Transcription
Welcome to Origins, the podcast that dives deep into the business of venture capital, where we learn how the people behind the capital, both GPs and LPs, make decisions. I'm Nick Charles, GP at Asylum Ventures, a newly launched early-stage venture firm celebrating the creative act of building startups. And I'm Beaser Clarkson, your LP co-host from Sapphire Partners, where we aim to invest in exceptional early-stage venture capital managers, both emerging and established franchise VCs. And I'm excited for our conversation today, Nick, because we have a wonderful human and someone who does a lot of thinking out loud about the venture ecosystem. Micah Rosenblum. Micah is a managing partner at Founder Collective for those of you who don't know him. And Founder Collective is a seed and pre-seed fund that's invested in some household names such as Uber, SeatGeek, Sunno, AirTable, and more. We're going to get to all of this, but in addition, I want to shout out that Micah is a three-time tech founder, including Handshake.com, along with two other companies, both of which were exited through acquisition. He's also become a fantastic investor over the last decade, including Vervaka, Lavi, Talos, which we share as co-investors in the seed round, have also known him for a long time now and can second that he's a fantastic human being. And, um, yeah, I think Beaser, you have a long relationship with him as well.
Yeah, he, he might remember better than I. I think we first became friends via social media back when Twitter was, when X was called Twitter, and then I started getting to know him through doing reference calls. Who knows? I may have called him for a reference on you, Nick. I can't remember anymore, to be honest.
Possibly. Better have been good.
It was, it was obviously great. Um, and then now Sapphire Partners, full disclosure, is an LP in Founder Collective. And, and yeah, it's exciting. And I'm excited for today for numerous reasons, but the least of which is, Nick, I think you two are pretty sympatico on the ideas of "small is beautiful" and, for the lack of more politically correct, delicate wording, anti-mega. What do you think?
Yeah. Yeah, there might be more agreement than disagreement here, so you'll have to spice it up a little bit. Beaser, yeah, really excited for the discussion. Let's, let's do it.
Let's do it.
The whole team here was like, "Finally, we finally got asked." We had to get it as an LP. We had to co-invest with Nick for a decade. That's all it took to get asked. Just 10 years.
Tough thought, man. A tough slot.
We are very excited to have you here. Thank you. Thank you for carving out time. We do know the run to the end of the year is a busy time. So, thank you.
I don't know what you're talking about. It's totally quiet out there. There's like no deal flow and no, no new tech. It's just, it's, uh, no, I'm kidding.
I know it's crickets. Can we, you had suggested this and I loved it, which is to dive in immediately giving the context of fund size, which I think is such a wonderful target to then talk about sort of opening up the conversation and giving us context and to start talking about Founder Collective. You all have stayed intentionally small, yet you've backed more than 20 billion-dollar companies, which is pretty crazy. And in this market where there are definitely funds that have taken the, the kind of track record that you all have and gone much larger, welcome us into the Founder Collective world using this as a lens.
You know, look, we, we are starting to say we are the only one of the few remaining branded seed funds less than $100 million. I, we're on our fifth fund and we've never raised more than $95 million for a single fund. And, you know, I think a lot of the industry sort of laughs or thinks, "Oh, that's cute." Um, but we think fund size says everything about your strategy. And, you know, I think all of us don't feel like bigger is better. We, we put a lot of our own capital into this fund. We're really focused on multiples. And frankly, I think a lot of the industry may have lost the plot that they're sort of trading AUM and management fees for returns. Um, and we can talk about why that is, but I think most of the industry is playing this like very difficult to win Powerball based on this theory that it's power law. And we can talk about the, the big companies are everything and they're only getting bigger. And our view is like, it's a, that's a really hard way to make money, you know, and, and there's all sorts of downstream benefits of being small. You know, I, I think having been a founder, having taken too much capital, I know that like, if you want to stay aligned to a founder, you want to maintain optionality. The best thing you can do as a founder is know, can I sell? Can I take more capital? Should I go to profitability? You don't know how this thing's going to play out. And if you take a lot of money from these big funds, it's somewhat pre-ordained. Like you've made the decision, like they've earmarked three, you guys know better than me. These, you definitely know 5x the capital for a given investment. Um, I, I don't think you should sign up for that as a founder. You know, Eric and I sold our company for $95 million. We had raised about eight. Um, it changed my life and there were a lot of people on the cap table. You know, now $95 million, um, and, uh, you know, a lot of funds wouldn't get out of bed for that.
Nick, you got to spice this up because I know you, I know you have a similar mentality, but you have to find a spice saying it.
Well, I guess one is just, are, when you said there aren't many, I actually think there might be none under a hundred million. I actually can't think of another one on fund five.
Certainly this far along. Yeah.
With the track record that you have, because we're gonna, Oh, I was about to say something that might get me booted from LP land. There are definitely people on fund five who have not raised more than 100 million.
Maybe Haystack. Haystack. Anyway, it doesn't matter. It, the, the universe is limited.
Well, I was going to say, some folks have had enjoyed less LP interest than Founder Collective has. And that's my politically correct way of saying it. So you guys have the option of raising a lot more and you've chosen to not. And if, if some folks haven't, then, you know, it just, it, it can take time. And I, being gracious on this, if you raised a bunch of funds, there are folks that raised in one-year cycles, 2020, 2021, so they could be on fund five and still be four and a half, five years old. That's wildly different from Founder Collective's history where, where you guys have been doing this for much longer.
I mean, I think that's the point. Like, we did this by choice. Look, I, I'd be lying if I didn't say we didn't, we debated every inflection point before every fund. You know, there's arguments about inflation, the cost of starting startups, the, you know, the fees. Look, we've got 16 people on staff. Like, no one's getting wealthy on, on, uh, management fees over here. Um, but we just look at the numbers, we look at the data, we look at our experience, and we say, like, we want to keep it small and we love, we love it small. Um, but yeah, this was by choice. We, we probably could have raised multiples of that over the years and we've chosen not to.
What does small you feel like enable you to do on a daily or weekly? Cuz I think when a lot of managers think about small versus large, they think larger, I don't know, we're winning more deals or we can pay a higher price or, you know, we can hire more people or it, you know, the, the things you can do when you get bigger, uh, are pretty easy to identify. You know, what are the things when you say, "We love it small," like this, like what are those things? Like, if you were pitching someone making that decision, you know, what would be the pieces where you're like, "This is the pitch for actually staying, you know, at whatever 80 or 90 million?"
Two thoughts on that. One is, I, I'm not convinced this is a business that scales very well. Like, I, I think as a lot of these firms have scaled, actually, like the talent base is diluted. I think their, the incentive structure, I think a lot of things, even though, you know, you'd think you have more resources on this platform, I'm actually not sure you become better investors. There's even an argument maybe you become a worse investor when you're bigger. Um, but putting that aside, here's a practical example. Like, uh, a couple weeks ago, we closed an investment, um, that I led of Eric and my former COO of our dental imaging company called Brontes. He is building software for the dental, starting the dental lab industry. Pretty niche. Um, he is an amazing entrepreneur. He raised $2 million bucks. And we have another friend in the industry who we all know who has a bigger fund who said, "I think that's an awesome investment for Founder Collective. I could never make that investment because I don't know how big that exit's going to be. It's kind of like hard to make the mental, like Rob is an amazing founder. We can all agree on that." But it's like, at the moment, it's dental lab software. Maybe I come in and do the A. But like, and I love that I can do this. Like, I want to work with Rob. I don't want to be like, "Oh, that's not big enough." And by the way, who knows? Maybe it does become big. It goes, you know, much broader than the current, um, market focus, but like, I have the flexibility to do that kind of, you know, what, what appears to be a modest size opportunity. Nothing precludes it from being bigger. Um, and if that's all the capital Rob ever takes, like, so be it. And I think that's good for the entrepreneur. And I, and I think it's good for us. But again, a lot of funds, you know, wouldn't, wouldn't look at it that way. They're just too big.
It's notable to me, but I want, I want to hear you guys say it. How hasn't, as your whole team are ex-operators, and how that ethos infuses who you are and how you select entrepreneurs? Because when I heard you and Eric talking about it once, it just, I always like to have a feel for who is this as an investor, and it just opened up my eyes. I was like, "Oh, I get it. I get what a Founder Collective founder looks like now because I understand how you guys are as operators." And I'm trying not to say too much to lead the witness, but can you talk about it?
And sometimes, like, I think I need to go into ChatGPT and say, like, "Describe me as an operator." Like, I feel like I need to do, cuz it's hard to be so self-aware. But it's funny, other people, Nick, you probably get this, I feel this way about you. Like, I have an idea in my head of what a good deal for you, opportunity for you looks like, or good founder. And likewise, I think people who work with us know kind of what that looks like, even if we can't articulate it. I, I think for me, it is less of a focus on pedigree and less of a focus on, like, "Show me the P&L," and more like, "Show me someone who's got dirt under their fingernails and like, they're just, um, they're just executors." And I, I, I think back to like, some pitches that Eric and I took in the early days when I was first ramping up, and someone would come in and, I don't want to out anyone, but like, you know, we were like, "Well, have you, have you put up a landing page? Have you tried to, you know, get some customers?" And be like, "Well, no, no, not yet. That's what we're raising money to do." And it's like, that's just not the right instinct, even if it's a good idea. It's just like, I want someone who is just like, they're going to start the business regardless of if we invest. But I think what it means is we probably think a little bit less, to your point, Nick, about who's downstream funding. Like, we kind of fall in love with these, like, this, the mission and the operator. Nick, I remember you and I, we've had some, some good ones and some tough ones, and, you know, we worked together on Bumpers, and that, like, that was not an easy one, but like, we were in it with them, and like, it wasn't about the market size or like, we wanted this product to exist by the, in this space, and, um, and we, and we like that there's something about those guys. I still think, you know,
Those guys are special guys.
They are. And I, I will say from that experience and others, I think, you know, yeah, you, you do learn a lot about the people and also your co-investors and through actually, like, the tougher situations.
Yeah. And Neric said something, I think it was Eric, um, like David was also, um, we all get confused, you know, we share brains after a while. Yeah.
I have the better jokes, for the record. Um, but, uh, but, but yeah.
All I know is one of the three of you was explaining when a founder comes into to pitch, because you all have been operators, and I'm sure Amanda would feel the same, but I was definitely in Boston for this. Um, so she was not in the room. I'd remember, I'd remember her. She looks a little different from the three of you. It was the, you can see the next step, not necessarily specifically to what they were doing, but because you have experience building, to what you said about the splash page, you kind of get the intent. And if you can run further faster, not specifically on the idea, but how one kind of extrapolates out, it can be a sign of who, who may or may not be of interest to work with. And it, it felt very similar to me of how when we think through GPs to work with, who's thinking about the business, you know, like when I was talking with Nick and he was talking about originally Notation and Asylum, he's thinking about things I'm like, "Oh, this is really interesting." And he's running further and faster than I would be able to get to from a traditional sort of sense of the market. And it just sort of stood out to me as an interesting way, given your operator history, whereas not that you can't be a great investor as a non-operator, but it just felt very different ethos as for how you work with people. And I could be wrong, but it, to me, was a very strong statement.
No, I mean, the thing, the line, uh, I always forget attribution of who came up with this, but we often say, like, "We want to be your favorite uncle." Meaning like, we're not trying to micromanage, but a lot of the phone calls we get, and I'm sure Nick, you do too, it's like, "Hey, I'm really struggling. I need to do a layoff and I'm really struggling and I, I just need someone to talk to about this, and I can't really talk to my board member." Sometimes I am on the board, but I can't talk to so-and-so because like, they're going to say, "Grow, grow, don't," or, or something else. And I do think a little bit of this operating one, it's like, I realize like, this stuff is really human, you know? Like, there have been so many times I, a handful of times when I'm sitting with founders, I'm like, "I think they're not getting along." And like, I'll approach them later and be like, "Guys, something isn't right between you two." And they're like, "You're right." I think most people just don't want to engage, even if they're picking up on it. Like, most, most VCs, you know, they're thinking about their outcome. They're, they're thinking traders, like they're in, by the way, that is a good skill, and, and part of what we do is invest, like more than part of it, like we build companies, but like, ultimately, you have to exit these companies. But I do think it's a different mindset. It's like, I am not so worried about the markup. In fact, sometimes when these markups happen, I'm like, "Dear God, I, I'm worried." You know, everyone else is like, "Yeah, oh god, it's amazing." And I'm like, "Yeah." I'm like, "Let's just build a great company and then we'll worry about the other stuff." And I think a lot of investors who are less operator, who weren't operators, are not wired that way, are more focused on the next round and not necessarily building a great company or intrinsic value in the company.
I totally agree. Uh, that does seem to be the market these days. I'm, I'm just now reflecting that one, I think you talked a lot about just, can they get in the little nitty-gritty weeds, the founder, and do stuff? What I'm actually hearing from you is a lot of older school truisms.
When I last saw you, you said I had grayed a lot since that. Like, you pointed out my gray hairs and then I had to go right to the therapist. But anyway, so like, they actually, I don't, I see less. Did you, maybe you took them out or something? Um, but, uh, it's working. Like, like, leave yourself optionality, like stay capital efficient, build for the long term. Um, like, I totally agree. There's some of these things where I feel like sometimes, like, the market's just like, either maybe these things aren't relevant anymore. Like, maybe they were, like, relevant 10 or 15, 20 years ago and they're not. Like, capital efficiency, maybe is not relevant. Um, maybe optionality is not. Like, so, like, how do you even just, like, manage your own psyche around these things? Because I'm sure you see the market and you're like, "Wait, maybe 20 on 80, maybe that does make sense now." You know? And so, like, maybe I'm asking selfishly, like, how do you, how do you stay true to some of these things that you do believe are sort of, you know, enduring truths?
And maybe the opposite of that is like, what things have you maybe, like, changed your view on in the last few years as it relates to the market or maybe, uh, you know, founder profile, etc.?
You know, I'm, I'm lucky to have worked with Eric and Dave for this long. I think, uh, some of it is just their own experience, all of our experience now, including, you know, you guys, like, we've seen a lot of these cycles come and go. And I, I was a founder, and I remember one day feeling like I was the bell of the ball. We were like the coolest people. And then I remember waking up one day and feeling like no one will even return my phone call, and I'm sitting in my apartment by myself, like, I'm depressed. And it almost happened like overnight. So, like, I viscerally remember that change in the market that it weighs on me, and I, and I can articulate that to other founders. You're right, though, a lot of people, when you're in the moment, you don't want to hear it and you don't believe it. I think as an investor, you know, I always hear, I'm sure you guys hear, "Play the game on the field," like the 20 on 80 or the like, "Go, go, go," like, it's, it's all billion or bust. Um, we actually deploy less usually in those moments. And I would, like, this year, I was just looking at the data before this. We will do more investments this year than we did last year. And Beaser, if you came to the LP meeting, you would know this, but I won't, uh, I won't shame you too much. But, um,
She didn't, dude, she didn't come to ours either. It's fine.
Okay. But I have to share the joy. If I hog all the annual meetings, my team will completely leave me.
Well, you're getting, like, this is the preview of the slides I'm working on, we're working on as we speak. But like, our number of investments went up this year, but the dollars per investment went down. And I think one of the great lessons I learned from Eric was, you know, the conventional wisdom in venture is if prices are going up and you should put more dollars behind it. And he was like, "No, no, no, that doesn't make sense. Like, if, if, if prices are going up, you should put less dollars." If you still want the exposure, 'cause you think, I mean, I will confess, we are investing at something in 40 right now, but we are putting the smallest check we can possibly put in. It's a founder we know very well. We think he's exceptional. Um, and we're making an exception, but we're putting less dollars because, like, I think of it as like, what's the average cost basis, the weighted average cost basis of a given fund, and I want more dollars behind low cost basis stuff than B, than the higher stuff. But like, look, I worry about it too. Are we becoming anachronistic? Like, are we just playing a game, like, you know, a craft way of investing that doesn't exist? I still believe it does. I actually think it's more differentiated to the comments earlier than it is, than than it even was back then. Um, but, you know, we've had to adjust a little. Look, we've hired more people. We started with $100k checks and now we write a minimum, you know, $500k checks. Like, we have changed our strategy a little bit. Um, but one of the things we've been writing on the slides, Beaser, I'll, I'll share some of these, of course, um, but is like, FC equals forever consistent. Like, like, we think the core values have stayed the same, um, but there are things we change. Like, we will change check size or velocity or, like, the places we look or, or things like that. Um, you know, we can talk about it like, we've definitely geographic dispersion has been greater. I would say we're in more and more weird stuff, um, given the market. But yeah, I mean, it's a, it's a tough market to be an investor in right now, for sure.
I, well, I don't want to presuppose, I know the answer, but is part of why it's a tough market because there is just a super concentration of dollars in certain kinds of companies? And we're seeing it, probably precede, but SAFEs are super hard to get any numbers on, as we've, as I've complained about forever and I'll continue complaining. But in the, in the equity rounds that we can look at, you're just seeing, and we ran a bunch of analysis on this that we all know about, um, but the big funds are coming in and they write big checks because they're big funds. So all of that correlates. And then the rounds become, from what I'm hearing you guys say, less interesting because the math doesn't math as well unless we have really, really, really ginormous, not just in total trillions of dollars, but in number of actual exits, which there's no current data that would suggest that's the run rate. Is that, is that sort of why the market's tough right now? Is there some other dynamic that I'm not seeing?
I mean, you guys know as much as I do. I think there's a lot of things going on. I think one of the things that I'm seeing is like, um, I'll just share, like, a couple anecdotes. Like, our, our team here, somewhat jokingly, somewhat truthfully, saying, you know, "It's very hard to invest on Monday because on Monday, a team comes in and they're an amazing team and they have a great idea, but on Wednesday, an even better team comes in with a very similar idea." And I, you know, you don't want to, you don't want to invest on Monday and then on Friday, an even better team comes in with, you know, it's like their minds are. And, you know, that makes it really hard because the barriers to entry are, are much lower. So I think what's happened, a little, my observation is, besides, yes, there's concentration of capital, a lot of it going to AI and high-pedigreed founders, but what I'm seeing and what I do, you know, recall from the do stuff is a little bit of like, founders aren't doing all the work. Some founders aren't doing the work. Like, I've been in some of these pitches where the founders like, "I, I haven't created a deck because I haven't had time." And it goes back to that, like, little bit of operating instinct of like, you know, if you haven't had time to like sit down and write a deck, you know, it just begs the question, like, is the fundraising the priority or is, is building the business? And so we're just in one of these moments. And by the way, the capital's there. These people will raise money. Um, so I, I, I think there's just some bad behavior throughout the channel. Not everybody. There's some great stuff that's going to be created and I, you know, we're not sitting it out, like I said. Um, but it's just a hard time because there's a lot of capital chasing. It creates some bad behavior. It's a lot of momentum and FOMO investing. And I think unlike crypto, and, and Nick, you can speak way better to the, to this than I can. I think crypto hit a certain segment of people who are interested in certain types of, um, innovation and startups, sort of like economics and token economics and, um, there were some philosophical things. This is so broad, like from the dental industry to like AI, it does hit almost everything. I think. Now, you could argue maybe crypto, but there's just, I, and, you know, I, I think it's like the old saying, you know, "We overestimate what's going to happen in the short term and underestimate the long term." I, I, I think there's probably a lot of that going on right now.
I imagine you'd agree that if you look out 10, 15, 20 years, this technology is going to have tremendous impact on markets and companies and society and culture. I'm more thinking like within the little short-term cycles along the way, which I, I expect there to be.
Yeah.
Maybe one, do you think there'll be sort of peaks and troughs along the way? And then two, in this current peak, where do you think we are inning-wise?
I'm definitely, um, look, uh, predicting markets is catching falling knives, like you just can't do it.
I'll make it easier. I, I, I specifically predicted seventh inning at our AGM last week.
It's probably consensus now. There's going to be a correction at some point. The stock market's at an all-time high. Yesterday, dropped a bit, but I think it's back today. I think, um, let me, let me just pivot a little bit, which is, and Beaser, you, you've seen some of this research. We did this themes exercise where we said, "What was the hot theme in the year a really valuable company was founded?" And I looked up, so OpenAI was funded, was founded in 2015. What do you think the hot theme was that year? So we, like, looked at, um, Google, Google searches and like press.
Uh, probably either consumer mobile apps or SaaS, vertical SaaS.
VR and AR.
Everyone was talking about VR and AR.
Wow.
And, and, and, and so we did this analysis and, and by the way, in 2008, it was mobile, like you were just saying. And when Anthropic got started, everyone's talking about Board Apes. Like, the, the, basically the way this goes is, on average, um, VCs and the trends are seven years too late. I remember the Wired magazine about Uber saying, "Transport tech, transport tech is here." It was seven or eight years after Uber had been founded. And so VCs on average are wrong, or like, eight years too late. Which is why I think like,
Sorry, eight years too late for early-stage investors.
For early-stage investing. That's right. No, that's a good point.
Yeah. Yeah. Because you, you, you might be able to, you may, you might be able to momentum in. And I think there are good momentum investors who get out at the right time, that, you know, they get in and get out. Um, and I think there's a lot of them fly under the radar. Beaser, you, you may have a better read on this too, of some who just like, know how to time the hype cycles. Um, but as an early-stage investor, I think if you're doing early A, like AI right now, we, pro, including ourselves, and by the way, we're in Sunno, we're in a bunch of stuff that, that are in these categories, but I think on average, we're probably late. Uh, a lot of the invest, I mean, I think back to Shield AI. It had AI in the name. We invested in that company like 10 years ago. No one was talking about defense tech. Um, you know, it was sort of like autonomous drones, um, using AI. Um, and that was a decade ago.
Oh, I have so many questions. Can we, I'm gonna start with one and we can go to any of them, but how you find these companies? Because I, I'm trying to find spicy ways of you and two not agreeing on everything, but I think you're going to.
Yeah.
There's something about the "weird is wonderful," which is, you know, I'm kind of copying your phrase there, but you found these things before they're popular. Because now, I mean, we see a defense/de fund one or two pitches per week, which is the LP version of what you all get. By the way, Beaser, remember the Google Glass Fund? All these clean tech funds, like, where are they now?
Facebook Fund.
Yeah, the Facebook app fund.
Yeah. And you guys both do this. You manage to find things when they're not, I'm going to use the stereotypical phrase, when they're not conventional, because that's the job of the early, earliest stage checks. And how are you doing it today? Because today's market is tricky, right? There's all these things that you're seeing. And I can tell you, it's sort of a weird bull market from an LP perspective. Because on one hand, the stock market's super high up, but it's not the typical bull market that has distributions flowing, right? So,
And it's highly concentrated in a certain number of companies. So, it's, it's bullish if you're in certain places, but it's bearish if you're sitting in a bunch of others. So, so it's weird in LP land. I do agree with your, uh, your description around how crypto touched some things. And I do think that the number of companies that we meet in terms of AI concentration is like, as concentrated or more concentrated than any cycle I've seen previously over the last, you know, 15, 20 years. Because it, because it, it does touch every, everyone can figure out a way to work it into the deck or the pitch or whatever. And so on the one hand, you know, you can go make an extra effort to go find all the other things that are not AI, but I, I also think that there is something very real where it has, uh, taken talent away. I mean, the downside of this is that it is, it has distributed talent away from other interesting areas or categories that people could be working in. And then even in startups, there's a crazy talent distribution because every founder wants to do their own AI startup. So, I, I do think it is a challenging time for an early-stage investor, even if you're not looking at AI stuff.
But I do think it's one of the benefits of being in New York and Boston and not in the Valley. Like, I think now there are a lot of benefits of being in the Valley right now. Um, but I think one of the benefits is like, not everybody in New York and Boston and, and outside the Valley is chasing exactly the same stuff, whereas I think there's much more concentration there. And I think you can just think more clearly and be like, "Wait a second, like, is this actually rational or is this just like a lot of FOMO investing?" I do think a lot of great talent is being siphoned off, but I think it's also attracting, like, I think being a VC now feels way less cool than doing a startup again, which is good. Like, I think entrepreneurship is like, I think like at an all-time peak, at least anecdotally, it feels like, um, this is the moment. Like, I, I mean, candidly, like, I see 20-year-olds and 50-year-olds pitching businesses now because they're like, "Oh my god, there's this new set of tools." Um, and I think in general, that's good. I think, you know, to the point of like, "How do you find these things?" I think it's so much of letting the founders take you on the journey and not having a pre-ordained theme that we're chasing or try to be, you know, um, very open-minded to like, whatever weird thing these guys want to do. Like, we're going to see if they can convince us they can build a business. And, you know, my example of this right now, also probably be in the LP deck, we made three investments in HVAC in the last two years. One is a software company. Um, one is actually a new way to do HVAC, and one is a water heater company. Those were two different partners, and we didn't even realize the overlap. They're not competitive, obviously. It's like three different things. We didn't realize. We're like, "Oh my god, like, like, I said to the team, are we overweight HVAC?" And then, you know, like, we didn't even, we didn't even know, um, that we were like, you know,
I think it's clear that you need a specialized dedicated HVAC fund. I, I actually, I'm going to pitch Beaser, the, the $1 billion HVAC fund next week.
Uh, no joke, we get AI rollup decks and they have HVAC in them.
I'm sure.
Because it's, you're going to speak to better than I do. It is an industry that needs a little software loving. That's all I can say.
Totally. And it's a huge part of GDP. It's hu, you know, all these AI, um, data centers. But my point is just like dental software, you know, we did, one of my most recent investments is an SOS button for nurses. Like, it's stuff all over the map. And, and I think just also like, the other weird observation I've had over the last year is like, our CPG portfolio, which I would admit, like, we haven't done a lot of CPG lately. A lot of that is older stuff that collect, including Lovevery, which Nick is a proud customer of and we're big fans of. Collectively, the eight or so CPG companies we've done will do a billion in sales. I think people left CPG, consumer stuff for dead. And then you pop your head back up and you look at, you know, David Energy. And, um, by the way, a lot of people forget this, but like, I think the single largest consumer acquisition ever was a few years ago, which was Zinn.
Yeah. By the way, Poppy, $2 billion.
Yeah. I think it's just, it's so much just ignoring the noise and staying the course and finding the things that you think will be important long term. I was going to say, because I know you two talked about this on social media, I think it was on X, but Nick, you posted about courage and you came back and I was like, "Courage, luck, potato, potato." Do you want, you want to hash it out here?
You think so?
I think I missed that.
Yeah. I, I took a little umbrage at the word courage. I had to be nice to you because you gave Eric, you know,
Yeah. I gave Eric a shout.
My beloved co-founder love. Yeah.
But I kind of read that as like, first of all, there's a lot of retrospective thinking in this stuff that like, is it courage or is it just like, these are the ones that worked out? Um, I can tell you we've backed up the truck or we've written some of our biggest checks and things that didn't work out. And, you know, we, it was courageous in one respect.
Which, by the way, I would actually argue that that's courageous, but it just didn't work. Yes.
I think there is still meaningful value in someone taking a stand, like willing to put their, their, their neck on the line, um, and doing something that the rest of the market won't. And in this case, I focused on really like writing the check, um, which is probably the most important thing. And I think there's vast amounts of the market that just is unwilling to do that because they're worried about getting promoted or they're worried to get to the next fund or for whatever other reason. When you look at a lot of the stories, right, like, uh, they all come down to those moments. As in, like, that's where brands and, you know, reputations are made. Um, and I just see so few pe people willing to do that. And, and if you're wrong a bunch, like, you should get fired. That's part of the deal. Like, that, that goes by the way, like, you can, you can have courage and also be wrong. And part of that is taking a lot of risk and getting fired. If you're courage and you're right, then whatever, you're a hero and then you're Eric Bailey.
But the other side of it is, if you, uh, and, and Eric and Dave do this well, I think we all have tried to do this, which is, if you, let's say you do a robotics company, I can think of one in our experience, and it doesn't work out, you got to still be willing to do the next one. And a lot of people aren't willing. They're like, "Robotics doesn't work. It's like, I did that once." And, and the truth is, like, a lot of the stuff that works was tried before. Like, that's sort of the nature of innovation. And I think to your point, even more courageous is like, to say, "To hell with the past. Like, from this moment, I believe this is a good opportunity and I'm going to, I'm going to go back in." I just funded a company, uh, for like, the second and a half one, different company, same idea, same product. And I think perhaps I'm going to get fired. Perhaps Beaser will fire me on this call.
Can't get fired when it's your fund.
I think I'm intent on funding this product and company in forever, like until, until it works. Yeah. Like, there will just be one of these per fund, every single fund, and like, at some point, it will work. Like, I'm pretty intent on doing it.
I think you're not courageous. You're insane. That's like the definition of insanity. Um, I just think you need enough humility in this business to know there's like, such randomness and luck. And I have a decent recollection of the, uh, Trade Desk bridge. And I remember, uh, Eric saying, like, "I don't know if this company, you know, is going to make it." And then obviously turned into our biggest returner. But that's our job too. Like, the job of investing is like having these. I kind of learned this, Eric and I kind of learned this. Um, I remember when we were running our company and we were like, "Everybody in the industry thinks like we have the cure to cancer." I, I don't mean, but like, we have this great innovation in the industry. And then we'd go to the venture market and we'd be like, "No one wants to fund us." There's this like, massive disconnect, like, in the industry where people should know, they're like, "You've got something valuable." Like, we got pre-purchase orders before we had the product. And then we go to the venture market and people were like, "Yeah, dental, that's not interesting." I literally, I would post the emails on my desk, like, I would put them up, like, "We're not taking the meeting. We've done dental. It doesn't work." I literally would get those emails from, from well-known VCs. And so you learn that like, there are these disconnects in the market where people are mispricing or mis, uh, understanding value. And I think the question, and I think VCs, I think hopefully we're not in this camp, but VCs aren't really good at that. That's, it's not really what we're like, what most VCs are trained to do. But I think that's what you, like, you know, Dave will sometimes say, like, "There's a couple companies in the portfolio that he's close with. He's like, 'This company is like a great investment. It's crazy that people aren't making the invest, like they're missing it.'" Sometimes you get, like, a lot of times you're like, "I get why people don't," but, you know, like, that is a risk, but sometimes you're like, "They're totally missing it." Um, I, I mean, I think like one example was Smalls along the way in our CPG portfolio, like frozen cat food, like for a long time that, you know, and Dave was like, "Matt's a great founder. This company's working. Why is it so difficult?" And, you know, I think, you know, like people had biases, was CPG, but there are a lot of examples like that. Venture is a very bizarre feedback structure. And it's, I'm telling you what you know, you live this in a smaller fund. There's sort of my experience is watching you all work. You have to be able to have an opinion, and it works or it doesn't work because there's kind of nowhere to hide. Not in a bad way, but just in a, you're small, it is what it is. In much larger, more institutional places, you get institutional dynamics, which is fine. I worked at HP back in the day. I was one of like thousands. I didn't, my job was not necessarily to be courageous. I did have a P&L, so if I messed it up, it was very clear, but that was my job. There's lots of places where you were supposed to just keep the ball rolling forward, and it feels similar in some of the larger places, which is just a different training than the work that you all are doing.
I think Nick, you hit it, which is incentives. Like, these big funds, and this is new to us, like, the, the incentive at a big fund to get promoted or to get into a big deal, like a named company or a named founder, like, it's so institutionalized now in VC as a career path. It really does change the intent. And by the way, it may be rational. Like, it may be that, like, we may be a little bit, maybe old school, where we're like, "It's all about returns." And they're like, "Well, no, not if you're building a career and you're like, you know, maybe there are other variables that you're looking at." Um, and I, I guess, I, I kind of get that, but, um, but I think that's just a statement of like, the industry today and, and just how it's changed.
Beaser, how do you feel about your GPs, managers taking risk?
Oh my goodness, this is the tell-all version. Um, well, first of all, it's early stage. So, if you're not taking risk, I don't, the, the two are the same. It has to be risky at the early stage. The question is, is it risk that, is it risk that you're understanding what you're taking? The, the scary part is when people are taking a whole bunch of risk and they don't know the risk that they're taking. Is it science risk? Is it market risk? You know, if you guys are making the assessment, I'm assuming you'll be able to figure out what kind of risk you're taking because, as you said, a whole bunch of things change in a seed company's life between seed and exit. I mean, look at the last decade in the United States alone. It's a really different world. A lot of things can happen, but the unknown unknowns can be, can be really. I got so in this business because we believe in the, the innovation that comes along with risk. I do think to your point, let me say it this way. If you're not underwriting a deal to return a fund, I don't know how you onesie twosie it to, to very extraordinary returns as an early-stage investor. I think that's much more the underwriting of a more of a growth stage. And so when the two
get conflated, it can be harder. It's it's logical. It's just not necessarily venture. It's much more of a small buyout. I want to say growth equity. I'm not sure that's really the right term, but some of those sometimes we see people conflating the two and that's harder from a return perspective.
Um, and then yeah, I do think people can take lots of risks, but if they're not making great choices or they have the wrong portfolio construction, they can end up with not enough returns and then they do end up eventually having a harder time fundraising, which is, I guess, the equivalent of getting fired.
We've been doing this math on the everyone's been talking about the contraction in venture. I mean, it takes a long time for a fund to decide not to raise. I'm just going to frontrun this now. You kind of go through a stage. I'm trying to come up with the language for it. is there's everyone who's listed as a VC and then there's active managers and that means you have to have done a certain number of deals and that you sort of start winnowing there and then you get down to people the net the net additions into a year versus how many people haven't closed a fund and I think that is either the addition or contraction for a year but it takes a long time and you can try to raise a fund for four or five years and if you've got some money you can deploy it it's not it's not as overnight as a company but but yes we're running those numbers stay tuned.
Just a couple thoughts on that. One is um I think the perception though that um which is right that you should go into everything thinking you can return the fund but leads people to the wrong conclusions that like that bigger ideas with like less like just like a cool idea is more valuable than actual traction or like building intrinsic. So, I think what's happening right now is everyone's like, "Oh, you got to go get the outliers." But I think people don't know what that means and actually execute on that incorrectly. Like, you know, the the bigname founder with some big idea that no one really totally gets that that's somehow or the really junior person who's just out of MIT um with a very unclear idea is somehow a bigger opportunity. And I think people conflate what a bigger opportunity is with like a fund returner opportunity with what is a good opportunity. I I I I don't think at the early stage people it's very hard to know like being you know fair about it.
The other thing I would say is um I think there's a lot of history of venture capitalists getting booted from firms or leaving firms whose portfolios did not look good only to later look good uh years later after they left. In fact, there's I mean you may know better than me but like there are many examples where like turned out the big fund returner was the person that looked really crappy at that moment when they left the firm for whatever reason. And so I think that's like a funny thing about the feedback loops.
The last point I was going to make I was thinking about what you were saying is there was a tweet last night about well you know um RUF is is transitioning Sequoa to you know the nextG and um someone said well RUF lost money on 23 and me and all these other you know a couple other companies and like >> I saw that yeah >> a whole bunch of people jumped in like that's why he's such a great inves like look at all this like his returns are insane and like of course he has some misses. In fact, if you someone said if you don't have 40% of misses or something like you're not a good early stage investor and I was like yeah like you know he he had the courage like you know genetics like some of this stuff was crazy.
>> And to further complicate the picture it also depends on when you exit the company.
>> Totally.
>> I don't know if they're still holding 23me or not or what had a complicated story in the public markets but depending on the size of the vehicle depending on if they ever got out it could have been a totally big return for them Right. This is it's venture is just a tough game to it. Is just hard to say it's always this or always that. In fact, I'm pretty much sure you can't.
>> I bet there were some investors. You probably have the data.
>> Oh, we have it in our portfolio. We got money back from Weiwork investors. And this is part of the glory of being a small fund with potential for different ways of getting exits. But you talked about this about, you know, exit value and and how much of that is just a vanity template. And the question is, are you delivering >> what is the right dollar amount that you're delivering? And if you don't have to have a trillion dollar exit, can you have a I mean, a billion is still a lot of money, I will say for the record. And if you have a billion dollar exit, that is meaningful to certain fund sizes and it's unfortunately way less meaningful for some other fund sizes.
>> Yeah. And I think there are more ways. I think one of the changes that I think will be good for the industry is it does seem like private equity, minority buyouts, there's more um secondary firms. Like there more ways to get out than there used to be. Like you don't have to wait necessarily for an exit. I think it presents all sorts of questions of should you or shouldn't you sell along the way, but it does feel like because the time scales are so long and so many companies are staying private for so long, um there's a whole new set of buyers and I think that's good for guys like us because we can take some chips off the table and we and we're more active on that than we we had been in the past. Like we think about that a lot now.
Since this is our last recording of the year, we're recording in November. It's going to go live in December to give calendar context. Do you want to make some predictions for 2026 and get to drop?
>> Your son is going to be uh starting at Williams in the fall. He's gonna call you and the first semester he's gonna be like, "I hate it. I want to transfer." And by the second semester, he's going to be like, "I love it. I've made my best friends for life." That's that's my prediction. The only other venture thing I was thinking about is just I do hear a lot of chatter of M&A. Um, and we just had a company exit called Weevy, which sold in less than 12 months, uh, in the design space to Figma. You know, wasn't massive, but it it certainly helps our fund. Um, it's a fund five company, and I'm hearing more chatter like that, uh, in the portfolio. We'll see what gets consummated, and, you know, these things can go a million different directions, but um, that gives me some optimism. I certainly have a lot of pessimistic thoughts, but we'll save those for uh for another therapist.
>> Yeah. For January.
>> Yeah. I'll do another January.
>> It'll take another 10 years for me to get invited back.
>> Yeah.
>> Oh, man. First three weeks of January been tough, man. This whole year.
>> Yeah. Yeah.
>> Screwed. This was so great.
>> We had such a great time. Thank you. It >> was fun seeing you guys.
>> You are welcome back.
>> I'm holding you to it.
>> Absolutely. Thank you. Thanks for listening to Origins, the show where we discuss the venture ecosystem through the lens of myself, a GP, and Beaser, an LP.
Be sure to tune in next time for a bonus min episode where Nick and I unpack our thoughts from today's conversation. You can find that right here in this feed. And while you're there, please rate and review the podcast. It is very helpful for us and other folks looking for Venture Insights to find our show. I'm Nick Charles >> and I'm Bezer Clarkson. and we'll be back soon. Thanks for listening.