🎧🍌 How to Skip Your Seed, Pre-Seed Lessons Building Afore to $500M+ AUM | Anamitra Banerji

How to invest in founders pre-product, running a right Series A fundraise, lessons from Twitter's first PM, why every VC started an accelerator, and how AI is changing venture

Two fun facts: Anamitra gave me my first job in VC. He was also the first PM at Twitter.

He started Afore with his co-founder Gaurav back in 2016 to help kickstart the Pre-Seed category. Our conversation gets into its evolution as a funding stage, why its more than option checks, what Afore looks for when backing founders before they even have a product, how to skip your Seed and go straight to a Series A, and how to run a fundraise process.

We also get into Afore’s Founder in Residence program, why every VC started an accelerator, how AI is changing venture, and how Oprah helped create the legendary verified checkmark.

Thanks to Gaurav Jain and Derrick Li at Afore for their help brainstorming topics for Anamitra.

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Timestamps to jump in:

• 4:00 Afore: Starting in 2016 to build the pre-seed category

• 8:11 The unstructured data Afore underwrites at pre-seed

• 11:21 Pre-seed is determining bronze from gold

• 16:03 Why pre-seed is more than option checks

• 20:33 The secret to raising a Series A

• 23:20 Running a tight fundraise process

• 32:05 Skipping your Seed round

• 34:01 How to measure obsession in a founder

• 39:20 Knowing when to follow-on

• 40:54 Figuring out what really matters in a business

• 42:36 Afore’s Founder in Residence program

• 49:44 Pros / Cons of more access to capital for founders

• 52:27 Two reasons YC made every VC launch an accelerator

• 1:01:05 Why AI is forcing VCs to invest earlier

• 1:06:55 Will AI commoditize software?

• 1:08:29 Growing up in India, starting his first company

• 1:10:39 Coming to the US for school, joining Overture + Yahoo

• 1:14:05 Joining Twitter as first PM, creating the Verified check for Oprah

• 1:18:55 Building Twitter’s first ad product

• 1:20:28 Why non-founders can’t take foundational risks

• 1:23:02 Starting Afore for the Pre-Seed opportunity

• 1:27:47 Raising Afore Fund 1

• 1:31:14 How to raise your first fund

• 1:33:33 Was Turner the best Afore intern ever?

Referenced:

• Afore Capital⁠

• ⁠K9 Capital⁠

• Afore’s ⁠Founder in Residence Program⁠:

• ⁠Speedrun⁠

• ⁠PearX⁠

• ⁠Neo Accelerator⁠

• ⁠Gamma⁠

• ⁠Develop Health

Find Anamitra on X / Twitter and LinkedIn

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Transcript

Find transcripts of all prior episodes here.

Turner Novak:

Anamitra, welcome to the show.

Anamitra Banerji:

Thank you, Turner, for having me. I appreciate it.

Turner Novak:

Yeah, this will be fun. Most people might not know this, but they will now. You were my first boss in Venture. You gave me my first job.

Anamitra Banerji:

And you were kind enough to join us, so I've learned a lot through the process.

Turner Novak:

Yeah, so it's basically your fault that I'm here. Whether this has all been good or bad, basically we can blame you or credit you.

Anamitra Banerji:

That's right. And it was a fun time, right? Several years ago you were hanging out and there was only, what, two or three people at Afore at the time?

Turner Novak:

Yeah, and you guys are a conglomerate now.

Anamitra Banerji:

Well, that's probably a strong word.

Turner Novak:

Yeah.

Anamitra Banerji:

Not quite Samsung, but we are larger, about nine people now.

Turner Novak:

Okay.

Anamitra Banerji:

Most of us are in San Francisco.

Turner Novak:

What is Afore? Just for people who aren't familiar.

Anamitra Banerji:

Great question. So, Afore is a venture fund based out of San Francisco. We helped start the pre-seed category back in 2016, back when most founders struggled to raise their very first round. It was supposed to be called a seed round, but we found that many seed investors weren't really seeding. They wanted founders to go and get some traction, but then to get traction, you need some capital. So founders were in a catch-22 situation. So many founders were being told by seed funds at the time, "Why don't you go raise an angel round or a friends and family round and then come back to us in three months or four months and see? Launch a product and then we'll invest."

So the founders began to generate a shorthand for that word. They called it the pre-seed round. It was, that started round about 2013, 2014. Manu Kumar, I think sort of came up, coined the word actually, pre-seed.

Turner Novak:

Is it his K9 Capital, is his one?

Anamitra Banerji:

K9 Ventures, that's right. Original investors in Lyft, by the way, so a pre-eminent firm. And so founders began to basically say, "You know what? We should raise a pre-seed round." And then they would go to seed funds and seed funds would reinforce that. And so we saw that opening happening and my co-founder, Gaurav, my good friend. I've known him for 12 plus years now. He was at another venture fund called the Founder Collective, a seed fund, amazing fund. Seed investors in a whole host of companies like Uber and Coupang and Trade Desk and so on. And I was at a venture fund called Foundation Capital, a traditionally series A funder. And we both began to see that there's this thing happening that founders were describing a new kind of round and most investors were shying away from it. And we said, "Why don't we capitalize on that?"

Turner Novak:

So why were they shying away? Because it's like, "You're VC, you're investing in company formation," right? In theory, they should be writing a check in that first round.

Anamitra Banerji:

That's right. I think in general it goes to, the question is really why didn't seed funds... This shouldn't exist if seed funds were actually seeding.

Turner Novak:

Yeah, because the original pitch for seed funds was in the '90s or early 2000s. It was like you raised 5 million bucks at 10 million pre, or you give away 30, 40, 50% of the company. And then seed funds came in as the 500K check in the AWS-

Anamitra Banerji:

That's right.

Turner Novak:

... funding round, but that went away? What happened?

Anamitra Banerji:

Well, between 2005 and 2010, angel rounds, which was the, I guess, pre-seed at the time, our angels were getting institutionalized. They were called super angels. And the super angels institutionalized even more. And they formed funds and they became the First Rounds, they became the Floodgates, they became the Founder Collectives, they became the Uncork’s of the world, and they became really, really successful. And as a result, many, many seed funds followed.

And fast-forward to 2016, some these seed funds continued to truly invest in seed, taking a lot of risk, invention risk formation risk, founder risk, all of that stuff. But many seed funds became so successful that they wanted to take less risk. They wanted to see more traction because they had more options. Whenever, if you think of it from a human being's perspective, when you have two options, you have a deal that hasn't launched yet. Two founders still wet behind the ears saying that they're going to launch something and it's going to be great. And on the other hand, you have a founder that is launched, it's got about 10,000 or so in revenue and it's got some prospects, but they're raising a little bit more. You feel, this one feels a little bit safer than this one.

Naturally, investors went this way and so that always creates an opportunity. So I think it's general human nature, when things become successful, you get bigger. As you get bigger, you go later and you take less risk or a different kind of risk. But that kind of risk came very naturally to us because we were founding product managers. I was a first PM at Twitter. My co-founder was the first PM at Android, so we helped invent products from scratch, and then we had some investing experience. So this, for us, was natural.

Turner Novak:

So then, yeah, how do you vet a pre-seed founder or team? Because when I tell friends, "Yeah, I just invest when they're starting the company," there's no spreadsheet, there's no product you can use. How do you vet that?

Anamitra Banerji:

Yeah, it's called the dark arts.

Turner Novak:

The dark arts?

Anamitra Banerji:

It's called the Dark Arts.

Turner Novak:

It's a classic Hogwarts.

Anamitra Banerji:

Yeah, it's the dark arts. You don't know what you're doing. It is... In a way, there is data. It's a different kind of data. It's not in a spreadsheet.

Turner Novak:

It's unstructured data.

Anamitra Banerji:

It's very unstructured. That's right, wonderful. It is unstructured data and it is information. It's partly a lot about the founders. It's what they have done more recently, it's what they have achieved in life. It's underwriting the human and then it is validating the way they think about ideas and how they prosecute an idea, how quickly they move through ideas, what they have tried and what haven't tried. All of that of that stuff.

That generates some data. And that data essentially allows someone like us to decide if this group or this founder is going to get off the starting block. Are they even going to make the first three months? The first six months? The first 10 months? Are they going to get out and have an impact in some way? We can't really tell what's going to happen in the long run. And our general belief at Afore is, in the long run we are all dead. So what matters is what happens in the short run. So can they get to a series A? Can we see, forecast the next 12 months? The next 18 months? Because that's underwriteable. What happens after that is harder for us to underwrite.

Turner Novak:

Yeah, because I guess your job, you're giving them capital, but you're also helping them get the company going, getting in motion. And if it's working really well, there's a long list of VCs that'll come in and happily do all their stuff that they need to do when it's later on down the road.

Anamitra Banerji:

That's right. Some people describe it as there's the companies that have some traction. A shorthand that many VCs use and many founders use, is product market fit. They have some notion of product market fit. Now I can put some more money in and they can go.

And then there are some other investors who look at companies that don't have product market fit with a lot of fear. They're not really going to be helpful to a company that doesn't have product market fit because that is a really messy place. Sometimes a founder is looking for a co-founder. Sometimes the co-founders are looking for great ideas. Sometimes they're abandoning multiple ideas. They're in the process of pivoting and it's a zigzag road.

Eventually they get to two strong founders or three strong founders or even one strong founder gets to a strong idea. And you ideally want to invest just at that point. But the reality is if you wait for that long, it may be too late. So some investors wait way after that to invest, traditionally a seed or a series A. What we have chosen to do is to go even earlier. Is to not wait for that right idea and the right team to come together, but to get to know them way ahead of time.

Turner Novak:

So how would you vet that? So when we're talking about you're trying to find somebody who's going to hit that trajectory point and you meet this really strong technical founder, just how do you know that they're going to make it and go the distance?

Anamitra Banerji:

Hard to know for sure, but we have some time rules. So some of the things that we use is that we generally invest in technical founders. Generally speaking, they're working on some kind of an idea where the breakthrough is a result of some technological shift, AI being the most common one, but it was SaaS and cloud before, mobile and then so on. Or they have some kind of a product insight. It may not be an engineering innovation, but it might be a product innovation. As a result of this product, it can create a breakthrough experience for the end user and so on, and they're able to describe it really well.

But at the end of the day, when you meet a founder or meet a person, I think you kind of have to decide are you looking at gold or are you looking at bronze? And our job, I think on the investor side is to know when we are looking at bronze and know when we are looking at gold. It's generally harder when you're just getting off the ground, when you're doing it for the first time. But once you've seen a lot of gold, I think you can tell when you see gold. I think maybe that's the dark art that we've gotten good at.

Turner Novak:

Yeah. Well and talk about gold, and there's a lot of VCs, we look for outlier founders out of this world founders. Did you know gold is actually not made on earth? Gold comes from other solar systems. Did you know this?

Anamitra Banerji:

I didn't realize. I thought it was in Sacramento. I'm kidding.

Turner Novak:

So actually, yeah, the way that gold works is it was created in the universe from... I forget exactly how it's created, but the only way that we find in the ground is from asteroids crashing into the earth. Because gold, I guess it's created from different stars colliding and ripping apart. So there's something, I think it's 300,000 total or 200,000 total metric, tons of gold that exists in the entire earth. And we've mined something like 150,000 of it.

Anamitra Banerji:

Really?

Turner Novak:

And I think it's all existing gold in the world can fit inside seven mile square block radius or something like that. It's a pretty small amount.

Anamitra Banerji:

Right, right.

Turner Novak:

But it's kind of crazy, when you think about how common we talk about gold, and you'd think it's just this thing that’s everywhere.

Anamitra Banerji:

It is pretty rare to find though.

Turner Novak:

Yeah.

Anamitra Banerji:

Extremely rare.

Turner Novak:

But it's the point of finding a founder that's going to-

Anamitra Banerji:

That's right.

Turner Novak:

... start a company, build a product, hire a team, convince people to use it, they're going to do a billion dollars in revenue, extremely rare.

Anamitra Banerji:

And if you think about it, oftentimes one of the criticisms that are made of seed or pre-seed stage investing is that it's a lottery ticket. The investors are buying a lottery ticket on a founder. No one knows if it's going to work out or not. It's a pure founder bet. It's a institutionally lazy way of thinking about investing, which we can talk a little bit more about. But at the core of it, it is an investment in a founder's ability to succeed and their potential, not necessarily at the point of investment, but an investment in their ability to grow, to improve.

And we've seen that multiple times across our 200 founders, founders that we've invested in at the pre-seed. A year and a half goes by at the series A, they look different. In fact, we have a slide from one of our past AGMs and the slide talks about what a founder looks like at the pre-seed stage, what they look like at the series A stage and what they look like at the series B stage. And for each stage we had a different photo from Jeff Bezos' life.

Turner Novak:

Really? Okay.

Anamitra Banerji:

When he was the dorky founder starting Amazon in a garage or library, whatever. And then when he wore a suit and he was IPO-ing, and then finally what he looks like now. Buff, made it. We've seen it literally, founders go through that kind of metamorphosis. And that's the imagination part of investing in our stage is being able to see this movie. So that's why sometimes I think of our business as a movie-making business where we invest in a founder, but we're imagining a story of how this founder can grow and how the market can grow and so on and so forth. And we see this repeatedly.

So to invest at our stage, it requires to be able to see what's gold and what's bronze, but also being able to imagine what things can become in the future. That doesn't always work out, but that's the hope. That's the reason why I think investing at our stage, it benefits the optimist.

Turner Novak:

So you said something interesting, you're like, "Oh, we can revisit this." You said it's lazy to think of it as just option, bets or whatever. Why do you think that? Because that is a pretty common view, I feel like, the way that a lot of people describe it.

Anamitra Banerji:

I guess there are two ways, thoughts there. One is typically an investor, not all investors, many investors think of the pre-seeding investor as... Traditionally the criticism for seed investors has been, they don't really know too much about the business. They didn't really contribute much to the business.

Turner Novak:

They just gave some money and the founder did some stuff?

Anamitra Banerji:

They gave some money, they got lucky, they found a founder, they gave him 250K.

Turner Novak:

And they built Uber.

Anamitra Banerji:

Yeah, and then that's it. And then it's the institutional investor in Sand Hill Road that comes in and sorts stuff out. They're the ones who are really helping build the business, and there's some truth to that. They do a lot of work. So the criticism has been that these are folks who are not serious investors and they're writing small checks. But as we know, that's not true. These investors, that was the way they got started because that was the only way they could get started. And then they have built amazing portfolios of seed funds that, many of them I've talked about, are just amazing. And they have institutionalized seed.

And I believe that's what's happening to pre-seed now. It's getting institutionalized and that's the reason why today, nine years into a forced life cycle, four funds in, almost every fund has a pre-seed strategy or there's someone in the fund who believes in it. It's just a life cycle of things. On the option bet side, think if you are a larger fund and you have billions to deploy, writing 500K checks is not that meaningful of a needle mover. However-

Turner Novak:

It would seem like an options strategy from that perspective.

Anamitra Banerji:

It is, however, very strategic. Some funds realize this. It is very strategic not to lose sight of the formation stage of companies. So what they typically do is the easiest thing to do, is to write small checks into a number of companies. It's usually the junior people who get to write those checks. And if some of those things work, then they get to be senior people in those funds. These deals are generally with the little boy in the little boy's table. They don't usually make it to the big boys' table. And even if it doesn't work out, it's not a problem because it's not a lot of money. But some of them do and some funds execute it really well.

Turner Novak:

What, any examples of funds executing it well, from your perspective?

Anamitra Banerji:

I don't know the exact stats. So the stat to look at is how many of a fund's seed investments have converted to that fund's series A?

Turner Novak:

Like an inside round?

Anamitra Banerji:

That's right.

Turner Novak:

So the option quote-unquote in the seed, you do a 500K check and then you do like a three, four, or maybe $20 million seed bet nowadays?

Anamitra Banerji:

It's either that... It's a conversion, so it wasn't an option bet. It was a real investment. They spent time with it, they helped, and then many of them graduated to a proper series A. It's either that, or they didn't spray and pray at the seed stage. They wrote large checks, meaningful checks, and they spent quite a bit of time and they didn't do that many. If you look at, I think Index's track record at seed is pretty good. I think they're in Figma and a bunch of other companies right at the seed stage. They were pretty meaningful. I've heard same stats about Spark. I think their conversion rates are really high.

Turner Novak:

What's a good conversion rate? Are we talking 10%? 90?

Anamitra Banerji:

No, it's got to be more. I don't know if it's 90 or not, but it's got to be more than 10%. It's probably 30, 40%. That's probably a pretty good conversion rate from seed to series A inside of the fund. But nowadays, I think there's a trend here where series A funds and stage agnostic funds are taking significant ownership at the seed stage. So they are writing the 2, 3, 4, 5 million check at the seed stage. In a way that's... Is it a seed? I don't know, is it a $5, 6 million round? Is it a seed round? Maybe it's a small series A. But they're aiming for 7 to 15% ownership. That's a significant investment.

Turner Novak:

Yeah. So one other question on this early company phase, early in the journey for founders. What have you noticed that a lot of the best founders maybe... Or not the best founders, mess up on? Are there any common mistakes that you've feel like are pretty avoidable and you just feel like founders, they hear you say this and you're going to save them a ton of pain?

Anamitra Banerji:

I think a common mistake is the way they run their fundraising process for either the seed or the series A. Typically all of them want to do a preemptive, which is no fundraising, and they get term sheets and it's kind of an oxymoron. They want to run a preemptive process, which doesn't make any sense. Why would you run a process to get preempted? Because preemption basically means you didn't run a process at all.

So one of the mistakes I commonly find founders make is, it's you either run a process to fundraise or you do not run a process to fundraise. The halfway house of, "I'm meeting with one or two funds to test the market to see how it goes and then I might decide." What ends up happening in those cases for companies that are doing well and founders that are strong, is those one or two funds end up giving the founder a term sheet and the term sheet may or may not be the best that they could get, but they have a bird in the hand and no other options.

And the other option is to try to fundraise over the next month or so. They may or may not get anything. So now they're in a bind, do I take it or do I roll the dice and try? And usually when they get an offer which is okay, they usually end up taking it, which may be suboptimal for the company. So that's a mistake, I think.

Turner Novak:

And then, so the way to mitigate that is just have your spreadsheet of 50 people, you email them all, set up a meeting? How long should that process usually take?

Anamitra Banerji:

It's a first commitment to the process. Many founders, I think, struggle to commit to the process because it is all encompassing. It takes the best cases, maybe a few weeks. Best case. Worst case is three months and no fundraising happens, and I think it's worrisome. I think we see one of our jobs as investors in the company is to secure the follow-on, is to ensure that the follow-on happens very smoothly. And our track record on that is pretty good. I think our companies have raised about $3 billion after us. So for every dollar Afore puts in, 39X follows our companies and we are able to help raise 64% off that. So introductions off the $3 billion that have been raised, 64% of introductions came from Afore.

So we play a helping hand, a guiding hand in how that happens. But general feedback is to get to know investors well ahead of time because you're asking for a lot of money, you're asking for a lot. If you don't give them enough time, it's really not fair on them. So get to know them, let them get to know you, and then when you run a process, run a really tight process and commit to it and assume that the business might slow down during that time.

Turner Novak:

When you say tight process, what does a tight process look like? Because people might have different ideas of what that should be.

Anamitra Banerji:

Yeah, it's usually start with some time that you commit to raising money. It's like a sales process. You have a goal of, let's say, raising 10 million and you think it might take about six weeks or so. And so you should have a week-by-week plan. And the week-by-week plan is you start putting together your deck, you talk to your insiders, you get introductions, you meet with those investors, you quickly triage who's really interested and who's not. And you move it forward, you figure out who to give customer references to, what the customer should say. You should've planned that out. You work your network to make sure there's a whisper network for you amongst your insiders and angels.

Turner Novak:

What does that mean? How does that play out?

Anamitra Banerji:

The whisper network is basically your fundraising really starts when you get your first term sheet. Up until that point, it's just mechanics. And at that point, the whisper network helps you get introductions. And then second, helps investors learn more about you that they may not be able to ask you. And you want to make sure that everyone in your circle knows that, knows what you want the talking points to be in a pretty authentic way but a direct way.

Turner Novak:

How do you do that?

Anamitra Banerji:

As a founder, you're trying to figure out which investors are really leaning in, who are really, really interested. What kind of information are they looking for? Usually, investors are pretty independent in the way they think. If they hear from a customer, for example, that you are doing well, that's the right kind of whisper network to go through, which is let your customers know that you're fundraising.

And if they are really satisfied with your product, if they're looking to spend more money on your product and so on, they should say that to investors. If you have angels or others who are... you should figure out who are close to which funds, which people are close to which funds, who has influence over which funds and what they're willing to say about you. And game planning that I think is really beneficial.

Turner Novak:

So do you recommend then saying, if I'm an investor, would you recommend having Turner just randomly text someone and being like, "Hey, this company's fundraising. They're doing pretty well, you should invest"? How should I probably nudge my investors to do that if I'm pre-seed, looking to raise my A? How do I tactically-

Anamitra Banerji:

Yeah, two steps. First step is the introduction, and so first step is get the meeting, secure the interview. At the interview, there's not much more you can do as an investor if the interview fails. So the founder has to impress. So you got to help the founder prepare, and the goal of the first meeting with the investor is to get to a second meeting.

And the goal of the second meeting is to get to a third meeting, and a third meeting, get to a fourth meeting. Different investors have different paths. It could become a partner meeting pretty quickly, it couldn't. I think the job for an investor is to be able to have a authentic relationship with the follow-on investor.

Our job is to have an authentic relationship with series investors, seed investors. And if they call us, we tell them exactly what's going on in the best honest way possible. So for example, we wouldn't nag or bug an investor to invest because that's a sign of weakness. After the introduction, if I'm telling someone, "Please invest," then they're not going to invest.

Turner Novak:

Yeah, that immediately says, "Okay, there's-

Anamitra Banerji:

There's a weakness.

Turner Novak:

Yeah, there's a weakness here.

Anamitra Banerji:

There's a problem. And so it should always be from the other side. We are receiving calls as opposed to making them. And when we are receiving the call, the call is, "Hey, I'm leaning in. Are they really moving as fast as they're saying? Do I have time or no?" And we tell them the truth, do they have time or do they not have time? And sometimes they come back and say, "Hey, I'm leaning into making an offer. Does the founder have crazy expectations? If so, what is it?" The question and valuation becomes a little tricky because that's for the founder and the investors to decide, not for us.

Turner Novak:

The way that usually plays out is the team might have an idea of how much money they want to raise, and typically in a certain round you'll sell a certain percentage of the business. So you might say, "We're going to raise 10 to 12 million and we're going to sell 18 to 25% of the company." That gives you a range of like, "Okay, the valuation might be 40 to 60 million," which is actually a pretty big range.

Anamitra Banerji:

I don't think founders should ever indicate-

Turner Novak:

You don't think so.

Anamitra Banerji:

... at all ever what the valuation should be. It does them no good because they're negotiating against themselves, because they're never going to get a valuation larger than what they've just signaled. For example, if they say, "I'm raising a million on 10." If the investor wanted to invest at 15 post, they're never going to say 15 anymore. So that's 33% extra dilution that the founder is going to suffer, and that matters.

Turner Novak:

So should you be bold with the amount that you want to raise?

Anamitra Banerji:

Of course, of course.

Turner Novak:

If I want to raise 10 million bucks?

Anamitra Banerji:

Of course, of course.

Turner Novak:

But then there might only be 5% dilution in the round.

Anamitra Banerji:

That depends on the competition. So for example, if you say you're raising 10 million, a founder's job should be to have as many options as possible, whether that's the right thing for the company, and then pick the best option, not necessarily the highest valuation, but the best option. And then the price is part of that, but not the entirety of it. I often see sometimes fundraising mistakes.

In founders deck, it will say exactly what the cap is or what the post money is. So the founder's job is to indicate how much they're raising. It is the investor's job to indicate what price they feel comfortable at. And it's up to the funders to decide if they want to take that price or not. And there is a concept of laddering up. Are you familiar with laddering up?

Turner Novak:

Yeah, I've heard the term, but I'm not sure.

Anamitra Banerji:

Laddering up of a round. So let's say the founder's real aim is to raise 10 million, okay? But they think if they come out of the gate with 10 million ask, they're not going to get it. So what they do is they start with five to six million, and they get a term sheet or something at six. And then that generates competition and that might end up being a $9 million round, which was close to the original target. Sometimes it's even more.

There are some dynamics here that founders sometimes think about, but sometimes don't. But I realize why many founders don't know all of these things, because especially if you're raising for the first time, you don't know how this works. So that's why working with a good investor is a really good idea, who's seen multiple turns. But founders get so smart so quickly after they've raised their pre-seed. They're so much smarter at the seed, so much smarter at the Series A, so much smarter at the subsequent rounds. That's another way people develop really fast.

Turner Novak:

Interesting. So the laddering up, how do you pull that off? Because you might say, "I want to raise five million bucks." And somebody actually likes you if you're raising 10, you more fit in their box and they just say, "Oh, I don't really want to meet you. It's not a fit for me." How do you navigate just pulling off that ladder up move?

Anamitra Banerji:

I think it's a functional competition. So that substance has to be good. You have to have a good story, you have to have some traction, and the founding team has to be really strong. They must really present well in their idea. And then the job is really to ensure that no one opts out, no investor opts out. So the top of funnel has to be really high. So you want seed investors and you want Series A investors because we're talking about the area between seed and Series A, which can be really vague, and you want to take advantage of that vagueness.

Because there are some hard lines. But for you, basically, for the founder, the point here is that if you're raising a seed, let's say four million or something, and you're willing to give up 20%, 15%, 25%, whatever that dilution amount is, it is always better to raise more for the same dilution than less. So if you could raise 10 instead of four, why shouldn't you? If you could raise seven instead of four, why shouldn't you?

If you could raise more, why shouldn't you? Because the issue is that if you raise three or four, you're going to have to raise 12 again or 15 in about a year's time. Why give up that extra 10%? So basically, either raise as little as possible, give up as little of the company as possible, or raise as much as possible for the same amount of dilution.

Turner Novak:

I don't know if you've actually mentioned it in this conversation. But before, you talked to me a lot, like, "Oh, I had a portfolio company that skipped the seed. They went straight to Series A." Is that an element to this? What exactly does that mean, skipping a seed and going to A?

Anamitra Banerji:

Seed strapping, it's called.

Turner Novak:

That's, I think, the term now. Yeah.

Anamitra Banerji:

That's right. That's a term now. That's one of the value props for our fund is when we first started as a pre-seed fund, we would invest anywhere from 500K to a million dollars into companies that are pre-launch, pre-traction, pre anything. And then what we found is the moment they got any kind of traction, they could raise a large round, five to $10 million. So roughly, the way it worked is companies would raise a million on 10, a million dollars. And then in about 10 months, they could raise five to $10 million.

So if they could do that, why not raise more as opposed to less? That meant if you're able to raise five to $10 million, essentially you've skipped the seed round, you've skipped three million or four million, et cetera. We began to see that across our portfolio multiple times: Modern Health, Hightouch, Seal, New Lantern, you just name all of them, a ton of them. Actually, 64% of our companies that we've invested in across fund one and fund two skipped the seed and went straight to a Series A.

Turner Novak:

Of your first checks, 64% that raised skipped the seed?

Anamitra Banerji:

Correct.

Turner Novak:

Or 64% went directly?

Anamitra Banerji:

64% of them went directly to a Series A.

Turner Novak:

Of every single company or just the ones that raised?

Anamitra Banerji:

Every single company that was raising. They were raising either a seed or a Series A, and 64% of them ended up raising a Series A.

Turner Novak:

And that's impressive for somebody who might not know because you have to sell part of the company.

Anamitra Banerji:

Correct. You've saved 10% on dilution. You've saved 10% of the company for yourself by skipping a stage.

Turner Novak:

Which is always good at the end of the day.

Anamitra Banerji:

Because the end of the day, the math is when the company exits, how much of the company does the founder own? And the less you sell along the way, the more you own.

Turner Novak:

So I had a question. This is from Derek on your team. He was wondering how do you measure obsession in a founder? I know that's a big thing you guys look for.

Anamitra Banerji:

Yeah, it's a good question. I think Derek's probably pretty good at measuring that, maybe more so than me. I think one of the reasons, by the way, we look for obsession is because starting companies, as you know, is pretty hard. More things go wrong than right. You get a lot of rejection. You get rejections from investors, you get rejection from customers, you get rejections across the board from everybody.

Turner Novak:

Candidates.

Anamitra Banerji:

Yeah. Yeah, you lose people. It's crazy to even think of starting because most things don't go right.

Turner Novak:

I'm assuming anyone who starts a company, any successful startup founder, you could easily go make mid to high six figures, maybe seven figures, just making money, just working 40 hours a week or whatever.

Anamitra Banerji:

That's right, that's right. Starting a company is not the right way to make money if the goal is to make money.

Turner Novak:

You got to be a little bit off.

Anamitra Banerji:

Yeah, that's right.

Turner Novak:

A little weird.

Anamitra Banerji:

But at the same time, a lot of people do really, really well. As founders, we hear about stories of IPOs and how much founders own. We have our role models, our founders like Jeff Bezos, Mark Zuckerberg, and so on. So everybody wants to be that. We worship at the altar of founders. That attracts a lot of folks, but not all of these folks are going to make it. And so the question for us is who do we think is going to make it? One of the traits we look for is obsession. One of the reasons we look for that is that even when things are going wrong, because they're so obsessed with what they're working on, they're going to figure out a way.

I think one of the things we realize with investing in founders this early is that we look for obsession and resilience. The human ability to get up when you fall down is resilience, and that allows you to continue and persevere. Because you should be willing to persevere against all odds by believing in yourself, believing in your team, and that means an obsession in your craft. When you get knocked down, figure out a way to motivate yourself to get back up again because you are so obsessed with this idea.

Turner Novak:

Is it an obsession with a problem, a customer, an idea?

Anamitra Banerji:

Yeah, it varies. It could be just an obsession with success. It could be, "I want to succeed in some way." It could be an obsession with a market and an idea. I'll give you an example. There's a company called New Lantern. They're in the radiology space. They introduced AI in radiology. Instead of replacing the radiologist, what they're doing is they're helping the radiologists do their jobs faster. So in an X-ray, they do automatic measurements of the tumor, automatic measurements of the fracture so that the radiologist doesn't painstakingly have to do that measurement manually.

Turner Novak:

Yeah, I was going to say, don't they literally just look at it and decide with their eyes what it looks like?

Anamitra Banerji:

They use a screen sometimes with two pointers to put one pointer in one part of the fracture, one point in another part of the fracture, and the machine tells them the reading. It takes some time. It's not hard, but it just has to be done. It's manual. Now, there are vision models that make it really, really fast. And then once they find it, if the machine does it for them, it's just much faster for them to verify.

And then they have to scribe what they just found and they have to prepare a report and the report goes to the doctor. That also takes time. And if those things or those administrative takes time, it just slows them down. And they have to view all of these images in this tool called the PACS. It's an old-school hardware-software combo that large enterprises like GE sells to hospitals. So this founder, Shiva, used to work at Confluence before. His mom was a radiologist. He went home during COVID and realized his mom had to go to work to see these X-rays and do these manual stuff. "I know a software. Why can't I just build it?"

So he built PACS on the cloud, so you can basically look at it or look at an X-ray on your iPad. And he sold it. But he ran into a lot of challenges when he tried to go to the hospitals and private practices and so on, because the pushback was, "What do you know about radiology? And I'm not going to switch over from my PACS to this." But he realized this is the future, this is going to happen. It's a matter of time. And he just bided his time until the ChatGPT moment arrived and a bunch of models, open-source, both on the vision side as well as on the tech side, he embodied all of that to do this automatic measurements and automatic scribing, package it together into the PACS.

And now he's off to the races. Benchmark led his Series A late last year. He's got a pipeline that he can't deal with right now. He has to hire salespeople. Now, investors want to meet him because they believe in the PAC story. It was exact replica of the reason investors rejected him a while ago.

Turner Novak:

Oh, really?

Anamitra Banerji:

Before these AIs. So it's the same reason that they wanted to invest in him.

Turner Novak:

Wow.

Anamitra Banerji:

And that's an example of obsession because he believed in this future, he believed in his ability to pull a team together. He believed that this is going to exist and he's going to build it. Who knows what happens in the future, but that's just an example of someone with outstanding ability and belief in themselves.

Turner Novak:

Yes. When you say who knows what's going to happen in the future, I know you guys do follow-on sometimes. How do you know? In this case this round or maybe in other cases, how do you vet out if you should be following on as a fund? Because there's the returns to be made by following on.

Anamitra Banerji:

It's not a perfect mechanism for us. We do get it wrong sometimes, but we've had the benefit of working with these founders pretty closely for months, for years sometimes before we have to make that decision. So basically, our job is to figure out if there is an upward slope here. Is the slope rising? Are the founders' abilities rising? Is the market getting better? Is the traction getting better? Is the prospects of the company getting easier and better or not? And then our question is, do we protect our priority? Do we protect our position? Do we invest more or not?

And for us, those questions aren't that hard. Our ownerships are quite healthy upfront. Our fund, we are able to invest in a Series A and the Series B, but probably not much beyond that. We want to continue supporting our companies. I think the more interesting question is as these companies get even larger, even bigger, and they're raising and we have the opportunity to invest tens of millions in subsequent rounds, partly as a result of our broader rights, but partly as a result of our relationships, should we make those very, very large investments or not? Growth investments, if you will. So far, we've stayed away from that. So far, we haven't done that. But those are really large follow-on decisions.

Turner Novak:

How do you figure out the one or two things that really matter in a business? So I don't know if you have any examples, maybe to help drive this home for people, but just how do you know what actually drives a needle? Because there's so many different things you can look at, but usually there's one, two, maybe three things.

Anamitra Banerji:

Yeah, I think generally speaking, founders should be working on an interesting trend. There's some wave that helps them succeed. And I think two other things that matter is that their product is different, is breakthrough for the folks who use it. There is lightning in a bottle.

Turner Novak:

How do you know if it's lightning in a bottle? How do you know if it's truly good?

Anamitra Banerji:

Customers tell you that. I think users who end up using it testify to it. When you talk to them, they'll tell you because they've looked at a bunch of options. They don't really care about investing, they don't care about tech, they don't care about VCs. They don't care about any of that. They just care if it makes their lives easier or not. Is it something that they want? What else have they looked at? And their willingness to spend even more. So even that is not enough because it might be not as many companies might do that or that may not be enough of a share of wallet.

It's a necessary step. I think the thing to think about is that does the founder have the ability to identify even larger markets over time? Are they so ambitious that they're not satisfied with this success? They want even more success. They want to make an even bigger dent. They want to find adjacent markets, adjacent products. That's the entrepreneurial instinct that we look for, which is do they have a nose for opportunity? And is that sixth sense getting stronger over time or not?

Turner Novak:

Yeah. So a little bit of a different topic, but I'm curious. You guys started this program maybe two years ago, maybe three years ago. It's called the Founder-in-Residence program. What exactly is that for people who aren't familiar?

Anamitra Banerji:

Yeah, for sure. So Founder-in-Residence is a residency in San Francisco. It's a very bespoke custom program that we run for five to eight founders, five to eight teams who spend quality time with us, up to two months, and then sometimes even longer. And they work right alongside us working on either figuring out their idea, finding a co-founder or trying to get their first set of customers. Essentially, in the two month time, they figured out what they're trying to build.

The reason it's called Founder-in-Residence is it's borrowed from the Entrepreneur-in-Residence program that many venture funds run that I was a part of at Foundation Capital. They were very kind enough to have me on as an EIR. You basically get access to an entire venture fund. You get to see many, many companies, all the ideas that are pouring through the walls, and then you get to tune and improve your own idea, find a team, and then capital comes baked with it.

Some people compare that to an accelerator, and ours is not an accelerator. We're not trying to accelerate anything. We think every founder is a beautiful snowflake and we are trying to improve and provide bespoke custom help. An example of that is let's say there are five to eight founders, they're working on five or eight different areas. And each week each one of them are twisting and turning about the customers they want to talk to. One day it could be customers in a BDB space, another one, it could be hardware space.

Our job is to put together a roster of interviews for them that they can talk to customers of different types on a weekly basis to figure out is this the right product? Is this the right market? Is this the right segment or not, or twist and turn? It's hard to do that if you are working with 400 founders, let's say. But it is possible if it's just five to eight or under 10 because we're willing to commit a lot of time to these founders.

Turner Novak:

So what are the terms normally?

Anamitra Banerji:

Yeah. So nothing is standard. And the reason, by the way, we came up with this idea is because we found that when we are investing in pre-seed, many founders are looking for validation from us. If we invest, they will work on this idea. But they're not really committed to the idea in the first place. They actually are willing to pivot and change. So they are still going through the journey, the ideation, they're still going through the idea maze.

Some of them, if we invest, they are going to be able to convince their friend to quit and start with them. So they're actually trying to raise funding to secure a co-founder. So funding comes as a band-aid for other issues. So we said even though our fund sizes got larger, we went from a $47 million fund one to currently $185 million fund, a fourth fund, the increased capital is actually going to be deployed even earlier.

So we said that this is time and space for founders who are thinking about leaving, thinking about quitting, pulling in their co-founders, going through this ideation journey that might take six months, eight months, one year, two months, who knows? And there's no product for them because accelerators need you to have two committed full-time founders working on a concrete idea to get started. That's when they intersect.

Turner Novak:

Because their product is almost a demo day.

Anamitra Banerji:

That's right.

Turner Novak:

Their product is not...

Anamitra Banerji:

It is demo day. They do a lot of help also. They have a community, they have customers, all that stuff.

Turner Novak:

Some of them are better than others.

Anamitra Banerji:

Yeah, yeah. Yeah. But ultimately, you need to be ready to go. You can't be fickle and you can't be vulnerable. So we felt that founders needed a safe space and we liked the invention phase, we liked the ideation phase. And then we wanted to work with them, but we wanted to work with them in a different way under very little pressure. And for that, it meant that we had to iterate that we've done about seven cohorts, two years. We tried many different terms. One time we did a standard term. That wasn't so great. Then we did non-standard terms.

And one of the things we realized is that generally, it comes with about 200,000 to about 800,000 or so in investment. And the ownership can range from just a couple of percentage points to six, 7%. It's very bespoke. It's custom. Primarily, what we're looking for is really, really interesting people and we'll invest even if we don't like the idea. In fact, that's what we look for. We would want to invest in amazing founders who we believe will get to the right idea eventually, or we can help them get to the right idea.

Turner Novak:

So you feel like basically this type of program, it almost gives them a veil around... Maybe a veil is not the right term, but it gives them the cover almost to commit to, "I'm going to try to build something," but not feeling like they have to be tied to a certain idea. And it's upfront saying, "We're investing in this AI software thing, this thesis that you have," but the whole program is about iterating and trying to get to a form factor or get to something that solves a problem for a customer without saying you have to do what the deck said.

Anamitra Banerji:

It's more real. It recognizes and respects where founders are really at in their ideation process. They have been trained by accelerators to pit something concrete, "Here's my idea. Here's my founder. I'm going to start." But many of them know that that's not the idea that they really believe in or their founder may or may not be committed. They are just trying to see because they know that this is what is expected behavior and so they're going to fake it. Not all of them do, but some of them do because that's the training that accelerators have provided them. We're trying to unpack that and be more honest and say, "It is okay for you not to have an idea or for us to invest in an idea that we may not like," because that's reality. We know that from some of our most successful companies. Hightouch, for example, they went through five pivots before they found the right thing. They were originally a travel startup. They ended up becoming a modern data stack company. Completely different, right? But it's just reality. We just recognize that reality and we're open with it.

Turner Novak:

So what role do accelerators play? I mean, there's so many of them.

Anamitra Banerji:

I think there's a big role to be played. It is a great choice for many types of founders, especially maybe international founders, founders who need their first wrung to get into the system. And many of them provide a lot of value with their network and so on. But we're looking for a different type of founder, I guess, or we are providing a different option to the founders. And I think one of the good things is that why accelerators large funds, entrepreneurship programs such as ourselves, we provide options for founders. So founders should really do their research to figure out what is right for them.

Turner Novak:

And it's awesome just when you just step back and think about it where 20 years ago, there's a couple things out there versus today, there's 100. It's like if you're a founder, you have a lot of choices. It's still hard but there's more options to... So I just think, roughly, that's good. There's more competition. Every investor has to improve their product that they give to founders and that's good.

Anamitra Banerji:

Yeah. That's right. One of the things that used to be said is that there are only 10 companies in a year that make it.

Turner Novak:

That matter, that-

Anamitra Banerji:

That matter and stuff like that. I bet there are more than that. And I bet if you offer more... I bet there are just as amazing founders that are not getting capital today that might deserve it but they don't have access. And I think accelerators, us, others... Venture, in general, provides greater access and that access has increased quite a bit. Other criticism that many people make, especially LPs make of GPs, is that they are too many funds which is true. There are too many funds relative to when funds first started 10 years ago or so. But at the same time, there are way more founders than there are funds. So for as long as there are more founders than there are funds, I think we're going to be good.

Turner Novak:

Yeah. And the point is you can make an argument of a lot of funds, they make bad investments. And just only make good investments and then there'd be way fewer funds because they... But that's not really how it works because everything we just talked about, it's hard to know which universe... Out of the whole universe of founders which specific ones are going to go on and build a company that does billions in revenue and returns industry. There's a pretty high hurdle rate or low hurdle rate, conversion rate between rounds to the point like it's hard to know.

Anamitra Banerji:

Yeah. Because there are way more failures than there are successes but that doesn't matter because the successes are unbounded. It can be so, so big. Our industry is oriented, incentivized to take risk, and to make failure acceptable and to allow founders to retry. That's unique. That's very different. And I think that's very American also because American consumers are willing to take risk on new products. American businesses are willing to take risk on new products. And even if it failed, they don't give up. They kind of keep going. I think it's a natural sort of... One of the reasons I came to America, I love this, is because it's just everyone is willing to take risk. They're willing to try and that allows for new things to happen. Something that wouldn't happen anywhere else.

Turner Novak:

Yeah. So I want to talk to you about coming to America. But I have maybe one or two other things to hit on because otherwise it won't make sense. To throw these in later, so how do you think with... There's been a lot of funds, like a multi-stage, later stage fund that tries to create an accelerator program. I mean, I think I saw recently there was a LinkedIn post, there was 30 different accelerators they listed. I hadn't heard of 10 of them. There's just so many. How has that played out and what do you think is going to happen as we-

Anamitra Banerji:

Yeah. Great question. On my way here, I was driving past Townsend Street and Andreessen's offices. And I don't know if you noticed, but they advertise speedrun on the windows.

Turner Novak:

Really? Okay.

Anamitra Banerji:

And so, speedrun is, I believe, their accelerator. I don't know if that's the right term and I think they've been quite successful with it.

Turner Novak:

It seems like it. Yeah.

Anamitra Banerji:

And they are just one... PR has an amazing program. I think Neo has an amazing program and there's a bunch of others that have programs. I think, in a way, our Founder in Residence program, we're expanding it even more. We have a new program called Founder in Residence U, FiR U. Going after universities, college students, so going even earlier. And others are doing something similar. So the question is, "Are these going to be successful? Why is this happening? What is causing it and so on?" I have a take on this which is like a stage agnostic fund... Basically, nobody wants to lose formation stage companies. Nobody wants to lose founders at the seed stage.

Turner Novak:

Like getting that first check into a business?

Anamitra Banerji:

Yeah. I guess I shouldn't say nobody. I should say many traditional Series A funds who invest in true venture so not growth on later stage. So true venture, they're taking a lot of early stage risk, don't want to lose sight of seed stage, don't want to lose sight of formation stage, because they don't want to be... Because if you lose that then you are one amongst 20 VCs trying to vie for a deal if that's what you're doing.

So many of them had decided that, "We can't lose it." So historically, they've had seed programs and seed programs historically have been sort of promoted by younger people at those funds because they are close to the metal. They're seeing that the best deals are going to these angels and the seed funds and they are getting disintermediated. So they start these seed funds and seed funds have gone through cycles.

Seed funds sometimes get... And then, founders realize that many seed deals do not convert to Series A, so they kind of avoid these stage agnostic funds. And their seed funds kind of grow and then they collapse. They grow and then they collapse. That has happened over cycles for a long time. For example, I think Greylock had a fund called Discovery Fund, Discovery Seed Fund a while ago. Now, they have something else. So sometimes funds... And the young people leave... Anyway. Series A funds have tried for a long time to penetrate seed and one of the things that was fine for them is that even if you don't have your own seed program, you have YC or you have Techstars and you have other... Just go to their demo days and pick up the good ones.

Turner Novak:

Yeah. And there's some good deal-

Anamitra Banerji:

There's great deal flow-

Turner Novak:

... the valuations make sense for everybody-

Anamitra Banerji:

That's right. Yeah. You don't know which company is going to be a unicorn but you know... I think they have stats showing some of the companies are going to be unicorn. If you index well enough, you'll probably do well.

Turner Novak:

Yeah. And there's a ton of them. You can just go to YC demo day and there's like 100 companies.

Anamitra Banerji:

That's right. That's right.

Turner Novak:

Why waste time on it yourself when you can just show up for a couple hours and there's a menu? Like, "Here are the options."

Anamitra Banerji:

And the cool thing was that back a while ago, you don't actually have to wait for the demo day. You can get access to those companies before demo day and you can make deals there. Or even if you wait for demo day, it's not that bad because you can get decent ownership. And so, at 15 posts, 10 posts, and so on and so forth. And one of the things that I think I realized that YC has done is to say that we are going to make sure that these companies wait for demo day and they introduce some changes which they were priced at about 1.8 post-

Turner Novak:

It was their first check-

Anamitra Banerji:

First check, 120 K at 1.8 posts, so you give up 7% for 120 K. And I think you get another 375 or something on an MFN. So that 375, the founders are incentivized to raise that as high a price as possible.

Turner Novak:

Because there's no valuation on those dollars-

Anamitra Banerji:

Correct. MFN means that the founder... Whatever price is set by an external investor, the 375 additional investment from YC would convert at that price.

Turner Novak:

Yep. MFN is most favored nation. It basically means you get the best terms anyone else gives you or something is generally-

Anamitra Banerji:

Correct. So the founders are incentivized at demo day to raise at a high price basically is what it is. So these prices that were at 10, 15, 12 back in the day, now began to go up to 20, 25, 35, 40 even. And so, many seed funds were who were reliant on deals from YC saw their input price or entry price suddenly shoot up. And the question for them is what do we do?

Turner Novak:

Yeah. Because if you say your average entry point is 10 million post on a YC deal, it suddenly goes up to 40. You basically cut your returns by 75%. So if you're going to say, "We're doing all these YC deals, we get a 4x return on our fund. Everything's good." Suddenly with the new entry prices, you're getting 1x on your fund and that's not good.

Anamitra Banerji:

That's right. So for an investor on the outside and similarly for a Series A stage agnostic investor, your entry prices have just gone up. So that's one dynamic. And the second dynamic is for many founders, that accelerator deal is great. 7% for 120 K and then 375, that's great.

Turner Novak:

And YC does give you a little bit of a halo, some brand value-

Anamitra Banerji:

Of course. Of course.

Turner Novak:

I mean, they do a ton of programming and help you learn about building a company. I think YC in particular-

Anamitra Banerji:

They stand out-

Turner Novak:

... pretty good case. Yeah.

Anamitra Banerji:

They stand out. No question about it. Look at the roster of companies that they've invested in. Every founder wants to be part of that. No question about that.

Turner Novak:

Yeah. Probably better than every fund like venture fund. Oh, yeah-

Anamitra Banerji:

I was going to say, that's a great list. At the same time, there are some founders who may want a better option, who may not believe that their company is worth 1.8 post and they should have an option. So these investors saw, I think ,that our entry prices are going up if we invest at demo day. And these founders are entering these accelerators at 1.8 post, there has to be a price in the middle that we can offer.

Turner Novak:

Yeah. Give them 10, 10 million post.

Anamitra Banerji:

Correct. That's why they started their accelerators. It's to say, "Let us give you another option." And as a result, what's happening is founders now have more choice. So the question now becomes, what do the best founders decide to do? Now that they have more options, what are they going to pick? And so, it makes a lot of sense to me to see these other funds try their own programs. And if they are committed and focused and they're able to source and market well, they're going to do really well. As they do really well, that's going to create a positive virtual cycle for many future founders to decide which one should they pick now they have better options. So it's just going to get more competitive. And I would say, might have been started because of the change in the original deal. If the deal hadn't changed, would we see so much downstream impact? I don't know.

Turner Novak:

What would you do if you were starting a fund or had a fund and were thinking, "I should start an accelerator."? How would you approach it? Would you even do it? I mean, you guys did something different but how would you-

Anamitra Banerji:

I wouldn't do it now. But if I were to start a fund today, one of the things I would do is that I would funnel founders to these accelerators and I would cut a deal. I would cut a deal before them. I would cut a deal-

Turner Novak:

Pre-accelerator.

Anamitra Banerji:

I would cut a deal. I wouldn't price it. I would just do an MFN. I would say, "Here's 50 K, 100 K, MFN, and my job is to get you into accelerator of your choice."

Turner Novak:

Interesting.

Anamitra Banerji:

And I think I'd do really well if I did that.

Turner Novak:

So before we talk a little bit more about how you started Afore and all that kind of stuff, your journey. What do you think's going to happen with AI? We haven't talked about AI. We're like 45 minutes in, an hour into this, and somehow-

Anamitra Banerji:

How could we do that?

Turner Novak:

We're in VCs. We haven't talked about AI yet. How do you think AI is changing how people are building companies?

Anamitra Banerji:

Yeah. And we've seen this in our portfolio today. We see AI companies in our portfolio get to a million in revenue at 20% of the burn of a non-AI company. We have a company in our portfolio called Gamma and that-

Turner Novak:

Oh, that's in the portfolio?

Anamitra Banerji:

Yeah, yeah. We're one of the-

Turner Novak:

Nice.

Anamitra Banerji:

... original investors in the company.

Turner Novak:

That's amazing. I just talked to Grant.

Anamitra Banerji:

Oh, yeah-

Turner Novak:

I actually DMed him on Twitter. I was like, "Hey, you want to come my podcast sometime?"

Anamitra Banerji:

Oh, he came on my podcast, by the way.

Turner Novak:

Did he really? Wow.

Anamitra Banerji:

Yeah, yeah. He-

Turner Novak:

Oh, actually I saw that. Yeah.

Anamitra Banerji:

Yeah. He's pretty good. He's amazing.

Turner Novak:

Okay. Cool.

Anamitra Banerji:

Basically for everyone who doesn't know, they build slideshows or they are like the Microsoft PowerPoint with AI. So you just text what you want, what you want in your slide, the data, and you can narrate it and it's just going to create slides for you. Schools use it, college use it, businesses use it. Even founders or pitchers use it.

Turner Novak:

Yeah. I saw they have 50 million active accounts-

Anamitra Banerji:

That's the number I heard too. Yeah.

Turner Novak:

That is insane. Yeah.

Anamitra Banerji:

Crazy numbers. Very small team. I believe 20 or so.

Turner Novak:

Yeah. I think I saw 16 or 20 is the number.

Anamitra Banerji:

Yeah. They are doing really, really well. So they are doing well. We have another company called Develop Health. They are in the AI prior auth space. So in prior authorization, you need a doctor's supporting evidence to get a certain drug or a treatment and building that case takes some time. And with AI, you can build that case really fast and get your prior auth so you get the treatment that you deserve. They are doing about, I think short of a shy of... I don't know what the recent number is. But at one place, I heard north of $5 million or so in revenue.

Turner Novak:

And haven't raised a-

Anamitra Banerji:

Haven't raised a Series A yet. I think only five or six people in the company.

Turner Novak:

So that's like a billion-dollar company if it's an AI company, right?

Anamitra Banerji:

If it works out. But there are examples... I think our friend of the firm, Henry Shi, he's the co-founder of a company called Super. He launched a leaderboard of companies that are-

Turner Novak:

I've seen this. Yeah.

Anamitra Banerji:

... that are doing millions in revenue and he tracks how many people they have.

Turner Novak:

Yeah. Revenue per employee.

Anamitra Banerji:

That's right. That's right.

Turner Novak:

There's people on there with seven figures, like million dollars per employee, 2 million per employee.

Anamitra Banerji:

That's right. So we're seeing that. So what does it mean from an investment perspective is that Gamma being a good example is that normally for companies when you are growing, you are burning. And when you're burning to keep your growth going, you need to raise venture capital because venture capital funds growth.

Turner Novak:

And you need to keep investing and you need to kind of overspend the cash inflows because it's such a valuable high margin product. That if you don't invest to get there, you'll go... By investing and burning more money, you actually grow faster and it's worth more.

Anamitra Banerji:

Classic example being Uber. They came up with a new way in which people move around cities but you've got to spend a lot of money to keep it going. But if you keep investing and you keep growing, it's going to break out so people are going to stop using taxis and so on. It's going to shift over. And that's happened, right? And that has happened on Amazon, that has happened on Apple. You lose money to grow. But eventually, the bet is you are going to make a lot of money eventually because the market is going to shift in your favor.

So that's the reason venture capital works really well to fund growth in loss-making companies. It's kind of crazy to everybody else. But what is happening with AI is that these companies are growing fast, faster than non-AI companies and they are profitable. So they don't really need venture money for growth. So if they don't need venture money for growth, "What does it mean for VC?", is the question. So if they can get to it with 1 or 5 or $10 million, they can get to amazing growth and are profitable with very few people, what is the role of a large Series A, a large Series B, a large Series C? And especially if you lose the deal at this early stage, at the pre-seed stage, at a C stage, will you ever see it again? That's the question.

Turner Novak:

It definitely highlights the importance of just invest in that very first round they're starting the company because you might not get another chance.

Anamitra Banerji:

That's right. And that's why this very first... I mean, I have always enjoyed this stage that we are investing in, the formation stage, just naturally, it's close to my bones. But it's so strategic also. And especially with AI, when you may not need subsequent amounts of capital, if we don't invest in this stage, we're out of business pretty much. And I think that's true for... I don't know what will happen down the line but there could be other reasons why companies like Gamma will still raise venture money. But it's going to get tougher for investors because they have to convince a founder who's growing really fast who doesn't need venture capital to take venture money.

Turner Novak:

So there almost needs to be an even bigger value add of like, "We will help you build the business. We'll help you recruit. We'll help you sell in, introduce you to customers." That's kind of already the pitch from VCs-

Anamitra Banerji:

But the pitch of VCs is that, "You get my money and you get my advice and you get my network in exchange for equity." That's the bundled product. Is it possible to unbundle that product and say, "I will get equity just for the advice or I will get equity just for my network."? And maybe you take some capital along with it. Founders are picking... If they don't need the capital, they might need the other two. So the investors who excel in this other two are going to continue to do well.

Turner Novak:

So is AI going to completely commoditize every product and the go-to-market is the only thing that matters at the end of the day?

Anamitra Banerji:

It could. I don't think so. It could commoditize go-to-market for example. In today's world, you can get an AI SDR, you can get an AI BDR, you can probably do AI go-to-market also.

Turner Novak:

But isn't all that stuff's just kind of slop? You open your inbox and it's like, "Hi, Anamitra. I saw you went to New York University. My third cousin also went there. I'd love to sell you my B2B SaaS product."

Anamitra Banerji:

Correct, correct. It could be a lot of spam, right? But maybe the smart way to do it is not just be spam, but it's on other places you spend your time. Maybe Facebook, Twitter, LinkedIn, TV. Who knows? There are applications of AI in all things. So yes, AI can commoditize your product like we're seeing... If you are in the research space, let's say. Public data research space, you're going to... That's the idea. It might get commoditized with enterprise products from ChatGPT or Perplexity, the research products there. But if you are doing something that is not public data and it's private data, maybe in people's heads, maybe that's different-

Turner Novak:

Radiology, labs.

Anamitra Banerji:

That's right. Smart founders figure out a way.

Turner Novak:

Yeah. So then in terms of starting Afore, you kind of touched on it a little bit but I'm interested how it all came about. And I know you weren't born in the US, so I don't know how you like to tell the whole arc in the journey-

Anamitra Banerji:

The story.

Turner Novak:

... but-

Anamitra Banerji:

I usually find it a little boring but I'll tell you.

Turner Novak:

Okay,

Anamitra Banerji:

It's like-

Turner Novak:

We're what? An hour in. If people are still listening, I don't think you can turn them out at this point.

Anamitra Banerji:

Yeah. I didn't think I'd be an investor. I thought I'd be a soccer player. That was my journey.

Turner Novak:

Really? Did you play a lot growing up?

Anamitra Banerji:

I played a lot growing up. But then, I looked at... I grew up in various parts. I grew up in Hong Kong and then I went back to India which is where I'm from. And then, I looked up the FIFA world rankings for India and it was not very good.

Turner Novak:

Oh, no.

Anamitra Banerji:

And then, I realized I'm probably not going to make it. Even if I do make it, it may not work out. India, I think, has only qualified in the World Cup once.

Turner Novak:

Didn't they make it recently and it was like a really big deal?

Anamitra Banerji:

I don't think so. I think they made it in 1950 but they still didn't go because they wanted to play barefoot and FIFA wouldn't allow them. It's a very popular sport. Lots of money goes into amazing clubs. People love it but it's just not invested enough. So anyway, so long story short, that didn't quite work out. And what do you do in India? What are your options? Your options are engineering or medicine pretty much. And so, I chose engineering and then I worked out of engineering school. I worked for about four years in tech.

Turner Novak:

And you did a startup related to healthcare, right?

Anamitra Banerji:

Yeah. There were seven co-founders. It was like booking online appointment with doctors. Do it online basically. It was called Planet Health Online and I'm still friends with all seven of them by the way. It was not the ideal founder makeup basically. We didn't know what equity meant, for example. Because if we knew that you split it seven ways, we probably wouldn't have done it that way.

Turner Novak:

Did one person just have all the shares and like-

Anamitra Banerji:

No, no. I don't think we actually knew what equity meant. So we just wanted to start something because we were all kind of co-living together. Anyway.

Turner Novak:

Okay. Interesting.

Anamitra Banerji:

It was fun to just start something. And then I came to the States to go to business school because I really wanted to switch gears from engineering to product. And then, ended up... And then, a couple of things happened in life where you get a break. First was Cornell gave me a break. Out of the blue, they accepted me. I didn't think I'd get accepted. So I got to come to Ithaca which is... I think it's gorgeous.

Turner Novak:

From... Were you in India at the time?

Anamitra Banerji:

From Bombay. Yeah. I went from steamy Bombay in September to freezing Ithaca in November.

Turner Novak:

Where is Ithaca in New York? I don't actually know.

Anamitra Banerji:

Upstate New York. Four hours from Manhattan. I didn't know where it was but-

Turner Novak:

Would you have gone if you do?

Anamitra Banerji:

Would I have gone if I had known?

Turner Novak:

Like if they were telling you like, "This is upstate New York and you're going to be moving."

Anamitra Banerji:

I had never experienced snow in my life, so I probably would've gone regardless because it's just... I like traveling and it was a different place. And it's a beautiful part of the country. I've gone back, taken my kids there. It's just amazing. Highly recommend. The campus is probably the most beautiful campus of all US universities.

Turner Novak:

Really? Wow. That is a hot take.

Anamitra Banerji:

There are multiple lakes. It's really pretty.

Turner Novak:

Interesting. Okay. I've never been so.

Anamitra Banerji:

And then, I wanted to get a job in tech. Couldn't get a job for various reasons. I looked at Google, Netflix, and a whole host of others. I finally found my way into this company called Overture.

Turner Novak:

So what was this? Like 2003? 2004?

Anamitra Banerji:

This is 2004.

Last day of graduation, I got an invite to come out for an onsite interview at a company called Overture. Overture, for many people who don't know, invented paid search advertising. The little blue links you see on Google was invented by this company in L.A. called Overture. They invented the auction model, PPC, the way the web monetized at the time. And there was an alum at Overture, because I would cold email everyone for a job, usually alumni. And this person forwarded my resume to someone else, a hiring manager, and they brought me onsite. If that person hadn't taken that risk, I probably wouldn't have a job. I probably would have to go back to India. So I went out to L.A. I did well in the interview, I got offered, and I loved the business. I just loved the product, loved the business. We were head-to-head against Google, and we were getting acquired by Yahoo.

And then through that process, I learned about tech even more. I realized that what I really respected at the time is that Yahoo was being run by business people, media people who believed in the world of portals, who believed in the world of large screen media. And Overture was run generally by technical people who could see that the portal is dead and search is the new thing because this is the way people are going to discover information. It's not the old school newspaper where an editorial team tells them what to read, which is the portal way of looking at things. But people will know what they want. They're going to type it in, they're going to search, and the search box is going to have results. Because there's just too many websites for a company like Yahoo to manually editorialize and the web is going to be huge.

Turner Novak:

Well, so how did that play out then? Because they acquired Overture, right?

Anamitra Banerji:

That's right. So Yahoo acquired Overture because Yahoo realized that search is going to be important and Google was beginning to take off, and Overture had this moneymaking machine that they could make a lot of money, but they didn't really want Overture. Yahoo was conflicted about their business. They wanted to preserve their media empire, the Hollywood style of working things, and whenever a business is conflicted about which way to go, it's usually the business people who win because the business people can point to immediate revenue. The technical people, engineering people who can't point to immediate revenue, they usually lose.

And that's what happened in this case. Google won, Yahoo lost, and then the question for me was, what is the next turn? And the next turn was people are consuming information over social, Facebook. And then there was a little company out of South Park called Twitter. And then I was fortunate enough to get a second big break to get an opportunity to interview at Twitter.

Turner Novak:

Yeah. How did that all come about?

Anamitra Banerji:

I think Yahoo was trying to acquire Twitter, and my friend in the corp dev team went up to meet with the Twitter team, and I told them to slip in my resume on their way out.

Turner Novak:

Okay.

Anamitra Banerji:

I don't know if that's exactly what worked or if my cold inbound actually is what resulted, because I'm surprised I got the call. Because there were only 16 people at the company at that time.

Turner Novak:

So you were on the team looking to acquire them and you were like, "By the way?"

Anamitra Banerji:

I wasn't on the team. There was a corp dev team that I knew of who were looking to acquire them or talk to them at least because Yahoo had an outpost near South Park called Brickhouse. It's where they put all their Web 2.0 acquisitions like Flickr, Jumpcut, and a bunch of cool things. They would put it in there because Yahoo didn't know what to do with them. And none of those founders would come to Sunnyvale to work.

Turner Novak:

And Yahoo was like Web 1.O?

Anamitra Banerji:

Web 1. The original Web 1.0 like Jerry Yang and so on.

Turner Novak:

Because what is it? Read and then read and write was Web 2.0.

Anamitra Banerji:

And I guess just faster, more responsive websites, interactive, faster websites. One part of the website could change while you're editing the other part. It's just faster, cooler, fresher. Dig was the original Web 2.0. It's known as Starlet, where you consume news.

Turner Novak:

I remember Dig.

Anamitra Banerji:

Twitter was another one, which was still a website. I was lucky enough to get the role there. They were looking for their first product manager because Twitter at the time didn't know how to make money. Twitter was becoming the darling of the web and everyone questioned back in 2008, 2009, this thing is really cool, wonderful that I know what you had for breakfast, but how's this going to make any money? And at the time, I remember I joined when we were 25 and we would get inbounded from random strangers about business ideas about how to make money.

Turner Novak:

Really?

Anamitra Banerji:

Yeah.

Turner Novak:

How so?

Anamitra Banerji:

For example, I would have investors share plans. On my very first day of work, I got an email forwarded by Ev, who was the CEO, who's the one who took a chance on me. And the email came from I think Steve Ballmer or someone from Microsoft. They wanted to run ads on our search, and that was the way that we were going to make some money. We had folks from customers like JetBlue who would say, "We will..." I think there was an advertising idea. No, I think this was Disney. I think Disney's advertising idea to us back then is that we will pay Twitter money if you turn the two Ts into Disney characters for a day, a Tweedledee and Tweedledum for a movie that was about to come out. We'll pay you like $200,000 or something.

Turner Novak:

So when you look at the Twitter logo, the two Ts in Twitter were the characters of this movie?

Anamitra Banerji:

That's right. So they were random ideas. To our benefit and to Ev's credit, he didn't want to do anything that is bespoke or custom. He wanted to be authentic. He wanted to be correct.

Turner Novak:

Okay.

Anamitra Banerji:

So there was a lot of questions and conversations internally about advertising.

Turner Novak:

Yeah, it makes sense logically.

Anamitra Banerji:

That's right. So that's what I started, advertising products from scratch. And then my other big contribution was actually the verified checkmark.

Turner Novak:

Oh. You told me this before, yeah.

Anamitra Banerji:

Yeah. So Oprah Winfrey wanted to join Twitter, but there were many other Oprah Winfrey accounts on Twitter. And Oprah Winfrey was worried that people wouldn't recognize it's actually her who's tweeting. And the way Twitter worked is, when celebrities joined Twitter, they brought all of their fans to Twitter and that's how Twitter grew.

Turner Novak:

So you were really trying to get celebrities on Twitter?

Anamitra Banerji:

All the time, all the time. That really helped Twitter grow to where it is. So we had to come up with some way to signal to users that this is the legit Oprah Winfrey account. Our wonderful designer, Doug at the time came up with this pretty creative, the checkmark with a badge, a seal. That was the thing and it remains very, very popular to this day.

Turner Novak:

Yeah. Now, you have to pay for it on Twitter.

Anamitra Banerji:

Correct. Correct, yeah.

Turner Novak:

So then what were some of those first products that actually made money? I know before the Elon takeover it was doing a couple billion in revenue. What were some of the first things you rolled out that actually really started working?

Anamitra Banerji:

I think it was the advertising products is the one that makes money. They made money at the time. People are always tweeting and they want to get as wide an audience on those tweets as possible, and the concept behind advertising on Twitter, it's like it's natively inserted. If you think about it, everyone is marketing something on Twitter.

Turner Novak:

Yeah, especially today. If you open tech Twitter, in our world, most of the tweets, the posts are an ad of some kind.

Anamitra Banerji:

It's commercial. Yeah, it's promotional. It's technically not called an ad because they're not paying for it, but that's what they want. They want as wide an audience and some of the businesses especially are willing to pay for it. And then the core idea behind Twitter ads is that charge people money to boost it up in the way and the order in which it's shown and to who it's shown. Targeting doesn't work as well, but that's the idea. I think what could have been done better is that I think it was all text-based, so if it were images and videos or if Twitter itself were images and videos, it would've been so much better, so much more valuable than what it is right now.

Turner Novak:

So you're saying, with Facebook you think of Stories just immersive, full-screen video showing off product and someone's more compelled to convert on and make a purchase?

Anamitra Banerji:

I'm saying more than just ads. The underlying core product itself for Twitter remained text for too long, 140 characters, the 280 characters. They were just text for too long. Whereas what people really wanted to do is to share videos and images, which tells a broader story. A picture is more than just 140, 280 characters.

Turner Novak:

So you're saying, just by not expanding outside of text soon enough Twitter kneecapped its growth?

Anamitra Banerji:

Correct. And there were opportunities to do it and Twitter made acquisitions, but for whatever reason it didn't make it into the products. But it did in Snapchat. It didn't TikTok. It did in Instagram. It did in Facebook. And it does so now in Twitter so it's changed a lot, especially the algorithmic feed. I think it's much better than what it used to be, but the pace of innovation has been far too slow.

Turner Novak:

It's interesting when you think of some of these companies, Yahoo could have been Google. They really should have. Twitter could have. Order of operations, I think Facebook was started first, but there's a lot of these cases where an existing product, they might be doing billions in revenue, and then a new one just comes in 10 times bigger. And you think it's usually a function of business people are controlling it instead of product technical people.

Anamitra Banerji:

Maybe then what I think about it is it's a lot of founders' ability to take risk.

Turner Novak:

Yeah.

Anamitra Banerji:

Founders always have a special ability to take risk and generally, if they're correct every now and then, that's enough. Non-founders, it's just harder for them to take that kind of foundational franchise risk. And other companies have done well with taking risk that Twitter hadn't.

Turner Novak:

Maybe Microsoft is a good example of they didn't go anywhere for a decade, two decades, however long it was. And then if you really think about it, over the past decade, they almost had founder mentality CEO with Satya.

Anamitra Banerji:

They're the biggest counter examples to the founder journey, because Satya there I think it's clear that he took risk. He did take a lot of risk. He didn't happen to be a founder, but maybe the key here is having someone in the leadership who has the ability and the support to take a lot of risk, make the mistakes. But ultimately they do have to be right. If they're not right, they're out.

Turner Novak:

Yeah, that's true. And that's why it's risky. Why would I risk my entire career when I could just continue making 10 million bucks a year?

Anamitra Banerji:

It's counterintuitive to take risk.

Turner Novak:

Yeah.

Anamitra Banerji:

But you got to really, really believe in it.

Turner Novak:

So thinking about taking risk, you left Twitter. You mentioned a little bit, you were working in this other fund called Foundation.

Anamitra Banerji:

Correct.

Turner Novak:

You started Afore. What was that arc to where you guys started doing it?

Anamitra Banerji:

At Twitter, I felt I had a lot of amazing, amazing experience. The first year or so was probably the best work experience I've ever had, where the weekends felt like an interruption because we were inventing new things. We were moving so fast. That's the reason people join and work at startups. If you don't get that experience, it's probably not doing it. We're doing it. And then as Twitter got bigger, more layers, things became a little different. At the same time, there were companies like Uber and Airbnb and Dropbox being invented within a one-mile radius, and it felt like I was missing out. Ads was great, inventing that product was amazing, but there so much more that was happening.

And so this entrepreneur in residence idea, I learned about it. And then Venture Funds had this where you could come in, they'll give you an office, you get to hang out at their partner meeting, you get to opine, you get to say whatever you want and no accountability. You get to sit in on founder pitches. Again, you get to opine with no accountability and you can work on your own idea and you get paid and you get amazing food. That's a great setup.

Turner Novak:

Yeah, the last one especially.

Anamitra Banerji:

Food in venture funds are amazing, I got to say, especially the ones in Sand Hill Road. Not so much us. It was a no-brainer for me to start working on my own idea. And then Foundation was kind enough to have me go through that process, and through that process, I think Foundation, my ideas were good, but they were not really great, the idea basically that I was working on, I worked on a bunch of different ideas. The one that I gravitated towards the end was, it exists now. It's like Spotify but just for anything outside of music. So talks, spoken word, learning content, all that stuff. Podcasting, basically. That was the idea. This was back in 2012.

So during that process, I also met my co-founder, Gaurav, who was a scout student scout for Foundation. And then he and I both ended up in Venture in that same year, 2012.

Turner Novak:

Okay.

Anamitra Banerji:

He went to Founder Collective, I went to Foundation, and then took us about three years and then we realized that there's this opening in the market...

Turner Novak:

That we talked about.

Anamitra Banerji:

... that we can go even earlier and start something. And that was a big moment for us to decide. Because we hadn't raised any money ever and then we had to go out and raise money for a venture fund. And it's not like he was coming out of Sequoia and I was coming out of Benchmark. So it's not like an automatic investment for LPs. And we had okay, fine technical experience, et cetera, but we were not, I don't know, the CTO at Facebook or something like that. So it was not an obvious choice.

Turner Novak:

Plus, it was this pre-seed fad maybe.

Anamitra Banerji:

Correct. And the idea was weird. What we were pitching was pre-seed and when LPs would call up seed funds about pre-seed, they would say, "It's a fad. It'll go away. It's not a thing." I think luminaries in our industry are on record to say pre-seed is BS. They don't say that anymore, but they did back then. And so, how can smart LPs invest in that?

Turner Novak:

So why did people think it was a fad?

Anamitra Banerji:

Because it probably felt like it. Because if you think about it, pre-seed feels subservient to seed. The word, it borrows from seed. It's less than seed. It's before seed. So seed is the thing. But what happens that, when a term, no matter how it started, eventually when it's repeated enough by enough people, it becomes a thing of its own. I guess we saw that and others may not have wanted to see it. Fad, meaning that it might not last. It may not be sustainable, it won't last. Founders will eventually realize it's not a thing.

Turner Novak:

It is super interesting, if you were to meet a complete outsider and explain the lexicon, it's like, so there's this thing that was called a series A. It was like the first letter of the alphabet. That's how they named your first funding round. But then there was the seed round that got created because it was like seeding before the A. And then there was a pre-seed or it was like pre the seed round.

Anamitra Banerji:

And that has happened for a long time. Series A used to be $2 million rounds back in the day in the '70s and '80s.

Turner Novak:

Really? Okay.

Anamitra Banerji:

That's a $2 million round. And they would take %30, %40, %50, %60, 70% of the company for that.

Turner Novak:

That's insane.

Anamitra Banerji:

Yeah. We don't question the nomenclature. We don't come up with it. We see an opportunity and then we go for it.

Turner Novak:

You said you go for it. How did you raise the first fund? Because it was a $47 million fund.

Anamitra Banerji:

Correct.

Turner Novak:

If I'm thinking back a decade ago, adjusting for inflation, thinking about today, that's coming out with a pretty big fund right out of the gate.

Anamitra Banerji:

It's a large fund.

Turner Novak:

How'd you guys pull that off?

Anamitra Banerji:

I think a lot of credit goes to my co-founder, Gaurav. I think he's one of the most ambitious people I've met. And I think he was hell-bent on doing something important. And I think one of the things we realized is that, if we believe in pre-seed that much, then we have to signal to founders that we are their first class citizens. And why should they take money from a $5 million fund or a $10 million fund or a $20 million fund? It has to be substantial. So we came up with 40. 40 is substantial.

Turner Novak:

Yeah.

Anamitra Banerji:

And so we've always thought about what is right to break into founders, and then we work backwards. So if 40 is the right number, the first step is to get to 20, because if you raise half, then you can raise the other half no problem.

Turner Novak:

How did you do that?

Anamitra Banerji:

So we first decided that we wanted a raise. Let's get to first close, which is 20. And we talked to everybody up and down and we came really, really close to a number of investors. But family offices worked really, really well for us. One of the reasons we succeeded in raising that initial 20 is because that support of GPs from Foundation and support from GPs at Founder Collective. It really helped us that Founder Collective was a massively oversubscribed fund because they've been so, so successful, probably one of the best funds in venture history. I don't know if enough people know about it, but they had a lot of demand for their fund.

Turner Novak:

Because they were seed/first round investors in Uber Trade Desk.

Anamitra Banerji:

Uber, Coupang.

Turner Novak:

Oh, yeah, Coupang.

Anamitra Banerji:

Trade Desk, Cruise Automation, Airtable, the list is long. Amazing, amazing ability. And then some of the smartest people in venture work there. Chris Dixon used to work there from Andreessen, and a whole host of other people. Luminaries walked through that door. They had a lot of demand and they were kind enough to share some of that demand with us. And not all that demand converted, but some did. And that's the way we broke in. You got to break up a problem into small parts, solve that first part first. And don't worry about the big problem because, this business, our business is all about momentum. If LPs and investors believe you have momentum, then they want to be part of it.

And then so we raised the 20 and then we raised another 20, and then when we raised that 20, a lot more followed. It ended up being 47. And then what's really interesting is, from that fund, almost all of our funds since then, we went from 47 to 78 million fund two, 150 million fund three, and $185 million fund four, so it's gone up. But 85% to 90% of the capital comes from existing investors in every single fund. So everyone has re-upped and scaled up with us.

Turner Novak:

That's awesome. Because I just had Michael Kim at Cendana on the pod earlier today. I think this episode might come out a week or two after that. But he had this concept of you got to flip people from fear to greed where they're afraid. It's like, I don't want to lose money on this thing. I don't look like an idiot, to the FOMO. I want to make money with these people. I know if I give them cash, they'll make me a bunch of money.

Anamitra Banerji:

Amazing investor, amazing LP. Unfortunately, they didn't invest in us, but a lot of respect for what they're building.

Turner Novak:

And so I think one thing I know you mentioned a lot of people said no, how did you embrace and work through that? If somebody's never raised a fund before or somebody's in the middle of it right now, not a lot of people say yes. There's a lot of nos. How do you work through that and keep going?

Anamitra Banerji:

It's tough. It's a sales process. So first, you have to have a product or whatever it is, and the product is you. The individual GP is the product, and you make up your story. You make up your thesis or whatever it is, and have some differentiation. When the investor and LP is investing in the fund, they're actually just investing in you and they are trying to figure out, are you going to be successful or not? Are there going to be some interesting deals or not? So you're essentially selling your packaging and selling yourself. And it's usually hard to have a big ask. So have a small ask in the beginning, maybe a smaller fund or something else, whatever it takes to get in the game.

The goal is to get in the game, get in the game, and then the job for the first fund is to just getting to start the second fund. And then the fund size doesn't really matter. We got super lucky. I don't know if we would be able to do it today, given all the competition. Back then, I think we got a little bit lucky and we got a lot of support. But whatever it takes to get in the game, just get in the game. Because I think anyone can be successful.

Turner Novak:

Is there something that you see a lot of people get wrong in fundraising? Maybe it was mistakes you made, or even today what people do?

Anamitra Banerji:

I think a classic one is everyone who starts off tries to play by the rules that have been set by the larger funds. So they have to have a pro rata strategy. They have to have a follow-on strategy. They have to have a diligence process. They have to have conflict policy, all of that stuff. They have to have, I don't know, voting mechanism. You don't have to have any of those. It turns out none of those things matter. All that matters is, are you in any interesting companies or not? And do you have a ability to prove that you can get in them? And then all the other stuff is not important. So if you have to invest in similar companies that are doing something at your stage, you don't know how these companies are going to change over time. There's no reason to impose any restrictions on access. So my only advice to anyone who's getting started is blow up the rules and do whatever it takes to get into the most interesting companies at the earliest stages.

Turner Novak:

Yeah, that's good advice. I have one more question. Who was the best Afore intern of all time?

Anamitra Banerji:

That's a hard one. That's such a hard one. We've had an army of interns since you left, Turner, so I don't want to disappoint you. But no, you were great. You were amazing. And then one of the things we actually see is, in many people, and we've had the opportunity to work with amazing folks at Afore and hopefully all of them will stay, but some of them will continue onto something else, but they go on to do amazing things like what you've done with your fund and this podcast and everything. And the investments, ultimately, speaks volumes. We've had other folks who have gone through Afore, they were interns and then we ended up investing in them, and then hopefully many of them will get to work with them as a part of Afore over time. So we devote ourselves to the people we work with, but in return, we expect a lot from them too. And then we want to keep this going for as long as possible. But you were the best, bro.

Turner Novak:

Well, thank you. Thank you. We got that on record now.

Anamitra Banerji:

Of course.

Turner Novak:

I've actually been thinking I need to make some kind of sizzle reel or trailer, a one or two minute trailer of just highlights from you, like a package in the episode show up on the YouTube channel or whatever. When you send it to somebody like, "Hey, want to come on the podcast?"

Anamitra Banerji:

A videogram, yeah.

Turner Novak:

Yeah, some kind of a highlight reel. Anyways, I'll try to figure out how to get that in there.

Anamitra Banerji:

Cool.

Turner Novak:

There's a couple where you'll have a reaction from someone like, "Oh, that was such a good question." Or like, "Oh, you did so much research." I've been thinking about, how do I package some of those things up? It's not high on the priority list. It would be like if I had three employees, I would have someone work on it.

Anamitra Banerji:

Someone, yeah.

Turner Novak:

But it's so many things. But anyways, this was a lot of fun.

Anamitra Banerji:

Cool.

Turner Novak:

Thanks for coming on.

Anamitra Banerji:

Thanks. We went over. This is great.

Turner Novak:

You lasted longer than you thought you would.

Anamitra Banerji:

I enjoyed it.

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