20VC: a16z's $15BN Fundraise with Alex Rampell | The Best Companies Have Hostages Not Customers | The Best Founders Materialise Capital, Customers and Labour | Mid-Sized Funds with Die and The Future of Venture Capital

24:11It's like, you'll appreciate this if you're an enterprise SaaS guy, right? It's like the best companies have hostages, not customers. So if there's a company that has something marginally better than Workday, right? They're not going to go, like Workday has hostages. They don't have customers. They're not going to go be able to sell GE and say, oh, wow, I love you two YC kids. Like I'm totally switching my HRIS from shitty Workday to amazing AI, whatever, YC, Silicon Valley, HRIS. Never going to happen. But if the rate of new company creation is high enough, those new companies will pick the best product.

24:44And they're like, oh, well, I could use Workday, but I'm not a hostage. So I'm free. I'm going to pick this other thing. I was the first investor in Mercury, the SMB bank. And until SVB failed, they never stole a customer from SVB. But if you're a brand, as long as the rate of new company creation is high enough, you can play this game that I called Greenfield Bingo, where it's just like you pick every software category, you build a better version of that, and then you've got a shot. And that's what Stripe was. I mean, that's why it worked. If the rate of company creation is very low, like if I build a better EHR, like electronic health records company, it's just not going to work because the rate of new hospital creation is too slow.

25:22It's like you can't just sell to the new companies. But you can do that for payment processing, right? You can do that for ERP. You can do it for a bunch of other categories. So you will look for greenfield bingo markets where the rate of net new companies being created will supplant the slow sales cycles of the larger enterprise customers who will eventually switch. Or maybe they don't, right? It's like, who cares if they switch or not? It's like, they'll hopefully die because they're using shitty software. of like the fact that they won't switch is actually indicative of like their mantra on everything.

25:55Like they want to use old technology or they're hostage to old technology. Let's just sell into the future. And, you know, betting on the future is more fun. I mean, like one of the things that's very, very challenging is you go start a company, you recruit 10 hotshot people from meta, Google, whatever, and then they're bored to death. Why are they bored to death? Because they can't do anything. It's like they were used to making little tweets that a billion people experienced every minute, every hour. And now they're at a startup. And the startup, it's been one and a half years, and they've made one sale.

26:26That's quite typical. And then you end up losing your talent because it's boring. You can't actually do anything. So it's nice to have these markets that can ramp quite quickly. And you kind of want the market to be a tailwind for you. It doesn't mean that there's not value in kind of creating big companies that sell big, you know, startups that sell big software products to big companies. You can do that. It's just it's a much, much harder thing culturally for Silicon Valley, I think. Shows are a bit like venture, which is the majority that you do are actually not very good. And then you get the once in a while episodes like this, which remind you why you love what you do so much.

27:04You know what I mean when you meet that special founder. Oh, 100%. It's so great when you have a show like this. My question to you is you said hostages, not customers. How should I think about that then in a world of cursor or any of the foundation models, your anthropics or your open AIs, where they are customers, not hostages? They can switch very easily. The promiscuity of customers has never been higher. How should we think about that? It's a really good question. I mean, this is where behind every technology revolution and kind of go back to like Silicon, then the personal computer, then the internet, then kind of internet 2.0, where you could write to the internet, things like Facebook and YouTube, then mobile, then cloud.

27:45There's always been an infrastructure layer and an application layer. So, you know, you go back, like the infrastructure layer for PCs was, I don't know, like Microsoft and Apple, like the operating system players. The infrastructure player for the internet was like Cisco and Akamai. The infrastructure player for everything AI are all of these backend model providers. And then there's the application layer on top. So if I do something, we were talking about Ask Leo, right? Like that's an application layer company. If I were Vlad, I would love to be promiscuous with all the backend models because I should be.

28:15And then the infrastructure players are like, oh shit, all of our customers are being promiscuous. Let's figure out how we specialize in a particular area. I imagine that's why Anthropic, I imagine, has gotten very good at coding. But it's kind of the application layer tends to be a little bit stickier. But the problem is you might have 9 ,000 competing companies at the application layer, in which case you'd rather be the infrastructure layer. But the infrastructure layer is pretty hotly competed as well right now. So I don't know. I mean, the more relevant question for me is in 2025, the ability to go create a software product is so easy.

28:50I published this chart with the help of my friend ChatGPT of how long it took Visicelc, which was the first spreadsheet that came out in 1979 to lose to Lotus 1-2-3, and then how long it took Lotus 1-2-3 to lose to Microsoft. And it took about five years from VisiCalc to go from 100 % market share, because they were 100 % market share, because they were the only one in the first, to 50 % market share. It took about 15 years after that for Lotus, which had 70 % market share in 1986 or something, to almost zero. This would normally take a long time. In 2025, this can take weeks, which is bonkers, right?

29:26Because all of these layers of past innovation have kind of like almost like a Russian nesting doll kind of concentrically grown against each other. So because you have cloud and because you have mobile, everybody in the world has a smartphone in their pocket. All of those smartphones are connected to like, you know, infinite computing in the cloud or near infinite computing with like a dearth of energy in the cloud. And now I build something marginally better, I can get into the hands of a billion people overnight. And that's just so, so different. But I think on the hostages point, if you build a system of record, right?

29:56Like it's just so hard to switch. That has not changed. But now I can go compete. I could build a software product in like two weeks that would have taken me two years. So that's going to massively increase the pressure on the application layer. So the best thing that you can do if you're an application layer company is hopefully, you know, have something that, you know, I hate to say it, but it's like you want to have hostages. You want to have all of the data in your company. You want to have all of the data of your customer in your product and then just make sure that, I mean, this is, I think, the thing that we talked about last time I was on your show.

30:30It's like, you know, the battle of every startup versus incumbent is whether the startup gets the distribution before the incumbent gets the innovation, right? So what do you do? You go boring. You build the most boring thing possible. Nobody really cares about it. Nobody's that interested. I mean, that's why I love Vlad at Ask Leo. It's like, who cares about procurement? It seems kind of stupid. It's not attracting 9000 competitors, but hopefully you get all of the data in there and then you can build these interesting things on top and you're not going to attract that much competition. And even once you do, it's just it's kind of hard to switch.

31:02So I don't know if that answers your question. It totally answers my question, but it leads to several more questions, which is the theme of this discussion, which is the speed with which it takes to compete with the incumbent has reduced. And you are able to take customers or market share quicker than ever before. With the extension of private markets, do we not have a liquidity problem then? When we look at, I don't want to pick on anyone, but fuck it, I will say like a company like Sneak in the cybersecurity market, which has been going, it's now getting eaten away by new incumbents before it's had the chance to return shareholder money and liquidate.

31:37And so do we not have a fundamental challenge here where companies that have not gone public yet or not provided returns to investors are already getting eaten away because that compression time is shorter? Yeah, I think this is a big challenge. I mean, if you look at all of the unicorns and how many conform to rule of 40, it's pretty small. Many of them are shrinking. So probably of the unicorn class, I would bet that maybe 5 % will ever be able to go public, which is kind of shocking, right? And then because so much money has gotten into venture capital, you have this problem of, I mean, I will say on the record, I hate massive secondaries because it kind of turns you from the catamount of Christo to like the, you know, whatever the opposite of that would be like the, I'm now going to go vacation in the Côte d 'Azur or something.

32:24Like that's going to now say, I am now at a fundamental disconnect from my employees and my investors because I'm rich and they aren't. That's not a good setup. You kind of want everybody to be in the same boat. The reason why I mentioned that is you have some companies where it's like founders taking a$50,$100 million secondary. That's fine if they just turn down a$10 billion acquisition from Google and they're with a count of Monte Cristo and they want to go for it. Like, okay, that can make sense to me. And if you offer that to all employees and all investors and everything else, I don't love the idea of it's like people are looking at this as spreadsheets.

32:54There was a fund in 2021 that did like a massive secondary into one of my companies. And I was really against it, which made me super popular with the founder, you can imagine. They were like, oh, well, we own 4 % of the company. We want to own 8 % of the company because 8 % is more than 4%. I'm like, dude, I totally agree with you. 8 % is more than 4%, but you have now introduced moral hazard into the equation. Because if you give somebody generational wealth, you can hope that they're going to kind of make it like the upside would be like they're going to swing for the fences and go for it. Because otherwise, I would be happy selling for a billion dollars.

33:26Now it's like, fucking, I'm going to go for 100 billion. Okay, that's great. Now we're all aligned. But the other option is now they don't care about getting liquidity for investors. They don't care about getting liquidity for employees. They're quite comfortable. Like you don't want to have that set up. I don't think that's actually the problem. I mean, this was the greatest of respect. I think we assume the next strategic steps will be the same with that money versus without that money. And I think what we've both seen is the foie grasing of startups. And then they do 10 things, not two things.

33:56None of them work. The team is disincentivized. They break up. Culture sucks. Moral hazard. That's the economic framing, right? It's moral hazard on both primary and secondary, to your point. Necessity is the mother of invention. So if you have$100 billion in the bank, when you really should only have$10 million in the bank, you're like, ah, I'll do 50 things. I'll have multiple layers of people that I don't need. And it's interesting. I find that a lot of people, when I think about the difference between conservatives and liberals or people that believe in big government, small government. A lot of it comes down to the disconnect between more input is better output.

34:33Like a lot of people just believe this. It's like, okay, the IRS, the Internal Revenue Service, like, oh, there's a lot of tax fraud. We need to hire more people. And if we have more people, we're going to do a better job of catching tax fraud. Or like, oh, the military, we should have more people in the military because that way we're going to do a better job. Whereas actually, as you know, it's like sometimes there's addition by subtraction. If I have a smaller team, there's less communication necessary. You're going to come up with more creative ways of actually solving the problem. You're going to solve it with technology.

35:02Whereas if you just say, I'm going to solve it on the input layer, I'm going to address my constituents by saying, I'm going to just allocate more money to this thing. You're going to get a worse outcome versus I allocate less money with great people. This is the key. You can't just say, I'm going to allocate less money and give you the worst people on earth. And then no. But it's like, take tax fraud. I would rather have two people at the IRS than 80 ,000 people, but have those two people be the Noam Shazir and some other like super genius. Because if Jeff Dean and Noam Shazir are running the IRS, like, oh my God, like that would be so much more efficient.

35:35But the input cost would be like one one hundredth as much. And there's always that disconnect. I actually am in trouble with my team because I just tweeted today. Series A is the worst place to be investing. Company progression is minimal. Price is four to five X, the seed price. And we're paying 150 to 200 X ARR with little signs of product market fit. Do you agree with me? It's the worst place to be investing. Well, I think the problem is that there's the nomenclature, which kind of varies company to company. So like when I started trial pay, we raised our series A was 3.1 million on 9.5 million pre.

36:14And that was expensive. I remember like arguing with the partner at battery. It's like, this is the most expensive deal we've done. This was 2006. At Site Advisor, I think we raised 2.7 on 2.7 pre, so even lower. Hence, hence he was right. So now you have a pre-seed, a seed, a seed extension, a seed extension to like, what is a Series A, right? There's not like this, like normally a Series A would be like the first institutional round of money. Now there's so much variance because like, oh, there's the Series A where it's like five superstars out of open AI and they need tons of money for compute.

36:46No moral hazard on that. You're not going to go spend money on people. You're going to spend money on GPUs. That's one form of Series A. Another form of Series A is like, I just did a Series A where the company had like$10 million of ARR when I invested. So it's just all over the place. So I think it's just hard to kind of cast a generality. There are certainly ones where, like I used to call this the Series B trap, but again, I think the nomenclature has shifted. Like I would have agreed with your team if you called it the Series B because at that time, there was a seed, there was a Series A.

37:13And the only difference between Series A and Series B is that you increased your burn and built infrastructure and kind of scaffolding. So it's like, I have a company, I have customers, I have signs of product market fit. I know now I should hire an HR team and a marketing team and all this other kind of shit that doesn't actually have any kind of impact on the metrics of the company. And that was the Series B, right? And then it's like, why would I invest in the Series B? Because I get half as much ownership and nothing has changed vis-a-vis the Series A. So yes, there's a class of Series A's that look like that.

37:43But I would say like of the Series A's that I personally did in the last year, like most of them have been like, holy shit, like revenue is really scaling. And these numbers are insane. And, you know, those were Series A's and I get very excited about those. But it just, I think your mileage varies because the nomenclature is all over the place. Do you worry about the quick succession rounds? When you look at companies like a Rillet or a Tacto, there's just like a week later, there's another term sheet for a Series B with literally no change at all. And it's buying the cool option. Do you worry about those rounds?

38:18Well, I did one of them, right? Like I'm on the board of Rillet. I did the Series B and it was 60 days after the Series A. And that's unfortunate. I would have rather done the Series A or rather done the Seed, of course. But if you find the winner, it's also very expensive not to do that deal so that's so interesting that i'm so pleased because i i'm so sorry dude i totally forgot that you did the real it be but like you got to pay up for that going to the point you've got to assume that the next strategic steps will be the same and be as focused even though you have just foie the company sorry probably well but this is where i think the motivation of the founder is very very important so going back to like i mean nick uh who's the ceo of real enemy i think he does have a bit of the countermite of Chris Joe and him.

39:02And it's like, he doesn't want to go take this money and go spend it on extravagant things. So I think you have to make sure that there's kind of like founder capital fit. Nobody ever talks about that. It's like, okay, if I give you a billion dollars, what will you do with it? And 99 times out of 100, the answer is going to be bad news. And not even bad news around waste, but just bad news in terms of mindset. It's another form of moral hazard where it's like, I'm never forced into making hard decisions because I have infinite capital. And you kind of want to force people into making hard decisions.

39:34And like, I live this. I mean, I've tweeted about some of these things during my painful existence at trial day where, you know, I think we had to lay off 70 % of the company and then we eventually turned it around and sold it to Visa. And there were all sorts of tough times therein. But you run into these like very, very challenging scenarios. And it's like option A is bad, option B is bad. You have two choices. You're at a fork in the road. And there's a funny expression by Yogi Berra, this famous baseball player in the US, when you come to a fork in the road, take it. It's like, what does that mean?

40:02He said all these things that make no sense. But what a lot of entrepreneurs don't realize is that the worst option, you think you have two options, but there's a third option, which is making no choice at all. That's the worst option. You're better off just choosing something and both of them are bad. This option is very bad. So therefore, I don't want to make any choice at all, but you're better off making a choice and committing to something. And if you have infinite capital, you could just kind of continue this, I'm not going to make any choices. I'm just going to sit here and just like, all right, well, I have more money.

40:29My ARR is more driven from the interest on my giant$100 million cash reserve. Sorry for rambling on this, but this kind of goes to founder capital fit. There's a certain type of person where it's like, I give you a lot of money, and I know you're still going to make decisions very, very quickly. I know it isn't going to distract you. And really, it's just benefiting me. I hate to say it selfishly, but it's benefiting me in that now I'm on the cap table. I own part of this amazing company, and it's not going to fuck up the company. The moral hazard is the number one thing. It's like, now it's going to fuck up the company either with too much primary or it's like, oh, I know, I won't mess with the primary.

41:05I'll just buy secondary. It's like, that also has existential risk, as I mentioned, for a certain class of person. There are other CEOs that like, one of my CEOs did a very, very big secondary in 2021. He and the company is hit on some tough times, but like he has stuck it out and like he's doing a phenomenal job. How do you get comfortable about growing into that price that you have well overpaid for? So again, we're super candid. And this is where I love where I'm at in my stage of life now versus where I was at eight years ago, because it wasn't kind of the same. I lost to Seema on your team for Ask Leo.

41:39She's amazing. You guys are amazing. Hugely well-deserved. You guys did not pay more than me. I hate this bullshit VC thing where it's like, oh, they overpaid. No, it was like the same. you just beat me fair and square well done i reflect on that and i'm like you idiot you should have paid 300 and doubled them because when i map out 18 months time i looked at their revenue projections and in 18 months time when they need to go raise their revenues would have been so much that i could still see a 3x on that 300 that's how i get comfortable with paying up for something how do you get comfortable preemptively paying up so much i mean i think it's the same it's the same math but it's it's dangerous on both sides right it's like i always have this speech that works you know maybe one time out of a hundred that i give it which is kind of like the spider man speech of like with great capital comes great responsibility and if you raise it too high of a price you're fucked because i lived this let me tell you my story i raised it this price for my series c then i had like google that wanted to buy me but it was like at the same price so therefore it tanked the thing.

42:42And then my next round, everybody asked me, what was the price of my last round? And nobody wants to invest. I go tell this story, I can introduce the founder to 10 other founders that have lived the exact same thing. It's like, I wish I hadn't raised my round at such a high price. But who starts a company? Let's just think about this for a second. The people that start a company are irrationally exuberant. If they thought that the company was going to fail, if they thought they had a 0 % chance of raising a series B, they wouldn't start the fucking company, right? So that's why the speech doesn't work.

43:10Because I always tell people like, hey, the reason why you shouldn't raise your Series A, like there was a deal that I guess we should have done candidly because like this company just raised it like a billion dollar plus valuation, but we turned it down. Company had like less than a million dollars in revenue and they wanted like a$200 million, whatever post money Series A. It was just so crazy. I was like, look, you guys haven't started the company before. I have not to like pull the old bald guy card, but like your Series B, like even if you have$20 million in revenue, you're fucked. Like You have to be able to walk into a room.

43:38The number one question you're going to get is, what was your last round price? And people should be wanting to compete to pay three times that price. They were like, oh my God, what will it take to do this deal? And if you say like, hey, my Series A was raised at a billion and I have a million dollars in revenue, you have ended the conversation. Nobody wants the psychology of that round is all wrong. So I give this speech and it just doesn't work, unfortunately. But I think the smart entrepreneurs, they kind of have this risk balancing thing. It's like they're irrationally exuberant. That's why they quit their job and started the company.

44:07But they realized, oh, wow, there actually is a good point around like my whole team now says we have$100 million in the bank. They're going to be wasteful. That culture is something that I don't want. Yeah, I guess I would want the option of maybe selling the company for a billion dollars and having Salesforce come in and say, what would it take to buy the company? What was your last round price? Because I will tell you 100 % of the time in every M &A conversation, in every fundraising conversation, the number one question, the first question is, what was your last round price? And if it's like insane, they're like, ooh, that's not good.

44:37And then as an entrepreneur, you're like, oh, no, no, no, but I would take a discount because my company sucks. You can't say that. It just destroys the entire conversation. It's just game over. Can I ask, going back, there's just staged conversation, otherwise I'm going to lose the thread here of what I want to ask you. We mentioned kind of the Rillit element in the successive rounds. I hope it's not too forward and you can say, dude, don't want this in there. But you do the successive B because you lose the A. when you sit down and we're sitting down as a team, how do we reflect on that? When you reflect on like a review, what was the takeaway from that when you sat down?

45:12Well, I mean, there are a lot of deals that we lose because we're not willing to kind of go the distance on price. That is a common thing where it's like, did we really lose it? Like this has happened to us a number of times. It's like, all right, we want to do the deal. And this is it again, like consensus and non-consensus. a lot of times the difference is just on price or ownership. If we had shown up and said, hey, we'll do 10 % of this company for an A round, we could win every deal. It's actually, I think one of the competing elements that has shown up, I'm interested to watch how Standard Capital does.

45:41This is kind of the YC offshoot where I'm going to take 10%. That's very, very bad for big funds because in order to make the math work for a big fund, you have to have high ownership and you know that your ownership will get depleted or will get diluted over time as option pool expansions happen, even if you take your pro rata in every single successive round. So, I mean, we can win all these deals, but a lot of times, you know, I am much more preoccupied with ownership at the A because we're buying it out of the money call option. And the reason why I kind of tell this story is because there's something that I've used as a benchmark, which is if you're hiring people and 100 % of the people say yes to your job offer, What can you infer from that?

46:21Number one, you could infer that you're the greatest hiring manager of all time. But number two, you might be overpaying. Would you agree with that? If you only get 50 % or 20%, how do you know to test this hypothesis? And if you win 100 % of the deals, that's a very, very good sign. You should try to win 100 % of the deals that you want to do. But if you're winning them with very low ownership, you're probably not testing this kind of efficient frontier of how far you can go. and you want to have more ownership, right? That's our objective. Like the founder wants less dilution. The investor wants more ownership.

46:55The two are like kind of perfect complements of each other. Eventually you realize like, I don't want to be a fucking idiot. Like this is the answer to your question, right? It's like, all right, I wanted 20 % in an A round for a company that doesn't have that much traction because I'm at Andreessen Horowitz and I've got this big fund and everything else. And then it's like, no, no, no, they're going to do a 15 % round or whatever. It's like, oh, fuck that. I don't want to do that deal. And then it's like, holy shit, they've run away with the market. this is the market leader. I'm not going to be stupid.

47:20I'm not going to just say, this is why actually, by the way, I love talking to investors because investors, like most humans do not have the capability to admit that they were wrong. They just want to say, I'm right. I'm saying, I'm right. If you're an investor, you're just going to lose money all the time. The most valuable insight that you can have as an investor is the self-reflection to say, I'm an idiot. And if I'm a hedge fund guy, it's like, I get to sell. It's like, oh, I thought I was a genius buying Herbalife, blah, blah, blah. Like, oh, wow, this company is not good. I'm going to sell everything versus no, I want to prove to the world that I'm right.

47:49Well, I'm going to lose all my money. So it's the same thing here, but for upside, we can't sell, but we can say like, this is the winner. I want to be in the B at a lower ownership because like this is the fucking winner. But if I was your partner, I would be pushing you with all my might to take the 10 % at the A and have a higher win rate specifically with your profile of fund, because I get it in other funds where you don't have the ability to follow on and lead the B, the C, the D. You may even not be able to do the pro-orders, in which case I get that thinking. But when you can, why are we not having a higher win rate and doing 10 %?

48:21Well, I mean, this is actually one of the things that we looked at, because I kind of feel like my job here is kind of quasi portfolio manager. So I run our apps fund, seven different funds. And my job is to make sure that that fund is as successful as possible. And we're winning the right deals that we, if we just say, hey, everybody win every single deal. Just win every deal. It doesn't matter. That's all I'm going to optimize for. And we end up with 5 % checks in every series A. Like, you know, that's not going to work, right? We can win every deal that way. What is the front? How far on this curve can you go?

48:54And again, it's the exact inverse conversation that an entrepreneur is having, where it's like, I want a tier one investor. I want an amazing specialist. I want whatever I want on this person that I want on my board. What is the least amount that I can give up to get an amazing person? And they would love to get 5 % A round deals done. but they're like, oh, wait a minute, like that's not going to work. And like that, that's the tension between the two. So I, I, I agree with you, but I think, you know, where do you, it's like Zeno's paradox, you know, that is right. It's like, you will never get to the destination if you go halfway each time.

49:24Like, is it nine percent? Well, why not just do it at 9 %? Why not do it at 8 %? Like, where do you draw the line on that? And I would do, I would do the simple math of where do I think, and this is a very dangerous and bad answer to your question, because the biggest mistakes in venture have been when you underestimate market size and you don't see what it can be. But I'd sit down with you and I'll go, OK, 10 percent entry, 5 percent on exit, assuming a 50 percent dilution. Do we think this can reasonably be a 15 billion dollar company? If so, that is a number that returns the fund with comfort.

49:56I know. But the problem is it's kind of garbage in, garbage out. It's like you can always say that for something because otherwise you're like, oh, wow, I underestimated the size of the black car market. It's hard. I mean, the way that I do it, just kind of to be pithy about it, is like we either want to buy any percent, any percent of something that is absolutely working or high ownership of something that could work. If you really kind of draw a line of like, you have to bifurcate the market. It's like Facebook, if you look at that round, I think Greylock put 25 million into Facebook. Actually, I think the round was maybe 25 million at 500.

50:25I think that was the B round for Facebook split between Meritech and Greylock, but that was absolutely working, right? So it's like, are they getting 10 %? No. Are they getting 5 %? But it's like the market winner and things can go wrong, but like, holy shit, it's absolutely working. And I don't see that many things that look like that. But when you do, you throw away all the rules or it's like, this is not working, but this person looks like a super genius. They have high agency. They can materialize labor capital and customers, but it's not working yet. So I have to have high ownership in order to correspond with that level of risk.

50:59and those are the two types of deals to do. The danger is you can say, oh, well, this has a million dollars of ARR and they're ahead of the number two player that has 900K of ARR. Therefore, it's absolutely working. You have to have a high bar on the absolutely work. This is the fastest growing company we've ever seen. It probably comes around once every decade. Throw away the entire rule book and you should be fine owning 5 % of that company because it's an absolute winner. I'm so pleased that you said about the fastest growing company that we've seen. We've never seen growth rates like we have today.

51:27I'm a little bit stuck, if I'm honest, And so I'd love your advice. When we look at companies going from one to 20 to 30 to 40, there's actually quite a few that do that today. Before that was completely unheard of. How much weight should we place on revenue growth today versus not? And is there a world where these companies that are going from one to three or four, three or four actually used to be good, are left behind? If you want to know the three investment theses that I have for our fund, I mean, this is exactly what I told LPs, and we'll answer your question in a second. I think we have three.

52:00We have one, which is we invest in system, like I call it Greenfield Bingo. And most of the green, like these are existing software companies, but selling to new companies as opposed to selling to the hostages that will never leave. They tend to be systems of record or vertical operating systems. So like the reason why Relit, I love that company so much, that's never going going to grow like zero to 100 in like a month, but it is very, very sticky revenue. Like once you're on, like NetSuite has hostages, not customers, they're not going to leave. If Relit can sell into every new company, they're going to do great.

52:31The revenue growth will be slower, but it will be so sticky. And they have infinite option value on adding like, hey, do you want to have a collections AI agent that runs on top of overdue invoices, blah, blah, blah. And that's like optionality on top of your sticky system of records. So number one is Greenfield kind of systems of record. Number two, and this goes to the fastest growing companies in the world that you're talking about, is like software that does the job of labor. Like these are new, this is, I'll give you an example. Like we have a company called Eve. They sell into plaintiff attorneys.

52:59What is the dominant software product for plaintiff attorneys? It's called Microsoft Office, right? Like there isn't one. There's so many categories. Like what's the dominant software for like manicures? Like there is, you can pick all these areas where there's no greenfield, bank. There's just nothing. But because the thing that you're selling is effectively in lieu of labor, the way that EVE works is if you're a plaintiff attorney and you get paid on contingency, you're not charging by the hour, you have a case where you will with 100 % certainty win$1 ,000. Will you take that case? The answer is absolutely not because it's not worth your time.

53:30So you turn down all the small ticket cases because you want the big ticket cases. But now you have a software product that can do all the work and help you win all the small ticket cases. You're absolutely going to do that. These are the things that scale like crazy. Because instead of hiring somebody for $80 ,000 a year that I cannot hire, I can now hire this software product for$20 ,000 a year. And before I was paying$0 a year for software, those are all the things that are hyperscaling. But to your point, if they don't eventually back into a system of record, like if it's something that just does outbound phone calls with an AI agent, and it's a thin wrapper on open AI or plus 11 labs, plus something else, it will attract so much competition.

54:10It won't be sticky. The conversation that I have with every entrepreneur that has one of these companies is like, how are you going to make this sticky? How are you going to, pardon my language, get the hostages? How do you hold these customers and make sure that if you are, I'll give you an example. I'm an investor in a company called Salient, which is probably the market leader in outbound loan servicing for autos. This is a conversation I had with Ari. It's like, what if Talient shows up, the competitor of Salient, the make-believe competitor of Salient? How do you keep your customers? And they say, hey, we're going to do it for 50 % cheaper.

54:42And I loved his answer, which is, this is my wedge. I recognize that this is not super sticky if we're just making outbound phone calls and combining these different layers of the stock because we're not the infrastructure layer. But we are going to back into a software product. And I love that answer. And it's true. That's what they've done. So that's my answer to your question, is they might not be able to pull it off. Like every company that says they're going to do this, they might not be able to pull it off. But you have to back in this mega revenue growth that largely is predicated on doing the job that people would do before.

55:16And that's why you can grow so quickly into sticky software product that is not that dissimilar from software products of yesteryear. So it's like, number one is, you know, Greenfield bingo. Number two is like software that does the job of labor. And number three, I wrote a post about this, but I called it the walled garden. And I'll give you two examples of this. There's a company in Europe called Vlex. And Vlex was started by this entrepreneur, basically bought up every legal record in Spain, physical legal records at the courthouse, put them into like digital form, and then started selling them to law firms.

55:45And I think he got this to like something like 20 something million dollars of ARR after 25 years. But then added AI and it grew like something like 5X. I mean, something crazy. Why? Because open AI, let's just say open AI is purely, it's a sentient being. AGI is here. OpenAI has done it tomorrow. GPT 5.5 is here. If you say like, hey, help me draft a response to this Spanish court case, they don't have the data. They can't do that. Or OpenEvidence has done this for health data. AGI is here. OpenAI has it. Amazing. I tore my Achilles. What do I do? I'd rather have GPT 3.5 plus infinite data of everything around medical science, which is walled garden that OpenEvidence has, versus sentient being that has no data whatsoever.

56:29So that's also a very, very powerful way of building something sticky. So if you find a company that has grown like this or grown like this, but just cannot be removed either because of the data that they have that is unique to them, which is honestly my hope with Ask Leo, or has kind of sticky system of record, like it's just not going anywhere. Versus other ones, like you might take a flyer. It's like, wow, this has grown from zero to 100. They make outbound phone calls. And they're like, you know, 11 labs plus this plus that. and it was all built and lovable and it's amazing. That's a harder pill to swallow.

57:02I'm so honest these days, dude. I'm too old and ugly to not be honest. We're in this business called Aloe in Germany. It's like a toast for Europe, but a little bit better specialized to the European market. They've got great numbers. Five acts from like 500k to two and a half million raising their series A, like eight or 10 on 50-ish memory. So I'm being correct. It was a bear. It was fucking horrible. And I was just like, oh my God, the triple, triple, double, double is so dead. like we're in lovable as well that obviously is a completely different fundraise journey is the triple triple double double dead i don't think no i i think i mean it might be harder for a certain set of people that are maniacally focused on like growth over everything else but like what really matters is growth and stickiness and the triple if you're triple triple double double with like terrible retention data that's going to be very hard but if you actually have you know again system of record or in that case it sounds like vertical operating system That should not be hard.

57:58I would do. I love those things, right? I would much rather have a slower growing, permanent system of record that will never get ripped out than the fastest growing thing on the planet that has 9 ,000 competitors that are all built and lovable by 17 year olds. I think there's no comparison. I mean, there are plenty of people that would be attracted to both would be my answer. I'm surprised that it was as challenging as you portray it. We got it done, but I was surprised too by how challenging it was. because you mentioned about selling companies that i spoke to david george before the show and he said one thing he's never talked about publicly i don't think that he's a phenomenal master on is advice on selling companies ask him about that i know it's a bit broad and random but i do want to touch on it because david said i had to what's your biggest advice on selling companies having seen so many and living it yourself yeah so i'd say a couple things um you know this is a very highly choreographed dance so you can't just say oh i should like so if you're raising money, you're like, oh, I should raise money.

58:52I have the best metrics ever. I'm going to talk to five firms and they're going to compete to the death over winning my deal. Like that was my experience with my series B at trial pace. So it's like, oh, it's so it's like, and kind of corp dev is like, I'm either raising money or selling my company. It's the same thing, right? No, it's completely different. If you're selling your company, you have to spend, you know, in many cases, years getting to know people at the potential acquirer. It's never the CEO, unless you're like, you know, what, you know, Jan Kuhn at WhatsApp. Like, let's just say that you have a company, you do something amazing.

59:24Somebody at Salesforce should buy it. You would rather go public, but you're like, ooh, you kind of see the writing on the wall. Like I'm going to hit a wall in a year and a half. What you should start doing then is I kind of call it a background process. Like if you know what Cron is in Unix terms, right? It's like you should have a little Cron job where it's like 5 % of your time as CEO should just be like getting to know people at the three or four companies that might buy you, you never go say like, please buy my company. That's DOA. You don't want to spend time with the corp dev people because most people are like, oh, corp dev buys companies.

59:56No, they don't. They execute transactions. If Salesforce buys your company, you're not working for the head of corp dev. You're working for like this SVP who needs, who has some hole on their personnel or needs like revenue growth in order to get their bonus. There are all sorts of internal mechanics that are going on there. So it's just this highly choreographed dance of just like making sure that you get to the right people in the company, hopefully doing it years in advance, not just going to them when you need to sell your company, because there are two independent variables here. It's like when your company is doing, like the best time to sell, by the way, is your company is doing great.

1:00:31This is like the rocket ship is like 100X year over year growth and they want to buy. But rarely does that intersect. A lot of times it's like, oh shoot, we started going like that. Now we want to sell, but nobody wants to buy this falling knife. So it's hard to perfectly choreograph this, but the main piece of advice, spend time with three or four companies, not under the guise, because honestly, when I did this at TrialPay, I wanted Visa to be a partner of mine. I wanted PayPal to be a partner of mine. It was not wasted time. It's like, hey, PayPal, you should put on your receipt page, you should put coupons that we do for this post-transactional product that we have.

1:01:08I was spending so much time because if I got that deal, right? I didn't give a shit if they bought us or not. If I got that deal, it's worth so much money to us. It's worth so much money to them. Unfortunately, or fortunately, depending on your point of view, they're like, oh, wow, this is so valuable for us. We have to buy that company. But it's like that movie, my favorite movie is Inception. How do you incept this idea? And again, in that movie, it happens overnight on like a flight, whatever, from Australia or something. It really needs to happen probably like a year and a half, two years in advance.

1:01:36A lot of entrepreneurs, they make the mistake if I have to go impress the corp dev person wrong. I have to only interact with the CEO. Sometimes, right? We hosted a dinner for the CEO of Visa, and I sat Zach at Plaid right next to Al Kelly at Visa. Okay, that worked until it didn't because of the Justice Department or something. But that can, if it's sufficiently strategic, these$5 billion acquisitions that don't happen very often. But a$500 million to a billion dollar acquisition, that can happen at not the CEO level. And you just have to spend the time and invest the time and resources. And by the way, this is the same advice that I give people on fundraising.

1:02:15It's like this background process, if you're the CEO of a company, your number one job is don't let the company run out of money, which either means you become profitable, which is great, or you raise more money, which is not as great, but hopefully leads to being profitable and or you sell your company. So you probably should spend 5 % to 10 % of your time meeting investors in a very casual way so that they know you and they know that you're a very strong entrepreneur and they can just invest on the spot. This is how I raised my Series D at Trial Pay. I had spent so much time with the Greylock guys, as an example.

1:02:47I pitched them after I met Reed 20 times. And it's like, he knew me. So he knew that he trusts, he's investing in me as opposed to a random dude that shows up, you know, oh, I should raise money because I'm running out and I'm growing. Let me go pitch five parts. Like they never would have done the deal otherwise. The background process is key. Before we do a quick fire round, I just have to ask, you mentioned one element being the labor displacement in the kind of one of the three kind of pinnings that you have. I completely agree. My friend Jason Lemkin said this year will be the year where we see the demonization of technology leaders and that we see labor displacement materially showing up in labor markets.

1:03:23Do you think that's true? and will we see labor displacement in labor markets materially show this year? I'm not sure about that. I think in certain areas, for sure. I mean, in general, I could even click up a notch, which is if you think about SaaS, broadly speaking, I think there are kind of three types of SaaS companies right now. There are the ones that are almost impervious to everything that's happening with AI. And if anything, it's a huge tailwind because they're going to start being, they have the distribution, they're going to start adding features. And that's things like Workday and NetSuite and these things where it's like, they have the hostages never going anywhere.

1:03:56On the other side, you have things like Zendesk, right? Where it's like, how many licenses per seat do you need of Zendesk? If now every customer support ticket can be answered automatically, you need zero license. Like their revenue could go down a hundred percent. These are very, very different. And then you have things in the middle, like Adobe, where it's like, Ooh, maybe I, now whenever I want a logo, I just go to chat GBT. I don't go to like the graphics team. So maybe you'll need fewer graphics designers. Maybe you'll need, you know, Zendesk, you'll need fewer customer support people. That probably is true, Right.

1:04:22Like there are going to be certain areas that will get hit harder than others. But what technology has always done is, you know, people shift into other jobs or maybe some people will be 100 times more efficient. I think you'll have some cases where labor like now that, you know, take the Eve example that I gave you. Wow. Now I can do 100 times as many cases or five times as many cases as I did before. I'm going to hire three more people or I can now be in business by myself because the software helps me do X, Y and Z. I think a lot of that stuff is going to start happening. I so respect you. But when you look at like a Dakagon in the customer support, it's clearing out.

1:05:00When you look at like a Harvey, another business that you're in. I don't disagree. I'm saying it's not like that's why I kind of gave the example of like the three types of SaaS, right? It's like you're going to have some totally impervious. And I'm talking about SaaS, not people. If you flip that to people, it's like, all right, the users of Zendesk are probably going to go away. Therefore, that labor market might get decimated. 100 % agreed. On the other hand, it's like if I'm United Airlines and now I don't need as many customer support people because now every answer kind of auto answers itself with AI, well, you know what?

1:05:30I should probably take care of my best travelers better and give them like a personal human that will be really nice to them and remember their birthday. And then they're going to buy more first class tickets for me. I might reallocate some of that labor to other things because I'm making more money and I no longer have this cost. I mean, Tony Hsieh, who sadly departed, who ran Zappos, he had this whole thing, which I think is actually correct, which is I'm going to turn, most people think of customer support as a cost center. They should think about it as a revenue center. You should love your customer and make them love you.

1:06:01And there's the story that he would tell around like, there's somebody who had something really bad happen and was on the phone with a customer support person. I think her husband died, something bad that had nothing to do with the shoe order. Zappos sends that woman flowers. Doing things like that, making your customer love you is something that you can now focus on once you take away the cost center element of something like this. Or if I'm a law firm, again, I agree with you. You probably don't need people doing this tedious work. And the number of people doing the tedious work will fall off a cliff.

1:06:29No disagreement. But I would not be surprised to see smart companies start reallocating them. I actually gave a talk to the exec team at JP Morgan about this. They're like, what part of our business is going to be least touched by AI? And I said, you know what? wealth management because what is wealth management? It's yeah. Yeah. It's like hopefully like getting good returns for the dollars that you have with us, but it's really like that relationship guy or gal. And like the woman that was running wealth, she was like, she like stood up in the audience. Like, yeah, yeah, yeah. But it's true. It's like, if you have a high EQ and you're good at playing golf with people, like you're going to start hiring more people like that because that's how you get more customers.

1:07:06And you, you kind of read, sometimes there will be an opportunity. The upscaling is not like, Hey, everybody should learn how to code. The upscaling might be like, stop doing tedious work, like answering, you know, like looking at knowledge base and then, you know, typing that back with lots of typos into like the email response in Zendesk, but actually start going into like, you know, send customer flowers, like do get to know that customer really well, go visit them at their, like whatever for the high value customers that you just couldn't do before. Alex, I could speak to you all day. I know you do actually have to work as well.

1:07:34I want to do a quick fire round with you. I'm just going to give you a couple of quick statements. What have you changed your mind on most in the last 12 months? I've probably changed my mind. Well, as I mentioned, you have to be able to change. It's more of companies where we didn't do the early round. And then it's like, I'd rather be rich than right. That's what we often talk about. It's like, all right, I want to be right. So we've probably done a couple of deals where it's like we passed round N minus one. We end up doing round N. But I don't think I've changed my mind on that much. Maybe I would say this idea of private equitizing venture capital.

1:08:07I wrote a piece. I was probably the first one to talk about this in 2023. around how what you're going to start doing is you could buy a company and then add AI to it. I think General Catalyst is now like a bunch of firms are now doing this. I was the first person to talk about this and I called it barbarians at the gate with an AI. I've probably become more bearish on that just because it feels like just a founder market mismatch. So that's probably the thing that I've changed my mind on the most. What product does Andreessen not have today that you would most like Andreessen to have? You mentioned GC having like the fund there that does that roll-up play.

1:08:41They've got the consumer performance marketing fund. I can't remember what that's called. But what product do you not have that you'd most like to have? Something around credit for a lot of our companies. So we have equity products, but we don't have debt products. And they have very different return profiles, obviously. But every one of our companies, they need... General Catalyst actually has one of these. They have a credit fund. So either for customer acquisition or if you're fintech and doing lending. So that would be interesting. But in general, we don't want to be at odds with our entrepreneurs.

1:09:09Like there's a very solid reason why we don't have that, which is like, oh, you didn't pay back the bill. I need to go foreclose. Like that's as a venture capital firm, like you can earn a thousand X on a winner. You don't really want to like kind of beat up the the companies that are struggling. And that's kind of what the credit instrument needs to do. But I think it's a good product. What piece of investment advice has most stuck with you? So like Josh Krishna once told me, if you're willing to take less, don't do the deal. If you're willing to go from 10 to 7 percent, like, yeah, sure. Yeah, why not?

1:09:38don't do the deal. What would yours be? I think it really is find high agency people that know the history of the space, that can materialize labor capital and customers that are the counter Bata Cristo and don't second guess anything. Give them money, be their best partner and go versus question the market, question the this. I think it really is. I've just become 100 % convinced this is entirely about people. 100%. Every round, by the way, it could be a D round, it could be an E round, it could be an A round, it could be a C round. Can you please tell Martin Casado? Because he tweeted and then took the piss out of me.

1:10:10Because there's this, you know, the graph where it's like it starts here and then goes up here and then goes down here. And it's like you start here. It's all about founder. And then you end here. It's all about founder. And here is when you think you're smart on no market and product. And he was like, you're an idiot. It's not that. It's all about founder. I mean, you have to, again, it converges on reality at some point in time. Like there's gonna be a public company. You can't like tell everybody in the order book of the IPO that's undersubscribed. I don't know if the founder is really good.

1:10:34Yes, of course, it has to converge on reality. But I think it is materialized labor capital customers. That's kind of it for me with the right motivation, which is the Count of Monte Cristo. Penultimate one, what's your biggest miss and how do you reflect on it? I missed Deal Seed Round, another one of yours. I reflect on that. So it probably was one of the first rounds of Plaid, which I subsequently corrected myself for by doing the Series C of Plaid. So I think we invested at$2.4 billion for the Series C. And I was debating a$5 million difference with Zach for the Series B. I wanted to do it at$130.

1:11:08He wanted$135. And I think Goldman was willing to pay$200, but he was willing to work with me because of my FinTech. And it's like, no, no, no,$5 million. That was just so stupid, right? And luckily, I was willing to admit that I was stupid and did the next round. But you can see the difference on... This is why it's so important to do two things, to correct yourself if you're wrong and not be proud about it. But also, if you really believe that this can be a huge company. And I was burdened by what has been, to quote the great Kamala Harris, of, oh, wow, Yodely, which had predated Plaid, that went public and had a terminal valuation of$600 million.

1:11:44So of course, this 130 versus 135 or whatever the hell we were talking about was very material, but it was so stupid. I love that. Unburdened by what has been memo that is there. Final one for you, dude. What does venture look like in five years time? When we look at the$15 billion that you raised today, I mean, it is obscene to even think that would happen five years ago when we go back. What does it look like five years out? It ends up eating even more of the world. This is kind of going back to Mark's essay around software eats the world that largely has happened. As I mentioned, like the five biggest companies on earth, they're technology companies, which was unthinkable in 2005.

1:12:23Technology companies were little service providers to big companies like banks and oil companies, right? I think this momentum of everything becomes a software company, it goes into this thesis too that I mentioned around software does the job of labor. You're going to have all of these areas where it's like, there's going to be like, vertical SaaS proved this or kind of V1. It's like, oh, how is Toast worth$20 billion? You're going to have a lot of things like this, where it's like brand new markets that have grown like crazy. AI is now allowing software and technology to do so many things that it didn't do before.

1:12:54And this is before even things like robotics. Like if robots actually work, wow, like now you've expanded the market like another 100x. I'm just so bullish on the ability of technology to create enduring value. So, you know, my guess and my hope is that it's going to go up and to the right. dude i told you this is like venture you have most shows which are like fine and then you have the once in a while which are truly special thank you for being my truly special show it really is rare to have one like this all right and hopefully i'll see you in london soon but before we leave you today over 80 percent of fortune 100 companies are running their businesses with air table air table combines ai with the scale of an award-winning infinitely flexible no-code system a platform where you can see all of your data in one place and use it to make really big picture decisions.

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