20VC Exclusive: Why Mega Platforms Will Win in VC | Why You Cannot Do VC If You Do Not Do Pre-Seed | Why Market Sizing is BS | Where Will Foundation Models Build/Buy Apps vs Where Will They Not with Bucky Moore

22:52Do you think I'm wrong? How do you feel? So I can tell you that I have been involved in multiple situations where companies look back on their fundraising approach and say, hey, we raised too much money at too high a price. And now the flexibility that's afforded to us, it's not just downside scenarios, but in some cases, like base scenarios is more limited than we'd like it to be. So like, I'm completely wide -eyed about the trade off there. And any time a founder I work with is thinking about going this path. I try to have that honest conversation with him and say, hey, if I were you, this is how I think about it.

23:21Of course, there's a way that you can raise more money at less delusion. And if that's all you're thinking about, then that path may seem like the right path. But on the other hand, there are so many scenarios in which preserving optionality makes a huge, huge difference. And therefore, keeping dollars in and the value of your 4 .9A or your post money of your last round as low as possible is very, very beneficial. So to me, it's like there are certain companies and certain types of founders that I think are better off and very comfortable going the kind of, how do I raise as much money as efficient, a delusion type of price as possible?

23:53And then there are other founders, but I think you really, really have to help them understand the downsides of that because they've never done this before. But ultimately it's the founders choice. And I think in terms of how like late stage investors may or may not enable that, I personally would say like I take a view on that as well. And like when I believe the company's up for it, when I believe the company has enough pull and enough potential to be a little bit more aggressive with fundraising. I'm okay leaning into it, but I don't feel that way about every company I work with and I'm honest with the founders about that.

24:17We have, you know, hundreds of thousands of founders at this and they'll be going, great, great, this is getting good, but which camper mine? Am I in the one that could raise more and should raise more? Or am I in the one that should stay leaner and be more milestone driven and capital efficient? How would you delineate between the founders that should and should not raise those slightly lot what jumbo seeds versus normal I think this actually kind of comes back to the market sizing question you asked Which is there are certain companies that have a very deterministic sense of their market opportunity Let's say they're going and replacing something that already exists You see this a lot in cyber security for example I think these kinds of companies they they understand the headroom and they understand if I get this much market share in this period of time like this is how big my business can be and therefore how valuable it can be with a modest degree of confidence.

25:04Where I get really conservative in terms of the advice that I give founders that I work with on fundraising is when companies are fleshing out a new market. Like we just don't know. It could be really large, it could be non -existent. I can tell you that the cases where I've been involved with companies is where they've done that wrong is when they just didn't understand their market yet, right? And I think if you have a poor understanding of your market and there's a non -zero chance that that market could be very constrained, optionality is without a doubt your friend and I'm very honest about that with the founders I work with.

25:29When you say optionality is your friend, I could take that into ways because I could say the market is unknown and the optionality is extended runway and so actually raising a large around will give you more at -bass to enable you to have more goes at an unknown market. But I think you meant optionality in a different way of having a lower price, no? I definitely did. Sure, in the case where you feel like you're drawing dead, the ability to find a good home for the company and do good by your investors and your employees is let's just say much easier to come by when you keep valuation down. And we all know how that works with corporate acquires.

26:03I was once on a corp dev team, so I know that world very well. But I think there is like another form of optionality where if you really think that the market opportunity or the range of outcomes that you're scaling into is so vast, keeping it lean also allows you to say, hey, if this doesn't work, do I really have to spend, you know, the next four or five years of my life working on this thing that I'm not sure of, right? Like that time is so precious for great founders. And I've been in situations with founders before where it feels like they are kind of drawing dead and the market's not resonating the way that they thought.

26:29Sometimes I think having that extra, you know, two or three years of runway can actually be really, really punitive given the opportunity cost associated with amazing founders time. So I really try on a personal level to be honest with them about look, like is this really what you want to be spending the next two or three years of your life doing? And I think if you go and raise too much money, sometimes you can kind of be stuck with that. And there are countless companies in the industry right now where you have really talented founders working on something that's kind of working, but maybe not working to the degree that they hope.

26:54In some sense, they're kind of stuck with it, right? And I really empathize with that. I'm protective of the founders that I work with because I care about them and I value their time because I think their time is value. How fast do you know when a company that you've invested in is not working and not what you thought it would be? Look, this is a hard one. I mean, there's examples like Figma where they toiled in obscurity for some time and became the amazing... You buy that because I'm here. Dylan always seemed to be brilliant and across the board, when he speaks John Lilly who led the A. Gray log, he was clearly brilliant.

27:26The company was not heading, but he was brilliant. But I think you have a lot of very special founders whose companies don't work number one. And so you can say that about a number of founders and a number of companies. But I think you're starting to see more and more evidence of these companies that just took longer than people, than people thought, right? I mean, there are just so many now. It's not just Figma that I think you kind of have to stay open -minded to that. And there's another dynamic at play here, which is that I think that so much of the low -hanging fruit has been picked off the tree in terms of software businesses that you can build, that you're starting to see the most interesting companies be those where there's just something deeply technical, like a problem they have to go and solve.

28:01It's never been solved before. And I think in doing so, that can take in some cases multiple years to get it, right? And so a recent example of this is Clay, right? Clay is this company that's growing very, very fast on the sales tech side. And if I'm not mistaken, it was like five or six years of very little to no growth before it took off. And so I think you have to be open mind to those outcomes. And I personally try to lean into those outcomes because I think sometimes if something takes many years to get right, that can also be something that's very defensible, hard to replicate. And so I think the game has changed a little bit on this front.

28:31And I think that these more deeply technical software products just take more time. And you do have to be more open -minded to these timelines being a little bit different than like the canonical that either works in the first 12 months or not. I'm a little bit worried if I'm honest that the game has changed so much in terms of revenue trajectory and scaling. When you look at your macaws or your lovable or your bolts or your you name it, their revenue scaling is so unparalleled. And then you look at a generation of now series A companies or series B companies that are doubling, maybe two and a half xing and they go from 7 to 14 or 14 to 28.

29:07When I send that to you, Bucky, for a series B or C, I think you're going to stack around it against the AI companies and go, this just isn't that interesting. Am I right to be concerned about that? Are we in a fundamentally different world of revenue trajectory scaling? Look, so I think core to any VC's job is the ability to prioritize and ruthlessly reprioritize. And part of that is just like, what are the best ideas that I have in front of me at any good point in time? I'm going to spend time on those. And right now to your point, the bar is going up for what best idea looks like when it comes to growth rates and momentum.

29:39But I really think you're right to say that what great looks like has really changed. I think the book is still being written on some of those companies that you mentioned and their peers in terms of just how durable that revenue is. Again, I'm not going to repeat myself and go down that rabbit hole. But I think what you're seeing is that the pent up demand for intelligence in all of these different areas of work is just so unbelievably high that the growth rates in the market pull around these companies are like nothing we've ever seen. And I can tell you now as an investor, when I'm out there looking for new ideas, I am often looking for the signals that I saw in companies like Glean or companies like Windsorff that have just had this incredible market pull and reception.

30:14And I can tell you that it's almost made me at least, I feel like I've become a more discerning investor in the sense that there are signals that I saw for those companies that were sort of foreshadowed of what was to come that I can now look for in other companies. What are those signals? That's fascinating. You have of such a unique perspective from clean and wind stuff in particular, what are their signals? So first I have to give Kudos to my former partners, Mamoon and Lee Marie for being the leads and involved in those two companies. But what I would say is those two companies in particular to me found this zikegeist at the senior most decision maker level, right?

30:45If you go and talk to a CIO or a CTO of a large enterprise today, they're furiously seeking out ways to apply out of their business. And the reason for that is because they're CEO and their board told them, you're going to get fired because the entire fate of our company depends on leaning into AI if you don't help us do this. So there is this veracity and this appetite to bring new solutions that sort of comprise, like what it means to bring AI into business into these companies, like I've never seen before. And I think Glean found that very early on and the rest is history. It's just been an incredible trajectory and I think scaling into a true household name that embodies what like the AI app business of tomorrow looks like.

31:20I think similarly with Windsorff, They did a really, really good job of going to these large enterprise technology leaders and helping them understand like where the future was going and the role that they could play in shepherding them that way. And I think you're going to see more and more of that where once there's like a magic moment that a CIO sees, there's a bit of this mimesis that picks up where every CIO is going to hear about the fact that they adopt this technology successfully. And then they're going to want to go and do it themselves. And so I personally am looking for companies like that that I think really can can kind of be something that the CIO walks into the boardroom and says, like, this is that thing that you asked me to do.

31:53I've adopted it. It's working. Employees are happy. We're getting all these productivity gains. And I think we're just scratching at the surface of where that's going to show up. Like you're going to see it in finance. You're certainly going to see more of it in software engineering. You're going to see it in cybersecurity. And again, I think like Gleene and Windsor are just good cursory examples of like that trend that's going to continue playing out and why I'm so bullish on these enterprise apps. It's so funny. You said about the signals that we said about the revenue each factory is being false through a more clear than they've ever been, which was a leading question for me because I always think about sourcing, selecting, securing, and servicing the four pillars of venture.

32:29And you said before about believing picking is more important than winning as a lead investor, which goes against what we just said, which is if the signals are clearer than ever, it takes less to pick the winner and it's more emphasis on winning. So I'm fascinated, why do you think picking is more important than winning is a lead investor at a multi stage from. Yeah, so let's unpack this by first talking about what it takes to win in one of these really competitive opportunities. I feel like there's this sort of meme going around that it's all about famous VC picking you up in as helicopter and flying you to his house on an island or the court side seats at the Warriors or Nick's game or the Michelin star meal with a famous person joining.

33:11Look, these parlor tricks exist, every firm engages in them depending on founders like like they either respond positively to it or not. But ultimately, what I've found in practice is that none of that stuff really matters. What matters is did you put the work in to develop a deep connection and a deep set of insights with that founder, their vision and the company that they're trying to build? And that just takes time. And I think it takes time in the sense that every process I've been in that has been highly competitive, the winner, if it wasn't me, was the person that had been doing that work for the better course of a year.

33:41And I'll give you a quote, a founder told me once when an opportunity didn't go my way. He said the person that I went with they just had insights about the business that not even my existing investors had and the only way to develop those insights is From spending time thinking about the business at the level the founders do more than just about anyone but the founders And so how this comes back to picking is you have to pick which companies and which people to do that with and if you don't and you rock up to one of these processes That is very competitive There's always going to be someone who is at a great firm with a great brand who has done that work and that person will win I see it every day.

34:12So is the future of venture domain specialization? So I think this is like a very good segue into like theoretically wide domain expertise and specializing in domains matters, which is like if the game really becomes how do I pick which founders to spend time with and how would I meet a new company? Can I readjust my prioritization of spending time developing insights and rapport with that founder and that company? Domain specialization really, really helps there. Being domain focused really, really helps with that picking aspect of picking who to spend time with, who to position yourself with for when they when they do decide to raise.

34:43And then ultimately when they do decide to raise, being able to like reinforce that like, hey, did I pick the right person to spend time with or not? Or am I just running away with this because I've spent so much time on it, which is a whole nother bias you have to manage. It's so funny. I have so many LPs who ask me this question. And I actually disagree with you on the picking element that I don't think domain specialization particularly helps you pick. I think generational defining founders are quite obvious respectfully. That said, I think to your point, they choose you because you're the smartest.

35:11So it doesn't help you pick, it helps you win. Because they go bucky to your point, made me think about it in a different way, and Harry was super nice, but he didn't make me smarter. And he didn't know the market like he bucketed. And so totally to your point, it helps you win. Do you even need to pick my friend? You're now at light speed. You couldn't just wait. I mean, part of me as a friend would say to you, just wait until the sea, pay up like Vince did a thrive for the 30 billion round and ride it, baby. Look, so that strategy can definitely work, but I would argue, and this is maybe a world smallest file in, that picking is actually much, much harder in these larger firms that have notoriety in the market.

35:52And the reason for that is because the opportunity set that they have access to and the number of founders that are willing to lean in and work with them is just higher. And so you just have more inventory to choose from. And I think because you have a little bit of magnetism to you as a platform that a lesser known firm doesn't, you just end up having a lot more at the top of funnel to sift through. And I think if you're not very diligent about how you prioritize and manage that, picking actually can be like the failure mode of a lot of GPs at these funds. What do you mean? They pick duds and that becomes apparent quickly.

36:22I think ultimately it's really hard when there's so many founders that are coming in your door, which many firms, like light speed or clatter perkins, have the luxury of experiencing. It's very, very hard to figure out what is the 9 out of 10, 1 and the 10 out of 10, 1. And I think you can talk about that in the context of who the great founders are. You can talk about that in the context of momentum. But my point is it's a very humbling job for that reason. And I think to say that no one has to pick that's at an existing firm because the great companies are the great companies that just hasn't been my experience.

36:50On the picking side, when you've picked and you've picked wrong, what did you not see that you wish you had seen. I would say the single biggest thing that I've changed my mind on as an investor in the 11 or so years that I've been doing this comes down to what I did before investing, which as I said, I was a member of Cisco's corporate development team. At a place like Cisco when you're a member of a corporate development team, your job is to go and look at markets and technology and figure out what are the lucrative markets, what are the dynamic markets, and then what is the right technology that the company should have to go and prosecute that market.

37:21it. Notice I did not mention founder quality or quality of execution in that entire statement. So I think when you come from a role like that and you move into venture, it's very tempting to kind of like apply that same lens to looking for great companies. And again, I can't say anything about this that hasn't already been said, but like it's very, very obvious to anyone who's been doing this for a long time. Like you just get this visceral feel for it's all about the founders. And so I would say that like the thing that I've really changed my mind on is I used to kind of go around developing theses and trying to figure out like where the world was going on the level of markets and technology.

37:52And now what I've realized is it's not to say that work doesn't matter. It's actually very important and very useful. But really all it does is it gives you a flashlight to say, okay, these are the areas where I want to go figure out if there's amazing founders or not. And I think the hardest thing to do when you're a thesis driven investor is to go do that work and have the humility and the restraint to conclude that there aren't great founders in that space. And that's okay because I'm going to go move on to the next one because what matters is I find those people. So I would say that's the thing that I've changed my mind on.

38:18and then to answer your question, the bad investments that I've made, they've been because I've down waited the execution capacity of the team and the quality of the team that the founders can build around them at the expense of my intrigue for the product and the technology. Do you believe we have too much money chasing too few amazing entrepreneurs? Honestly, Harry, I think I'm just too much of an optimist of heart to say that there's too much capital flowing in. I think that... Seriously. I think it's easy to say that on the bad days, but ultimately there is just so much amazing work to go and do and really we're bound I think more by I think we're bound really by like can we help enough of these founders that come from unlikely backgrounds go and pursue their visions And so I personally have a view that I think the industry is in a healthy place and it's just hard for me to say There's too much capital chasing too few opportunities I feel like I'm seeing the future every day can't at least I just can't spend time on every single one of these To agree with the challenge that I'm facing Bucky, so I'm getting all over the shop today but it's very hot and long I told you and I'm so enjoying this.

39:13Before there were like two or three companies that were competitors when you were looking at a market and you'd be going, ah, I need to analyze that, I need to understand, I need to meet them, whatever it is. Now, there's 15. Often more, it feels like the competitive set for every company has exploded exponentially. Do you agree? And how do you think about that when investing in one determining ultimate value creation? So I would certainly agree with this. I think it's the single biggest challenge of of making C in series and investments right now. Like let's take these AI app categories that we're meeting every day, for example.

39:45It used to be the case, as you said, there might be like one or two players that you'd have to pick between. And now it's probably more like four to six. And so I can tell you like a sort of a recent example in an anonymized way, like one of the most recent investments I made was in an AI app company. And I can tell you that we had been spending time with this team really since they'd raised a very small seed ground. And we had been really excited about the category building a lot of altitude on it, but everyone's product was under development. So it was really hard for us to determine who had the best product.

40:12So, okay, that's fine. Then figure out who the best founder is. There was a set of founders that had deep domain expertise in this area, but very light on the AI side of things. Then there was a set of founders that had very deep AI expertise and very light on the domain expertise. I can tell you that we waited to pick the company that we pursued, and we succeeded at pursuing an investment in the one that we wanted. But I can tell you, the price was a lot higher than it would have been had we leaned in earlier. right? And I think what that came down to is we wanted to see whose products were good, whose weren't.

40:41And I can tell you with hindsight, there's this instinct that I've kind of honed in on, especially with these AI app investments, which is you think it's the domain expertise that matters. It is without a doubt the AI expertise that is more scarce and therefore matters more. And so I can tell you right now that there are these companies out there that have deep domain experts building application layer AI companies, but they're really struggling to recruit the AI engineering talent that you need. And given how fast this technology is moving, like you have to have people in the company that have these innate instincts for how to wield it and how to understand where it's going and therefore build for that future versus build for today.

41:13And I think if you don't have people on your team that are like truly AI native and truly AI engineers, you're just not going to nail that the way the team that does will. And like, you know, a good example of this that's public would be Harvey, right? Like Harvey actually has the perfect union of like a former lawyer and someone who has deep, deep AI engineering expertise in the form of their CTO. And they've been able to recruit an incredible engineering team of AI practitioners because that leader is someone who has that expertise. The other form factor of this that I don't think works as well is when you have CTOs that are, say, domain experts, like they built something in the category they're working in, but they don't have that AI engineering expertise.

41:46They're just not able to get the talent in the building that I think you need to be a market leader in one of these big categories. It's so interesting you said that we have to pay up a lot more than we would have done if we came in early. Lucky, I don't think you can do venture unless you start from the beginning. And what I mean by that is, the idea that you could do be and be on and do great, I think is so much harder almost impossible today. And I think you see that with all of the mega platforms also doing pre -seed. And who did who won from Windsorff? Neil Mater, Green Oaks, let the seed.

42:19Neil is a prolific seed investor and brilliant at it, by the way. DST, a prolific seed investors, the huge growth firm of old. I don't think you can win venture unless you're doing preseed. Discuss. Do you agree? Yeah, so this kind of comes back to my view that I shared with you about how if you're going to build one of these mega platforms and sustain a compelling position in the market with one, you really do have to stay dedicated to like the craft of like helping people build things from scratch. And to do that, you have to be in the preseed and see business. And I think the moment you stop doing that is the moment you lose the instincts for just like how fast these companies can change and how quickly the story can improve Such that you kind of sit back and are looking for perfection instead of really seeing what these companies can be and like I actually think that these AI app companies we keep talking about is a great example of like if you looked at Harvey at the series A and you and you saw its product you probably weren't that impressed It was just a very early product the scaffolding of it was clear What was possible with better models was clear?

43:17but it was still a very early and raw product. And I think one of the mistakes that you could say a lot of investors have made in this wave of AI investing as it relates to these app companies is they've failed to imagine what they can be as the models get better, as their understanding of the pain point gets better, as they spend more time with customers. And so I think where this comes back to this question is if you're not spending time with early stage companies and you have that sense of just how fast things can change when companies are moving fast, you start to lose sight of that and you make mistakes where you start to take a fixed view of these companies rather than a more fluid and dynamic one.

43:46And so I agree strongly with your statement, and I think it's especially important for these really, really large funds to be playing there actively. But I would add slash amend yours and say, for the reason of access, sounded very nice, empathy and wonderful. I completely agree. We're also empathetic, yes, completely, but actually it's a game of access. And I speak to so many of my friends here at just series B and beyond firms. And they're like, Harry, can you send this 50 customer a cool log to one of your companies that I've done I want the first meeting. And you're like, you did 50 customer calls for a meeting or like you did this 28 page market analysis for a first meeting.

44:28The cost of first meeting entry has gone through the roof. And so you cannot get that first meeting unless you've been at the pre seat or the seat. Look, I would say it's possible if you make a very, very small investment in a company at the very early stages to use that as a wedge to build a compelling relationship with an entrepreneur. But it is by no means a given. I can tell you countless examples of where let's just say later stage firms or even just firms that weren't necessarily the lead investor in the early days did something, let's just call it low conviction, thinking they were going to get access, where it just didn't serve them.

45:01So I think it really comes down to this kind of this point about picking once again, which is like, hey, if you're going to start doing that as a later stage firm, you've got to be committed to putting the legwork in to actually use that as a wedge to develop that relationship that it does give you the access because I think the check itself does not. And so where this comes back to picking once again is like, let's say you do that a hundred times, which of those hundred are you going to put that work in with, right? And so you have to have taste, judgment and sort of an instinct for as these companies are developing, like which of those do I need to really spend time with?

45:29And I think that goes for any investor at any stage, like which is again, why I believe picking is more important than you do. If you go really early, you bring in a question of multi stage investing in terms of like signaling and the risk that comes with signaling. People go back and forth on it. I do see it impacting companies when you have your exiles and your indices. Maybe this is more of a European thing where the markets are kind of more consolidated, but your exiles are in indices, lead a precede or seed and don't do an A, it kills companies. Do you agree or not? So what I'd say is that when a larger, let's call it multi -stage firm, does lead a seed round and decides not to lead the next round, That is certainly something that like the next round of investors are going to want to understand better and think about and and will sort of take as a signal Like there's no doubt about it.

46:14I'm not going to deny that I will also say that any seed investor competing with a multi -stage firm will go very very out of their way to instill this Wild fear in the founders mind about like the risk of that And I can tell you that what I've seen in practice is that I don't think is as much of a risk and perhaps I'm biased I mean, I have worked at a smaller firm before and kind of been on that side of the fence But what I would say is that like when a firm doesn't want to go and do that series a It's really just the fact that the company hasn't necessarily achieved the milestones that they agreed upon with the entrepreneur in the early days for the company to be series a ready and so sometimes that's a downside scenario where let's just say like things didn't go as well as you'd hope maybe they took longer and you just have to go and raise because you have a runway issue.

46:51But usually what I find is that it's like it's just like the quality of the company at that stage and how they've executed against the milestones that they set forth that determines like the series a success rather than say like the whimsical taste of the multi stage firm that led to see. So what I found is like there are absolutely cases where you know multi stage firm will say hey like we feel good about our ownership Like we feel good about the amount of money we have in the company like we want to help you raise a series a from someone else and we'll do Pro Rada and if that company is a good company and it's hit its milestones that that round will get done and it does all the time and you know often It's another multi stage firm that comes in and does that but I can tell you that like there is this meme sort of where a company doesn't Perform to expectations and then the fact that the series a comes together seems to kind of be blamed on the fact that the multi stage firm didn't want to follow on And I just don't believe that there is a hard answer, which is if you back yourself and you believe that you're gonna crush it If you crush it and you hit your numbers a great firm will follow on if they don't you'll get someone else The hard part is the middle ground, which is like when you kind of do okay And you don't get the support or when you're orphaned.

47:52I've seen that happen a lot Especially with the respectfully like you know changes in ventures that we've seen in the last year two years a lot of companies have been orphaned and and it does make it harder when you don't have an internal champion. I think that's fair. When we think about the next generation of ventral and next decade of venture, do we play collaboratively together in it? And I mean, this nicely, not conflictingly, but I'm more of a seed -only manager. I have a smaller funds, obviously. Do boutique seed specialists and these mega -platforms play collaboratively? What do the mega -platforms bluntly just have a different cost of capital and eat seed?

48:28I think the answer is somewhere in the middle, which is that of course multi -stage firms by virtue of being multi -stage They want to be first right that's where the generational returns get made and we've seen that time and time again If you look at some of the best venture investments in history They've been these seed investments in these companies that have gone on to grow really really large And they've come from an investor who's continued to concentrate more and more capital in that company over time So that they have a large amount of ownership at the end of the day That is where I think the competition lies and that's obvious right?

48:54But I also think that like the great seed firms like one they they're heavily reliant on collaboration with the multi -stage firms to be kind of sources of capital for downstream rounds. And conversely, I think that every good multi -stage firm is humble about the fact that there will be companies that were either non -obvious to them or not visible to them that the seed firms will find and will be good partners to. And so I think for a multi -stage firm to alienate those seed funds and say, hey, we just don't want to work together at all, we just be crazy. And I can tell you that none of the multi -stage firms that I know well do anything but seek to be very collaborative and follow what the seed firms are doing very closely for that reason.

49:30What if you changed your mind almost in the last 12 months? For me, 12 months ago, I was quite dubious on the sea of open AI's long -term sustainability and enterprise value. Now, I think it's unwavering that there'll be a $2 trillion company unwavering. So I think for me, the thing I've changed my mind on the most in the last 12 months, specific to AI is how to think about like the net revenue mix of companies like OpenA and Thropic. And so, look, I remember when investors were considering participating in a $30 billion valuation round for OpenAI, the question in the room was like, should we even value this Chatchee PT thing as anything, right?

50:04Like, is it worth anything? Or is it just a proof of concept to show what the model is capable of? And conversely, I think people were looking at these API businesses where they make the model available to developers and saying, hey, this is going to be like Stripe or Twilio or the next great API German business. And I think what's happened in practice, I didn't anticipate, which is that it turns out that these API German businesses are really, really tricky. One, you have this kind of 100x year -over -year decrease in prices per token. So you have like downward pricing pressure that is inevitable driven by the competition.

50:32Two, is you have this like almost zero switching cost where let's say, you know, Claude releases a new version of its model and I think it's better and performs better against my e -vals and I'm currently using OpenAI. It's not terribly hard in most application areas to switch to that model. So you have downward pricing pressure, you have zero switching costs, and you have a lot of competition, and then you have this ever -increasing sense of cat -backs to drive that innovation forward, that I think just like kind of as a death by a thousand cuts, a kind of impact on the quality of those API revenue businesses.

51:02And so I think what you're going to see is that those businesses, where a company has the flagship model that everybody wants for a given use case, like you could say, Anthropics has been very dominant, For example, in Cogent, those businesses will look very healthy. But the moment another player releases a better model in that use case, like the revenue is going to yo -yo. And so what I've really come around to is that it's these products that are going to be built on top of these models, even inside of the model labs, not just by third parties, that are going to be much, much more compelling businesses long term than say the model APIs themselves.

51:32Does that enthrilk paint not have to acquire that and move into the application? It seems very likely to me that in some form or another, every single one of these frontier model labs will begin building both business and consumer facing products. And I think what you're seeing with OpenAI is certainly foreshadowing of that. You could argue X is trying to build its own super app around its models as of course. And it's hard for me to see how each one of these players doesn't kind of end up in that place. Now, there is a unique play here, which is SSI, Ilya Sitzkavor and Diego Gross's company, which said we're not going to do that.

52:03And you could say, hey, that's a really contrarian move. But what it allows them to do is keep a very lean team and go straight shot towards AGI as they famously talked about. And so what does it allow you that the other strategy does not focus? But does that increase your velocity to AGI? The argument that I would make would be today, there are a lot of decisions that trickle into the R &D and research organizations of, say, an open AI, that are in service of helping them build better products in the short term. Right? Like the model needs to behave a certain way. So Chatchy PT can be better or deep research can be better or whatever it may be There are for sure short term optimizations being made there and I've seen it with my own eyes when I talk to people that work at those companies The argument for not getting caught up in that is you can just be entirely long term You can make bolder research bets You can you can allocate resources differently.

52:50You can maintain a smaller team that's more focused as you said So I think that's really the argument is like having to generate revenue and build a business that you can take public someday is is going to come with short -term thinking. And if you sort of say, hey, let's assume we have access to capital that we need, and let's say we can just kind of sweep all that aside. What does that buy you? I think it buys you less distraction and more ambition. Did you do SSI? I suspect SSI will announce, you know, they're fundraising and their investors and talk more widely about that. My question was more like, do you just have to be in every landlock company?

53:22When you have as much money as you do it's like, fuck it, every each is the sudden size, we have to be in it. My sense is without going overboard on conflicts of interest, being in as many of these companies as possible, given what I know today is very rational. But I also think it's rational and becoming to say, hey, we're going to believe in one of them. We're just going to concentrate all of our resources in that. I think there's no middle ground. You either have to be in all of them or you have to pick one of them. That's my view. Can I ask, what do most people believe about AI that you think is wrong?

53:48It seems like most people believe that this path to AGI is just this ever increasing upward slope. Again, I don't have strong intuitions on whether that's true or not, but my instinct is we should be much, much more open -minded to the possibility that we could arrive at some form of plateau and still have an incredible outcome for society and an incredible outcome for entrepreneurs and venture investors. And so in a sense, you could say, hey, AGI is already here in certain pockets. Like, there are clearly things that these products can do that an army of the smartest humans in the world would never ever be able to try.

54:19Right? Now that we have test time compute, the same thing that brought us AlphaGo is sort of bringing and equivalent of that in all these different domains where unlike the human brain, these AI's can just try hundreds, thousands of different paths to get to the best possible answer, whereas we kind of have to think about the best one. So in a sense, like humans are still predicting the next token, whereas I think that these models with test time computing for structure are able to figure out, you know, how can I try this a thousand times and then decide what the best next token is, right? And so I think as a result, like to me, AGI feels like it's here in a lot of ways.

54:47And even if we were to kind of say, hey, the capabilities that we have today are it, and it's not going to get me better, we are so early in bringing these capabilities to bear and society in an industry that I personally think it's an incredible wave of technology even if the progress holds today. And I think there's a lot of people kind of holding out for this this moment of singularity and I'm I'm not sure it's as black and white in that as I'm not sure it's as critical as that for the industry to play out favorably for all these different stakeholders. My question too is what do you think the likelihood is plateauing, likely so in self -driving for many is or a continuing progression efficiency that we have been seeing I've lost you.

55:23It looked as though pre -training was no longer as lucrative a scaling dimension as it was originally positioned as. I think there were a lot of people that were rationally saying, hey, progress is going to slow down and things might be the way they are now, right? Then this test time compute paradigm came along. And now we have things like post -training and reinforcement learning that are presenting additional scaling dimensions that I think like it's just really hard to say and it's really hard to say because there are these amazingly talented people inside of all these research labs that are every day trying new things and trying to figure out what that next scaling dimension might be.

55:55So I think the right way to frame the answer is like when do we run out of new scaling dimensions and right now that appears to be very unlikely at least in the near term, but at some point it could happen. But I also have just learned to never bet against human ingenuity and given the best and the brightest are now so heavily concentrated inside of these big labs trying new things every day I personally believe like there will always be new scaling dimensions and whether the next one is as steep in terms of progress as the last is hard to say But it's really hard for me to imagine a world in which we just run out of ideas Final one before we do a quick fire one thing I'm just fascinated by is that you know everyone always says The end prize adoption always goes basically much lower than you think But when you look at actually adoption cycles today, it would seem that's not the case It would seem enterprises are adopting AI fast and they would adopt any other prior technology cycle to what extent as the conventional wisdom Hold that enterprises adopt slowly versus this is fundamentally different So I think this is fundamentally different if you compare it to cloud for example adoption was fairly slow in the beginning right kind of gradually then suddenly here I think the difference is that there's this broad -based consensus that failure to embrace AI to the fullest extent as a company is just like existential to its existence.

57:03And I think if you start to kind of ask yourself, like, what does it mean for the entire industry to conclude that like, if I don't adopt this technology, I'm going to be left behind. What you start to see is this like voracious appetite to go and adopt it at all costs and every no -concranie of the business. And I think this honestly explains why you're seeing these companies grow faster than we've ever imagined. I think it explains why investors are so bullish on these AppLayer companies because they're going and talking to the CIOs and hearing things they've never heard before. Like, I have to adopt this everywhere.

57:29I'm gonna get fired type of urgency. So you're just seeing unprecedented appetite and urgency because of this view that if I don't adopt this technology, my company will perish. And again, I think that's just yet another reason why we're in this really, really unique point in time for entrepreneurs and investors. Dude, listen, I've so enjoyed this. I wanna do a quick fire. So I say a short statement. You give me your immediate thoughts. This is that sound okay. Let's try it. You spent years with Mamoon. We both love him. What was your biggest takeaway from investing? I think Bermune is known as someone who is very metrics driven, and I think that could not be more false.

58:01He has this incredible taste in people. Stat crank, okay? Market, traction, team, team traction market. Why? I've already told you why I think people are more important than everything. Some of the biggest mistakes I've made as an investor is when I've ignored traction because I've had reservations about the market. Traction is so hard to manufacture, and I think that traction signifies a quality of founder that is good enough to figure out how to overcome any market size limitations that exist. And so I've learned to overweight that. To what extent is liquidity a short -term temporary constraint problem versus a permanent structural challenge?

58:36I do not think it's a permanent structural challenge because I believe that in the same way that great entrepreneurs flock towards white space, there will be solutions and new products that get devised by investment managers to solve for these liquidity challenges that we're with today. What do you believe about the future of venture that you think most people would find shocking? I see a world in which both ends of the barbell really, really continue to rise, meaning small, dedicated, specialist firms on one end and large platforms on the other end, and I think that uncanny value in between is going to be an increasingly challenging place to be over time if this notion of trillion dollar companies continues to play out the way it seems to be today.

59:16And that uncanny valley is like you're 500 million to two billion dollar funds. I think that's fair to say. Who is an unsung hero in venture do you think? You've seen many great operators in venture. You've worked with them. Who do you think is an unsung hero? Look, I think someone who's been very generous to me over the years is the person that actually hired me in venture. It's this guy named Mike Dobber who's a partner in Amplify Partners, which is a wonderful new firm that's really, really gotten off to an incredible start again with focus on both early stage and these more deeply technical software businesses.

59:46They've since branched out quite a bit, but what I can tell you about Mike is he is just an incredible mentor and he has imparted so much belief and wisdom on so many young people in this industry and I think helped a lot of people gain the confidence and sort of the clarity of purpose around what it means to do this job well and why they're capable of doing it. I'll be forever grateful for Mike for just always believing in me. Every time I've made a change in my career, every time I've had a tough decision to make I've called Mike and he's really, really been someone who's feedback I value immensely.

1:00:16How would you most love to hear your entrepreneurs discuss you and working with you? So I think the first thing I'd say is we both love having each other in our lives, right? I think that's the core thing that I think is just so important for that founder investor relationship to have. And obviously there's like some derivatives of that that create that dynamic, right? One of those is like does this does this investor have a deep curiosity in me? Do they have deep and unwavering conviction in my vision? And do they have the instincts as to when to be helpful and how to be helpful? And most importantly, when not to be helpful and when to get out of the way?

1:00:48Totally agree with you there. I love that also loving being in each other's lives. I say this to a lot of fans I work with. This is hard. If we don't enjoy hanging out and like, you don't like me and I don't like you, it's just not fun. It's funny how few people say that. Final one for you. When you look forward 10 years, where do you want you and light speed to be? I'd love to see Lightspeed continue to assert itself as a truly global multi -stage, generous platform. I would love to be a part of shaping that legacy in the sense that I have driven and helped driven excellence in the early stage and are present -vesting at the firm does.

1:01:25I didn't know how long I've been doing it for as quite a few years at this point. I feel like this was very much in the works. I so appreciate you putting up with my wayward questions, my pushbacks, and you've been fantastic. Thanks Harry, this was a lot of fun and hope to do it again soon. I so enjoyed doing that show with Bucky. I'd known Bucky for years, so to make that one happen with the move was really special for me. If you wanna watch the episode you can find it on YouTube by searching for 20VC, that's 2 -0VC. But before we leave you today, I love seeing the team come together to make this show happen.

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