Lightspeed Co-founder Barry Eggers: Are Billion-Dollar Seed Rounds the New Normal?

0:00Founders are getting younger and younger and younger because they know the technology better. The technology cycles are so fast that you have to come out of college knowing this stuff, having to use it. If you didn't use it in college, if you were a CS major and a coder, you know, you're sort of behind if you haven't learned how to use AI. Hello, and welcome to Giant Ideas with me, Cameron McLain, and me, Tommy Stadlin. We're co-founders of Giant Ventures, which builds and backs purpose-driven companies. At Giant, we're lucky to meet extraordinary people with giant ideas that are changing the world.

0:30This podcast brings you behind-the-scenes access to those ideas and the inspiring stories of the people behind them. We explore how one giant idea can kickstart a billion-dollar company, shape culture, and transform life as we know it.

0:47Today on the podcast, we have Barry Eggers, co-founder of Lightspeed Ventures, a 40 billion AUM venture firm. Lightspeed was founded in 2005, and it really is one of the gorillas in the venture landscape today. Barry's also been a mentor of mine and has been on the Giant Advisory Board for the last five years and has given us invaluable advice. So we're very excited to sit down with him today. We cover a range of topics, including the state of the venture landscape, how AI is changing the game, what he thinks makes a great venture investor, and his lessons from building Lightspeed from scratch.

1:18Barry, thank you so much for joining us here on Giant Ideas. Great to be here. For everyone's context, Barry has been a longtime mentor of mine, and I'm very grateful to all the advice he's given me along the way in building Giant. Barry, what is going on in the venture market? I mean, it seems like every week there's a new record, a new billion-dollar seed round, whether it's Ineffable Labs here in the UK, or it's$2 billion,$10 billion post money for thinking machines. Every week we hear of a company raising at yet another high valuation. sometimes three months after the last round of multi-billion dollars of uptick.

1:55What is going on? Is this the new normal? Is this a moment in time? Is this a bubble? It's very hard to understand what's going on in some ways and whether this is just a bubble or a very rational thing that's happening at the moment. What's your take? Yeah, I mean, and it can be both, by the way. Yeah, of course. You know, I mean, I think you have to go back to, I don't know, 2000, 2005 and look at venture. Venture was a$10 to$15 billion business. That means that venture capital firms were investing$10 to$15 billion total. Half the size of Anthropix last funding round to give people context. In the world.

2:38And I don't know what the latest numbers are, but I think we're probably somewhere 30 to 40 times that size now. And it may be even greater than if you start to include some of these later rounds in SpaceX and OpenAI and Anthropic and some of the others. And that's really what you have to recognize is that because companies have stayed private longer, so much market value has shifted from the public markets to the private markets that it has, in fact, attracted a lot of public market investors to the private markets. And in fact, there's a lot of private market investors who act like public market investors.

3:27And so when you talk about venture, venture is, you know, we use venture as one word to capture everything. It's not, we can't really do that anymore because, you know, traditional venture capital still being done, but it's being done by a very small portion of the venture capital market that is investing early and building and growing, you know, and developing companies. there's a whole part of venture capital industry, and it's probably 80 % or more, that really looks more like a public market investor, right? Because so much capital has now come into our market. Companies can afford, instead of going to an IPO, they can afford to stay private longer.

4:07And in fact, they can keep doing these rounds and secondaries so that employees get liquidity and investors get liquidity. And why go public, right? And be under that scrutiny. So and I think that's going to continue. Now you're seeing, you know, you're going to see trillion dollar IPOs. I remember when a billion dollar IPO was a really big thing. I think eBay was one of the first ones that I remember. You know, now we're doing a trillion dollar IPO. That's a thousand times. So it's crazy. So that's one trend, you know, that we're seeing. And again, I think we have to bifurcate how we talk about venture from here on out.

4:44Number two, because we have this 80 % of the market that so much capital has been attracted to, and these companies are staying private longer, and these rounds are so large that venture capital companies, venture-backed companies, can now solve big problems traditionally solved by large corporate behemoths and industrials. And so you're seeing, you know, you're seeing it now. Large language models is one of those problems, right? SpaceX was one of those big problems. Energy, nuclear, one of those big problems. Quantum, another big problem. You know, defense and how it's evolving, another big problem.

5:31You know, health care and drug discovery, all these things now, which were traditionally solved by these big companies are now being solved by new companies. and they're getting the capital to do it. And that's amazing because now all of a sudden we have AI at our hands and we have companies that move fast and innovate fast that can attract the kind of capital to allow them to solve these huge, massive problems. And that's exciting in my view. And that's, I think, why we're seeing people get so excited about these companies and are willing to throw a lot of money at them. And of course, their valuations go up and up and up and up.

6:13And in a lot of cases, too, they go up because the revenue is growing so fast. In some cases, it's just the promise of solving a really large problem like nuclear. So, yeah, that makes a ton of sense to me. So we shouldn't talk about the whole private technology market as venture. It's different as venture, which is kind of more the early scale side of things. And then there's these crossover funds, which are probably more similar to what public market equity investors used to be. That makes a ton of sense to me. Similarly, I really like the take that because these venture firms have gotten so big, they can now finance entrepreneurship to take on these big industrial problems in a way that I guess you weren't really doing back in the 90s where you were trying to find an eBay, which was super capital efficient and could kind of get network effects and scale.

6:56I've never heard that take before. So do you think that's a big part of it? They're sitting there today saying, hey, we can finance a different kind of entrepreneurship. And I've been arguing this with a lot of people on just how venture has changed. You know, we've certainly gone from building portfolios through diversification to building portfolios through concentration. Yes. Right. Because we have the haves and have nots. There is a mag seven in the public market and there's probably a mag 10 in the private market. Yes. Right. And everyone wants to be in those companies. You know, but yeah, you know, we're we're thrown we're we're doing these companies.

7:32We're funding these companies also with our peers. It's not like, you know, we're, you know, Lightspeed's going in and doing it by themselves. You know, there's a bunch of us doing it together so we can all bring our collective capital and solve these big problems. And it's exciting. I do think that, you know, when you look at a firm like us, and I think for a lot of our peers, we really are two different firms. We're one that's traditional venture and one that looks more like a public market investor. And we, you know, we go through, you know, the analysis like a public market investor. We don't probably run the algorithms like they do, but we're using a lot of AI and using Claude and getting smart.

8:10And it's a whole different business. And, you know, we have to remind ourselves that we think of ourselves as not a venture capital firm, even though we do venture capital. It's one of our products. But we think of ourselves as financial services. Right. And in fact, as the market goes global and companies stay private longer, a lot of people want access to these companies and we provide access. I want to take the billion dollar seed round, just double click on that, because I have to be honest, my thinking there has changed. I think a year ago, I thought it was a sign of a bubble. And now I kind of started to think that it's a very rational thing to do if you are seeing companies go to a trillion dollars on the timeframe that Anthropic has.

8:51What do you think? Like, does it make sense to do billion dollar seed rounds? Is this kind of a way to generate true prevention returns? It has sort of become the new normal for research labs and for a bunch of different categories. And I think in some cases, you'll look smart. And in some cases, you won't. You'll lose your money. And we can't apply the same model to everything. These companies are going after different markets. Some markets are way more exciting than others. um and so you know we're doing this um and we'll find out you know the nice thing about venture capital i've said this over and over and over is that you can only lose one time your money you know now if you're writing a you know a billion dollar check that's a lot of money that's a decent amount yeah you have to be careful but you can obviously make 10 20 50 100 you know 2 ,000 Sometimes your money.

9:47People are realizing that the whole world is changing with, you know, with AI and all these markets are being disruptive and we can solve problems that we've never really solved before. You know, we start to talk about space and, you know, people are really excited about SpaceX. And there's a number of companies behind that that are building the infrastructure for us to go into space and solve problems. Right. And not just build data centers. That's one. you know, energy, you know, minerals, drug discovery. There's all sorts of things you can do in space a lot more efficient than you can do here.

10:26So, you know, it's, and who knows how big these markets are going to be and disruptive. Yeah, we actually interviewed Baiju, the founder, co-founder of Robinhood, who's building the Cowboy Corporation and building data sense in space. We had him on the podcast a couple of weeks ago, and it's pretty fascinating to hear his view on the physics and the cost curves and how he thinks that's a pretty natural place for us to end up, building data centers in solar and space. You've been through a bunch of cycles, Barry. So you saw the dot-com boom. You saw the 2000 wave with social media. How does this one differ in feeling or in, I guess, practice the last ones?

11:03And what's similar? Yeah, they're all different. You know, dot-com, I think we all ascribed a lot of market value to companies that were, you know, building viewership and eyeballs and, you know, all that kind of stuff without really looking at the overall revenue growth and profitability. But you could argue someone like Amazon wasn't profitable for a long, long time and they became a pretty good company. But I think a lot of those companies, you know, when the music stopped, we all said, oh, wow, they're not as good of companies as we thought. And a lot of them didn't make it. You know, with this AI boom, I think it's a little bit different because there is real revenue behind these companies and revenue growth that we've never seen before, ever in any in the history of mankind.

11:59kind. And so you have to take notice. And I think that's because, you know, AI is obviously disrupting everything. And the market, the available market for a lot of these AI products is not just replacing existing product markets. It's also, you know, replacing, in some cases, existing labor markets. And everyone's afraid AI is going to take jobs, and it probably will take jobs and we're going to have to figure out what to do about that and how to create more jobs you know with new companies but um yeah the addressable markets of these companies isn't just software these addressable markets labor are incredibly and and as you build out new new markets i mean think about drug discovery if you can do in fact do drug discovery in space and um and and get drugs out faster and more effectively and i mean the market's almost endless for that right we want people to live.

12:55I guess we want people to live as long as they can these days. So these are, by the way, very giant ideas. These are very giant ideas. I wonder if giant VC is going to go after some of these ideas. We definitely are, Barry. Um, uh, we definitely, we already have some, I would say in the portfolio and, um, you know, open AI announced today that it's going to file for, to go public. SpaceX has just, just, uh, published its prospectus. Anthropic is likely they're going to go public later this year. Lightspeed is going to be a big, big winner in that IPO. Could you give our listeners maybe just a bit of insight into how you guys thought about that investment when you first decided to invest?

13:34I'm sure it wasn't as straightforward, as easy as it might seem in hindsight when it's gone from 30 to 40 billion in revenue earlier this year. I mean, at that point in time when you guys invested, OpenAI was the kind of clear front runner. So let's just get a little bit of color. The first money we put in, I think, at Anthropic was at$16 billion. Which is a huge price for the time. That's a big valuation for any company. Some of our companies never get, they go public and they never get to$16 billion. But they had a relationship with Amazon and they were seeing some revenue potential coming from Amazon.

14:12And we sort of looked at that and said, OK, one, they're sort of going after the enterprise. too. They got at least a base customer in Amazon. That's a pretty good customer. That's interesting. You know, let's see what happens. And of course, then they quickly after that, they raised 60 at 60 billion. And we really heavied up in that round. We put a lot of money and a lot of our LPs in that. And that was a harder round to raise because revenue was just getting started. And a little bit later than that, they raised that 170 billion. And it's funny because that round, I think, was, you know, there was a lot of demand for that round, much more demand than at 60.

14:53And it was just, I don't know, three or four months later. So, you know, when you think about Anthropic, and I don't really want to compare OpenAI and Anthropic because they're very different companies, but I think Anthropic wisely chose to go towards the enterprise where there's a lot of dollars and, you know, create products that, you know, are impactful for the enterprise from day one that give them efficiencies and, you know, Cloud Code and Co-Work and some of the other products they have, you know, been real successful. So, you know, I think we're seeing a lot of really great companies that are going to come out and go public.

15:31And I'm excited to see the market reaction to it. Yeah, absolutely. What do you think the lesson there on Anthropic is that, you know, we can't quite comprehend how big things are going to get or momentum is just so extreme in this power law world that things get bigger than ever. So that throw out the rule book on previous valuations. Yeah, I mean, I think, you know, you look at it and you sort of look at it in the lens that you're, you know, we look at the$16 billion round, you look at it through a lens that you've been using and you're like, oh, this is a high valuation and maybe they can get this kind of revenue momentum and maybe they can, you know, three to five X their revenue or whatever.

16:09And then you realize this is a whole different ballgame that, you know, they can 10 X plus their revenue and the enterprise is huge. And, you know, like I say, in venture, we make that That's sometimes we look smart and sometimes we don't. And there was a lot of early investors in Anthropic that will look very smart with the bets they make and OpenAI for that matter and SpaceX for sure. All of them. All of them. There'll be great case studies. It's exciting, right? It's exciting. And we need some liquidity in our market. Our LPs need some liquidity. Our GPs need some liquidity. And it's good for the market.

16:51Well, I think that's coming. We've got a tsunami of liquidity potentially coming our way over the next six months if these three IPOs take place. One thing I have currently been struggling with a bit myself, Barry, I would love your take on is just we've almost moved into this era of, I would say, like total consensus that AI is the most transformative technology. And I think, frankly, because you just can't argue with the impact it's having and the numbers we're seeing, that physical AI is probably the next big theme. and it's almost like the whole market has converged on that belief and i guess venture has always kind of been a bit about the non-consensus and right investment particularly the early stage but perhaps we're in an era where the smartest thing is to be consensus i heard elad gill say that on a podcast recently and it kind of resonated quite a bit with me and we've also got this era at the moment of just like total king making right we've got firms like light speed andreason uh you know thrive they are essentially king makers they anoint a company with capital and they can almost brute force it into success.

17:49So if you aren't one of those king making five, how do you think you should invest or deploy in a time like this where there is, I guess, yeah, just maximum consensus, but it might actually be the smallest thing to do might be to be consensus. I mean, these rounds are, these large financing rounds when companies get going, um, include a lot of investors, right? Yeah. And, uh, much different than they used to do venture, right? This is like public market investing. So a lot of people are writing these things. Yeah. I mean, I don't know. I mean, you know, consensus, I don't think you make money in venture when you're investing with the herd.

18:28Yeah. I think you have to be early. And so, you know, um, you gotta be early in these companies and you gotta be able to, you know, move with conviction fast and be, and not be afraid to lose your money in these companies. So that's one thing. But, you know, AI is changing everything. We know that it's a huge market opportunity. I do think physical AI with robotics is going to be the next leg. And we'll see a lot of really interesting use cases and companies come out of that. And I do think there's a hardware component that will even enhance how we think about AI when you talk about things like quantum computing and other ways to accelerate, you know, the hardware infrastructure below AI.

19:18It creates even more potential. So, you know, I think about AI is now intelligence. Intelligence is being commoditized. Yes. you know, somewhat now people will always say, well, there's always got to be a human doing this or that. Well, in some cases, yes, some cases not. But the nice thing is intelligence is now at our fingertips. Yes. Right. Everybody's fingertips. And so what can you do with that? I think going forward, you know, people that know how to use the intelligence, but also have all the intangible characteristics of, you know, that we look for in entrepreneurs and investors, you know, drive, persistence, teamwork, resourcefulness, you know, interpersonal skills, communication skills, self-starter, you know, go down the list, all these intangibles, EQ, right, all these intangibles are going to differentiate people in the future because they, you know, intelligence is, is at their fingertips.

20:23Yeah. You, you and I were talking about that a couple of months ago, right? That for kids growing up these days, it's probably going to be EQ. That's the real differentiator because intelligence is abundant. Um, Reed Hoffman also had a great, he came on the show and he had a great, uh, view on it. He was like the internet made, uh, connectivity abundant. It kind of imbued the world with connectivity and AI is going to make intelligence abundant. It's the whole world is going to be imbued with intelligence off everything from our phones to our cups to our you know beds there's just intelligence everywhere and i thought that was kind of an interesting um metaphor you've hired a bunch of great investors barry you've been a great investor yourself you know you were involved with snapchat a bunch of other fantastic companies what do you think makes a great investor what are the timeless qualities of a great venture investor across across cycles yeah i mean i've worked with a lot of people who are really good investors, certainly better investors than I am.

21:18And, you know, I think the common thread is they're just their instincts about a vision and a direction and a market are really good. And they're not afraid to take early risk and move with conviction. You know, that's really that early stage venture stuff. Yes. And how, how, how articulate are they on that vision? They sort of just shrug their shoulders and say, Hey, I got a feeling or can they really articulate it to you? and you can articulate it yeah i mean you can articulate it i mean here are the scenarios where this becomes a really big thing right and there's several scenarios um whereas you know um it's it's funny because sometimes you can think about and you have to be able to remove yourself as a consumer from this analysis right because sometimes you think about you know as an old person i think about consumer apps and i'm like why would i why would you do that you know, but I'm not the target market.

22:19So in some of these companies, you just have to, you have to sort of remove yourself from that and just say, Hey, if this, this works, you know, if it take, pick an example, if we can truly do drug discovery in space and improve, you know, process times and efficiency and lower cost, that's, that's a massive opportunity, right? And there's going to be a winner. If it's feasible, there's going to be a winner. So let's take the technical risk. Let's back some company and let's see if they can pull it off because we know if they can pull it off, it's massive. And, and there's always a bit of kind of two schools of thought for the early venture.

22:54Like, you know, some people are very market focused. And I would say over the past 10 years, it seems that there's been a big swing towards let's be 100 % founder focus. The founders, what matters in your experience, watching people, the best investors at light speed, they blend both. They're 10 towards one or the other. What do you think? yeah i i think it's a combination combination of great people and great and great market opportunities it's hard if you don't have one or the other um a lot of people center on product too um when they're evaluating companies the thing with product is the product evolves quite a bit over time yes so it's really hard to make an assessment um either you can be a leader or not you know and you have the technical team to build but you're going to evolve the product but good people in good markets find a way.

23:40And now we're seeing some exceptional people in AI and robotics and space and exceptional markets. So those are some companies to watch. Yeah, I always thought like a fun parallel is, you know, when I was a student of history back in the day, they had the kind of great man theory of history, and then they have kind of the great forces of history theory. And I think actually, the reality is, it's both, right? Like, you know, Napoleon was Napoleon because of who he was, but there was also a bunch of things going on in Europe which allowed him to be the emperor. And I think it's the same with founders and markets, right?

24:14You need a great founder. That is the consistent thing in the business. But there's also always some kind of broader structural big tailwinds that drive the founder along to build the big business, I think. Yeah, I think founders are getting younger. I'm not sure the data shows that yet, but it feels like, at least in the Silicon Valley, that founders are getting younger and younger and younger. because they know the technology better. The technology cycles are so fast that, you know, you have to come out of college knowing this stuff, having used it. If you didn't use it in college, if you were a CS major and a coder, you know, you're sort of behind if you haven't learned how to use AI.

24:50Oh, I had a 17-year-old come on Zoom the other day and pitched me Barry, and it made me feel a bit old. I'm not going to lie. Yeah. But you backed Evan, right when he was like 21? or something like that. He can't have been much older than that. He was a senior in college. Yeah. So, yeah, I mean, we're going to see a lot of those. And we'll see entrepreneurs get younger and younger. And hopefully we'll see entrepreneurs all over the world. I mean, this is the opportunity, really. All the innovation shouldn't be just in the Silicon Valley. We need it to be everywhere. I love one thing you've always said to me, Barry.

25:27It brings economic wealth to people, right, and their regions. It is the great wealth, great entrepreneurship. One thing you've always said to me, which really I have loved, is that with great change comes great opportunity, right? For venture firms, for entrepreneurs, for everyone. And I think that's so true. And we are at a period of maximum change, right? So it's a wide open field. Yeah. And we are in a period where the cycles have gotten faster, change is happening, change is more disruptive than it's ever been. And I think a lot of people are like, wow, I'm going to be glad when this is over.

26:06I got news for you. I'm not sure it's ever going to get slower. No, it doesn't seem that way.

26:40your co-founders uh took you you know 20 20 or so years but you guys have established yourselves as you know one of the top venture firms certainly one of the largest what are your lessons on that journey it's been up and down right there's been as always it's been an entrepreneurial um yeah we celebrate celebrating our 21st 21st okay anniversary this year i think this this month i never never thought it would get as big. You know, we, our first fund was 475 million. Um, and that felt big. Um, but we never thought we'd get to where we are. Um, and I think, you know, people ask, would I do it again now knowing what I know?

27:24And sometimes I say, no, I don't think I would, because it's, it's a long, hard journey. People think it's, you know, it's easy and And it's just, you know, there are hurdles all along the way and roadblocks. And it's a lot. It's a 24 by 7 grind. Having said that, I'm glad I did it. And it was an incredible journey. I worked with incredible people, my co-founders and the team at Lightspeed and wouldn't trade it for anything. You know, for us, we took the idea of following, you know, sort of we knew that that for us to gain market share and to establish ourselves as a serious brand and venture, we had to be early to things because you just can't be with the herd and establish yourself.