SPEAKER_00: This is the Y Combinator strategy, sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on that. That is actually really good advice. But then the gamesmanship that happened was you buy my product, I buy yours. Can I get five people to buy mine? And people kind of created these little round robins that I don't want to say it's unethical, but it's unethical.

SPEAKER_02: Paid, thoughts?

SPEAKER_03: I'm going to throw that one right to you. You know, throw bombs. I don't care. I'm already rich. I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm going to be Bill Gurley after dark.

SPEAKER_07: I know, but I want to give Paige a chance here to stand up and get whacked.

SPEAKER_06: Paige, you want to incinerate your career and relationships? Go.

SPEAKER_11: Oh, thank you so much for that kind introduction. No worries. I'm so happy to be here today.

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SPEAKER_16: All right, everybody. Welcome back to This Week in Startups. One of the things I love to do is have a roundtable. You may have heard a roundtable now and again in my podcast, Wheelhouse. Well, here we go. Wednesdays on This Week in Startups.

SPEAKER_18: And everybody wants to hear what's going on, Alex, from the venture side of the business. Founders want to know how that's going to impact, you know, their fundraising, their

SPEAKER_16: prospects. Should they raise money? Should they just go for the revenue? When should they go for an investment? When should they wait? And who should they target?

SPEAKER_20: All right. So on the show today, we have Paige Fendt-Doherty. She's a founding partner at Behind Genius Ventures, which writes quarter million dollar checks and as of today, we checked before the show, has written 52 different investments. Then we have Megan Reynolds, a partner at Altimeter Capital, where she is the head of Capital Formation. If you don't know Altimeter, they're a technology investment firm that invests in both startups and public companies, or as she puts it, from series A through public. And then, of course, we have Jason Calacanis here today, not in his suit, which gives five demerit points, but he is the founder of the Launch Fund and the Launch Accelerator. And as Jason said, my name is Alex. So guys, today, I know that everyone wants to talk about secondaries. So I thought we'd just start there. To set the groundwork here for everybody, do we recall that Industry Ventures data shows that global secondary activity is rising and should set an all-time high this year. If you're on the audio version, the firm estimates that there'll be about $122 billion worth of VC secondary this year, up from, say, about $105 billion in 2021. Paige, starting with you, how is your firm considering use of secondary for liquidity?

SPEAKER_24: And do you think it's going to replace M&A as the majority source of liquidity for early stage funds?

SPEAKER_25: Okay, Alex, thank you for the great question. There's a couple of pieces in that that I want to discuss. Like one, one of your questions was like, do you think that secondaries will replace M&A and IPOs as a primary source of liquidity? I think there was some data showing recently that 74% of exit value has been from secondaries, whether that's GP-led, LP-led, or tender offers. So I feel like the secondaries market will continue to rise as like a primary source of liquidity. However, when I think about that on the fund level, the premiums are rising for secondaries. So it used to be that secondaries would trade at a pretty significant discount. And I think that as premiums rise, looking at like opportunistic secondary sales where they're almost like inbound opportunities, I think those will be the ones that will have like the best price on the secondaries. But when it comes to like behind Genius, I think it's really like deferring to our LPs and their liquidity needs and really understanding, you know, based on the timeline that they're expecting, like how can we come together to create a solution?

SPEAKER_20: Jason, I want you to weigh in on the discount and premium side of things. What is launch seen in the market and how much more or less attractive have secondary offers been to you in the last couple of quarters?

SPEAKER_33: Well, during Peak Zerp, we took advantage of a number of our unicorns that had secondary

SPEAKER_18: opportunities. And when we did that, looking at say the top two, in both of those cases, those companies four years later, three or four years later, are trading at below or, you know, far below on the secondary market, the price that we sold at. So that would be a great trade. And we look really smart to our LPs for having trimmed our positions and still having a lot of our position left. In both those cases, we still have 80% in the game, but we've trimmed 20%. One in two transaction, one in one. And when I look back at my Uber sales, I did a sale confidentially, don't tell anybody, directly to the company. When the company was at a peak valuation, probably around 30 or 40, low 30s a share, my friend Travis, who was running the company at the time, was able to provide me personally with some liquidity, which was incredibly good for my family and for my diversification, because it had become such a polarized position on my balance sheet. And then I sold some to Masayoshi, and then I held the rest and still hold to this day. And those have also been good trades. So, you know, even though I sold some to Masayoshi, I think at 37 and a little bit to the company at 30, you got to remember, that was like eight years ago and six years, maybe five years, six years ago.

SPEAKER_35: So if you look at those two trades, Megan, I think, you know, they, you have to look at time. And I put that money to work in other investments that also did fantastic in that time. So while I may have left two and a half X on the, or two X on the price of Uber today in its eighties, I was able to buy a house that doubled in value in Hillsborough. So the same, and I got to live in that amazing house. So this is where I think Bill Gurley said, you can't eat the paper gains, TVPI.

SPEAKER_36: You can't eat TVPI.

SPEAKER_35: You can't eat TVPI, Megan knows this quote. And so, you know, the way I look at it now in talking to my LPs, I've told them, we now have an explicit, and this might be the difference between Paige and I now, I've gotten my ass kicked for, you know, maybe, I guess, maybe six or seven more years than Paige.

SPEAKER_18: I'm like, any chance we get evaluated so much so that I took one of our 11 investment team professionals and I put them directly in touch with all the secondary markets. And I said, I want you to tell me every change in price. And I want you to guys to keep me honest and tell me what we should trim, what we shouldn't and why. And so we do this now as an ongoing thing. And Megan really informed me of this. We were on a trip to Abu Dhabi and Dubai and the region years ago. By years, I mean two, maybe. Dog ears. Dog ears for us. Tough couple of years. And on that trip, you know, I was just asking her a lot of questions about this and portfolio construction and communication with LPs. So I added two things to my fund. We are hyper communicating with our LPs and we have a very, very specific strategy. Sell 10% when we're 50x, sell another 10% when we're at 100x, 200x, and just keep doing that four times, four 10% cuts until the eventual exit is my strategy.

SPEAKER_42: All right.

SPEAKER_20: So Megan, I'm curious, is Jason's approach or something that you're seeing in funds that you guys back? Or is he a bit of an outlier in formalizing the secondary process as opposed to just being opportunistic with the chance to get a little early liquidity?

SPEAKER_47: Yeah, look, I mean, the pressure for DPI is very real for GPs today. I mean, I think I saw a stat recently that if you look at all funds, 2015 to today, 75% of those funds have not returned a dime, not a single dime. And that's inclusive of funds that are 10 years old. And so there is huge pressure from LPs for liquidity. And that comes in two forms. When you look at the data that you put in the chart earlier, there were two stacks. One of those is the LPs that are selling funds. And so the LPs on their side are driving liquidity. And the other is direct secondary. So this could be, that comes in a different form. That's GPs that are selling positions directly or strips of positions or slices of their portfolio, or it's GP, like secondary funds that are investing in secondaries on company cap tables directly. So employee liquidity, et cetera. So I just want to draw that distinction. I think there's going to be an explosion of both. I think the secondary market for venture is maturing in real time.

SPEAKER_50: Megan, can you explain strips and slices for us, just for folks out there, a little bit less familiar with the different forms that secondary transactions can take?

SPEAKER_51: That's right.

SPEAKER_47: So if, and Jason was just talking about this, about him selling a piece, when I say a slice of a position, so Jason's 50X into a deal and he decides he's going to sell 10% of the value of that to a buyer, I would call that a slice. I'm selling a little slice of my position. I still have plenty of skin in the game, but I want to return some capital back of my gains to my LPs. Another way that you can do it is you can actually sell a strip, what I call a strip sale of your whole portfolio. So I'm actually going to effectively just sell. And I think, I think maybe NEA did this this year. There was a big fund that had announced this, that they had done a strip sale. So it basically just said, I'm sold 10% of every single company in my portfolio, just to, it's not making a call on one position or the other, but I'm just going to sell, sell a strip of the whole thing.

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SPEAKER_56: right on LinkedIn. In fact, we live streamed to LinkedIn three days a week and we get a great audience over there. And I happened to be presented with this fund management platform and it was a direct hit. Like, I mean, talk about hitting the bullseye. If you're in business and you're making a product or service, it's really hard to find customers in the business to business space and doing B2B advertising is hard, but LinkedIn makes it so easy because, you know, their tools let you target people by job title, industry, company size and more.

SPEAKER_00: So this fund management platform obviously was looking for people in venture capital who had a fund size and a number of people, maybe 10 people, maybe 50 people. And they found me. They got me. They split the arrow. Boom, right on target. And there's two things you really need to know about LinkedIn going into 2025. First, they broke a billion members and 130 million of those billion are decision makers and 10 million of the billion are C-level executives like myself. Where can you get to those people? It's really hard. And the second thing you need to know, LinkedIn makes an impact. B2B marketers report two to five times higher return on ad spend or ROAS, return on ad spend. You should know that acronym. Compared to other social platforms, 79% of B2B marketers say LinkedIn is the best platform

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SPEAKER_18: I think that's what Industry Ventures and Dave McClure's fund are doing as like their primary

SPEAKER_33: activity now is those strip sales.

SPEAKER_47: They do a lot of that. There's another thing that you'll hear in the market that's very popular to talk about called continuation vehicles. So this is where you actually take an asset out of a fund, roll it into a new fund, you give your LPs the option to participate or not, but it's a way to deliver. So you effectively return the capital back to your fund, but you continue to own it. There's some LPs who won't want to participate. And so you bring in people like Industry Ventures or Dave McClure or Stepstone Group or Collar Capital, like there's tons of secondary buyers out there. So there's all of these different technologies for returning capital and all of them are important and growing in a world where there's just, there's no M&A and no IPOs. Like the volume is still like, it's just not where it has been in the past and it's not commensurate to deliver liquidity that people, that our LPs need to continue to fund the ecosystem.

SPEAKER_20: It's funny when I learned about venture capital, we didn't talk about strip sales and slices and secondaries as much. And it does feel a bit like the private equity-ization of venture, Megan. I'm curious, Paige, if you thought you were going into like baby private equity when you

SPEAKER_67: started a venture capital fund, or you thought you were actually going to get to, uh, some IPOs?

SPEAKER_69: Well, I guess I actually started in what you would call like baby private equity.

SPEAKER_25: I had an internship at TVC capital, which was a growth equity firm, um, in San Diego and focused on buying, uh, large minority positions in software companies that were doing between like one to 3 million in ARR. So like, ironically, that's almost the profile of like a seed, a company today, uh, given how much metrics have moved. And so when I was there, I learned a lot from the partners about like the secondaries market in growth equity and how that was growing. Um, so I, I feel like it was something that I came into venture with a consideration of.

SPEAKER_73: All right. I want to talk about M and a a little bit. It's the other side of the liquidity equation.

SPEAKER_20: According to NVCA data, we did see a relatively strong Q one compared to recent years in total exit volume, still very much below what we saw in 2021 recently. Crunch space reported that in may, we saw a strong uptick in global venture backed M and a pretty encouraging, clearly less than March, but certainly a lot better than we saw in 2024. So I want to go around the horn here. What are we seeing in the market regarding M and a transaction velocity and pricing? And are you guys optimistic that things will get better? And Jason, we'll start with you.

SPEAKER_76: I always look at not what the administration say, but what they do.

SPEAKER_18: Many administrations are effervescent and vocal. Maybe they start with incredibly bombastic behavior and words. And then we see the reality.

SPEAKER_56: So if you were to look at, say, trade and tariffs, it started with this incredible bang. And depending on how cynical you want to look at it, it's moved to a 2.0 phase, which seems incredibly reasonable. We can debate if you should do extreme things and then do very moderate things. If that's chickening out or a strategy in 4-D chess, come out with a big ask and then revert back to what you actually want. Politics aside, every M&A transaction during the Biden administration and the wrath of Lena Khan was faced with extreme pushback. Every single one of them. I can't remember one of them where people weren't hand-wringing. And we even saw the unwinding of the great Adobe, Figma, $20 billion, rained down, pure cash on the venture industry. That was a pure cash, boom, massive amount of distributions. That company was half owned by venture. I'm sure it would have been $10 billion to the L people. And what do we have? Two year wait, right? Until they go public, probably. So that's two more years. And I bet you the IRR is only going to go down on those investments, Megan will back me up here because she probably has the inside dope on it. So because that got delayed two years, there is a value to money and it's going to be the same valuation, perhaps less. So if it's a lower valuation, those folks are going to be like, ah, bummer. I could have got that money back, put it to work and got two years at 10% or just in money market from 6%. When I see Salesforce make a big purchase, when I see, uh, the new, uh, potential king of M&A, Sam Altman, make two purchases in one month, he's, he, you know, he's, he studies people.

SPEAKER_80: Databricks has been acquisitive.

SPEAKER_56: Databricks. Thank you. Um, Uber has been buying little, you know, tuck-ins here and there, uh, you know, in different markets. That's pretty interesting. That's sure. DoorDash as well. DoorDash bought two.

SPEAKER_82: Mm-hmm.

SPEAKER_56: And these, if you look at them, I think all the ones we described, Megan, are one to six billion on average, one to eight billion. And whiz obviously happened. I think that's your big spike there. So even if the MAGA folks are anti-tech supposedly, anti-M&A supposedly, this is a flurry of really exciting deals, really exciting deals. And then the 10%, 20% of the last value of a company offers we were getting in the prowl, are now to 50, 60, 70% of the high watermark. Something's happening here. People are optimistic based on their behavior. Put aside all the news reports, all the debates on All In, all the debates on BG2, of politics, of hand-wringing and administrations, game on the field.

SPEAKER_83: Stock market's about to hit a new high. Tariffs have been, they were treated on tariffs and M&A is going crazy.

SPEAKER_29: Page, Megan, I'm curious if you're seeing similarly strong M&A vibes out there in the market. Megan, start with you.

SPEAKER_90: I would definitely note exactly what Jcal was saying, that there's, yes, we haven't had

SPEAKER_47: this big deal hit the market that creates a wave of cash coming back to LPs and Figma not happening yet. Whiz is going to take a year to close. I mean, it's going to take a while, even if you have a big announcement for some of these things to actually hit LP's pockets. But in the meantime, smaller deals have been happening. You know, they really don't hit the radar. And unfortunately, when you have a concentration of growth assets that represent a large percentage of value in venture portfolios, it's hard to feel the effect of the Databricks $2 billion acquisition of Tabular. But it is happening.

SPEAKER_51: And I am optimistic about the market. I don't think venture is dead. I don't think M&A is dead. And I think IPOs are going to come back. It's a matter of time. And in the meantime, the secondary markets that we started talking about are a creative

SPEAKER_47: way to put some cash back in LP pockets to keep the funding ecosystem going.

SPEAKER_25: One of the sales I thought was really interesting was Zuck's 49% purchase of ScaleEye. I think that the regulatory pressure that's been happening in the M&A world, like I had a friend at Figma and like that would have been like a life changing acquisition for her. And it was really interesting to see the aftermath and ambiguity of it. And I think we'll start to see more purchases in that like 49% that doesn't trigger some of the regulatory pressures. I remember reading that headline being like, I think we're going to start seeing like a lot more of these, especially for larger companies so that they can still operate like autonomously, but provide liquidity to the ecosystem.

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SPEAKER_35: And I think when Zuck does the hack, that's the end of the half-life.

SPEAKER_98: And we're done.

SPEAKER_18: Yeah, I think we're done because people don't like Zuck. And people have a lot of scar tissue about that Instagram and WhatsApp application in government. When Tim Cook does something, Satya does something, Google does something. It's like, oh, yeah, I like Google. Google search is good. Oh, yeah, I have Windows. My kids use Xbox. And, you know, you bring up a toxic brand like Meta's, which people are like, yeah, Instagram is a scourge on my family.

SPEAKER_56: And my daughter is obsessed with it. Oh, yeah, people are getting bullied and harassed on this other platform on Facebook. I stopped using it. There's like a certain toxicity there. And I think Lena Kahn was starting to investigate this before she left. I think he's just basically put out a huge sign like, look at me. I don't care what you think. You can't stop me. I think he should have just done the regular acquisition and dealt with some.

SPEAKER_99: Interesting.

SPEAKER_83: Yeah. So I don't know. That's just my personal belief is we have a new regime in town. And I understand doing it with Lena Kahn because she had no choice.

SPEAKER_56: But he's been donating heavy to this MAGA stuff. He put Dana White on his board to appease Trump. You know, he did the big apologies. He just made up with Palmer Luckey. Shout out to my guy two weeks ago. My guy Palmer Luckey and him broke bread.

SPEAKER_18: And now they're besties again. You were there for the breaking of the bread?

SPEAKER_102: No, no. I was there for the before.

SPEAKER_18: Oh, when Palmer and I hashed things out. Yes. So, yeah, I do think he should have just gone straight. What do you think, Megan? I'm curious. Like, do you think like these hacks are a good idea, bad idea?

SPEAKER_105: I don't know. I'm not sure that I have a view, to be honest.

SPEAKER_51: 49% hack? The 49% hack. People are. Look. People are. They're smart. They're going to find a way. And they're just. They're going to. You're just going to find a way. And this is like in the world. There is no way that Zuck is going to lose in the battle for AI supremacy. And he is going to find a way to do it. And whether it's a 49% hack or stealing teams or other things like I, I wouldn't, I wouldn't bet against him. And I think he's very strategic and is going to do what he needs to do. But in the and in the meantime, like these big companies, Gurley was talking about this on invest like the best and was just talking about the cash balances of these large companies where they've they've got the capital to put to work.

SPEAKER_47: It's going to find a home. We're going to find a way to do it. We're in a more friendly regulatory environment. But in the meantime, we just haven't.

SPEAKER_113: The ecosystem hasn't really reaped the benefits of it. Life. Life.

SPEAKER_116: What's the word? Finds a way. Yes.

SPEAKER_35: That's my Jeff Goldblum. It's terrible. I got to work.

SPEAKER_119: Life. Finds a way.

SPEAKER_122: I think I think Megan's point, though, is really good because Meta has had enough money and enough profit to lose tens of billions of dollars on VR and then keep doing that.

SPEAKER_20: We'll also invest in so much in AI. It really speaks to the fundamental strength of the Meta model over the last couple of years. I'm I'm blown away, Megan, by their ability to just have that much cash.

SPEAKER_127: I want to look back.

SPEAKER_128: And they've gotten fit. They've gotten fitter. I don't think. Deserving cash, right? It's gotten more efficient, being more efficient.

SPEAKER_90: So.

SPEAKER_131: Well, we'll see.

SPEAKER_90: There's lots that's going to play. I mean, this this year is just going to be.

SPEAKER_133: They have less employees now than they did three or four years ago. And Brad started dunking on being like too many people.

SPEAKER_18: Like, I think they literally have less people now than three years ago. And they're growing at 15 percent a year. I mean, that's crazy.

SPEAKER_20: Yeah. Big, big tech has slimmed down. I think we've all seen that in the forums from recent graduates complaining about a dearth of job opportunities. I want to put a cap on the secondary conversation, though, because I'm just curious what founders should know about approaching Jason raising capital from investors that might be leaving their board earlier through an exit or just having to deal with multistage funds versus early stage investors. There does seem to be a bit of a dichotomy now between people that will exit early and people that will exit at IPO. So for founders, just advice on how to handle the new secondary.

SPEAKER_18: Very, very simple for founders. If there's a market for your shares, control it, embrace it. Do not try to fight it because it will happen with or without Mark Pincus learned that people just started trading his shares. And then the, you know, the horse was out of the barn. Just say, we're going to do it twice a year. We're going to put a price on it as CEO. I'm going to do the price discovery. I'm going to control who sells.

SPEAKER_56: You put in your requests. And then now you've got ball control. You've said to the market, this is going to occur. It's going to occur July 4th and, you know, the week after Thanksgiving. Those are the two dates. You put in how many shares you want to, how many shares you own, how many you want to sell. We'll get back to you in two weeks after that as to if we can fill any of that demand. And now you don't have people going off and running amok on the street trying to find buyers, right? You have ball control. You've told them.

SPEAKER_35: Now you've put it in the VCs and the LPs and their hands to say, oh, no, no. I want to go around the back door and I want to disrespect you.

SPEAKER_51: Jason, I have a question. What do you think is the size threshold for that?

SPEAKER_47: Like at what point, at what size of a company do you think it needs to be for them to take that institutional approach to liquidity? Is that something that, like a series B or C company needs to be thinking about because they're 10 years into their journey? Or like how do you, if you're advising founders, like that's obvious if you're ByteDance or if you're the Carlson brothers. But like what, at what point do you think that happens?

SPEAKER_00: I think it's a distraction, obviously.

SPEAKER_18: Yeah. So I would set the parameter that employees who have been with the firm for four years can make requests. Investors who have been in the company for three years can make the request.

SPEAKER_56: So I would do it based on how long you've held your investment, that, you know, we're going to provide this for people who've been investors over X amount of time.

SPEAKER_141: Now you've narrowed the pool. People who are at the end aren't flipping and you get this sort of transient nature to it.

SPEAKER_18: And you're rewarding the people who are the early investors. So, oh, Paige and I did a seed round and Brad wants to double down with Altimeter. Great. We can participate. Oh, Brad buys a position and it's year two. And Brad's like, oh my God, this thing's 3X. I need liquidity. The founder can say, you know what, Brad, you just bought your shares. Can you just hold your horses here? You know, give us three years of your investment. So I like that strategy rather than the revenue or whatever.

SPEAKER_83: And it really is demand side. There's no demand. There's no demand.

SPEAKER_18: So, you know, but this is a new thing.

SPEAKER_56: My only piece of advice for the founders is have ball control, set your own rules, and then force your employees, force your management team, force the LP and VC community, force retail investors to stay within your rule set. And then, you know, if they want to step out of it, great. Now they're no longer friendly with that founder. And as a founder, you should then just call them and you should say, you'll never invest in another one of my companies if you go off the reservation. You jump the fence. You're out of the family. You play by the rules and you're respectful. You're in the family. Would you like to be outside the family or you want to be in the family?

SPEAKER_73: All right, Paige, a founder calls you and tells you that. What are you saying back?

SPEAKER_148: Well, I guess like I would be like, yes, sir. Yes, ma'am.

SPEAKER_25: Yes, ma'am. Also, like the other thing of like staying inside the family is there are like QSBS holding requirements of five years. So you wouldn't reap any of the capital gains benefits if you held for under five years. So I think that would also be a consideration if you're like an individual investor and you're like, hey, like at 3x, I want to get out. But I might have some tax liabilities because I haven't held for that long. You can like determine that. But I feel like most funds would hold through the QSBS holding period because it's like 10 million in the QSBS side. So I feel like there is sort of a lock in due to that naturally built into the system.

SPEAKER_73: And QSBS is the qualified small business exemption, I believe.

SPEAKER_25: Yes. Yeah. And I think that's like something that a lot of people gloss over as well in these discussions. But yeah, usually you have to hold a company's shares for five years.

SPEAKER_26: So you almost have that built into the system.

SPEAKER_18: And you have to have been invested when it was under 50 million. So this applies to seed funds in a major way. It's a major part of the seed event.

SPEAKER_157: First 10 million, no cap gains. Yes. Let it sink in. Yum, yum.

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SPEAKER_142: It literally is one of these rare moments where capitalism works.

SPEAKER_18: It looks terrible on the optics. Like why should Paige and J-Cal as seed investors, you know, get 10 million tax-free because, you know, my mom, who's a nurse, has to pay taxes every year.

SPEAKER_56: And it's like, because we're taking bets that go to zero 90% of the time. And if you don't give us that kind of tax advantage, we might just move further down the line and there'll be no angel investors, no seed funds.

SPEAKER_18: At least that's Paige and I specifically, we're going to keep to that, that we would quit if you take it away. Paige and I and the rest of the seed invest union are going to die.

SPEAKER_167: The innovation economy is dead. Dead. We're gone.

SPEAKER_168: Paige and I are retiring. She had 26, me had 54. We're done. And we're taking 100 seed funds.

SPEAKER_169: Post 50.

SPEAKER_171: 100 seed funds are retiring as well.

SPEAKER_122: Sticking to policy then, why don't we try to double the number? Why 10 million? Why not 20? What would that unlock for the early stage world?

SPEAKER_18: Oh, well, remember, you have to be 50 million under assets. So there's like some reasonable math here that has to math out. Okay. We can't own more than 10% of a company in our best investments. Usually it's five. You know, Paige is doing 250K checks. She's net net hitting five to 2%, two to 5% on average and getting diluted by 50%.

SPEAKER_89: So we're small ball. Don't worry about us. We're just sliding a little check. Don't worry about us.

SPEAKER_20: Well, no, I really, I care a lot about the small investors because data on emerging managers is pretty stark. I want to show everyone a chart here.

SPEAKER_180: Oh, let's show the chart. There's a segue. Look at that.

David Friedberg: He set a screen and he just, boom, dropped the ball. Roll it on two wheels here. How about that for a segue? Here we go. Nice cooking. Go, Chris Paul.

SPEAKER_184: Elegant. All right.

SPEAKER_20: Here is a chart that Bloomberg called trouble for new VCs. They define emerging managers here as firms in their first three funds. And it shows if you're on the audio version, a rise in the amount of capital raised by these firms through 2021. And then what I would call a precipitous collapse. To put some numbers on this, emerging funds raised $64 billion in 2021. That fell to $17 billion in 2024. And through May 8th of this year, it was $4.7 billion. I think that is a collapse. And so Paige, just starting with you because you are the emerging-est manager here. What the hell has happened on the LP side?

David Friedberg: And why is everyone struggling to raise a couple of nickels?

SPEAKER_26: It's always a joy as an emerging manager to wake up and see that chart. Why?

SPEAKER_186: Why is it a joy? Because you survived? I'm joking.

SPEAKER_189: No, I'm joking. No, I would actually argue that you should feel joy. Because you did it.

SPEAKER_191: Yeah. You have a fund. Yeah.

SPEAKER_25: That was very exciting to make it through. Because when we raised our first fund, it was 2021, raised $5 million, I would say the fundraise was on all. We talked to a lot of investors. We have like 120 LPs. But the second fund was much more institutional. The sales cycles for closing institutional investors is longer. But I think there's almost the same time expansion happening that you're seeing in funding of companies. The time to go to a Series A has never been longer. And each milestone keeps expanding. So I almost think it's like that happening. But in emerging manager land where we had this massive influx of capital in one year where it might have in other markets been spread out, the rise of family offices moving into the venture space can also have a dramatic impact because venture is like a tiny crumb of the overall private equity market. If family offices get super excited in one year about the massive returns they're seeing in venture and they're like, let's all pile in. And then you see like a large market drop in 22, 23. And those were like very challenging fundraising years. And those, yeah, those like sales cycles take longer. The relationships that you're building have to go deeper. So I think it's been like a very interesting ecosystem to navigate. And I feel very lucky to have closed our second fund in such a challenging environment. Um, yeah. And then just like continuing to educate folks who are interested in like professionalizing their either like angel or syndicate investing into a, um, a fund. Uh, and then last point on this is I think there's like, there's also a dramatic opportunity costs. Like with this whole AI gold rush going on, like you have a, um, you know, if you're a super talented generalist who understands growth and distribution, like analyzing companies, why would you not go join an AI company? That's like growing at a dramatic clip that could, um, yeah, change your life. It's like, because you love doing the work. So I think that's been the, one of the other things that I've been seeing.

SPEAKER_29: Megan, I want to get you in on this because you know, the LP side best.

SPEAKER_20: So why have the purses begun to constrict around the necks of these emerging managers who are doing God's work by funding people with an idea.

SPEAKER_196: Yeah. Can you pull up the chart again? Absolutely. I just want to point. Let's do it again. Let's, I just want to flash it because I want to, like, have a reference point.

SPEAKER_200: Kind of like squid game page. It's like squid game. It's like me, you, and like four other people are still in the game.

SPEAKER_204: Oh yeah. That's right.

SPEAKER_205: Red light, green light.

SPEAKER_204: Oh God. Oh God. It is that tough though.

SPEAKER_90: It's so, so tough. Um, I, you know,

SPEAKER_47: I compare emerging manager fundraising to like basically going to Hollywood. Like it is that hard. Like there is so much exceptional talent out there and there is talent that's been around the industry. That's, it has an amazing track record and has big films under their belts and they're competing against the same roles that you are.

SPEAKER_51: So like breaking in is that hard. And the reason I was referencing the chart again is because the last time you saw the same drop off in emerging manager fundraising activity was oh nine. It's a liquidity issue.

SPEAKER_47: Like that's not a surprise. Liquidity is the problem. That is why managers are not getting back. But there's a few other dynamics I want to mention.

SPEAKER_51: One, the primary funding base of emerging managers is endowments and foundations and family

SPEAKER_47: offices. Because if you're a large institutional investor, you're not, it's, you're not going to write small enough checks unless you dedicate capital to emerging managers. Like you just can't get enough capital to work to make it move the needle in your program unless you have some strategic reason to be doing it and who's been hit the hardest in liquidity shortfall endowments and foundations. And so they are the ones that are with, and I'm sure you've talked about on the show, or there's been so much press about what's going on in the endowment community and their constraints. But the fact that they have, they have very limited capital to be putting to work in new managers is part of the reason they're facing this constraint.

SPEAKER_20: Paige, something that Jason and I talked about on the Monday show was this data set from entries in Horowitz.

SPEAKER_73: This is the enterprise generative AI startup benchmarks that I really think blew a lot of minds. Now, for people watching this, this shows bottom median and top quartile results. Jason and I kind of thought that if we're just looking at companies that and Jason has backed or has gotten to the point to which they've gotten data during an investment conversation, we're talking about already the cream of the crop. But these numbers that we're seeing here, you know, enterprise generative companies going from zero to 5.3 million in the top quartile in a year is pretty bonkers.

SPEAKER_25: Well, I mean, like when I, when I started investing in 2021, it might be like, okay, you need to maybe have like a million or a million and a half to raise an A. And now it's like, okay, you need like five and to be growing at like 20% month over month. Like the like metrics have gotten much more aggressive. And then like, I'm going to YC demo day later this afternoon. And they, I think most of the companies in the batch have been told to like, you have to hit like 200K in MRR in, I'm forgetting what it was, but they all have this like very specific like timeline on it. And I think if you, they're like a pretty good signal to look at for like how the market is moving with regards to the targets that they're setting.

SPEAKER_91: Paige, just jumping in, 200,000 MRR, ARR for a seed round?

SPEAKER_25: 200K in MRR. Well, YCs, I mean, depending on like how you think about YC, I kind of consider is like premium pre-seed, I would say. So it'd be like to get to either a seed or A, because I do feel like a lot of the companies are getting more capital efficient or they're being forced to, because it's like, okay, it's no longer like good enough to be at 5 million in ARR at series A. You also have to have like not raised a ton of cash to get to that point because they're looking at like burn rate. So it actually is becoming more like baby private equity with the venture optionality of like 50, 100X on these companies.

SPEAKER_33: So as you're 50, out of your 50, how many went to Y Combinator, would you say?

SPEAKER_93: I think six. Got it.

SPEAKER_221: Do you think you can actually do the portfolio math in your fund paying 30 million for a pre-seed company with 200K?

SPEAKER_25: I mean, we don't pay 30, like our average entry point on our fund today is. 16 million. And in fund one, it was 15 million posts. So we own like 1% in fund one and like roughly 2% in fund two. And I would say I've been like pretty dogmatic. And then we've made exceptions for like exceptional founders. Like in one case, we like doubled our like average seed check size in a company that was

SPEAKER_26: more expensive that was led by like top VCs. Because I want to get our ownership percentage.

SPEAKER_33: That's the big lesson, Megan, is like if you need to have a real portfolio strategy here,

SPEAKER_133: right? You have to have some bankroll management and entry price does matter. And if you're going to own, you know, 50 basis points versus 2%, you know, and you're going to get diluted 50% along the journey, that's 25% or 1%, 25 bps or 1%. You know, the math just doesn't math. Every investment has to be a fund returner. And I have a couple of winners in fund three where we made small bets to kind of get to

SPEAKER_18: know the firm, you know, put in a 50K or 100K check. And then it got away from us, no way to invest. And now we're sitting there with a, you know, 50X on 50K and it's great. Except now we have to explain to LPs why we suck at our job and we didn't put a bigger check and we had conviction or why we didn't put a second check in.

SPEAKER_133: And it's like, well, they went from, you know, a $30 million valuation to a 500 million. And it's like, yeah, so I just, if you were invested.

SPEAKER_90: There's so much nuance to it.

SPEAKER_227: It is. And it's like.

SPEAKER_90: People ask so many questions to your point too.

SPEAKER_47: Like you have to explain every portfolio construction decision in the way that LPs Diligence funds

SPEAKER_113: today.

SPEAKER_56: It used to be, they were like, we like you. Great story. Okay. Here's a check.

SPEAKER_230: Performance looks great.

SPEAKER_56: Performance looks good.

SPEAKER_231: And now it's like, our analysts were looking at these seven companies and we did a, you know, a search on them and it looks like they were complete, utter disasters. Tell us, uh, why did you back this? And I'm like, yeah, they totally absconded with the money. They didn't return our emails for a year and, uh, they kept their laptops. And I'm like, welcome to the game guys. Oh yeah. That founder was committing securities fraud.

SPEAKER_00: But yeah, it's like, this is the wild west out here on the margins, like crazy stuff happens. You know, like you, you back somebody and they, they disappoint you. So it's, it's hard, but I, I just don't think the math at Y Combinator mats for seed

SPEAKER_133: funds, which is why my best advice, and this isn't, don't aggregate this folks, nothing against YC. We, we don't really compete with them because we accept less than 1%. They accept less than 1%. You know, we, there's just plenty of people. If you want to make 125 K bet on them in an accelerator.

SPEAKER_00: The issue is if the valuations are that overpriced, which you have to ask yourself in one year, when they come back to market to raise their next round, what will the valuation of those companies be?

SPEAKER_18: If they were valued, you know, if they're at a hundred K and ARR, I think is what the data was showing in that sample. Or was it 200? I'll pull that back up. I think it was 200 or 200. Let's say it's 200. We'll give them a huge benefit at 30 million. Okay. So, or let's say it's 300. So they're trading, no, two, let's do 150. So they're trading at 200 times revenue. Bizarre to even put that valuation on it. I know, but that's not how you're making the bet, but it's part of it. Okay. So they're trading at 200 X, they go back to market. Okay. What do you think they're going to go back to market at after they've doubled their revenue? Okay. Now they're at 300.

SPEAKER_242: They're going to go back to market at a hundred times revenue again, 30 million. They're going to do an extension 99 times out of a hundred. They're not going to get an up round.

SPEAKER_18: So just stick around the basket, maintain the relationship and say, Hey, we couldn't get there, but we want to be helpful to you. We'd like to get to know you. And you check in with them. Hey, can we get coffee again? How is it going? And that's what we do. We just like, if we meet somebody great, Hey, let's stay in touch. I would say the other piece of this puzzle is that nobody ever talks about the bottom third of Y Combinator companies that don't clear market. So all these statistics are so massaged. I trust none of them. I don't trust any of this data that we pull up here because the game I see on the field is selective, um, data sets. What are the selective data sets? I started like a Y Combinator slide. You showed me the other day. And it was all based on TVP on putting this one aside.

SPEAKER_133: Remember the TVP I won?

SPEAKER_246: I think I'm like, yeah, this is from, this is talking about data. I thought I'd put it up. This is from Nicole Wiscoff, Wiscoff Ventures.

SPEAKER_73: And this shows YC's class of spring 2025 against a number of similar stage companies outside of the YC world.

SPEAKER_133: These are the ones she met with, just to be clear, not all. So you would think she would meet with the best ones because she's a good venture capitalist and she has some thoroughness in who she meets with and they would probably pick her. But, you know, this basically shows 5X leverage to invest in seed, seed companies, pre-seed companies that don't go to YC. That actually tracks my lived experience.

SPEAKER_212: I don't know. YC is such an interesting one because I do feel like a large amount of the valuation actually

SPEAKER_25: based in like the network of founders that they bring and like the talent that they're able to recruit as a function of like having the YC brand. So I almost think it's like, if you look at it on like a purely metrics based thing, like, yeah, it might look different, but I think that they have built such an incredible brand in the ecosystem. Like YC is like, you could go like talk to someone in the Midwest and they'd be like, or like a family office in the Midwest and they'd be like, yeah, like I know YC, like I, you know? And so I think that there is like a global brand element that they've done like an incredible job building. And then they also have like very strict guidelines around like each cohort. So, and they like move with a market, like they establish like an additional cohort. So I don't know. Like, it's like, if you look at it on just a metrics basis, yeah. Twice the price. It'll be different.

SPEAKER_257: One third the metrics or the traction. So, you know.

SPEAKER_25: But they're, okay. But the other thing is they also started, they started later. So some of the seed companies that you might be looking at might've started like three, four years ago and might've raised capital. Like a lot of these Y Combinator companies are coming in only having raised YC and maybe like a hundred K in angel checks. And so like you're paying up for like their velocity as well. It's like, they went through the YC program and like got to 200 K in ARR in like a much faster time period than another company.

SPEAKER_26: So that's like also to your time value of money question.

SPEAKER_16: Yeah, I would, I think it's a good counter argument. And the other counter argument is yes, they have a selection process that only accepts

SPEAKER_18: 1% like Harvard. So if you're only selecting great founders, you know, you do get less, I think, you know, mistakes in the portfolio as it might be like people who just aren't cut out to be a founder. So there is that. So you are paying for value.

SPEAKER_56: And then the question is, I think if you're a hardworking seed manager, your job is to find all the people who are the second, third, fourth percentile that didn't get in because they're no different than the first, that's your job as a seed fund is to find value. Warren Buffett's whole premise and his whole career is based on buying companies, you know, when they're not popular and you can get a good entry price. And then these businesses and these management teams just keep growing with them. And you just want to own that business forever. You know, that kind of the philosophy I've come to in my life with my own family office. I'm never selling a share of Robinhood. I'm never selling a share of Uber.

SPEAKER_00: The end, like, why would we sell any shares in these companies if their management is extraordinary and the products are extraordinary? They'll be here in another 10 or 20 years.

SPEAKER_56: But I think as a seed manager, Megan, what I've come to is it's my job to find companies before they go to Y Combinator and the ones who are in that second, third, fourth, and then be able to buy three companies for the price of one YC company. And I'm willing to have seven people screening companies in my company who are researchers

SPEAKER_00: and analysts in order to find that, those ones so that I can make rebats for one. What do you think of my strategy? Rate my strategy as an LP might candidly, brutally. Am I wrong? Am I right?

SPEAKER_231: I'd give it an eight. Okay. Eight. I love it. Room for improvement, but solid. Yeah. Okay.

SPEAKER_265: No, I think that's a solid strategy.

SPEAKER_231: I'm devastated right now. Mine is on the zone. On the zone.

SPEAKER_265: 8.5. Free me right now.

SPEAKER_268: She just literally knows that to motivate me. Without having, you know, the chance to really distill it.

SPEAKER_270: I think, no, I'm just kidding.

SPEAKER_47: I mean, I think, look, I think that like the 1%, right? There is like, that's the selection, right? Like you said, there's a million. There's other great founders out there and finding those that may not get in, but

SPEAKER_270: need to find the right home.

SPEAKER_277: Oh, I just figured out how to frame it and make it a nine. Megan, let me try one more time pitching this.

SPEAKER_270: Okay, do it. Okay, let's see.

SPEAKER_35: All right. Our job is to out hustle the other seed funds, and we want to make three bets for every one

SPEAKER_56: for the lazy funds that just go to Demo Day and just pick whatever, you know, the great team at Y Combinator is pre-sorted. And here's the truth, Megan. It's an uncomfortable truth for Y Combinator, but the best founders do not take the Y Combinator deal. The best founders say, I can do better. And so when you see the 1% that get accepted to Y Combinator in our lived experience, that's the 6th percentile. The top 5% did not go to Y Combinator. The majority of unicorns that you see that have gone public did not go to Y Combinator. And those are the ones we're focused on. And then we focus on 7, 8, 9, 10, that percentile. So if you look at the top 10% of startups, top 5% don't go to Y Combinator. The bottom 5% after the 6th percentile that Y Combinator gets, they're of equal value, but you get, they're of equal quality, but you get to invest in three for everyone. So that's really our portfolio strategy is Y Combinator is awesome, but you can't overpay

SPEAKER_03: for startups or else you break your portfolio construction.

SPEAKER_73: I'm sure Gary Tam won't have any thoughts about that whatsoever.

SPEAKER_281: No, no, wait, no, Megan was supposed to score it. You didn't let her score it, Alex, you did. All right, all right.

SPEAKER_284: I'm seeing you're waiting for my score. Okay, I give it a 9. Oh! And let me tell you why you got a point deduction.

SPEAKER_270: One, I like data. You had more data there. Oh, good. But you got a point deduction for calling them bets. Oh! You know you don't like that. I was literally in her talk.

SPEAKER_289: Our investments, and you know we don't call them bets, our investments, because we like to

SPEAKER_231: help them grow, we're not looking for just, you know, to make a quick hit here. We really want to learn from these investments. Each investment is a chance for our team to get better at the crowd. Add value. And add value. Yeah. Oh, good. Oh, good punch. We're learning page. Look at this.

SPEAKER_294: We're getting free mentorship from Megan. That's great.

SPEAKER_26: It's always, yeah. Yeah, jokes aside, it's always about the founding team. It's like the teams and bringing them in as part of your community.

SPEAKER_25: And hopefully, I mean, yeah, following like a similar playbook to YC and like building an incredible like community and brand around the firm. I feel like that.

SPEAKER_26: Yeah. And then, yeah. And then all your companies will be able to raise it at 30 posts right after the accelerator.

SPEAKER_73: I'm actually curious if we're talking about seed prices being too high for seed stage fund economics when that's not really the game on the field.

SPEAKER_20: There was an interesting conversation about this and Bill Gurley weighed in discussing how seed valuations are going up. I'll just read this tweet.

SPEAKER_73: A mega VC with 5 to 10 billion annual funds is really searching for only one thing, a company they can pile over a billion dollars into with a potential to 5X, 10X on that 1 billion. With this seed fund is inconsequential money used to increase the odds of main objective. You are collateral damage. And so I wonder, because going back to what Megan said about, you know, you can put money into any funds you want. Mega funds are getting larger as smaller funds get crunched. I wonder if seed pricing is more reflective today, Megan, of just what the Andreessen's want versus what's good for the launches of the world.

SPEAKER_47: I think the dynamics of fund size cannot be ignored. And I think that it does have an impact all the way, like from the top to the bottom of the ecosystem. I do. And look, I, I, I think that was a, that's a wise, but generalized statement. And I'm sure there's, and I haven't fully thought through it to say like why it's seed fund money still makes sense and why it's not just collateral damage, but the idea that you have these very, very large pools of capital that want to deploy a billion dollars or at least $500 million or a billion dollars and don't have the same return thresholds that they, that funds used to have before is really having some, like a major impact on the industry.

SPEAKER_73: Yeah, Jason, we've talked about this ad nauseum on the show, just about how these mega funds

SPEAKER_246: just have a different expectation for returns.

SPEAKER_308: And you guys have to work a little harder, uh, for your IRR. I just love Bill Gurley after dark, you know, Bill Gurley after benchmark is just great.

SPEAKER_311: He just, yeah, Bill Gurley after dark, he's, he's got it. He's had a couple of ranch waters.

SPEAKER_18: He's, he's, he's lost a couple of big pots in the poker game and he's ready to speak truth to power, but it's the truth. If you have one of these mega funds, you know, you are going to make $1 billion back. Everything you do that's, um, investment, I'm sorry, investment. Thank you. You're going to, you know, you're looking for a billion dollar investment that can five to 10 X to return the fund.

SPEAKER_56: You need a fund returner, a C check where you own 10%, you know, the chances of it becoming, if it, it is just a way for them to get the option to be on your board or be in a board observer and have information rights so that they can preempt that billion dollar check. So when you have page as an investor or me as an investor, we're with you all the way.

SPEAKER_00: When, when you get dilution, it really matters to us because we're not putting a billion dollars in at a 3 billion or 4 billion or $5 billion in, you know, valuation. We made that 125 K bet, that 250 K bet.

SPEAKER_56: We're probably not making another one. So we're with you making sure, Hey, you sure you want to dilute that much? You sure you want to add that person to your board? You sure you want to burn through your capital and chase like 4 X growth this year, instead of maybe being more thoughtful and going for two and a half X and really getting your product market fit and your product team dialed in. So our investment in your company is more aligned with you. Their investment is aligned with an 18 month period between when they drop that billion

SPEAKER_00: dollar check in that $500 million check in and you going public or getting bought. It's a much different game.

SPEAKER_316: It's mezzanine financing.

SPEAKER_315: Jason, the only edit I'd say to that is that I think the very large funds of five to

SPEAKER_51: $10 billion funds that are at the growth stage are not looking for fund returners.

SPEAKER_47: Like, I don't actually think they're underwriting deals for five to 10 X because I think that they are expect, it's a different portfolio behavior than venture where you have a very high percentage capital loss. I actually think they're underwriting for zero capital loss, but you have a two to three X

SPEAKER_51: they're underwriting for two to three X outcomes. So it's just a little bit of a different dynamic. Yeah, that makes sense.

SPEAKER_142: So maybe three or four of those four Xers make the fund.

SPEAKER_51: Yeah. Like you, you kind of, it's a more consistent driven return buildup.

SPEAKER_47: Then you have one, the rest lose money and one returns the fund.

SPEAKER_325: And maybe they hold into the public markets for an extra year or two after it goes public. Yeah.

SPEAKER_20: All right. I want to talk a little bit about revenue quality, moving a bit away from just kind of the intra-venture dynamics because we've seen companies like Glean, Synthesia, Together AI, Cursor, Lovable, and others scaling to 50, 100, 200 million in ARR. And whenever I see these headlines, I also see people from the venture world casting mild doubt on the quality of the revenue. People are worried that things are being conflated into ARR numbers or that ARR is not going to be actually recurring, that it's going to dissipate. And I'm curious from your portfolios, are you seeing revenue quality issues amongst AI predicated startups or are those only in other funds? And Paige, I want to start with you on this one.

SPEAKER_191: Oh, wow. That's, that's exciting.

SPEAKER_25: I mean, so in terms of revenue quality, I think that one of the things I'm seeing is like, as our founders got to raise their next round is that this is like a topic of conversation when they're raising their seed, if we back them in pre-seed or their A. And so I'm having the conversation with them like far before they're raising is like, this is what investors downstream are expecting. And it's like part of the reason I moved to San Francisco last year is like more deeply understand the downstream capital dynamics is like revenue quality really matters. Uh, I think like there can be mistakes or over-representations in reporting that are quite common if you don't have the background of like startup accounting, which like if you're an engineer or like you did something else before, like you might not know it. So I think, um, some of it is like a factor of educating early stage founders on like here, like reporting ARR should be like an annual recurring contract. Um, if you're a marketplace that should be reported as like, this is your GMV and then you'll have like your, um, like your, uh, like net profit based on that and not reporting like the GMV of the marketplace's run rate. I think that's like a very common thing that I've seen in companies we've evaluated. So I think that, that like more education on startup accounting is needed earlier stage as the metrics change to raise a seed or series A. I mean by series A you'll know, but

SPEAKER_26: like, I think seed is getting more series A E on the metrics that they're looking for. So.

SPEAKER_246: Seed is the new series A, pre-seed is the new seed, angel is the new pre-seed and I don't know what we're going to do next, but there'll be like nano investments at some point.

SPEAKER_335: No more summers in Italy.

SPEAKER_33: We call it, um, we call it year zero startups. It's my big focus now, uh, as we invest in earlier stage startups.

SPEAKER_133: And, uh, we found that half the applications for funding, as Paige mentioned, uh, with her strategy building community come to us before they're incorporated with an idea, perhaps a

SPEAKER_231: prototype and a team member, but looking for a third, we had all this energy and we told

SPEAKER_56: them, oh, listen to the podcast and let us know after you incorporate. Um, but then all of a sudden those founders could get away from us, right? They could find another investor who believes in them and wants to write that check. And then, you know, now we're chasing. And so we said, well, what, how could we be of maximum value to them?

SPEAKER_231: And so we took a two day event we were doing to help support founders called Founder University. And we made it into a 12 week program and I put all 11 investment team members on this. We are in our 10th cohort. We have a curriculum. We've invested millions of dollars in this and three or 4,000 people apply. We picked the top 300 teams. We invest in the top 10% of those and we get to watch them work for 12 weeks.

SPEAKER_56: And boy, has that changed how we invest. And we will give people their first 25K check to form their company.

SPEAKER_18: We found, that was another innovation we found. People couldn't get their first check. First check's the hardest. So we're like, okay, you just check a box every week. Would you like the 25K check? Would you like the 125K check? And they just changed everything for us. And on revenue quality, the fact that we're even having that discussion now is just so encouraging. Because a lot of investing, about 10 years ago, did not have revenue quality as a term, as a discussion point. It was just, what's the revenue? How's it growing? That's it. There was no, are you hacking the revenue? And again, I don't want to make this a pile on for YC, but founders are clever. And what YC did better than anybody was figure out how to create this really aggressive marketplace where everybody felt like they were going to get left behind in maximum FOMO. How do you create maximum FOMO? Two ways was how Ycomity got to it. They told everybody, you cannot raise money or meet with investors until the last week. That was like their best and kind of strong advice. It wasn't, they didn't ban people from doing it, but most people complied with that instruction. Why? You want to get everybody in the room. You want to create a marketplace. And you know, all of the language around this is consensus in the industry.

SPEAKER_56: Get everybody into a three week process, get everybody stoked, make it competitive, and then close fast. That's actually really good advice. But then people were like, well, how do I differentiate? I can't just scream for one minute during demo day. I think it got down to like a one minute presentation.

SPEAKER_231: So it was kind of like- It's short. It's meaningless. Let's call it what it is. It's meaningless. Like it's just one minute of performance art where you go up there and scream, like you're

SPEAKER_00: going to change the world and your TAM is a trillion dollars. It's meaningless. So what they did was they created the handshake protocol, which is another high pressure sales packet and combined it with a chart. And when we slowed down the process, we would just say to every founder, which is why we kind of opted out of it, the whole process. We just say, well, we take like, you know, three, four, five, six weeks to make a decision. If you're on a three, four, five, six day, that's not for us, but we'll talk to you the next round. And some founders were like, okay, we'll talk to you next round. Majority of them were like, oh, no, no. Well, you can take as much time as you need, JCal. We want you on the cap table. When we looked at their charts, we found a disturbing trend. When we asked, how did you source these 10 customers? Five of them were other YC companies. Two of them were friends of the founder. So that high pressure led to unnatural acts. And the unnatural act was to make a 12 week chart that didn't have quality revenue. Where did you source the first 10 customers? We asked them, who are your first 10 customers? They say, oh, we can't share that with you. Okay. They're like, okay, so you want to invest? No, we can't invest without knowing who those 10 are. Then we say, okay, these are the 10 first customers. What's their usage like? How many of them used it in the last 10 days, the last five days, today? We want to see the actual usage of those. Okay. And now give us where you sourced them from. And boy, did that change. All of a sudden, people started panicking when we asked for that simple information.

SPEAKER_344: That seems like very basic diligence.

SPEAKER_00: It's very basic diligence that a dentist has no idea about. So if you invite a bunch of dentists, they're like, oh my God, this is Airbnb. They told us you invested in Airbnb. This is Airbnb. The problem is when you, and this is in all companies, we found too many of these for it not to be an explicit trend. And we asked people, how did you come up with a strategy? This is the Y Combinator strategy. Sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on that. That is actually really good advice. But then the gamesmanship that happened was, you buy my product, I buy yours. Can I get five people to buy mine? And people kind of created these little round robins that, I don't want to say it's unethical, but it's unethical.

SPEAKER_02: Hey, thoughts?

SPEAKER_03: I'm going to throw bombs. I don't care. I'm already rich. I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm going to be Bill Gurley after dark.

SPEAKER_07: I know, but I want to give Paige a chance here to stand up and get-

SPEAKER_06: Paige, you want to generate your career and relationships go.

SPEAKER_11: Oh, thank you so much for that kind introduction. No worries. I'm so happy to be here today. I mean, I don't know.

SPEAKER_25: I feel like my belief is they have built a strong branding community. I think it has gotten to the point where there are people who see it as a shiny badge that they want to check off and might not be going into it for the right reasons, but have the chops and the mission and the product to get in. And I think that's a reality of whenever a brand or community gets big, you're going to have those actors in the system. But I think there's still incredible talent. I would say the way that I meet most of the YC companies that we invest in is the first one we invested in is Beacons. It's one of the first investments I made, like a link in bio tool. Grew super fast, so like one of the leading creator tools startups. And then they introduced us to like a few more YC companies. So I feel like for me, it was more like finding a founder who I really loved working with. And then they would refer me to other YC founders. And then I didn't really have to deal with any of the competitive dynamics. So it's just like, he's just an awesome investor. We love having her on the cap table. Like you should take your money. So then it was, it was no longer. So I've always found like if there are more competitive dynamics, it always helps to have someone in their network refer me. It's always like the strength of the introduction and like vice versa. If a founder, like one of our portfolio founders yesterday was like, I have this founder. I will like, I'm like dragging her by the arms, like all of my investors offices. Like she is the one, like you need to bet on this founder. Like that will make me like very incentivized to, um, yeah, to like take a deeper look. So I, I think it's like the same in like competitive situations. You have to have like a really strong founder reference, um, and then do your due diligence.

SPEAKER_73: All right, guys, we could literally talk all day. Cause there's so much going on, but we do have to make sure page makes the demo day on time. So what we're going to do to wrap up today doesn't work page.

SPEAKER_355: So wait, your badge didn't open the door.

SPEAKER_357: Just stand like 10 feet away from me when I start throwing those bombs.

SPEAKER_20: So one question for each of you, we're going to go in order of my screen, which means Jason,

SPEAKER_50: we're going to start for you just quickly. What is a contrarian place or market where you are currently looking for startups and founders today?

SPEAKER_231: Oh my God. What a spicy question. Contrarian place. Um, I think AI enabled services like Athena. Uh, you know, one of these areas where investors say, oh, that's a services business.

SPEAKER_365: It does, you know, it's not venture scale. Just like they told me, oh, Uber's in the real world. Airbnb is in the real world. Tesla's in the real world. SpaceX is in the world. Those are not venture scale businesses.

SPEAKER_56: When I hear it's not a venture scale business. And the founder says, I, I, I think there's a way for it to be a venture scale business. Here's how I think it gets really big. Then I pay attention. And, uh, you know, sometimes it turns out to be CPG and it's a dead end. It's a road to nowhere. Other times.

SPEAKER_231: You know, they, they do figure it out. Hardware as a service like density.io. We're not investors in whoop, but I would put whoop in that category where the hardware just enables a SaaS subscription. That's very high. Eight sleep. I think is like. Kind of like, um,

SPEAKER_18: a healthcare product more and we're investors in eight sleep. I think it's a healthcare product. So, you know, hardware as a service would be one that I, I think we, we figured out early. And then this new one, which is, okay, you're abstracting some human services, maybe picking the developers as micro one does with AI and providing AI human services. These could be very interesting. Um, and most people would say that's not venture scale. And when I hear that's not venture scale, but I see it growing quickly. That cognitive dissonance makes me go say more.

SPEAKER_46: All right. Thank you, Jason. Uh, Paige, over to you. What is a breakout portfolio company that you have that you think deserves more attention?

SPEAKER_191: Oh, um, what I'm really excited about is a company called intromotive.

SPEAKER_25: Um, so one of our big. Theses is backing incredible technical storytellers. Um, and the founder, Tim Lucini was a engineer at Boeing, um, based in St. Louis, they have like an incredible team of 50 engineers building electrified autonomous trains. Um, and it's just like, it's so cool. Like I watched their videos and their investor updates and I'm just like, I can't believe this is my job. Um, that's a company that I am.

SPEAKER_376: What's the URL?

SPEAKER_25: Excited about intromotive.com. I think let me.

SPEAKER_377: M O T E V.com. Intra M O T E V.com. I just asked for an intro. Yeah.

SPEAKER_26: Just like a, so incredible. So I'm excited, hopefully to get to go out and visit them. Yeah. I mean, like how sick is that?

SPEAKER_25: So, uh, we've invested heavily in applied AI, um, consumer wellness and longevity. And then the third space I'm spending more time in is deep tech. I spent like three years at Northrop Grumman in college and side mechanical engineering and computer science. So that's an area of like deep passion of mine. Um, and then yeah, my dad was like a, it worked at a contract manufacturing company that built MVPs of like form labs and eco ATM and minute key, all these like cloud enabled kiosks. So I'm really interested in the intersection of, um, hardware and software as it relates to like what happens when he gets like human AI symbiosis. Um, and then on the other side of that, like, how does that affect like, uh, uh, says humans living like healthier and longer lives. So it's kind of like the dual enterprise consumer lens I take.

SPEAKER_20: All right. Thank you very much. And then to close this off, Megan, last word goes to you. I was thinking, what can I ask her that would drive her slightly nuts? And I figured this is the most annoying question I could possibly come up with. So does the stock market close this year above or below current levels? Prognosticate. Above.

SPEAKER_134: Above. Obviously not.

SPEAKER_90: Not annoying. Really? Not annoying. Easy, easy, easy.

SPEAKER_47: We're no, we're at altimeter. We're super constructive on the outlook for the back half of the year. I think we, we think we, we're through the worst of the volatility. Of course, there will still be some volatility. Um, the, what one LP called the tariff tantrum took us all on a big ride. Um, but we are very positive, particularly in tech as we look forward.

SPEAKER_73: All right. Well, thank you, Megan. Thank you, Paige. Thank you, Jason. This has been Twist. We're back on Friday.

SPEAKER_387: Just give it up for Alex. Good job, Alex. Alex! Thank you all. Wow, Alex. Very impressed. Thank you.

SPEAKER_20: It turns out I've been doing this since I had hair. So thank you all very much for coming. I appreciate it. Twist is back on Friday with the live news at noon, Texas time, 1 p.m. Eastern. We'll see you then. Bye. Bye-bye.

SPEAKER_390: Thanks, guys. Bye-bye. Bye-bye. Thanks, guys.