YC Valuations, VC Slowdown, and Office Hours with CustomerIQ | E2136

0:00so important data here for entrepreneurs to consider the most important things here are that if you get product market fit early, you're going to be in great shape. Because if you get product market fit early, then you need to raise less capital and you own more of the cap table and you spend less time fundraising. People who don't have product market fit have to convince people, create arguments, as opposed to just showing their data and saying, talk to my top three customers. If your top three customers are over the moon, it's all going to work out. This Week in Startups is brought to you by Squarespace.

0:37Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10 % off your first purchase of a website or domain. Fidelity Private Shares. If you want the all-in-one equity management platform, Fidelity Private Shares has you covered. Visit fidelityprivateshares.com. Mention this podcast for 20 % off your first year subscription. And Inbound. Connect with visionary leaders like Dario Amode and Amy Poehler at Inbound 2025, September 3rd through 5th in San Francisco, the epicenter of tech innovation, and transform your business strategy for the AI era.

1:12Use code TWIST10 for 10 % off your general admission ticket at inbound.com slash register. Valid through July 31st. All right, everybody, welcome back to This Week in Startups. I'm your host, Jason Calacanis. With me, my co-host, Alex Wilhelm. How are you, Alex? Happy Monday. I'm tremendous. I can't tell you how glad I am to be back at work. This was a busy weekend, and nothing feels better than focus and time. Oh, very nice, very nice. I guess it's been a slow news week, so we'll see if we have anything on the docket that we can get to. I'm sure people have a lot of questions for me. Yeah, but first though, Jason, you're in LA, so we're coming here an hour later, but you wanted to talk a little bit about what you've been up to with the family, he said.

1:49Oh, well, no, I was just telling you, I went directly from Singapore to Los Angeles to do a quick Disney trip with the girls. That was quite nice. I got to do, I guess it's going to become a yearly tradition now to go there. And we had like, you know, the in-laws and, you know, friends from LA when we lived here. So we had 10 people. Oh, man. But we did this VIP tour thing again. And oh my Lord. So I did a little of that speaking gig money and put it towards the VIP tour. My speaking fees in Singapore go directly to my Disney adventure. But yeah, it was quite nice to take a day off. And then of course my phone is blowing up because everybody's asking me, Hey, where's the episode of the other podcasts?

2:35And I was like, yeah, refer to my tweet. I'm taking a beat. So we'll get to the news that we have in front of us here. there's so much going on it's almost hard to process it i see we have a lot going on in the venture space um and then a lot of people talking about early stage startups and their valuations which people listening to this week in startups are going to obviously really care about i know we're going to do an office hours at the end here but i had a great trip to singapore i don't know if we like recap the trip at all we talked about the tokenization of venture funds last friday but We had a short time frame because of housekeeping, if I recall correctly.

3:16Oh, yeah. Housekeeping kept knocking on my door at the hotel I was at when I first landed here. Well, my jet lag's good now. I'm sleeping. I've been trying out this Whoop. The founder of Whoop sent me the Whoop 5. Very interesting device, by the way. Now, I got comped out on it, so it's not like I paid for this. So take the review for what it's worth. Full disclosure, my old journalistic ethics. But it's actually kind of like an addicting device because it gives you like your stress, your energy, like your preparedness. It's much better than the Apple Watch's native software, obviously. But I kind of like my eight sleep sleep data a little bit better, but overall, a bit addicting.

3:52And I'm starting to see a double fisted friend. When I was in Singapore, you know, people there are pretty affluent, right? It's kind of like a Hong Kong, New York, London scene. So people are paying a decent amount for rent. And if you're there, you're probably making a pretty penny uh and there's zero capital gains tax in singapore by the way so if you if you were running a venture for you might want to real estate i mean whoa they were talking about that i was like wait i'm sorry one more time is that what you said zero percent capital gains is what i was told i looked it up it seems to be the case uh i think that's why i like the um the one of the facebook co-founders, Eduardo.

4:35Yeah, Saverin. Saverin lives there supposedly. Maybe he wanted to take a different route. He's been there for a long time, maybe 15 years. I don't know when the Facebook IPO was. But he had to pay an exit tax. So when you leave the United States, they make you settle up as it were. So if you had$10 million in Facebook shares and you went to Singapore, as I met somebody who was there who had just given up their citizenship. and so you know the other thing when i was in singapore the super interesting alex is i was talking to a lot of parents now these are uh people who are in typically uh mixed race or multi-ethnicity multiple um what would be the way to say it i mean a lot of people in singa multiple nationalities perfect but also mixed race whatever so multiple nationality um couples so you know one person's from america but lived in dubai was educated in london and now lives in singapore another person's from new zealand but grew up in japan and china and now lives in singapore like these are the one percent of the one percent of elites who travel the world doing commerce their children unlimited money resources and ability to move around the planet and live where they want to and um you know multiple passport holder type people right yep their kids they were saying don't want to come to america for school they're concerned one of them was concerned and their kids were in school and the talk in their class was hey hey, maybe we don't leave the country, America, to go on spring break or go see our parents over Christmas because what if we can't get back in?

6:23Yep. Maybe the parents have to come see them, you know, in Boston at Harvard or something because they're afraid they're not going to get back in. So it's like a real palatable frustration, fear, and even maybe on the margins, a little bit of anger or disappointment. And then on the trade basis, not understanding what's going to happen with trade for their businesses and that their businesses are looking at other options for trade partner. So I was, you know, sort of really taking pause on that because as somebody who travels the world on a regular basis, when I was in Dubai, Doha, Riyadh, Japan over the, you know, previous five years, it was always, oh, you're American.

7:08oh that's amazing my daughter is going to school you know in berkeley or oh my son is going to go is there on vacation and he wants to go be a ski instructor in tahoe like these are the conversations that were happening just you know the last five years not the last five months so there's something definitely happening in that regard but the reason this you know sort of applies to startups i think is a lot of these startups are going to not come to the u.s they're deciding to go to dubai or riyadh or singapore uh or australia or stay in europe or whatever but generally going to really super friendly places to business that and still attacking the u.s market right still going after u.s customers but just from a different hq which means different investors which means different employee bases not being based in the u.s i just look at that and i was It's like, hmm, I need to bring Foundry University, our startup program, to Singapore or Japan and the Middle East and maybe start capturing some of this energy if we're going to balkanize the startup communities and people are not going to come to the U.S., the best and brightest talent.

8:21Maybe it's time to create funds with foreign LPs, with foreign structures, foreign tax brackets, et cetera, and just domicile that. And then I just started thinking about that and I was like, wait a second, you know, I'm a, I'm not going to pop myself up here, but I'm a modest player in the startup ecosystem. And I'm thinking, you know, I fund a hundred companies a year, 50 of them wind up, 60 of them wind up, 60 of them wind up going on to get more funding. So, you know, you know, some of these companies, two of the companies I think are in the S &P 500. I think Robinhood's about to be put in the S &P 500.

9:01So two of my first hundred. bad news it didn't get put in and its stock went down and everyone's very sad okay so it was on the bubble but anyway you know right there yeah right there right so i mean i'll probably have two of my companies in my first hundred bets being the s &p 500 robin hood and uber that's kind of mind blowing maybe i'll do that again you know maybe in the next 100 i'll hit another two who knows it's anything's possible well jason we all know you do need more money i think about you every day and i think to myself jason calicanis he's just running out yeah so anyway what i just came to this conclusion of is there's a large number of deep pocketed individuals outside the world and future deep pocketed individuals who are just not interested in america anymore and that made me sad all right founders let's talk about your website i know disgraziad you're ashamed of your website.

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10:34I've been using this product for over a decade. Check out squarespace.com slash twist for a free trial. And when you're ready to launch, go to squarespace.com slash twist to get 10 % off your first website or domain purchase. Once again, squarespace.com slash twist. And then I thought, wait a second, And I'm talking about doing, spending whatever energy I have left as, you know, in the third act of my career and likely final, you know, see what happens with life extension. But, you know, if I'm in my third act here and it's going to be the last act of me, you know, in terms of professionally, I'm actually thinking like, maybe I spend half my time on things outside the US.

11:12This should be concerning to folks. And it was certainly concerning to me. So I'm just putting that out there. I'm going to write a blog post about it on my sub stack and just, but I think the opportunity means there's going to be a lot of opportunity for founders who, if you're not getting funded in the U S I think you can get funded quickly in Dubai, Riyadh, Doha, Singapore, you know, Australia, like maybe there's other startup markets. If you, you could equally get funded as you might in San Francisco. I want to, I want to stay on this theme though, because this actually dovetails well with both the YC conversation we're going to have given its centrality in the San Francisco, therefore US market, Jason.

11:55But just before we get into that, I want to point out that the discussion about people staying in their home markets and not coming to the United States to do business and so forth is not idle. It's happening now to some degree. So Mistral is a French foundational AI model company. We've talked about them on the show a couple of times, part of the Twins 500, and they've made a number of pretty cool agents and apps and so forth. Anyways, the reason why I have them on the docket today is that according to, I think it's the FT, Mistral has, quote, secured new contracts worth hundreds of millions of dollars.

12:26And that's going to help it raise probably about another billion dollars this year. What are these deals? Well, they're multi-year agreements with what I can tell is mostly European companies. So here we are seeing kind of the leading sovereign EU AI player absorb quite a lot of local business because, back to your point, I don't think the United States and US companies and US technologies have the same trustability, you might say, as they did six, 12 months ago. Now, in this case, it's helping this company grow that we care about, but those contracts could have gone to probably an American company two years ago.

13:00Yeah, they're not a major player. There's some protectionism, I guess, in Europe and the people want to use the local homegrown product. It doesn't make sense to me that these customers would use what is probably an inferior product, not the most competitive product. So I wonder what's going on there, right? Like, or maybe people are just testing it, but they only have 100 million worth of revenue, Mistral? Is that correct here? They're supposed to get to about 100 million this year, yeah. Oh, it's supposed to get to 100. So looking at that, combining it with the breaking news about OpenAI hitting 100 times that, I think that kind of tells the story maybe, which is the people who are using Mistral and they secured all these new contracts worth hundreds of millions of dollars.

13:52It's probably people sampling it and they could cancel it. So, you know, when you see hundreds of millions of dollars in contracts, always as journalists or as an insider, former journalist, you would look at it and say, you know what? That might be a five year deal that goes for, you know, five to 10 to 20 to 40 to 80. Or maybe they made the estimates of what those contracts are worth. So you have to take it with a, I don't want to say a grain of salt, but in context to this isn't going to the bottom line this year, perhaps. If they said they have hundreds of millions, a hundred millions going to come in here, that might make sense.

14:28The company, though, really agrees with you. They said that, quote, sovereignty is not our core business. But the company did say that in the last hundred days, it tripled, and in particular, in Europe and outside of the US. So they're trying to be not the EU's protectionist, like, you know, welfare beneficiary. They're trying to be a global competitor with open source models and agents. I just think that they're just seeing a lot of local demand because people have a little bit more faith and trust in them than perhaps a Microsoft or something similar. So I think they're playing it straight. But I do agree, though, Jason, we need to be cautious about these long term bookings because I don't know if a company came to you and said we have a five year contract.

15:04How many years of that are you going to give them credit for today? Two? Probably. I guess you'd have to look at the details in the contract and what the cancellation is. Most of these things have a three to six month out. So with three months notice or six months notice, you can cancel the contract. None of them would ever be like locked in. I wonder if even an NVIDIA contract for the most sought after product in the world right now, like H100s, would those even be guaranteed or not? Like maybe you have, you know, till three months out to cancel it. Like I said, when you order a car, you know, there's a point at which you can't return it, or you order a hotel room, there's a point at which you can't return it.

15:45In business, I would say it's usually a yearly contract. You get a discount for just doing the year. You can cancel with three months notice or six months notice within that year. So if you got to month six and you decided to cancel, you earliest you can get out as month nine or month 12, in which case you're just going to use it for the rest of the year. But it is interesting that they're saying people are looking to them because they don't want a U.S. product. That's kind of what they're saying is they're getting an uptick in European folks who want it. Yeah, a nice tailwind, if you will. But they still want to compete and sell everywhere.

16:15I mean, if they're going after the foundational market space, it does seem like that is becoming quickly commoditized, indistinguishable. you know they're kind of all leapfrogging us when you look at the poly market for who's going to have the best model uh which we could pull up right now i i notice it keeps changing so you know open ai and i think i think open ai and google gemini keep going back and forth as the most expected best model on the benchmarks and so here we have yeah this is the which company has the best AI model at the end of 2025, Jason. I picked the furthest timeframe that I could see.

16:58This market has about$900 ,000 in volume. So not the most, but not zero. And wow, Google has a 51 % chance right now. Open AI is in second place. XAI, 16%, Anthropic, 8%. And no, Mistral does not even make the betting, but Alibaba, Meta, and DeepSeek all get a couple of points each. So there you go. So this is like very interesting to look at because the people who would participate in that kind of a market are people with an ed. It's one of the things I love about Polymarket. Shout out to my friends at Polymarket. They are capturing that 900 ,000 are people who are deep insiders on betting. People who really are either working on the models, work with the models.

17:46you know some developer in ukraine who's looking at it going you know what uh some developer in sydney who's looking at it going you know what i think based on my firsthand knowledge it's going to be either gemini or open ai i use this stuff every day and i know their release schedule i mean this is by the end of 25 somebody might even know the release schedules right and so that's why this is so valuable to look at it's either going to be one of those two companies 85 percent i think if you put the first two together something like that was it 84 oh 74 put together so you know and then xai right behind them and in third place so you put those three together now you're looking at 90 so it's like it's a three horse race right now yeah mistral's not in it currently even met is not in it that's fascinating too with all the open source what mistral does a lot of open source work too and so we're actually seeing jason mistral and meta the two open source kind of what i would call leading lights apart from anything coming out of china really not perform as well as we might have expected because if you think about what we were saying six months ago we were saying you know maybe this open source stuff is going to be the the winners and doesn't seem to be the case yet at least i'm a little surprised it would make sense that the closed products with lots of backing those three have the most backing and the most hardware would do the best the open source ones don't have as much iron it's exception of meta but even meta i think it's behind on iron so and they're open source so they go slow to go fast and slow is smooth smooth is fast i think that's it the marines or something when they're cleaning their guns are yeah lacking or something so interesting uh you know i'm interested to see when people start betting on an open source model to win the day.

19:41This advertisement is paid by Fidelity Private Shares. All right, founders, we all know cap tables, due diligence, and of course, managing investors is a huge headache. But there's a very simple solution for you. Today, we're talking with Kristen Kraft, an old friend of mine, and she works at Fidelity Private Shares, a new group over at Fidelity. You've heard of Fidelity before. And they have a mission to help startups simplify equity management. They're going to save you money. They're going to give you better service. Welcome to the program, Kristen. Thank you so much, Jason. It's great to see you again.

20:14Yeah, great to see you as well. Maybe just from a product perspective, what are you trying to accomplish with the product? So, Jason, we are super excited about our CapTable Management and Data Room platform. We want to make it super simple for founders and startup operators to manage all sort of ownership and equity. in the company and essentially prepare to raise. We want to make sure that everybody goes into these fundraising conversations well prepared, they're ready to share their cap table, and that they're ready to go through due diligence as they're trying to close their round. So from a product perspective, that is where we're laser focused.

20:50And that product is really well built, really strong attention to detail in the way that Fidelity is known and beloved for. So if you want an all-in-one equity management platform, Fidelity Private Shares, they've got you covered. Visit fidelityprivateshares.com. That's one word, no spaces, no dashes. Fidelityprivateshares.com. And hey, mention This Week in Startups. They'll give you 20 % off your first year subscription. Once again, fidelityprivateshares.com and tell them that you heard about it here on This Week in Startups. Yeah, we'll see. In the meantime, the corollary to the story, everybody, is that OpenAI, about 45 minutes ago, announced via CNBC that they have reached the 10 billion ARR threshold.

21:32Jason, I'm not going to lie. I did not think that OpenAI, best known for, of course, for ChatGPT and the O series of reasoning models, was going to be this big, this fast. I knew it was growing quickly, but I didn't expect this data point for everybody, 3.7 billion in revenue last year. Jason, of course, that would put them at a higher ARR number at the end of 2024. But did you expect to see 10 billion this soon? no no um and i'm wondering how much of it is enterprise versus consumers that's like kind of the key here is how much of it is people just you you know startups who are raising a bunch of money big companies throwing jobs at it or the uh second pillar of their stool which is consumer subscriptions we did have that information previously from last year so do you have it handy by chance is it 50 50 is it 70 30 i don't have that exact split but i do have the most recent business announcement from them is that they went from 2 million paying business subscribers in february to 3 million i think it was last week 3 million and they business people pay 40 bucks a month or something it's 120 million a month at a minimum so that would be 1.4 4.4 billion yeah um i will say though cnbc did add that the 10 billion arr figure according to open ai includes uh consumer chat gpt business products and its api but does not include licensing revenue from microsoft and large one-time deals which makes sense as it's an arr number but i do like they gave that clarification so we can mostly trust that this is a reasonable annual recurring revenue figure versus just kind of a run rate statistic.

23:19I like that. Yeah, it's pretty impressive. I do think we're going to see the consumer products are going to be free. I think that the idea that consumers are going to pay for this, that could be a short-term thing. People used to pay for the Netscape browser. Yeah. They don't pay for their browser anymore. So I don't think subscription revenue will be a thing. I think subscription revenue is a thing right now because these are expensive products to run, to operate. But as they get cheaper to operate, there's no reason Apple, Google, or Facebook would ever charge for them. They'll just include them in their free product.

24:02So then what does the pro get you? Like it might be the pro is kind of like getting extra storage from iCloud. cloud the pro could be i don't know having your badge on twitter x i don't i'm not sure what the pro version of all this is but i think you're going to get 99 of 100 queries that'll be capable of being done by a free service that's advertising based which could be the third leg of the stool i wouldn't be surprised if in the next year or two sam maltman says we now have an advertising product, you put in your URL, you put in what your product's about, and we present it to users and you pay us a dollar cost per click.

24:43And it's just integrated into the text. If you use the free product, you have to see an ad before you use it. You have to watch a video before you use it. Or, you know, on the sidebar, there's links or in between your answer, there's links. You have to click a link to see an interstitial and then you get your result. Yeah, actually, that would work. I just figured out the new model. While you're waiting for your results, you have to wait 15 seconds or 10 seconds. You have to watch a video commercial while your result's doing. And just like the five second skip, that would be the perfect model for a free version of ChatGPT.

25:15Just enough friction to make you pay if you want, or just enough friction to monetize with an advertisement, but not so much that it ruins the experience. I dig it. And backing up your thought there, Jason, don't forget they hired Fiji, the um former ceo of instacart she is previously not only of instacart but also of meta which makes money off advertising and under her tenure instacart made a lot of money off advertising inside of its application so quite a lot of bona fides there on that front uh i found the number by the way 75 percent of open ai's revenue last year is was thought to be consumer that's an extrapolated stat not a hard one from the company but even if it's directionally accurate i think it's fair to say that the company is still a majority consumer business, which I think makes the revenue seem a little bit less solid, given what you're saying about the potential for disruption there.

26:04But at least for now, it's working. I could see, you know, like I was thinking the other day, like how many of these things am I actually paying for? Maybe I need to cut a couple, like if I'm paying 30 bucks a month for five of them, I think I'm paying probably 1800 a year. Sure, a business person is not a lot if you're and for somebody who covers it as an investor, There's not a lot, but even I was thinking like, yeah, maybe I'll cut the bottom two. Do I need to have that? Or maybe I'll get a backup account that I share with the entire team on one common email address, you know, so we can sample it once in a while.

26:35What's going on with the venture funds slowing their pace? Because I think this is also kind of an interesting trend if we're going to get into it. I think Wednesday we're going to have our first VC roundtable on the show. Is that right? We are. I'm starting to work on that actually right after this show. We're going to get the outline pulled together. so everyone expect a fun episode on Wednesday. Okay, so venture fund investing pace. Here we are talking about a chart shared by Megan Reynolds. Regular viewers of the show Jason will recall that she came to the 2024 liquidity summit. We shared her talk in episode 2008.

27:09If you want to go hear how she discusses the LP side of relationships in the venture game, and that's because she leads both talent and capital formation over at Altimeter. All right, all that said, she shared a very interesting chart showing the time between funds and you're going to pull up this chart here jason and just give everyone a quick overview if they're on the audio it's a time series chart tracking data from 2005 to 2024 and it shows how many months between funds from the same firm and it gives a middle 50 interval and then also a median number and it breaks this data into three categories, the kind of like olden days from 2005 to 2013, then the acceleration through COVID, which was 2014 through 2022, and then the last couple of years.

27:57And just to kick you off here, Jason, I ran all these numbers into a sheet and the average for the first era was a 45 month gap between funds. Then that fell to a 29 month gap in the accelerated COVID era ZERP period. And then most recently, it's come back up to 31.5. I'm curious what you see in this data. It's fascinating. I think people used to raise a fund and they were methodical deploying it over three or four years from 2005 all the way to, it looks like, sorry, the chart just went off the screen. Oh, I'm sorry. I was, don't worry about it. I have the chart on my notes here. so just looking at it in my notes here if you look at or maybe leave it up so the audience can see as i as i sort of sportscast it but if you look from 2005 all the way to 2014 that goes through the great financial crisis right and uh and uh right up until things started to boom and you have the average i'm looking at the average dots which are in the middle and it starts in 2005 with 49 months to deploy a fund right that's after the dot-com bust and then we see 52 36 42 41 46 47 45 48 and then all of a sudden a sudden drop to 36 months to deploy a fund in 2014 so that's an interesting 10-year cycle there of where people were taking you know 40 some odd months three and a half four years i've always thought three years of primary investing was the the right timing between funds, maybe four.

29:36Then we get into sort of Zerp, it's getting really hot in here kind of era. And oh my Lord. You know, here at This Week in Startups, we try to keep founders just up to speed on all these trends in AI and marketing, but we can't do it alone. But you're also going to need to connect in person with your colleagues and partners and innovators, there's no substitute for in-person. So if you want to connect with visionary leaders and personalities like Dario Amodi, Victor Ripperbelli, Dharmesh Shah, my friend, and more, your chance is to do that at Inbound 2025. That's right, the epicenter of tech innovation that will help you transform your strategy as we approach the AI era.

30:21It's happening this year from September 3rd to 5th in my old hometown of San Francisco, California. It's a rare chance to really immerse yourself in San Francisco's unique venture ecosystem where new companies can quickly evolve into billion-dollar unicorns and beyond. Use the code TWIST10 at checkout to get 10 % off your GA ticket at inbound.com slash register. Inbound.com slash register. That's inbound.com slash register in 2022 there was a 20 month and in yeah 20 if you look at 2020 2021 2022 that kind of tells the story 23 24 and 20 months between raising funds you've got numbered sequential funds that's wild that's wild that means in 20 you were going back to your lps every you know and a half three years it's just crazy um and now we're back up to 34 it looks like um so reversion to the meme mean um or the meme reversion to the meme um but yeah zerp was not thoughtful and then what happens is there's a very practical thing that happens here alex if you concentrate all your bets in a two-year period versus a three or even better four-year period if you take four years, then if there was a boom or a bust that happened, you might have two years of boom, like peak ZERP, and then two years in the trial.

31:50Or you might have just rid the last four years of the boom up, but at least the first two years might not be what would have been as unreasonable. Or you could have gotten lucky. All four years are deployed at the bottom of the market, like we are, I think, over the last year or two, and then boom, it all comes back and you're a hero. Or the 2009, 10, 11, 12, 13, 14 vintages that were just Airbnbs, Coinbases, Ubers, etc. Lots of juicy stuff in there. The compressed timeframe then just really makes your venture funds bets incredibly concentrated on a time basis, which is worrying to me. But I want to go back to the 2014 point.