519. Don't Play the Game on the Field, What the 500 Largest Exits Tell Us, How and When to Sell Secondary, and VC's Identity Crisis (Micah Rosenbloom)

0:00This episode is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners$150 just to take a demo. We've never had an offer quite like this. Claim your$150 before this offer is gone at our partner link, ramp.com slash partners slash TFR. Now on to the episode. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet. Micah Rosenblum joins us today from Soho. He's a managing partner at Founder Collective, one of the top OG seed firms now investing out of its fifth sub$100 million fund.

0:51Micah Rosenbloom: OG is just a nice way to say old, isn't it? I'll take it. Well, people say I'm the OG podcaster. There you go. Old is the key word there. Prior to AFC, Micah co-founded three companies exiting Brontes Technology to 3M. He's led investments in Vercada, Talos, Sokir, and Loverie. And the firm's portfolio includes Uber, the Trade Desk, Whoop, Suno, Shield AI, Airtable, and Coupang. Micah, welcome to the show. It's great to be here. It's great to be with a fellow Chicagoan. There aren't many of us in venture capital that follow the Bears. One of us follows the White Sox. The other follows the Cubs.

1:32Micah Rosenbloom: But it's cool. There's something about growing up in the Midwest that I think gives you even more appreciation for all the cool stuff we get to do. A hundred percent. You're just still there. I left. But I'll be back there in a couple weeks to visit. You've escaped, but not to better weather. Yeah, yeah, yeah. Well, marginally, I guess. Well, good. Well, hopefully our Bears get it together this year. We'll see if it does not. Yeah. Yeah. At least we got the Pope. I need the Pope for VC. Hopefully he can help me in that. Yeah. But that's a whole nother matter. That's a whole nother thing. Thanks for coming on the show.

2:03It's good to see you again. You know, I thought we would start out with your writing, right? You've been publishing an essay almost every day for the past year. Reminds me of, you know, the great Fred Wilson a little bit. What made you start doing that? And how has it changed how you invest?

2:20Micah Rosenbloom: Some of it was just, I just started writing and I never stopped, But we had this realization a year ago that half of the deals, half of the inbound opportunities we get were from new people, usually one degree away from someone we knew in our network. But we get a lot of stuff cold, but we rarely invest in that. And, you know, I wrote about this yesterday. There was a time in this business where you could rely on a few dozen relationships for most of your deal flow. But the world had changed. And so I started thinking of VC as sort of a mid funnel nurturing business, meaning I needed to keep people who were people I know and people who were friends with people I know, aware of us and me.

3:01Micah Rosenbloom: And so LinkedIn seemed like the perfect place to start kind of nurturing the middle of the funnel. And so, so that's what I did. And so now I'm, you know, two, three times a week, this is sort of content marketing, but it's also therapy, frankly, for me, I try to like get out ideas that are in my head. And oftentimes, you know, people say to me and to some extent, you know, we're doing this on this pod. These are ideas that they're thinking about, too, and it resonates and I have conversations about it. And then, you know, we also do events for the broader New York ecosystem, Boston ecosystem.

3:34Micah Rosenbloom: So we do meet people we don't know. But I found this was the way to kind of activate my more immediate network. Does it feel like it's working? Do you feel like you're seeing more deals and having? This is the$25 ,000 question or the$5 million question. Anecdotally, I would say yes. I mean, I do get, I would say, multiple times a week comments on it from others. I think this is a, you know, Eric Paley, who you know, my business partner for 20 years, would say, in venture capital, everything is a B activity except investing in great companies and working with those companies. And so I will concede this is probably a B activity.

4:14Micah Rosenbloom: But I think it does help in the awareness game. I think the world is so noisy and I try to be so authentic, even though I do use my good friend, Claude. It's really my brain and my editing and my ideas. And Claude has been an accelerant. I wouldn't be able to do it. I don't know how Fred did it every day. I don't know. You tell me, is it just more noise or is it actually interesting and useful? Well, the problem is there's so much noise, right? And the only way to cut through, I think, is to be different, right? And yours is authentic. It's genuine. It's self-effacing sometimes. Yeah, that's right.

4:47One of yours that I really liked was this piece called Creating Your Own Pond. Yeah. You know, about why people start firms instead of joining them. You had a line in there like there's no institution underneath. It's really just the people and the chemistry. In light of that one, you know, how do you keep that from becoming a liability when the people change? Right. Eric left. Yeah. And you still have a lot of good people there. No, we're very fortunate.

5:10Micah Rosenbloom: It's hard. um i what sparks me to write that is i talked to a lot of young gps emerging managers who are kind of or or founders who are thinking about joining the venture industry and a lot of times they'll meet with other firms and like that one's strange or that one's this that and i think unlike operating businesses which have like a very clear hierarchy there's a ceo a coo a ceo like it's very um it's very obvious how they run i feel like vc firms are more like families like some are dysfunctional. Some are more bro-y. Some are more everybody does their own thing and nobody talks. Some are super intellectual.

5:47Micah Rosenbloom: And so they're all super different, which means that if you're going to become an investor, it's very hard to find one that has the right, you know, chemistry for you as an individual. I find that like some people will leave one firm to go to another and they'll bounce back or they'll never really find the right fit. And so this idea of like, you almost have to be your own entrepreneur. I think in VC, in a way you've done it, I've done it a little bit of like create the vibe and the culture and the investing principles you want. Cause investing is so arbitrary. It's so it's such a blank sheet of paper that I think unless you do that, it's, it's hard to, I don't know.

6:23Micah Rosenbloom: I have a hard time joining a place and, and feeling, I think at home, obviously the industry is institutionalized and there's the Andreessen's and Sequoia's. And I think that's maybe a little bit more of, you know, what you're getting maybe, but I think for the rest of us, there's real merit to just creating your own. Not easy, but especially if you can set the tone and the culture, right? Like I think it's funny on this show because in the early years, I'm like, oh, you know, recruiting guests, anyone that sits on a board together, you know, they'll make a referral or partners at a fund will make referrals to other partners.

6:57But I found over the years, like some people don't like their partners. Some people don't like their board members. It's crazy.

7:05Micah Rosenbloom: Yeah. Wow. That's really bad. If you find that out, they're not holding, they're not keeping it under the radar at all. I don't know. Well, it's pretty apparent when you ask somebody like, hey, can you make this intro to your partner? And they just kind of say, I don't think they would be a good fit. So you've been at this for a while, right? And I know that you went back through every investment you've made and kind of wrote up what you found. When you did that, you know, what surprised you most? I think the most surprising thing I find is there aren't very many parallels. I feel like a lot of the young folks around me in the office and at other firms are like, what are the insights?

7:45Micah Rosenbloom: What's the secret? You know, what's the profile of founder? We can talk about that. Or I have found a lot of this doesn't fit many patterns, which is the most unsatisfying conclusion ever. But I think it's just how random it is. I think the few things I have seen is, and our CFO always reminds me of this, you need enough shots on goal. And as a result, what we've seen is some of our smaller checks have way outperformed bigger checks. Not always. But in general, I think what happens and has happened to us is we were willing to take more risk on small checks. And that allowed for volatility in the portfolio.

8:23Micah Rosenbloom: know. And I've told the story a lot. And our good friend, Eric, who I spoke to this morning, actually, we were talking related to this, but about the market today. But I remember when he did the investment in Uber, it wasn't obvious at first. In fact, we hadn't immediately committed, but then we ultimately committed. And we committed 100K. And they came back, I think Eric came back and said, I've only got 95K. And there was a moment there where you could have said, well, minimum at that time was 100k sorry guys we're not going to do it and thank the almighty lord uh that you know eric had the good sense to say well we're going to break the rule and we're going to you know do 95 instead of 100 and that you know changed the course of fund one among other things trade desk and coupon but that was a huge move and so i i think the this idea that um you know if you only focus on things you can own 20 of or whatever rule you create you create adverse selection because there's only a finite number of investments.

9:24Micah Rosenbloom: And so I think one of the things we've tried to do is say, how do we cast as wide a net as we can? And that means small checks and big checks, leads and non-leads. We don't have hard ownership targets. And I think that served us well. But the rest of the stuff is pretty random. I mean, it's amazing when I look back at the good ones, the ones that have really outperformed. And if you'd asked me at that moment or even moments along the way, I would not have predicted those were the ones that would outperform. Do you have a sense, you mentioned risks and taking more risks with the small checks. Do you have a sense for which risks are acceptable versus which you try and make sure is not present in a lead check and maybe it was not something worth overweighting?

10:11Micah Rosenbloom: I think the things I've made mistakes on, I think we've all made mistakes on, but one is TAM. I mean, Uber is the classic example, but there are so many examples where we went into something and I was like, well, the TAM isn't that big. How big could it get? And they just completely reinvent a market. And I think it's a little bit of like what could go right and having that mindset to take that risk. I think also like sometimes we look at these markets and we can talk about this later because there's pros and cons. There's two sides to this. But that like, oh, you can't sell heavy enterprise as a small company or you can't fight incumbents.

10:46Micah Rosenbloom: And every now and again, a small company can fight incumbents and sell into the huge enterprise. And you're like, how is that possible? And you're like, they're just good. They just figured it out. You know, they're selling. I mean, I heard early, whatever you think of Palantir, I remember going to an event with some folks and I was like, what's the secret? What have you guys figured out that like, you know, and one of the things is like, it's one guy, I can't remember who I said to me, we're just not afraid to ask for multimillion dollar contracts. And I'm like, but you're like a small, like, and they're like, most startups just are afraid to like, say, we're going to solve all your problems and pay us millions out.

11:19Micah Rosenbloom: Now it takes a lot of cojones to do that. But like some founders are just able to do that. And we see that in the portfolio. Some of it is just confidence and ability to, you know, break through walls. I mean, clearly you and FC, you play your own game, right? Sub$100 million funds. Everything's changed. We chatted recently and you made the comment to me like, you know, you shouldn't play the game on the field. That's bad advice, even though many do that. Like, what do you mean by that? I just hear it so much. It started becoming like nails on a chalkboard to me. Like, play the game on the, you got to play the game on the field.

11:54Micah Rosenbloom: Everyone, it sounds to me almost like an excuse. it's like it's sort of become shorthand for i know what i'm doing is wrong you know it's it's like the extra drink at the party or the you know it's like you know if someone's jumping off the bridge i should do that too and i i feel like we're in a moment where there's a lot of that going on um where it's like i know this thing is crazy as an uncapped note but everybody else is doing it so therefore i'm gonna do it and i think i i used to be super cynical i know i sound quite cynical, I think there's like good reason to follow the herd for certain firms.

12:30Micah Rosenbloom: Like I think certain firms, particularly some big Bay Area firms are probably well suited to jump in at the series C or D when the thing's looking like a takeoff. By the way, worst case scenario, they were in a name brand company and you know, you can only lose one times your money in venture, which is the beauty of the business. Best case scenario, you just got on, you know, maybe you don't 200 X or a hundred X, but like you five X, 10 X, but you can move a lot of money that way so my point being there is a there is a game to be played that's like following the hype but i think for the rest of us i think your fund my fund the the the long time the lion's share of venture capital like we can't all play the same game we have to look for opportunities in other places me chasing anthropic in the series whatever like first of all good luck to me it's not going to happen and secondly like there are a thousand other funds lining up to do that and by the time it probably gets us.

13:19Micah Rosenbloom: It's a sucker bet. So then the question is, where's the opportunity? And I think you got to be able to, you got to be willing to do something different. Recently, and I've written a little bit about this, but we had the observation as a firm that like, holy smokes, our consumer portfolio did really well, has done really well. You mentioned Love Every, which is, there's a thing right behind me, it's a baby toy products company, like, you know, have completely outperformed on a revenue basis, like many of our software companies in that. And that's true of Cheers and Smalls and Quit With Jones. And, you know, so we have this like bucket of consumer companies.

13:53Micah Rosenbloom: We're not hardcore consumer investors, but collectively, like they're doing a billion in revenue, let's say like a handful of companies like, well, okay, but no one, no one really wants to fund these companies. So it seems to be a dislocation in the market. No one wants CPG or DTC. Those are bad acronyms in the world. And yet we're seeing them be successful. So like, Like, do we lean more into those? I think that's an example of just not playing the game on the field but trying to find a new game or your own game. It comes with, it's not all black and white. Obviously, there are other challenges downstream, like they're harder to fund.

14:26Micah Rosenbloom: So, you know, that becomes a challenging, some of this risk is priced in. But I would rather go after that than be the 100th person investing in the, you know, AI company that looks like the 20 others that came out of YC that, you know, that year. How do you square that circle on downstream financing risk? You know, companies like Wayfair or the Trade Desk or these consumer companies that you just mentioned that there is a dislocation. There's arbitrage to be had. Yeah. But you're likely going to have to find, you know, another firm to come in in a big way in 18 to 24 months. I mean, the thing we're saying to these guys, which, you know, we literally maybe you've seen this stuff.

15:09Micah Rosenbloom: We have a brochure. We have stickers that talk about capital efficiency. You know, sometimes I joke, I'm screaming, we're screaming into the wind because, you know, no one wants to hear it. But I think particularly for the consumer folks and for folks in the not hot categories, I sort of say you got to be focused on getting a break even and profitability. If you're growing five to 10 X year on year, maybe you can continue to burn at a decent clip. But even then, like some people don't see that as enough. I think Harry Stebbings was just, you know, commenting about that very fact. So I think some of it is, you know, and this comes back to our fund strategy and why we're small is being OK with, you know, not playing billion or bust or trillion or bust.

15:52Micah Rosenbloom: But like, hey, if we can get to 20 million and we can get to break even and we can grow, So, you know, look, some companies are Uber and they should keep raising capital and grow, grow, grow, but most are not. And so really convincing management to play a more efficient game, not sell 20, 25, 30 % of the company, you know, round after round. Instead, try to be masters of their own destiny and break even. And I would say, I've written about this too, I think in the last couple of years, we've had more profitable companies than ever. I don't think we had a single profitable company in the first like five to seven years of founder collective like that was just not and now we probably have a dozen maybe more.

16:32Micah Rosenbloom: So I think there's like people have gotten the memo but but I still you know a little bit you this probably resonates with you when you see the movie at series B and C and then you start seeing it happen with another company series A it's it's like an accident that like you see happening but it hasn't happened yet. And I feel like maybe by being, you said OG, which I'll take as a compliment, but like, that's where like the OG gene kicks in. It's like, I'm like, let me tell you, you're at 20 million revenue, but you're burning a million a month. Like, let me tell you what's going to happen. You're going to hit a point, but it's like, almost like you can't, it's almost like hard to convince the founder.

17:08Micah Rosenbloom: This, this is where I hate to say it's, there's a little bit of parenting here or analogy to parenting where it's like, by the way, you're not always right. And I think that's really hard to square because in some ways people need to see this for themselves. They have a hard time. Everyone thinks they're different. They're the exception that the growth is going to happen. And every once in a while they are. And every once in a while they are. Which is tricky. Which is tricky. Like 1 in 10, 1 in 20. But I often, I don't do this enough, but want to get those founders who have hit that asymptote or have hit that like, uh-oh, we can't raise anymore, talk to that Series A fund to say like, that point will come.

17:44Micah Rosenbloom: Like every company, I think with very few exceptions, every company has hit a point where it was hard to raise or they didn't get the valuation they wanted. And that's a real fork in the road for most of these companies. So, yeah, I think this is where capital efficiency and sort of being a good board member, good advisor comes in. But you're right. Some of them, you know, some of them, it's the wrong advice. What about pre-investment? Right. So we've debated on this program quite a bit about is it access? Is it picking? Your opinion of picking, I think, has changed over time. What is your current viewpoint on picking winners?

18:20And, you know, what's the formula there?

18:23Micah Rosenbloom: I mean, I wrote a piece about this, which I think you may be alluding to. The sort of, I think, where I've netted out, I remember the first round brought in Annie Duke, and I really liked her book when I read it about, it was really about betting and gambling, which I think VC is very much, you know, if you play poker well, or Chastro, it's probably that. It is certainly a form of gambling. Actually, Eric and I were talking about that very fact this morning. I think the Annie Duke stuff is about good inputs and the rest is sort of hard to predict for. That doesn't mean you can't influence the outcome, but my view is you got to build a portfolio.

19:01Micah Rosenbloom: So for us, it's like 50 to 60 companies per fund, really good founders, good shots on goal, right size. and the rest is really hard to know which of those is going and support them all love all your children and you know knock on wood a few of those really pop and another group of them perform pretty well and then you know and a bunch don't make it so I think this idea that like sourcing you just got to see everything I think that's impossible I think that's a dated notion and I'm I think you can drive yourself mad with that so I think what I wrote in this piece was like roughly like 35 % in my mind, the algorithm is like, that's a big part of it, but it's not all of it.

19:44Micah Rosenbloom: 35 % or third, whatever. You got to win. I think if you lose a lot of those, you got to ask yourself, like, do I, you know, do I have the brand? Do I have the, am I doing, you know, do I have the right value prop to the founders? I think I wrote that was like 20 % or something. This portfolio construction, sizing, entry price, valuation, all that stuff is a big part of it. That's another 25, 30 % of this. And then the other piece, I don't know how much we have left. I've probably overspent 100%. But the other 10 or 15 % is knowing when to sell, is liquidity. That piece is new to us, not new to us, but is a part that we are building our muscle on, which is there's many more secondary funds.

20:24Micah Rosenbloom: There's many more liquidity options. Be really thoughtful about hedging positions, particularly things that have run up in value without losing what we do best, which is hold on to, you know, big winners. What does that look like in practice? You know, the thoughts on selling. We try to, you know, it's funny. We had an old OG mentor, LP, Tim Blyamptis of WeatherGage, who's just been a great friend of the fund from the beginning. And he said on selling, you're either going to be wrong or you're going to be wrong. And you got to accept that. And I think, you know, and funny enough, By the way, he and others were very much proponents of hedging, whether that would be, let's say, 10 to 20 percent of a given position once it reached a certain amount.

21:09Micah Rosenbloom: Some firms are more formulaic. We're a little bit like 10 to 20 percent roughly of a position that's material in the fund is usually a good thing to do. And we look for that when we can. And those liquidity windows aren't always open. So when they're open, we really do try to somewhat aggressively find them. And conversely, I remember Dave Frankel and I went to, my partner Dave and I went to Sequoia in the early days of the fund and asked them about this. Because at the time, we were sitting on Uber and Trade Desk and Ruloff and Alfred and some of the guys over there said, you never sell. Because what we've seen in the public markets is amazing.

21:47Micah Rosenbloom: And if you have a Facebook or they may have been an Apple even, the increase in stock price on the public markets far eclipses the ones that go down. And I remember Dave and I, you know, we're sort of like, boy, our East Coast conservative viewpoints don't, you know, align a little more to the Tim school of thought. And look, at the end of the day, we did. We were more liquidity seeking than than that. And I think overall, you could say that strategy would have outperformed. But I stand behind. You don't know what you don't know. And the world can change a lot. We're also not public market investors.

22:23Micah Rosenbloom: We're not macro people. so I feel a little bit of a fiduciary obligation to to to seek out liquidity at least to hedge positions and so so that's been a part of our strategy and I think a part of I think it's a part of VC now like because there's now more funds who will buy those positions there's more private equity like it's just a different game than and the timeline of these funds is so long you know that like I look you know our fund one is a 2009 fund we're still holding companies in that fund That's a long time ago. We're closing in on like 20 years of, so just as these timelines go on, you got to ask yourself, well, you know, just for an IRR standpoint, like you may want to take some cash off, you know, with companies not going public as quickly.

23:07Micah Rosenbloom: So anyway, that's kind of how I think about it now. Does that start at Series B or does it start at a certain multiple? Yeah, that's the big question. I think Series B has been hard because we're still pretty close to that. You know, I think of some of our Series B companies and I don't know, I still think of them as like our company, you know, still some level of involvement. I think as you get into the billions of valuation or, you know, let's say one turn of the fund or more or even half a turn of the fund, I think we start to think about those things. Some of it, again, comes down to Windows.

23:38Micah Rosenbloom: Like for all the talk about liquidity and we've just spent a few minutes talking about it, there's only a handful of names. It's probably like a couple dozen companies that are actively trading. And so it's not like you can do this writ large. But I think our view is when we see it, the virtue of being a seed stage investor is it should give us the ability in a later stage to be comfortable and for the founder to be comfortable with us selling. Whereas like if you're a Series B investor, it's hard to sell at the C, I think. But if you're a seed stage investor at the C or D or E or maybe B, depending on the round, it's a little more understandable.

24:16Micah Rosenbloom: But we're very sensitive to this as a founder. I'd also say that like we often talk to the founders about it and try to explain, you know, how we think about it. And we're always long term long. Like most of our holding, we never sell more than, you know, half of our usually way less than that. So we're still long with the founders. As a very early stage fund, pre-seed seed, do you think about what year you're trying to get to 1x DPI or is that not even? Should we? I don't know. I have never thought of it that way. That is one way to, we haven't thought about it that way. I mean, we certainly look at where we are in DPI and that, you know, if a fund has very little, we are more inclined to sell than for a fund that, you know, has a lot and it's a small sale.

25:00Micah Rosenbloom: What I will say on that is, and I think this may be where you're going, early DPI is really valuable because it allows you to recycle. And we've seen some funds with, you know, we're on our fifth fund. We've seen some funds with early DPI, and that's really helpful for recycling. We've seen some funds that take a long time to get, and that creates some other challenges with cash. So we haven't specifically said, boy, in five years we want to see 1x. But we do kind of look for some early liquidity if we can get it. And sometimes it happens and sometimes it doesn't. You know, I want to talk more about exits.

25:36Before we do that, any other themes or things that stood out in your analysis of the investments when it comes to, like, characteristics of founders or location or surprising insights? insights?

25:51Micah Rosenbloom: I really think there was a lot of randomness. And the minute you try to say like founders like this or companies like that, there's something that just breaks the model completely. And so trust me, I've tried to load as much as I can into Claude. And I do, I'm sure there are patterns, but they are harder to spot. What I would say is I do believe the world is flattening. And if I look at the last couple of years of investments, not necessarily returns, but investments, at least for us, the geographic diversity, diversification is real. So for example, we, we hadn't made an investment in your hometown in a long time.

26:29Micah Rosenbloom: We made an investment in Chicago last year. You know, we're doing stuff in the UK, South Africa, Israel, Idaho, Montana. I mean, it is, it is interesting to see, by the way, the lion's share still Boston, New York, San Francisco. Boston's having a real renaissance at the moment, which is good to see, particularly out of MIT and Harvard and the schools there. But I would say like in general, I think like everyone's read the Paul Graham essays. Everyone follows everyone on Twitter. Like this idea that the coasts have the certainly the Bay Area has got, you know, the magic in terms of AI. But I but I that's one thing I'm seeing.

27:05Micah Rosenbloom: I think on founder profiles, the thing I just keep looking going back to is like, what is their reason for being like, why is this person, And, you know, when the shit hits the fan, why is this person committed to keep going? And are they, is this just opportunism and transactional? Or are they like, this is a mission? And I look for the mission-driven founders, maybe to a fault. But those are the people I want to be in business with. Do you think there's a big benefit to being in New York or SF? I mean, you mentioned some of the world's flat. You know, you've seen big outcomes from places like Boise, Saskatchewan.

27:44Micah Rosenbloom: Yeah, that's right. Good points. Benefits and drawbacks to being in these echo chambers. Yes. If you want to fish in the biggest pond, you got to be in the bay. That's true, full stop. Having said that, I think the FOMO and the echo chamber is not healthy necessarily. It's certainly not for everyone. And, you know, there's good reason why Andreessen, Sequoia, et cetera, are there. but I've often said I think about Warren Buffett just stepped down, became this like amazing investor in Omaha and not on Wall Street, you know, not in Boston, not in San Francisco. And I think that says a lot too. So I think you need to see things clearly to be a good investor and that's often drowning out the noise.

28:27Micah Rosenbloom: This goes back to my play your game. Like I don't think everyone should be in the Bay Area. I think if there's a reason for you to be in Chicago, for us to be in New York and Boston, like a lot of this is historical. It's where we want to live. It's where our network is. It's playing our game and not trying to chase. You know, we set our office up in Cambridge is kind of where we started. It wasn't the coolest. You know, it's not the back bay. Like all these things were choices that we made based on where we wanted to be and where we felt we had unique access. And I think everyone's got to do that.

28:59Micah Rosenbloom: And so, yeah, I don't know. It's different choices for different people. Well, if you ever want to open up Founder Collective Midwest, you know, we love to have you back. I do miss my deep dish pizza from Lou Malnati's, which I will be getting in a few weeks. Yeah. And some other of my favorite spots in Chicago and the North Shore. It's dangerous having access to that. Yeah. Well, they give you a statin and the pizza at the same time. So it kind of washes each other out. It's a good cocktail. Yeah. Are you still managing expenses with outdated apps and spreadsheets? If so, it's time for Ramp, the leading U.S.

29:41spend management platform covering corporate cards, travel, AP, and more. All built to save time and extend runway. We use Ramp at TFR and it's been a game changer. As our preferred partner, they're offering listeners$150 just to take a demo. No need to sign up. Head to ramp.com slash partners slash TFR to claim your$150 before the offer expires. Now back to the interview. Let's talk exits, Micah. So you analyze 500 of the largest startup exits over the last 25 years. What did the data reveal that runs counter to consensus?

30:18Micah Rosenbloom: I think the shocking part of this data was, and I don't know how much you looked at it, but I won't quiz you, but I sometimes quiz people and I say, what do you think it would take to make the top 500 venture-backed exits the last 25 years? And I think people's immediate reaction would probably be in the billions. And it turns out that to make the top 500th company in the last 25 years, it's like 700 million. And the point being that this perception that, you know, this is all about the Facebooks, the Anthropics, the Ubers, that is not the lion's share, at least by number of exits. And in fact, only the top five.

31:08Micah Rosenbloom: So of this list, the top five, we cut it a few different ways. But in terms of current market value, if you look at their current market value, the top five are bigger than the next 495. So there's certainly the power law and concentration. And everybody's chasing those top five. Everyone wants to be in SpaceX, Anthropic, whatever. But we feel like there is a structural flaw in the industry if you and I build a company and sell it for$700 million or whatever, and it changes our lives. By the way,$200 million, Eric and I sold for$95 million. And it's like meaningless to VCs. Like that is a problem.

31:43Micah Rosenbloom: That means there's a complete incentive mismatch between the VC and the founder. And that's largely, that's like most of the industry right now. So when you look at this data, you're like, okay, well, how do you build a fund for the 495 companies that aren't, you know, the top five? Or maybe even the top 1 ,000 or a couple thousand. Because if the 1 ,000th company sells for$300 million, that's a good outcome for founders. And by the way, we see it in our own portfolio. Like it's hard to sell a company for 200 to 300. Like it's freaking hard. Very hard. And if it, if it, if it, if it doesn't move the needle, it's like, what do you like, what's all that effort for?

32:22Micah Rosenbloom: You know? And, and those are good outcomes. Like we, you know, obviously a lot of things just don't make it. So, so that's kind of what we have taken from this data. And, and it's, I don't think it makes us, you know, there's a, there's a perspective that it's less ambitious or, you know, I think there's a line probably in, in the Bay. area that's like, it's a power law game. So just, just play the power law. And I think my retort to that is that while that's true, um, there are levels of power law. Like it is, it is a spectrum. I know what we do is risky. We sometimes think of ourselves as like value seeking VCs.

32:58Micah Rosenbloom: Like I still got to try to optimize for return and not if the probabilities are just so low, like I have to ask myself, what am I doing? Then I'm truly just gambling. And I'd like to believe that, um, uh, it's a, we can be a little bit more, um, thoughtful than that. A hundred percent. Like I, we've got an exit coming up and it, it hasn't closed yet. So, you know, don't bank it, don't book it until it's done. But you know, it's a company selling for 150 million and we led the pre-seed and there's been no dilution and it's going to be a 45X, You know, and amazing. My friends in the Valley snicker about it.

33:37$150 million exit. You know, it's just not on their radar at all. But who wouldn't take that multiple?

33:47Micah Rosenbloom: Your return, even on a multiple basis, for sure, for sure on a multiple basis, even on an absolute dollar basis, may be better than many of their returns on billion dollar exits because of the dilution and how much capital has been raised. I mean, I look at some of these numbers and some of the companies going public or have gone public, and I look at the waterfalls. For a company going public that you joined at Series A or Series B, one of these firms joined Series A or Series B, maybe they're making one or two times the fund, maybe. And the massive fund's not at all. And you're just like, oh my God, this is a public company that's going to go out at billions of dollars.

34:21Micah Rosenbloom: And everyone's celebrating it because you should celebrate. It's an IPO. It's a huge win. But when you actually unpack the math, By the way, the LPs get this when they get their checks because they're like, huh? Wait, didn't that thing? And then you're like, well, there was an SPV and there was this and that and this and that. By the way, we see it too. They're like, how could like the 20 bagger end up being like 50 % of the fund? Like what happened there? It's like, well, dilution, dollars raised. There's different games being played. I feel like there's the headline, headline game, asset aggregation and the multiple game.

34:56Micah Rosenbloom: 100%. And I think more people are playing the aggregation game at the moment. And, you know, look, and by the way, as I said, I think for some firms, that's the right game. And I will concede we're in a moment where real money is being made. I mean, you know, the cursor exit was like one of the fastest things I've seen and a massive exit. And, you know, obviously, it's I think it's SpaceX shares that I imagine are still locked up. But but, you know, they will get real liquidity there. And there are those like kudos. But but those are few and far between. And I think that's a lot of that is just randomness.

35:32FC is famous for staying under 100 million for fund size. Do you pause and reflect when you see like a benchmark which classically stayed small and and now they're, you know, raising over a billion and breaking that, you know, long held philosophy? philosophy?

35:51Micah Rosenbloom: I do. I mean, I think to me, there's a little bit of has the world gone mad or am I missing it? You know, I kind of waver between those two things. It is interesting to see. I think some of that is just the echo chamber. I think there are a few funds. You know, I think USV has stayed relatively small, though I think they've increased too. And a lot of funds have increased by doing opportunity funds. Yeah, I just look at the math. I mean, I think it may be a concession that returns aren't going to be so great. And so we're going to focus on absolute returns, not multiples. And we're going to take more in fees as a hedge against investment returns.

36:33Micah Rosenbloom: It's kind of sad and disappointing. Maybe it's rational. Maybe it's like we're, you know, look, in private equity, KKR and Blackstone, I think are sort of versions of this, which said, like we're going to become asset managers and i don't think that's necessarily what benchmark is saying but i think there's a little bit of this implicit trade-off of like we've earned the right to make more in fees and we can still take some amount of risk and it's absolute dollar like um and i think there's a slippery slope like it's a little bit like well there's been inflation there's definitely inflation in rounds and the cost of the cost of you know employees and building a company although ironically everyone says ai should be the opposite but yet these companies are raising more and more.

37:15Micah Rosenbloom: So that doesn't, that's inconsistent. But I think if you've five extra fund, we have a chart that we show our LPs. And if you look at like a set of 20 firms that we track, like the curves of each of them is insane. Like they've gone, you know, it's like$50 million, $150,$500,$2 billion. You know, you're just like, it's not even the same game anymore. And I think it's just a different strategy. I think you're like, you have a different product. It's Like you went from being, you know, a food company to a software company. Like it's just like that different, I think. But people rationalize this stuff.

37:50Okay. So want to get your take on AI. Yeah. You mentioned it a couple of times. You've called yourself a wave two guy on AI. Why wave two? And why sit out wave one?

38:03Micah Rosenbloom: It's not that we're sitting out. I mean, we are making a lot of investments. and we, you know, thanks to the brilliance of my partner Dave, we were in the seed, I think we're the only institution in the seed of Suno, which is this super cool music maker model company, and I love playing with it, and you know, and we were, Whoop is using a lot of AI, like a lot of our company, obviously, it's the most transformative platform we've seen in a long time, if ever, maybe, but I think that's still to be determined. Why I'm of wave two is like, I'm a product of the.com boom and bust. I was a.com entrepreneur.

38:42Micah Rosenbloom: I saw my, I was one of those, like, let's just throw a.com on an idea and get out there. And I was 22 and, you know, and then after three years we failed and I went to business school and did something else. And I think what I realized was the hype and the bubble and the capital comes early because the expectations are so great. And even if there's so much truth to that. It's just so overstated and history shows things take longer than we all think because we get so excited. Like I, I even think back to cruise and, um, you know, I remember, uh, you know, we had known Kyle for a long time. He actually interned at Eric and my startup in Boston a million years ago.

39:23Micah Rosenbloom: And, you know, when Kyle was working on cruise, he, he was, uh, you know, retrofitting a car and, and making it autonomous. And, you know, I think we had a conversation like in the next five to 10 years, like you're just not going to need to drive or kids aren't going to get driver's license. And here we are like 20 years later and like it's now maybe Tesla's full self-driving is there, but it like took 20 years or 20, you know, whatever. And I just like, that's what my history, look, who knows? I think AI is moving so quick, so quickly and it's, you know, recursive, it's going to learn itself.

39:54Micah Rosenbloom: And so we're going to end up in this, maybe the pace of development faster than ever before. But even within AI, I see some asymptotes happening in terms of how people are using it. Some people really tightening budgets. Some founders saying it wasn't as helpful outside of coding. So I am not doom and gloom or I just think as an investor, the value may not be in the hottest AI companies right now. But there will be a wave, just like we saw with Uber and mobile, where like Uber was not, like that was a mobile thing. It was the idea of GPS and everybody's phone and it was cheap and available and accurate.

40:32Micah Rosenbloom: That was like a wave two manifestation of mobile. And, you know, that was the one you wanted to bet on. And I think, so my history brain tells me that there will be another cycle. By the way, we may see this in crypto too. Like we may see all of a sudden like, yeah, you know, I kind of hear this now from people in other countries. Yeah, we use crypto to like pay for things. And we use stable coins to like, you know, maintain our bank accounts. And you're like, hmm, you know, quietly phase two is coming. And like, and you know, everyone's like, oh, it's dead. But maybe actually what's happening is we're in that, there's a whole thing, right?

41:06Micah Rosenbloom: It's the peak of something and now the valley of despair or something. Maybe we're in the valley of despair of crypto and we're the peak of hype in AI. And like, I don't know, maybe we'll come out of these. And so, but we shall see. We see a lot of different things converging, like the pace of AI, the transactional nature of relationships with, you know, virtual, all the noise, all the reps. And amidst this, it feels like, you know, people are buying a ton of options in startups. The relationships with those startups is thinning out. Even within venture firms, you know, people are hopping from firm to firm.

41:48We started the call, you know, some firms have great culture and great relationships, some don't. Do you feel like the industry is kind of losing its identity? Is this like a, a trend we can expect to continue with kind of relationships devolving in a way?

42:04Micah Rosenbloom: Yeah, it's a really great question. And I don't know if I'm in a position to say, like, because I feel like I'm the frog in the proverbial pond here, pot. I, we both are, yes. I think all industries mature and become more transactional and more professionalized, institutionalized. I think that's what's happening. I also think in 2009, when we started, even before I joined, I was still running our company, you know, there was an arb, there was a, there was a real change in what, you know, the, there weren't that many VC firms, they had pulled out a seed, they had certainly pulled out of the East Coast.

42:42Micah Rosenbloom: And so there was a dislocation, there was like, you know, there was margin to be had. And, you know, it's like, we always harp on our companies about margin and then VCs never talk about it. But like, it turns out our margin got squeezed, right? Like the same crap that happens to our companies, turns out happens to us too. And so that R doesn't exist quite the same way that margin isn't, you know, um, who was it? Uh, I forget if it was Buffett or, um, Amazon, but like, you know, or Bezos, like your margin is my opportunity. And it's like a little bit what happened. And so, So, yeah, I think it's a different business.

43:21Micah Rosenbloom: I still think it's an amazing business. Like, I can't imagine what else I'd do. Like, you get to work with the most inspiring young, mostly young entrepreneurs who are changing the world, and you learn a lot in the process. And the beauty of seed and early-stage investing is you still don't know what the next great thing is. Like, it is different than investing in public markets where you could do a DCF and, you know, this really is. The randomness is both the beauty and the curse of the business. And I think it's beauty. Like I think it's, there's nothing cooler than seeing something that started as a couple of folks and become this massive company.

43:56Micah Rosenbloom: And so, I mean, I, Eric, Dave and I went, we rarely take pictures together, but we went to Vercata when Philip and that group were working on cameras and like literally like they, they were like assembling stuff in front of us. And I recently went back. I hadn't been there in a while. They're in San Mateo, California. I just don't get out there enough. And, you know, I'm standing in this massive building. in San Mateo, not far from where we saw it. And like, I'm just like, oh my God, like, you know, you blink. And now this is like, like the conference rooms, the site, the teams, the cultures, like this thing is like a real enterprise.

44:30Micah Rosenbloom: And, um, and I think it's really special. Like, you know, lots of people have jobs and some of the person who walked me to the office said, walk me upstairs to, to meet with the folk I was meeting, the guys I'm meeting with. Like, I love it here. This is such a great, you know, like not even, not even like knowing the whole history necessarily. And so I think that's why we do it. But, but yeah, it's definitely a different business than it was in, you know, even five years ago. Micah, if we could feature anyone here on the show, who would you like us to interview and what topic would you like to hear them speak on?

45:02Micah Rosenbloom: Oh, man, I probably have a list of 100. Well, certainly my partner here, Amanda, has an amazing background in consumer and would be a great guest on the show. And we've got a bunch of great founders. I can think of Alex at Air Ops or a whole bunch of Jason at Tofu, a bunch of our founders. So you just let me know what you're looking for. And by definition, the way we invest, so many of our founders have such great stories and are so passionate about their businesses that like you could talk to them for hours. Amazing. Micah, what book, article or video would you recommend to listeners? I recently got, we talk about that all the time and I've literally just downloaded like two new books.

45:49Micah Rosenbloom: I started the book, The Deep Mind Book, whose title is escaping me at the moment last night. which my colleague Jack in the office recommended and I've enjoyed it. I just started last night. I read Between the Sea, I think it's called Between the Seas which is a total different thing which is we visited Panama last year and I got interested in the Panama Canal because we went as a family to see the Panama Canal and sort of like seeing history, it was literally a venture capital project. Like you read this book and you're like, oh my God, the Panama Canal was like one of the early VC backed and it failed and new investors came in And just like seeing your business through a very different historical lens is kind of fun and telling.

46:29Micah Rosenbloom: Reading about the Panama Canal, I think it's like a good, in this particular book, which I think is good, Between Two Seas or Between the Seas. It's a great, great read. Micah, do you have any habits or behaviors that are a secret weapon? The only thing I would say that I've recently come to is try to walk without your device or even with your device, keep it in your pocket. Not listening to something just like being in the moment. And I really try to do that. But having said that, I do like talking to Claude or ChatGPT as a way to do thinking. So sort of voice when I'm walking sometimes. Often at the end of the day, I'll get off the subway here in New York and I'll walk.

47:09Micah Rosenbloom: And I will talk. My idea is sometimes it's for blog posts. Sometimes it's just like, hey, I find I can think differently verbally than I can in front of my laptop. So I think that, and I think we're going to be doing more of that as a society with these tools. Is it two-way? Is it you just getting your? Oh yeah. I mean, it's like talking to an analyst. It's amazing. Yeah. And you can tune the voice. You can have British voice. You can have any voice you want. So it's kind of cool. And then finally here, what's the best way for listeners to connect and follow along with FC? Yeah. I mean, you can find us at foundercollective.com.

47:42Micah Rosenbloom: I'm somewhat prolific on LinkedIn. You can follow me. I think I'm Micah J. I'm on Twitter or X at Micah J1JY and you know how to get to me so they can go to you and come to me He is Micah Rosenblum and the firm is the iconic founder collective Micah, please keep writing I will, thanks for inspiring me and thanks for having me on Thanks sir

48:10Alright, that'll wrap up today's interview if you enjoyed the episode or a previous one, let the guest know about it. Share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can't tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that's a wrap for today. Until next time, remember to over-prepare, choose carefully, and invest confidently. Thanks so much for listening.