Vibe Rounds, Tech Ecosystems, Foreign Money in US Venture Funds

29:47They specifically didn't. And it was because there were so many obvious conflicts, right? Like anybody that would look at, hey, the most prolific crypto hedge fund that does the most degenerate, crazy shit that is antithetical, that is basically manipulating all these markets, also wants to own the biggest exchange. We should fund the exchange. What could go wrong? But you know who this is, right? Dan Toomey, do you know who this is? No. So he works for Morning Brew. He has a YouTube channel. He's like this comedian. Oh, he does some of those videos. And he's much more like a video creator than an insider tech person.

30:27I don't think he's done a startup. I think he kind of comes from like the comedy standup like video world. Now he's done a lot of research and he actually understands things like really well. But it's just funny that like he frames it as like, oh, this is something Andreessen would do when like, I think it's just because like they're a big name or something. It was kind of interesting. Like that's what he picked because like. No, I read it as the, oh, you're kind of making a play on Adam Neumann. But like. Oh, yeah. Okay. Well, no, because that's the most high-profile company that Andreessen has.

30:59They went back to after. Went back to a founder who had had a fall from grace.

31:07Bizarre. No, but Andreessen doesn't get enough credit for not doing FTX, right? Yeah, totally. Because you know they were pitched it. Of course. Over and over and over and over and over and had to have said no. It's not like it was an issue of price, right? Yeah. Because that's not the. And their fund was already so scaled. Yeah. that was an intentional decision which is why from an investing standpoint you always have to ask yourself why am i the one that is doing this deal right like why are all the there's the market's not perfectly efficient but it's pretty efficient right and so anybody who is backing ftx i mean well andreessen has their multi-billion dollar crypto fund and has a mandate to be in every important company.

31:52Yeah, yeah. Why did they not do it at any point? Yeah, that's interesting. I don't think Founders Fund did it either, right? Yeah, I mean, the team always talks about, like, yeah, there were a bunch of red flags. But there was another thing. I mean, some people passed. I mean, obviously, like, the best people passed just because they clocked SPF as, like, a fraud. but other people passed because either they were already in Coinbase or what's that? Binance. So if you're in those you might be like I don't want to do FTX as well. People always figure out how to do yoga. Oh he's building a finance super app.

32:33It's not an exchange. Yeah it's true. And then yeah I mean there's a bunch of stuff there. I think that But this reminds me of another story that I don't think is printed out but is worth covering. It came out yesterday that the FBI is probing this group called Hone Capital for ties to the CCP. And I think it was between 2016 and 2018 AngelList took$80 million in sort of direct investment from Hone. under the conditions that Hone could get full visibility into every syndicate happening on the platform and presumably all the data associated with those, which, as you know, is DEX, financials, you know, other, you know.

33:29Basically, so, like, that to me is, like, the biggest story in tech right now. And there's enough people that have vested interests and angel list i think it's generally great for the innovation ecosystem and is like a positive platform and force but that to me is um potentially one of the first stories of a series of stories around foreign money and venture that will just continue to yeah drop i always i always wonder about the actual impact of that stuff though totally because it's like i i was i was joking about like imagine you're some spy and you work your way up and you know you wheezy your way into a big venture firm and you're like oh yeah i'm with like the top dog like i i'm seeing everything i'm seeing everything and then the gp is just like the future is nfts and you're like god damn it i will never bring honor to be weapons yeah like like yeah okay so they steal the code to the the monkey pictures it's like it's like like there are a lot of companies where actually the ip is not that valuable it's stolen like yeah but i'll give you a story that is relevant so deterrence defense tech startup yeah was speaking with a high profile rolling fund gp on angel list And because deterrents will be doing sort of stuff that's critical to national security, we need to know who your end LPs are.

35:09And so we pressed said GP on who their LPs were, and he basically had to say, I don't know. I cannot verify that they're not, that it's not Russian money, CCP money, et cetera. Yeah. And I independently verified with another. Probably won't run this, but I independently between you and me, I independently verified with somebody who work with the fund who was like, yeah, there's Russian money. Like, yeah, 100 percent. Yeah. I mean, at the same time, I get that it's a bad look, but like, I mean, I barely have the cap table to my own investors. No, but if the problem is if some if that money gets invested into the company, it damages the company prospects.

35:50Right. Right. Purely brand and optical? Or do you think there's actually a path to, okay, I have some small - USG being like, hey, we don't want to work with a company who's end investors. Sure, sure, sure. Yeah. That's just, that can damage the company. I just have trouble because like most investors, it's like you take a small check from them and you never hear from them again. And then a few of them, it's like, okay, they got some information rights. Like maybe they get like a P &L. Yeah. Or like maybe they get a cap table once in a while. But it's like they're never getting access to like the Git repo.

36:22They're never getting access. Like they don't have any, they're not badged. Like they don't get to go in the company. And so like I get that it's like a huge problem and like a big thing in like the abstract. But I feel like even if you found like six degrees of separation, there's some like, you know, Russian or Chinese money in something. Like, I don't know that that's as dangerous as we think it is, as opposed to, like, the more obvious thing of just, like, there's an employee who's been compromised and just has access to the whole network. Right. Like, that might be what we actually need to be worrying about, like, more.

36:56I would say the other... And then there's also, like, the Chinese and Russian money. There are expats. There are people who are just rich kids over there who, like, want to play in this market. They want to YOLO. they want to leave or they or they like america and they're just like not actually aligned of course they could be turned of course there could be spies like like that that definitely happens and that is an that is an issue i would say that yeah i would say one again uh all this information is possible to get in numerous different ways right like if you want to find out about a company, almost any company, any tech startup that is like pre-seed through series B right now, you or I could get their most recent fundraising deck by the end of the day if we actually wanted to, right?

37:47And for 99 % of companies, it's a bad idea to even copy it. For the next order or magnitude of companies, it's like, okay, so... you know maybe there is something there but like just having the deck isn't enough to really like create some sort of like geopolitical advantage there's just a lot of steps to like actual like you know shifting the geopolitical balance again it's going to blow up and it's going to be really it's going to be a really big like brand issue and it's going to be something that people really have to fight through and like work through these questions it's tough for it's tough for AngelList because founders already are not generally super excited about their deal going on that platform because of the information issues just getting a thousand people.

38:34And Carta had a similar thing where they were like kind of selling data or something. Carta was... They were trying to do secondary transactions, right? Private market or cap tables should inherently be private and owned by the company. And Carta was leveraging that information to catalyze their secondary market, which was the entire reason that they were going to be a$10 billion company. Because if they become like the NASDAQ or secondaries, that's about it. Yeah, like massively. They can make 5 % on every trade. They're huge blocks of trades. You could be facilitating billions of dollars of trades a year.

39:07If it worked, it would have been... Much more valuable than just a sales product. Yeah, the people that are like, who's investing in Carta at an$8 billion valuation? It's like, well, if you can be the platform for secondary transactions and get 5 % rate on everything, like you're such an unbelievably large business it's insane um but yeah i don't know do we know who like do we know who was running home yet like is this guy there's some dude who's like running around right investing he probably was very well loved because he's like you get two million for your fund you get two million for your fund we're backing your next syndicate deal right like it's really like money is like a way to make fast friends in the valley right yeah that's true everybody loves a loose lp um what else should we uh should we do this one uh oh yeah that's great i mean uh so it's funny i've dm i have no idea do you i actually don't know who's behind the account at all i don't but they seemingly came from like finance twitter and like just inserted themselves because like yeah it's one of these things where it's like it might not even be a girl totally totally who knows um but good good posts so sophie says i think we can do away with seed series a b etc either a round is a vibe round or an excel round and then matt turk says uh something like this with the midwit meme and the midwit meme is just at the early stages vibes in the midwit is excel it's all it's all vibes and i mean we're certainly seeing that with with like vibe rounds getting done in the seed stage and then also vibe rounds getting done and you know tens of billions and beyond the tens of those are the real vibe rounds yeah do you think do you think it just all comes down to the founders of ability to create a vibe round at any point in time is it always better to have a lower cost of capital through a vibe round?

41:06Vibe round feels like inflated valuation, like higher multiple. When I hear 100x revenue multiple, that sounds vibey. I think a better way to look at it is, does a company have product market fit or narrative market fit? And you actually get crazier multiples for narrative market fit because it's all just... And so an example being, if you have product market fit and you have 2 million of ARR and you're adding a million of ARR every three months, you could probably go out and raise at like 60, right? Because somebody's like, okay, like this is, you know, great momentum. This thing's working. If you have narrative market fit and like venture capitalists are sort of applying this lens to your business, which is like, this is a crazy new market and a crazy team and they're just going to figure it out.

41:58You can also get the 60, right? And so I often think whether it's truly like a PMF round or a vibe round, they get done in a similar range. If the caliber of founder is relatively equal, the real crazy multiples come when it's both, right? When you have the product market fit and the narrative market fit. And I I'd give the example of that company, Harvey, which has, they're the legal AI company. And, you know, they have probably 10 million of ARR or tens of millions. I don't actually know. I think, like, people talk about their metrics, but it's sort of unclear. But the narrative market fit, which is that LLMs are going to dominate the legal industry, is so strong that why would you not do this round at 800 million, right?

42:52like just crazy multiple because yeah yeah they're the category winner and like the narrative tracks and it's not like the early days of llm development where i mean what open ai probably made no money for like eight years right it was incorporated in what 2016 or something like that like as a non-profit for that reason and like all of those labs didn't really have products that anyone wanted to buy for a very long time right even gpt1 gpt2 like they had apis even the first gpt3 It was like kind of cool, but no one could figure out a way to like really incorporate it in a product Yeah, there was a company this company copy.ai Yeah Rocketed to like 20 million of air because they've kind of figured out how to actually figured out how to how to leverage the API and it was Great and I think they had to completely pivot because people just started using chat GPT Right, because it did exactly that for way less money.

43:47Yeah, there was another one to some sort of writing assistant and I think it had like one of those personal names, like not Harvey, but it was like a human name. Yeah, so I think Vibe Rounds or Excel Rounds is right, but the way to look at it is to say, is this a product market fit? You know, sort of like we're doubling down on this like momentum, like actual business traction, or is it narrative or is it both? And that's the crazy stuff. Yeah, there does seem to be like a certain type of founder that you can just like will a Vibe Round into, like Adam Newman to your point earlier. Well, it's category dependent, right?

44:20But right now, if you're... Because, yeah, I mean, WeWork was not in some AI megatrend, right? There was no megatrend in, oh yeah, of course real estate in 10 years is going to be completely different. Whereas the legal profession, it's pretty consensus that the tools are going to get better. Who's going to be the winner? What will the market structure be? There's a lot of questions there. But you can clearly build a thesis around that. Whereas saying that the real estate market is going to be dramatically different in 10, 20 years, that's not an optimal assumption. I think the WeWork was an incredible product, partially because it was venture subsidized.

44:59The fact that you could pay$300 a month to walk into a beautiful space and have a desk and have coffee and snacks, they were just not charging enough. right and then you combine that with incredible positioning around and storytelling from adam around what does this actually become we work is you know a dominant brand within all within everyone's daily life right like something that is the whole vision of apartments and offices and yeah um you know it was easy to buy into that when he was adding a new we work every two days and I'm sure the retention when it was really cheap was great and, you know, people loved the product.

45:42And, you know, I think so, again, that's him. He was forcing the narrative. But the product market fit was real. Yeah. He was able to, like, sprinkle the vibes on top. Yeah, I think it's funny as founders, really convincing founders. The most convincing founders convince themselves first. and then by nature of being 100 % convicted, they, like Breslow's a good example, right? Breslow, when he goes out and pitches, is 110 % convicted in what he's saying. So much so that other people are like, this sounds crazy, but like, this guy's convinced and he's gotten this far, so like, why would you not bet on him, right?

46:28I think that wears off eventually. You think it wears off just because you become jaded because as you get further in your career, you realize, wow, I was 100 % convicted about that particular thing, and it didn't pan out, therefore maybe I should be less convicted about the next thing. I think it wears off on a founder-to-founder level. Nobody stopped believing in TK. Imagine what Uber would be today. It would probably be Waymo. I think they have a partnership now or something. but you know. I wonder if there's anything that you can do to like upregulate conviction almost like the it's like the inverse ayahuasca thing you know.

47:10Yeah. I mean I guess for some of the psychedelics like it does seem you know there was kind of that counteraction to well like Steve Jobs took psychedelics and he came back like extremely you know you know focused and and and probably more aggressive about, you know, I know the truth. I know that like this product is the right one. And he was like, you know, unwilling to accept a plastic, you know, like a plastic screen on the phone. Like it had to be glass because like, that's what he like knew to be true. Meanwhile, the Apple designers today are like, we're gonna put the camera off set from the back of the phone so that people have to buy a case, which is going to increase our AOV by 6 % and drive meaningful.

47:58Where it's like, oh, you made a phone that doesn't sit flat and the camera lens sits on the, like. Yeah. So, yeah, I think the topic of psychedelics is a funny one because I do think that the technology industry has for a long time benefited from it, but it actually went too far, right? yeah and yeah the whole ayahuasca by itself i think will be studied like to me that's like the overdosing on lsd of our generation where like a lot of people use lsd and you know experience some range of benefits from it right the psychedelics might have just straight up been weaker back in the jobs days yeah he might have been taking like one tenth of the dose that like some tech middle manager takes on some ayahuasca retreat yeah like turbo fries their brain or whatever yeah the funny thing about the average i've always always avoided it had no interest in it and fundamentally like you know would have had had plenty of opportunities where i could have and opportunities where i could have chosen to do something like that.

49:12But once people understand the actual nature of an ayahuasca retreat, most of them involve going with 120 to 100 strangers and sitting in a room. And the stories I've heard of people saying like, yeah, I was in a room with 100 people. Everybody's laying in a cot, throwing up having an exorcism the funny thing is is people end up ultimately losing themselves so much that that i've heard of uh men starting to masturbate in these sort of like group things i know these two girls that run a popular health podcast in la and they were approached by this uh they were approached by this company in costa rica that said hey come come down and experience like you know it's it's on us it's comped and they were they were telling me the story they were like yeah a bunch of like half the room was throwing up 10 of the room was just masturbating and and i was like oh my god i'm so sorry and they were like no no it was incredible i was like i was like uh and what did you get out of it you come these people come back and they're even more lost like it seems like it sends you down this um turbo fry i think i think mark called it turbo frying yeah it was a land shark who he posted like the screenshot of land shark saying like you know you get your gigafry your brain turbo normies get their get their brain gigafried because they're like they're not settled spiritually and they go into this and that's the The thing with psychedelics, if you are incredibly mentally stable and fortified and you do these things, it can have a positive effect in terms of helping you see things in a new way.

51:06You have to imagine that. I mean, I don't know exactly Jobs' timeline for this stuff, but it's possible that he had already created a billion dollars of value and created some of the greatest advances in computing history ever. And so going into that, you're probably pretty confident. You're not like, where's my place in the world? He's going into that experience thinking, my place in the world is to create great technology, and I'm really fucking good at it. And so I'm just doubling down on that when I come out of this. And psychedelics help you see things from new angles. That's the best way that I think for somebody that hasn't ever tried them to look at it is like you're looking at an object.

51:48like you're looking at a computer and your entire life you've looked at it one way and psychedelics help you view it from like this way yeah and you're just like okay what if we you know made the whole back structure clear so you could see into the machine right and it's like that becomes an iconic feature of the product but it wasn't like steve went into a cave and then invented computing right like it was like he didn't come out with like the circuit board yeah it was more so I think he deserves credit for things like design and deeply prioritizing the user and coming and thinking about products in new ways and delivering elegant versions of that right I do have a friend who is already like one of the most aggressive people I know and has always been and he did acid one time and he and I was like oh what was that like he's like yeah like stuff like you know wiggled around but my number one takeaway was that I need to be more aggressive it just makes you more of you yeah yeah i was like that's the opposite of what you normally hear about where it's like oh i was like it's so at peace with the world like you know i need to like think completely but it's like i need to be even more aggressive it's like yeah already one of the most aggressive guys okay should we talk about uh turner's tweet i kind of like this one you see this tech tech ecosystems right now sf our most important startup is imploding NYC, our mayor just got indicted for corruption.

53:16Europe, we are banning AI. China, VCs are suing all the founders. Des Moines, Iowa, we'd like to buy 50 % of your company for 50K. I think it's great. I mean, it's pretty much... Did you see the chart of the Chinese startup formation? How it just fell off a cliff and no one's starting companies there? Yeah, because they can clot. So for those that didn't see it, basically if your company fails, they can come after all of your personal assets, which feels fairly communist, which makes sense. Makes sense. But yeah, I mean, I think it's like that's why that's what makes technology beautiful, right?

54:00It's not just like people like try to blunt put tech in a single bucket. And even to people that aren't in the industry, if they ask me what I do, I say I'm in tech. right and then they have an idea of what that means but tech is so different in different like you it's surprisingly like different in different locales right like it's still operating yeah if you the real alpha the real alpha is to go to the midwest and just start offering slightly better terms yeah i'll give you 50 on 500 yeah 55k yeah 50 percent yeah i mean the funny is that like these are framed as like they're all in chaos. Like it's all bad news everywhere.

54:46Like everything's falling apart. But I read this as like you have to be in a major American city. I would choose SF in New York where one startup is employing and the mayor is getting indicted versus banning AI, BC suing founders or clearly like capital markets that are just like, you know, defunct, basically. It's like, yeah, like SF, I don't even know if I buy the imploding narrative, but like if it is, that's a lot of opportunity. That's maybe creative destruction or creative disruption. Maybe there'll be, you know, other - Time for us to go join OpenAI and climb the ladder. That's the long-term.

55:24What's your long-term vision for Technology Brothers?

55:30COO, CMO of OpenAI. Yeah, a more hostile takeover. you know they always talk about like the the you know sam altman and if you drop him on the island he could become like the cannibal it's like no i could even do it better i could do it better the knife yeah um yeah who knows but i i do think that uh there's this tendency to latch on to headlines and just everything behind the headline in every single one of those cities there's amazing companies that are hitting their stride finding you know i don't know except in europe except in europe europe seems in a lot of shambles shambles it seems we it's time to colonize europe yeah they colonized america well i was i was trying to colonize it i was joking about like yeah like either in germany or or france like yeah france specifically like you know it just seems like authoritarianism is on the rise like they're banning free speech they're banning like they're arresting paul durov the telegram guy and it's like yeah every every 80 years like america has to go in and like clean clean it out clean house clean house like like we gotta go all right this was a fun social experiment exactly there's only one form of government that actually works yeah and we're here to yeah yeah let's reinvade we've we've brought democracy we've exported democracy it's the greatest export right it is free markets and democracy yeah but sometimes people forget that yeah yeah yeah what else was on the docket today What else do we have?

57:05I had a funny moment today, or a funny moment this week that you'll appreciate. Yeah. Somebody asked me about Excel and blah, blah, and they were like, yeah, I really thought that I've been working on a pouch concept. I think that it could be really good business to just get to like 40 to 50 million in cash flow. Yeah. And I was like, yeah, yeah. I mean, that's like cool story, bro. I was like, you're going to go into one of the most cutthroat competitive industries seven to eight years behind Lucy. And then just think that you're going to like ride to like cash flowing some asset from zero as there's all this money coming in and like turmoil.

57:51while and it made me think of something that i think is a topic yeah that that more people need to understand is like there's this attitude within like the like startup founder of like i'm going to try to find these like easier ideas and usually usually they land on ideas that are perceived to be easy for some reason which is like okay i get a plastic thing yeah put nicotine pouches in it and I just start selling it and I'll get to like 40, 50 mil and just cash flow it. It's not a venture thing, but like, and there's this idea too that for some reason, cash flow businesses are easier to build when it's like, okay, would you have been able to get, you wouldn't have been, Lucy wouldn't have been able to survive without venture capital to get to the where it's possible.

58:44And so I think it's like, it's probably a topic that will, I mean, I just see it come up all the time where people are trying to find easy ideas. The exception in the tobacco category and the nicotine space is just straight up being illegal. There are companies that cash flow a lot because they just break all the laws and they just don't do anything. But they're very short-lived and there's no equity value. I think when people think like a cash flowing asset, it's like, oh yeah, it'll cash flow for a long time. Not like, I mean, like all the vape businesses. Yeah. Yeah. Yeah. A lot of these, a lot of these vape businesses like popped up overnight.

59:24Yeah. Just like completely broke whatever rule was in place. And it's like, well, you know, big tobacco isn't going to break that rule. Juul isn't going to break that rule anymore. Like has been, you know, like if there's a flavor ban, they can just move around it or whatever. But yeah, it's, it's. Yeah. So that, that was something that came up multiple times this week where founders were just searching for what they perceived to be an easy idea because it was very tangible. And then you're just like, no, well, you know, you know that this is like going to be extremely difficult on all these dimensions.

59:57And you've had a, and in that situation, I was like, best in class team with Lucy that's been executing on the same vision for almost closer to a decade than a first year. And so that was funny. And then the other thing that came up that I think is funny, the text that I sent to a buddy was, real men raise pre-product. Because I have a friend who's starting a new company. And he's done well previously. He's hiring engineers for the new company, but he hasn't raised yet. And I was texting him wanting to invest. And he's like, yeah, we're going to wait until we get to some revenue traction. I was like, God, like it's so soft.

1:00:42Just like, you know, like, and that's again, like the vibe round versus like the traction round is like, I'll give you the valuation that you will get when you have the traction. I'll give it to you now. But like, just fucking sit, like send it, send it. Yeah. Like be a man, like raise. Like if you have conviction, have some conviction in your idea, raise pre-products. Like it's soft to do anything otherwise. like the venture economy depends on people going full send yeah yeah you're hurting the economy i always i always laugh thinking about this uh this conversation that uh mark andrewson was having with king griffin and he's talking about like his earlier funds and how he was like kind of trading his own money and then he like scaled up the fund raised got some lps like got some meat bigger and bigger and now you know he still owns like a huge amount of it but he was just like you know mark and yeah obviously as you know like you know if you don't if you don't get some capital behind you like you don't go very far and he just said it like it was just like such a truism and like it was just such a funny like disregard like anyone who's like oh bootstrapping like yeah it's like no no no like not if you want to play in his league yeah it was just like it was just like Yeah, like obviously you need capital if you have a good idea and are moving quickly and want to like actually win and play some like deeper, bigger game.

1:02:10But the myth of like, oh yeah, a lot of ventures burn out, therefore some sort of lifestyle business must be easier or something. I've never liked it. Yeah, the issue when people analyze bootstrap versus venture businesses is they'll be like, look at this business. It was bootstrapped and it sold for a billion dollars. Yeah. and they're like look at this company this company had to raise 300 million dollars to get to a billion dollars discounting the fact that the bootstrap business took 30 years you know like they're like look they were able to bootstrap and it's like yeah you'll be 70 years old like uh um so anyways real men i'll just end this podcast