Nvidia + AMD’s Deal & Unfiltered Chat with OG VC, Canvas Prime’s Rebecca Lynn | Fortune Term Sheet

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0:45Allie:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. If everyone thinks I made a great decision right after I did a deal, I feel like that's a failure because then it was obvious. Hello, hello. Welcome to the Term Sheet Podcast. I'm Allie Garfinkel, senior finance reporter here at Fortune. And every week on the Term Sheet Podcast, we'll be talking about the latest news and insights from private equity, venture capital, and startups. We're going to be talking to some of the most exciting figures in the private markets.

1:24Allie:This week, we're joined by Rebecca Lin, Managing Director at Canvas Prime. But first, the news of the week. A bombshell dropped over the weekend that NVIDIA and AMD have struck a deal with the U.S. government that in exchange for the ability to sell certain chips in China, they will give 15 % of that revenue to the United States government. Now, this is completely unprecedented. It made me feel a little bit ill at ease. This is billions of dollars that feel like a kickback. It also does seem to undercut some of the sort of previously stated national security concerns. It also creates an interesting dynamic for startups in the space.

2:01Allie:You have sort of self-fashioned NVIDIA challengers like, say, Cerebris, who are already disadvantaged in certain ways when it comes to access to the Chinese markets. So you have that on one hand, but on the other, this does prove that if you are willing to pay for the privilege, there is a path to China. Now, however you feel about it, that does seem to be true. Speaking of AI, data dropped on Monday suggesting that billionaires are being minted at a record rate due to AI. Now, there are two things about this. The first is, on one hand, if we are expecting an Industrial Revolution-style change, it makes perfect sense that there would also be generational wealth creation.

2:38Allie:Now, the second thing to remember here is this is tied to funding rounds and valuations. Now, the valuations are extremely high. OpenAI is heading towards a reported$500 billion. Anthropic is headed towards a reported$170 billion. I'm breathless even saying it. But it is still paper. Over time, the extent to which these turn into liquidity will in part be dependent on who the winners are. Now, still speaking of AI, I am so excited to introduce our guest for this week, Rebecca Lynn. Rebecca Lynn is a little bit of an underrated legend as an investor. She's an early investor in Lending Club, Doximity, and what we now understand to be Siri.

3:16Allie:Rebecca just started her new firm, Canvas Prime, and she really doesn't have a typical Silicon Valley profile in certain ways. She grew up in the Midwest and spent a lot of her career at Procter & Gamble, but you have to understand, she's an OG. That's how other investors have described her to me. When she came into the room for Fortune Brainstorm AI last year, the room stilled a little bit. In short, Rebecca is your favorite VC's favorite VC. Here she is. Rebecca Lynn, welcome to Termsheet. Thank you, Allie. Good to see you again. It's good to see you. You know, we've actually spent quite a bit of time together at this point.

3:51Allie:We have. I see you everywhere. I see you everywhere too, actually, now that I think about it. But I wanted to start with a question that I actually don't know the answer to. What was your first term sheet? Oh, dear. My first term sheet was Lending Club, which then was the largest U.S. tech IPO of 2014. So sometimes you just get lucky, right? What? So your first term sheet was Lending Club. I just want to say that again to make sure. That was the first one you ever gave out. It was my very first term sheet was Lending Club. Now, I looked at a lot of deals before that. I'd been in venture for about a year and the guys were great.

4:33They encouraged me to really track all my deals and put them on a spreadsheet. And so I remember a few months before Lending Club, I came in to my partner and I said, hey, there have been like 300 million dollars invested or raised by these companies I've brought in over the past few years. Can we talk? And it was really helpful. It was helpful to calibrate. And then with Lending Club, it was great. you know, we brought them in. I did the term sheet, you know, myself and ran all the calculations and did all the diligence and then really thought that my, you know, one of my other partners would take the board seat.

5:07That was, that was the plan. And I, I, I, the term sheet actually was a down round. It was Q1 of 09. Do you remember what that looked like, Allie? Are you, you're too young, maybe.

5:17Allie:I will not tell you how old I was in Q1 of 09, but I, my understanding is it was a difficult time. It was a shit storm. Paint the picture for me. How bad was it? Lehman crashed in October of 08, right? Credit froze. And then in Q1 of 09, if you had an 880 credit score, good luck getting a loan. You had to put 30 % down or 40 % sometimes to buy a house. And your APR and your credit card was going to be high 20s, right? You know, if you could get it. And at the same time, you know, people weren't getting returns anywhere. And so when we, when I brought in Lending Club, you know, Shai Goldman from Silicon Valley Bank had introduced me based upon all of my acquisition experience at Nextcard.

6:01He said, you should really talk to Lending Club. And they had just come out of the SEC registration period. So they had been registered, you know, with the SEC, which they discovered, you know, they needed to do. Prosper had just been shut down. And I brought Lending Club in on a series B and just thought it was incredible. I thought even in the worst of the worst markets, the prime and super prime credit pockets are what are investable. And that's what they were targeting. And I knew from my acquisition experience, I could help them build and win. And it was exciting because the banks were frozen.

6:37So we had this clear runway in front of us for at least two, if not three or four years to acquire customers. And what happened was I presented the term sheet. I will never forget. It was myself, my partner, Gary Little and Renault at dinner. And I was really nervous because I'd never presented a term sheet before. And so I, you know, pushed it across the table and we walked him through it and Gary was really helpful and Renault shook his head and it was actually a slight down round, believe it or not. Those things do happen in some cycles. And, and Renaud just looked at me and he looked at Gary and he said, I'll sign it, but only if Rebecca is my board member.

7:16And at that time I had been in venture unit for less than a year. And, and to Gary's credit, he said, of course, he's like, we, he said, we were here at the service of our entrepreneurs. And if that's what you want, that's what you'll get. And not only that, but then Gary said he would take the observer seat and he was my coach. And that's very unusual for venture. The fact that you actually get a partner spending that much time with you when you're really new to the industry and somebody like Gary, who's just a veteran in the space, coaching me and sort of an afferent advice during the board meeting was great.

7:54So I got some really great coaching and it was part of a great team. I mean, that board, Dan Saporian from Canaan and Jeff Crow, they had really backed the series A and were high conviction investors. And they had both been entrepreneurs and operators in their past too. So learning from them was just incredible. It was really fun.

8:13Allie:Now, you're kind of an unexpected venture capitalist. You weren't somebody who set out to necessarily be a VC from the very beginning. How did it happen? Oh, dear. Yeah, no, I never saw myself as a venture capitalist. What did you see yourself as, actually? I saw myself as an entrepreneur. And I still to this day, it's probably why I did my own fund, right? Or started my own fund. I've always seen myself as a fixer and an entrepreneur and a builder. And those are all things I enjoy a lot. I never saw myself as a venture capitalist. And to be honest, I was, you know, from the Midwest. I, you know, my parents, you know, farmed.

8:53I didn't go to college. They didn't go to college. I was a chemical. What kind of farm? Oh, we did. This is a whole tangent.

9:00Allie:No, wait, farm tangent, really quick. Yeah, when I grew up, my dad, you know, farmed. So he had grain, so corn, wheat, you know, something called Milo, soybeans, all those things. And my grandfather had cattle. And so, you know, when I was a kid, I rode on combines and tractors and bottle fed baby calves. And it was great. The thing about this, I do love independent of loving farm stories for reasons that I'm sure we will talk about at some point. You know, we are who we were, right? We are who we were. And you are still the person who grew up on a farm, even though you live a very Silicon Valley life in certain ways.

9:44But it's such a refreshing change. I mean, for me, staying close to who I am and to my roots is what makes me a great investor. And really understanding. And I did this whole hilarious talk at Procter & Gamble. I was invited to come in and keynote their global alumni reunion. And they asked me to do a talk. And I did this really, I will say it was funny, but people did laugh. So it wasn't just me. And so I was like five things I learned when I was at CPG at Procter & Gamble that I take forward. And it was really, it was so easy to come up with content, but it was just the learning that you're not the target audience as a venture capitalist.

10:27And so many people forget that. And so I had three kind of hilarious examples of really missing the mark. And it's why keeping in touch with my roots in the Midwest and I always pressure check everything. Like I knew I missed Pinterest when I didn't get it. And I called my cousins and they're like, oh, look at our Pinterest board. And I'm like, damn, you know, because they are in the Midwest and they were all using Pinterest really early. And so, you know, one of them is like, you know, Lux, you know, that company raised hundreds of millions of dollars, right? But, okay, how many people in this universe actually have the problem where they go into a major city with their nice fancy car and they don't trust parking it on the street and they need somebody to rush in and valet park it in pink pants so that they aren't late for their meeting?

11:12Like that is like not a mainstream problem, right?

11:17Allie:What do you think VCs tend to miss about mainstream America in your experience? I think the thing they miss is they're really smart. I think when I'm sitting out here in Silicon Valley, you know, a lot of times VCs just think they don't get it or whatever. But I'll tell you, they're really smart people. And so I remember like when I first entered venture and they were talking about clean tech. You know, by the way, I worked at a nuclear research reactor, you know, and my one of my advisor was trying to separate, you know, spent fuel rods and like looking at different power options. And so I was interested and I spent some time in the clean tech space.

11:53And, uh, and people out here were talking about, you know, um, biodiesel and ethanol and, and, you know, and all these things and, uh, and wind. And I do like wind. I mean, my grandma's farm is, you know, Rockport, Missouri was the first county in the U.S. that completely wind powered, which is kind of interesting. But I went to the coffee shop, you know, where the farmers hang out. And it was hilarious. They had their Excel spreadsheets. And they would say, you know, we've done all the math and this thing doesn't pencil, but we'll take the government subsidies till the cows come up, right? And so I think the things that people miss are that, you know, there's as many highly educated people back there as there are on the coast, I would say.

12:31I can name tons of Harvard, Stanford, whatever people back there and people that are really, really smart. And I think people on the coast miss it. I think they think somehow that everyone wants to live in California and they just don't. And so, you know, really understanding that and you see it in politics, right? You see people making these assumptions and you're like, no, no, go just go talk to people back there. It's really enlightening, you know, how people see things in different ways. And I really love that. I love to really understand people's perspectives. and I'm curious. And I think that also makes me a really great investor.

13:11Allie:So what do you think Silicon Valley is getting wrong about AI right now? I think Silicon Valley is what they're getting wrong are just these crazy prices that these AI companies are fetching. One I heard the other day, there was a deal done with a million dollars of revenue and a$400 million pre, right? And I'm not joking. And I'm sorry, my favorite couldn't conceal that. I'm sorry. It's okay. And we see this often. And the challenge is it's not that these companies aren't exciting. They are exciting. They are generating real revenue. They are really taking on incumbents. But a company has to grow into those valuations.

13:56And unless they can really truly hit escape velocity and never have to raise again, or the inflation is a million times worse than what we thought, right? It's going to be problematic. And so I think that's the main thing that Silicon Valley is getting wrong is really the valuations they are, in some instances, saddling these companies with that do have a ton of potential and are growing quickly, but they still need to do real life things like hire people and develop their infrastructure and do all those kinds of things and customer service and success and marketing and all that. And it's not like all those things magically happen with AI along the way.

14:40AI enables a lot, a lot more efficiencies, but the pricing has definitely, in some instances, got out of hand. And then on the other hand, we've invested in some incredible companies that have been somewhat overlooked. And, you know, unless it's, you know, kind of lightning in a bottle thing, you know, people don't want to do it. So on the other hand, I will say there are some incredible opportunities that have not been priced that way. And we had the opportunity to invest in companies like Savvy Wealth, which is now the fastest growing RIA ever. But, you know, had to build their product for a little while to have a really robust, fully fleshed out product.

15:19and is absolutely doing incredible right now and surpassed$2 billion of AUM a little more than a year after we invested. So it's been - I actually covered that deal back when you guys - You did.

15:31Allie:Yeah. And I saw they've raised another round since. And it's the sort of thing that I do actually think Savvy was maybe the first story we worked on together. But the thing I remember thinking about it is that it was really non-obvious. It wasn't necessarily an anointed company. I think taste is kind of a really important underrated thing. How would you describe what your taste is as a venture capitalist? Well, for one, if everyone thinks I made a great decision right after I did a deal, I feel like that's a failure because then it was obvious. And not that I'm out there trying to be contrarian, but my taste, my litmus test is, is this a company that I would be wanting to either start or take over as a CMO of if I wasn't in venture capital?

16:19Right. Like where am I? Because, again, I see myself as an entrepreneur. So I'm always looking at sort of first principles of what what's around the corner, like what would I want to build based upon what I know? And so I have these theses kind of running in my head all the time. And then when I do invest, it's when I find that or if somebody teaches me something about the market that's slightly different than what my assumptions were, I get really interested. And so my tastes are really along like what high level, you know, what I want to be part of this company for the next 10 years. That's always number one, two, and three.

16:52And then what about this founder is special? What about the team that is special? What about what is the consumer telling me about the products? That's why I do A and B, because the most important thing in the product is what a consumer tells you. And when I can go and pitch that product for that CEO to new people and I see the light in their eye and they're like, yeah, I want to see what this is. I'm really interested. Let me try it. That's when I kind of, I know we have something and I want to learn more.

17:20Allie:So tell me, you know, one of the things that I have always loved about talking to you is you will get so real so fast. So I'm going to ask you one of the questions that I have a feeling you're going to have a spicy take on. These AI revenue sort of juggernauts where they come out of nowhere and it's 50 million in AR, 100 million in AR in X number of months. What do you think? Does it stick? I don't know if I have such a spicy take. I think sometimes it sticks and sometimes it doesn't. And so, you know, we've seen other things in the past, you know, around this. you know, we saw, I remember the app store opened up and people are going zero to 6 million overnight and then capping out right in revenue.

18:03And so I think you will have a few real breakout companies that are going to be our next, you know, fortune, you know, 10, you know, top 10 largest companies out there. You'll have a few of those, but you're going to have a lot of people that either the revenue plateaus pretty fast or, you know, these big companies do it themselves. Google, you know, Meta, Apple, they say, thank you very much for proving that market to us. We're going to now do that ourselves. And I do think that's probably the biggest risk to a lot of those companies, as they're not companies, their features, they're super cool features.

18:40And if taken and applied to a user base, they become non-existent.

18:45Allie:One area that some of this applies to, too, I think is voice AI, which you actually have a very long history in. Can you tell us about the trajectory of voice AI from your perspective? I'm going to let you say it. I'm going to let you say it. Well, I mean, voice is, I think, the single biggest, most exciting thing out of this wave of AI for many reasons. But just, I mean, user interface in and of itself, just being able to talk to any smart device and get that answer is incredible. And it's what's expected. And then also, it's probably the most democratizing thing we've ever seen because the functional illiteracy rate in the US is now 21 % up from 18%, which is a little bit terrifying when you think of the US having a functional illiteracy rate of 21%.

19:38If you talk to anybody in the front lines of healthcare, like an SF General or something like that, they will tell you that is what they live and breathe every day. And that most of our healthcare apps are designed kind of for the worried wealth. And so I'm excited about the ability to serve 150 languages and different dialects instantaneously and with voice. And so I think overall, that is incredibly powerful. And I've had a front row seat to this since Siri.

20:06Allie:I was like, I love that you buried the lead here, that you actually were one of the early investors in Siri. At Morgan Thaler, we were the first institutional investor in Siri. I got a front row seat to that product before it was even live. I would try to test it and I would say, hey, Siri, blah, blah, blah, blah, blah. And then Siri would come back and it'd be like, you said, hey. And I'd be like, no. And it was just the most infuriating thing. And then I would come in to work and I'd say, hey, I was in the office. And I'd say, back in the days we used to come in the office, right? And I would say, hey, this didn't work.

20:39And here's why. And then they said, well, of course it didn't work. You were in a car and they can't try and emulate the noise. And so I'm like, OK, so we can only use this in a bubble. Right. And then but then we saw Siri, you know, end up working. And then we've seen, you know, things move a lot. We did a lot with like, you know, transcription. We looked at Immodal and a bunch of, you know, the transcription companies for records a long time ago. And it's just come so far. I mean, in such a short period of time. I mean, I'm in a company in the voice space that's helping to do referral management and patient scheduling.

21:14And when they started out trying to optimize about a year and a half ago, they completed 40-some percent of their calls. People knew it was an AI agent. It wasn't quite tuned yet. And since they have been able to tune that AI agent, they are completing like 96 % of all calls that come in. And that's pretty incredible. So yeah, I'm very excited about what AI is going to do with voice and that voice interface.

21:45Allie:Now, you actually are in a transition moment here. As the market is in sort of a transition moment, you're going from Canvas Ventures to starting Canvas Prime on your own. Walk me through it. Yeah, I've been in venture now, what, 18 years? And when I look back on my career, there have been different chapters, right? You know, chapter one was really how do I, you know, what's my investment profile? How do I find great deals? How do I, how do I, you know, figure out which founders are the founders that I really gel with and I'm excited about working with and create billion dollar plus companies?

22:24You know, all that was, you know, sort of chapter one. And then we felt we formed Canvas Ventures, right? As a spin out of Morgan Thaler. In Canvas Ventures, we really focused on when we won and why did we win, right? And that for me individually really was about go-to-market. I spent my entire career helping companies, big and small, get product market fit, crack open new channels. And I really leaned into that. And I, again, really focused on the companies themselves. And then sort of chapter three was about a firm, like firm dynamics, right? To be a great investor, you need a great firm around you.