🎧🍌 15 Hot Takes on VC from the 2026 Allocate Beyond Summit
Why traditional Seed is dead vs why it’s not, swallowing an entire bottle of the power law pill, robotics hype, why AI is the most powerful technology ever, why it's a bubble that crashes this summer
I just attended Allocate’s Beyond Summit in Deer Valley, Utah.
The 3-day, closed door event felt like a peek into what the top emerging VC’s and the LP’s that back them are thinking about.
Allocate asked me to record an episode of the show, live from the conference.
So I asked 15 investors “What’s your hottest take on the VC market today?”
Slightly different episode format, but I think it turned out pretty well! Please let me know what you think.
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Timestamps to jump in:
1:22 Seed investing is dead (Tripp Jones, Uncork)
5:56 Seed is not dead (Bryan Rosenblatt, Sandlot)
13:19 Most consensus era of VC ever (Nate Williams, Union)
18:02 Taking the Power Law Pill (Pratyush Buddiga, Susa Ventures)
29:15 2nd-time founder premium is dead (Matt Cohen, Ripple Ventures)
32:46 AI will crush intelligence labor (Clark Cheng, Merrimac)
42:25 New deep tech investors will lose their shirts (Sunil Nagaraj, Ubiquity Ventures)
46:39 ChatGPT for robotics is still 15 years away (Sungjoon Cho, Fortitude Ventures)
52:07 The app layer ARR reckoning (Josh Christensen, Mercato)
58:30 The AI bubble will pop in Q2/Q3 (Amias Gerety, QED)
1:08:22 Most individuals do VC wrong (Jon Oberheide)
1:15:25 Allocators have become too allocator-y (Dan Feder, University of Michigan)
1:20:55 LP’s should value information, not just returns (Ben Ivey, Marshall Street)
1:24:09 Upcoming litigation of Russian doll SPVs (Asher Siddiqui, Song United)
1:30:13 Why retail needs private market access (Sarah Pinto Peyronel, Robinhood Ventures)
Referenced:
Check out Allocate and their 2026 Beyond Summit
The Power Law: Venture Capital and the Making of the New Future on Amazon
👉 Stream on YouTube, Spotify, and Apple
*This podcast is produced by Allocate for informational and educational purposes only and is intended for institutional, accredited, and qualified investors. Nothing discussed constitutes an offer to sell or solicitation to purchase any security or advisory service, and nothing should be construed as legal, tax, or investment advice. Any offering will be made only pursuant to applicable confidential offering documents.
Views expressed by participants are their own and subject to change. Any discussion of target returns, projected outcomes, IRRs, MOICs, or other performance metrics is hypothetical and illustrative only and should not be relied upon as an indication of future performance.
Investments in private funds are speculative, illiquid, and involve substantial risk, including possible loss of the entire investment. Past performance is not indicative of future results.
Certain guests may have financial or other interests in the opportunities discussed. Allocate Management Company, LLC is an SEC-registered investment adviser. Registration does not imply any level of skill, training, or SEC endorsement. Please consult your own advisors before making any investment decision.*
Transcript
Find transcripts of all prior episodes here.
Tripp Jones (Uncork Capital)
Turner Novak:
Tripp Jones, Uncork Capital, welcome to the show.
Tripp Jones:
Thank you very much.
Turner Novak:
So you had a hot take. We had another guest on saying that he doesn’t think seed’s dead. What is your opinion on this?
Tripp Jones:
I mean, I’m not sure how my four partners are going to feel about this, but we’re going through a really weird time. Uncork Capital is a 22-year-old, seed-exclusive firm. We obviously live, breathe seed. My partner Jeff Clavier invented seed, or was one of the inventors of seed. To say seed’s dead is a little spicy.
But what we’re seeing right now is the power law has never been stronger. The biggest companies are becoming unfathomably big. The multi-stage funds recognize that. They’re putting a tremendous amount of capital in a handful of firms. And then what’s seed now? What is seed now?
Turner Novak:
It’s like a Series B from a couple years ago.
Tripp Jones:
I don’t know. If you’re coming out of the right frontier lab, you can raise $100 million. If you’re super special out of a frontier lab, you can raise a billion dollars in seed. Is that seed? But even outside the top 20 new companies, all of a sudden we’re seeing $25 million seeds, $5 million inception stage checks. That breaks our models, and I think it breaks all our models. We’re one of the bigger seed funds there is, and we’re struggling with the new norm, trying to figure out what to do about it.
Turner Novak:
What have you done so far? Like, how are you navigating this? What do you do?
Tripp Jones:
Yeah, what do we do? We play the game on the field. If seed rounds are not $3 million, they’re five, we’re going to do five. If they’re not five, they’re eight, we’re going to do eight. But it really messes up our portfolio construction. We have to look long and hard, in partnership with our LPs, being like, “What do we do about this?” Because we can’t get the shots on goal we need.
So are we all going to raise $500 million for seed funds? Like, does every seed fund need to be $500 million? I hope not. But right now that’s where it’s trending.
Turner Novak:
So did you guys raise a bigger fund with the last fund?
Tripp Jones:
We raised last year. We raised $225 million for our core seed strategy. That’s an output based on what we think the seed market is. And 12 months later, it’s too small. It’s just fundamentally too small. Unfortunately, I don’t think it’s getting better. Maybe things will come back in a year, but tomorrow is going to be more expensive than today, and that’s something we’re grappling with. So traditional seed is dead right now.
Turner Novak:
Some of the opinions on this podcast is just AI’s a massive bubble, right? And it’s going to pop at some point here. Do we see just a reversion back where we get a $2 million seed round again? Do you weigh that out at all?
Tripp Jones:
I don’t think AI is a massive bubble. Well, let me, let’s define bubble. It depends how you define this.
Turner Novak:
Let’s define bubble.
Tripp Jones:
Let’s define bubble. Should you be able to raise $100 million just because you’re a smart researcher from the right lab at a $500 million valuation? No, that’s stupid.
Turner Novak:
Agreed on that.
Tripp Jones:
I think the potential is real. And the idea that we can build, not billion, like, how cute is a billion-dollar company these days?
Turner Novak:
That really is like an inception stage.
Tripp Jones:
If you went to any good multi-stage firm and said, “I’m building a billion-dollar company,” which is objectively amazing and incredible, hard to do, they would just be like, “Get out of here. Get out of here, kid. You’re not thinking big.” I think if you’re pitching anything lower than $5 billion, you’re not getting funded. That’s a hole in the capital markets, and we’ve got to figure out what to do.
So is it a bubble? Maybe. But as long as the prospects of building hundred billion dollar companies, trillion dollar companies is there, that’s where the big capital, smart capital is going to focus.
Turner Novak:
The other way of framing this is like Anthropic went from one to $43 billion in a year. That breaks the laws of business. It’s just impossible.
Tripp Jones:
I’m always kind of telling our team, “Just divide everything by a thousand so the numbers seem rational.” When you’re doing analysis, divide it by a thousand and then multiply it by a thousand at the end. Because psychologically it’s impossible.
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Bryan Rosenblatt (Sandlot)
Turner Novak:
Bryan Rosenblatt at Sandlot, welcome to the show.
Bryan Rosenblatt:
Thank you. Thanks for having me.
Turner Novak:
So we were mentioning, is traditional seed investing dead?
Bryan Rosenblatt:
I strongly believe it is not dead, although I understand why the narrative exists.
Turner Novak:
So what is the narrative? Just kind of go there.
Bryan Rosenblatt:
I think the narrative is these AI companies, their first rounds look like growth rounds or Series A or B rounds. The headlines are $100 million seed round at a billion dollar valuation led by a top-tier investor. So a lot of the commentary is, what does that mean for smaller seed investors?
Turner Novak:
A lot of the narrative is just like, there’s no rounds happening, those companies aren’t relevant, like the funds by therefore aren’t relevant. That’s a lot of what the narrative is. So you don’t think that’s the case?
Bryan Rosenblatt:
Yeah, I don’t think so. Right now it is really easy to look smart investing in consensus AI companies at whatever valuation. If you invest in those companies and take a founder who spins out of OpenAI or a name brand startup, and they’re doing something in AI, they raise a massive round. They’re getting marked up once, twice, three times in a year. So I think there’s a dopamine hit sort of happening, where investors are investing in something and seeing these markups.
Turner Novak:
Yeah, it feels so good.
Bryan Rosenblatt:
We’re used to waiting years and years for markups and exits and that sort of thing, and we’re sort of being spoiled by what’s happening. But I don’t know that all of it is real. It’s all kind of on paper.
The earliest stage investing, like true early stage investing, it’s non-consensus. Usually when you’re investing in something that’s going to really work and it’s not consensus, you don’t look like a genius right away. When you make the investment, not everyone is saying this is going to be the best investment.
So for seed investors, for any investors, to take an early bet on something where maybe the founder is a little different, or the space is a little unique, but to not look like a genius right away while your peers are all getting markups, that’s a very hard thing to do. That’s leading to this narrative of seed is dead, all the money’s flowing to these companies raising massive rounds.
Turner Novak:
I get a lot of, when I’ll have a conversation with an LP, I’ll be like, “How are you seeing these deals?” Like, I don’t know. I just don’t pay attention to the company that’s raising 10 million to get started. I say, “Hey, I want to invest in companies that are raising a couple million bucks to solve some problem, prove a hypothesis,” and there’s actually a lot out there. You just don’t see the headlines about them.
Bryan Rosenblatt:
Correct.
Turner Novak:
Because they’re less exciting to talk about.
Bryan Rosenblatt:
Totally. There’s still a ton. And I feel like the best investments I’ve made, when I made them, they weren’t always the most competitive seed rounds. It wasn’t like, if I told an LP or someone about it, it wasn’t, “Oh, that’s an amazing category to invest in.” It took years for them to prove it out. I think that’s still going to happen.
But again, because everything’s getting marked up so quickly, it’s really hard for investors to go out on a limb to their partnerships and say, “I want to invest in this thing that doesn’t scream obvious AI.” That’s kind of leaving a gap. But I’m seeing firsthand there are interesting early stage seed deals. They are under the radar. They are harder to find. It’s harder to pick. So the rise of these larger and larger funds, plus all the talent we’re talking about, makes it seem like seed may be dead, but I think it’s very much alive.
Turner Novak:
The way I kind of square this up is a lot of people have made this analogy of venture kind of evolving like private equity did. If you look at how private equity works, there’s almost lower middle market, middle market, upper middle market, buyout. Lower middle market is like pre-seed and seed. Middle market is like Series A. For each of these businesses, your returns are driven by growing the company and a multiple you’re paying on the earnings.
In the lowest band, you’re buying companies for three times EBITDA. In PE they grow the company and sell for five times EBITDA. Next band, they grow the company at eight times EBITDA, whatever. Eventually maybe they go public, I don’t know. PE’s kind of in a weird state right now, but venture’s kind of the same. When you’re coming in at a pre-seed and seed, then doing the Series A, the Series B, the multiple’s kind of expanding really throughout the stage. So you can choose, are you entering when there’s no hype multiple? What level of hype multiple and publicity brand multiple are you investing at?
Bryan Rosenblatt:
Totally. These are all different games. They’re all different games, and I think as investors we have to pick and choose the game we’re going to play. Some of us are better earlier versus later. Some of us have brands and fund sizes that allow ourselves to do better at one size or another.
I think a lot of the seed-is-dead narrative is coming from a place of funds getting larger and kind of talking their book. If you’re a massive multi-billion dollar fund, spending a ton of resources on $5 million, $3 million seed rounds doesn’t make a ton of sense. It’s also a lot harder to pick that early, so why not wait?
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Nate Williams (Union Labs)
Turner Novak:
Nate, welcome to the show.
Nate Williams:
I’m so happy to be here, Turner. I’m a big fan. I’m glad we finally were able to see each other face to face.
Turner Novak:
Yeah. Thank you. Thanks for doing this. So we were talking earlier, you think right now is probably the most consensus era of VC that you’ve just ever seen. So what do you mean by that?
Nate Williams:
Yeah, it’s interesting. The headline, if you say spicy take, we are in literally one of the most consensus times in venture there’s been.
Turner Novak:
Even more than COVID?
Nate Williams:
I think if you pull out the macro, you start to understand. There are three things that kind of underpin what’s happening right now. We’re here at the Allocate Beyond Summit. The first thing that was talked about is $3.7 trillion in the next four years coming into private investments. Companies are going public much later. A lot of money’s crowding into the SpaceXs, the Andurils, the Databricks, the Stripes, etc. So that’s part one.
The second part, which you and I have talked about, is effectively venture capital’s changing. We’re not Sequoia or Kleiner Perkins in 1972. These are now multi-stage, multi-strat, and the top five firms have raised 80% of the capital year to date. Those two things combined can lead to a consensus nature because there’s only so many people that can do king making.
But I’d say the most important thing, which gets talked about nonstop, is AI. I happen to think artificial intelligence in terms of scale and magnitude is 5X, 10X, 25X bigger than social mobile local, than what we saw with SaaS, than what we saw with comms networking. There’s a reason for the hype. I think Bilal from Red Glass made a really good comment on a panel we were on, which is, “Are we in venture capital or access capital?” The part that scares me about where we’re at in the cycle right now is, are people coming in because they want access to something that looks like winners, or are they underwriting real venture risk?
Turner Novak:
I think of it as like, adventure capital. We’re going on an adventure. You have this kind of problem that you found. You think you might be able to solve it, or you did solve it. You think maybe there could be a company here. We think these customers could be valuable. This could do billions in revenue. This could be a public company. But this is very far from figured out, and we’re raising a couple million dollars. Try to go on this adventure and figure it out. I think that’s really what venture capital is, and we kind of need to rebrand the spreadsheet stuff.
Nate Williams:
I love it. Obviously the roots of venture capital coming from the whaling industry, right? You would go out whaling in the 1600s.
Turner Novak:
Literally in the middle of the ocean getting into venture capital.
Nate Williams:
Yeah, you’re like, “Hey, we may not come back, and so you,”
Turner Novak:
We might die.
Nate Williams:
Exactly. And so if we do come back, you deserve to not only get all your money back, but we will give you 80% of the profits. Maybe the sports analogy would be, if all of a sudden there was two times the number of NFL teams, then maybe there would be more Division 1 football players, right? So I think more AUM leads to this idea that there may not be more amazing entrepreneurs, so you may need to load up on the winners.
My biggest fear, I would say, as a seed manager, where effectively I write a pre-seed or seed check into somebody doing something really hard in deep tech applied to the physical world, is I think there is a possibility, I don’t think it’s a probability, that the actual power law starts to get even farther segmented and skewed. There’s less and less outcomes, and those outcomes are massive. So take what we currently define as a power law, but it’s 10X more of a power law.
Turner Novak:
Exactly. Instead of 100 unicorns, you basically only have five companies, but those five companies are 50X more valuable. They all look like Anthropic or OpenAI or Stripe.
Nate Williams:
And so basically what that is, if you don’t have that in your Series A to Series C fund, you probably don’t have fund returners. So again, you and I, at the earlier stage, I really focus on founder quality and can I be a helpful partner in the journey?
The vibe here is we’re in a period where the entrepreneurs are off the charts. Technical acumen, ambition, our problems, healthcare, climate resilience, are unbelievable. But the one thing that gives me a little bit of pause is, a lot of this ton of capital prior to any commercial traction whatsoever.
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Pratyush Buddiga (Susa Ventures)
Turner Novak:
Pratyush, welcome to the show.
Pratyush Buddiga:
Hey, good to be here.
Turner Novak:
Yeah, thanks for doing this. We were just talking earlier, you think that the way we think about the power law, well, how do we think about the power law right now in the sense of venture investing?
Pratyush Buddiga:
Yeah. One way I’ve thought about it is the power law pill, as I call it. I think it’s kind of the obvious understanding if you look at your own portfolio. In any single fund, there’s one company or maybe two companies that drive the majority of returns on that fund. If you look at Susa Fund one, it’s Robinhood. We have other great companies in that fund, but Robinhood delivers an order of magnitude more performance than the rest of the companies.
Turner Novak:
You might have one that returned the fund.
Pratyush Buddiga:
Yes.
Turner Novak:
But Robinhood returned you like 10, 20 times over.
Pratyush Buddiga:
Yes, exactly. Fund two is Stord, and fund three is Chapter. These companies are 10, 20X the returns of the other companies. Every manager knows inside their own funds, there is going to be a power law company, as it were.
If you look at the broader asset class, in an individual year, there’s going to be a few companies that drive the majority of returns for venture in that year. And then if you look at a decade, there’s going to be a few companies that drive the majority of returns over that decade.
This idea of the power law has been understood by investors for a long time. Sebastian Mallaby even wrote a book called The Power Law, which is about the history of venture. But the way I’ve sort of put it is, I think in the last couple years, venture investors have gone from taking the power law pill to swallowing the whole bottle.
Turner Novak:
It was just you got your first job in venture and you just chugged it all.
Pratyush Buddiga:
Yeah. And I think it’s had a lot of interesting implications that we’re seeing right now in the market. There’s seed, and then the way it’s playing out in Series A and Series B market. I’ll talk about seed, which is where we invest mostly. Venture investors have gone from price matters, entry price discipline, blah, blah, blah, where at seed now everyone’s just like, “Price doesn’t matter.” The justification logic is if it’s a power law company, it doesn’t matter. It doesn’t matter whether you and Robinhood hit a 10, 20, 50, 100. The return was so insane you would’ve just wanted to be in that company no matter what.
Turner Novak:
What is it now? It’s like a $100 billion public company or something.
Pratyush Buddiga:
Yeah, exactly. Aileen Lee earlier today was talking about the first round of Cerebras. It was at 100, and you obviously want to be in that company. Anduril was at 80. No investor was like, “Oh my gosh, I paid too much for that seed.”
Now, where that can lead to sloppy thinking is, those companies were exceptions to the rule, and not every company that you meet at seed is worth a 50 price or 100 price. But I think most seed investors have sort of reverted to this idea of, well, as long as I think it’s a potential power law company, it doesn’t really matter, so there’s no reason in having price discipline. So that’s one interesting part. Happy to talk about the Series A, B market first, or we can just talk about seed first.
Turner Novak:
Well, so then what’s going on with Series A and B? Is it just the same thing on just a greater scale?
Pratyush Buddiga:
It’s interesting, there’s two parts to it. There’s the way that venture funds are looking at the Series A, Series B that’s very different than the past, and then there’s the ones that are exceptions.
What I’d say is what’s different than the past is that Series A and B used to be the bread and butter of venture. Brook Byers is Chad’s dad who started Susa. I talked to him about it. It’s like Kleiner, those firms built their reputation on, we were the Series A investor. We did Amazon, we did Google. If you were an aspiring venture capitalist working at a large firm, you wanted to lead the Series A of a company.
What’s happened now is that people look at these companies at the Series A and Series B, and they’re like, “I don’t want to invest in a company and that not be the power law winner in a category.” If I invest in a Series A of a company and then someone else leapfrogs them a couple years later and I didn’t invest in the power law company, I screwed up, I messed up. People would rather wait till the Series C or the Series D to just put $100 million, $200 million into the known power law company.
That’s changed the market. Five years ago, if you went from zero to one in ARR, you could expect to raise a Series A. Now we see AI companies that go from zero to five in a year, and the top 25 firms in the Valley are not interested at all. They’re like, “Not sure about this category. Is this going to be the category winner? We’re just not sure. We’d rather just wait till the next round and see.” That’s a notable difference in the market.
There’s two exceptions to that when it comes to Series A and B, where I think multi-stage funds are still excited to play. One, they’ve decided broadly that this is for sure an important category in AI. You’ll see in AI for legal, AI for ITSM, AI for ERP, there’s been three or four different funds that have made their bets in those categories. We’re in a company called Rillet, which is an AI-native ERP. Sequoia and Andreessen did the A and B of that. Lightspeed has an investment in a competitor. Accel has an investment in a competitor. Because everyone broadly agrees, okay, if you build an AI-native ERP, it’s a massive category, people are willing to take that risk.
But if you’re building AI for a different vertical category, and people are not really sure, they’re like, “I’ll just wait.” It’s kind of like the old, we’ll just pay up at the A.
Turner Novak:
Yeah.
Pratyush Buddiga:
We’ll pass on the seed, we’ll pay up at the A. It’s like we’ll pass on the seed, the A, the B.
Turner Novak:
Yeah, maybe the C.
Pratyush Buddiga:
Because the worst thing you can do is conflict yourself out of the winner, right? If you’re in an AI for finance company, and all of a sudden, Rogo comes out and is starting to win the category, you’re like, “Oh, I did the Series A of the non-Rogo company. I made a huge mistake.” I think people are very conscious of that.
The other exception beyond category I think is for consensus teams. You’ll see these successive rounds, two, three, four rounds in an individual company without much de-risk in between, where investors broadly have decided this team is so amazing, it doesn’t even matter. It’s a power law team, so I can just take that risk.
But for a lot of our seed companies, for a lot of seed companies broadly, the time to Series A is elongating. The metrics you need are much higher. To get the attention of the top 10, 15 firms, you need to be truly, obviously legible and special very early, which was not the case a few years ago.
Turner Novak:
So then how does that change the strategy you think makes the most sense at the pre-seed and seed stages?
Pratyush Buddiga:
Totally. We’re still investing in people with just an idea, pre-consensus. I would put it that way. One thing we’ve had a meaningful shift about, and I’m even thinking about a specific portfolio company right now, where previously building heads down in stealth and all of that was kind of cool or fine. Now being legible to capital, if you’re not an obviously known team, is important. Being on Twitter, talking about your research or the breakthroughs you’re having, all this is more important than it’s ever been.
The classic, oh, seed investors just introduce you to the Series A funds and they’re all excited to do a Series A investment is not necessarily true unless it’s a clearly known category. For our companies that are not obviously X OpenAI or whatever, or it’s a category that people are already excited about, if they’re pre-consensus, we have to do a better job of making them legible to the capital markets. Some of that is storytelling, making individual introductions to those investors long before the Series A, so they get to know the team over six to 12 months and they’re like, “Oh, this person’s really special.” I think that’s just a meaningful change in how we think about things.
Turner Novak:
We have the one shared investment that we can hype on the podcast.
Pratyush Buddiga:
Yeah.
Turner Novak:
It’s Hanover Park. I think maybe a year or two ago it might have fallen into that case of just like, what is this product even? We’re not really sure, but the founder needs to prove it, get some customers, etc. He’s done a really good job of being public, helping people understand the product, the company, the opportunity. Also a really good founder. And then the interesting thing is there’s just this whole using AI to replace the services business.
Pratyush Buddiga:
Yes. He’s falling right into the category that later-stage investors are excited about, right? Services and software. Playing into those trends is probably more important than it’s ever been.
There’s obviously interesting implications. I think about one thing. Right now if you’re a Series A and B investor, there’s actually a lot of great companies out there that the top firms are not necessarily looking at, are just waiting. You could be that Series A investor or Series B investor before they go and do the $100 million or $200 million check of the C or the D. I think there’s an opportunity for contrarian,
Turner Novak:
Series B, which is insane that that’s a thing.
Pratyush Buddiga:
Yeah, contrarian indeed. Which is crazy because you would think the Series A is the most competitive space. It is competitive for the hot, obvious companies. If you’re trying to get into the company that everyone in the Valley is chasing after that week, yeah, as a new Series A fund, you’re not going to do well. But if you’re looking a little bit beyond the obvious known companies that have three people who came out from OpenAI last week, there actually is a lot of opportunity.
Turner Novak:
I feel like the canonical thing in this is the podcast with the one big multi-stage firm that’s just like, “We won’t even take a call unless you do one to 100 in the first year” or whatever.
Pratyush Buddiga:
Yeah, exactly. We’ve all seen that clip.
Turner Novak:
And you’re just kind of like, I don’t know, that’s a little bit extreme. But that’s the view that a lot of people have, and you went one to 50. That’s still absolutely insane. You went to 50 million in revenue after a year?
Pratyush Buddiga:
Yeah, and it’s just, again, such a notable difference than before. Five years ago, zero to one, you could get some venture fund in the Valley would give you a Series A. Now, they’re like, “Oh, I don’t know about the space. Is the TAM really big?” Everyone sees the growth rates of these other companies and they’re like, “Okay, it’s not as good as Cognition, so I’m not going to invest.” Cognition’s obviously a great company, but there are going to be other great venture-backed companies that come out of this AI tailwind, and I think there’s real opportunity for sure in that stage of the market.
These things are cyclical. Eventually some brave junior partner at one of these firms will start doing some of these deals and will make a name for themselves, and it’ll just, it’s always going to happen like that.
Turner Novak:
Yeah, I mean, like, some of the Anthropic rounds were that.
Pratyush Buddiga:
Totally. Yasmin from Spark, she was doing really non-consensus growth stage investments and clearly cemented herself as one of the five best of the last decade. Because she was willing to do stuff that other people were like, “Oh, I can’t take this kind of risk.” I think someone’s definitely going to be doing that for these AI companies that are doing really well but are not in an obviously massive category like ITSM or ERP, or a team that’s in a niche that’s going to become obviously really big in a couple years, but people aren’t looking at it yet.
Turner Novak:
I think the interesting thing too as a seed fund is there’s less competition, so you can get way more ownership in the companies. You can build way better relationship with the founder because other people aren’t trying to wine and dine them all the time. Selfishly we’re able to help them a little bit because no one else wants to help them.
Pratyush Buddiga:
Yeah, I guess. Totally.
Turner Novak:
All these things we’ve talked about, different pieces of it are good for different participants in the ecosystem.
Pratyush Buddiga:
Totally, and yeah, it’s like these things will always change. Right now I think there’s a lot of alpha in A and B, and there’s probably less in just consensus seeds at, like, 30 to 50, but there’s just stuff you can do to always, you kind of want to shift with the market, I think, if you can.
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Matt Cohen (Ripple Ventures)
Turner Novak:
Matt, welcome to the show.
Matt Cohen:
Oh, excited to be here, Turner.
Turner Novak:
So you had a really interesting thing you brought up earlier. You think the second time founder premium is dead.
Matt Cohen:
Yeah. That’s a little bit of a,
Turner Novak:
It’s spicy.
Matt Cohen:
Spicy. Yeah. So why do I think that? I obviously think that founders that have gone through Death Valley before and have experienced how hard it is to build a startup, we’ll never be able to take that away from them. I think that’s really important.
But I think the premium that we’ve given historically to founders that have gone through traditional B2B enterprise sales motions and those playbooks definitely do not have the same skill sets that could be applicable to an AI native founder who is a first-time founder, let’s say spinning out of Anthropic or Cursor or OpenAI. Because of the velocity and speed at which products are being released now, products need to be built and kept up with. That is definitely something people should pay more attention to.
We have companies on both sides, second, third, fourth time founders who are not able to move as fast as first time founders. The premium we are now showing first time founders is warranted because of the ways that they can deliver on product roadmaps, customer implementations faster, and things like that.
Turner Novak:
It’s definitely one of those, oh, I got this buddy who sold his last company, he’s raising 5 million bucks. We’re just going to give him some money because he made us money last time. It’s the whole second founder premium where it’s like, we don’t care what he does, we’ll give him money.
Matt Cohen:
Totally. I’m not saying that experience is invalidated. I’m just saying the curve is inverted. Those founders that are a little bit more in the weeds on how products are being built right now to keep up with that speed velocity have an advantage on that side. But they still need to find operational missionaries that can come and join them and build the company when they get to 5, 10, 15, 20 million of ARR.
Because, yeah, first time founder, that’s a lot of pressure to go from 5 to 50. You still need to hire a COO, a CRO, a CFO, things like that, which we do for our companies. But the speed to go from zero to 10 from first time founders is like nothing we’ve ever seen. Think about how many companies are reaching 50 million of ARR with first time founders. It’s the highest we’ve ever seen.
Turner Novak:
Is it? Do you have any data around what the percentage is?
Matt Cohen:
Yeah, I don’t have the data specifically, but anecdotally what we saw was that the first time founders getting to that speed of revenue velocity versus multi-time founders being able to do it at the same clip is the highest number of first time founders getting to that number. Just go look at the Cursors of the world, right? You have those really young first time founders doing it. Sometimes there are founders who had side projects before that just didn’t work out, but they were never really venture funded founders. They were kind of like solo founders. This time around it feels different.
Turner Novak:
Yeah, I guess Anthropic, technically they were first time founders. Spin-outs of OpenAI.
Matt Cohen:
They’re breaking the record. All seven of them still there. Crazy.
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Clark Cheng (Merrimac)
Turner Novak:
Clark, welcome to the show.
Clark Cheng:
Yeah, thank you for having me.
Turner Novak:
So we were talking earlier, you think that intelligence labor is going to be one of the areas that gets completely crushed by AI. What do you mean by that?
Clark Cheng:
I completely agree. I think a lot of people don’t understand what the capabilities of AI are. I think they’re still using it as a chatbot and asking questions and stuff. I know people can still vibe code and stuff, which is fairly easy on any of these apps. But when you start creating agentic agents and workflows, it is amazing what it can do, and it changes your whole mindset.
Unless you’re tinkering with it and playing with it, you don’t understand the power of AI. I gotta say, we invest in a lot of AI technologies, we invest in a lot of venture funds that do AI. Even they don’t understand AI. They get it from listening to podcasts like this. They get it from reading news and articles and stuff. But in reality, they themselves don’t understand what the capabilities of this technology is.
And it is going to change a lot in the next years. I wish I was 20 years younger to watch it, or I wish I was retired, but right now it’s going to be interesting.
Turner Novak:
You’re like in the middle.
Clark Cheng:
Oh, no. I’m right in the middle. But I think, look, you have two chances in your career, maybe one, to make money in your life, and it’s either a big risk-off scenario like a GFC, or it’s the next tech revolution. We had dotcom, we had mobile, we had cloud, and those are all big things that changed, and they changed a little bit slower. This technology is bigger than the last three combined. It couldn’t do it without computing, without mobile, without cloud. So now that we have them all, this technology has the infrastructure to build.
The innovation is happening so fast, if you’re not on the edge playing with it every week, you miss a lot of things that happen. But it is going to be amazing. It’s going to hurt, I think, labor, intelligence labor in the near term. I don’t think you’ll see it necessarily in the numbers, because I think it’s going to happen at that college level hiring phase.
If you imagine a company like a pyramid, and the bottom layer are all the college graduates, say you have 100 college graduates at a company. In the future, you only need 10. Those 10 will manage 10 sub-agents which will do regressions, downloading data, all the actual work work. But the 10 that manage them have to understand agents, how they work, how to minimize hallucinations, how to make sure that security’s there. Those 10 will basically move up to the next level, the senior people which have relationships, understand the business.
I think it’s going to get crushed. If you look at the labor numbers lately, I think one just came out recently, and they were saying that government labor is still growing, nurses are still growing, hospitality is still growing. But those are actually areas that AI cannot disrupt as much. When you start looking at finance and technology, I think that stuff will be impacted first. You’re starting to see technology layoffs now, but unless you’re playing with this, do you really realize what the future could look like?
There will be new jobs being created. Everyone says there’s new jobs being created. There’s so many new jobs I can’t even explain them to you, which is always a great thing to say because you can’t prove them wrong. But I think net-net in total, in terms of total jobs available, I think it will be less, and we’re going to have to figure that out as a society what that next is.
Turner Novak:
So maybe, you talked a little bit about, you need to play with the technology. What are some of your favorite things to do as an investor, taking advantage of AI? What do you kind of do on a daily basis?
Clark Cheng:
I think the most powerful thing to do is to play with a platform like OpenClaw. There’s a bunch of claws out there. There’s NemoClaw, OpenClaw, there’s Hermes Claw, there’s all these things. Open is the most, is a broad platform that you can use any LLM to be the brain of it. So I think it’s good to start with something like that that’s broad. So no matter what happens, what changes, you have a platform that is open source that you can actually play with.
If you start tinkering and playing with it, you start to kind of see the capabilities of it. I actually find OpenClaw more secure than it used to be because there’s been an update literally every day, if not twice a day. And I find Claude Code to be more powerful in the sense that it can do anything and it’s not limited. So I can use Claude Code or code into OpenClaw and just build stuff. It will actually build it all the way through with pipes and everything. It will actually tell it to email out to everybody if I want. OpenClaw won’t even let me do that. I have to give it constant approvals.
So nowadays, Claude Code is actually more powerful and more dangerous if you don’t do this right. The problem that people have with this stuff is they download it and they don’t set up the foundation, which is your security, your hallucinations, and your memory. If you don’t set up that foundation, it can be dangerous because it does have power.
But if you set those things up well, like for us, we have like a nightly audit on this thing. So we ask it to audit itself based on the latest updates. Is there anything to optimize or improve? Then we just say approve it, and it will actually optimize all of your hallucinations to zero as much as it can. It’ll do it for your security and everything else.
It’s funny, we had a conversation yesterday and people were talking about those two issues, security and privacy and hallucinations, and I told people, “Just tell your OpenClaw, your agent or your LLM to not hallucinate.” Everyone thought it was a joke and laughed.
Turner Novak:
But it works.
Clark Cheng:
But it really does work though, because these are smart agents. You can literally talk to it in natural language, and it’ll try to solve the problem for you. At the most basic level, you really have to understand how LLMs work. They’re a stochastic model. They’re predicting a token. As a result, if it doesn’t know the answer, it can’t say, “I don’t know.” It doesn’t have permission to say, “I don’t know.” So if it doesn’t know the answer, it will actually give you the next likeliest answer, which is probably a hallucination. So just give it permission to say, “I don’t know the answer.”
There’s something called temperature. If you’re doing math or tax or finance, just tell it. You only have to tell it once. You tell it once, it goes into memory, and it stores it, and it will always do it from that point forward. If you’re doing math, just turn your temperature to zero. If you’re writing me a research report, make it .3 or something. Give it a little bit of creativity.
You could also have the checks and balances in place where you can have Opus or you could have Codex be your brain for a platform like this. Likewise, you could have the remaining models check the work of that. So if there was ever a hallucination, and they don’t hallucinate the same way, you have the other models to check it. A lot of people are putting that stuff into place. If you talk to other tech guys who develop and code, they’ll always use multiple models to actually build the same thing, and at the end they just have to integrate all of it into one. Take the best ideas from Codex, from Claude, from whatever else, and just integrate it into one, and you’ll have a much better system.
But you really have to play with it. You have to have a fascination for this. It’s a funny thing. If you’re a perfectionist, this is the perfect thing because it’ll never be perfect. It can always go on forever. But it’s a competitive game to get it as perfect as possible, and it’s kind of fun. It’s a little bit addictive. Usually I’m doing this late into the night because during the day we still have our day jobs and meeting people.
The thing that will not be disrupted is relationships and information. So as a result, in events such as this Allocate, it’s fantastic. You get to talk to people. You can have relationships. You can build this intimacy during the day. Then in the evening you may have to do your emails. But at night is when you can actually build the stuff, the coding that you can’t replicate with AI during the day.
Turner Novak:
Yeah, I’ve been kind of getting addicted to just slowly, I feel like every day I just slowly maybe automate a little bit more of a thing. Any time I got a good two hours to sit down and really bang away at it, I kind of crack a new thing. Slowly doing more and more things with it. But to your point, it’s like I got stuff I got to do. I can’t just sit around and figure this out all day.
Clark Cheng:
If you set up your Discord channels, which has everything into different channels and threads, it’s easier to manage because every time you have an idea you can literally put it into that channel so that your AI does not get confused by what are you referring to.
There’s things that excite me about this. Something like Mira Fish, which is using swarm technology to run a simulation of 500,000 agents. You couldn’t do this a few years ago. You couldn’t do this without AI. Now you can actually create 500,000 agents and run a simulation on a Reddit or Twitter to figure out what could happen if Taiwan gets invaded or if we start a war with someone else. You can actually run this. This is tech that has never been available before that you can do now. You just have to program it, and a lot of it’s on GitHub if you just wanted to do it.
There’s something like Paperclip, which, you just hire a CEO, give it a goal, and it will actually build out your entire company, hire all the agents, the CIO, the analysts, the portfolio manager, everything, over a week, and it will actually build your entire firm for you.
So that’s at the basic level. If you get deep into it, not only do you give it a goal, but you give it a goal, you give it costs, and you can actually have it target a specific number. Give me the highest number you can have performance relative to token costs, relative to a hallucination, relative to anything. That’s the power of this AI stuff. But you really have to play with it every day to really understand it.
I tell you, even the AI venture investors aren’t into it enough to really truly understand. There’s a few that I’ve talked to that we invest with that are phenomenal. Some of them are here, like even Theory, Tomasz. He’s fantastic, and he’s playing with it. He’s on the edge. It’s because of people like him and other friends of mine that we tinker with the stuff that we truly understand, and you can see the future if you do this.
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Sunil Nagaraj (Ubiquity Ventures)
Turner Novak:
Sunil, thanks for coming on the show.
Sunil Nagaraj:
Of course. Happy to be here.
Turner Novak:
As you were saying earlier, we’re about 12 months away from a lot of a certain category of investors losing their shirts.
Sunil Nagaraj:
Something interesting is happening right now, Turner. I think AI has shown up on the scene. It’s been around for five or six years, but the last six months has brought it into focus in a way that has convinced a lot of SaaS investors that a lot of SaaS companies may not be as durable. So there’s been a flight over to this other category, and at the moment that other category is physical AI.
As someone who’s been looking at physical AI, what I call software beyond the screen, for the last 10 years very actively, it’s been bittersweet to see so many folks rush in. I enjoy having more partners, more capital upstream, downstream. What I don’t enjoy are non-technical investors rushing into a pretty technical space. This is where I believe that in the next 12 months we’re going to see a major reckoning, that a lot of folks who dumped a lot of money in, chasing a few proxy signals about what might make for a good company, are very likely to lose their shirt.
There are companies now in the physical AI sector where the tail is wagging the dog. Something that really bothers me is if you think you need $400 million to launch your physical AI company, then your valuation has to be two billion, right? That’s literally putting the cart before the horse.
Turner Novak:
You need to sell 20%.
Sunil Nagaraj:
Right. Exactly. That’s a little funny. What’s worse than that, though, is when the technical premise of the company is just fundamentally not sound. So you’re seeing a lot of folks rush into a few hot subareas of physical AI, and they’ll use signals like they were the third author on the paper, or they were X this company. SpaceX is a common one, for example.
Turner Novak:
Yeah, this is a pretty common thesis that people have.
Sunil Nagaraj:
Yeah. And I will often talk to these investors. As a technical nerd, I call Ubiquity Ventures a nerdy and early firm, and I’ll ask a couple kind of high level but nerdy questions, and there won’t be any answers. “I don’t know, Sunil. They’re ex-SpaceX. I think they got it figured out.”
Turner Novak:
They’ll figure it out.
Sunil Nagaraj:
Yeah, that’s a common response. Or they have 300 million, they’ll figure it out. It turns out there’s a whole long list, and I won’t name them all now, but dozens of companies where they’ve raised all this money and it goes to zero. So I think physical AI demands a certain level of thoughtfulness, technical depth, and at the moment, capital rushing in is not reflecting that.
Turner Novak:
So well, what do you do? How’s Ubiquity kind of responded to what’s going on?
Sunil Nagaraj:
It’s a good question. We’re sticking to our knitting. Ubiquity writes one, two, $3 million checks, often in brand-new companies. But we’re not rushing in to the $100 million rounds at 500 pre when it’s a new world model or a new foundation model. I actually hate this word moonshots. So I’m not doing anything that’s a moonshot, which either sounds unambitious, or it sounds like we have just a tremendous amount of discipline. I actually think about Ubiquity as a discipline deep tech firm looking for that sliver of deep tech that can be CapEx light, that can have quick time to revenue. Usually my one to $3 million round will turn on a company’s product in customers’ hands. That flies in the face of most deep tech and most physical AI. So I think there’s a way to look at this where you’re chasing opportunity, not chasing headlines or chasing large financing rounds.
Turner Novak:
So why do you need the $100 million then? What’s the rationale on raising 100 million to get this thing in market when you could maybe do it for less?
Sunil Nagaraj:
Yeah, that’s a very good question. You end up with some perverse incentives. If you raise 100, then your company happens to be worth 400 million just by the 20% rule. Which technically benefits everyone around the table because they all feel like they’re worth a lot more on paper. Now, the issue is, and we saw this with SoftBank and Wag and a few other things like that, giving companies too much money inevitably causes failure. You might say, “With 100 million we can just spend as if we have 5 million.” Impossible.
Turner Novak:
I’ve never seen that happen.
Sunil Nagaraj:
So it just doesn’t play out that way. At the moment you have folks, maybe SpaceX going public, if it happens, at 2 trillion. It’s created this wake of uninformed enthusiasm. Like, oh my God, SpaceX could do that, I bet these other companies could too. Some thoughtful entrepreneurs are raising capital, some less thoughtful entrepreneurs are taking advantage of the situation to pull in as much capital as possible, shortsightedly, and folks are piling into those rounds.
So in the last month there have been five or seven rounds of 500 million, 400 million, 800 million for pre-launch companies. In the space sector, for example, they haven’t made it to space once. And their company’s predicated on space, and to me that seems really, really crazy.
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Sungjoon Cho (Fortitude Ventures)
Turner Novak:
Sungjoon, welcome to the show.
Sungjoon Cho:
Thanks for having me.
Turner Novak:
So you were telling me earlier you feel like there’s going to be a reckoning coming for kind of the general purpose robotics investment space. What’s kind of been going on, and what do you think is going to happen?
Sungjoon Cho:
To preface everything, I’ve been investing in robotics for, or going deep into the space for, 10 years. The bottleneck or the hurdle for a long time was there wasn’t enough capital. So I’m rooting for robotics companies. I’m super excited that there’s enough capital for a lot of these companies to get over the hump. I’m just a little bit concerned that there’s too much capital going into kind of the proverbial ChatGPT moment for robots, and I think that’s 15 years away.
Turner Novak:
You think it’s 15 years away? Okay. What has happened to make people think that we’re getting this ChatGPT for robotics moment? Is it just ChatGPT, and it’s like the same thing’s going to happen?
Sungjoon Cho:
I think so. There are a lot of investors who missed OpenAI or missed Anthropic at the seed round or traditional Series A. I agree that the upside of a general purpose humanoid robot is absolutely huge. The technology has come really far for sure. But if you look at companies like Waymo or just the self-driving space in general, Waymo first demonstrated self-driving with supervised learning in 2012, I think.
Turner Novak:
Yeah, so this was like 13 years before the broad adoption.
Sungjoon Cho:
Exactly right. And then it was on the road in 2015, in Arizona.
Turner Novak:
It still took,
Sungjoon Cho:
And it took 10 years. Self-driving cars is a much easier technological problem than a general purpose robot, right?
Turner Novak:
So why is the general purpose robot so hard? Because I see these people posting videos that the robots are doing things. So is it not solved yet?
Sungjoon Cho:
I definitely don’t think it’s solved. I think Tesla will have humanoid robots doing productive things, but it’s in a very controlled environment within their factories, right? And maybe same with Figure. I’m not deep, I don’t know exactly what they’re doing and how far they are. So I’m not trying to discount what they’ve built so far and what they will build in the near future, even the midterm future.
I think just having, if you think about it, what would you want a robot to do? What would you pay $30,000 for a robot to do inside your home, right? If it just does your dishes and folds your laundry, probably not worth it, right? You kind of need it to do,
Turner Novak:
Maybe it depends how much money you have.
Sungjoon Cho:
Yeah. Oh, that’s fair.
Turner Novak:
$30K for some people is not as much as it is for other people.
Sungjoon Cho:
That’s fair. And is this 30K in kind of a, you know, upside scenario where we get to scale?
Turner Novak:
And you can finance it too. Sure.
Sungjoon Cho:
So you can get a loan for your humanoid robot. Yeah. But then if you look on the industrial side, I don’t know if you’ve been to a, you know, you’re from Michigan, right? So like automotive factory or fulfillment center. The industrial automation moves super fast. In factories it needs to be really accurate. If you think about it, if a robot is 99% accurate, there’s 1,000 cycles, then there’s enough errors in a day to have to stop the factory, right? That’s unacceptable.
So I just think that if you take the industrial side, the need for accuracy and the need for speed just makes special purpose robots or just traditional industrial automation more effective and efficient. In homes, I just think that it’s hard to imagine that robots will get to the level of efficacy to justify the ROI.
If you think about ChatGPT, when we first started using it in late 2022, it was mind-blowing, but there was hallucinations and,
Turner Novak:
It also kind of sucked. Yeah. Mind-blowing, but yeah.
Sungjoon Cho:
It was cool, but it was also, like, 70% effective.
Turner Novak:
Exactly. But we used it, and so it got better. It was just some text.
Sungjoon Cho:
Exactly.
Turner Novak:
Versus, like, building something.
Sungjoon Cho:
Yeah. But would you throw a robot in your home to kind of try it and get 70% accuracy?
Turner Novak:
Unloading the dishwasher, 70% of them make it, put away on the shelf, and 30% are broken on the floor.
Sungjoon Cho:
Broken, exactly. Or it takes much longer to do.
Turner Novak:
So you think that the moment of these actually truly working in true commercial fashion is probably a little bit further away?
Sungjoon Cho:
I think so. The technology will get there. Definitely less than 15 years. I think,
Turner Novak:
But it’s just like a timeline.
Sungjoon Cho:
Yeah. We’re probably shortening the timelines more than we should be. I think so, right? You and I, we need to exit our positions in hopefully 10 years, let’s call it 15 years. But if the kind of upside starts to happen, then I think there’s going to be pressures. There’s a lot of investors who have shorter timeframes than we do.
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Josh Christensen (Mercato Partners)
Turner Novak:
Josh, welcome to the show.
Josh Christensen:
Thank you. Thanks for having me.
Turner Novak:
You’re actually based in Utah, which we’re in Utah right now.
Josh Christensen:
Am I the only one from Utah?
Turner Novak:
Honestly, I don’t know. I’ll have to go back and look. Maybe. But anyways, you were telling me that you think that there’s going to be a little bit of a reckoning for some of these AI application kind of paper marks. Can you just explain what you’re thinking and what you think is going to happen?
Josh Christensen:
Yeah. And I’m not talking necessarily about the big model providers. They may have their own reckoning at some point. I think what happened is in ‘22, ‘23, ‘24, there was this broad consensus that, hey, we should avoid investing in GPT wrappers, and everyone kind of defined that in their own way. But a lot of the investing that I’ve seen over the last probably just 24 months has been in companies that have amazing traction. They go from a million to 10 million very quickly. The problem is, there’s 15 or 20 clones that look just like them that also went from one million to 10 million that also got funded.
I think what happened is, as we were sorting through what is a moat and what’s not a moat, there’s very obvious moats out there, where there’s a data moat, there’s a regulatory moat, there’s something structural that the company does that nobody else does. But when there’s 15 clones, that means the moat’s probably weaker. Many investors have fallen for, oh, there’s a unique ontology that we have, or there’s a fine tune that we’ve done to the model. The reckoning is not because those companies are necessarily bad, it’s just a very competitive space.
The second is that much of the revenue, if you rewind it 20 years ago or even 10 years ago, you could go look at a two or three-year contract and say, “That’s real ARR. We understand where that’s at. We know when the renewal cycle is. We can talk to the customer, understand the value. We understand the switching cost.” I don’t think we understand all of those things today, and much of that revenue is experimental. It’s just as likely that they go from one to 10 to 100 as it is they go from one to 10 back to one.
Because of that, it’s very difficult to understand if those marks are durable or not when the revenue itself is experimental.
Turner Novak:
Another person on the podcast was talking about with Anthropic, you go one to 43 billion and you have public company CTOs coming out and saying, “We used our entire annual budget in Q1.” So it’s like, do they refresh the budget and it continues to grow 10X, or do they just say like, “Hey guys, we can’t spend this much money on this stuff anymore”?
Josh Christensen:
Yeah. I think it will also require shifting of budgets. You had people budgets, maybe some of those people get replaced so that you have more to spend on those credits. But if you’re getting the value out of the models that I’ve seen is capable, that Claude is capable of doing, you’d be foolish not to increase your budgets. There’s so much efficiency, there’s so many more products, there’s so much more development cycles that are occurring. If you can get that return on invested capital that quickly, you should put more money behind it. It’s just where’s the budget going to come from?
Turner Novak:
I think you kind of have a belief that in terms of mortality rates are a little different. So traditionally in venture, when you’re creating a portfolio, you just assume like 90% of the companies will go to zero and fail. You think it’s a little bit different now? How do you square that up and think about that?
Josh Christensen:
Yeah. I think what we’re seeing is there’s been so much hype around when are we going to see the solopreneur get to a billion dollar or trillion dollar outcome. But the reality is, it’s so easy now to create an application, and the application layer is hard to navigate. There’s many different types of moats. They’re different than the old types of moats. The signal is hard to separate from the noise because of this experimental ARR. So I think growth, I’m biased, I’m a growth investor, I think growth could become more interesting. I hope it does.
Turner Novak:
Just as an asset class?
Josh Christensen:
As an asset class.
Turner Novak:
Or category kind of slice of the market?
Josh Christensen:
Yeah. The reason I think that is that if you could start, if it was difficult to start a company before, you had an idea, you wanted to start it, it’s now easier by default. You should be able to vibe code or get somebody to help you vibe code to a spot that you have a product to sell, and you couldn’t do that before. So now we potentially get to a spot where there’s, again, these 15 companies that are all doing close to identical things.
Hopefully, they’re building in a spot where they understand, “Hey, if we’re first mover, we can actually build a moat. We’ll get some data. The data becomes more valuable the more customers use it, makes the model more valuable, or there’s a regulatory moat we’re going to go tackle first before anybody gets there.”
But if now the mortality rate isn’t quite so high because those companies all got to a million or two or five without taking much money, then what do they need next? They need the go-to-market capital to be able to out-compete their peers. So maybe where there was three or four companies in a category that survived and all of them got funded, now you got 15 that need funding, and the one that raises the most, if there’s truly a durable moat they’re trying to build, the one who raises the most is the one that will win. So that makes a large growth round potentially more attractive.
Turner Novak:
Interesting. So that’s why you think it’s an interesting category because there’s a lot of these potential, as an investor, there’s a lot of opportunities?
Josh Christensen:
I think there will be more of them. I think founders are starting to understand what is a wrapper, what is not. I look at three different tiers of moats. The first are things like regulatory moats, vertical data moats, where there’s already something in place.
The second is a little bit softer, which is something you have to build towards. You don’t necessarily have it on day one, but it could be the idea that eventually we’ll have enough data that as consumers start to use the app more or as companies start to use the app more, it starts to create a flywheel of data, or a flywheel moat.
There’s the brand-building moat. You talk about the sales organizations that are being built around Anthropic and OpenAI, they’re doing that, they’re advertising. We were talking about it yesterday, advertising the Super Bowl to build that moat. Those are real moats that they can build. You have to make it difficult for there to be ability to switch to another application. Those moats still exist today, but those are softer. You have to build towards those.
The third are things I think are red flags. I think the last 10 companies I talked to all told me they have a unique ontology layer. When I press them on that, some of them do, some of them don’t. Many tell me that the reason that nobody else can compete with them is that you need to fine-tune a model to be able to produce what they’ve accomplished. But when you really go look at the research, most fine-tuned models underperform compared to the generalized models. So those are kind of red flags to say, if we invest behind those, there has to be some other sort of moat.
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Amias Gerety (QED Investors)
Turner Novak:
Amias, welcome to the show.
Amias Gerety:
Thank you.
Turner Novak:
So we were talking a little bit before this. You were telling me that the AI bubble is closer to popping than people think, and that you think you know what’s going to cause it. So what’s going on?
Amias Gerety:
When public company CTOs are telling you that they blew their entire token budget in six weeks in Q1, they can’t increase spending at the rate of growth that we’ve seen. And everybody knows that as a company goes public, the old rules still apply, whether it’s an AI company or not, whether it’s the hottest company or not. To go public, you need to create a beat and raise cadence. If you’ve pulled forward 100% of your largest client spend into Q1, where’s the money coming from for Q2 and Q3 and Q4?
So CFOs of the clients, the users of AI, are going to have a reckoning because their AI usage is not increasing their revenue at the rate that the AI company’s revenue is increasing. When that happens, which could be as soon as Q2 or Q3 of this year, those companies that are going to try to go public, they’re not going to have that beat and raise cadence that has allowed them to become such amazing juggernauts this quickly.
Turner Novak:
So the only way to get around that is make sure that the AI products are actually adding a ton of value and the companies will continue to increase spend.
Amias Gerety:
Yes, but again, they have to add value in a way that hits the bottom line of the company.
Turner Novak:
That they continue to spend five times more than they had going,
Amias Gerety:
Right. There’s no budget in any company, there’s no budget line item that can grow 5X in a year and the CFO is happy. Unless,
Turner Novak:
Other than revenue.
Amias Gerety:
Other than revenue. Revenue’s the one. Sorry, you’re right. The only line item that can grow 5X in a year and make the CFO happy is revenue or profit.
Turner Novak:
Yeah, gross profit, free cash flow.
Amias Gerety:
That’s right. There’s no cost line item that can grow 5X in a year, and 5X over a budget that was already 5X. Right? So the reason I think this is important, we’ve just seen this movie in the very recent past. We lived it. Every VC lived it. We saw an amazing bump of digital transformation, digital usage go up at the start of COVID.
Turner Novak:
Yep.
Amias Gerety:
And we all thought it was a new trend. It was not a new trend. It was a one-time step function change. So the change was real, but the trend was not extrapolated because eventually, you know, there was only so much money in the budget for Netflix. So once everyone signed up for Netflix in order to get through COVID, there wasn’t another group of people who could spend another double on their Netflix.
I think what we’re seeing as the AI usage has gone from awesome experiments to real production functions, the ROI calculations for everyone who’s spending, they no longer have the headroom, and that’s why I think it could come faster than we think.
Turner Novak:
Yeah. I think maybe the other way to get around that is just 5X the number of customers. Like you had the one customer that blew through the budget. Can you just quickly get a bunch more customers? Which, I mean, that could happen.
Amias Gerety:
Absolutely. It totally could happen. One of the most impressive things that Anthropic disclosed was they’ve got, I think more than 1,000 customers spending more than a million dollars. At some level, that’s really impressive. It shows real breadth of adoption. At another level, just 1,000 times a million, that’s only a billion. If they’re doing $30 billion of revenue,
Turner Novak:
Isn’t it like 45 now? Yeah, I mean, the number changes.
Amias Gerety:
It’s incredible. I’m telling you the bubble may become faster than it thinks, and I’m going to look like an idiot. But I will tell you, there is some limit to how much spending AI can absorb, and it is simultaneously so early in the age of AI, right? But there is, as we get into real numbers, these companies have more revenue than Salesforce. Databricks is one of the most impressive private companies in the world. It is anywhere between a sixth and a ninth of Anthropic.
So how much revenue can you really pull out of the economy? Because ultimately, the economy is not growing at 10% a year. There is not that much excess spend, so you’re pulling the budget from somewhere. Eventually, there’s a great law in economics, it’s called Stein’s law. It says anything that cannot continue won’t. It’s just that simple. You can’t grow 10X a quarter forever.
Turner Novak:
Yeah. And that’s a function of how all these companies are valued. It’s basically just the revenue growth rate. That is really 100% of the way people are valuing these businesses right now.
Amias Gerety:
And by the way, relative to previous generations of technology change, we should give these companies a huge amount of credit for that.
Turner Novak:
Yeah.
Amias Gerety:
They are valued off real revenue, and they’re valued off real revenue growth rate. This is more revenue than narrative relative to some of the things we’ve seen before.
Turner Novak:
Oh, yeah.
Amias Gerety:
And yet, a hundred billion dollars of revenue? Maybe. 200? 300? I don’t think so. Right? We start to get in meaningful percentages of US GDP.
Turner Novak:
Yeah.
Amias Gerety:
And you can only pull meaningful percentage of US GDP into this space if you’re taking it away from something else.
Turner Novak:
And also if it’s truly actually useful in doing things. So again, people show those charts of, like, how good the models are, and do they continue to just get better on that exponential line?
Amias Gerety:
Here’s what I think happens. I think the CFOs will bring a hammer down. Q1 was the quarter of token maxing. It was really fun, but token maxing does not have ROI. By Q2, Q3, Q4, the CFOs will bring the hammer down. Token maxing will be dead. People will have done the token maxing in order to learn how to use these tools. And by the way, even for my companies, I recommend token maxing. You’ve got to token max in order to learn.
Turner Novak:
Yeah.
Amias Gerety:
But then you’ve got to have an ROI case. Actually one of the reasons why we’re so bullish at the application layer is those application layer companies have mostly gone through the gauntlet of a business case with real ROI. Now they still have to deliver on that, but they’ve gone through the business case. Whereas the broad enterprise adoption of every single person in our enterprise gets an OpenAI, a Gemini, a Claude, a Copilot, that doesn’t have an ROI case. That is a “we must do AI” case, and that’s the case that’s harder to build on after you do it the once.
Turner Novak:
Yeah. I think you also mentioned something. We haven’t talked about this at all. A lot of people say we’re at the era of the fastest pace of technological improvement, adoption, etc., ever. How do you feel about that?
Amias Gerety:
I think it’s wrong. I think the history is written in increments of human lifetimes, and anything that happens within a human lifetime will be compressed. When you think about the computer era, our grandchildren will never think of computers as not having had AI. So the whole idea of a computer that is not connected to the internet, the whole idea of a computer before the internet will be some historical anomaly that people will write PhD theses about. “Do you know there was 20 years where the computers were not connected to the internet? Do you know there was 20 years where the computers did not have AI?”
So I think what will happen is what people will realize is that this entire era is the computer internet AI era. Everything that we think of as extremely rapid change right now will be one change. And the society that we live in will react to that change as one unit of cultural, social, and economic change.
If you compare that to, let’s take it 1890 to 1950, cars. Cars were not the same as nuclear. Cars were not the same as planes. Planes were not the same as the age of fertilizer, which completely transformed our ability,
Turner Novak:
Or like the age of boats, indoor plumbing.
Amias Gerety:
Yeah. Right? So those are actually more technological change across more sectors of the economy than we’re experiencing now. Even though it feels like the pace of change is so fast, we’re very myopically focused on the pace of change, which is in one sector, which will be, when history books are written, viewed as one lump of change.
Turner Novak:
How do you think they’ll write the history books? What do you think it will read like?
Amias Gerety:
So here’s one of my favorite things. When you were learning about computers, there would be a picture in your textbook, and it said, “Do you know that computers used to be as big as warehouses?”
Turner Novak:
Oh, yep, like a massive huge machine.
Amias Gerety:
Well, where are computers today?
Turner Novak:
They’re in your pocket.
Amias Gerety:
No, they’re not. They’re in warehouses.
Turner Novak:
Fair. They technically are still in warehouses.
Amias Gerety:
They’re still in warehouses. The cloud, yeah. So I think that’s a good example of a historical blip. The thing that a computer did went from a warehouse to your desktop. That felt like a really important historical change, but now the value of compute, the idea of a network, puts most of the compute back into the warehouse. So when the history books are written, they’ll just be like, “Yeah, computers are in warehouses. Of course they got more powerful, but they started in warehouses, they ended in warehouses.”
Turner Novak:
Yeah, that’s fair. I have not thought about it that way, but that’s interesting framing.
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Jon Oberheide (Founder of Duo Security)
Turner Novak:
Jon Oberheide.
Jon Oberheide:
What’s up, Turner?
Turner Novak:
One of the founders of Duo Security. Regular listeners of the show will actually be familiar with you. But welcome back.
Jon Oberheide:
What do they say? Second time caller, longtime listener?
Turner Novak:
Yeah. Well, thanks for being here. So we were talking a little bit before, you feel like a lot of people, especially individuals when they first get into doing venture investing, they make a lot of mistakes. What do you think people do wrong?
Jon Oberheide:
Yeah. In my journeys, as a founder, had an exit, now mostly kind of investing off my own balance sheet. And due to my role in the company and raising from some great funds, I kind of had privileged access to a lot of top tier venture funds. But then in my journeys, I run into a lot of folks that maybe they’re new to venture, maybe they’re interested in the asset class, maybe they’re not experienced in technology, but they’re very smart individuals. But I see so many cases of high net worth individuals just doing venture wrong. It’s not necessarily a hot take. It’s kind of a, a maybe,
Turner Novak:
Uncommon, common sense.
Jon Oberheide:
Yeah. Maybe just not vocalized enough?
I think it’s a lack of understanding of the asset class. It’s an area where maybe it’s not a hot take, but I’m really passionate about it because I want to see people make good investments and have good returns and back good firms that back good companies.
Turner Novak:
So what are some of the biggest mistakes you see people make?
Jon Oberheide:
I think the anti-pattern is when people get excited about the innovation economy. They get excited about AI, and they say, “Hey, listen, my cousin’s dog walker’s college roommate is starting an AI fund, and I just made a commitment. AI is really hot.” And I’m like, “What? What are you doing?”
Turner Novak:
So that’s not good? You shouldn’t do that?
Jon Oberheide:
I don’t have any tattoos, but if I did, I would get “adverse selection is real” tattooed on my forehead. The number one thing when you see a deal, the number one question is not who’s in it or what’s the terms or what’s the founder. It’s, why am I seeing this deal? Why is it coming to me?
Top tier, top quartile venture fund managers are not coming to the wealth channel generally. They’re not coming to high net worth individuals. They’ve already filled up their allocation and have a long waiting list. So if someone’s coming to you, it’s probably not top tier unless you truly have some edge or some privileged access. When I talk to folks like that, I try to give them the rundown of, one, why participate in venture?
Turner Novak:
Yeah, because it sounds like it’s something you do want to participate in, so then how do you do it?
Jon Oberheide:
Well, you might want to. So there’s the qualitative part of, like, backing the companies of the future, innovation economy’s important. The quantitative side is, there’s trillions of dollars now being created in the private markets, whereas NVIDIA went public at 400 billion market cap and Microsoft went out at, I think it was sub one billion. All that value was created in the public markets. That’s shifting now with SpaceX, Anthropic, OpenAI. So you want to be part of that value creation, kind of get your share.
But most people say, “I want to invest in venture because of the returns.” When in reality, when you look at the data, whether it’s from Cambridge or wherever else, whatever benchmark or timeframe you look at, the median venture returns suck. Median venture underperforms,
Turner Novak:
Every other asset class.
Jon Oberheide:
S&P 500, underperforms NASDAQ, depending on what vintages and what time periods you’re looking at. But median is bad. And venture has the highest return dispersion of any asset class. The difference between 25th percentile and 75th is crazy. The difference between median and top quartile may be 10 points.
Turner Novak:
Well, even top quartile, top decile,
Jon Oberheide:
Top decile, yeah.
Turner Novak:
Is like 1%. Yeah, I mean,
Jon Oberheide:
It’s not 10 basis points. It’s like 10 points of return.
Turner Novak:
Yeah, I mean, I think if you look throughout history in bad vintages, 1X DPI is top quartile.
Jon Oberheide:
Which is not good. That’s not a good return.
Turner Novak:
Yeah. So you can say like, “I’m a top quartile fund,” and,
Jon Oberheide:
Not necessarily great.
Turner Novak:
Yeah. And I think, like in the 2021 vintage, I think 1.5X,
Jon Oberheide:
Jeez.
Turner Novak:
Is top decile.
Jon Oberheide:
That’s a rough one.
Turner Novak:
And prior guest to the show, Ali Partovi at Neo, had like a 10X 2021 fund.
Jon Oberheide:
Oh, they had some good ones, yeah.
Turner Novak:
So talk about top decile. It’s probably in the top 1% of 2021 funds. So being even in a top decile venture fund in 2021 is not really that great.
Jon Oberheide:
Yeah. Venture’s unique too because it has persistence. If your fund X is top quartile, your fund X plus one is not guaranteed to be top quartile, but it’s more likely to be top quartile than a fund Y that was second or third quartile suddenly jumping to fund one. It’s intuitive. The best founders want to work with the best firms, therefore they get the best returns. It’s that sort of compounding cycle. So the obvious answer is, “Oh, okay, well, if I want to participate in venture, I just need to invest in the top quartile funds, right? That’s easy.”
Turner Novak:
Yeah. Well, you also don’t know necessarily which ones specifically. There might be a firm that has a good fund then a bad fund, a good fund then a bad fund. It could oscillate a little bit. Or it just might be like a bad year, because of the way public markets, the economic cycle works, because who knew that LLMs were going to do what they did in fall 2022? If you weren’t allocated, I think 2022 and ‘23 vintage funds are going to do really well. If you skip that and now you’re deciding in 2026 you’re going to come in, a lot different environment. You could probably argue ‘22 is set up to perform better than ‘26 will be. You could argue that point.
Jon Oberheide:
The only true all-weather fund, of course, is Banana Capital.
Turner Novak:
That’s true, yeah.
Jon Oberheide:
It’s easy enough to say, “Oh, you should just invest in Sequoia and Benchmark and Index,” and so on. But that’s where the real challenge is. Venture capital is an access class, not an asset class, and you can’t get access to those top tier managers.
We’re here at the Allocate Summit. This isn’t meant to be a commercial for Allocate, but that is the value they provide, is access to, hopefully your top quartile managers, a much higher probability of accessing your top quartile managers with low fees, low commitments. Where you’re a high net worth individual, you can write a couple hundred K check into a top fund or into a fund-of-fund vehicles, as opposed to either having to be some super founder with specialized access or being a $20 billion endowment that can write $100 million checks. It is a way of kind of democratizing access to the private markets.
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Dan Feder (University of Michigan)
Turner Novak:
Dan, thanks for coming on the show. So I wanted to ask you, there was a post on Twitter recently that the University of Michigan invested in OpenAI. Can you talk about that?
Dan Feder:
Well, we’re going to talk about hot takes in this conversation.
Turner Novak:
Yeah.
Dan Feder:
And so I feel pretty far out of my depth on this, Turner, because you have one of the best Twitter games, or X games. I mean, it’s not, they’re X games. I guess they’re Twitter games, right?
Turner Novak:
Yep.
Dan Feder:
Out there, and I have basically none. So I’m going to give you some advice in general.
Turner Novak:
Oh, thank you.
Dan Feder:
It’s very general advice. You can take it for what it, you can. It’s worth no more than what you paid for it.
With respect to Twitter or X, you shouldn’t always believe everything you read on Twitter, and you probably shouldn’t always not believe everything you read.
Turner Novak:
That’s fair. We can leave it at that.
I know one of the things you want to talk about was you think that asset allocators should be thinking about doing venture a little bit differently. I know you came on the podcast. Regular listeners on the show, they maybe heard this spiel a little bit. But so what exactly do you mean by that?
Dan Feder:
Well, there’s a distinction, and I guess a difference as well, between being an allocator and being an investor. The way that the industry has evolved over at least my observation, which has been over the past 25 or so years, has been that the allocator aspect of the way endowments, foundations, and multi-asset class investors behave has really taken an increasingly dominant role.
Turner Novak:
So it’s less investing, more allocating?
Dan Feder:
No. By investing, what I mean is less about what the underlying exposures are, and much more about managing portfolios on a risk basis. So looking to optimize based on benchmarks or benchmarked exposures,
Turner Novak:
Mm.
Dan Feder:
And not taking full account of where you are as an investor. So where are you? Are you at an endowment? Are you at a foundation, a pension? Are you an individual? And if you’re at any of those places, what are the characteristics of that place?
That to me is what the whole portfolio means, which is where are you? In the case of where we are at the University of Michigan, we are at a university that has world-class research and innovation areas, and the breadth of which is just absolutely stunning. We have an endowment that’s fairly substantial, and we have an ability to execute in ways that other people don’t.
So there are drawbacks to each one of those characteristics. There are things that we wouldn’t do well as a result, but there are also things that are just inherent advantages. The shortcoming that I see is that as people have come up through the allocator roles, where there’s much more of a career path, the allocator piece of the equation just naturally tends to dominate how people go about their jobs.
Turner Novak:
So there’s something interesting when you were at WashU, what was one of the more interesting investments you made when you were there?
Dan Feder:
Well, it really goes to the beginning stages of taking this approach of looking at the whole portfolio and where we have advantages. One of the advantages that we had there and that we have at Michigan is we have networks and information flows that other people don’t. We started leveraging that into some directs and co-investments that were pretty impactful.
It helped to demonstrate for me the power of how you can apply these networks and where you are to making investments that are either available to you only or available because you’re taking more of an entire portfolio approach of what are the things that I have as tools to invest, and where can I apply them?
Turner Novak:
So it’s kind of the same thing that an allocator is looking at a GP is, like, what is your unique advantage? It’s almost like you step back and look at yourself of like, “What is my unique advantage as an allocator that I can do a little bit differently?”
Dan Feder:
Yep. A big part of what I think everyone has to remind themselves of, if you have a couple things that go well, you should take the right lessons from those successes. It’s much easier to take lessons from failures, but the lessons that one should take, in my seat or seats like it, is that we shouldn’t pretend to be something we’re not.
So we are not world-class venture capital investors. We’re not the best pickers in the world, with some sort of magical picking ability. What we are, or what I think I am, is that we’re pretty good at creating trusted relationships and listening carefully to people who know what they’re doing, and hopefully being in business with some of the best people in the world at doing those things. That’s where we can play our hand and play it well.
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Ben Ivey (Marshall Street Capital)
Turner Novak:
Ben, welcome to the show.
Ben Ivey:
Appreciate it. Thanks for having me.
Turner Novak:
So we were talking earlier, you were saying that you think that a lot of allocators need to start looking beyond just returns. What did you mean by that?
Ben Ivey:
Yeah, so I think when allocators are looking at the venture asset class, it’s so unique because you’re at such an early stage and an inflection point for basically any technology. You think about AI, biotech, you name it. So I think there needs to be more of a premium and more of a value put on the information that you actually get from the GPs that you work with as a source of just intelligence that you can use throughout the rest of your portfolio. And I think just focusing on, oh, I’m going to get the top quartile manager and expect them to repeat for fund two and three and four and beyond, is just a little bit of an overly narrow way of looking at the value that the asset class can bring to a portfolio.
Turner Novak:
So what would be an example of a way to maybe get like extra information you can apply elsewhere?
Ben Ivey:
Yeah, so I feel fortunate at Marshall Street to be a generalist investor, and so I think that’s very rewarding, and it certainly informs my perspective, so I’ll have to caveat with that. But you think about emerging technology, like Amias said, Anthropic, right? Where this model basically coded its way out of its own box, and you think, “Okay, well, let’s think about other applications that that can solve,” right?
I think, “Okay, well let me think about what are the implications for other asset classes?” A lot’s been made about private credit. Can AI think through a strategy to do a liability management exercise to,
Turner Novak:
I did actually see a company. There is a company,
Ben Ivey:
Really?
Turner Novak:
That you input a 100-page credit agreement, and it gives you a lot of information that you would not have pre-AI on its own.
Ben Ivey:
It’s going to give you the outs, right? I mean, I’m just an investment guy, certainly far from in the weeds on every PPM that I see. I’ll be the first to admit that. But you just have to think about how some of these technologies are going to impact the rest of the portfolio. We were chatting earlier about kind of generalist versus specialist. I think increasingly teams that just rely on specialists to do that low-level due diligence, those type of tasks are going to be taken away by AI.
So what we need to lean in on the human side of things is putting two and two together. I don’t mean, oh, let’s look at X portfolio company and AI that could be purchased by a larger one. I mean, what are the implications cross-asset class, and not just talk to your buddies across the desk about venture A firm versus venture B firm. You need to think about the implications for the total portfolio. At a family office, I’m not belated to what the venture returns are in my portfolio. I’m belated to what the return is that I deliver to the family that I serve.
Turner Novak:
Yeah. Makes a lot of sense. Well, thanks for doing this. This was a lot of fun.
Ben Ivey:
Absolutely. No, thanks for having me. It’s a great event that Allocate hosts, and certainly appreciate getting involved, and always come away with excellent connections here, so thank you.
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Asher Siddiqui (Song United)
Turner Novak:
Asher Siddiqui with Song United, welcome to the show. You work with our mutual friend Doug.
Asher Siddiqui:
Hey, great to be here.
Turner Novak:
So you had an interesting blog post that you wrote a couple months ago, kind of relevant now, The Russian Dolls of SPVs. What was the blog post, and what’s kind of going on?
Asher Siddiqui:
So it was a series of five blog posts, actually. Matryoshka dolls, which are Russian dolls. You open up a doll, and there’s another doll, and then you open up that doll. The reason why that image sorta came into my mind was because there was this fever around 600 million in SPVs into Anthropic. There was several billion dollars worth of demand for SPVs into Anthropic.
Part of it was, I live in the Bay Area, and I’ve got friends all over the world, and they’re calling me. They’re like, “Hey, man, do you have any access to any of the five, six top names?” And I don’t do SPVs. So I was talking to all these people, and after a while, I’d follow up with them. “What happened? Did you do anything?”
In some cases, I introduced them to VCs, fund managers that were on the cap table, and they could get allocation. But the response was, “We don’t pay carry. We don’t pay carry.” So that’s what led to me writing the blog post, or a series of blog posts, because I don’t think people really understood what was going on.
What’s going on with these SPVs was, you’re subscribing to an SPV. They were willing to pay 8%, 12% upfront, one-time management fees on an SPV, just so that they could avoid a 10, 20% carry. I did the math for them. It’s like, if it’s a 1% and 10%, which I was able to get them, it’s the same. But the risk that they’re taking is, here is a VC that’s giving you a 1 in 10 or 2 in 20, and they’re on the cap table. You know they have ownership, or they can get access. On the other side, you’ve got this SPV, and you’re paying 12% and no carry.
Turner Novak:
You make money just on the transaction.
Asher Siddiqui:
On the transaction, not on,
Turner Novak:
Yeah.
Asher Siddiqui:
Any kind of economic value created beyond the initial transaction.
Turner Novak:
And we’re talking 10, 20 million dollar checks that people are writing, so this is not like 100K checks.
Asher Siddiqui:
You can make a million dollars,
Turner Novak:
Yes.
Asher Siddiqui:
In a day from writing an email. And then I found out that some of these SPVs were actually in another SPV that my friend was running, and that SPV was actually an SPV into an AngelList syndicate.
Turner Novak:
Hmm. So this is a four-layer SPV.
Asher Siddiqui:
Yep. And this is rampant. So what I was talking about was, look, I don’t like to pay carry either. I hate paying carry on SPVs. I invest in funds, I pay the fee and the carry. That’s okay. But on SPVs I don’t like to. But in one of these hot names, you’re taking on a lot of risk. So in this case, either pay or don’t do it. But taking on the risk,
One of the things that I worry about is, that was a series of five blog posts that I did. The thing that I did not say, because it’s on LinkedIn or whatever, the amount of litigation, the amount of lawsuits that we’re going to see over the next three, two, four, five, six years is going to be crazy. Because a lot of these things haven’t really unraveled. None of them have had to settle.
Turner Novak:
There’s no exit, right?
Asher Siddiqui:
Yeah. But we’re coming up to a point where,
Turner Novak:
The companies where this was the most common in were kind of reaching a point where they will all list, become public, these things need to settle, and everyone finds out, the Russian dolls are fully opened and they see what’s in the bottom of the doll.
Asher Siddiqui:
Yeah. The final layer.
Turner Novak:
And it may not be, it might just be a Russian doll. It won’t be the asset that you thought.
Asher Siddiqui:
The Anthropic shares, yeah. It might just be, well, when you’re buying an SPV, if you don’t have access, I get it. The best way to get access is to invest in the access class. The access class, invest in LPs. This is why we invest as an LP into venture funds. We invest into venture funds because we want access, we want information. When opportunities come, we then co-invest alongside. That is the right way. There is no shortcut.
So when I meet family offices in different parts of the world who say, “I don’t need to do this because I have direct access,” more likely than not, they don’t. They think they do, but they’ll find out in a year or two or three.
Turner Novak:
So how do you know that you actually do have the direct access versus not having it?
Asher Siddiqui:
There’s obvious ways to confirm it, right? You can do proper diligence. Let me ask you, do you know anybody that’s subscribed to an SPV that has done any diligence on what they’re buying?
Turner Novak:
I don’t think I’ve had a single SPV that I’ve raised where they’ve asked to meet the founder.
Asher Siddiqui:
Yeah. That tells you.
Turner Novak:
And then, but it’s usually they’re all a portfolio company that’s in the fund, and it’s all, I write a memo. Put quite a bit of work into it.
Asher Siddiqui:
Yeah.
Turner Novak:
And there are, most people are LPs in my fund. Multiple funds.
Asher Siddiqui:
Yeah, yeah.
Turner Novak:
And they trust me that what I’m presenting them is real.
Asher Siddiqui:
They trust you. Yeah. And if it’s not real, what are they going to do to you?
Turner Novak:
I mean, it’s on me, and my reputation is immediately destroyed for not actually investing in this asset that I thought I was giving them.
Asher Siddiqui:
Exactly. Now imagine you’re not a VC, you’re just a broker, and you’re doing the SPVs.
Turner Novak:
And you used to do real estate.
Asher Siddiqui:
Yeah.
Turner Novak:
And you kind of saw you can make a million dollars by sending an email.
Asher Siddiqui:
That’s it, yeah. And you sell these in the Arts Club in Dubai or London. You got to be careful with this stuff.
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Sarah Pinto Peyronel (Robinhood Ventures)
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Turner Novak:
Sarah, welcome to the show.
Sarah Pinto:
Thanks for having me.
Turner Novak:
So I know, maybe people are kind of familiar with Robinhood, maybe they’re not. So what is Robinhood Ventures? Mechanically, how does this work for people who have never heard of this before?
Sarah Pinto:
Of course. So Robinhood’s mission is to democratize finance for all, and we’re the logical next step of that. So if you think about it, companies are staying private a lot longer, and most Americans are not accredited, and even if they are, they don’t have access to the best private companies. That’s the problem that we’re solving with Robinhood Ventures.
Robinhood is quite unique in that we already have about 27 million retail investors on our platform, and we know how to work with the SEC, and we are a Silicon Valley insider. So we think we can uniquely build portfolios of excellent private companies for anyone to invest in in a way that the SEC approves.
Turner Novak:
And trying to help people visualize how this works, if I have the Robinhood app on my phone, is there literally a button like, “Invest in startups,” and you click it, and you can buy it in your portfolio in the Robinhood app? Are we allowed to talk about this, or how does that actually work?
Sarah Pinto:
Yeah, of course. So you can actually, so right now it’s a publicly traded fund. Our first fund is called Robinhood Ventures 1. The ticker is RVI.
Turner Novak:
So anyone can.
Sarah Pinto:
Anyone can buy it on any platform.
Turner Novak:
Got it. Okay.
Sarah Pinto:
So when we IPO’d the fund in March, the retail access was exclusive to Robinhood, and so you would just, like any IPO, put in an order. But right now you can buy it and sell it on any platform.
Turner Novak:
Interesting. Okay. And I think there will be a lot of people that argue retail should not be investing in the private markets. I mean, maybe what you have is like a hot take, maybe it’s not a hot take, but so why do you think retail should have access to this stuff?
Sarah Pinto:
I think, first of all, there’s so much innovation and wealth creation happening in the private markets that I think it’s really an issue that we’re locking so many people out of it.
The second thing is, I think what we’ve found at Robinhood is that when you give people information, and when you give them products that are safe and regulated by the SEC, it’s a great way for them to learn by doing. Essentially, our customers behave like adults. They know the amount of risk they’re able and willing to take. And because we allow people to buy really small quantities, you can just kind of try it for yourself with a very small amount of dollars. So that’s essentially how I think about access, is if you do it the right way, it is much more just and much better than no access. And frankly, in this world where there is just so much wealth creation that happens on the private markets, it’s frankly a huge issue.
The last thing I would say is, if we as a society want our citizens to root for tech and innovation, and particularly in this AI cycle, they have to feel a sense of ownership. They have to feel like it’s theirs, too. If it’s just making institutions and high net worth individuals wealthier, that’s a more challenging proposition.
Turner Novak:
Yeah. And I’m assuming maybe a lot of people are kind of seeing this whole debate about all these different double, triple layer SPVs, and you’re trying to get access to some of these companies, and you may not even own the shares in the business that you think you’re buying. The SEC regulated, you’re able to buy this publicly traded fund. In a sense, you could argue you’re actually helping people avoid some of this mess that’s going on out there.
Sarah Pinto:
Absolutely. So importantly, for every investment that we make in the fund, we go directly to the companies, we get their approval. They’re excited to have retail investors through our fund on their cap table, and we’ve invested directly. For the 10 companies we’ve invested in, we’ve invested directly on the cap table.
So yes, we provide an alternative. It’s not single stock, which again, to protect retail, the SEC doesn’t allow for now. It is a basket of companies, but it is a very curated basket. It’s 10 companies today, and probably a few more in the future. But it is direct to cap table. There’s no extra fees, and there’s no legal risk.
The most exciting thing to me, other than to give access, is also that we found that a lot of entrepreneurs are actually excited about this. Because they know that they’re going to create a lot of wealth and a lot of success, and they find it really exciting to democratize that. Particularly for the companies that have a consumer or a prosumer product or maybe a marketplace product where there’s participants on the marketplace, the idea that the people who make you successful can also benefit in your success, not just your employees and your investors, that actually really appeals to founders, and they resonate with that.
Turner Novak:
That was super interesting conversation. Thanks for coming on the show.
Sarah Pinto:
Of course. Thanks for having me.
Find transcripts of all other episodes here.
