Why SpaceX Buying Cursor Changes Everything

22:53I think what you'll see over time is people are going to make these headless. So if you're a legal AI company, okay, you've got all of your proprietary data, your skills, all the fine tuning you've done. And then you're going to be like, hmm, Anthropic has their own legal model. Am I training it for it to do, for it to cursor me? I don't want to get cursered. So what they'll do is eventually they'll just swap out the frontier model. Because right now, people used to say six months ahead for the frontier models. I kind of feel like Anthropic's more like nine to 12 months ahead. I think that they recently - Yeah, I think it was like reasonable to say six.

23:31But then what you have to look at is the cost at which those tokens are combined with the getting cursored. And you're going to say, hmm, maybe we will keep our harness and our data and then we'll stand up. Kimmy will stand up DeepSeek and we'll send our jobs there and we'll compare it and A-B test it versus the frontier models. And at some point, this legal company will say, hey, drafting these 17 documents, the fidelity of these open source models is as good or better when fine-tuned. Therefore, those jobs go here. And then they might say, oh, this is a complex negotiation of an M &A transaction and the frontier models do it better.

24:13So my prediction is the jobs sent to frontier models are going to keep going down as they get better, as the open source models get better. And that's where token costs really matters. If you're running your own Kimi, if you're running your own DeepSeek, either on your computers or just standing it up, you know, at a cloud provider, your cost is going to essentially move to free. Just take the cost of your hardware and divide it over whatever the lifespan is, five years for that device, four years for that device. And that's going to become too appealing. Now, it's not easy to use. so right now ease of use matters it's really easy to use cloud code it's really easy to use cloud co-work but eventually people will want a headless product perplexity is a headless product so i started giving jobs you know in my vibe coding and my agent jobs to both perplexity computer and cloud co-work perplexity computer is headless i can pick kimmy i can pick deep seek i can just pick the model.

25:16And what I'm finding is I'm not noticing the difference. So I may be the tip of the spear here, but it's pretty clear this is going to happen in the next year or two. So it's my best advice to founders is to start learning how to make your product headless and how to, what do they call those routers? Model routers, model switchers? You need a switcher. It's like a switch. That's a good word for it. Like the hardware switches we used to have, back in the day for networking, you need a switch. And it just should switch. And then that means you need some kind of maestro, I don't know, like a conductor.

25:54Maybe the word is maestro or conductor. You need a maestro layer that just knows, hey, I sent this job previously to these four different models, and here's the difference. And it's called model counsel on perplexity. Model counsel on perplexity will fire off three LLMs at once, and then it asks, what's the difference between each one and where is the consensus and where do they diverge in their answers? And it takes a little while, but model counsel, super powerful. So this is the model counsel page from Perplexity. It came out in February. Even more recently, Jason, we've seen something called, sorry, this tab, model fusion from OpenRouter.

26:27And this is kind of a similar idea. It lets you kind of run and do taste tests and kind of pick and choose. OpenRouter is also good at kind of helping you use a cheaper model. They have a built-in auto routing function that I've used before. Pretty good. A lot of companies do that, but also a lot of companies are helping startups fine-tune and post-train their own models, companies like Fireworks.ai and a number of other ones, Together AI, Thinking Machines Lab, Mistral, et cetera. So it does seem to be that it's getting easier to do this. So do you think startups should roll out Kimmy or DeepSick or whatever, or go through the work of actually doing the hard labor to fine-tune these models?

27:00No, no, just use the open source models. Out of the box. Out of the box. Easy, easy, lemon, squeezy. The meta principle Jason's talking about is the same as insourcing versus outsourcing. If you think about in the United States, we used to build companies and we'd hire people and hire people and hire people. And they're like, wait, we can outsource and we can actually hire people elsewhere for a tenth of the cost with similar quality. So let's just do that instead. It's the same principle, which is that if you're going to have one of the foundational models or an open source model, if the open source model is 100 times cheaper and equally good, you'll use it for a major portion of your budget.

27:34Well, that's what I think. But I've been surprised at how much demand there is for the absolute cutting edge. I mean, people are paying, what, 10x for Opus 4? We're in the first innings, right? Does that make sense? We're not in the margin optimization stage of the industry. We're in the growth portion of the industry, and it's more important to grow faster than it is to margin optimize. And just to show it to you guys, if the audience hasn't seen it yet, I just asked, I have three days in Paris. Tell me the five most important things to put on my to-do list. And here you see preparing concise Paris to-do list with five most important things.

28:06DPT 5.5, Quad Opus 4.8, Gemini 3.1. When it gives the answer, I'll show you the results. But conceptually, and I could have picked the open source models for that as well. Jason, while we're waiting for that, a question from the Nody gang. Hodges Channing says, Jason, you say not to trust SAM slash OpenAI's free credits for equity. What are your thoughts on NVIDIA Inception and other VC incubator free compute offerings? Similar risk or different? Founders scale faster. on deal. That's the deal. You can grow your company without borders and you can set up payroll for any country in minutes. Hire anyone anywhere like a modern startup or large company does.

28:44And deal is going to get all the visas handled fast so you can get back to building. There's a great talent war that's going on right now. And you need people with superpowers for your startup to be competitive, to beat your competitors, to get your products to market. But anytime you try to grow your team with overseas hires, oh my Lord, you've got to reinvent the wheel and you got to navigate a tangled web of international laws, regulations. You can't get these things wrong, folks. You want to onboard new staffers in other countries? You want to get them set up on your network, nice and secure, IT access, all that good stuff?

29:14You want to manage their benefits? Trust me, this is all a nightmare unless you partner with Dio. They are the people stack for startups. They're going to take care of all the onboarding, payroll, HR, IT, benefits, everything you need quickly in one place done perfectly. So visit deal.com slash twist. That's D E L.com slash twist. I don't mean to single out Sam. We're friendly and, but if you were to put the sharkiest of the, you know, the best deal maker of the group, the charitable way to say it, he's the best deal maker, but he's a student of the game. I've known Sam since looped. We were both in the first Sequoia Scouts.

29:50He is the deal maker's deal maker. As you saw, he is the only person who ever got over on Elon Musk and they took 50 million from him. So if he can get over on Elon Musk, he's getting over on your startup. If he's got a way to outmanoeuvre you, that's all's fair and love and war. It has nothing to do with that. Now, if you look at the cloud providers, AWS, Google, Google Cloud, Azure, they're not in the business of studying the folks using their compute resources. It's just not what they do. So, but this is every company does this. Amazon Basics does this to the people who are third-party sellers.

30:27If there's an opportunity, everybody gets to pursue it in capitalism. That's the way capitalism works. You just don't want to give a free education to someone. Again, it's not personal with Sam. I like Sam individually. We're friendly. It's just very important for founders who are naive to just understand, And don't explain. Don't give a roadmap. Don't brag about your secrets. Keep those close to the vest. Talk about your customers. Talk about your products, sure. But don't give your secrets away. And when you give your secrets in terms of tokens, that's giving the perfect roadmap. It's literally—you know who's the best company at not doing this, Turner?

31:08It's Apple. Every time Apple does their WWDC or they launch a couple of new apps, they're like, look, we have Notepad. And nobody who's using Evernote would say Notepad is an Evernote killer. It was like, they make Notepad from mom and dad, your cousin, your brother. It's the most basic thing ever. But if you look at Notepad today, 10 years in, a lot of the key features feel like Evernote. I believe Apple purposely ankles their products to not interfere with the App Store ecosystem. They're the most generous with this. I'll give you another example. If you look at sleep, I've had the Apple Watch for six or seven years.

31:49I just want a goddamn sleep score. When you try to look at a sleep score in your health, what do they do? They say pick one of these seven different sleep apps and go pay$49 for them. That's insane. They're so generous with the developer community that they ankle their own products to give shine to the developer community. They're the best at it. I would say Facebook and Microsoft are the most sharp elbowed. That's it. It's a range. Don't trust any platform. But it's essentially who has the strategic high ground. If you have a strategic high ground and you have the platform, you can basically enter into a variety of the apps.

32:27And the thing with Apple, how they're really smart is that they don't need those specific functionalities to sell more iPhones. And so it's better to not disrupt the ecosystem. Right. If they disrupt their ecosystem, Turner, what happens? They lose their 30%. And then you have somebody like Epic Games say, hey, I'm going to file a lawsuit to try to open up the app system. The reason Apple's been able to get away with the Apple tax for so long is because they don't compete with the app level. They're just very, very, very generous. Can I disagree here slightly, Jason, with this? Because I don't disagree with the general point, but on the Apple being charitable front, we have a term called getting Sherlocked.

33:05And it's because Apple once made an app called Sherlock entirely obsolete. I think also tape a call as well. So Apple has gone in there when they want to, to push things out. I think the question is just, do they consider it to be an OS level utility or an app that adds functionality on top of that? So I think if you're in that - Just look at the time. Like when, when did Sherlock kill that other startup or if Sherlock's the startup, when did they do it? I'm guessing that they probably gave them five years, six years, seven years. And I've heard Eddie Q or Steve Jobs even say this, like eventually we might add some features to the platform we have to.

33:38Like they added the flashlight. But one of the first apps I remember buying was a 99 cent flashlight app. Okay. If that's the, if that's your biggest skill as a startup is to turn on the flash and use it as a flashlight, you got to ask yourself, well, it's, it's not a unique innovation in the world. Right. So long as you're at the OS functionality tool level, you're going to be fine. All right, guys, let's keep it moving here. I want to talk about OpenAI's financials. These got leaked this week and amidst all the chaos, it almost seemed like nobody cared. But But what I did is I took all the data and I made you guys a very beautiful SEC filing style table.

34:11You can all take a look at what OpenAI did in 2024 and 2025. I have a lot of thoughts about this. But Ben, starting with you, when you read these numbers about OpenAI's last couple of years, did anything surprise you? Were you kind of shocked by any of the individual points? I don't think the revenue growth is surprising. I think everyone understands how fast it's growing. But I think they've done a tremendous job on the gross margin. And I think the improvement, the massive improvement in gross margin is notable. Okay, Turner, I'm curious what you saw from all these numbers.

34:39Turner Novak:I mean, I think one of the things people don't really, if you just come into this cold and look at this, I mean, a lot of this is like free cloud stuff from Microsoft, right? They invest$10 billion and OpenAI just gets free Azure credits. I don't know exactly how that translates into Gap Financials, but there's a lot of people that I go open. I burned whatever tens of billions of dollars. Like I don't actually know if they technically burned that much. Um, I, that's a question for like, you need to actually see what's going on versus you can't just take these headline numbers. So I think that kind of obscures us a little bit.

35:15Turner Novak:Um, but obviously I was spending a shitload of money, but it's kind of how this works. Like you try to get market share, you're doing R and D they're like inventing intelligence, right? So what they will say, they're trying to create AGI, like a cost cost money, like Kind of makes sense. Also, all these numbers are at least six months old because we're now basically midway through 2026. So, I mean, what we know is they've grown a lot since then. So, Jason, I'm curious, do you think that the gross margin improvements and the operating margin improvements we've seen from this AI lab will persist or are they going to maybe cut costs or cut prices and return more to growth at the expense of profitability?

35:51The way to look at this is the classic J curve. and how much do you invest before you're able to either raise prices or stop discounting? I learned this up close and personal, being the third or fourth investor in Uber, famously, because I was on CNBC and they're like, Uber's the money losing blah, blah, blah, blah. It's losing money. It's losing money. And I just, at one point of exacerbation, I just stopped the panel. I said, okay, let me stop you all. If Uber did it, and at that time, I think they were doing like a billion, they were doing like a billion rides a quarter. I said, okay, they did a billion rides this quarter, big milestone.

36:26They lost$2 billion. They lost, that means$2 per ride. End of the day, just do the math on the loss divided by the number of rides. Okay. If they've raised the cost per Uber by$3, how many customers would they lose? And I asked them this on the thing. And Deirdre Bosa was like, oh, well, they lose a lot of customers. I was like, would you stop using it if it was$3 more? Nope. Because everybody had become addicted to it. So this is the boiling of the frog we talk about. The J curve goes down. The J curve on tokens is a trillion dollars. Let me state that again. There's going to be at least a trillion dollars invested by the Frontier Labs, possibly to a three trillion.

37:05Will they be able to make tokens profitable enough to make their businesses work? I actually think they will not be able to do it. I think it's going to become a commoditized business like bandwidth and hard drives. Tokens are going to be looked at like hard drives and bandwidth. There was a time, and Ben probably saw this up close and personal with YouTube, where they were in the Jay Kerfory YouTube and Sergey and Larry, I'm guessing it was Larry because he's got a big vision for these kind of things. He said, yeah, just lose money for five years, six years. Then if we have a billion people using YouTube, then we'll turn on advertising.

37:42It's exactly what they did, right, Ben? Like there must have been some calculus of this is an acceptable loss to build a billion. I think YouTube has seen by 3 billion people a month right now. And who knows when they flipped that J curve, Tesla also had a J curve with their cars. That was a business that would never make money. And then suddenly they tipped over into making money. So is the point that eventually companies that invest heavily at the cost of profitability early on make a lot of money later on, or that what OpenAI is making is essentially a commodity that won't retain value? Because I think we're kind of saying two different things that once you're using?

38:15I believe they think they can make money off tokens, but I do think the workstations and 90 plus percent of jobs will be able to be done by open source for free on your local computer. And that's where I think Apple's the dark horse in this race. There's a moment in time where 128 gigs will be the standard lowest amount you can buy on an Apple desktop computer. Let that sink in. Right now, I think the lowest you can buy is 16 gig. Might be eight. I totally see that world, Jason, but I also see a world where we cannot imagine all the things that we're going to do with AI and who captures that value and who corners a specific functionality that we all really need.

38:57Because I think 20 years ago, I don't think any of us would be thinking we'd be talking to an AI on a mobile phone that we carry in our pocket. There's certainly people that believe that, but it wasn't mass market. And so wondering whether there's just use cases, because, you know, we all know the cases where you hear this thing, like some famous person says, why would you ever need more than six, you know, you know, 24, 46 kilobytes of RAM? Exactly. 64 kilobytes of RAM. Why would you ever need more than 2400 BOD, et cetera, et cetera. Right. And then all of these things, like we've just figured out a way to use them in ways that we've never previously imagined.

39:31So I definitely hear Jason's point, and I can see the point, which is that if it becomes commoditized, then they're not going to make money. But the question that I have is, will we discover new use cases that are highly valuable, that people are willing to pay for at scale, and they can corner it? And I don't know the answer to that question. So when you think about the entire stack of the LLMs versus the hardware versus the energy, it's a little unclear who's going to capture all the value at the end. To me, that's still an open question. I think we're still in the first, second inning. It is the pressing question.

40:03Where will value accumulate? The NVIDIA card, the Frontier model, or the AppLayer? I'm going to say the AppLayer. That's just my gut. I always like the AppLayer too, but I also think the hardware folks are going to have pretty good ones.

40:18Turner Novak:Well, I mean, I think another way to think about this is with most new technologies, it's basically you build a good product and then essentially it gets commoditized. It always gets commoditized. It's just who has the distribution and the sales force. So I think if you pull back up those open AI financials, I think their sales and marketing grew by like four or five X. And basically what they're doing right now is they're going to like Walmart and saying, hey, we'll help Walmart use AI. Like that's almost like what some of these conversations are. It's like it's some executives who are at the boardroom.

40:50Turner Novak:They're getting pressured. Like Walmart needs to be an AI native company. And I just don't think it's going to be like a VP of engineering at Walmart that like uses some open source models and like fixes this, it will, it's almost like a consulting relationship where if you're, if you're going to wall street, your investors and saying, Hey, Walmart trying to become AI native and we're working with open AI to make us an AI native retailer. We can all kind of laugh of like, what does that even mean? But I'm sure they'll do some stuff and they'll probably make some products for them and they'll build some workflows around it.

41:22Turner Novak:And I'm sure things will improve and the stock price will go up. Like that's ultimately the goal of a lot of these buyers who are buying this stuff. So I almost think it doesn't really matter with the open source stuff. Like in maybe open AI like builds in routers into the products to like help you save money or something. But at the end of the day, like you're, you're, you're as like a, as a CEO of a public company, you're probably, you could even go a little bit deeper on this. There's like the open source. You don't know who has access to this and you want your secure U.S. domiciled provider.

41:53Turner Novak:or helping you do this. So I don't know. I don't think it's that big of a deal. I think OpenAI will be fine. I think really when you look at the cost, it's like they're just scaling up and they're basically building a sales force and a lot of people are going to spend a lot of money on this stuff. When you saw, I think the headline, wasn't it that Uber spent a billion dollars on Claude in a quarter or whatever the number was? That's the tip of the spear. Maybe that's the max, someone could spend$4 billion in a year on AI, but that's like 0.001 % of the market. It's just a lot of money that's going to get spent on this stuff.

42:27Yeah. The headline that Turner is referring to is Uber burned through its entire 2026 AI budget in four months, which is also known as six queries in Opus 4.8, I think, Turner. I think the Uber example is, again, to your point, Turner, tip of the spear kind of moment. if you're the CFO of Uber right now, or pick your company that's burning through a lot of tokens, you're saying, is there a cheaper way to do this? So as it gets incorporated, then some pencil pusher starts doing the math. And they say, you know what? It turns out Kimi or DeepSeek's coding model is good enough. Everybody can use that.

43:09And back to that maestro or the switch, as you called it, that switcher is going to say, okay, if you're writing a login page or you're making a landing page or you're doing some analytics project or some intranet functionality, do it for free. If you're doing something complex, you want to write an algorithm to route DoorDash rides, yeah, use the best one. And one cost will justify it. But when a new tool comes out, everybody just goes YOLO. and then eventually CFO comes in and says, why are we using an Oracle database for this when we could do MySQL? Can somebody here run a Skunk Works project and put the database into MySQL or Hadoop?

43:50And I mean, I remember, and Ben, you certainly remember this, when Twitter and some other folks were doing these really big database queries and having to put together live searches and live feeds, that was just a very complicated process. and it was too expensive to use something like Oracle. It would bankrupt a company like Twitter. So of course they went Hadoop, MySQL, et cetera. We were sitting here 20 years ago. The debate was, would anybody use an open source database? And now that's not a question. It's an explanation point. Everybody uses an open source database. For some rare things like your visa and you don't want to get fired, yeah, you go with the Oracle solution for your transactions, right?

44:32Turner Novak:I think one more thing on this OpenAI, I think B2B is a lot more profitable than consumer. And OpenAI was primarily consumer. You just think about the average person that's using ChatGPT is probably using it as a better Google, maybe a therapist, and they're not really spending anything on it. Versus in B2B, it's literally like we signed a million-dollar deal to ingest PDFs and make a bunch of business decisions with it. Like that's super easy to do and not that intensive and you make a shitload of money. So I think that's also kind of going on. Like with all of my B2B AI application companies I invested in, they all make quite a bit of money.

45:14Turner Novak:And to Ben's point, they're not even like really optimizing it that much yet. So for one of my portfolio companies, Hanover Park, it's basically like an AI native fund admin provider. So it's kind of like an accounting firm for investment firms. and it's literally like we ingest all your stuff and we just make it all automated for you. Producer Salal has to take a shot every time you say Hanover. And if you keep bringing it up, it's gonna get really, really tough on the edit later today. All right, we're gonna come back and talk about seed stage startups and if they're actually in decline as an asset class.

45:47But before we do that, we're gonna take a little break to talk about our friends over at CrowdHealth. Now, if you're running a company, if you're taking care of your family, you understand that health insurance is incredibly expensive. The American healthcare system, I think, everyone has a unique and perfect grievance with. But if you want to possibly save a little money and take care of your loved ones or your staffers, well, CrowdHealth might be something worth looking at. It's not insurance. It is a crowdfunded model to pay for healthcare costs. And if you want to go ahead and get more transparency, more control, and someone on your side to negotiate with healthcare providers, we recommend that you take a look.

46:20You can choose all your doctors and specialists, and their billed negotiating team may get you 70 % to 90 % discounts. So if you're an entrepreneur, an independent creator, or just a family person, take a look. You can go to joincrowdhealth.com slash twist. Use the code twist to get started today for$99 a month for your first three months. That's joincrowdhealth.com slash twist. And they're doing some webinars. Go ahead and check it out and report back on the product. It's a very innovative, disruptive product. And go do the webinar that they're offering because that'll give you some great education on their model.

46:53I love webinars. I'm getting into webinars now. I'm starting to do webinars, Ben. Well, I'm going to build a network of family offices for the syndicate. And so I'm like, how do I connect with family offices? And I have my team identifying them, Ben. And I'm going to do a webinar on how to get access to and get directly on the cap table and then maybe QSBS. And there's all these kind of things. and a quick webinar is just such a secret weapon that a lot of startups and founders don't leverage. They do ads. They do all kinds of promotions. They do social media. Getting like 50 people or 15 people to show up for a webinar where they get massive content value is a really great way.

47:38It's like an unlock for startups. So make sure you dial in in your tactical go-to-market strategies, webinars with potential customers. Can I add to that? Cause I host some of these for money. And let me tell you, if you bring something boring, there's nothing you can do to save that webinar. So please don't do them until you have something interesting to share. I've been on some really great ones and some ones that left me a little bit perplexed. So just if they're, if they're sales calls, they don't work. If they're thinking about the, the guest and how you can educate them or provide value and do it in under 45 minutes, they work.

48:15So pretty straight straightforward. Just put yourself in the audience shoes. Is this giving me massive value for free and is worth my 45 minutes? It's a good webinar. All right. Now, next up, we're going to talk about seed stage startups and if they are a quote, dying breed. Now we're looking at some charts that were made by Lightspeed partner, Nemamdi Regbillon. I meant to pronounce that before the show. Sorry, guys. I forgot to look it up. Don't worry about it. It's all good. He ran a fascinating analysis of live seed stage companies in and around the world. Found some stuff that I want to bounce off you guys.

48:45So first of all, the graduation rate for seed stage startups here in the US is in decline, but has very recently stabilized. If you take a look here at the chart on the left, we have graduation rate over time. And as you can see in the post ZERP post bubble era, we saw a dramatic decrease in the number of seed stage companies that are making it to series A. I'm curious, Jason, if you expected this, this is worse than I thought. This data actually scared me a little bit. Okay. So in the term of art is pull through. When Ben and Turner and I do a pre-seed or a seed investment, when our LPs examine our performance early on as venture capitalists, they'll look and say, how many of your startups pulled through?

49:31The earlier you invest, the lower the chance. The later you invest, the greater the chance. Many people had a great strategy for angel lists. I remember a very famous angel investor, seed investor, who's like, I've got 27 unicorns. And I said, oh, and I said, that's incredible. How did you do that? I have nine. And he said, oh, I go on AngelList. I join a syndicate. When they're$3 billion, I invest. And then I put it on my logo page. And I'm like, incredible. You know, firms do that too, Jason. They buy the logos so they can put them on the page. Ben, can you explain why we all laughed at that to people out there who are less up to their neck in venture humor?

50:11Well, because usually you want to be the first investor, like Jason, or the third investor before, and the post money is three, four, five, 10, 20 million versus, and when it becomes a unicorn, it's a billion dollar valuation and you invest at a $3 billion valuation, it's already a unicorn. So obviously you invested in a unicorn. Turner, you do the opposite of this, right? You invest essentially as a first check investor. So you actually get the plot. Does this annoy you? Do you see VCs actually do this?

50:37Turner Novak:I don't know. I mean, it is what it is. I just kind of, I feel like you can kind of tell. I actually, probably one of my favorite stats, I invested in a company pre-revenue that got acquired by Anthropic and I got equity in Anthropic. So I'm technically a pre-revenue investor in Anthropic, technically. So I'm going to carry that to my claim to fame. It's logo hunting. You'll have startups do this as well. Startups will give their product for free to some giant company, Google, Microsoft. They get a friend of theirs working somewhere to open an account. Now they have the logo there. Okay, fine.

51:14It's posturing. It's peacocking. It's a thin veneer. It's social proof. Yes, social proof. And the problem with social proof is when you actually work with sophisticated people, then they ask you what round were you in? And there's all these data sources that then LPs look at, and they know who was in the early anthropic rounds, and they even know which partner at a firm was in that round. So if you're a partner at a firm and you go start your own venture firm and you're like, yeah, I was early in Uber and Airbnb and Coinbase, they're like, were you or was Alfred Lin the partner who did DoorDash or Ruloff was the partner who did YouTube?

52:02They have that information. And if you're a startup and you play these kind of games with your logo page, then they're going to ask you, what are they paying? How many active users do they have? How many seats do they have? So you can play these games, but it's playing a, I think Naval says it like play stupid games, win stupid prizes. The prize you win is you lose credibility. So you gain credibility, you know, when you're peacocking and then you lose it when it comes down to brass tacks. I don't advise it. You're saying, Jason, that if you have an MOU you're about to sign, you shouldn't report that to your board as a completed deal, for example.

52:37The joke I have when I'm mentoring founders at Founder University and our accelerator is when they say we have a letter of intent, I say what a VC here is letter of nothing. You called it a letter of intent, an LOI, we called it an L-O-N. We're off track a little bit. Jason, can you go back to the pull-through point and why it's either good or bad that we've seen the graduation rate of C-Sage companies come down from about 50 % to about 25 % in the last couple of years? Yeah. These numbers are extremely hard to track. There's no perfect source of data for them. everybody tries to do this. Here's all you need to know.

53:10In a hot market, you get a lot of neophytes, new funds, new angel investors, private equity firms, family offices who dip down and they think, oh, I'm a great picker. I can do early stage picking. And so they just randomly go or dentists go to Y Combinator. And you saw Gary Tans, I don't know if you saw his viral speech. The hype video. The hype video. He's like, let's get that money. Who's house has us? Let's get that money. like, it has less to do with the startups and more to do with the conditions in the field. During peak ZERP, everybody had TVPI that was through the moon. I had one person tell me they were a 15X fund.

53:50And I had put 50K into the fund. I do a lot of these small bets to support new LPs, new GPs. And I said, you have a 15X fund. I'm like, sell all of your shares and be a legend. And the person's like, no, no, no, no, it's going to be 150. I said, yeah, yeah, I know you're Chris Saka and you hit Twitter and Uber in the same, you know,$8 million fund. Sure. Sell half and be a 7X fund right now. And you'll be guaranteed that same fund. I'm not saying which one. That company became worth like 95 % less. So they were like a 1.5X fund now. Your obligation as a GP is to get liquidity and to hit three or 4X for your fund.

54:30Ben has to return$500 million to$1 billion in order to stay in business. And pull-through is about one of the things people look at. But again, sophisticated people know in a hot market, pull-through becomes unnaturally large. And in a down market, pull-through is unnaturally depressed. And actually, that's where the real investors, that's where the real VCs make their money. In a down market, being able to pick which company to double down on, Being a venture capitalist is about deal flow, decision making, doubling down, and distributions. The four Ds is what I always tell folks. And that ability to double down correctly and to distribute, those two Ds are so hard to get right.

55:12I have spent the last five years trying to get better at those two. Ben, I'm curious if you think that the correct or normal or healthy graduation rate from seed to series A is more like 50 or more like 25. So were we in a period of excessive summer conditions and now we're in winter? Or are we just now back to normal, if you will? Well, you're looking at percentages and not at numbers. So to Jason's point, the macro in 2021, there's tons of new funds, tons of flush money. And so a graduation rate and companies being funded, there was a lot more companies being funded in that period than in the prior period.

55:46And so as soon as in 2021, there was a retraction in terms of the number of dollars flowing into venture, the graduation rates then dropped. So I think all we're just seeing is less venture dollars or less money flowing into venture firms across the last five years, which is slightly turning right now. I think we're going to talk about that in a second. And I think that's a reflection of the reduction in the number of seed companies and also the graduation rate is just there's less budget. There's fewer firms, smaller budget. So therefore you see fewer C companies.

56:22Turner Novak:Well, I think there's also an element of you had probably like, if you just look at this chart that you pulled up, it's like 10 years of just more and more C stage companies, lots of software. And then you basically hit a wall in the past couple of years where if you are not an AI company, you're not raising a series A. So if you didn't make that transition, you die essentially. I mean, I'm exaggerating this a little bit, but I feel like there's quite a bit of profitability from there, right? It's basically impossible to raise money. That's actually a very interesting observation, Ben. It could be, and I have seen this before, founders graduate from our accelerator and if we have 10 companies in it, we'll see five or six pull through.

57:01And then I always like, okay, tell me about the other five that didn't pull through. Increasingly, I'm seeing two of them just opt to not raise money because they don't need it. So that's another weird trend occurring, which is AI, I'm seeing companies that are AI first in how they operate their business, put their product aside. Obviously, it's gonna be AI related in most cases, but how they operate their business, they're like, I don't have the time to hire two more people. I'm just automating all that with AI. And that is the real trend. The founders owning more of the cap table, raising less money to go further.

57:35I call that the alicorn or the Pegasus as opposed to the unicorn, which is they have the wings to fly over a round of funding. And the first time I ever saw it was calm.com. I invested at a$4 million,$5 million valuation. They let a couple of friends invest it in Node at 20, but they didn't actually raise that round. It was just they wanted to reward some friends, I guess. And then Alex came to me and said, we're raising at$250 million. And I was like, great. And they're like, do you want to sell any shares? And I was like, yeah, I'll sell. I think I sold 2 million in shares, just like 10 % of our position.

58:07And that returned a multiple on the original investment. And then we still had 90 % to go. That's actually going to be a reoccurring trend, which means getting onto a cap table at that series A and B is going to become more and more expensive. And if the entry price becomes higher, then the exit has to be higher. And what we've all learned over these years is TVPI easy, DPI hard. DPI, very hard, especially with the SaaS markups. So many of these firms are zombie firms now. They raised one fund, maybe they got to their second, and all of a sudden they couldn't bridge the gap between the paper gains and the distributions.

58:51And that is the art of venture capital there, is distributions and knowing when to sell. And I see Ter and Ben shaking their heads because I'm guessing y 'all have something in your portfolio that you were like, if I could sell this whole thing, I'd sell it, have a 3x fund already with some other optionality to hit four, and then I would be able to raise my next fund that much easier. And it's really hard right now for venture capital, because if you had put your money into the MAG-7, you would have been liquid, and you would have beat venture capital the last decade. The conversation amongst LPs is, why be in venture?

59:27Why should I bother with venture? And I was talking to one of the largest sovereigns in the world when I was in the Middle East. And I was pitching them my fourth fund. And they said, we're not doing any new funds. We love you. We think you're incredible. I said, hey, tell me what you are doing. They said, oh, we're doing corporate debt. I said, oh, tell me about it. He goes, oh, we get 17%, 14%. So we're doing corporate paper. That's our exclusive focus right now is loaning money to establish profitable companies. They pay us 15 % and we get it every year and it's more liquid, why would I ever do venture?

1:00:02And we really have to justify why venture exists again. Because the vast majority of LPs are looking for predictable performance, predictable, reliable performance. I mean, obviously they don't mind if you return 100x fund, but if you reliably return four to five x in every fund, that's great for them because they can put the dollars to your fund and then make sure they get four to five x back every single time, they're like, this is a known reliable quantity. And allocating that is much easier than the 0.9x and then 17x. And then - Yeah. Ben, how many firms can actually hit a 4 or 5x DPI across, let's say, a five fund run?

1:00:43That seems to be a very small number. It's a very small number. And because I think there's a lot of - I think, what are the numbers? Jason, do you know the numbers? I think it's like 95%, 90%, the 90th percentile, I think is... 2.X. Yeah. Yeah. To be a 3X or 4X fund puts you in the top 5 or 10%. Yeah.

1:01:07Turner Novak:And I think they know the words... Consistency too. It's hard. Five funds in a row. Not possible. USV has barely even done that. Founders Fund has like... I don't think they've done 5X, 5 funds in a row. Like, yeah, right, DPI, maybe TVPI, but actually returning the capital. You just need a pretty long period of time too. So I feel like the industry hasn't been around long enough. If you look at the 90s, a lot of those firms don't exist anymore. Or it's like Kleiner. They had a couple of bad funds. Sequoia. They had a period, I think, where they famously, they were able to return capital to investors, but it was a huge deal that they gritted it out and willed this fund into actually returning money that probably should have lost capital.

1:01:52Turner Novak:So it's just like very, very hard. Bill Gurley on this very show told the story of Benchmark's worst fund, you know, post-Otcom era. It was great financial crisis. They took away all their fees for that fund and they deployed it into the one or two winners in that fund just to get that fund to like 1.5X or 2X. That's how desperate they were to save the reputation of the firm during the down market. And so it's one of the hardest businesses to be in, a lot of the reason people are in it is to get early signaling. So if you're running a family office, having some 10 % in venture means you know what companies to double down on in the pre-IPO market.

1:02:32So there is a reason to put 10 % of a family office or an endowment into venture is just to know what's coming around the corner. That is, I think, probably the number one reason and they do it now. And then secondary is, hey, we can make this work mathematically. Again, this is one of the hardest industries. I suggest nobody do a seed fund. I suggest nobody do an incubator. Leave it to the professionals on this program. We don't need any more competition down here. Let us do all the work. You can get in at Series B. I had one high net worth individual who was a big fan of mine, loved the podcasts, really believed in what we were doing in the early stage, and he wanted to put in, I don't know, let me pick a number,$250 ,000.

1:03:19And this is like an individual. He said, I want to put 250 into the fund. I said, have you ever done a venture fund? He said, no, this would be my first. I said, I have a piece of advice for you. Why don't we take the 250? Why don't you put 75K or 100 and do my next three funds? And I saw him at liquidity the other week. He said, you're the only venture capitals who didn't take all the money and told me to do that. So I just, I'm putting it into your next two funds as well. And I said, just, yeah, because time dispersion as well. What if you deploy all your capital in peak Zerg? Those returns will be muted.

1:03:51You've got it at a high price and you can't exit where you exit at a low price. Then when I started angel investing, the secret to my success was timing. When I was doing open angel form and I was doing Uber and Robinhood, there were no competition. Perfect timing. Perfect timing. Naval, myself, Cyan Bannister, Chris Saka were begging people to invest in Uber, Twitter. We were passing the hat, just desperately trying to get Travis or Evan Williams, 500K, a million five. We were desperate to find somebody to put that money in because VCs were like too young, too crazy. I'm a pass on this one. But let me know when they get there, when they hit profitability or a million in revenue, and then we'll make an investment.

1:04:35So are there still companies available at those prices today that you think have the opportunity to become as big as those companies Jason mentioned did? Because I feel like with larger funds going earlier, seed prices going up, it feels like those like passing the hat moments just don't seem to happen as often.

1:04:52Turner Novak:I mean, it's probably similar to what it was like back then where you just have to find like Uber taxis on your phone. Like that's crazy. Or like Airbnb living in someone else's house. Like that's nuts. So, I mean, I think they're out there. They're just like less obvious. There's not press articles about them. Like probably if you just read TechCrunch or like the information, you think all these companies, like you start it, you left open AI and you raised$100 million to start a new AI lab. Yeah, those happen. But that's not everything that's going on. Like there's a lot of people, they raised$2 million.

1:05:29Turner Novak:I have a hypothesis, like we're going to build, um, talk about Hanover Park again. They raised$2.2 million and they're building like fund admin, right? Like it's not a sexy category at the time. Turns out though, today you go to like Sequoia's website and I think they're like the blog, the head blog post is like AI native services companies. That's literally what they are. So I think it's a lot of like being a little bit, uh, willing to make a bet on a really good team. and like, you know, the way that the market's moving, like you're solving a specific problem that's probably going to be a lot bigger.

1:06:02Turner Novak:You have this hypothesis around like this customer that's going to be super valuable that you can generate a lot of cashflow from in the future. And you can build products to help them, whether it's AI, whether it's hardware, whether it's like a CPG company, I don't know. I just think there's like a lot of opportunities out there, but you just can't go, Hey, I'm investing in data center cooling and I'm investing in like new AI models led by people with experience doing that. Like you're not going to find people raising$2 million at 8 million post money. It's just impossible. No, you absolutely can.

1:06:32I agree with Turner 100%. I think the key thing, we call them at Blink Capital, we call them undiscovered gems because they have to be undiscovered and they got to be gems. If they're discovered gems, then you're paying 50, 100 million posts, 200 million posts, a billion posts. They're all known quantities. So typically the undiscovered gems get one of two categories. One is the first time founder where people don't have a ton of signals. So you just have to have some spidey sense. And a lot of the really great seed investors just have great spidey sense on what these people become over time. And the second category is the quote unquote, great but damaged founder, and a founder that has a mixed reputation because they had previously left their company in a way that people didn't like.

1:07:13Right? So you see this, like Parker, for example, he's killing it with Rippling. And people are very thrilled to be investors in Rippling. but at the time when he was first raising his first round, he wanted all of the original Zenefits investors to reinvest. And he said, Ben, I want you to reinvest because I want to make sure that it's clear that my investors still support me. And so I said, of course. So we invested in Ripley. But at the time to me, it was obvious that Parker is incredible, was incredible then, is incredible now. But I think there was a moment in time when people's all our reputations, professional reputations have ups and downs and ups and downs.

1:07:49And sometimes when a founder has a low value in their reputation, it becomes harder for them to raise at that specific moment in time. And so I think you absolutely can get really great prices, but they have to be undiscovered gems. Jason, do you think that if you were going back now and starting your investing career, it would be easier or harder to find those undiscovered gems? You know, the entire corpus of startups, when I started 12, 13 years ago, you'd have a couple a week would launch, right? You could probably meet three or four new ones a week. So it was actually possible to have 100 % coverage.

1:08:27Today, we get over 10 ,000 applications. I've got seven associates in training at our firm, and we're having five more start next week. Those 12 people working at our firm, out of school, in training, from researcher to analyst to associate is our training program. I had them doing 140 meetings per week, first calls at the peak. And then we invested in 100 companies. So we were tracking towards 7 ,000 first meetings called from, call it a run rate of maybe 20 ,000 applications. And I don't think we had more than a third of the startups that were being formed. So there was a Cambrian explosion, if I'm using that word correctly, of startups over the last decade because it's so much cheaper.

1:09:14And I think that's going to happen again. I think maybe 100 ,000 startups, 200 ,000 startups are going to, in the English language, in the West, I'm not counting China and India and some of those other great markets, just in English-based, going through an incubator, et cetera, launching a product, getting it to market, I think it's going 10, 20x from here. Therefore, it's really a sorting problem and a deal flow problem. and just, I said before, the four Ds, your deal flow is a function of your reputation or your ability to hunt. When I started, I was hunting. I was asking every person I met, do you know any startups?

1:09:52Do you know any startups? Do you know any founders? Please introduce me. Jason at Calacanis.com is my email for life. Please, the second you meet a founder, tell them you know me and email me. I was hustling. Ben knows because he was around. I was just hustling, hustling, hustling. I will meet any entrepreneur anytime, seven days a week. and now it's more like, oh my God, this deluge of incoming applications. So you and your career, and I think Ben has experienced this already and I think Turner's on his way because Turner also does content now. How many people contact you a week now, Turner? And how many did that before you mastered social media and podcasting?

1:10:28Turner Novak:I would average like 20 a day. I mean, there's a caveat though to this where like some of them might not be that good quality right like you might go from getting one inbound a day to 10 or 100 and with all of those rungs of the ladder 90 are not very good like there's just there you shouldn't invest in them or shouldn't even take a meeting not gonna make it not gonna make it yeah but if you say you get one a day and 10 of those is you know worth taking a meeting you maybe do one meeting every two weeks if you get 10 a day you get one meeting a day. If you get 100 a day, it's like 10 meetings a day and you can't meet them all.

1:11:04Turner Novak:So then you start to get into this filtering of like, okay, Ben's doing this thing. Jason's doing this thing. Alex is doing this thing. You're like, okay, Alex looks like he's the most relevant founder to build this specific thing that looks the most interesting to me. I'll meet Alex and I won't meet Ben and Jason. And maybe Ben actually built the unicorn and Alex failed spectacularly. And Jason also was super successful and you just messed up because you got it wrong. So So it's, I mean, it's challenging. I think that's the hardest part of it. I don't envy you guys because I think every time you pick, you're making several anti-choices and that would haunt me forever if I didn't pick the one that ended up being worth a trillion dollars.

1:11:37Alex, one of the things that I think we're talking about is the decrease in the number of seed firms and also the decrease in overall dollars allocated to venture from 2021 to 2026. But I think one of the things, the key drivers of that is there is a whole cohort of companies that did not exit. It is what everyone's calling the SaaS-pocalypse. Yes. And so I think we probably most of us have many SaaS companies that have hundreds, hundred million or hundreds of millions of dollars in revenue that did not exit. And then now have this trouble, this problem of like, OK, we have hundreds of millions of dollars in revenue.

1:12:13We are not we're now not growing fast enough to go public. And we have to figure out how exactly to justify the last run valuation, if we can even have half of that. and how will we exit? So there's a ton of the trapped TVPI that did not become DPI, which became a problem for the entire industry, for the LPs and the GPs alike, right? I think there's a whole group, there's a whole like, I don't know how much, it's like hundreds of billions for sure that are trapped there. Yeah, I was talking to a venture capitalist who had one of the hottest SaaS companies, I think it was Airtable and this is an incredible company and that is like 5X or 10X is one of his funds.

1:12:58Airtable's doing great, great company, but I'm sure there's a hundred Airtable killers that are AI first now. And this is why M &A is so important for an ecosystem. Those companies need to land the plane. And listen, it's not a politics show, but Biden specifically picked Lena Kahn because she was anti-corporate America, anti-M &A. And man, that put a chilling effect on our industry. And it's nothing to do with Democrat versus Republican. It just has to do with the stupid decision. What they didn't realize about M &A is that if those companies can't exit, then that money can't get recycled to the next series of founders.

1:13:38And then people do not LP venture funds. And it just basically threw a case of wrenches into the machine. They didn't throw a wrench in the machine. They threw a box of wrenches into the machine. and listen, I've got plenty of criticism of the current administration. You can listen to All In when we talk about politics. But the one thing they got right was they said, hey, M &A is on the table. Go ahead and go for it. We're going to properly address if it's a monopoly or not. And I told the administration, I told the previous administration, the current administration, and everybody on my podcast who would listen, anything under$250 billion can buy any other company, what you want to do and what we want for America and as an industry is to take the Mag 7 to the Mag 70.

1:14:30The way you create a Mag 70 is by letting Airbnb and Uber and DoorDash merge, let Coinbase buy, you know, Solana or Solana buy Coinbase. I don't know whose valuations. Let it rip. Let there be another Google. But because they blocked everything, you couldn't have Figma join Adobe. That was the stupidest blockage ever. Who cares if Figma got bought by Adobe? Who cares if Amazon buys Roomba or a couple of robotics companies? it's so de minimis. It's so irrelevant in terms of competitive landscape. And all it does is make products cheaper for consumers, which is what we're all concerned about, choice and price.

1:15:17Can consumers get what they need for the right price? There is no world in which Figma getting bought by Adobe was not accretive to consumers. And obviously that all would have been recycled. you're telling me that like if figma got bought by adobe they were going to raise the price of figma 10x because there was no other option of course not they were going to bundle it into the existing bundle and it would have been cheaper and then adobe would be challenging microsoft you know and their suite of products the stupidest decision ever made to put a neophyte socialist in charge of mna could not agree more it's mind i know you do then i've seen your twitter account.

1:15:57But bringing us back to startups here and the Airtable point in particular, Jason brought it up, Vince, I want you to be able to defend your portco here. They launched Super Agent in January of this year. And I'm curious how good of a job Airtable is doing bridging itself from the SaaS to the AI era. Great company. Look, Howie's a great founder. And I think he's done two things really well. I think the first is that he's completely pivoted the company in terms of having slow thinking teams and vast thinking teams so that you can build products in an AI native way versus like trying to figure out how to peanut butter spread AI across the entire company.

1:16:30And the second is being the plumbing and infrastructure, right? Being the plumbing and infrastructure layer rather than, you know, being an LLM or being just in the app layer. So I think that, look, I think the jury's still out. I think like we mentioned many times, we're in the first, second innings of this thing. So I think there's still a lot of time to watch how it plays out over time. Another one of your portcows, Gusto, earlier this month announced a thing called CoFounder, which is kind of a general purpose agent for SMBs to essentially use all the information they have in the Gusto ecosystem to automate work.

1:17:02So this is now two of your portcows that are traditionally SaaS that are building broader agents than I expected. Do you think that we see SaaS companies not just agentify their existing customer data, but also try to get more of it to go even wider? Because it feels like if these products work, a broader aperture. I think what we talked about earlier about the platform play and, you know, essentially eating all the apps, it's essentially if you have a strategic high ground in a specific area, how do you use that strategic high ground to build more surface area? Right. So like the Amazon, Amazon Basics, right, the Google and all sorts of one box and search and AI answers, the Microsoft and the Lotus one through three to Excel, et cetera, et cetera.

1:17:42So I think it's exactly the same thing for every single company. And you have to always think through. So this is one thing that we think through when we're investing in a company is what is strategic high ground that this company is going to be able to occupy? And what monopoly will it have over time? Because if it doesn't have strategic high ground, we'll get eaten by somebody else. And if it has nothing that's scarce, there will be no value to the company or minimal value to the company. With the rare exception when the market is like multiple trillions of market and it's a duopoly situation.

1:18:10And so you then, you know, like Coke, Pepsi, then you can make a lot of money, but it's otherwise commodity. Yeah, I agree with that. Turner, your portfolio question is very, very simple. It's just this. What is your favorite startup you've ever backed and why is it Hanover Park? Okay.

1:18:26Turner Novak:Well, I mean, I think anyone who's a venture investor has used a fund admin. If you're an LP, you've used a fund admin, you've interfaced with them. And I mean, on average, they were started like before the internet. Like a lot of these things are basically accounting firms. and they just like don't really make software. Their engineering teams are, I mean, they don't even call them engineering teams. They're like the IT department. They're, you know, on average, they're using like QuickBooks, Excel. You may be using like Ramp, Bill.com. They're like manually sending you PDFs and emails. It's just like, it's kind of like one of those businesses that just has not really updated to modern times.

1:19:04Turner Novak:And for good reason. I mean, it was hard, it didn't really work. But with LLMs, you're just able to automate a lot of this stuff. And it's pretty simple. It's like literally reading PDFs, making it digitized and making it data, and then you automate it like we were seeing with Cloud Cowork. So that's essentially what they are. They're kind of like an AI-native accounting firm for investors, kind of builds a system of record for the investment firm. And there's just a lot of different products you can build on top of that. Really big contract sizes that they get with their customers. They're winning a lot of deals head to head in the market.

1:19:37Turner Novak:So yeah, it's a fun one. If you're a VC, you should consider, I don't know, Ben and Jason, if you guys have talked to Hanover yet, but take a look for your next fund. I didn't know where to cut you off in there, but I didn't really want the entire sales pitch on that one. But thank you for that. We can trim that down in post. Dear God, is this startup your child? Like, I feel like you rave about this. Like it literally made you look. Yes, the answer is yes. Okay, all right. This is child. They're all, I mean, it's you. One of the great arts, I think, of being a great early stage investor is your whisper network.

1:20:11And we actually call it the whisper network internally. And to this day, when something's breaking out of my portfolio, I will just, I will not even tell the founder I'm doing this. I will just text Antonio Grazios from Valor. I will text Ruloff and say, here are the two breakout companies we have this year. Check out Micro One. Check out Abacus. Check out Autolane. Those are the three I've been sending. And not if they're raising money or whatever, I just send them because I think they're doing something super interesting. And I say, hey, I think one of these will be the next Uber or Robinhood.

1:20:45I got a really good feeling about these three. And I just send them a link. And I'll send them a link to a video of the founder, or I'll send the deck or whatever I happen to have available. And we built a piece of software called the Whisper Network internally. We have like 12 people on the investment team now. We're adding these five, so it'd be 15, 16 people. And then in the Whisper Network, we have every investor. And then the founders can go in there, click who they want an introduction to, and then we just process the introduction. They put in what their collateral they want to send is, and then we forward it on.

1:21:16And we're trying to keep track of that. So when somebody, Alexis Ohanian, has this thing called Cerebris, he built a system for his team to keep track of every time, like a law firm does, they do something for their founders. So then they share that with their founders. hey, here's all the things we did for you. We retweeted this. We introduced you to this person. We recommended these three people for this job. And now we're keeping track of it. So we can say to a founder, hey, we introduced you to 127 investors. How else can we be helpful? And man, that has really helped our relationship with founders as well.

1:21:52Because sometimes a founder would be like, oh my God, what have you done for me lately kind of thing. They're in a stressful moment. And they're like, you're not investing in our new company. And I'm like, or, you know, in our new round. And I'm like, well, we're early stage. We can't be your permanent source of capital, but we can introduce you to people. We've introduced you to 127 people. And I got into it with one founder who's like, so it's my fault I didn't raise. I said, and I have a little, a text expander on my computers and it's QC. And when I type QC into a message, it says, quick call if you have a moment please with my phone number and he called me and I said listen you asked me a question is it my fault I didn't raise my next round and the answer to that question is yes that's your job you have to close these deals I can get you any meeting I can get your deck in front of anybody but it is your fault if you didn't close the round it is not my fault the firm has introduced you and in this case it was over 100 people so what you need to ask yourself is what in your pitch, product, performance, team, whatever it is, has made you not be able to close.

1:22:59And I am willing to sit with you for however many hours it takes to fix those problems. But it is your response. I literally, and it was contentious. And the founder was like, well, this doesn't seem very founder friendly. I'm like, let me tell you something. In five years - The most founder friendly thing you can do. You give them honest feedback. I said, you're going to email me in five years if this company succeeds or fails, and you're going to say to me, thank you for being candid with you. And it might be hard to hear it from me that you failed at your fundraising, but I'm telling you because I care about you.

1:23:33And listen, we have LP money in this. We want to see you succeed. You've got to step up your game. You've got to get better performance. All you need to do is put together 12 weeks of 5 % growth. week after week. It was like, you know, a product that you could show that for. It was a consumer product. And he's like, you know, he was not happy in that phone call. A couple of months later, he did it. He closed his round. Here we are. You know, it's just hard to be a VC because, you know what? And a lot of VCs are sugarcoating all this stuff. And I think the tension of investor to founder is very real and it's not talked about enough.

1:24:13And it's very easy for founders get frustrated with their investors. And it's very easy to dunk on VCs. Remember, we had this like three weeks ago when everybody's dunking on Vinod Khosla. Vinod Khosla has dedicated his life to backing founders, and they're torching him. Matthew Prince, everybody torching him. And I'm like, okay, fair enough. But like, why do that publicly? If he's a hard personality, fine. But he's also the goat. He's like one of the goats of the industry. You should be thankful that he took the meeting with you. What do you think, Ben, of that whole thing? Oh, I agree. I think that it's tricky to be VC in today's environment.

1:24:48One of the things that we do, though, is we tell our founders during the pitch meeting before we invest all the good things and bad things that we hear about us. So, you know, including like the good things, like being having a very wide network, because I think one of the things you talk about is the network. We have a product council of over 100 LPs who are executives in product growth, sales, operations, CEOs, etc. We're all invested in the fund. but we tell them the bad thing is that we're very intense and we're going to tell you exactly what we think and whether it's right or wrong and but we'll let you make the decision and so we we give them the feedback like it's the unvarnished feedback just like what you like for example the the feedback you gave there how i said it's kind of like the best thing you can do for founder that's the most founder friendly thing you can do and so we tell them that and so i think a lot of our founders, we have that matching algorithm before we get matched of can you handle the tough feedback?

1:25:44Are you open to the tough feedback? Because if you're open to it, and we're not always right, we tell them we're not always right, but we'll give you the feedback and then you figure out what to do with it. We trust you to figure out what to do with it, but we're not going to hide the feedback. Because I think in today's society, you get torched for saying something that people just disagree with you. And we can't have that. We need to be able to disagree. We need to be able to say, here's a perspective, et cetera, et cetera, and then consider the various points of view, and then the founder can decide which direction they want to take.

1:26:15Turner, you've been in this industry. How many years have you been investing, Turner?

1:26:17Turner Novak:I raised my fund at the end of 2020, beginning of 2021. So my objective is the worst possible time. Well, I mean, or maybe the best because you're going to be hardened, and if you really believe in doing this, you got to weather a storm. So I think if, yeah, I think that's what I would take away from it. But how have you handled the founder relationships? And you grew up in the era of founder friendly. You have to coddle founders. You have to, you know, are you at a point in your career where you feel comfortable giving, you know, the hard, hard, having the hard conversations? How do you, have you had to have hard conversations?

1:26:58And how do you manage that aspect of the job? Ben and I are old school OGs. We've been around the block. We're not afraid of having that conversation. Or I think I can see this in Ben. Like he'll take the short-term reputation damage or the relationship damage in order to have the long-term respect and outcome. How are you managing it as a decade one investor? And do you think about it at all?

1:27:23Turner Novak:Yeah, I mean, think about it a little bit. I think I just try to be really responsive and kind of just be there when the founders need me. so I don't think I ever run into a point where you have this like standoff really bad fallout uh I mean like there'll be cases where somebody they're going out to raise a series a and I'm like I'll be honest like this seems like a pretty hard setup because of these reasons you probably need to have these other things going on and I'll just kind of be pretty transparent like this is just my opinion then they raise like a crazy series and like holy shit congrats like what did I know so So that's probably been the biggest thing is when I like try to almost give like a tough love type of like hard conversation.

1:28:02Turner Novak:I'm wrong. So I and that's why you just it's just finding founders where you're like, holy shit, they really got this done. And the company is doing really well to now. So, again, it's like, what do I know? I'm just some random. Ben, how do you handle the same situation? You got a founder trying to do something completely delusional. You got to give them advice. But, you know, there's a 5 percent chance, 10 percent chance, 20 percent chance. they might pull a rabbit out of a hat. So how would you advise Turner, a mentor Turner, to handle those situations? How would you frame the discussion? What we do is we basically outline the options.

1:28:33We see if there's option A, option B, option C. You think it's option A. We think it's option B. Here's why. We can have a conversation around it. And we say, at the end of the day, you're the CEO, you're the founder. This is your decision. You decide. And then we just get in the boat and row with them because we got to row with them at that point in time because you could disagree and commit, right? And if you're committed, you got to row. But then we just say, just keep your eyes wide open, because if this is not the right path, we as a company need to be able to know how to turn around or turn different direction.

1:29:02Right. So it's but we have that honest, open debate and allow it to happen. But we let the founders decide. See, I think this is the perfect framing, Ben, is you're telling them like, hey, here's the decision tree. This is where I stand on it. This is where you stand on it. Is there anything else I can do to help you make this decision? If not, make the best decision you can. Let's monitor it. And we will disagree and commit with whatever you choose. I think it's beautifully stated. And that's what founders need. They don't need sycophants. If you've seen the movie before and if you know you're the person working in F1 and you know this turn on this track is where people spin out, it's your obligation to tell them, hey, you're going very fast.

1:29:50the people I've seen take that turn that fast flip the car you might be the person who figures out how to take that turn at speed but the other three people I've seen take the turn at that speed flip the car is there anything we can do to help with the tires on the car or make this decision or practice with you but if you want to try that turn faster than anybody's ever done it you might be the person who figures it out I mean I've had this discussion so many times and you know what nine times out of 10, the car flips. The good news is I always tell people, hey, if you fail at this startup, my only request, my only request, in fact, it's a demand, is that when you have your next idea, you come to me first because you're a great founder and we'll back your next company.

1:30:32Just do as good a job as you can on this one. I don't know if you guys saw it. We're going to wrap with this, which is Snap, not Snapchat, but Snap, the camera company, aka the social media company has a new set of hardware out and as we've seen thus far most ai hardware kind of flops but in this case guys it's a company famous for being cool so take a look at what they put together

1:30:56oh dramatic

1:31:03camera okay all this costello glasses yeah so there's a phrase in the army called bcgs because they give you glasses that are kind of standard issue and bcg stands for birth control glasses because they're so thick and unattractive that no one's going to touch you that's the impression that i got from these now i do want to say they are an impressive technical specimen they do quite a lot they cost about 2200 ben have you put in a pre-order or is this not something you're going to put into your miami wardrobe i have not put in this in my pre-order and it is not going to be in miami wardrobe okay that's pretty affirmative turner uh you're more of a dork like me what do you think?

1:31:39Turner Novak:I think we need to see how they work. Like what, what can they actually do? I hold my judgment until actually seeing how capable they are. Yeah. So here's an example of what they can do. I think one of the key things in consumer though, is that the, the things got to look good to have mass, mass adoption. I mean, I will, I remember Google glass. So I was at Google when we were doing Google glass and I was like, guys, like who's ever going to put this thing on their, on their face? Nerds. I'm like, people pay, pay a thousand dollars or more to get, you know, lasers shown in their eyes and risk blindness with lasik so they don't have to wear glasses and you can ask people to put this thing on your face and so it's i think it you know i think meta actually got it done pretty well with the ray-ban partnership those things look good and i know a lot of people that have them especially in miami people like they were they're wearing them all over the place but i do think that like which if you called it something i don't know what the acronym was Alex, but yeah, I'm not sure that they're the, I mean, technically, I mean, they may be an excellent prototype or excellent technological feat, but it's unclear whether it's going to be a fashionable choice.

1:32:46I don't think it's going to be high fashion, but I do like that they've made it with no puck or tether. So it's not like a device that plugs into your belt, at least it's self-contained. I'm skeptical at the price point. I don't think they're going to have a lot of takers here but jason i'm curious take us out with your view here uh a flop a win or a good direction well first off i know the exact moment that google glass failed here it is that was it when robert scoble put these on and went into the shower that killed google glass um that is that is what you don't want is robert scoble topless wearing google glass in a motel age shower i mean i think three people have been murdered in that shower in that hotel room.

1:33:28I mean, look at the, I mean, just really, really hard to look at. Here's what I'll say. I think AR is a winning model. I think that is the winning model. I think VR, nobody wants except for like very weird people who like, even gamers hate VR. So, you know, interesting technology, but AR where you can see through them. I feel like Evan Spiegel is a product genius. I feel like he's mismanaged Snap as a publicly traded company with super voting shares and their stock-based competition, their stock-based comp has been crazy. I think he's one generation away from making these work. I think this is a way point.

1:34:13Yeah. So I think he's one generation away. I give him credit for being bold enough to release the product, to release it at the price it needs to be. He's probably losing a couple hundred bucks on each one. I think he needs to run that company for profitability and keep pulling the string if he thinks this is the future. Get rid of all the stock-based comp. I know he downsized the company a little bit. The company could be managed as a public company better. I'll put that aside. He knows that, I believe, because the stock has been so depressed. But he's a product genius. A lot of the great features of Facebook were literally stolen and photocopied, whether it's stories or ephemeral chat.

1:34:52So he's a product genius. He seems to be laser focused on this. So I'm going to give him the benefit of the doubt. I think he's one generation away. I'm tempted to buy them because I do think that he, like I said, one generation away. And I do think Apple will have a similar product. I think they're maybe two generations away. And Ray-Bans, you're correct, Ben. They nailed the look of it. I think, yeah, I think he's one generation away from making it work. And if I was on the board of the company, I'd be like, YOLO it. Our stock's at five bucks. We've got cash. We've got smart people. Go for it.

1:35:29Let's see if it works. Throw the Hail Mary or whatever. It's more like a half-court shot than a Hail Mary. But I think he can hit the shot. It's definitely the future. It's definitely the future. We'll absolutely have these devices that we will be aware. and be able to augment and be able to have AI capability, it's 100 % of the future. Whether it's one generation away or the three generations away, I don't know exactly yet. Because the price point also, the form factor has to get small enough to not be BCG, as you call it. Yeah. And the price has to be low. Yep. Under$1 ,000. Well, actually, I mean, the counter argument to that is the iPhones cost$1 ,000, right?

1:36:07So that's why I picked$1 ,000. But it took us a while to get there. It took us a while to get to... They boiled the frog. They boiled the frog, exactly. With a three-year lifespan, a buck a day, if this thing lasts for three years, if your phone lasts three years, or if you sell it for a third of the price, you're, you know, every two years, or it's still at a buck a day. I think a buck a day is the right price if you were to abstract this. Let's do... I think it depends what it does.

1:36:32Turner Novak:Like, does it do anything useful? Like, I think that's the way it does. Yeah, go ahead, Alex. Show what it does. You had a couple of examples of the app layer. Yeah, I figured I'd show this off. Snap made a lot of noise about its developer support and how it's trying to help get more lenses built, I think is the apt term of art. This example shows, this is from a video, I took a still from it. This shows essentially someone using the glasses with a projected display in front of them. And in this example, they're using their hands to expand and contract the map, which is mildly more useful than holding my phone up in front of my face, but not too much.

1:37:04So I'm not quite sure why this is the killer use case, but I will say I agree with everyone here that AR in general is a really magical thing to use. I'm just not quite sure this is the thing that I needed in my life. I think the virtual desktop is the better example that the dorks who bought the Apple Vision Quest Pro and whatever, like they all share with me the same thing, which is like I have unlimited monitors. and I was talking to a friend of mine who's like a real nerd. And he said, if it wasn't for the weight, he would use it instead of having a desktop computer because the fidelity is so great and you can have so many windows open.

1:37:41So like this widescreen monitor where you're watching a YouTube video, you're typing, you're doing a chat GPT window, all those multi-window things look great. Listen, we're running out of time here. I always like to end the show with what we've learned today. This is a new feature. What we've learned today in generative AI. Number one thing we've learned.

1:38:02Turner Novak:Hold on, whenever you're ready. Is this a prompt? Here we go. We've learned that Ben hasn't upgraded his system since the Mac versus PC era. There's Ben with his thing. Where did you get that? Wow. Where did you get that? We got this photo of you. Well, we went on your Flickr account. These are old photos. We learned that Sam is listening. Nobody knows what Flickr is anymore. I know. It's deep. People are like, what is Flickr? You're making me feel old. Yeah, I mean, just look up the Wikipedia page. Here, the lives of others. Sam Altman, always listening. Apple sometimes kneecaps their own apps on purpose.

1:38:36There's your guy, Tim Cook, angling himself, I guess. I would have gone with the misery AI slot for that one. If you didn't know, I was an early investor in UberCab. We learned that today. Tokens are the new hard drives. That's something we might have learned. Walmart doesn't need AI to be native. That's a deep pull. Very well done. Peacocking. It makes you look less serious. And remember the four Ds, deal flow, decision-making, doubling down distributions. Don't start a seed fund. And you need to discover gems. There's Turner, Raiders of the Lost Seed Round. And finally, SnapMite, way to make specs happen.

1:39:17Hey, as we end the program, we had another guest on the panel, a good friend of mine, Joshua Bear. He died yesterday in a tragic flight. I found out before the show. Josh Baer was one of the great supporters of startups in the history of the technology industry. He was a dear friend of mine. I'm kind of in shock right now. I'm still processing it. I want to say a few words as we wrap up here about Josh as a human. when I was thinking about moving to Austin during the pandemic, he was so excited. And I just found like some DMs and it was during COVID to date this. And we were going back and forth talking about when I could come for a visit and he was going to help me find a home and he was going to help find schools.

1:40:06And he said to me when I moved here, anything I can do to support you, have some office space for you. And I said, I'd love to take you up on that offer. And our office to this day is that capital factory. Then he refused to let me pay rent. This is the mensch of all mensches. I said, I can afford to pay rent. He refused. He said, having you in the building is an incredible draw. He was texting with me yesterday, so excited to come on the pod and talk about the startups. And one of my team members showed me this tweet from 2017. This is September 12th, 2017 from Austin, Texas, the town he championed, Joshua Bayer.

1:40:39My life strategy, Number one, plant lots of seeds. Two, water everyone's. Three, repeat. If that doesn't encapsulate the spirit of Silicon Valley and the way we help each other, the way we support each other, I don't know what does. And rest in peace, Josh Payer. Couldn't miss you. Our condolences go out to Josh's family, all of our love. Yes. And thanks to our guests, Ben and Turner. You guys were fantastic. We'll see you all next time. Thank you.