uh revolution that was in 2013 in fact the first ai investment we made was in 2013-14 which was a company called winward maritime ai now publicly traded in the uk in 2015 we backed lemonade which is the first ai insurance company um and so what i think is new in the world is actually not ai but llms and those two terms have become conflated in current discourse and we have in general uh avoided foundation models in a big way i'm in the gavin baker camp on that that this is the fastest depreciating asset uh in the history of of technology and our focus since day one has been using ai uh to transform existing legacy industries so super vertical focused vertically integrated focused um and we've kind of attacked this kind of uh application layer we'll talk about it later we talked about the the companies but you know we did dream ai which is building kind of ai for

SPEAKER_45: to protect critical infrastructure in nation states and spines which does ai for book publishing and lemonade and insurance etc and that's kind of been our strategy since day one and we've stuck to it

SPEAKER_38: yeah you mentioned it's that's the fastest depreciating asset that seems to be a view that a lot of people are having in the last month or so what made you determine that early on in general when

SPEAKER_04: we think about data we ask the following question do you have any data that is proprietary because that

SPEAKER_45: gives you edge at the end of the day and so if you look at our again early on investments uh winward handled maritime data and it's paying off in spades by the way because nobody could accumulate that data much it was proprietary we can do things with it that nobody else can the llm race um is a race to access all of the world's data inevitably that's not going to be informed by something that's proprietary so the moat on the business is very low and i think there's kind of two ways to look at venture-backed businesses over time one is growth that's the obvious one the second one is kind of michael mabusian's model which i think bill gurley's covered many times before which is about competitive advantage or cap as he as he calls it and we think competitive advantage comes from having uh proprietary data and deep integration up and down uh the vertical stack in this space so for example if you look at windward they started actually tracking uh ships doing nefarious activity uh at sea it was bought by governments ultimately that moved into supply chain because boats move at sea for supply chain and now it's handling container management using ai and

SPEAKER_51: automating the hell out of the way uh uh freight forwarders and others uh handle uh containers at

SPEAKER_04: sea and the ships that come in so it's super super super high moat to this business because it's 11 years of collecting proprietary data and then applying it and integrating it into systems the same is true of lemonade which is we have the super proprietary data around insurance when everybody else is walking working off the same kind of data that they purchased and because we built this

SPEAKER_45: two interactions we're just better pricing better risk management and our operating costs are

SPEAKER_10: significantly lower and it's all proprietary jaimi you're a venture fund of funds which means you

SPEAKER_38: invest in the top emerging managers in the space we're really bleeding edge when it comes to ai what is the next wave of ai startups and where where does alpha crew in the space fantastic so one one

SPEAKER_54: thing uh all the the four of us i think agrees this is going to be one of the best vintages in the

SPEAKER_58: history of of vc and a good portion of it will be the the impact of a of ai and economy from invariantes we

SPEAKER_59: puzzle uh we built this amazing puzzle of 20 vc phones and 35 startups um we have exposure with this strategy well for more than 600 startups and we are likely to have exposure 200 and 100 to 20 startups uh doing something around the ai so when we focus our efforts in ai uh through the phone managers we bet on or the direct tickets we do we are focused on five waves or five spaces in in ai the first one i think it's uh hardware and semiconductors this is uh one of the strongest space and we have seen amazing companies like brock doing something really great we did uh here we do the pigs and shovels bet from invariante side and we bet uh one good example is lambda labs they are building this amazing uh gp cloud infrastructure for engineering and research teams and they are doing really great then we have the second space for us is the infrastructure or platform space of ai there are some really great companies doing interesting things besides big lms that are more focused on the consumer side of the market there's for example contextual they are building this enhanced model for enterprise use that is more reliable more accurate more secure has governance and a lot of stuff for the sector specific so we are really bullish on that part as well so 50 of our portfolio will be to those two spaces in the ai ecosystem but then we have the vertical side of ai we are betting on four spaces health tech fintech or financial services i think future of work and mostly with voice recognition has a strong potential for ai applications and then i think the last sector is still a work in progress uh besides that we also invest in the horizontal side of ai here we see more transversal or more general purpose applications there's a really cool company out of colombia operating in the states called data they are building this automation platform that uh has this quick integration with all the suite of application business use on the day-to-day basis and they are doing more and solution approach rather than a tool approach so that's really exciting uh because it generates faster adoption in the market and quicker product market fit and then last but not least i think the the autonomous vehicles

SPEAKER_58: and in robotics i think it's one of the the the with the most potential in terms of ai we did a strong bet

SPEAKER_59: on a canadian startup called optimotive they are building this incredible workforce robotic workforce for extreme environments so if you see and the the the ai landscape as an ecosystem in with our portfolio strategy we are trying to rely on on power law distribution so to seek that alpha we are trying to do this uh really discipline bet across funds across direct tickets and trying to weigh that 20 of our portfolio on this sector and i think we will be able to find two or three companies

SPEAKER_58: outlying companies getting all those outsides returns we are looking for all right startups you ever

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SPEAKER_10: jason you just made a big bet on athena which is uh basically outsourcing and they're using human in the loop ai so they're not an ai company but they're using a lot of ai tools to make their uh ea their executive assistants much more effective are you seeing these kind of ai assisted startups start

SPEAKER_80: to emerge that are not pure play ai yeah that investments our largest investment of the year

SPEAKER_02: uh jonathan the co-founder was the co-founder of thumbtack which i was the first investor in and i'm the first investor in athena uh you can go to athenawow.com and uh get like a discount or

SPEAKER_12: whatever um and they they are i think a company that will be looked at ultimately as an ai company what they're doing right now is matching you with a virtual assistant in manila the top 0.1 percent of the knowledge workers there and then as they train them on how to use ai tools and they work with you over time i think what you'll see is repetitive tasks um those uh individuals who are your executive assistants will kind of do the automation for you automatically and so i think that is a clue as to who's going to be the winner in the ai space all of these big bets that people made on foundational

SPEAKER_13: models i think are going to be one x investments in a lot of cases and so if you look at inflection getting gutted and bought by microsoft without getting bought to avoid like ftc or you know whatever

SPEAKER_12: fcc scrutiny um they are an example of i think people and humane ai is getting sold for parts it looks like i think a lot of those big bets people made because you have open source open ai and just major players building these models the models are going to be coming down to zero uh and then it is a game of data and features and focus around the customer experience which i think open you see in what open ai is doing right now their last announcement for the omni uh last week was really focused around user experience and the product itself microsoft's announcement was around laptops that have chips that allow you to record your desktop kind of like that startup rewind ai is doing i think it's the name of it and microsoft's just building that into windows and you're going to need some power

SPEAKER_18: you know on your desktop to do that record your entire desktop that's a whole nother ball of wax

SPEAKER_12: in terms of privacy so then if those things all become commoditized built into the operating system you can kind of look at them like your address book or calculator or your phone or your browser i don't know that there's startup investing vc opportunities there but there are definitely

SPEAKER_13: opportunities in startups like athena or you mentioned lemonade people with proprietary data sets uh who can then build experiences and products and services for businesses and consumers that are

SPEAKER_11: extraordinary um but i think we're going to see a massive washout of this of these overfunded ai startups that'll be the theme of the next year because uh if you start raising at a 5 billion 10

SPEAKER_13: billion dollar valuation you're raising hundreds of millions of dollars or billions of dollars

SPEAKER_12: what kind of revenue do you need to support that so once again there's a huge gap between the public markets valuation of these companies and the private market friskiness we see sometimes and we just saw

SPEAKER_13: with crypto uh farcaster i guess is the um social network that's you know uh permissionless and distributed etc they just raised 150 million at a billion dollar valuation with 350 paying customers but i think those customers at least when i went through the walk through pay five bucks so that might be a hundred thousand maybe it's a thousand times revenue i don't know if they have a million dollars in revenue or what it is so you got to be careful if you start investing at these sky high valuations and have a really good idea of what's going to happen in terms of filling in that revenue now we don't know the terms david of those deals right there's protective provisions they might have a 3x liquidation preference on them participating preferred so maybe those folks when they sell you know they'll get 2x their investment on a 250 million dollar investment but anyway that that's like a very dangerous um high-risk area that i think is going to be a lot of washouts jake allen i are around just

SPEAKER_92: the bubble in 96 97 2000 and he was at silicon alley as an investment there's a lot of eyeball models

SPEAKER_45: that seem to be out there right now going back to that time and not enough people are around actually that that remember it right now but it really feels like that again in some of these categories explain

SPEAKER_23: the eyeball uh you know the engineer model i love that model uh multiply multiply your valuation by the

SPEAKER_96: number of engineers you hired they were literally comping in in the late 90s analysts like wall street

SPEAKER_45: analysts and certainly venture investors were comping using comparables on on eyeballs and then assigning them some sort of future dollar value uh for what you can monetize and and at the same time by the way some of the platforms like aol were often uh giving out ads and kind of monetizing it with warrants uh so to speak and somewhat of a circular model um not only aol by the way you know altavista and others that people have long forgotten dog pile uh and so these became proxy models you

SPEAKER_98: probably remember the globe.com jason which is a new york company i wrote a seminal piece on them

SPEAKER_18: saying it's a bunch of hot air and they put it in their autobiography uh of the time of how i destroyed the company when i was a journalist because i was like this thing isn't worth 10 cents um yeah and

SPEAKER_43: that skepticism which jason's expressing expressed then is expressing now about these models it's kind of disappeared and uh it turns out that somebody if you want to get out of these as a venture investor

SPEAKER_45: and get liquidity at some point at some point the buy side has what to say about this and the buy side buys future cash flows not future eyeballs or not even you know future gpus that you happen to be

SPEAKER_04: running on and paying nvidia for you know you need something proprietary whether it's it's data or

SPEAKER_47: vertical integration or something in order to be able to generate cash flow that ultimately generates returns from investors and the buy sides willing to invest in and the great paradox of

SPEAKER_80: this michael is when you look at what happened it turns out eyeballs and attention were going to be

SPEAKER_12: monetizable it's just who had the great mousetrap the great solution to take that attention and turn it into actually the register ringing that was facebook right um and uh you know google you know they got people's attention when they were looking for information on the web and they figured out a device search put your intent in a box match that with an ad auction boom and then psychographics with

SPEAKER_02: facebook we know what you're looking at we know who's in your network we know what they're interested in we're going to use ai machine learning to try to just figure out the next best they had to show you

SPEAKER_12: and so somebody did figure both of those things out but there were hundreds of companies who didn't figure it out and those hundreds of companies were collectively worth you know i don't know

SPEAKER_13: hundreds of billions of dollars and then all of that got consolidated into two players maybe three

SPEAKER_12: google amazon and meta and so that's i guess the lesson here is where will all this activity get consolidated down into and if i were to make the bet it might be microsoft google and open ai uh meta twitter you know like the people who have the data people who have existing networks so i think

SPEAKER_02: it's like a a big player game right now and i'm i'm skeptical not to over stretch the comparison jason oh

SPEAKER_45: sorry but i wonder sometimes whether open ai is the equivalent of overture which kind of invented the business model that google ended up capitalizing on because it had both the eyeballs and kind of

SPEAKER_13: the better mousetrap yeah i think there's a chance open ai might become uh on an economic

SPEAKER_12: basis a complete washout because they are they have this like non-profit kind of concept there and then microsoft has all these desktops and microsoft seems to be launching all the same products that open ai is in the same week google's doing it in the same week google has five six seven products

SPEAKER_13: with over a billion used chrome android google search gmail youtube uh right off the top of my head like these are services that have one or two or three billion users what's going to happen when ai is just built into all of those well we're seeing that with meta putting the ai box at the top we just saw it last week with google for some searches putting the search summary created by ai at the top what does

SPEAKER_12: that do to open ai i think open ai is going to be the first person up the hill they get all the arrows and then maybe they just are a non-profit again and all those users who are paying 20 bucks a month

SPEAKER_13: wind up moving getting the same value from their microsoft office ai companion google built-in ai companion that's free apple's ai companion that's free all that stuff may just be free and built in to those dominant players uh so i wouldn't be surprised if open ai's valuation goes down from here

SPEAKER_12: if i owned open ai stock right now if i was like an employee i would sell every share every share maybe i keep 10 i would literally if if i'm at open ai and i had a 10 million dollar

SPEAKER_02: package i would sell nine keep 1 million put that 9 million into those other players i think one of the

SPEAKER_10: logical logical traps that people fall in vcs fall in is is this whole power law outcome where yes you could if you bet on all of them then you you could you could have a good portfolio the big logical trap there is that you still need that if you're going for one of every 30 companies to really be a breakout you need to have the right ownership you need to have the right entry point if your winner ends up being a 3x you invest at a 20 billion and it exists at 60 billion great but what about the other 29

SPEAKER_119: companies that go to zero or return your capital so i think this matters when i meet angel investors

SPEAKER_18: when i meet people who are starting their first fund or mlp somebody's new fund i just tell them entry price does matter and there's this fallacy entry price doesn't matter well if you pay

SPEAKER_12: you know let's just say y combinator prices for c companies we all know why combinator companies get a premium i see why combinator companies asking for 20 million dollar valuations with no revenue and then i see you know other non-yc companies that are at you know a half million in revenue and they want 15 million dollar valuations or 10 million dollar valuations i would rather invest in two of those than one yc company that doesn't mean yc companies aren't bad that are bad they might be even better teams in some cases um but then if you're building a portfolio strategy if you can make three times the number of bets or twice the number of bets and have shots on goals the chances of hitting the power

SPEAKER_13: law go up and so this is why people sometimes have their portfolios in their first fund go underwater

SPEAKER_11: these emerging managers do not have discipline around price yeah and and i agree with you jason

SPEAKER_59: discipline is it's the game we need to play regarding ai because there's a lot of asymmetry regarding valuations and there's a lot of noise around uh we struggle every time we see um a deal coming up in the investment committee and and i think you need the the the trick here is to how to choose the winners and to wisely detect what which is commodity which is generating strong value as michael

SPEAKER_58: said you need the the the the value of the data set the the mode the technological edge and i i think

SPEAKER_59: that's uh it's back back to basics on ai and and be really disciplined on your portfolio construction and

SPEAKER_55: and but mostly how to pick the ai winners the million dollar question juggling multiple devices and apps

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SPEAKER_10: trial and get 20 off michael you you've been a vc for several decades i'm very curious have you made more mistakes overpaying for companies that you got excited for or missing companies that uh because of

SPEAKER_12: valuation that you just michael's very very old i can tell you that he's very old he was like an old man when i met him in the 90s he had like that old man energy he's very senior i'm joking with you

SPEAKER_140: i think we're the same age i think we're the same age i was going to say that why do you always seem

SPEAKER_141: so much older than me i'm so much more mature more kids i got more kids that's a recent way yeah

SPEAKER_84: my hair is grayer look i got the grain beard yep yeah i started to see that gray on my beard myself yeah

SPEAKER_145: like what what keeps you up at night other than my children and grandchildren yeah other than your

SPEAKER_04: children and grandchildren when you get to this age and you've been doing this for so long the statistics start to get against you like the kind of historical statistics in the venture business say that you're in your best years in your 30s and maybe early 40s and this is a hustle business that you got to keep at every day and be excited and curious about and so i'm questioning whether i can play at the top you know at the top of this business you know even though i'm just turned 53 this week and so uh you've got to keep at it and i think you've got to be self-critical to be able to you know say okay can i do this job on behalf of my lps and my investors and and and together with my partners can i keep up with them it's not trivial and do i have kind of a supple enough mind still to keep making mistakes because if you don't make mistakes

SPEAKER_45: in this business you're not going to hit the big one and i think that's that's the biggest thing

SPEAKER_02: you know i think about that too uh i'm 53 we're the same age and you know you can and i've but i've only been investing i'm just under my second decade you've done it a lot longer than me you do have to think because it's a really important topic and jamie you probably have some stuff to say here um if you don't have the energy if you don't have the risk tolerance

SPEAKER_12: then you should hang it up i think that's like a very mature thing to do and i think we see that the problem of course is we need people who have battle scars and who can talk about the attention economy from the 90s and what the lessons are from that because the lessons from that are is

SPEAKER_150: somebody will figure it out most will not and the person who does figure it out you can't hold your

SPEAKER_13: equity in that company long enough you know like i was talking to freeberg he sold his google on the ollen podcast he had sold his google after he left or whatever and you know he had said oh i made a calculation about it he didn't say what it was but i'm sure it's like painful and great companies

SPEAKER_12: you know come along every 10 years and you get a lot of good ones but the you know the breakouts like true breakouts that become worth in today's dollars over 100 billion dollars are so rare uh and and your signaling can get broken and that's why i think you need to do what sequoia did really well which is they have these stewards of the brand they curate talent they trust young people to come in and work with founders and do those first round meetings that's what i'm doing i have an army right now of researchers analysts and associates an army of them and people don't know how many i have i literally we did 117 first meetings two weeks ago i had to tell my team to slow down i said 117 first meetings in one week i had this goal of trying to hit that for a while but these young people have so much energy they're like yeah just five meetings today i'm like the pcs i know who are 53 like michael and i are like if they do five meetings in a week it's a lot a lot of these folks i got

SPEAKER_155: people doing five come on six it's hard to do it's hard to keep your energy up for six meetings you

SPEAKER_12: know and then also the distractions of life kids you've got you may have your nest egg right now you might be managing your family office all of these things draw your attention away and so the way i

SPEAKER_13: figured it out is i have an army of young people i'm talking like 22 23 like extremely young 24. i didn't hire them based on their age i just hired you know folks who are just out of school to train them up before they learn the mistakes of venture capital the entitlement of venture capital i want to train them in the hustle that i had as an angel investor and so that hustling

SPEAKER_12: of hey i'm going to meet with 500 people in the next six months and we're going to wind up investing in two of them that ratio is a very hard ratio for people to actually execute on it's very hard to execute on that um and i think old people can't they just

SPEAKER_02: don't have the energy for it uh you know especially when they're 30 40 years in and they have cynicism or

SPEAKER_75: you know too much signaling and i had to tell them what are the weirdest companies what are the ones you had a hard time understanding start with that give me the ones that you love the founder but don't

SPEAKER_13: understand the business those are the ones i'm most interested in uh and that that's what you have to

SPEAKER_12: really fight against when you're building a firm is this a codification of ideas i literally just came

SPEAKER_159: from a dinner with founders that we arranged all if i still have my glass of wine here and uh and uh i asked

SPEAKER_04: at the table these are second timers i mean people have already sold their first company yeah and we

SPEAKER_51: had four of them at the table and the question i ask is what is the craziest idea you have right now that's the question i asked and uh nobody could answer the question and so i checked out and had

SPEAKER_10: another drink important lesson it's interesting because if you look this is historical and it's well known in yc uh the top outcomes were not very popular at the round whether it's coinbase dropbox instacart reddit same thing with the teal fellowship you had ethereum that you know some people believed in but a lot of thought people thought would never work yet figma um so yeah it's these companies that did not get as much heat during the time but they ended up being the biggest outcomes obviously airbnb

SPEAKER_38: a lot of the people that invest in airbnb i think only they said only one investor keith or boy

SPEAKER_10: invested because he liked the idea every other investor invested because he liked the founders

SPEAKER_165: that's telling yeah and it was a pivot right they had different ideas they pivoted a little bit

SPEAKER_38: along the way they were selling uh cereal boxes and and jaime you you see hundreds of fund managers every year what's the sweet spot for motivation fun size what gets you really excited when you meet

SPEAKER_59: when you meet an emerging manager we analyze between 200 and 300 emerging managers each year so we are very good fund manager picker rather than startup pickers what excites us about a fund manager uh first i i think the the their unique deal flow i think having a unique deal flow it's something that resonates on us um we always analyze their their grit their hustle how how they work their their craftsmanship around their portfolio strategy for us is it's something that we we double click on every manager that we see uh we measure that their skin in the game because we we all agree that uh bc it's a long-term game with long-term people so when we pick an emerging manager uh we try to get this sweet spot between

SPEAKER_58: a 30 million dollar fund all the way up to a hundred and 150 because playing in our early stage uh play

SPEAKER_59: field we we we see a lot of misalignment when there's a 200 300 500 a billion dollar fund trying to play on the early stage game so we prefer or we tend to favor more emerging managers with small funds but they are more aligned with the performance and the carry rather than the management fees so uh we look for not only a strong team of uh complementary skills of in the managers but we uh we know that it's a hard a really hard work to invest in early stage and pre-seed and seed so we always analyze the team below them as well because you need a strong team in order winning in in bc so i think those are the things that we always uh analyze uh the the fee structure uh as you get more sophisticated in the space you understand as well those things but i think having that that that grace magically weird

SPEAKER_58: craziness of understanding bc and knowing that it's art and science and it's not a it's a people's game so

SPEAKER_59: we tend to see those characteristics and in our fund managers and that's what's excited us and and what we build because having 20 30 funds uh be begins to get complicated trying to uh measure the overlapping we build this amazing puzzle of funds and with almost near to zero overlapping so that's a

SPEAKER_80: extreme work for us as well how do you manage all those if you have 30 or 40 portfolios or funds

SPEAKER_12: how do you track all that do you have like an intern or an associate just put them all into a google sheet and consolidate them at is there software to do that to figure out where you know how much you

SPEAKER_02: own if like three of us invest in athena and then you're trying to figure out what you own

SPEAKER_59: it's crazy jason it's a work in progress actually the last three four years we have been trying to build our own tech stack because it's it's difficult to to have everything in in different places so we built on our table our tech stack to handle all the portfolio management because we we have these 20 fund managers that we we have a a strong cadence with them alongside the 30 40 companies we we manage from the direct ticket side and being our third vintage now it's a really big portfolio so having a strong strong leverage from technology the four of us we are four partners and one uh director of operations

SPEAKER_58: the four of us we are all hands-on into the into the fund managers and and portfolio relations so

SPEAKER_59: it's almost a a daily gig and and it's really hard i i won't say we we do it perfectly but we have been refining the process in the last three years with a strong focus on how can technology help us on being more efficient and relying on ai applications as well and being every day a a better vc but it's

SPEAKER_110: complicated right now startups have to do more with less we all know that and founders have to be smart

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SPEAKER_38: ceo of late checkout had vcs on x all riled up with a tweet he shared highlighting the hypocrisy and what vcs tell founders and what they actually do some of the highlights including telling founders to dedicate their life to the business while taking august off and maybe december telling founders to go big or go home while utilizing a portfolio strategy and telling founders it's all about the team while

SPEAKER_18: firing management okay mr michael what do you think seem like the common criticisms of vcs i don't know that any of those are like too new or interesting to be honest it's like his last name i don't know the uh

SPEAKER_45: the job of the venture capitalists is to be the stagehands and the job of the board is to hire and fire the ceo and be supportive and ask hard questions that's that's the job and kind of encourage the founders to make the hard decisions uh candidly i think if you take august off off your lps should fire you uh that's the truth and if i'm not working at least as hard as my founders i'll get out of their

SPEAKER_51: way and probably i should hang it up as uh well and so um the other point he makes which is like they have a portfolio you may want 3x they want 30x that's the business venture capital is a home run business if that's not the kind of outcome you want then you shouldn't take venture capital there are plenty of great technology businesses that aren't venture capital suited because they're not swinging for the for the fences and i'll say very openly and candidly i don't care about the one and a half and two x and and three x's i'm interested in the one that that becomes the power law so to speak and so if that's not what you're looking for don't take my money and you know and you should reference and see if i work hard and if i don't don't take my money either and uh you're easily referenceable at this point in this business everybody knows who jason kalkanis is everybody knows who peter fenton is and bill gurley and probably know who i am do your reference check ask my founders i've worked with tens of founders over the years and if you think i don't work hard don't take the money and if i don't work hard my lp should take away my money i hope hymie if it was my lp would would take my money if i didn't work all of august i agree with michael you know the rules of the game

SPEAKER_59: and yeah in in every market in every ecosystem there will be a lot of well-intentioned people and nice

SPEAKER_54: guys and doing the right things and every market will be the the greedy guys the the the sharp elbow guys it's it's part of of it and you need to deal with it you you are used to deal with no you can deal with this kind of stuff and and and yeah it's a game where the the founders and investors are in

SPEAKER_58: the game of doing a big outcomes of of it and if not you have any other um alternatives to that i i think uh and quoting about again it's a long-term play with longer people in long-term games uh they

SPEAKER_59: are challenging in every stage of it so there's um i think also this this street has some mixed feelings between what happens in growth stage and what happens in early stage so in early stage we we have a lot of the dynamics around collaboration trust-based relationship between investors and and founders

SPEAKER_58: and as the startup grows uh dynamics begin to change and and and i i think incentives and time time horizons as well so it's really difficult it this is chaotic and you need to to to know how to handle

SPEAKER_78: that and in it's part of the game we are in yeah i mean looking at the criticism it's yeah of course

SPEAKER_12: it's a portfolio strategy so that means less stress uh than founders i think everybody knows that um i think it's a link baiting tweet to be honest i mean there are obvious points we've discussed many times um and you do see there are vcs i think who work as hard as founders but those tend to be the people who are the founders of the fund the principle of the fund the people who have to go out and raise the money i think a lot of this and what i've learned over time is like there are people who joined venture capital firms they join them they work there but they don't have to go out and raise money from the lps and that's a totally different mindset when you're responsible for the lp relationship and the founder relationship and the hiring and firing of the team in the venture firm you have a different level of anxiety of vigilance i am super hyper vigilant about our fund and our firm the people who work for me and who i've hired even if they're partners even if they have carry because they don't have to face the music with lps they don't have to explain you know where the dpi is and why they didn't make a certain trade why did they didn't exit a company when they had secondary opportunities uh why it's taking long to get returns all of that stuff those are the hard conversations and so those are the folks you know when you're doug leone or ruloff and you have to face the music mike maritz with the lps and you have to deal with the founders that's when you are very similar to the ceos of the company but that's maybe five percent of the people in venture capital 95 of them are working at a venture firm so they're kind of like the employees at a startup they might care

SPEAKER_11: deeply about the startup but they don't they aren't the owners of the startup i think that's probably

SPEAKER_54: what he's getting which is a fine fair point yeah and this is a very emotional game you need a strong

SPEAKER_58: stomach to do bc when you have skin in the game as you mentioned jason and and yeah it's it's really uh uh you have to you need a strong mindset and a long-term mindset in order to outperform and

SPEAKER_45: eventually win on this game i hadn't thought about jason's point i have to say because i spent almost my entire career in an equal partnership with no analysts and no associates so we were always the owners of the fund i think i think jason's point's a really good one uh and a new insight for me not you know i'll tell you if we're talking about august we had a distraction here you know war broke out in israel on october 7th and we had not just keep the lights on we had to keep the ecosystem and technology system we did six investments post october 7th till like mid-february when we had our annual meeting and there was tons of distractions we had to work doubly hard that's just part of this game there's always something going on and you know you're responsible to the lps and you're responsible to your founders and you you better be in it and you better be working your ass off and

SPEAKER_58: you're committed in the good times and in the bad times so might be something to do with all of these

SPEAKER_12: new venture firms david that have popped up over the years uh or during this era i think they the classic structure was five partners who went out and raised the fund together you know four partners raised the fund together invested the money and you know there weren't associates or you know second third tier people at the firm doing work um you know and you know that may have lowered the sort of perception of vcs in the market that they were playing a certain role almost like cosplaying like they're pretending to be vcs like they're pretending to be michael or bill gurley and you know like it's something very different it's i i did a short for all in this week about you know all these people who work at uh big tech and they were doing during the surf era a day in the life of and

SPEAKER_02: like oh i went and i had like a stay i had some breakfast and you know then i went to the yoga lounge and then i had lunch with my friends and then i did some meeting i did an email then we had a volleyball

SPEAKER_12: game and then i went out for drinks and you're like i think you did three hours of work all of those perks that google gave people were because they were working 12 hours a day and they're like you know what if you're at the office 12 hours a day least we can do is have a cafeteria with three meals for you and you know what yeah we'll we'll try to come up with other ideas we'll have a cafe so that you stay on campus and do more work all of those things were designed by management

SPEAKER_150: to reward hard workers and to keep people working they weren't designed to create a resort lifestyle for entitled millennials and when management saw the abuse of those perks that's when the layoffs

SPEAKER_12: begin that's when people were like you know what let's get fit let's get rid of ten thousand people and see what happens that's when elon got rid of eighty percent of twitter that's when suck was like you know what oh he got rid of uh eighty percent of twitter a couple thousand people i'm gonna get rid of ten thousand people see what happens oh you know what nothing changed let me get rid of another ten thousand and see what happens and now these companies are realizing and it goes to this um

SPEAKER_80: expression uh about like hard times create strong men strong men create good times good times create

SPEAKER_139: like weak whatever michael hoff yeah yeah and i i that's the origin of it i don't actually know the origin of the quote but that's what i saw in tech hard workers solving hard problems created perks

SPEAKER_12: perks created weak people who didn't solve problems they've all been laid off and now we're back to hard problems and i think it's the same thing in venture capital

SPEAKER_155: zerp era created too many venture funds too much effing around and now we're finding out

SPEAKER_12: because the returns are here if you want to be inventor you're going to try to put in 60 hours a week i tell people coming to work for me if you want to succeed in this business i expect you to return my texts and emails within minutes 24 hours a day seven days a week and they're like are you serious i'm like i do i mean if i'm asleep it's different but you know like if i'm with my kids or

SPEAKER_150: i'm in a movie or you know i'm out and about i'm skiing like i will be on the ski lift checking my messages you know on the before the next run i don't unplug you know a hundred percent in that

SPEAKER_12: way because my job is too important to the lps and the g and the and the founder and i think a lot of

SPEAKER_13: people were like yeah i'm going on a 10-day silent retreat like there's no 10-day silent retreat in

SPEAKER_213: venture capital your founders need you it's a capital never sleeps exactly exactly like it's a very

SPEAKER_59: it's a finance job it's a very important job and i agree with your point and that's a really great example of what happened and we saw a a a lot of emerging managers doing their first five to

SPEAKER_58: 10 to 20 million dollar fund with no investment backing expertise no no prior pc expertise just

SPEAKER_59: they did a company they failed and they have like two three five year experience operating a company

SPEAKER_58: that wasn't successful and then now they decided to build a fund so during that serve time and after that i i i think that the a lot of the vcs uh emerging managers that we saw were washed out because

SPEAKER_59: the timing and the market corrections didn't play to their favor as well so i think what that that was necessary because we need a healthy ecosystem and and and and if you're going to be in vc you you need

SPEAKER_18: to be all in 100 so you know everything's a pendulum i think is probably the reason the tweet got a lot of attention is because people it resonates with some founders the criticism probably resonates founder

David Friedberg: pro founder tweet and then yeah i mean it's always there's a bit of pandering that occurs in our

SPEAKER_12: business like by the way you know sometimes founders do really stupid things and need to have their board members tell them like hey this was insane and is like you have the risk of ruin here you might flip the car like maybe we shouldn't spend all this money like crazy like sometimes founders need a check and a balance like that's like a healthy thing now maybe a founder sees this and it's like oh i don't want jacal as an investor because he believes in governance you know what great go with somebody who who's an investor who doesn't believe in governance i believe corporate governance

SPEAKER_155: is like cool it actually creates alignment and protects all shareholders the largest of which is

SPEAKER_12: the founders and if a founder doesn't have a ton of experience and their company gets big and they decide like yeah i'm just not that interested in like my accounting well that's where the board can

SPEAKER_226: come in and be like you know what we're interested in the accounting well we'll help you get this

SPEAKER_02: fix right or like yeah i haven't really been looking at the cap table and uh you know the legal

SPEAKER_226: issues over here and it's like yeah i've seen legal issues kill a company i'll help with that uh and

SPEAKER_12: that's healthy but for some reason it's called hygiene yeah there was this whole thing and i think y combinator kind of created a little bit because paul graham had bad experiences with vcs um and they created this like oh we're it's cool to be anti-vc it's cool to be i've been on both sides

SPEAKER_110: of the table i can tell you like yeah there's bad founders bad vcs great founders great vcs and

SPEAKER_12: everything in between it's this idea that you're like trying to i don't know the vcs are not an essential part of this process they actually are the milestone based um funding system in silicon valley is so impressive to me it really does a great job of creating a high performance environment in order to hit in order to clear market with seed with uh an accelerator a seed fund a series a fund a series b a growth fund to go public all of those benchmarks are so robust and dynamic and well executed on that it really does become a great sorting mechanism it's not perfect no system is but i think it's like the greatest capitalist ecosystem on the planet obviously it's created all the top companies like of the 25 companies in the world by market cap i think like 18 of them are a product the venture capital ecosystem so um yeah this whole like anti-visa thing i think is super lame the anti-governance thing is super lame and it's just a way for people to pander to like win deals you

SPEAKER_19: don't need to pander to win the deals you can just explain why corporate governance is smart michael how

SPEAKER_10: do you tow the line between telling founders maybe what they don't want to hear but also building the

SPEAKER_45: relationship with founders i think you can tell founders what they don't want to hear if you've already built the relationship and that's the key you have to spend time with them i i almost care less about the business plan than i care about having the beer uh with the founders and uh i'll ask hard questions before i invest because you have to ask hard questions after you invest you build trust in the process of going to invest with someone and then in your your early moves um and if you are consistent in your behavior rather than erratic uh i think that wins people over and to jason's point about you know they're good founders and bad founders i keep finding that the good founders want to get that feedback they thrive on it they respond to it and so uh some of the hardest conversations i've had are with my best founders who have done the best and sometimes i'm wrong sometimes i'm right uh but you know generally we have a conversation and we both get better uh for that conversation

SPEAKER_10: do you test that while while you're making the investment i like to push founders see if i could trigger them see if see if they're willing to take feedback i wouldn't say that i proactively or

SPEAKER_04: consciously test for it but you're in a conversation with people and i think part of this job is being

SPEAKER_45: able to quickly assess people assess their instincts assess what they care about uh assess what they're prickly about and so i just i think that's just a core part of the job but i wouldn't say there's like a tactic to elicit a strong response or see if they take the feedback well yeah you can generally figure that out i did i tend to yes send them away to do a you know complicated thing i was looking at a deal right now i i thought his idea for the business bottle was was totally backwards so i sent him away to make 10 calls i gave him you know like 10 names i said call these 10 people here their phone numbers see if they'll give you fifty thousand dollars each uh for your service um i actually just want to see if you make the calls not whether they'd say yes or not

SPEAKER_38: moving on a carta has released the fundraising ranking by ecosystems with the bay area leading the way new york edging out boston by a little bit for second place bay area doesn't lead in every category however new york fintech is dominating raising more than twice the amount of bay area fintech startups we were promised really a flat structure following covid and the introduction of remote work and zoom but it doesn't seem to have played out that way and today we have a couple guests that are

SPEAKER_10: actually in foreign countries so curious to see how much is geography play a role in the vc vc ecosystem

SPEAKER_58: in 2024 so it's a very important role when when you are uh located outside the u.s for us um 80 of the investments are made in the u.s and then 15 of them we made it on latin america in our emerging markets just to grab a portion of that uh potential market but uh double clicking in the u.s i think

SPEAKER_59: it is important to understand where the outlying companies are being built consistently and for us uh 65 percent of our investments goes to the west coast 25 to the east coast and then we leave a five

SPEAKER_58: ten percent to the rest of the u.s so uh we rely on that because um for us trying to get that alpha and because of our portfolio construction uh having this uh fund of funds profile and then the direct side of of of our fund we need to geographically analyze all the the the tickets we are going to make on and that are in our in our control let's say in some sort of way and we have seen that 60 percent of all u.s exit unicorns have come from a california then if you add boston and you add uh new york you have 70 cent percent of all the u.s exit unicorns so there are strong facts and numbers that tell us

SPEAKER_59: that we need to deploy into those geographies and the the probability of finding those outsized return is going to be there this is not a a a a a section that we can invest in some of our ecosystem but when we measure and analyze a and specific ecosystem there are three criteria that we use first and the most important is density for us density is the relation between a group of great founders and startups related to the capital players i think jason mentioned a little bit earlier you need this um ecosystem of friends and family syndicates angels accelerators family offices cdc early stage funds um in in this group of of money and and the the the greater the relation the greater the probability to have uh these vibrant ecosystem and a good example is the bay area around ai uh new york uh around fintech so uh that's the first criteria the second one we try to measure in some sort of weight interactions between all the players you see a lot of uh interactions between uh uh government uh academics

SPEAKER_58: and universities uh corporate startups and investors around the bay area as well so that's a good and clear indicator that things are going to happen there and there are some emerging uh ecosystems uh floria

SPEAKER_59: denver austin that we are interested in but uh it's a long-term plane and it takes some time to have the dynamics that we have in this i won't say perfect but the best in class ecosystem and that's what we

SPEAKER_222: are looking for in our geographical focus yeah this shows me the rise of the rest steve case would say if you add markets two through six together they now equal the bay area and so that's super impressive

SPEAKER_12: to me new york boston la san diego and austin put together equal the same funding dollars as the bay area and the thing to keep in mind here is um there's an overhang here uh the trend has been that silicon valley's playbook is now spread out across the rest of the world uh not just the u.s but the rest of the world obviously we're going to lead the rest of the world in the u.s collectively but founders do not feel the same allegiance uh or the same necessity to be here and i think the bay area's percentage of dollars is going to keep declining because you'll see the larger companies start emerging from other markets like i saw andrel is raising at 12 billion or attempting to raise at 12 billion you know if they raise a billion dollars like that skews a whole bunch of this right um because i think they're in san diego uh and so uh one or two large companies being in new york boston san diego la austin etc just changes this whole dynamic and i can tell you founders who are second-time founders are likely to consider other geos to put their companies because they know how hard it is to attract talent here um and then first-time founders i think should come to the bay area or one of those top six markets if you're in the top six markets there um or even the top 10 i think you're fine the biases towards the bay area is totally gone now um and that's changed just in the last 10 years i think since covet it got accelerated there's no vc who's like you're not in the bay area i'm not investing that is at and that 20 years ago was exactly how they thought and i doubt that it's an advantage for second-time founders i think being in the bay area is a disadvantage for second and third-time founders who know how to do this i think it's an advantage for first-time founders that's just my candid assessment of it without an allegiance to any of these markets if you're a first-time founder it's great to be here you're going to meet more vcs um if you're a second-time founder it's great to not be here because the cost of living is going to be lower and you could be the number one player in a smaller market which means you get the bulk of the talent which is why tesla moved to texas i think and then um uh oracles now officially in texas or are they in nashville now people keep moving their headquarters um so i think this whole

SPEAKER_184: silicon valley bias is changing rapidly i think you bring up a really interesting point and the

SPEAKER_10: career number one career advice i give to people is you have to be in your mecca when you're starting out and there's so many things that go into that that's obviously tech for san francisco that's finance for new york you really need to instill that level of hardcore-ness that you see around you know one

SPEAKER_38: ecosystem that i think doesn't get enough credit is actually investment banking ecosystem obviously there's a lot of criticism of it but if you're in that ecosystem i did i did a summer at jeffrey's it's so hardcore you're there 14 16 hours a day and it just changes your brain your brain chemistry and seeing other people do it live in front of you is really powerful same thing in tech when you're walking around and you're just literally at a bar and you're just talking to somebody that just raised 10 million dollars from andresen for their series a company and you have a 20-minute conversation you realize they're not that much smarter than you and then these conversations keep on happening many times over it's very powerful you kind of create this reality distortion field where i started my first startup right out of undergrad i was 22 years old i raised venture funding nowhere else in the world would that even be an option let alone a possibility and i think being in that ecosystem is absolutely

SPEAKER_10: powerful until you basically uh internalize that thinking the talking all these things that that lead to success in the industry so i think i think there is something to start there but but to your point uh some of the best companies in my portfolio are able to recruit because of their location you have a company

SPEAKER_38: better than jake jake paul's company and they recruit people out of these markets like new york and san francisco that want a different lifestyle around them in miami still want to work hard but want to have

SPEAKER_119: something different want to live in a different ecosystem with maybe different values so there is a way to actually turn it in a significant competitive advantage as well well michael israel

SPEAKER_03: is uh i think the startup nation like the highest number of startups and investment per capita of any

SPEAKER_18: nation uh and unicorns probably per capita highest along with sweden it could be yeah our view on this

SPEAKER_45: is is actually back to the old sequoia model which is they used to say that if they can't ride their bicycle with company they wouldn't they wouldn't go there and i think i think jacal is a hundred percent correct when it comes to the u.s that you've got a bunch of cities to go to we invest here just in the local israeli ecosystem which is a big enough pond uh deficient for us and think that our advantage is we don't have to fly in here to do it although uh many foreign investors are flying in here uh the hotel up the block which is where most of the venture guys stays has been the only hotel full around here for the last uh bunch of months because people are still flying in to do deals and sequoia was in here and axel was here and index was here but you know that that actually brings something up which

SPEAKER_04: is what i think is really interesting is that this region for the first time israel was like an island here it was silicon valley and israel or tel aviv and then new york and and now like jason and i had dinner together in abu dhabi a few months ago that we ran into each other there and that's becoming the beginnings of a hub also so many ukrainians and russians have descended on on dubai and abu dhabi started as kind of a place people went for money but there's the emergence of a technology hub there uh as well and we kind of think about this region as it extends from tel aviv via uh the emirates the uae to india uh what's going on in the indian stock market that not enough people are paying attention to like software companies and tech companies are going public there um this is becoming like a regional hub that i think could emerge pretty extensively and it's and it's a big deal crypto by the way in dubai it's become the headquarters for cryptos us has kind of gotten behind it maybe the last 24 hours has changed that with the new kind of white house letter to the you know to the sec but this is becoming a real real issue and the other thing going on is because tech has gone into so many industries uh that have been previously regulated regulatory arbitrage is a big thing and so you know the uae which is a well-governed country and could also be helpful in regulatory arbitrage israel which is you know both innovative and helpful on that i think is really important and you can get to see people uh in person and just to the last point you're all talking about which is you have competitive advantage if you set up i'm making it up in in in denver and you're like the biggest dog in in denver uh part of what that comes down to is the thing that promised us in kobe that actually didn't come to be i think is remote work and we actually need people to get in the office together and interact and you know bang into each other it's like you said about working at jeffrey's that summer and going 14 hours you know there's a vibe when when i was younger i studied in yeshiva it's a house of thomas study you knew where everyone sat and if someone wasn't there you knew they weren't there and there was like this intense subtle pressure that if you left early you know you weren't studying as much and i think startups are the same and so you need people in the office they need the interaction and to you know bounce ideas that's how excellence is created so new ideas are created and by the way how you stay optimistic i think a lot of people staying at home are lonely they get pessimistic they look at the zoom and there's slack all day and optimism is what creates companies i was on a panel a week ago a week and a half ago in a different country and i used the phrase that optimism is a is a weapon of mass creation and i really believe that and you kind of need that interaction to get the optimism otherwise you kind of get lonely and pessimistic and uh so get people in the same place it's exciting

SPEAKER_80: it's exciting here in tel aviv we always people out all night yeah it's definitely i've spent more time in that region in the past year than i did in my entire life so yeah i think it's uh there's

SPEAKER_18: something big happening there especially if lps want to back venture firms that kind of drives

SPEAKER_12: the vcs to come there the vcc the startup creation there they're like oh there's also startup creation here maybe i should look at some of these companies while i'm here that's what i did and

SPEAKER_18: i was like huh this is impressive and so globalization is continuing yeah jason packed the house by the way

SPEAKER_255: at that but it was called hub 971 in abu dhabi he packed the house yeah the podcasts are pretty

SPEAKER_80: popular there both of them this weekend startups and all and are super popular over there by the way kudos

SPEAKER_51: to ibrahim the team is at bubala and all those places they're they're making a real dent it makes me hopeful very much about this region and optimistic and again that's a weapon of mass creation yeah i'm i'm

SPEAKER_259: going to be involved in the region next year i think a little bit more yeah well it's been another

SPEAKER_10: great uh episode of the liquidity podcast for michael eisenberg hami madis jason calacanis this is your host david weisberg thanks for listening