Semil Shah is Out Of Office

24:42and construct a portfolio that different surfers on different parts of the wave can make it to shore? Yeah. Right? Because really, that's what you're doing. You're giving capital to that founder, to that creator, and you're basically doing one of these to say, can you ride the wave to shore? Yeah. Cool. Well, we're obviously going to talk to a bunch more seed investors upstairs who are thinking about it. It'll be good to get some of their work. All right. Yeah. Let's do it. Let's do it.

25:24Hi, everybody. You guys probably know Mike, I don't know, through the tech world, the investing world, perhaps. Maybe you know him as the founder of Anchor, which then sold to Spotify. Yes, and now he's a partner at Lightspeed Ventures. Big deal. We're all here because we either know Mike or Samil. Samil I just met about 30 minutes ago. Seems chill. No, but clearly his reputation as one of the goats of seed investing precedes him. See what I did there? with early bets on DoorDash and Instacart and Figma and the like. So you know Samil. You know what his resume is. You know Mike's situation. Please give a warm welcome, a big round of applause.

26:09Come on, get it going. This is exciting. The moment you came here for, the men of the hour, your friends of mine, Michael McNaughton and Samil Shah.

26:24What's up? Thank you, Scott. Hello, everyone. Give it up for Scott Rogowski. Thank you all for coming out tonight. Thanks for being here. We are excited to be here. I'm really excited you're here because I thought you were going to miss it. Samil had told me a few days ago that he was going to take the red eye in because he was going to go to the Dodgers Toronto game last night. And then I saw that it went to like three in the morning. So I was like, how did you make your flight after the game last night? But you skipped the game. I don't know if anyone watched that, but I was having this idea if Shohei was going to pitch last night, I would go to L.A.

26:58and then go over here. But I ended up watching the game in my hotel room until 3 a.m. I was, like, convinced that this was not happening tonight because you were stuck in L.A. I mean, I don't know if anyone watched that game, but it was, like, one of the best single baseball games I've ever seen played. It was pretty long. Yeah. Pretty long. I think, like, the one good thing about baseball is it's gotten shorter. Except last night. Except last night. Yeah, exactly. That was one of the longest games ever. I'm really excited actually to talk to you about sports. I know this is not, I know everyone in this room probably wants to hear us talk about AI and seed investing.

27:32We'll get there. But we'll get there. I do actually want to talk about sports a little bit. I think there is a connection here. I think sports, again, with the exception of last night being the longest game ever, I think sports are awesome right now. I think like every sport, every season, it feels like there's constantly like, wow, did Do you see last night's game like constantly like the best game ever? I don't know why that is. Viewership is also at an all time high. And I have to imagine it has something to do with gambling and betting. But I think it's keeping terrestrial TV and satellite networks up.

28:08This is what we orient to on Sundays or on Tuesdays and Thursdays with the NBA or on major weekends for tennis and golf and baseball postseason. I mean, it keeps it's the last thing that keeps us connected to those channels. So you just feel like that's the only thing that people are actually watching on classic television anymore. And so we feel like it's... I think that's why all the big tech companies are going after that real estate, because it's guaranteed viewership and you get all the telemetry and you can serve ads against it. I mean, you think about a company like Amazon going after the Thursday football, they can just serve way more personalized ads just on a Thursday, and it's nothing for them.

28:46They just have to buy the rights for Thursday. Do you feel like it also has to do with the fact that like what else is there to watch on traditional television if not sports? I mean going back to Scott, what is the appointment time viewing you had kind of Game of Thrones or like the Sunday HBO slot? And you know, it's being sort of attacked. There's very few slots left sports owns a lot of it. Yeah, that makes sense What did you what did you make of this this NBA? Scandal thing we said we were going to talk about but I actually don't know what you think. Yeah, so I it's come up a lot too in discussions because like a lot of our my investor friends are also interested in sports and founders and so it comes up in popular culture but I remember when I started investing I was a venture partner first with bullpen and then with ggv over like a five-year period and bullpen was a lead seed investor in fan duel so I met nigel uh very early and then ggv was lead seed investor in draft kings and they basically fought each other for years so I had like kind of a dual ringside seat to both of that.

29:44And basically you could, you could see at that time that the, the leagues and the networks were trying to figure out a way in a regulatory sense to, to normalize this because the amount of revenue. Normalize like gambling and betting. Yeah. Because the amount of revenue that were coming in, obviously like that's no surprise to anyone, but it's really the engagement leading up to the game post game. And then in the off season that would drive it. So if you're running a league or running a team, you have a three-month offseason, six-month offseason, whatever. You can engage your fan base more with some sort of gambling, right?

30:22Who's going to be the starting quarterback? Who's going to be the starting pitcher, pitching rotation, and so forth and so forth. So it was basically a deal with the devil there that the die was cast. Well, it's not just pregame and postgame. I mean, it's prop bets mid game too right it's like how many points will this person score will they get a touchdown in the second quarter all that and you can bet you can bet on these things in real time now yeah i mean all all of it is there and and sort of the the the opportunities are endless and now it's even being validated by some of the best vc and investor brands some of the greatest financial institutions like it's sort of crossed over into that point yeah but but this to bring back to this NBA thing like it does feel like there's kind of like trouble trouble brewing right it's it's like permeated the culture so much such that like it's making its way to the players obviously you've got the scandal but also after the scandal you know I saw all these tweets and these quotes from players that they're constantly harassed on Twitter after the games because they f***ed up somebody's prop bet like it's really it's really starting to wreak some havoc?

31:29I mean, it was to be expected, right? When the iPhone came out, everyone was saying like, oh my God, addictive behavior, blah, blah, blah, children, this and that. And of course, like we're all, you know, the screen time app, everyone knows what I'm going to say, so I don't need to say it. But I think the derivative effects of that are like other addictive behaviors that you can do on your addictive device. It's not, you're not multiplying the impact. You're exponentially actually increasing the impact. So somebody could be day trading at the same time that they're doing sports prop bets during the game, the same time they're trading crypto and, you know, other things I can't say on stage, right?

32:12That's all, that can all happen in the same session. It feels like it is happening. It feels like it is happening also with like the same group of people. It feels like there's like this broader kind of degeneracy culture among young people. How do I get rich quick on either gambling or crypto or stock trading or like it's all bundled up? I really hate to do this because we didn't plan this, but we actually invested in the company against this. Against this? This thesis, yeah. Really? If I can plug that. Oh, so you're going to talk your book here. Classic VC. 15 seconds, yeah. Okay, go for it.

32:43But there's a founder in New York named Elliot who basically started this company called Birch's Health, starting around this idea of online sports gambling and online day trading and everything else fill in the blank that we could talk about or can't talk about on stage. Yeah, it's doing really well. Like a support type thing for people. Starts with support. Yeah, I got it. That's interesting. Yeah, I mean, it makes sense. Thematically, it makes sense. I mean, I do, as much as it worries me, right? I'm a parent. You're a parent. We're all worried about like what happens to our kids. I do find it interesting.

33:15And I think this notion of markets around everything is super interesting. You know, we're in New York, obviously home to, I think, a newly minted Decacorn Polymarket. Polymarket's fascinating. I'm finding myself increasingly visiting Polymarket for everything, whether it's like obviously the New York City mayoral election, you know, last night's game. I'm literally looking at it during the game. it's fascinating. To me, and I think a lot of people here would probably agree, like, thank God it's here. And also, like, it was inevitable. And the question was just when, my own personal opinion. But I think the difference is maybe you were following a certain election or a certain political issue or a certain financial market, or you were following a certain sports team, and you would read a blog, and there would be all these ads served to you.

34:09And there'd be somebody who's been given a position to write about the game or write about your Mets or write about somebody else's team. And now you can actually see who's doing all this stuff, who's making predictions, who's right and has a track record over it. So I think it's just a future of media, but it has a different sort of marketplace dynamic to it. Yeah. And I do wonder a bit what else will run through prediction markets. Obviously, investing could be one. We should talk about that. But there could be many other categories that prediction markets can touch. Yeah, I think anything that's like a top 1000 internet traffic mobile app or site, you know, where it's a top down editorial model is threatened by this, because new people can emerge, and they'll have better distribution.

35:01and I absolutely think it can, you know, start it with sports and sort of politics where you have like consequences that you can measure. But I think that can absolutely go into investing and for folks in the room here and what we do, absolutely go into venture for sure. Yeah. So let's talk about this. This is one of the things I really wanted to talk to you about. So seed investing in general, I would say is somewhat under attack. And we should talk about this, like all the different ways it is, you know, accelerators, big firms coming in, you know, strategic sources of capital. It's getting harder and harder.

35:40I think it's getting harder and harder at every stage. But seed is not immune. But prediction markets could be a key way. It could be under attack. Right. I mean, things could get funded this way. Right. I think you're already seeing pieces of this in Bloomberg Beta, where we have friends for years. They were doing a founder scoring survey and just investing off of that. Chamath in his social capital days, pre-pandemic, had a capital allocation program where they would run an algorithm and give people 250K to 500K off the bat. But Naval did a version of this. You could argue AngelList was a V, you know, 0.01 of a prediction market in terms of investing.

36:23So this stuff has been sort of bubbling up. And if you ask me from 10 years from now, will the next investor emerge on AngelList or through a poly market for seed investing, I would definitely take a poly market bet. Got it. So this idea where kind of the community is sort of voting with their feet, which startup should make it and which shouldn't? You already see that behavior amongst junior folks in VC. For years, they would have sort of, you know, like synonymous accounts on Twitter and basically say, oh, my partnership passed on Uber, you know, and be like, I advocated for it. And they would show that, you know, to their next potential employer.

37:05So that's polymarket behavior. So, like, how does this actually manifest? I mean, there's probably like this whole rat's nest of, you know, regulatory stuff that I feel like you and I should not even touch. We're just not smart enough for that. But like how in practice would this happen that prediction markets could take over seed investing or investing in general? I'm just thinking about early stage because the capital at risk is lower and we can talk about the other. Yeah, that's a good point. But I think it would be that same person who created that fake Twitter account to say, look at all the deals I brought my firm and they crapped on it and we didn't do any.

37:39And here's a timestamp record. You could just port that over to Polymarket. Now, the question is, do you tie it to your identity or not? Maybe that's just a feature question. And then it's like, do you actually put money against it? This is what Naval was doing when he started. This is how I got started. Tell us more. people oh i don't know this story it started with a blog because they were entrepreneurs and they got in their mind they got screwed by their investors so they started a blog called angel hacks or something like that and it sort of took off and then he wanted to turn it into a product i'm compressing a lot of the history but they basically turned into a platform where they wanted to take angels and super angels and let them take money from other people roll roll it up into a mini fund or an SPV and invest in companies.

38:28When I got to meet, I knew Naval, you know, for 15 years. And so he knew I was trying to like get into investing and do this. So he basically took, you know, nine figures plus from a sovereign wealth fund that I can't name on stage, but you have a 10 % chance of guessing and basically picked four people and said, told those sovereign wealth funds back anything they do. So I was one of those four. He was basically saying, effectively, here are four characters in this prediction market. You have no idea how to allocate 100K rounds, million-dollar rounds,$5 million rounds. Let these four people do it and go see what it turns into.

39:09All right. So now, how does that turn into prediction markets? You basically make it so that Naval only picked four, but why did he only pick four? Totally just decentralized the whole model. The problem is that the feedback loop on the actual return could take five to seven years or even longer. So what you'd probably want to do is have earlier signals like around follow-on rate, quality of co-investors, the thing LPs try to do but can't really do at scale. But I think if you talk to 100 sophisticated LPs and said, would you look at a portfolio of 1 ,000 managers who were on Polymarket that had a track record over three years as a litmus or sort of gating function for you to evaluate a manager to put capital behind?

39:56I think 100 of them would say yes. So, okay. So, markets is a way that this whole thing can get disrupted. But you and I were talking a little bit backstage. again, this whole class seems like it's somewhat under attack. Like as somebody who's been investing in seed now for a long time over many, many vintages, like where are you feeling the pressure these days? Like what sources of capital? I'll summarize where like I feel like all of our therapy is done in group text chats, right? So where is it coming from? I think right now, today, you have larger funds post-COVID who have machines go after and cover a lot more area, and they're price insensitive.

40:40We all feel that. Post-COVID, post-correction, a lot of LPs were rebalancing their portfolio and going into smaller funds. And then you have the accelerators. You know, I have a close friend who's been in seed as long as me who said accelerators are eating seed. That's what he just said. They're eating seed and turning into that. So it's really under attack, I think, and very challenging right now because in the past, there was a smaller denominator and people didn't want to take on that risk. But now, since the cost of capital has gone down and the stakes have gone up, it's turned like what used to be a craft business into a cost center for larger investors.

41:26Right. So what do you do about it? I can only answer for me and for Haystack, which is you can control the design of your fund and the inputs and the strategy. So the design of the fund is to be small and do more vintages over a period of time to keep the fund size small. So instead of having a three - or four-year fund, we do a two-year fund. You can limit your fund size so that that is like the ultimate governor on behavior. you know in the same way we would tell a startup hey you only need two million but if you raise four million you're going to spend the four million as fast as you spend the two million the same thing applies with vcs and then finally is trying to make sure that you meet people that align with your interests and how you want to work and it it takes a lot more work but i still and maybe i'm talking my you know sweet nothings to myself but i still believe that like people we meet don't want to work with a big firm early they don't want to go to an accelerator and be part like the hundredth startup in the batch and they want to work with someone who will pick up the phone and like tell them something they don't want to hear that's for their benefit you have to pick your spots more um that's that's just my reaction to i'd be curious like how you respond to it with you know you're sitting at a bigger fund you're doing things cross stage.

42:52Yeah. I mean, we, as a big fund, you know, we historically sweet spot had probably been, you know, like any other big platform, more like series a and beyond we've always done seed. I personally am feeling attention to do seed more because I think given the pace and the rate at which many of these valuations get out of control, oftentimes with no real new evidence that say a series B or a series C that things are working, right? There's just momentum to combat that. You just got to go earlier. Right. And so I, I have definitely been feeling the pull and I know some of my partners have as well to go earlier and do more seed.

43:30And the way I've been doing it, uh, is really just for a variety of factors, which we should also unpack is betting on people, like betting on great people. You know, uh, there's a great founder, somebody that's doing something really interesting. And because of their background or their experience, we truly truly believe that they can do what they say they can great give them a couple million bucks whereas i think previously especially as a you know a product builder myself i would always go sort of like product strategy brain you know how does this thing play out in this market and what's this market going to look like and how do they build this thing now i'm just like this person's great they'll figure it out write them a check if you had 60 million dollars to spend in a year, would you do one 30, I'm just making up numbers, but like one$30 million check and something is working and take the rest of the 30 million and just sprinkle it across six to seven seed investments.

44:21I can't give you the exact amount, but yeah, I would do more seed. I would do more seed and then, you know, ideally concentrate and double down on the ones that show life. Right. And then given that, you know, that from your seat, how would you guide other seed investors on how to operate in that kind of world? I would ask you that. I would ask you that. I'll answer it. Don't worry. Because my guess is that's what you do already, right? Like, so for the audience's sake, Samil and I have gotten to know each other very, very well. I, you know, I consider you obviously not only a friend, but have a bit of a mentor when it comes to investing.

44:54And from the day I met you, the thing I noticed about you is you are very, very people driven. Like, I hope you don't mind me revealing this, but you know, some of your first meetings with founders, you're not even doing Zoom, you're not doing pitch decks, you're doing phone call. So like really get to know the person. And I have found that to be a very, very useful tool as well. And so my guess is that's how you do it and how other seed funds do it. But I don't know. I mean, we're in a room full of them right now. I mean, I obviously know a lot of people in the room. I think what makes the seed market really fun is that people have, you know, different strokes for different folks.

45:30And so there's different ways of doing it. And there's no right way to practice venture. I can only speak for myself and my partner, Ashe, has a different sort of bent towards this. But for me, I think about the weighting of making a decision as like the classic example. Sorry to use a generic example, but it's like you have the jockey, you have the horse and you have the track and for me it's just like the order like all those three have to line up but it's really the order in which those things line up and the weighting you put on them and the weighting may change based on the environment so for me i can't really get personally excited unless i'm excited about the jockey yeah then when i get excited about the jockey but then i'm not excited about either the horse or the racetrack those are the tough conversations where I'm like, you know, and I have to do a pass email or have a difficult conversation either internally or externally.

46:32But when those things line up, it becomes very, very easy. And I've been doing that for 13 plus years. So generally, it's relatively easy for me to deduce that what's changed in this environment. And I'd love to hear how you approach it, is that the racetrack is changing frequently. It's going from muddy to dry to, you know, whatever analogy you want to stretch. and the horse that the jockey is riding will be under attack from multiple venues and like a lot faster. And so I think the bar for somebody that you fund actually goes up. So the weighting goes up on the person. So the three matter, but, you know, at the end of the day, like I, I just personally don't want to wake up every day and look at decks and metrics and demos that doesn't excite me.

47:21What excites me is like conversation. And I think I actually steal something from academia. Like when you get a graduate degree or a PhD or like an advanced degree and you have to go in front of your peers and sort of elders and explain what you're doing over three, five, six hours without really any notes, that shows like some level of mastery or work that you've done. And I like that. And so that's why I start a lot of conversations on the phone, because I want to see like, what is your phone manner? How do you handle yourself? And go into like a conversation. I think what's challenging now and what I struggle with is that founders are like, oh, I'm going to raise in two weeks.

48:04And, you know, they'll ask me 20 minutes into the call, Like, are you interested? And I'm like, oh, you know, I wish that was happening in other parts of my life. But it's it's just like, you know, it's just people people's expectations for pace are fast. Yeah. Yeah. The racetrack analogy. I love this analogy, by the way. I feel like there needs to be some analogy. The jockey and the horse and the racetrack. I feel like we need some like infographic or something. Yeah. No, the racetrack analogy is interesting. You mentioned you feel like it's changing. I definitely feel that. And again, as somebody who used to think about products and markets predominantly, you know, sometimes more than people, I'm finding myself in many cases, throw the racetrack out the window because everything's different, right?

48:52There used to be these categories, these product areas, these markets where you would say, oh, you can't bet, you can't bet on that. That market, that's a terrible market or that's a terrible surface area to build in. And now because of AI, I don't know, I don't think you can predict anything anymore. I remember I think it's totally valid. I feel like browsers was a category that I was like, oh, browsers, unless you're Google, forget it. You'll never get distribution. And now I'm kicking myself that I didn't shout out to browser company, Pace Capital in the house. I think I wish I wish I did that because I tried to do that because obviously they had a great outcome and the browser is becoming the new operating system.

49:29So I just don't think anyone who like thinks they know what markets or what surface areas are going to be relevant in five years from now, I think is totally delusional. Generally, what I've found is that there are two things in a deal, whether it's a seed fund or a larger fund, where the market ends up killing them. One is that in the seed fund, you worry about the category risk you take on for follow on financing. So you may say, oh, this person is raising, you know, I don't know, I'm making something up that's just crazy. Okay. And it sounds really cool, but who will fund this next? Because you're taking on the risk and someone else has to take on the risk.

50:11So you're only, you were only thinking sort of one raise at a time. Well, I'm giving you the two like market pushbacks that I think people use to kill deals. Okay. Okay. So you may want to do something at a seed fund and someone just says, well, who's going to fund it next. At a larger fund, it's absolutely weaponized to kill other people's deals. What's been the historical outcome in that market? What's been the historical outcome in the market? And literally that comes back to the jockey where it's like, despite whatever the person in the seed fund said or the person at the large fund did to kill your deal, that person has a cult of personality or force field around them that you just know they'll get it done.

50:55And otherwise your capital is at risk. What's a good example of that that you've done throughout your storied career? Oh, shit category, but I love this. This person's going to make it happen. And so we'll bet. Well, I won't use like a famous example, but I'll use one now that's like in sort of a gray period. But I don't know if any of you were investors in or met Ridwell, kid out of Seattle. It's an offline recycling startup. But this entrepreneur is extremely magnetic, authentic. Literally every investor he's met has been like one of the best founders I've met. One of the best founders I've met.

51:35And he just constantly generates that feedback. So he buys himself more time and goodwill and capital, even if it's not at the price that he wants, to continue to go. And I would rather take a bet on him than some investor saying, I don't believe it's going to happen. Look, I totally agree. I mean, I've made two seed bets in particularly recently where two years ago I probably would have passed because of the category. So I think it totally makes sense. The other thing I think a lot about, and I'm having a hard time navigating, I'm sure everyone in this room is as well, especially at the app layer.

52:09And we talked a little bit about this downstairs earlier is kind of the open AI effect. I mean, clearly they are, they're willing to, they're willing to play in any space and they've proven now multiple times that they can, they can play to win in any space. So that like, that's another thing that, um, I think has made it challenging to evaluate deals. It's just the, the, the competitive. Yeah, I mean, at Seed, we don't really have the luxury of that. I think there are certain things that are right in the crosshairs, but no one knows what Sam and team are going to do, and that's just sort of a risk.

52:42And it kind of goes back to 10 years ago, would Google or Facebook do it? Now it's would OpenAI and Anthropic do it. The problem is that these teams are – Google and Facebook are executing pretty well, but we're asleep at the wheel on certain things. I don't think these companies are asleep at the wheel. Yeah, not anymore. And, you know, they're less than 10 years old or maybe 10 years old. So I just think it's a very, very tricky time. And also, like, having done this for a long time, there are certain companies that are on a public track where they're going to go public. And then there are other companies that get acquired.

53:19And you can't really predict who's going to get acquired. It is kind of random. and some of the acquisitions that people pat you on the back for, you internally know that you're like, that wasn't much there, right? It's not really a fair merit-based outcome. We talked a little bit about accelerators. Has that affected you and Haystack at all? I mean, it feels like there are more of them. Do they make you change kind of how you think about deal economics? For sure. I mean, everyone in this room who's a seed investor is effectively a de facto follow-on pawn for accelerators. right i mean that's what it is and they go in at x post money and you go in at three to ten x post money that's what it is um when the batch sizes were small um and there was time to meet and the valuations were different and again i'm not making i'm not like complaining about valuations but there was an argument to be made that you should do it.

54:20But right now it's like a marketing game. And if the accelerators find the founders early and get them into their kind of fishing net early, and then you're just a follow on investor to it, you're just being sold a product. I've always felt that. And I respect how people are playing the game because it's a marketing game. So I'm not saying it's bad. I'm just saying I struggle with it personally because that's not how I navigate or move through the world. I still believe that there are founders who don't want to start their companies that way. But you have to be more patient to find them. I also think that a lot of these companies where they're like kind of factory churning these things out as investors, if you're taking capital from, you know, family offices or your friends and family or institutions, like you have to stand behind every decision you make, you know, and if you're just following on top of accelerators, I don't know, like the LP, like all those LPs can invest in all those accelerators, believe me.

55:26Right. And, you know, it feels like this could creep into other rounds as well. I'm sure you saw Dalton from YC just launched like a series A version of YC. I'm sure others will pop up, which will then squeeze kind of the economics in that category as well. Yeah, to me, it's just like the marketing piece, which is like if you think of the model of one of these accelerators, it is capital intensive up front. But if you find something early, if you find a couple of things early per batch with 10 % ownership, it makes up for it. Yeah. And so it becomes kind of a marketing game. There are a lot of LPs who will not invest in accelerators based on they don't believe in the index.

56:07And then there are a lot of LPs who also just say, I can't meet everybody in this room. Just index. Just index. And maybe I catch a tiger by the tail. Yeah. So we're in New York. One thing I'm curious about is like all these dynamics that we're talking about, seed under pressure, under fire, accelerators, markets, et cetera. How do you think it differs between being in the Bay versus being here? I mean, you're based in the Bay, but you spend a lot of time here. And so I feel like you've probably - Try to pretend I live here. Yeah, you definitely do. I think the seed investors who are here and located here, even if they're popping over to the Bay Area every month to do their thing and staying in New York, they're a bit insulated for what's happening in the Bay Area.

56:54And so that's to your collective advantage, I think. What do you mean by that, though? They're competing for the same deals. New York investors don't just invest in New York. I don't believe that all the accelerators and all the large funds and all the other people playing in the space can cover all the amazing founders that are coming to New York. Ah, okay. You're saying New York investors have a New York home field advantage. Even if they have an office and a shingle and a happy hour and you name it, they can't do it. I agree with that. Look at Nick Churro. Nick is only in Brooklyn. Like none of these firms and none of these accelerators are going to go into Brooklyn.

57:36Of course, those founders can go apply and go do all that stuff. But a certain founder is just going to go to Nick. Right. That's his opportunity. Yeah. You know when you're living in a neighborhood, in an ecosystem, like you just have that sort of institutional knowledge about who's building stuff that you just won't be able to see from Affinity or one of these. I believe that. Harmonic. It won't bubble up. I believe that. And I also think that there are enough founder, like there could be three founders on the block and one wants to go to an accelerator. One just wants a logo of a big fund and one wants to work with Nick.

58:12It's no surprise then, I guess, that like there are accelerators launching here, right? Like SPC has an office here. I think SPC is actually here tonight. There are other accelerators launching in New York. Betaworks has always done a good job with their camps. Like we're probably going to see more accelerators in New York. Yeah, I mean, it makes sense. I mean, I think if you take it from the founder point of view and forget us investors, like, it's actually better because if you go raise venture capital and you raise three, five million bucks, you could be searching for a problem to solve for years, rotting away your prime years.

58:43You know, we all have startups in our portfolio that overraise and you're like, just return the capital and go, like, do something with yourself. Versus, like, if you're in an accelerator or in one of these things and it doesn't work and you have all the peer pressure. so i don't want to poo-poo them like it's probably valid it's like hey you didn't make it or your demo day sucked or like your product sector you didn't raise money like sorry bye it's probably valuable yeah all right we we gotta we gotta hit the audience tip line in a few but before we do that just a couple like questions for you before we hit the tip questions for me yeah so number one i know you hate this topic that's why i want to talk to you about it oh no the bubble topic what do you make of all the bubble talk we're in a bubble we're not in a bubble the market's gonna It's going to f*** up investing.

59:24My only answer to that, I don't comment on that stuff because I feel like I have no idea. But the only comment I would make is that I usually answer this question by just saying, what are random little factoid stories that have popped into my inbox or text? Okay, tell us. Or real life. Somebody told me recently that they were competing on a seed deal with another seed investor in the Bay Area. And that seed investor who won the round, this is a sub$200 million fund, flew the founder to Hawaii to win the deal. Wow. That's one. So that's bubble signal? Well, that's one of like 100 signals. Let's hear more.

1:00:04What kind of plane? One afternoon, three people in Jackson Square, San Francisco, told me that they saw Rick Rubin on the street. and then at night i opened my instagram and i saw gary with rick rubin wow and i was like wow so so like i literally could go on for hours any gifts any like gifts oh like the deal gifts and stuff no no have you ever done anything like that have you ever tried to really wow a founder and I don't know send them a gift have a really famous person call them put them on a plane you ever done anything like that no no that would be kind of fun though but no I've never done that I'm trying to think of anything to top those two honestly like Rick Rubin and a private flight to Hawaii at seed is nuts what do you think about I've heard about this move that's I I'm not naming names because I actually don't know who they are but I've heard about a move some funds they like they won't let the don't let the founder leave until they sign the term sheet like they like corner them in an office like somebody wants to be that smothered i don't think that happens at seed i think what happened i think that's like big fun stuff where it's like there's a competitive dynamic and you you have your peer set of funds and you know there's there's a lot of like um sort of like jungle dynamics that's kind of creepy right no at seed it's like at seed we're like um oh, we meet a founder.

1:01:37They have four term sheets, but they really want to meet you. And I'm always like, take one of the four. Like, give me a call and I'll help you choose between the four. So it's just like, it definitely feels like there's a lot of, I don't even know what a bubble is anymore because I think a lot of us use AI and it's really cool and it invades other parts of our life. But I think that like, what I come back to is like an old, very wise LP I met when I started investing just said, as an LP, when you're investing, you want capital to be tight and time to be abundant. But when time is tight and capital is abundant, it's a terrible time to invest.

1:02:14And right now, it does feel like that. And this person told me this 13 years ago. So it feels like that. And then we all hear the little stories. I mean, we could move the mic across this entire room and everyone have a story about my Rick Rubin story. I'm pretty convinced. All right. Another topic that, enough bubble talk, another topic that you love. What's the fascination with roll-ups? I think the roll-up AI idea solves a couple problems. If I'm thinking about it from like company creation point of view, is like, how do I get warm bodies who are already working on a project or maybe different groups of warm bodies working on a project that I can integrate so I don't have to hire?

1:02:57So solve the hiring problem. Two, I think it's like it's solving the software like legacy sort of like problem, which is sort of obvious, right? Which is like, hey, these things are in silos and they're not modern. I think it also solves a distribution and customer acquisition problem. So you can, you know, I can keep kind of going along. It's easy to tell the story. It's very easy to tell the story. I think where the rubber meets the road and actually have some more personal, not work experience here. But like all my friends, when I moved to New York after college, by the way, I lived here after college.

1:03:32I know how to live here. And all my friends and all my roommates were in private equity. And I saw everything that they did. And these are really smart people. And I think the bet is can VC tech firms put the technology together in a way to like harmonize all those things and eke out a profit versus the folks who've been doing it who are not tech native on the other end? I think my money is on the old PE folks because I think it's a grind business. It is a spreadsheet business. Will there be somebody who figures out an AI roll-up? Yes, but it feels like the topic du jour. I'm not really sure they'll be able to figure it out.

1:04:21It also just seems, I mean, it seems hard to change the culture of the DNA of any organization. I mean, think about like when startups get acquired and how it often ruins those teams because the culture can't change. Now we're talking about taking these really old school businesses, I don't know, local trades, plumbing businesses and saying adopt AI. It just seems hard. But I think the theory of it actually, the theory makes a lot of sense and is quite seductive. The problem is in the operations and the change management and like blending a leadership group and doing all that stuff. And these folks have been eking out two to three to four X returns for decades.

1:04:58And I think, will somebody break through and create a 10 X return doing it? Yes. It won't really move the portfolio. You know, that's really the punchline. But beyond that, like, I just don't think I think a lot of them, it's a valiant effort, but I don't think it'll work. All right. Last one. What are you excited by with Seed? I mean, there's so much uncertainty. It's a you know, it's a new it's a new era for investing given AI and everything we talked about. Like, what are you excited by? What are you optimistic by, especially as we close out the year? Yeah, I always say this, and I think especially for folks in the audience here, a lot of whom are good friends and stuff, we have the best job in the world.

1:05:40It's a fun job. Yeah, so let's not lose sight of that. And also, I'm sure you would all agree, we could bitch about accelerators or big funds or corporates or people raising rounds in two weeks. But there are founders who want to figure out and care about who their investors are. they're there. So if you're patient and not being, you know, sort of subsumed by the noise, they're there. We all have a lot of founders here we work with. To me, that's the most exciting part is like, you know, sometimes I go to dinner parties and people ask me like, what do you do? And I tell them about this startup, that startup.

1:06:15Those aren't my ideas. I could never come up with those ideas. Those are people coming up with those ideas. And we get to like be a small little part of the story, not to sound romantic about it, but that's a great, that's a great job. The job is still a lot of fun. I think the job is a lot of fun. And I just don't believe that all the best creators and all the best outcomes are going to flow through these things we've been talking about. Yeah. I really don't believe that. You could even look at some of the great current hot companies. One of my friends who had been at Founders Fund for a long time was telling me how they met Zach Frankel.

1:06:53Now, this guy is a mythic legend here. like everyone knows who he is probably no one's met him right he was an intern there at founders fund and they were just like yeah you're smart you're an intern here and then he was like i'm gonna start some companies with my friends and they're like cool we'll fund them at seed investing that's cool that's all it took all that opportunity is available to us there's no special reason that founders fund was able to do that They just didn't ask too many dumb questions. That's the key. Totally. Yeah. That's the failure mode. Don't ask dumb questions. Speaking of dumb questions, anyone have any?

1:07:38Or good questions. That was one of your best takeaways. Yeah, I don't know. I don't know how I pulled that one off. So you guys talked in the beginning about these prediction markets, Polymarket, Kalshi, and others. How can they be manipulated? it. Like I was reading somewhere that, you know, the famous New Yorker Bill Ackman was talking about that somebody is manipulating the prediction markets in favor of Mamdani because they're buying and selling at the wrong time. It doesn't make any sense. So there's a coordinated effort to show that Mamdani is already won or whatever. But the point is that that can be done for a lot of other things that are being predicted because, you know, there was one time there was this idea that, You know, the meme stock buyers could flood the market and drive companies into bankruptcy.

1:08:22So why would prediction markets be any different? Like, will money, again, screw up something nice that we would like to have, but we can't have? Yeah, I think you're totally right. And I think we should be quick to declare prediction markets as the ultimate, you know, predictor of like, I feel like the narrative right now on Twitter is like prediction markets. know, you know, the polls, the markets know. And I feel like we've already anointed them as being a hundred percent perfect. And right. I think this is a great point that they're going to be flawed. And I think they're going to be abused just like anything else.

1:08:55This is a little, this is pretty far out of my zone of competency, but the only thing I thought about when you were asking the question, and there might be someone here who has like more facility with kind of financial markets, but that could you get, you know, shorts or other kinds of people in this market that you can start to manipulate it and use social media on top of it, I have no clue how that'll manifest. But I mean, I would imagine that's going to happen. The behavior you're seeing between public stock markets, social media, and shorts will happen in prediction markets feels like a natural consequence.

1:09:34Besides comments on the seed market, any comments on venture like A, B, and then separately on growth, just given your respective apertures? Yeah, I'll do 30 seconds of mine, but you really sit there. I think for seed investors, Varun, for us, what used to be an A round or a B round has kind of bifurcated between are you a two-year-old or younger native AI company that's growing from zero to 17 million of revenue in five months or not? and I don't really know what happens next because this is just unprecedented time. And I'm of two minds. I think there are a bunch of people I know and respect who are like, I only want to see that.

1:10:22So Varun, if you don't bring that to me, you better fund it yourself or find another investor. Or some of you were here, Michelle, I don't know if you're still here, but we were at a dinner with a bunch of investors earlier in this month in San Francisco. And an investor I really respect who you're on the board with of many companies, said that for a check under$20 million at his firm, he has anyone who brings a deal to the partnership, they cannot make any quantitative argument in favor of the deal. I don't want to see data. I don't want to see metrics. I don't want to see comps. Tell me why you like the product.

1:10:59Tell me why you like the founder. Tell me why I like the space. And I'll tell you afterwards who he is, but he's someone you would respect. So I think people are of two minds right now. And in terms of growth, I don't know, and I'll kick it over to you, but my view is like founders who are in the market for growth capital, it's literally like an IPO process. It's like, I'm going to create a process, give me the best term sheet, show me your platform, blah, blah, blah, blah, blah. And I don't really give a shit. I think at the growth stage, obviously there were a lot of deals, are a lot of deals that are happening in very, very quick succession.

1:11:36I would say for a while, it seemed like diligence was maybe lighter than it previously had been. I think that was like the sort of read on the market in general. I do think that that is changing. I think the reality is, we talked a little bit about earlier, that these deals were happening so quickly and so much capital is being deployed. And in many cases, nothing was getting proven out for many of these companies, right? Like Series A would happen and then a Series B growth round and Series C growth round would happen within months and nothing else being de-risked. I don't necessarily think there's been like a falling out and we've seen a bunch of companies, you know, go belly up.

1:12:16But I do think it creates this dynamic of pacing where it's like, okay, we probably should slow down a little. We don't actually know how things are going to play out. Open AI is being really aggressive. Anthropic is being, you know, is generating a ton of revenue in the enterprise. So I just think the way that will manifest itself is I predict that growth will start to feel a little more normal. There will be a higher bar. Some of the companies that I work with have gone out to raise growth rounds, and it does feel like the processes are getting a little more rigorous than they were. I think in Series A stage, I mentioned earlier this Dalton thing.

1:12:53I think if there's more capital entering the market, more and more folks are going to try to find different vectors to compete on clearly like price and marketing is a way to do it we spoke about the accelerators earlier so i have to believe that that dalton's new fund is the start of a trend that maybe will increasingly work its way uh up to later and later rounds sorry just last thing i i love dalton yeah i don't think it's gonna work i don't know man i know some i don't know well i i like dalton a lot he's very smart and great kid um i think doing it in a batch process is not how the A rounds happen.

1:13:31And I do think there's enough A players to do a round or insiders do a round that there'll be a lot of adverse selection. And I hate to say that because I like Dalton, but it's just more common on the strategy. I don't think it works at that part of the capital stack. The reason I think it can is because I think it's getting easier and easier to start a company. And And so you have more and more founders and startups than ever before. And I think those A players you're talking about, they can only do so many deals. And so there's just a lot more startup supply. And I think many of them, per your point, maybe it is adverse selection, won't be able to get the attention of a Lightspeed or an Andreessen.

1:14:11But I think that's the job of the founder. So like when they start with the 300 ,000, 3 million, 6 million, whatever the number there is, at certain point, they need a logo in order to hire, get customers and do that stuff. And yes, well, something slipped through the cracks. Yes. But I think over a series of funds and that, I think the terrain is too baked for that to work. Anyway, that's just my point of view. Yeah, we'll see. I just think if you have a lot of capital and you don't have, not every founder can get to these people and there's a lot more founders, they're going to find new ways to get it.

1:14:44And then I worry it puts pressure on them. What the larger funds should do is take Dalton's approach and make it like an online college application for Series A. Yeah, but then the firms have to compete with his deal economics as well and it throws off fund construction. But most of those funds in a competitive deal will take time. Yeah. Anyway, I think it's going to happen. Hey, guys. So, Samila, you've built your own firm. Mike, you sold a company now working at Lightspeed. What are your respective proudest moments in your careers? I'm usually driven by paranoia and fear, which isn't related to pride.

1:15:24But I think one of a few prideful moments for me is just, I mean, you probably all experience this, is a founder you spend time on that you pass on. that sends you their friends to look at for investment i feel like is a great compliment you know that's one i would say i have two but they're sort of related building a startup obviously you know having it work out acquisition whatever it's obviously great it's a special moment but i think the aspect of that thing that that really has stuck with me the most and where i maybe got the most fulfillment of that experience was the impact that it had on the team and the individuals, like, you know, these acquisition deals, I mean, many of you probably have been involved with them.

1:16:09They can go, they can go South, they can rip a company apart. They can, they can, they can tear it down, but when it goes well and you can like pull each individual employee aside and be like, Hey, we're getting acquired. And like, here's what it means for you and for it to mean so much for that person. Uh, that's, that's really, really special. And then to see them go on and do really interesting things at the acquiring company or go on to be CEOs of their own company. Like that's really cool. I don't know. I feel proud about that stuff. So you guys talked about prediction markets earlier, and then you went on to talk about all of the capital that's coming into seed, how every single person in this room does seed investing, how's accelerator.

1:16:43Isn't that a prediction market? Aren't we already living in a prediction market or to what degree are we missing aspects of, and by the way, are they accurate? So to me, the prediction market comes to the benefit in that you're right, but it comes to the benefit of two entities of that is the LP capital that would fund the next Matt Hartman or the larger fund that would hire you. Typically, it's been like, oh, I'm going to recruit at MIT Sloan and Stanford Business School and, you know, blah, blah, blah. Or it's been an LP who will say, Matt, I love you, but like get the founders fund GPs to tell me I should invest in you and then I can move it through committee.

1:17:23What I was saying earlier was like the V 0.01 version of that was AngelList. So Matt Hartman from 10 years ago could have gone on to AngelList like I did and just ripped a bunch of SPVs. The benefit to me was Naval basically handed me one of those four keys. Other people had to go collect and round up the capital. So now with prediction markets, you could go take that synonymous Twitter account, put it into a prediction market, and start to build like a better, more specific track record of what you thought. Extremely efficient in real time, right? And in a two, three-year period, you could theoretically take that to, where's Eric?

1:18:10I'm going to call him out from, is Eric still here? There he is. He leads the YMCA endowment, excuse me, retirement fund. and you could take him out for spicy Asian food and be like, here's my poly market. And I guarantee you, he would listen. So is your argument that not enough people are on poly market? Because like every single one of us has a fund with a big track record and all the stuff we passed on and all the stuff we did. And we take it to him and we have that data. It's a limited group of people. It's still not verifiable in the same way. It's not timestamped. It's like, oh, I saw that deal.

1:18:46I could have done it. Okay, so the data point of I would have said yes to this had I seen it, is the thing that is missing? It's a timestamp. It's a quantum of money in. It's a price in. All that. And it's the ability for the community to get behind it, right? In real time. Yeah, but at minimum, you could take the synonymous Twitter account to Eric, but it would be more interesting and probably advantageous for the next Matt Hartman to do it on a system like Polymarket. I mean, that's where AngelList is trying to go with what they're doing, right? So hang out, get to know one another. And thank you so much.

1:19:21Thank you all so much. I hope it was interesting. Any feedback you have, even if it's like, you know, you didn't enjoy something, tell me, please. Don't tell Mike. And I also want to give a huge shout out and round of applause for everyone that's helped us pull this event off. Thank you so much. And thank all of you. Let's enjoy the night. Thanks for coming.

1:19:46Thanks so much for tuning into this special episode of Out of Office with Samil Shah. If you haven't already, please remember to subscribe on YouTube, Spotify, or wherever you get your podcasts. See you next time.