The a16z Show - Alex Rampell on Venture at Scale and Founder Incentives

Episode Date: January 12, 2026

This episode is a special feed drop from The Twenty Minute VC, featuring a conversation between Harry Stebbings and a16z General Partner Alex Rampell.Alex shares how he thinks about investing at scale, including why ownership and incentives matter, how venture changes as funds get larger, and what it really takes to win the best deals. He walks through his core founder framework of backing people who can materialize talent, capital, and customers, and explains why the strongest companies often have “hostages,” not just customers.The discussion also covers pricing risk, secondaries, moral hazard in private markets, and how AI is reshaping software, labor, and company formation. Together, Harry and Alex unpack what it takes to build durable, category-defining companies in an era where technology is moving faster than ever. Resources:Find Alex on X: https://x.com/arampellFind Harry on X: https://x.com/HarryStebbingsListen to more from 20VC: https://www.thetwentyminutevc.com If you enjoyed this episode, be sure to like, subscribe, and share with your friends!Find a16z on X: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zListen to the a16z Podcast on Spotify: https://open.spotify.com/show/5bC65RDvs3oxnLyqqvkUYXListen to the a16z Podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/a16z-podcast/id842818711Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see http://a16z.com/disclosures. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

I think you want to invest in people that can materialize labor, capital, and customers. The way that I do it, just kind of to be pithy about it, is like we either want to buy any percent, any percent of something that is absolutely working, or high ownership of something that could work. The best companies have hostages, not customers. So probably of the unicorn class, I would bet that maybe 5 percent will ever be able to go public. We were buying out-of-the-money call options, and we hope they expire in the money. They don't necessarily think you can take it as a given that a small fund will outperform a large fund. Today's episode is a feed drop from our friends at 20VC hosted by Harry Stebings. In this conversation, Harry sits down with A16Z general partner Alex Rampel for a candid discussion on how venture really works today.

From fund size and ownership to why winning deals matters as much as picking them to how incentives can quietly shape founder behavior over time. Alex shares his frameworks for investing, including why he looks for founders who can materialize labor, capital and customers, while he believes the best companies have hostages rather than customers, and how venture capital is changing as markets get bigger, companies stay private longer, and competition accelerates. They also get into pricing risk, moral hazard, secondaries, labor displacement from AI, and what it actually takes to build enduring companies in an era where software and automation are moving faster than ever. Today, I'm joined by Alex Rampell, general partner at Andreessen, where he leads their apps fund. He's also led deals in Mercury,

Open Door and many more. And this is one of the best shows that I've done in a long, long time. I actually think to one of Alex's statements every single day. It's taught me so much. And it's very simple. Will the startup acquire distribution before the incumbent acquires innovation? I have Alex to thank for that. And it always sticks with me.

You have now arrived at your destination. Alex, dude, it's been eight years. I'm hoping that my question asking ability has gone up. in terms of quality in those eight years. Now, listen, I was wondering, in an age of venture today, do you have to go really big or go crafts and very small and boutique to win in venture today? Yeah, I mean, I think this sounds like a bad word when I say death, but there is this kind of death of the middle that happens to a lot of asset classes in general. In venture capital, it was a tiny, tiny asset class at the beginning. Right now, it's gotten bigger,

but it's really more of the end state of a lot of these companies is huge. I mean, Sequoia used to brag about, I think it was like 20% of the market cap of the NASDAQ was Sequoia companies. Millions of, like, you know, Apple and Oracle and all of these amazing names, they're very, very big. And companies go public much, much later today. So the ability to deploy more capital, more money into kind of venture capital, which is no longer, you know, kind of sidetrack here, series D didn't exist in like 1992, right? It's like, that was an IPO. Like, companies would go public. I think Amazon went public. public at like a $600 million market cap or something. Like that was the norm. There was no series I, series K, series, you know, W. You would just go public. You'd raise, you know, series A, raise series B, raise series C, then go public. And consequently, venture firms back then were very, very small,

but also the exits tended to be quite small as well. If a very, very good scenario is you have a company, it goes public at a sub-billion-dollar market cap, it's like, and you get five of those a year, like you can't raise lots of money. But now the opportunity is so much bigger. The five biggest companies on Earth are all technology companies. If you rewind 20 years, I think they were all banks. If you rewind 10 years before that, there were all oil companies. If you rewind 10 years before that, there were all Japanese companies during the Japanese stock market bubble. But the opportunity in technology is so much bigger, especially because these companies, you can keep investing venture capital dollars later. But this is the point. It's like, if companies went public after the series

be back in like the 1990s and like the average IPO was 50 to 100 million dollars of capital raised, you know, the strategy would be a little bit different, but the world has changed dramatically. And the opportunity size is so much bigger. And now you have technology companies that kind of pervade everything. It's like you're either, if you are a large company today and you don't use software at your core, you're going to get eaten by somebody who does use software at their core and then kind of reverse engineers into whatever product or service that you promote. Every LP says the canonical wisdom and the theory of venture as you scale, performance goes down. Do you legitimately think then that with the expansion of these markets,

you can maintain 5x plus net funds at scale? Well, I think the difference, though, is that imagine that you're an LP and you have a billion dollars to invest. Would you rather get, would you rather invest $50 million and get a 5x on that? Or would you rather invest all billion and get a 3x on that? And the answer is you'd rather get a 3x on a billion than a 5x on, you know, 5 million. Or one of my good friends is this guy, Mickey Malca at Ribbitt. I was lucky to be an investor in his fund one personally. And it's like, that was like a 55x fund on, I think it was like an $85 million fund, but 55x. Like, that's insane. But, you know, at some point, you could ask Mickey this too. It's like you're better off

with like a 5x on like a very very large fund. Like the harder thing to do is to just return gross dollars period. Like that's what LPs actually want. It's amazing to get a hundred. I've had two funds that I've invested in. One is Mickey. This other one is this fund called AngelPad,

which was kind of like a third rate competitive, I don't want to call it third rate, but it was like, it was not, you know, there was Y Combinator and that it's like there was AngelPad. It was just like this small little experiment. That was 120x. I got 120 times the capital that I get. DPI. How big was the fund? I think it was $8 million. But this is the thing. It's like, that's incredible. Your point is very valid. Like, can you get $120x on a $2 billion fund? Probably not.

I'm willing to bet you that you can't get $120x on that. But you can return far more dollars if you're very, very good. And this is the question that you originally asked was, and this is why I called it the death of the middle. Like, my view is most asset classes, you either have to be a large generalist or a small specialist. And the hard thing is to be like a mid-sized generalist because then you're largely going to lose to like the big generalists or the small specialist. So like, you know, Ribbit as an example, like they really focus on fintech. That's how I know them well. Like that's a specialty. They're not trying to do everything. Or Cazac in Latin America, like they are focused on a specialty and they can be small. Like they're not trying to do everything across the entire planet.

The entire job of venture capital is to find pick and win and investments. If they're good investments, the winning is very, very hard, and the winning therefore goes to the person that is like the best, like you have to sell. Like this is a sales job. You know this, right? You have an entrepreneur. They're amazing. They don't come along very often. This is the best entrepreneur you've ever met. You have to convince them to take your money. And how do you do that? You have to say, I'm the greatest person in the world to help you, which means I have this amazing specialty, and or I have all these things that I can do for you. I'm connected to everybody on the planet, given the scope and scale of my kind of generalization, right?

Like on the big side, if I'm just like, hey, I kind of do a little bit of everything and I don't really know that much about your business and I'm not that big and can't help you that much, it's just you're going to lose. That's why the death of the middle is what tends to happen for a lot of these asset classes. And then LPs, they want to chase returns. It's also sometimes hard to reach LPs. So like, you know, the big generalists kind of gobble them up or the small specialist that generate very, very good returns will gobble them up as well. I have so many things to say. The first thing I do just want to say is Mickey Malcott, you mentioned. Mickey, when I was 18, helped me and agreed to be a mentor of mine 12 years ago when it was completely not obvious. I had no idea why he spent time with me. And he's been incredible to be ever since. He always taught me, you're never won or lost. You're only ahead or behind. Keep playing. And I love that. You mentioned that about kind of the scale of dollars. And actually, wouldn't you rather do 5x on 250 than, I don't know.

15x on 10 or whatever it is. Yes, but there's an opportunity cost of dollars, and for an endowment fund, they are able to put it into the smaller fund. And so do you accept with that then that you just scale out of certain LPs, and it's no longer the best risk-adjusted place to put money then? Well, I bet I think it's a, obviously you can't disprove an unknown future, but I would posit to say that if you were trying to find pick and win the best deals, and maybe you disagree with you on like the kind of the small specialist or a large generalist, but who wins the best consensus deals? Every now and then, there will pop up a non-consensus deal that everybody thinks is terrible. Nobody wants to, Sequoia doesn't want to do it, we don't want to do it,

you don't want to do it, nobody wants to do it. And then it ends up being a thousand X, and then somebody who is not the best known venture firm, you know, ended up winning that deal or being sold that deal, I should say, and then it ends up with a great return. But a lot of the best deals will go to the best firms. Like, that's what's very different about venture capital than, like, private equity. Like, if you and I are trying to take a public company private, KKR and I'm Blackstone, or both trying to, you know, take over R.J.R. and Abisco or something like that, they're just going to sell to whoever offers them the highest price per share. I mean, they have to, whereas in venture capital, as you know, you have to win the hearts and minds of the entrepreneur

and win that deal, and a lot of the best deals are somewhat obvious. Like, it's not surprised, Everybody wanted to invest in Uber. Everybody wanted to invest in Facebook. It was self-evident that these were very, very interesting companies. Maybe when the price gets high enough, there come some doubts in people's minds. Like, ooh, I don't know if I want to invest at 87 million pre for the Series A of Facebook,

but everybody wanted to do it at 20 million pre. There are a lot of companies that people don't want to do at any price. But the reason why I'm saying this is, I don't necessarily think you could take it as a given that a small fund will outperform a large fund. Now, I think it has the capability mathematically. Like, again, if you're Mickey and you invest in the Series A of Coinbase and you have a very, very, very small fund, of course, you can generate a bigger multiple of that fund. That's just algebraically true.

But the best deals in FinTech, like Mickey gets to do them because he's a great firm. And he has a much, much bigger fund right now. So that's the thing that I think it's hard to know. I mean, it's like, again, I agree with you algebraically. I would put my own personal money, and I do, right? It's like I invest in our funds. I would put my own personal money in funds that have, you know, kind of the small specialist or the big generalist, because I think that's where the best returns will be. Can I ask you, when you think about the best returns, what is the multiple of your best return, give or take?

For a single deal, there's a C deal that I did probably marked up at like 200x right now. You said about consensus deals, and I immediately thought of actually an Andreessen deal, which is like 11 Labs, which was the most non-consensus deal ever at C. Whereas you're competing with Open AI, you're in London, it's a pre-seed, it was very non-consensus. When you look back at your Bastilles, have they been consensus or non-consensus? Well, I think, but if you look at 11, the entrepreneur was pretty consensus. It's like, all right, Madi's super, like, that whole team is incredibly talented. Sure, but the pre-seed and the seed, a lot of people turn down. Yeah, but I think our job, tell me if you agree with me, is we find the smart.

smartest people in the world that have very high agency. Like there's been this thing going around about agency. Agency, how do you define it? It's like people will, they're not going to be told what to do. They just take matters into their own hands. This is a very rare trait, right? Like, you obviously had this trait when you could have just done the normal thing for a 19 year old to do, or however you were, you were younger than that when you started. I was 17, yeah. It's like, what you did is not normal. You had agency and said, I am going to not do the normal thing. I'm going to go like email every famous VC to death and get them to talk to me and like, yeah, it's pretty incredible what you've done. That's a very rare trait. You find people like that that are hopefully

experts in their domain. And I think this is why the specialty thing that I mentioned is very, very important. I believe that there is a certain level of consensus around who has agency and who is an expert in the domain. Like if you talk to an amazing entrepreneur, it's like, wow, this person knows everything about this. They've studied it for decades. They've read every book about it. They've talked to every entrepreneur who's tried this before. You have to give them money. That's our job. Our job is to find these people, give them money. It won't always work, for sure. But I actually don't agree that 11 was a non-consensus deal. Like, if it was a high enough price, if it was not a seed, if it was like, okay, it's a series B, they have half a million dollars

in revenue and it's shrinking every month. Yeah, of course, it's not going to be consensus. That was going to be my question, which is like, at what stage does that no longer hold true? You know, the Series A partner who leads our Series A fund is like, oh, the seed guys have it easy. You know, amazing founder, great, let's roll the dice. For us, it's not quite enough. There comes that series. Is it the series?

Yeah, no, I agree. Like at some point reality, it converges with reality. And if my kids and I have been watching Silicon Valley to show, and like there's that famous scene where it's like, wait, you know, the Mark Cuban character is on the phone and he hears revenues. No, no, no, you can't you revenue. You have to be pre-revenue, be saying you're a pure play. So there is this element.

I mean, the way to explain this financially is we buy out-of-the-money call options. You know what a call option is, right? We are buying out-of-the-money call options, and we hope they expire in the money, because this is how I explain to people like why it is that a series A that has a million dollars in revenue and is losing $10 million a year is, you know, worth $100 million. Of course it isn't worth $100 million. What you're doing is you're buying 15 or 20 percent of the company and hoping that eventually your call option expires in the money.

That's the thing that you're doing. So eventually that value converges on like the equity value. It's like, oh, what's the discounted cash flow, blah, blah, blah, blah, blah. Like once it gets closer there, and it's not a binary thing, right? Like at the seed, it's like, okay, out of the money call option, this guy or gal is very, very smart. I want to buy 20% of whatever they're doing. And hopefully it expires in the money. And like, they're the smartest person I've ever met.

Like, we do these deals 100 times a debt. We will do them 100% of the time. Consensus, non-consensus, like there isn't really anything to be consensus or non-consensus on, right? It's just like, this is a very. very, very smart person, it only becomes non-consensus, to your point, when the price goes up high enough. Because I think most people have this same viewpoint of this is a very, very high agency person who who has studied history. Like, there's a memo that I wrote internally for our firm about how to invest in people. And I think you want to invest in people that can materialize labor,

capital, and customers. Especially today, where people get paid a fortune to stay at OpenAI or Anthropic or meta or any of these companies, if you quit your job to start a company and you can snap your fingers and five people follow you tomorrow for a 50% pay cut, that's pretty magical. Like, that doesn't happen every day. So that's the materializing labor. You also want to make sure this kind of goes into the consensus, non-consensus part, like, is this person really good at fundraising? Like, are they telling a good story? Can they convince people like me to give them money? Oh, wow, they really can. That means hopefully that N plus one, N plus two, N plus three rounds will be a little bit easier. They will converge on reality in terms of numbers, for sure. But they have

the thing around raising money. And then this is more of an enterprise-focused thing, but can they get their first five customers, which is as hard, if not harder, than getting their first five employees, because imagine this company, Toast, you know, Toast, it's the restaurant POS company. Yeah, I love them, dude, I'm a VerticalSassner. This is like, I know, I love VerticalSas, right? But like, imagine that you're Chris at Toast, you start this company, you go to a restaurant and say, hey, I want you to use my product. And the restaurant asks some very good questions. Like, okay, well, how much cash do you have left? It's like, I have a week. Okay, interesting. How many other customers do you have? Zero. That's impossible. How can you pull that off? If you are this rare

breed of person that can materialize labor capital and customers, and then I have kind of two sub appendages after that, I really, really like people that have studied the history of the space. And I say this because the best entrepreneurs that I've met, they have learned everything about the space. To show what a great investor I am when I was running my company, trial pay, I met with, I think Patrick Callison. I know a lot about payments. I've been doing like payment stuff since 1997 on the intranet, which is kind of early stages for internet online acceptance of credit cards. Meet Patrick. And obviously I passed on doing the seed round of Stripe, because I'm a genius. It was called dev payments at the time. I was not in the Drescent Horwood,

so don't hold it against me. It didn't hurt our DPI. And luckily the firm invested in them. But two things, you know, I asked Patrick, you know, where your customer is going to come from? Because everyone who uses Chase payment. It's like, oh, my customers don't exist yet. It's like the stupidest answer I've ever heard, but obviously it was genius. But number two, what really did impress me is that, you know, he knew everything about the history of the payment systems. I think he actually went out to go meet D. Hawk, the founder of Visa. John Collison gave me a book on like, you know, one of those Springer yellow, you know, academic textbooks on the origins of the payment system. Like just, they had studied history so much. Same thing for Vlad at Robin Hood, studied history so much. Same thing for a perfect Instacart. Like, you know, went out to go meet the founders of Webvan. This is a very, very classic trait. On the other side, I will meet people that will start a company almost exactly like trial pay or almost exactly like a firm. And I know a lot about these two companies because I started them, right? And they're like, oh, what was trial pay? Or, oh, I'd never heard of this. And it's like, come on, man. You're going to spend 10 years of your life building this thing. And you really should study history. Brian Cheskid, Airbnb, studied everything about, you know, bed and breakfast and hotel industry in the 1800s. Like, this is a very, very, very classic. trade. So let me just finish with this. So again, labor capital customers, study history, and then my favorite book of all time is the Count of Monte Cristo because it's a story of revenge. And the reason why this is so important, if you know the book, it's by Alexander Dumas.

Edmund Dantus is wronged. He's sent to prison for bogus reasons for supposedly being a Napoleon supporter for like 17, 18 years, eventually gets out, becomes the richest person in the world, but doesn't give a fuck, if I can use that language, just does not care. He wants revenge. He wants revenge. Like he wants to destroy his enemies and just like conquer the world, or just really destroy his enemies. And you need that kind of motivation because going back to fun size, if somebody offers you $100 million and you're an 18-year-old kid, that is transformative. You'd have to be an idiot to turn that down, or you have to want revenge, or redemption, revenge, redemption kind of same thing. And I find a lot of the best entrepreneurs, they have that going. Like, they want to prove they're better than everybody else. They had some

childhood chip on their shoulder, or, you know, they were wronged at their last company. You know, like Dave Duffield has this hostile takeover of PeopleSoft. Of course he starts workday. And he's like, fuck you, Larry Ellis, him. Like, there's always that kind of energy. So the Catamontacristo thing, I don't know how to describe it, but like the motivation has to be beyond I want to make $50 million because if that's the motivation, like, it's not going to work for our fund size. I love seeing that fire.

And again, like a lot of the most successful companies that I've seen, they always habit, like Renault Laplanche starts Lending Club, fired from his own company. He's made tons of money. Doesn't give a shit. He starts a competitor called Upgrade. No accident that the company is called upgrade. It's like an upgrade over you, MFers, right? It starts upgrade. Upgrade has a multiple of the market. I mean, it's probably like worth 10 times more than Lending Club now. So that's a very, very classic commonality. I want to stage the questions there because there was so much to unpack. You said there about kind of you love them studying history. And you said about passing on Stripe. That was my concern, which is there is a level where you can know too much. I think I know

quite a bit about lending. Now, I know beginners, beginners compared to you, but I know quite a bit about lending where it's quite easy for me today to see a lending business and go, ugh, fucking horrible. It's a hard market. I don't want to be there. Look at landing club. Look at the market cap there. Very dismissive. As many were with Stripe when they knew payments. How do you prevent yourself knowing too much that it's a negative? I think this is a great question. I think this is a great question, and this is the number one thing that... So I do a couple things. Number one, if it's like an ad tech company, I know a lot about ad tech, I know a lot about payments. I will force somebody else to join me for the pitch

that is like a beginner's mindset mind. So I think that's one, is just like have a sparring partner internally that has that, you know, what if it works? You always have to be like, what if it works? So that's number one. Number two is, I like to ask the entrepreneurs, like, what is different? And the thing that's different, like, the reason why Patrick and John made Stripework partially is it's like they just believed that a great number of new companies will be created, and they're going to pick the best product, and they're going to have the best product.

And actually, this informs a big part of my investment thesis now. I mean, I call it Greenfield, but there's a saying that I use a lot, which is the best companies have hostages, not customers, right? It's like, you'll appreciate this if you're an enterprise SaaS guy, right? It's like the best companies have hostages, not customers. So if there's a company that has something marginally better than Workday, right, they're not going to go, like Workday has hostages.

They don't have customers. They're not going to go be able to sell GE and say, oh, wow, I love you two YC kids. Like, I'm totally switching my HRAS from shitty Workday to amazing, you know, AI, whatever, YC, Silicon Valley, HRIS, never going to happen. But if the rate of new company creation is high enough, those new companies will pick the best product. And they're like, oh, wow, I could use Workday, but I'm not a hostage.

So I'm free. I'm going to pick this other thing. Like, I was the first investor in Mercury, the SMB bank. And until SVB failed, they never stole a customer from SVB. But if you're a brand, as long as the rate of new company creation is high enough, you can play this game that I called Greenfield Bingo, where it's just like you pick every software category, you build a better version of that, and then you've got a shot.

And that's what Stripless. I mean, like, that's why it worked. If the rate of company creation is very low, like if I build a better EHR, like electronic health records company, it's just not going to work because the rate of new hospital creation is too slow. It's like you can't just sell to the new companies but you can do that for payment processing

right? You can do that for ERP like you do it for a bunch of other categories. So you all look for Greenfield Bingo markets where the rate of net new companies being created will supplant the slow sales cycles of the larger enterprise customers who will eventually switch.

Or maybe they don't, right? It's like who cares if they switch or not? Like it's like they'll hopefully die because they're using shitty software the fact that they won't switch is actually indicative of their mantra on everything. They want to use old technology or they're hostage to old technology.

Let's just sell into the future. And betting on the future is more fun. One of the things that's very, very challenging is you go start a company, you recruit 10 hotshot people from meta, Google, whatever, and then they're bored to death. Why are they bored to death?

Because they can't do anything. It's like they were used to making little tweets that a billion people experienced every minute, every hour. And now they're at a startup. And the startup, it's been one and a half years, and they've made one sale. That's quite typical. And then, like, you end up losing your talent because it's boring. Like, you can't actually do anything. So, you know, it's nice to have these markets that can ramp quite quickly, and you kind of want the market to be a tailwind for you. It doesn't mean that there's not value in kind of creating big companies that sell big, you know, startups that sell

big software products to big companies, you can do that. It's just, it's a much, much harder thing culturally for Silicon Valley, I think. Shows are a bit like venture, which is the majority that you do are actually not very good. And then you get the once in a while episodes like this, which remind you why you love what you do so much. You know what I mean when you meet that special founder. Oh, 100%. It's so great when you have a show like this. My question, choose, you said hostages, not customers. How should I think about that then in a world of cursor or any of the foundation models, your Anthropics or your open AIs, where they are customers, not postages, they can switch very easily. The promiscuity of customers has never been higher. How should we think about

that? It's a really good question. I mean, this is where behind every technology revolution and kind of go back to like Silicon, then the personal computer, then the internet, then kind of internet 2.0, where you could write to the internet, things like Facebook and YouTube, then mobile, then cloud. There's always been an infrastructure layer and an application layer. So, you know, you go about, like, the infrastructure layer for PCs was, I don't know, like Microsoft and Apple, like the operating system players. The infrastructure player for the internet was like Cisco and Akamai.

The infrastructure player for everything AI are all of these back-end model, right, you know, providers. And then there's the application layer on top. So if I do something, you know, we were talking about Ask Leo, right? like that's an application layer company. If I were Vlad, I would love to be promiscuous with all the back-end models because I should be. And then the infrastructure players are like,

oh, shit, you know, all of our customers are being promiscuous. Let's figure out how we specialize in a particular area. I imagine that's why Anthropic, I imagine, has gotten very good at coding. But it's kind of the application layer tends to be a little bit stickier. But the problem is you might have 9,000 competing companies at the application layer,

in which case you'd rather be the infrastructure layer. But the infrastructure layer is pretty hotly competed as well right now. So I don't know. I mean, it's the more relevant question for me is in 2025, the ability to go create a software product is so easy. I published this chart with the help of my friend ChatGPT of how long it took Visichalk, which was the first spreadsheet that came out in 1979 to lose to Lotus 1,23, and then how long it took Lotus 1,2, 3 to lose to Microsoft.

And it took about five years from Visicalk to go from 100% percent. market share because they were 100% market share because they were the only one in the first to 50% market share. It took about 15 years after that for Lotus, which had 70% market share in 1986 or something to almost zero. These, this would normally take a long time. In 2025, this can take weeks, which is bonkers, right? Because all of these layers of past innovation have kind of like almost like a Russian nesting doll kind of concentrically grown against each other. So because you have cloud and because you have mobile, everybody in the world has a smartphone in their pocket.

All of those smartphones are connected to, like, you know, infinite computing in the cloud or near-infinite computing with like a dearth of energy in the cloud. And now I build something marginally better. I can get into the hands of a billion people overnight. And that's just so, so different. But I think on the hostages point, if you build a system of record, right,

like it's just so hard to switch. That has not changed. But now I can go compete. I can build a software product in like two weeks that would have taken me two years. So that's going to massively increase the pressure on the application layer. So the best thing that you can do if you're an application layer company is hopefully have something that, you know, I hate to say it,

but it's like you want to have hostages. You want to have all of the data in your company. You want to have all of the data of your customer in your product and then just make sure that, I mean, this is, I think, the thing that we talked about last time was on your show. It's like, you know, the battle of every startup versus incumbent is whether the startup gets the distribution before the incumbent gets the innovation, right? So what do you do? You go boring. You build the most boring thing possible. Nobody really cares about it. Nobody's that interested in.

I mean, that's why I love Vlad. Ask Leo is like, who cares about procurement? Ah, it seems kind of stupid. It's not attracting 9,000 competitors. But hopefully you get all of the data in there. And then you can build these interesting things on top. And you're not going to attract that much competition. And even once you do, it's just, it's kind of hard to switch. So I don't know if that answers your question. It totally answered my question, but it leads to several more questions, which is the theme of this discussion, which is the speed with which it takes to compete with the incumbent has reduced, and you are able to take customers or market share quicker than ever before. With the extension of private markets, do we not have a liquidity problem then? When we look at, I don't want to

pick on anyone, but fuck it, I will. Say like a company like sneak in the cybersecurity market, which has been going, it's now getting eaten away by new incumbents. before it's had the chance to return shareholder money and liquidate. And so do we not have a fundamental challenge here where companies that have not gone public yet or not provided returns to investors are already getting eaten away because that compression time is shorter?

Yeah, I think this is a big challenge. I mean, if you look at all of the unicorns and how many conform to rule of 40, it's pretty small. Many of them are shrinking. So probably of the unicorn class, I would bet that maybe 5% will ever be able to go public. which is kind of shocking, right? And then, because so much money

has gotten into venture capital, you have this problem of, I mean, I will say on the record, I hate massive secondaries because it kind of turns you from the Catamonacristo to like the, you know, whatever, the opposite of that would be like the,

I'm now going to go vacation in the code d'Azure or something. Like, that's going to now say, I am now at a fundamental disconnect from my employees and my investors because I'm rich and they aren't. That's not a good setup. You kind of want everybody

to be in the same boat. The reason why I mentioned that is, like, you have some companies where it's like, you know, founders take out a $50, $100 million secondary. That's fine if they just turned down a $10 billion acquisition from Google and they're the count of monochristone they want to go for it. Like, okay, that can make sense to me. And if you offer that to all employees and all investors and everything else, I don't love the idea of it's like people are looking at this as spreadsheets. There was a fund in 2021 that did like a massive secondary into one of my companies. And I was really against it, which made me super popular with the founder, you can imagine. They were like, oh, well, we own 4% of the company. We want to own 8% of the company because 8% is more than 4%. I'm like, dude, I totally agree with you.

8% is more than 4%, but you have now introduced moral hazard into the equation. Because if you give somebody generational wealth, you can hope that they're going to kind of maybe, like the upside would be like they're going to swing for the fences and go for it. Because otherwise, I would be happy selling for a billion dollars. Now it's like, fucking I'm going to go for 100 billion. Okay, that's great. Now we're all aligned. But the other option is now they don't. care about getting liquidity for investors. They don't care about getting liquidity for employees. They're quite comfortable. Like, you don't want to have that setup. I don't think that's actually the problem. I mean, this was the greatest respect. I think we assume the next

strategic steps will be the same with that money versus without that money. And I think what we've both seen is the foie grasing of startups and then they do 10 things, not two things. None of them work. The team is disincentivized. They break up. Culture sucks. Moral hazard. That's the economic framing, right? It's moral hazard on both primary and secondary, to your point. Necessity is the mother of invention. So if you have $100 billion in the bank, when you really should only have $10 million in the bank, you're like, I'll do 50 things, I'll have multiple layers of people that I don't need.

And it's interesting. I find that a lot of people, when I think about the difference between conservatives and liberals or people that believe in big government, small government, a lot of it comes down to the disconnect between more input is better output. Like a lot of people just believe this. It's like, okay, you know, the IRS, the Internal Revenue Service, like, oh, you know, there's a lot of tax fraud.

We need to hire more people. And if we have more people, we're going to do a better job of catching tax fraud. Or like, oh, the military. We should have more people in the military because that way we're going to do a better job. Whereas actually, as you know, it's like sometimes there's addition by subtraction.

Like, if I have a smaller team, there's less communication necessary. You're going to come up with more creative ways of actually solving the problem, you're going to solve it with technology. Whereas if you have, if you just say I'm going to solve it on the input layer, I'm going to like address my constituents by saying, I'm going to just allocate more money to this thing. You're going to get a worse outcome versus I allocate less money with great people. This is the key. So you can't just say like, I'm going to allocate less money and give you the worst people on earth and then no. But it's like,

take tax fraud. I would rather have two people at the IRS than 80,000 people, but have those two people be the Noam Shazir and some other like super genius because if Jeff Dean and Nome Shazir are running the IRS like oh my God like that would be so much more efficient but the input cost would be like one one hundred as much and there's always that disconnect. I actually am in trouble with my team because I just tweeted today series A is the worst place to be investing company progression is minimal prices four to five X the seed price and we're paying 150 to 200 X A.R with little signs of product market fit. Do you agree with me as the worst place to be investing? Well, I think the problem is that there's the nomenclature, which kind of varies company to

companies. So, like, when I started trial pay, we raised, our series A was $3.1 million on $9.5 million pre. And that was expensive. I remember, like, arguing with the partner at Battery, it's like, this is the most expensive deal we've done it. This was 2006. At Site Advisor, I think we raised 2.7 on 2.7 pre, so even lower. Hence, hence he was right. So now you have a pre-C, a seed, a seed extension, a seat extension to, like, what is a series A? Right? There's not like this, like, normally a series A would be like the first institutional round of money.

Now there's so much variance because, like, oh, there's the series A where it's like five superstars out of Open AI and they need tons of money for compute. No moral hazard on that. You're not going to go spend money on people. You're going to spend money on GPUs. That's one form of series A. Another form of series A is like, I just did a series A where the company had like $10 million. of A or R when I invest in it. So it's just all over the place. So I think it's just hard to kind of cast a generality. There are certainly ones where, like I used to call this the series B trap,

but again, I think the nomenclature has shifted. But I would have agreed with your team if you called it the series B because at that time, there was a seed, there was a series A, and the only difference between series A and series B is that you increased your burn and built infrastructure and kind of scaffolding. So it's like, I have a company, I have customers, I have signs of product market fit. I know now I should hire an HR team and a marketing team and all those other kind of shit that doesn't actually have any kind of impact on the metrics of the company. And that was the series B. Right. And then it's like, why would I invest in a series B because I get half as much ownership and nothing has changed vis-a-vis the series A.

So yes, there's a class of series A's that look like that. But I would say, like, of the series a's that I personally did in the last year, like most of them have been like, holy shit, like revenue is really scaling. And these numbers are insane. And, you know, those were Series A's and I get very excited about those. But I think your mileage varies because the nomenclature is all over the place. Do you worry about the quick succession rounds? When you look at companies like a Rillet or a Tacto, there's just like a week later there's another term sheet for a series B

with literally no change at all and it's buying the cool option. Do you worry about those rounds? Well, I did one of them, right? Like I'm on the board of Rillet. I did the series B and it was 60 days after the Series A and that's unfortunate. I would have rather done the Series A or rather done the seat, of course.

But if you find the winner, it's also very expensive not to do that deal. So that's so interesting. I'm so pleased, because I'm so sorry, dude, I totally forgot that you did the Rillit B. But like, you've got to pay up for that.

Going to the point, you've got to assume that the next strategic steps will be the same and be as focused, even though you have just Foisreuxre the company. Sorry, probably have.

Well, but this is where I think the motivation the founder is very, very important. So going back to, like, I mean, Nick, who's the CEO of RealEut. I mean, I think he does have a bit of the Count of Monte Cristo and him. Like, it's like, he doesn't want to go take this money and go spend it on extravagant things.

So I think you have to make sure that there's kind of like founder capital fit. Nobody ever talks about that. It's like, okay, if I give you a billion dollars, what will you do with it? And 99 times out of 100, the answer is going to be bad news. And not even bad news around waste,

but just bad news in terms of mindset. Like, it's another form of moral hazard where it's like I'm never forced into making hard decisions because I have infinite capital. And you kind of want to force people into making hard decisions. And like, I live this.

I mean, I've tweeted about some of these things during my painful existence of trial day where, you know, I think we had to layoff 70% of the company and then we eventually turned it around and sold it to Visa and there were all sorts of tough times they're in.

But you run into these, like, very, very challenging scenarios, and it's like option A is bad, option B is bad. You have two, two, choices. You're at a fork in the road, and there's a funny expression by Yogi Berra, this famous baseball player in the U.S. When you come to a fork in the road, take it. It's like, what does that mean? He said all these things that make no sense. But what a lot of entrepreneurs don't realize

is that the worst option, you think you have two options, but there's a third option, which is making no choice at all. That's the worst option. You're better off like just choosing something, and both of them are bad. This option is very bad, so therefore I don't want to make any choice at all, but you're better off making a choice and committing to something. And if you have infinite capital, you could just kind of continue this, I'm not going to make any choices. I'm just going to sit here and just like, all right, well, I have more money.

My ARR is more driven from the interest on my giant $100 million cash reserve. If you have, if you've, sorry for rambling on this, but like this kind of goes to like founder capital fit, there's a certain type of person where it's like, I give you a lot of money and I know you're still going to make decisions

very, very quickly. I know it isn't going to distract you. And really, it's just benefiting me. I hate to say it selfishly, but it's benefiting me is in that now I'm on the cap table I own part of this amazing company, and it's not going to fuck up the company. The moral hazard is the number one thing. It's like, now it's going to fuck up the company either with too many, too much

primary, or it's like, oh, I know, I won't mess with the primary. I'll just buy secondary. It's like that also has, you know, existential risk, as I mentioned, for a certain class of person. There are other CEOs that, like, you know, one of my CEOs did a very, very big secondary in 2021. Like, he, and the company is hit on some tough times, but, like, he has stuck it out and, like, he's doing a phenomenal job. do you get comfortable about growing into that price that you have well overpaid for? So again, we're super candidate. This is where I love where I'm had in my stage of life now versus where I was like eight years ago because it wasn't kind of the same. I lost to Seema on your team for Ask Leo. She's amazing. You guys are amazing. hugely well deserved. You guys did not pay more than me.

I hate this bullshit VC thing where it's like, oh, they overpay. No, it was like the same. You just beat me fair and square. Well done. I reflect on that and I'm like, you idiot. You should have paid 300 and doubled them. Because when I map out 18 months time, I looked at their revenue projections, and in 18 months' time, when they need to go raise, their revenues would have been so much that I could still see a 3x on that 300. That's how I get comfortable with paying up for something. How do you get comfortable preemptively paying up so much? I mean, I think it's the same, it's the same math, but it's dangerous on both sides, right? It's like, I always had to this speech that works, you know, maybe one time out of a hundred that I give it, which is kind of

like the Spider-Man speech of like with great capital comes great responsibility. And if you raise it too high of a price, you're fucked. Because I lived this. Let me tell you my story. I raised at this price for my series C. Then I had like Google that wanted to buy me, but it was like at the same price so therefore it tanked the thing. And then my next round, everybody asked me what was the price of my last round and nobody wants to invest. Like I go tell this story. I can introduce the founder to 10 other founders that have lived the exact same thing. It's like, I wish I hadn't raised my round in such a high price. But who starts a company? Let's just think about this for a second. The people that start a company are irrationally exuberant. Like if they thought that the company

was going to fail, if they thought they had a zero percent chance of raising a series B, they wouldn't start the fucking company, right? So that's why the speech doesn't work. Because I always tell people like, hey, the reason why you shouldn't raise your series A, like there was a deal that I guess we should have done candidly because like this company just raised it like a billion dollar plus valuation, but we turned it down. The company had like less than a million dollars in revenue. and they wanted like a $200 million, whatever, post-money series. It was just so crazy. I was like, look, you guys haven't started the company before.

I have, not to, like, pull the old bald guy card, but, like, your series B, like, even if you have $20 million in revenue, you're fucked. Like, you have to be able to walk into a room. The number one question you're going to get is, what was your last round price? And people should be wanting to compete to pay three times that price. Like, they would have, like, oh, my God, what will it take to do this deal? And if you say, like, hey, my Series A was raised in a billion, and I have a million dollars in revenue, you have ended the conversation. Nobody want the psychology of that round is all wrong.

So I give this speech, and it just doesn't work, unfortunately. But I think the smart entrepreneurs, they kind of have this risk balancing thing. It's like they're irrationally exuberant. That's why they put their job and started the company. But they realize, oh, wow, there actually is a good point around like my whole team now says we have $100 million in the bank. They're going to be wasteful. That culture is something that I don't want. Yeah, I guess I would want the option of maybe selling the company for a billion dollars and having, you know, Salesforce come in and say, what would it take to buy the company? What was your last round price? Because I will tell you, 100% of the time, in every M&A conversation, in every fundraising conversation, the number one question, the first

question is, what was your last round price? And if it's like, insane, they're like, ooh, that's not good. And then as an entrepreneur, you're like, oh, no, no, but I would take a discount because my company sucks. You can't say that. It just destroys the entire conversation. It just game over. Can I ask, there's just stage conversation, otherwise I'm going to lose the thread here of what I want to ask you. We mentioned kind of the Rillid element in the successive rounds. I hope it's not too forward and you can say, dude, don't want this in there. But you do the successive B because you lose the A. When you sit down and we're sitting down as a team, how do we reflect on that?

When you reflect on like a RILIT review, what was the takeaway from that when you sat down? Well, I mean, there are a lot of deals that we lose because we're in, not willing to kind of go the distance on price. That is a common thing where it's like, did we really lose it? Like, this has happened to us a number of times. It's like, all right, we want to do the deal. And this is, again, like consensus and non-consensus, a lot of times the difference is just on price or ownership. If we had shown up and said, hey, we'll do 10% of this company for an A-ROT. Like, we could win every deal. It's actually, I think one of the, one of the competing elements that has shown up, I'm interested to watch how standard capital does.

This is kind of the YC offshoot. Where I'm going to take 10%, that's very, very bad for big funds. Because in order to make the math work for a big fund, you have to have high ownership, and you know that your ownership will get depleted or will get diluted over time as option pool expansions happen, even if you take your pro rata in every single successive round.

So, I mean, we can win all these deals, but a lot of times, you know, I am much more preoccupied with ownership at the A, because we're buying an out-of-the-money-call option. And the reason why I kind of tell this story is because there's something that I've used as a benchmark, which is if you're hiring people, and 100% of the people say yes to your job offer,

what can you infer from that? Number one, you could infer that you're the greatest hiring manager of all time, but number two, you might be overpay. Would you agree with that? If you only get 50% or 20%, like, how do you know to test this hypothesis? And if you win 100% of the deals, that's a very, very good sign. You should try to win 100% of the deals that you want to do. But if you're winning them with very low ownership,

you're probably not testing like this kind of efficient frontier of like how far you can go and you want to have more ownership right that's our objective like the founder wants less dilution the investor wants more ownership the two are like kind of perfect compliments

of each other eventually you realize like I don't want to be a fucking idiot like this is the answer to your question right it's like all right I wanted 20% in an A round for a company it doesn't have that much traction because you know I'm at Andreessen Horowitz and I've got this big fund and everything else

and then it's like no no no they're going to do a 15% round or whatever. It's like, oh, fuck that. I don't want to do that deal. And then it's like, holy shit, they've run away with the market. This is the market leader. I'm not going to be stupid, right? I'm not going to just say, this is why actually, by the way, I love talking to investors, because investors, like, most humans do not have the capability to admit that they were wrong. Like, they just want to, like, say I'm right, I'm saying I'm right. If you're an investor, you're just going to lose money all the time. The most valuable insight that you can have as an investor is the self-reflection to say, I'm an idiot. And if I'm a hedge fund guy,

it's like, I get to sell. It's like, oh, I thought I was a genius. buying herbal life, blah, blah, blah, like, oh, wow, this company's not good. I'm going to sell everything versus, no, I want to prove to the world that I'm right, well, I'm going to lose all my money. So it's the same thing here, but for upside. We can't sell. But we can say, like, this is the winner. I want to be in the B at a lower ownership because, like, this is the fucking winner.

But if I was your partner, I would be pushing you with all my might to take the 10% at the A and have a higher win rate, specifically with your profile of fund, because I get it in other funds where you don't have the ability to follow on and lead the B, the C, the D. You may even not be able to do the pro-Rodders, in which case I get that thinking. But when you can, why are we not having a higher win rate in doing 10%? Well, I mean, this is actually one of the things that we looked at, because I kind of feel like my job here is kind of quasi-portfolio manager. So I run our apps fund, seven different funds.

And my job is to make sure that, like, that fund is as successful as possible. and, you know, we're winning the right deals that we, if we just say, hey, everybody win every single deal, just win every deal, it doesn't matter, that's all I'm going to optimize for, and we end up with 5% checks in every series A, like, you know, that's not going to work, right? We can win every deal that way. What is the front, how far on this curve can you go? And it's the, again, it's the exact inverse conversation that an entrepreneur is having where it's like, I want a tier one investor, I want, you know, an amazing specialist, I want, whatever I want on, you know, this person I want on my board, what is the least amount that I can give up. to get an amazing person. And they would love to get 5% a round deals done, but they're like, oh, wait a minute,

like, that's not going to work. And, like, that's the tension between the two. So I agree with you, but I think, you know, where do you, it's like Zeno's paradox, you know what that is, right? It's like, you will never get to the destination if you go halfway each time. Like, is it nine percent?

Well, why not just do it at 9%? Why not do it at 8%? Like, where do you draw the line on that? And I would do the simple mass of where do I think, and this is a very dangerous and bad answer to your question because the biggest mistakes in Bancho have been when you underestimate market size and you don't see what it can be. But I'd sit down with you and I'd go, okay, 10% entry, 5% on exit, assuming a 50% dilution.

Do we think this can reasonably be a $15 billion company? If so, that is a number that returns the fund with comfort. I know, but the problem is it's kind of garbage in, garbage out. It's like you can always say that for something. Because otherwise you're like, oh, wow, I underestimated the size of the black car market. It's hard. I mean, the way that I do it, just kind of to be pithy about it, is like we either want to buy any percent, any percent of something that is

absolutely working or high ownership of something that could work. If you really kind of draw a line of like that you have to buy it for gate the market. It's like Facebook, if you look at that round, I think Greylock put $25 million into Facebook. Actually, I think the round was maybe $25 million at $500. I think that was the B round for Facebook, split between Meritech and Greylock. But that was absolutely working, right? So it's like, are they getting 10%? No.

Are they getting 5%? No. But it's like the market winner and things can go wrong, but like, holy shit, it's absolutely working. And like, I don't see that many things that look like that, but when you do, you throw away all the rules. Or it's like this is not working, but this person looks like a super genius. They have high agency. They can get, they can materialize labor capital and customers, but it's not working yet, right? So like, I have to have high ownership in order to take, to correspond with that level of risk. And those are the two types of deals to do. The danger is you

say every, you can say, oh, well, this has a million dollars of AR, and they're ahead of the number two player that has 900K of AOR. Therefore, it's absolutely working. Now, you have to have a high bar on the absolutely worth. Like, this is, this is crushing, this is the fastest growing company we've ever seen. It probably comes around once every decade. Throw away the entire rulebook, and you should be fine owning 5% of that company, because it's an absolute winner. I'm so pleased that you said about the fastest growing company that we've seen, we've never seen growth rates like we have today. I'm a little bit stuck, if I'm honest, and so I'd love your advice. When we look at companies going from 1 to 20 to 30 to 40, there's actually quite a few that

do that today, before that was completely unheard of. How much weight should we place on revenue growth today versus not? And is there a world where these companies that are going from 1 to 3 or 4, 3 or 4, it used to be good, I'd left behind? If you want to know the three investment thesis that I have for our fund, I'll tell me, this is exactly what I told LPs, and we'll answer your question in a second. I think we have three. We have one, which is we invest in system. Like, I call it Greenfield Bingo. And most of the green, like, these are existing software companies, but selling to new companies as opposed to selling to the hostages that will never leave. They tend to be systems of record or vertical operating systems. So like the reason why Rillit, I love that company so much, that's never

going to grow like zero to 100 in like a month. But it is very, very sticky revenue. Like once you're on, like NetSuite has hostages, not customers, they're not going to leave. You know, if this can say, if, if, Relet can sell into every new company. They're going to do great. The revenue growth will be slower, but it will be so sticky, and they have infinite option value on adding, like, hey, do you want to have a collections AI agent

that runs on top of, you know, overdue invoices, blah, blah, blah, and that's like optionality on top of your sticky system of record. So number one is Greenfield kind of systems of record. Number two, and this goes to the fastest growing companies in the world that you're talking about, is like software that does the job of labor.

Like these are new, this is, like I give an example, like we have a company called Eve. they sell into plaintiff attorneys. What is the dominant software product for plaintiff attorneys? It's called Microsoft Office, right? Like, there isn't one. There's so many categories. Like, what's the dominant software for, like, manicures? Like, there is, you can pick all these areas where there's no greenfield, bink, there's just nothing. But because the thing that you're selling is effectively, effectively in lieu of labor, the way that Eve works is, if you're a plaintiff attorney

and you get paid on contingency, you're not charging by the hour, you have a case where you will, with 100 percent certainty, win $1,000. Will you take that case? The answer is absolutely not, because it's not worth your time. So you turn down all the small ticket cases because you want the big ticket cases. But now you have a software product

that can do all the work and help you win all the small ticket cases. Like, you're absolutely going to do that. These are the things that scale like crazy. Because instead of hiring somebody for $80,000 a year that I cannot hire, I can now hire this software product

for $20,000 a year. And before I was paying $0 a year for software, those are all the things that are hyperscaling, But to your point, if they don't eventually back into a system of record, like if it's something that just does outbound phone calls with an AI agent, it's a thin wrapper on OpenAI or plus 11 labs plus something else,

it will attract so much competition, it won't be sticky. The conversation that I have with every entrepreneur that has one of these companies is like, how are you going to make this sticky? How are you going to, you know, part of my language, get the hostages? How do you hold these customers and make sure that if, you know, if you are, I'll give you an example. Like, I'm an investor in a company called Salient, which is probably the market leader

in kind of outbound loan servicing for autos. And this is the conversation I had with Ari. It's like, what if Talient shows up, you know, the competitor of Salient, the make-believe competitor's salient, how do you keep your customers? And they say, hey, we're going to do it for 50% cheaper. And I loved his answer, which is, I'm,

this is my wedge, right? I recognize that this is, you know, not super sticky if we're just making outbound phone calls and combining these different layers of the stock. because we're not the infrastructure layer, but we are going to back into a software product. And I love that answer, and it's true.

Like, that's what they've done. So that's my answer to your question is they might not be able to pull it off. Like every company that says they're going to do this, they might not be able to pull it off. But you have to back in this mega revenue growth that largely is predicated on doing the job that people would do before, and that's why you can grow so quickly, into sticky software product that is not that dissimilar

from software products of yesteryear. So it's like, number one is, you know, Greenfield bingo, number two is software that does the job of labor. And number three, I wrote a post-y about this, but I called it the Waldgarden. And I'll give you two examples of this. There's a company in Europe called V-Lex. And V-Lex was started by this entrepreneur, basically bought up every legal record in Spain,

physical legal records at the courthouse, put them into, like, digital form, and then started selling them to law firms. And I think he got this to like something like $20-something million of A-R after 25 years. But then added AI, and it grew like something like 5X. I mean something crazy. Why? Because open AI, let's just say open AI is purely, it's a sentient being, AGI is here, open AI has done it tomorrow, 5.5 is here. If they don't have, if you say like, hey, help me draft a response to this like Spanish court case block, like they don't have the data.

They can't do that, or open evidence has done this for, for health data. Like, you know, AGI is here. Open AI has it. Amazing. I tore my Achilles. What do I do? I'd rather have GPT 3.5 plus infinite data of everything around medical science, which is walled garden that open evidence has, versus like sentient being that has no data whatsoever. So that's also a very, very powerful way of building something sticky. So if you find a company that is grown like this

or grown like this, but just cannot be removed either because of the data that they have that is unique to them, which is, you know, honestly my hope with Ask Leo, or has, you know, kind of sticky system of record, like it's just not going anywhere. Versus other ones, like, you may take a flyer. It's like, wow, this has grown from zero,

to 100. They make outbound phone calls and they're like, you know, 11 labs plus this plus that. And it was all built and lovable. And it's amazing. That's a harder pill to swallow. I'm so honest these days, dude. I'm too old and ugly to not be honest. We're in this business called Allo in Germany. It's like a toast for Europe, but a little bit better, specialized to the European market. They've got great numbers. Five ax from like 500K to 2.5 million. Raising their Series A, like, you know, eight or 10 on 50-ish, memory so I mean, correct, was a bear. was fucking horrible. And I was just like, oh my God,

the triple-triple-double-double is so dead. Like, we're in lovable as well. That obviously is a completely different fundraised journey. Is the triple-triple-double-dead? I don't think so. No, no, I think, I mean, it might be harder for a certain set of people that are maniacally focused on growth over everything else,

but, like, what really matters is growth in stickiness. And the triple-trip... If you're a triple-triple-double-double with, like, terrible retention data, that's going to be very hard. But if you actually have, you know, again, system of record or in that case, it sounds like vertical operating system, that should not be hard. I would do, I love those things, right? Like, I would much rather have a slower growing, you know, permanent system of record that will never get ripped out than the fastest growing thing on the planet that has 9,000 competitors that are all built and lovable by 17-year-olds. I think there's no comparison. I mean, there are plenty of people that would be attracted to both would be my answer. I'm surprised that it was as challenging as you portray it. We got it done, but I was surprised too by how challenging it was. Kirstie, you mentioned about selling companies that I spoke to David George before the show. And he said one thing he's never talked about publicly I didn't think that he's a phenomenal master on,

is advice on selling companies. Ask him about that. I know it's a bit broad and random, but I do want to touch on it because David said I had to. What's your biggest advice on selling companies, having seen so many and living it yourself? Yeah, so I'd say a couple things. This is a very highly choreographed dance. so you can't just say, oh, I should raise... So if you're raising money, you're like, oh, I should raise money. I have the best metrics ever.

I'm going to talk to five firms, and they're going to compete to the death over winning my deal. Like, that was my experience with my Series B at trial pay. So it's like, oh, it's like... And kind of Corp Dev is like, I'm either raising money or selling my company. It's the same thing, right? No, it's completely different.

If you're selling your company, you have to spend, you know, in many cases, years getting to know people at the potential acquirer. it's never the CEO unless you're like, you know, what, you know, Jan Kum at WhatsApp. Like, let's just say that you have a company, you do something amazing, somebody at Salesforce should buy it.

You would rather go public, but you're like, ooh, you kind of see the writing on the wall. Like, I'm going to hit a wall in a year and a half. What you should start doing then is, I kind of call it a background process. Like, if you know what Kron is in Unix terms, right? It's like you should have a little Kron job where it's like 5% of your time as CEO

should just be like getting to know people at the three or four companies that might buy you. You never go say, like, please buy my company. That's DOA. You don't want to spend time with the corp dev people. Because most people like, oh, corp dev buys companies. No, they don't. They execute transactions.

If Salesforce buys your company, you're not working for the head of corp depth. You're working for like this SVP who has some hole on their personnel or needs like revenue growth in order to get their bonus. There are all sorts of internal mechanics that are going on there.

So it's just this highly choreographed dance of just like making sure that you get to the right people in the company, hopefully doing it years in advance, not just going to them when you need to sell your company, because there are two independent variables here. It's like when your company is doing, like the best time to sell, by the way, is your company is doing great.

This is the like the rocket ship is like 100 X year over year growth, and they want to buy. But rarely does that intersect. A lot of times I was like, oh, shoot, we started going like that. Now we want to sell. But nobody wants to buy this falling knife. So it's hard to perfectly choreograph this, but the main piece of advice,

spend time with three or four companies, not under the guys, because honestly, like, when I did this at trial pay, I wanted Visa to be a partner of mine. I wanted PayPal to be a partner of mine. It was not wasted time. It's like, hey, you know, PayPal,

you should put, you know, on your receipt page, you should put coupons that we do for this post-transactional product that we have and just spend, like, I was spending so much time because if I got that deal, right? I didn't give a shit if they bought us or not. If I got that deal,

it's worth so much money. to us, it's worth so much money to them. Unfortunately, or fortunately, depending on your point of view, they're like, oh, wow, this is so valuable for us. We have to buy that company. But it's like that movie, my favorite movie is Inception. How do you intercept this idea? And again, in that movie, it happens overnight on like a flight, whatever, from Australia or something. It really needs to happen probably like a year and a half, two years in advance. A lot of entrepreneurs, they make the mistake of I have to go impress the corp dev person wrong. I have to only interact with the CEO. You know, sometimes, right, like, you know, we, we host

did a dinner for the CEO visa, and I sat, Zach at Plaid right next to Al-Kellie at Visa. Okay, that worked until it didn't, right, because of the Justice Department or something. But, like, that can, if it's sufficiently strategic, you know, these $5 billion acquisitions that don't happen very often. But, like, you know, $500 million to a billion-dollar acquisition,

that can happen at not the CEO level. And you just have to spend the time and invest the time in resources. And by the way, this is the same advice that I give people on fundraising, right? Like this background process, if you're the CEO of a company, your number one job is don't let the company run out of money, which either means you become profitable, which is great, or you raise more money, which is, you know, not as great,

but like hopefully leads to being profitable and or you sell your company. So you probably should spend five to 10% of your time, you know, meeting investors in a very casual way so that they know you and they know that you're a very strong entrepreneur and they can like just invest on the spot versus, like this is how I raised my Series D at trial pay. I had spent so much time with the gray line,

guys, as an example. I pitched them, like, after I met Reed, like, 20 times, and it's like, he knew me. So he knew that he trusts, like, you know, he's investing in me as opposed to, like, a random dude that shows up, you know, oh, I should raise money because I'm running out and I'm growing. Let me go pitch five parts. Like, they would never would have done the deal otherwise. The background process is key. Before we do a quick firearm, I just have to ask, you mentioned one element being the labor displacement in the kind of one of the three kind of pinnings that you have. I completely agree. My friend Jason Lamkins, said this year will be the year where we see the demonization of technology leaders and we see

labor displacement materially shown up in labor markets. Do you think that's true? And what we see labor displacement in labor markets materially show this year? I'm not sure about that. I think in certain areas for sure. I mean, in general, I could even click up a notch, which is if you think about SaaS, broadly speaking, I think there are kind of three types of SaaS companies right now. There are the ones that are almost impervious to everything that's happening with AI. If anything, it's a huge tailwind because they're going to start being, they have the distribution, they're going to start adding features. And that's things like Workday and NetSuite and these things where it's like they have the hostages,

never going anywhere. On the other side, you have things like Zendesk, right, where it's like how many licenses per seat do you need a Zendesk if now every customer support ticket can be answered automatically? You need zero license. Like their revenue could go down 100%. These are very, very different. And then you have things in the middle like Adobe, where it's like, ooh, maybe I, I, now whenever I want a logo, I just go to chat GBT. I don't go to like the graphics team. So maybe you'll

need fewer graphics designers. Maybe you'll need, you know, Zendesk, you'll need fewer customers support people. That probably is true, right? Like, there are going to be certain areas that will get hit harder than others. But what technology has always done is, you know, people shift into other jobs, or maybe some people will be a hundred times more efficient. I think you'll have some cases where laborer, like now that, you know, take the Eve example that I gave you, wow, now I can do a hundred times as many cases, or five times as many cases as I did before, I'm going to hire three more people. Or I can now be in business by myself because the software helps me do X, Y, and Z. I think a lot of that stuff is going to start happening.

I so respect you, but when you look at like a Dacogon in the customer's port, it's clearing out. When you look at like a Harvey, another business that you're in. I don't disagree with it. I'm saying it's not, like, that's why I kind of gave the example of like the three types of SaaS, right? It's like you're going to have some totally impervious. and I'm talking about SaaS, not people.

If you flip that to people, it's like, all right, the users of Zendesk are probably going to go away, therefore that labor market might get decimated. 100% agreed. On the other hand, it's like, if I'm United Airlines, and now I don't need as many customers support people

because now every answer kind of auto answers itself with AI, well, you know what, I should probably take care of my best travelers better and give them like a personal human that will be really nice to them and remember their birthday, and then they're going to buy more first-class tickets for me. I might reallelial. some of that labor to other things because I'm making more money and I no longer have this cost. I mean,

Tony Shea, who sadly departed, who ran Zappos, he had this whole thing, which I think is actually correct, which is I'm going to turn, most people think of customer support as a cost center. They should think about it as a revenue center. You should love your customer and make them love you. There's the story that he would tell around like, you know, there's somebody who had something really bad happen and was on the phone with a customer support person, I think her husband died, something bad that had nothing to do with the shoe order. Zappos sends that woman flowers. Doing things like that, making your customer love you

is something that you can now focus on once you take away the cost center element of something like this. Or if I'm a law firm, again, I agree with you. Like, you probably don't need people doing this tedious work, and the number of people doing the tedious work will fall off a cliff. No disagreement. But I would not be surprised to see smart companies

start reallocating them. Like, I actually give a talk to the exec team at JPMorgan about this, right? They're like, what part of our business is going to be, you know, least touched by AI? And I said, you know, wealth management. Because what is wealth management? It's, yeah, yeah, it's like, hopefully, like, getting good returns for the dollars that you have with us. But it's really like that relationship guy or gal. And, like, the woman that was running wealth, she was like, she, like, stood up in the audience.

Like, yeah, yeah, yeah. But it's true. It's like, if you have a high EQ and you're good at playing golf with people, like, you're going to start hiring more people like that because that's how you get more customers. And you kind of, sometimes there will be an opportunity. the upskilling is not like, hey, everybody should learn how to code. The upskilling might be like, stop doing tedious work, like answering, you know, like looking at knowledge base and then, you know, typing that back with lots of typos into like the email response in Zendesk, but actually start going into like, you know, send customer flowers, like, do, get to know that customer really well. Go visit them at their, like, whatever for the high value customers that you just couldn't do before.

Alex, I can speak to you all day. I know you do actually have to work as well. I want to do a quick fire around with you. I'm just giving you a couple of quick statements. what have you changed your mind on most in the last 12 months? I've probably changed my mind. Well, as I mentioned, you have to be able to change it. It's more of companies where we didn't do the early round.

And then it's like, I'd rather be rich than right. That's what we often talk about. It's like, all right, I want to be right. So we've probably done a couple deals where it's like we passed, you know, round n minus one. We end up doing round N. But I don't think I've changed my mind on that much. Maybe I would say like this idea of private equitizing venture capital.

I wrote a piece, I was probably the first one to talk about this in 2023 around how what you're going to start doing is you could buy a company and then add AI to it. I think general catalysts now, like a bunch of firms are now doing this. I was the first person to talk about this and I called it Barbarians at the gate with an AI. I'd probably become more bearish on that just because it feels like just a founder market mismatch. So that's probably the thing that I've changed my mind on the most. What product does Andresen not have today that you would most like Andrews

to have. You mentioned GEC having the fund there that does that roll up play. They've got the like consumer performance marketing fund. They can't remember what that's cool. But what product do you not have that you'd most like to have? Something around credit for a lot of our companies. So, you know, we have equity products, but we don't have debt products. And they have very different return profiles, obviously. But every one of our companies, they need, you know, general capitalist actually has one of these. They have a credit fund. So either for customer acquisition or if you're fintech and doing lending. So that would be interesting. But in general, we just kind of, we listen, we don't want to be at odds with our entrepreneurs. Like, there's a very

solid reason why we don't have that, which is like, oh, you didn't pay back the bill, I need to go foreclosed. Like, that's a, as a venture capital firm, like, you can earn a thousand X on a winner. You don't really want to, like, kind of beat up the companies that are struggling. And that's kind of what the credit instrument needs to do. But I think it's a good product. What piece of investment advice has most stuck with you? So like Josh Krishna once told me, if you're willing to take glass, don't do the deal. If you're willing to go from 10 to 7%, And like, yeah, sure, yeah, why not? Don't do the deal. What would yours be? I think it really is find high agency people that know the history of the space that can

materialize labor capital and customers that are the count of Monte Cristo and don't second guess anything. Give the money, be their best partner and go versus, you know, question the market, question the this. I think it really is. I've just become 100% convinced this is entirely about people. 100%. It every round, by the way. It could be a D round. It could be an E round. It can be an A round. I'll give you a seed round. Can you please tell Martin Casado? Because he tweeted and then took the piss out of me. Because there's this, you know, the graph where it's like, it starts here and then goes

up here and then goes down here. And it's like, you start here, it's all about founder. And then you end here, it's all about founder. And here is when you think you're smart on no market and product. And he was like, you're an idiot. It's not that. It's all about founder. I mean, you have to, again, it converges on reality at some point in time.

Like, there's going to be a public company. You can't, like, tell everybody in the order book of the IPO that's undersubscribed. Like, I don't know. The founder's really good. like, yes, of course it has to converge on reality. But I think it's like, it is like materialized labor capital customers. Like that's kind of it for me with the right motivation, which is the count of Monte Cristo. Penultimate one, what's your biggest miss and how do you reflect on it? I miss deal seed round, another one of yours. I reflect on that.

So it probably was one of the first rounds of Plaid, which I subsequently corrected myself for by doing the Series C of Plaid. So I think we invested at $2.4 billion for the Series C. And I was debating a $5 million difference with Zach for the series B. I wanted to do it at $130. He wanted $1.35. And I think Goldman was willing to pay $200, but he was willing to work with me because of, you know, my fintech. And it's like, no, no, $5 million. Like, that was just so stupid, right? And luckily, I was willing to admit that I was stupid and did the next round, but you can see the difference on, this is why it's so important to do two things, to correct yourself if you're wrong and not be proud about it. But also, if you really believe that this can be a huge company. And I was, I was

burdened by what has been, to quote the great Kamala Harris, of, oh, wow, Yodali, which had predated plaid, that went public and had a terminal valuation of $600 million. So, like, of course, this, like, 130 versus 135 or whatever the hell we were talking about was very material, but it was so stupid. I love that unburdened by what has been memo that just that. Final one for you, dude. What does Venture look like in five years' time? When we look at the dollars that you raised today, I mean, it is obscene to even think that would happen five years ago. when we go back. What does it look like five years out? It ends up eating even more of the world. This is kind of going back to Mark's essay around software eats the world. That largely has happened.

As I mentioned, like the five biggest companies on Earth, their technology companies, which was like unthinkable in 2005. Like technology companies were little service providers to big companies like banks and oil companies, right? Think this momentum of kind of everything becomes a software company. It kind of goes into this like thesis two that I mentioned around software does the job of labor. You're going to have all of these areas where it's like there is going to be like, you know, toast, vertical SaaS prove this or kind of V1. It's like, oh, how is toast worth $20 billion? You're going to have a lot of things like this where it's like brand new markets that have grown like crazy. AI is now allowing software and technology to do so many things that it didn't do before.

And this is before even things like robotics. Like if robots actually work, wow, like now you've expanded the market like another 100x. I'm just so bullish on the ability of technology. to create enduring value. So, you know, my guess and my hope is that it's going to go up into the right. Dude, I told you this is like Banscher. You have most shows which are like, fine,

and then you have the once in a while which are truly special. Thank you for being my truly special show. It really is rare to have one like this. All right, and hopefully I'll see you in London soon. Thanks for listening to this episode of the A16Z podcast. If you like this episode,

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