520. The Inner Workings of Seed Investing at GC, Why Sector Focus Can Be Limiting, Why Seed Milestones Are Obsolete, and Who to Hire Among Your First 10 Employees (Yuri Sagalov)

0:02Welcome 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. Yuri Sagalov joins us today from Menlo Park. He's a managing director at General Catalyst, where he leads the firm Seed Strategy. Before GC, Yuri founded seed fund Wayfinder, and he spent over five years at Y Combinator. He's been the first investor in companies that have created over$35 billion in value with investments including Supabase, Lagora, Decagon, and Stokes-based, amongst others. Yuri, welcome to the show.

0:46Great to be here. Thanks for having me. Yeah, it's good to see you. So you had success at Wayfinder. Why join a large platform like GC? It's probably the most common question because I think I did the reverse of what a lot of people do, which is they spin out from large platforms. I almost spun back in. I think that, like, you know, I was having a ton of fun with Wayfinder and I definitely wasn't looking for a change. But the opportunity at GC was so unique that it was just very difficult to pass up. When Hamant and the team came to me to chat about seed investing, you know, I thought I'd heard this story before from other multistage funds that want to do seed, but none of them ever take it very seriously.

1:26And I think we all reached essentially the same conclusion, which is that we all felt that it would just help accelerate our own ability to help founders drastically. And the resources and what we call the flywheel, all of the different components within the GC platform that are beyond capital, whether it's our internal company called Percepta or the fact that we own a hospital system or the fact that we have the GC Institute, which is this nonpartisan group that helps founders navigate government, which is increasingly important. These are resources that would take forever for us to build on our own.

1:58And at GC, we'd just be able to leverage them and push them towards seed from day one. And so when you take that and you couple it with the fact that GC's roots are actually end seed investing, like a lot of our most well-known companies, whether Stripe, Andrew of Mercor, these were all seed investments for us. You really get to a place that's very special and unique, despite what people think is like a large multi-stage fund. Like we really want to behave and we talk about ourselves as a seed fund. And so all of that was incredibly appealing. And so I decided that rather than continue to do it on my own, it'd be fun to do it with people that share the same vision and came to the same platform to build it in a very entrepreneurial way.

2:40So help me with the numbers here, right? GC has some of the largest AUM in the industry. You've described seed as its own craft, right? It's not an option on future Series A. So how do you move the needle, you know, on seed investments at a$43 billion investment platform? Well, the reality is that it's never, I think if people always think about dollars deployed, I always just think about ownership and the ability to like drive outcomes. For us, you know, we try to own 10 % of a seed company when we invest. And we want to do that so that we can be deep and meaningful partners to the founders and actually spend a lot of time with them.

3:16And when you own 10 % of the company, like would you rather own 10 % for two and a half or$5 million? Or would you rather own 10 % for$50 million? I'd rather come in earlier, partner earlier and have a lower cost of entry. And then the outcome is the same. Like, you know, if you're swinging for the$10 billion plus outcomes and you're working with founders that want to build 10, 20, 30 billion dollar companies. And we're very fortunate that in our portfolio, we have many companies like that, whether it's like Circle or Android, literally all the companies I was talking about, like Mercore and Stripe, all of these companies are massive, massive businesses.

3:47And so when you own 10 % of those companies, then you can drive outcomes on a large fund without any issues. And the cost of entry is not really the deciding factor here, right? It's really like how much you own. You know, how does the structure and how does collaboration work internally? You know, at a firm like GC, you're running the seed program. There are other MDs, you know, running different programs, whether they be at Series A, at Growth, maybe different sectors. How do you promote your strong investments internally? And can you give us some insight from the inside on how a multi-stage, multi-sector platform really works?

4:23The unique thing about GC is that we really, first of all, we have three senior leaders of the firm who are very focused on seed. So Jeanette, who ran her own fund, Neurush, who ran his own fund, and myself, we kind of form the core seed team. And on top of that, we have a number of other investors spread between San Francisco, London, New York, Berlin, Bangalore, who help round out the rest of the seed team. And they're amazing partners to our companies as well. But because the three of us care so deeply about seed, we approach it very much like a seed fund would approach investment. And so we think about like, you know, if we were a seed fund instead of a multistage fund, how would we behave?

5:04And so one of the decisions that we made, for example, is that when we invest at seed, we won't preempt Series A's, which is very unusual for a multi-stage fund. But we did that because we know the signaling risk that it can create when you cherry pick one company over another and leave your other portfolio companies to fend for themselves. And so we made the decision that we'll only do our parada at the Series A. And what that allows us to do is actually start introducing the growth team to our early stage companies, but not from the lens of like, hey, you might lead the round or you might not lead the round and you need to pitch them.

5:39And instead from the lens of like, how do we actually help these companies navigate the series A and can they pitch the growth team, for example, purely as a practice, right? And the growth team can give objective feedback because we're all on the same side of the table. And so we actually split up the team at GC a little bit, like we bifurcated it, where we have a very dedicated C team. And then everything else is actually part of the growth team. And the C team is not thematic. We sit across everything, whether it's healthcare, applied AI, robotics, hardware, literally everything. And at growth, we get much more thematic.

6:14And the reason we did that is that at Seed, I believe, and I think we all firmly believe, that you're focusing on founders. You're not focusing on ideas or themes. And you really are trying to find founders before something becomes an idea or a theme. And you want to partner with them deeply. And the second reason we split the teams up is actually, it's kind of going back to the point of like dollars deployed. I think it's very difficult to context switch if you're spending time writing a 50 or 100 million dollar growth check and you're doing the diligence and the work on this company that's much more fully baked.

6:48And there's, you know, there's numbers, the revenue, there's so many other things. And then all of a sudden you have to go and start looking at it like this ill formed idea of two young founders who are sitting in their basement and you're looking at writing like a three to five million dollar check. And the context switching is very difficult. And so we actually wanted to bifurcate the team specifically because of that. Yuri, how would you say your approach to seed has changed from the YC days? I'm most curious to kind of hear about what you took from that experience that was most valuable and what maybe you left behind or what's changed.

7:21A lot of my investing is actually informed by what I learned from Paul Graham and the rest of the YC partnership while working there. I think that early stage investing, in particular seed investing, is truly all about the people. And the place that's probably the north star of that representation is YC, where you're investing off of an application. Most of the application is based on the founders, not their idea. And so for me, I really index towards founders as opposed to like space, idea, momentum and so on. And so I think that I continue to believe, and I think especially in this world today where there's so much ambiguity and so much uncertainty and everything is just changing so quickly and like one idea seems amazing today and bad tomorrow, that the only thing that we can really select for as investors is incredible founders.

8:14And so I think that's probably the biggest thing that I continue to do exactly the same way that I tried to do when I was at YC. I don't know that I have changed a lot of things. I actually don't know that my approach to seed has changed all that much. I genuinely do believe that the number one ingredient for a successful seed stage company is the team. And so that's where I spend all of my time and efforts. and I think that regardless of, you know, seat checks have grown in size, the rounds have grown in size, the markets move much faster. And so I think for me, the thing that I continue using as like my anchor is the quality of the team.

8:56And that's the same thing that I do, I see. In light of that, you know, how far will you follow an exceptional founding team into a market that you're very skeptical of? The funny thing is I think that like when, so just as a very more or less recent example. When I was introduced to Max, who is the co-founder and CEO of Lagora, I met him at his pre-seed. And when it was pitched to me, it was kind of described as like, you know, this legal AI company that's based in Sweden. And honestly, in like 2024, I felt that like legal AI was already like a tired space. You had a number of companies competing for it.

9:33And then the idea of funding that in Sweden was just like crazy to me. And so I took the meeting a little skeptical or maybe a lot skeptical. And then you meet Max and you're just like, well, you know, I don't really care. I just want to be in business with this founder. Sometimes you'll just meet these things that look like terrible ideas or just like maybe unusual ideas. And you'll just say, never mind, I still want to work with them. Other times you'll meet people where you're like, you know, this person is good. Maybe they'll pivot. It's not fully obvious to me yet. And I'd rather just wait a little bit.

10:12So it really is like up to the founder to convince you that like, despite the fact that you think the idea is bad, you should still be in business with them. Are there any non-obvious characteristics that you're looking for in founders? You know, I think we've talked about founders a lot on this program and there's some obvious ones that stand out, but any non-obvious things you look for? I don't know if it's obvious or not. I think the number one predictor of success for me over the years has not been like pedigree or any resume item. It's actually just been velocity. I use velocity because I think it's not just speed, it's like speed and direction.

10:47and especially with early stage startups, the direction could be wrong, but it's actually just the fact that you're making progress and you're spending time talking to customers and you're trying things and you're learning from this right or wrong direction. It's more important than almost anything else. And so the thing that I look for is like, what did you start? Like, where did you start a couple of weeks ago when you started the company? Where are you today? Where do you think will you be tomorrow? tomorrow if we speak again a week from now what have you what has actually changed in this like one week window of time and sometimes you might feel like well what could actually change in a week's time but actually with incredible teams a lot can change in a week's time like with Max from Legora every time I spoke to him there were new customers closed you know and with other teams you'll just kind of get the response of like well I need to go hire some people I need to raise some money or I need to do this other thing before I can do something and so velocity is something that I think it requires reps to see.

11:43And I was very fortunate to see so many hundreds or maybe even thousands of startups over the last decade. But once you see it, you can't unsee it. So you're talking about pace. You're talking about iteration. You're talking about velocity. And I had read that AI coding forced you to completely reset your definition of high velocity earlier this year. Yeah. Do you think that startups founded before this latest AI inflection point are at a structural disadvantage? There's probably a continuum of inflection points over the last couple of years, but I think that there's really like two specific ones that always come to mind to me.

12:23There's the chat GPT moment in late 22, early 23. And I think that there's a real bifurcation between like if you were founded before then and you're like pre-AI and if you're founded after then, you're after AI. And the way that you approach software and build things is very different. And that shows up these days more in growth versus early stage, because a lot of the growth deals that you'll see are actually like four or five year old companies. So by definition, they're actually pre-AI companies and they may have adopted AI, but they did not grow up in a world where like AI existed from day zero.

12:53The second inflection point is the one that I think you're referencing here, which I've actually even tweeted about, is I had this moment in February this year where I was meeting maybe like five or six startups in near succession. And every single one of them had an incredible product built. It was just like fully featured, beautifully built. It was just amazing. You would think they've been working on it for the past year. And without fail, all of them had been working on it for like seven or eight weeks. And it took me a couple of meetings, but I realized that there was just a real step function change because of Opus 4.5, which had just come out in November-ish of the prior year.

13:34And so what was happening is a lot of these kids or a lot of these founders would go home and over the Christmas holidays, they would start hacking on things. And the pace at which they were building was just literally was a step function change. And so that required calibration because I could no longer use your demo or your MVP as a proxy for your ability to build. And so now I actually care a lot more about go-to-market and your ability to spend time with customers. And I always cared about it, but I kind of cared about it in equal parts. Your ability to build and your ability to talk to customers were equally weighted.

14:10And now I think if you're showing up without a product, it's actually like, why? Do you think that fundamentally changes seed milestones, the pace of building and the tools available? Definitely. I mean, we see this already with founders who are going from like zero to$10 million in revenue on a seed round. That's unprecedented, right? And we have this in so many of our seed portfolio companies where we wrote them the check when they had almost no revenue. And before they go to Series A, they're at$10 million in revenue. And the usual advice was even like two years ago that you want to get to like two to three million dollars in revenue.

14:49And that number keeps creeping up. That was five million dollars in revenue. Now it's like ten million dollars in revenue before you go raise your Series A. And so I think that is a function of the fact that you can build more, you can ship faster. And customer adoption is like the flip side of that is also customers are just like buying at unprecedented rates because everyone is trying to move quickly with AI and become AI native themselves. And so I do think that the expectations for seed stage companies have shifted. And Hamant, our CEO, has actually posted about the fact, and I think talked about it publicly, about the idea that triple, triple, double, double, double is dead, which is this idea that once you get to a million in ARR, in the past you had to triple, triple, which would get you to nine, and then you get double, double, double, and then you get to like 72.

15:34And so now I just think that there are numerous companies that get zero to 100 million ARR in 24 months, 18 months. And so all of that has just changed drastically. We had Jake Saper on the program a few months ago, and he was talking about phantom product market fit. So it's a double-edged sword. Like these companies can grow faster, but in some cases, you know, the revenue might be thinner or less sticky or less robust. Like, how do you think about that and reconcile traction, you know, as what historically is a really strong signal, but there's not enough time to know, you know, whether that that revenue stays or churns?

16:20I think that you have to look, you definitely can't just look at the revenue number. That is not a sufficient North Star. You kind of have to like look under the curtain and figure out like, okay, what is this quality of the revenue? You know, the$100 million run rate from a bunch of like consumers who are spending 20 bucks a month is very different than if you got$100 million in contracted revenue on multi-year contracts with a number of enterprises, right? And we see both. Like we see companies that get to$100 million in more what I would say like a PLG motion. And then we see companies that get to$100 million of...

16:59We now have companies that are selling tens of millions of dollars to government on multi-year contracts. They're selling to law firms on multi-year contracts. They're selling to Fortune 500s on multi-year contracts. And so I think that that is much more durable revenue and generally higher quality. But even that, you could say that, well, okay, they bought it for two years, but are they using it? And so you look the next level below that, you say, okay, forget the revenue. Let's look at the usage metrics. And for the first time, I actually haven't seen this in enterprise sales before. But we have a lot of startups that report on DAU and MAU in the enterprise.

17:34And they really spend time thinking about it in the same way that almost consumer founders would have been thinking about it. And I think that that's a response to the fact that everyone's trying to make sure that the durability and the quality of the revenue is actually high. How much do you think these fast-growing startups are a reflection of true need and real problems solved that previously couldn't be solved? and how much is it enterprise, Fortune 100, budgets being allocated to AI and C-suite folks that have to have a strategy and have to deploy money against it and show that they're leading on an AI strategy and that they're adopting tools and building it into their business.

18:25I think that the first few years of AI adoption was definitely the latter, where there was a lot of just like experimental revenue. There was labs, teams within the enterprises trying things and people throwing budgets at things. And even like I think as early as this year, like we kind of went through the wave of like everyone token maxing and then everyone's all of a sudden like token minimizing. So I do think that there's some of that. But that's the reason that I actually care about like what does the usage look like beyond the contract? How many queries are people running? What kind of work are they doing?

18:59Are they reporting that they're becoming more productive or delivering more value with your products? So all of that, I think, you have to look at it holistically. What I can say is that from within our portfolio at Seed, at least from my purview, most of the usage is very real. Most of the time what happens is that a lot of our founders will actually do a free pilot or a very cheap pilot. And they'll just get it into the business. And then they'll see what usage and adoption looks like and what value they're delivering. And they're all kind of shifting to not perceived pricing, but value-based pricing, which roughly aligns with tokens.

19:39They just like deploy based off of that and grow internally based off of that. And to me, at least, it seems like it's very real business value being delivered. You know, the productivity is increasing. People are spending less time on menial work and more time on useful work. And so I think that for most of our portfolio companies' customers, the feedback is very positive. We've talked about customers. We've talked about revenue. Let's talk about talent and employees a bit. that you've said that the earliest hires can shape a company for years. What are the most common mistakes you see founders making when building that first team?

20:18And how do you think the shape of the early team is changing in this new technology super cycle we're in? There's like two questions in there. The first one is in terms of common mistakes. I think that there are two common mistakes that founders make in the early days. The first one is that they really index on pedigree, prior jobs, resume. And it's easier to do that because if you've never hired anyone before, it's a reasonable proxy. But I actually think that what you really want to try and index for is slope. You want to find talent that's undiscovered and almost mispriced and people who just have high aptitude.

20:58When I was a founder, which is at this point a long, long time ago, some of our most talented engineers did not come from traditional engineering backgrounds. They didn't come from the top schools, but they just worked the hardest. And there were a variety of reasons why they didn't go to the top school. Some of them lived abroad overseas and couldn't afford it. Some of them came into the engineering career later in their career. but truly some of our best engineers who now are top leaders at a variety of other startups came from very, very unusual backgrounds. Is there a way that you tested for or identified Slope?

21:35More like projects as opposed to where did you work. So I think that what did you do in your spare time? Did you code for fun? Did you have any open source contributions or projects? I think it all varies because obviously also if you're older you may not have time. You have family and responsibilities and you don't really have time to like go contribute on open source. But like what, you know, what's the stuff that you're proud of that you built at your prior company as opposed to like where did you work in your prior company? And you really are just trying to like see, you know, what have they been able to deliver that surprised and delighted customers and even just like the pace that they were delivering it at.

22:15The second thing that I think is a very common mistake is actually making the decision on when to let somebody go, which is a very difficult decision. The first time I let someone go, I didn't sleep for a week. It was just like very, it's like a breakup. And you feel responsible for them and their job and their career. But I do think that like once you've made up your mind that you want to let someone go, you should just do it. Almost always by the time that you've made up your mind on that, the rest of your team feels that way as well. it's very rarely a surprise to the rest of the team. And so I think that founders just like tend to wait way too long, sometimes months, sometimes like over a year on a decision that they know that they need to make anyway.

23:02And so I think especially because in the early days, so much of the culture is defined by that team maintaining a very high bar. And if you make a mistake on hiring, which you certainly will do, like it's just everyone makes mistakes with hiring, even very experienced managers. You just need to correct it very quickly. And any thoughts on changes to the talent profile now with AI? I think you really, the biggest change probably is that you really have to look for people who are AI native. I haven't been in a coding interview in years, but this idea to me that like you don't want them to use AI, I know some companies like try to ban AI, I think is actually kind of crazy because it's not a demonstration of the real world.

23:43in the real world, they will use it. You do want to understand that if they need to go into the code, they can actually understand the code. And so some of it you need to test for. But I would actually want to see a 10x engineer with AI is way, way, way, way more powerful than just a regular 10x engineer. And so I would really want to see people that embrace AI and code with AI. And if Andre Karpathy these days is writing all his code using AI, and shouldn't every engineer be doing it? And so I do think that you just want to find people who are AI native and who are able to just like squeeze out performance from these agents with the way that they're thinking, the way that they're designing, the way that they're prompting.

24:26I think that every engineer now is more like a project manager or a product manager than they are a pure engineer and they're managing a fleet of agents. And when I spend time, at least when I spend time with founders who are truly AI native, the way that they use AI is very evidently different than less AI native founders. in the number of agents that they have running and the way that they're managing their agents, the way they're orchestrating their agents. And so I think the exact same thing is true in the engineering level. So yesterday I'm hanging out with this founder and he's a former SoftBank VC and now he started a company.

25:01And he was telling me he had an offer for like five on 50 and an offer for 10 on 100. And he took the five on 50. And his rationale was interesting. But my question for you is about founders raising a lot of money early and how that creates or prevents optionality, right? Constraints, we all know constraints have value. They lead to creativity, sometimes better problem solving. Curious right now with the amount of money going into startups. I mean, we saw Instinct raise at a$2.5 billion valuation pre-product. I think that number's been upgraded to 10. Yeah, that's right. So is the venture industry systematically undermining the potential of big winners by overfunding and overpricing?

25:53Instinct is a unique example of this in the sense that they actually do need capital because he wants to keep the product free and inference costs are very high. And he is experiencing by all public accounts hyper growth. And so I want to put that one aside for a second because I think that it's a very different situation. But I do think that in a lot of other cases, particularly like early young founders who haven't hit product market fit yet and are in the early explorations of their product, and they may have literally just left their job or university or something else. And they're now being offered on the one hand$5 million, on the other hand$10 million, or even sometimes substantially more money.

26:42and that is where I caution people from raising too much and even instinct like in their early rounds that were reported were actually like very modest in comparison to the rounds now it wasn't until after they launched and like started feeling like there's real market pull and product market fit that they started pouring a lot of capital on it and the reason I think it's dangerous to raise a lot of money before you have product market fit is that it leads to behaviors that, you know, money just has a way of getting spent is the practical reality of it. There's like one of these like truisms that like no matter how much you raise, you're going to be raising again in 18 months.

27:24So whether you raise like 2 million, 5 million, 10 million, 20 million, you're probably going to be back in market in 18 to 24 months because very few people have the discipline to not spend that money. The difference is that like with the expectation for what you need to deliver will change, right? Like if you raise 2 million versus 5 million, that's actually the expectation might not change that much. But if you raise like 5 million versus 20 million, then like, you know, investors are going to want to see real results delivered. And more money doesn't really accelerate your rate of learning with customers because a lot of the things that you need to do in the early days are very non-scalable.

28:04You need to sit with your users. You need to observe them. You need to talk to them. And having, you know, substantially more money poured on that will not actually solve the problem. What does often happen is you end up hiring a big engineering team. And they're building a lot of stuff because you have a big engineering team. And there's less focus because you have a big engineering team. And if you need to pivot, now pivoting is harder because you have a big engineering team. And like you have to like steer the ship. That's, you know, You have to bring everyone along with your vision. And so I really do believe that a lot of capital can actually be a detriment.

28:40And I'm not saying that founders need to pinch pennies and raise a million bucks until they get to product market fit. I'm just saying that you have to be careful with it. Sometimes you'll get founders that tell you, oh, I'll just put it in the bank. I'll put it in savings. I won't spend it. I have just like in a decade of investing, I think across thousands of companies that I've met, I've maybe seen this actually play out twice where the founders were so, so diligent with it. In every other case, you just like you become a little looser with the money. And so you get less results. That, I think, is the biggest danger.

29:16Once you have product market fit, like by all means, just like go and race and raise and like do what you need to do to lock down the market. But before you have product market fit, I think too much capital can actually be a huge detriment. I feel like I see this from time to time with serial founders. You know, serials have a lot of advantage over first timers. But I've seen a lot of serial founders raise a lot of money out of the gate. Say, oh, I can do things differently this time and I can build an engineering team of 20. And it creates problems. I've seen both. I've definitely seen the example of the serial founder that you describe.

29:52I've also seen the second time founder that's like, actually, I don't need like that. I'm just going to iterate on this a little bit because I know what I want to do and I know how I want to get there. And the next round I'm going to raise is going to be huge. But until I get to product market fit, I just want to like I don't want to hear investors chirping in my ear. I don't want to hear it like, you know, I don't want to have to align a big engineering team. I just want to be lean. But you end up with both. What do you think, Yuri, about sort of industries that are unventurable? um i remember when i first started investing i did like all all deep tech and it was radioactive right and then we started doing some defense tech investing in like the late teens and my friends in the valley you know they just gave me a lot of crap for like what are you doing and but you know if you if you're early to them it the the winds can change and it can be a benefit um but there are a lot of these sectors or industries that are kind of considered unventurable and things have changed.

30:55So my question for you is, was the industry just wrong about many of these markets or do you think AI changed the economics or is it something else? Well, I think the irony is that today the most unventurable industry is probably SaaS, right? It's like the one that everyone is most afraid to fund. And so I do think that there's, you know, I think all of these things have truth behind them until you meet the right founder. You know, I think defense was unventurable until Palmer and Andrew. And then it turned out that like, oh, actually you can do incredible things in defense. I think that hard tech was unventurable until Elon to a great extent.

31:37And, you know, he's done it like two to three times now. I think that AI is definitely creating so much infrastructure demand. Like, I feel like five years ago, nobody thought about server capacity, electricity, data center demand, like none of that, like we all treated it as a fungible resource that was infinite. Right. And now I like, obviously, like all the GPUs are scarce, right and that's like it's as scarce as gold electricity is something that all of us are suddenly thinking about and like that is leading to conversations around nuclear that hadn't happened in decades and so i do think that ai has shifted things in a number of directions both on the software front and the physical world front and there's also the general belief that like now with ai you can probably iterate on hardware faster right all of those iteration loops can actually maybe happen at the same rate that you were iterating on on software before all of these things are true until like the right founder comes along and proves them not true uh it's probably the way that i you know that i would approach it and think about it it's like your legal tech example in sweden totally i mean i i have sold like when when i was a founder i had tried selling to lawyers that was just like a black hole of of pain you know and i think that like almost every sas founder of like the 2010 to 2020 era that has tried selling to lawyers will tell you like that That is a terrible audience.

33:01And then all of a sudden, like you get Lagora and you get Harvey and like they're selling to lawyers like it's easier than selling to any anybody else. Right. And so I do think that AI has made a lot of these things very, very different. So you're investing in AI, right? You're investing in exceptional founders. You have a bias for founders. You seem to be less concerned with sectors. Is there another dimension, like a Z-axis that you really like, that you think could produce great outcomes in the next three to five years? And, you know, what is that? Is there a shape to kind of another dimension you're looking for in companies of the future?

33:46I mean, I think that the third dimension is like it's the one that's hardest to size, but it would be market size. and the reason it's the hardest to size and where the biggest opportunity is is that oftentimes founders are inventing markets. If you ask somebody the question of, especially let's say 2005 to 2010, what is the size of the market for people wanting an airbed and breakfast? And the answer was some number that rounded to zero. Couch surfing existed. and nobody was able to monetize it. VRBO existed. VRBO existed and that was doing okay. VRBO still exists. I think it's doing fine. But yeah, I mean, until Airbnb, that market did not exist.

34:36What was the market size for getting into somebody's random car and getting a lift from them? And so I do think that sometimes you'll meet founders where your instinct is that the market is small. What was the market size for Bitcoin in 2012? And so you have to try and imagine like the what if they're successful scenario? Could they actually expand the market? How would that market expand if they were successful? And I do think that like the beauty of startup investing is it's not zero sum. It's very positive sum. Like you can create wealth and value if you choose an interesting market that maybe doesn't exist today and you like spend the time to create it.

35:15And those, I think, are also the most mispriced opportunities, right? Because that's the ones where like it's not obvious at all. It requires squinting and believing and faith and being alone for the ride. Objectively, I'm bad at it. Like the number of times I've passed on something because I felt was like a small TAM. And I try not to do that because I know that that's a terrible reason to pass. But sometimes you just like can't help yourself. And then you regret it because ultimately you should just be in business with good founders and believe that they'll expand the TAM. So you mentioned Elon before.

35:43SpaceX, I think, is a great example of making a market, creating a market, right? SpaceX created an extraordinary amount of value for early investors. So do you think an outcome like that changes how you think about the job of a seed investor? The thing that has changed for me over the last 14 years since I came to the Valley is what I believe a successful outcome can look like. I think when I was a founder in 2010, seed investors, or seed wasn't even really a category back then. it was just like venture investors in 2010, believed that a successful outcome looked like a billion dollar company.

36:20And then, you know, I think the cohort of companies from that era that became successful actually looked more like five to$10 billion companies. And they were still as infrequent as billion dollar companies, but the markets were just so much bigger. And so if they were able to get there, they just kept compounding. And then you started to see$50 billion companies, like seed companies become$50 billion outcomes, $100 billion outcomes. And right now we're looking at three potentially trillion dollar companies. Right. And so I think that the biggest thing that has shifted for me and for a lot of other investors, and it's also driving some of like the early stage valuations going up so much is the fact that there are going to be trillion dollar outcomes.

36:59And if there are trillion dollar outcomes, why like why couldn't there be five trillion dollar outcomes or ten? Like we're humans are really, really, really bad at understanding exponential growth. All right. Like it's it's just like completely non-intuitive. The markets and the wealth and the growth are compounding at such a rate that it's just like, it's very difficult for us to comprehend. And that is the number one thing that you have to remember is that today we believe that there could be trillion dollar outcomes and we laugh at the idea of a$10 trillion outcome. But I think a decade from now, it would not be crazy for there to be a seed stage company that became a$10 trillion company.

37:37Because we've already demonstrated that you can have, I don't know what SpaceX is sitting at today, but let's say it's like a one and a half to two trillion, right? All of that is just like going to continue growing and compounding. And I think we'll continue being surprised there. It's really remarkable, right? Like I started the podcast in 2014. The Unicorn Report had come out from Eileen Lee. And we did a number of interviews about it. And people were very bearish about the percentage of companies that could get to a billion. It's just so funny how easy it is to look backwards and neglect what the future looks like.

38:13So the thing that I try to emphasize to people here is I actually think that the odds are still very low. Like it's, you know, I think that it's not that like you'll have so, maybe the odds are improving, but I do think it's very difficult to build even a billion dollar company. But my main point is that like, if you're able to build a billion dollar company, there's a pretty good chance that you can keep compounding the growth and the market is actually probably bigger than we imagined it to be. And so it's not that they're frequent outcomes, but they're just bigger than we imagined them to be.

38:45Much bigger, right? Billion used to be, that used to be the goal. Yeah, you can't go public with a billion-dollar company anymore. I don't even know if you can go public with a$5 billion company these days. A few quick wrap-up questions here. Yuri, if we could feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about? Would it be a founder or an investor? It's your choice. Well, I always love hearing from founders. And so I think that Max from Legora, Andy from Stokespace, either one of those founders, I think, are incredible founders that are, you know, one of them is building in a, actually both of them are building in very difficult industries.

39:26One of them is building in the legal space. The other one's building a space company. And I think they're both just good examples of being the top 1 % in your field looks like. What about on the investor side? Is there anyone you follow that you'd love to hear more from? I mean, I love hearing from my team. So I think I have to say, any single person on my team, I think hearing from Mark, who runs our creation strategy, is super interesting. We do our AI-enabled roll-ups. Niyosh and Jeanette, I think, are amazing because they also come from an early-stage seed background. I think, genuinely, Alex or Holly, who run more thematic strategies for us or Elena would all be really, really good to hear from.

40:06Yuri, what book, article, or video would you recommend to listeners? I really found Ben Horowitz's The Hard Thing About Hard Things book resonated with me when I was a founder. And I think it's a good book for founders. Like even, I mean, this book now is probably like over a decade old, but I think it's a great book for founders to listen to and for investors to read, to be able to sympathize with founders a little bit more. I also, this is unrelated, but I actually on the podcast side, I really loved Cyan Bannister's interview with Patrick O'Shaughnessy. I think she is a really unique investor and unique individual.

40:45And I highly recommend for everyone to listen to that interview. I think it's just an amazing interview. Amazing. She's the best. Yuri, do you have any habits or behaviors that are a secret weapon? This is a cliche, but I think that having kids makes you very good at time optimization. I am not a morning person, but since I've had children, I've had to start getting up at like 6 a.m. to be able to do a workout, which is like even this morning, I was up at 6 a.m. And I'm like, why? I hate it, but you just got to do it because that's the only time you have. And you really start thinking about like everything in the context of like, I could be spending time with my kids or I could be doing this thing.

41:19And so I think that having that question in your mind actually really laser focuses you on where to spend time, which companies you spend time with, which dinners you go to, which events you go to. So that's actually probably been the single biggest blessing and surprise for me, just from a time perspective. Obviously, like the kids are amazing in every other way as well, but just from like creating a secret weapon for me in my day-to-day job. Perfect. And then finally here, Yuri, what is the best way for listeners to connect with you and follow along with GC? You can always email me. It's just yuri at generalcatalyst.com.

41:51He is Yuri Sagalov. The firm is General Catalyst. Yuri, congrats on the success. Thanks for joining us and best wishes with running the seed program at GC. Thanks so much for having me.

42:07All right, 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.

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