This Week in Startups - Logan Allin and Neil Datta on which startups AI puts at risk, tech regulation, and H-1B reform | E1975

Episode Date: July 2, 2024

This Week in Startups is brought to you by… Intercom. Intercom’s AI-first service is the best thing to happen to your customers since you. TWIST listeners can get 90% off Intercom’s platform at https://www.intercom.com/twist AssemblyAI. Get maximum value from voice data with AssemblyAI. Build powerful products and features for your end users on the industry’s leading speech-to-text models. Get 100 free hours to start building at https://www.assemblyai.com/twist Vensure. Vensure is an HR firm that specializes in serving rapidly growing technology companies. Providing fully customized HR and benefit strategies designed to grow with their client’s needs. Visit http://Vensure.com today to schedule an HR evaluation, and learn how they can help you. Todays show: David Weisburd hosts Logan Allin, Neil Datta, and Jason Calacanis to discuss Vinod Khosla’s views on AI (1:13), Trumps H-1B policy (11:24), incorporation to funding stage (36:09), and more! * Timestamps: (0:00) David Weisburd intros Logan Allin, Neil Datta, and Jason Calacanis (2:57) Vinod Khosla's talk on AI at Collision Conference (5:12) Tech regulation, AI, and M&A's impact on portfolios (13:28) Intercom - TWIST listeners can get 90% off Intercom’s platform at intercom.com/TWIST (14:58) Globalization and navigating AI in venture (23:44) AssemblyAI - Get 100 free hours to start building at https://www.assemblyai.com/twist (25:13) Trump's stance on H-1B visas and immigration policy (42:19) Vensure - Visit http://Vensure.com today to schedule an HR evaluation, and learn how they can help you. (43:37) Carta data on incorporation to funding stage (54:34) Lighting round on recent investments * Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.com/ Check out the TWIST500: twist500.com * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Follow Logan: LinkedIn: https://www.linkedin.com/in/loganallin Check out: https://fin.capital * Follow Neil: X: https://x.com/NKDAdvisory LinkedIn: https://www.linkedin.com/in/neildatta Check out: https://nkdadvisory.com⁠ * Follow Jason: X: https://twitter.com/Jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Thank you to our partners: (13:28) Intercom - TWIST listeners can get 90% off Intercom’s platform at https://www.intercom.com/twist (23:44) AssemblyAI - Get 100 free hours to start building at https://www.assemblyai.com/twist (42:19) Vensure - Visit http://Vensure.com today to schedule an HR evaluation, and learn how they can help you. * Great TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups Substack: https://twistartups.substack.com * Subscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

We have a number of companies that have a file to go public or in the IPO queue. They look like public companies and they just won't get out. I love Dan Premack's piece the other day where he's like, hey, just a reminder, the IPO windows open people, right? Let's go. You're going to need the team in-house to be able to separate from the roadkill and the disruptive companies. So, you know, obviously like the aspect of AI washing that we're seeing in startup community, the same thing we saw with kind of greenwashing and the climate space.

it's important for VCs to have the technical skill set in-house to be able to determine when their startups are actually building good technology and in a position to do what they said they'll do. This weekend startups is brought to you by Intercom. Intercom's AI First Service is the best thing to happen to your customers since you. Twist listeners can get 90% off Intercom's platform at intercom.com. Assembly AI. Get maximum value from voice data with assembly AI. Build powerful products and features for your end users on the industry's leading speech-to-text models. Get 100 free hours to start building at assemblyaI.com slash twist. And Venture. Venture is an HR firm that specializes in serving rapidly growing technology companies, providing

fully customized HR and benefit strategies designed to grow with their client's needs. Visit venture.com today to schedule an HR evaluation and learn how they can help you. Welcome back to this week's liquidity podcast. With me today, I have Logan Allen from FinC Capital. Next, we have Neil Data from NKD Advisory. Of course, we have Jason Calicanus from the launch fund. I'm your moderator, David Weisbert, co-founder of 10X Capital. Today, we have several interesting topics to discuss. Venote Kosla sounds off on AI developments and regulation at the Collision Conference. Trump weighs in on H-1B visas and green cards.

And Carter releases data showing how long it actually takes to succeed in a startup. We'll end the show with the latest three investments from the guests. Let's dive right in. And hey, as we start here, I just wanted to say thank you for a moment to some of the amazing partners we had at the liquidity event in June in Napa, David. David, a great event. I think you had a good time. Yeah, it was a great time. So thanks to some of the folks who sponsored dinner and lunch, Eventus, advisory. They're a leader in on-demand finance and accounting support venture. They provide end-to-end solutions for payroll, HR, benefits,

and risk management, and Forge Global, which provides investors and shareholders as a transparent view of the private markets. Thank you so much to our partners. All right, big docket. Let's go. Yeah, let's go. So Benout Kostla spoke at the collision conference in Toronto and discussed several pretty interesting topics. He's not very interested in dealmaking, hasn't personally taken a single dollar of management fees since starting KOSLA 18 years ago. His concern of the U.S. going the way of the EU, which has regulated itself out of leading technology innovation, and the implicit nod of confidence that Apple and Tim Cook has bestowed on Sam Altman through the Apple OpenAI deal,

which he believes expresses confidence into Sam Allman's ability to lead developments in AI over the next five to ten years. Neil, you got a chance to listen to the talk. What did you think about Vinod's talk? Well, it's not surprising to hear a prominent venture capitalist pushback against regulators. I think at a high level, I do agree with his premise that the passage of the act is going to have a profound impact on the industry. But, however, I think it's much more nuanced than the standard argument of government overreferencing. reach in terms of regulating new technology, it may or may not fully, fully comprehend. And I think the act itself, if you look at it, there's two primary areas of focus, right? There's the privacy section and the kind of risk section.

And the privacy section, it mentions things like deep fakes and social scoring systems, and it creates controls around that. And I think stuff like that we could all agree about and get behind. The area that I think is concerning for hardware makers and software makers is the inclusion of, you know, companies based in America trying to sell. product or software through the EU. However, you know, if you think, look at the history of the EU, the EU historically has taken a leadership role in regulating technology. The two instances I could think of is in 2002, the E-Priacy Act, which effectively forced websites to disclose cookies and

tracking, which, you know, we all enjoy today. The other thing that is GDPR, which ultimately led to things like CCPA and other privacy laws around the world. So, Ultimately, the EU has historically taken the kind of first mover approach in terms of regulating technology, but a lot of it is TBD. So I think it's super nuanced and, you know, worthy of, you know, regulation playing out. Jason, you've talked about kind of the side effects of EU regulation, how some businesses may avoid the region. What are your thoughts on EU and its position on a global scale? Yeah, I mean, it's a pretty tight filter. I think most of the companies in M&A, that are, most of the, let's say, tickey, you know, what would we call them tactics that companies are getting dinged by in the EU are manageable, and other ones are seismic, right?

And so it's very early to start regulating AI. I think it's all regulatory capture. And generally, we just need to use existing laws and maybe keep an eye on it. So I don't mind like an exploratory. committee and that kind of stuff. I do get a little concerned when they want to regulate something so early on because we don't even really know what we got yet. Now, when we look at something like USBC cables and iPhones versus lightning, in a free market, one might suspect like you could pick whatever charging cable you wanted for your device. The EU put so much pressure on Apple. they move to putting a USBC inside of every device,

which has been great for consumers, right? So, you know, the free market person in me says, like, they should be able to use whatever cable they want, and the environmentalist, and as a consumer, it's just so much better that everybody's on a USBC. It's better for the environment. So I don't know where to stand on that one. I do think opening up an interoperability,

that's a really great speeding ticket to give a company like Apple, where, you know, they're so heavy-handed, oh, you can't even tell people about a better deal they could get in buying direct from you. So I like those kind of actions. I don't like the blocking of M&A. It's killing the industry.

It's taken an entire swath of returns away from our LPs, away from founders, and, you know, it's just so important to have M&A back on the table, you know, blocking Figma because, you know, some regulators in the UK don't want it to happen seems crazy to me. And so I do think there is this possibility eventually where people will say, you know what, I'm just not going to launch my products in a region.

That's 10% of my revenue, but that's just too onerous to deal with. And that's where the EU might overplay their hand. And I think we're we're kind of getting towards that area where people might just say, it's not worth even launching my product in the EU, where I'm going to launch this sub-product. be like, here's my Salesforce or HubSpot or Figma for EU

under some shell company or something. You know, a natural axe to get around. Regulators could be coming for Europe, I think. Logan, you're nodding your head. You've built quite a big franchise at Finn. How do M&As play out in your portfolio? How critical are they to the success

of your funds? Critical. And I'd agree with Jason just on certainly the Justice Department and antitrust environment here in the us, but also in the E.K. and EU, I was just in Europe for two weeks, and actually AI regulation was certainly a hot topic. The other topic was tax, right? So, Labor Party looks like they're going to win here in London. And my colleague in London is sitting there looking at taxes that are going to go from 28% on his carried interest to 50%. Right. And I had a dinner for about 40 BCs and half the

room raised their hand when I asked them if anybody was thinking about leaving as a result of the tax issues. I think that's a huge problem. And so you think about just the regulation environment, the tax environment, those are spelling challenges just in terms of trying to be constructive about investing in the UK and EU, where we have 35 companies. On the M&A side, we just announced an exit a couple hours ago with a company of ours called Salt, selling to chime. M&A is the lifeblood of venture capital, certainly in terms of our early stage book, Our PE book where we invest from growth to pre-IPO exclusively in fintech software, we're underwriting to an IPO, but inevitably there's a dual track process.

So M&A comes in place there as well. So to Jason's point, we're concerned about the uncertainty and certainly the timeframe that it requires to be thoughtful and diligence and check all the boxes in terms of making sure a company will actually successfully prosecute an acquisition. As related to AI in Beno's comments, you know, we, fully agree. There's just going to be a ton of companies that will become roadkill here as, you know, they're trying to wrap existing LLMs and they're not really building any true IP or defensible modes around their business. We're focused on vertical applications in AI and then

orchestration of AI in the enterprise, which is particularly important to the end customers we serve that have to deploy AI in many cases on premise. So very excited about our investments in AI. We have 20 companies there and certainly more to come. It's interesting. You mentioned taxation, some of the forward-looking LPs that I talk are rebalancing some of their portfolios towards venture capital with the assumption that all these things interplay with each other, specifically on the national debt in the U.S., their assertion is that in five to ten years, we're going to have to increase the capital gains on everything, including long-term gains. And with exemptions like qualified small business stocks allows investors in the venture ecosystem

to essentially pay no federal and sometimes no state income tax on their gains. So a lot of people are kind of thinking one step ahead in the U.S. in terms of investing into asset classes that are going to be much more tax advantage. Well, just to that point, David, jurisdiction matters. And if you start putting your thumb on the scale too much, people in today's era are very willing to move jurisdiction. This is something new. I remember when I was starting my career in the 80s, 90s, you know, you just like, you have to be in New York or you had to be in, you know, the Bay Area.

And now people are in Salt Lake City doing great work. They're in Austin. They're in Houston. They're in Miami. They're in L.A. They could be in any jurisdiction. And then people are now starting to move to Singapore or to UAE, Abu Dhabi, Dubai, Dubai. And these places are giving incredible incentives.

Why would a venture capitalist in a large firm ever want to live in a jurisdiction that just killed them with 50% taxes on capital gains and when you could move to Dubai or you could move to Florida or pick a location? I think you're going to see a lot of young people and maybe even some of the oldsters who are at the end of their career saying, hey, how do I manage this wealth transfer? just pick new jurisdictions. You saw the Texas Stock Exchange coming. So this is serious momentum. And I think there's the, you have COVID in some way and remote work as the accelerant, right?

If you can manage people and you can have a couple of people on the ground in Europe, but have your headquarters in Dubai or have your headquarters in Miami and your analysts or you go to Broadway shows every now and again in New York for a couple of weeks, you kind of can get the best of the city and the best of the proper jurisdiction for running your business, what person wouldn't do that? A person with kids in school, maybe. That would be the only reason to not do it I can think of.

It is interesting. We just ran the simulation, as you mentioned, in COVID. One of simulations was moving to Miami. We had so many people move from New York to San Francisco, and some people came back, but the people that really remain in Miami are investors. And I think governments should be thoughtful in terms of the regulations that they make for investors, versus startup entrepreneurs. Many of the top startup entrepreneurs have decided to now go back to San Francisco, especially AI entrepreneurs, because there's such a ecosystem there. But I think governments that overregulate investors will find it to be a slightly different story.

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growth startup, you're going to get access to Intercom at a massive 90% discount. That's right, 90% off because Intercom and the team over there love startups and innovation as much as we do. So go to intercom.com slash twist to apply. Or if you prefer, you can just do an email at startups at intercom.com. Logan, you also had some thoughts on what Vinod was saying around the other topics. What are your thoughts there? Yeah, so I think, you know, thematically, we're, we're all seeing some frothiness in AI where you've got, you know, several very, very smart PhD researchers founding a company with no use cases in mind, right? They're founding a company to found a company and then they're backing into, you know, hopefully some use cases in monetization

over time. We have to remember Open AI was founded in 2015. First use case launched in 2022. Obviously, there were some non-for-profit aspects to that and some pivot, but that was a very lengthy period of time. We're now starting to see founders emerge from the mistrills, the open AIs, the anthropics, right, because they're seeing real pain points and real use cases out in the market and spinning out to start their own companies. And our view, being a financial services and Fintech investor is that there's got to be application verticals within Fintech that could be CFO tech stack tools. It could be compliance automation. It could be KYB, KYC, AML automation. It could be operational and docs processing.

It could be improving your cyber capabilities in terms of deepfakes, which we think is a huge problem, particularly in the bank and the wealth management worlds. Or two, you could be helping people orchestrate, right? So we've invested in several companies on the orchestration side, like Articulate and Liminal, and we're going to announce another one in September that's just focused on, how do I deploy on-prem? Because everybody has to remember less than 8% of bank data is in the cloud. The banks have not adopted the cloud.

And so they can't just ship their data outside of their four walls. and expect to leverage SaaS tools for all the regulatory reasons that are familiar to all of us and only getting more constrained. So I liked his comments, and I frankly think he was pointing out some of the pretenders and those that will get consolidated or be roadkill in his words versus ones that will have sustainable long-term advantages. On the Apple side, the Open AI partnership was interesting, but I think as we all know, they're going to look at additional partnerships much like Microsoft has. And in addition to that, just on the European comments, Apple announced that they're just not going to turn on AI capabilities in Europe, to Jason's point. It's like we're going to have like subversions across different countries because of regulation. And that's going to be the debt to the detriment of small businesses and consumers ultimately. Yeah, you know, it's globalization is really interesting.

And I remember when Airbnb and Uber were going around the planet. You know, sometimes you'd want to fight the good fight in a region. other times you just said, you know what? We don't need to be in Austin. We don't need to be in Vegas. We'll be everywhere else. And then you know what happened? People in Austin and people in Vegas were like,

we need Lyft, we need Uber, we need Airbnb. Like, we want these opportunities. Why are you? And then you all of a sudden, as a politician, become pretty unpopular. So if you're in Europe and you can't use certain AI features, then you're going to get a VPN. And you're going to VPN to get those features.

You'll ride around the government if you have means or intelligence. and if you don't, you're going to start complaining. And what are they going to do? Like, I have a VPN and I'm, you know, like, I can watch BBC with a VPN because it's free and they can use Microsoft's co-pilot or Apple's co-pilot because they use a VPN. I mean, it's just, we're getting to the point of silliness here with too many restrictions. Now, it's your decision in a society to do that, but aren't the politicians supposed to work for the benefit of their citizens? and like, I don't see how this benefits it. And if you don't adopt AI, man, your country is going to get decimated.

How are employees, you know, for knowledge work companies in France or in Germany going to compete against knowledge workers in Manila in the Philippines or Singapore or Portugal or, you know, South America, if they do have the tools? The answer is you're not going to compete. And then you're not going to get work. And then work will go to places where it's most. efficient cost and skill. You're going to lose on both?

Not a great idea. Neil, how do you look to navigate AI world when it comes to investing into venture managers? I mean, I think to Jason's point, just like these companies need to adopt AI into their process, he's the same as true of venture managers. And LPs are becoming cognizant of this and incorporating this into their diligence process.

And ultimately, I think, you know, what it does is it creates a significant advantage for VCs who historically have used data and have been quantitatively focused. And, you know, over time, I've been collecting this, this proprietary data, whether they're focused on a particular sector or a particular space in the market. I think, you know, to the extent you're not doing this, you're going to get left behind. The other thing I think is is really critical to Jason's point as well is you're going to need the team in-house to be able to separate from the roadkill.

the disruptive companies, right? So, you know, obviously, like the aspect of AI washing that we're seeing in startup community, the same thing we saw with kind of greenwashing and in the climate space, it's important for VCs to have the technical skill set in-house to be able to determine when their startups are actually doing, building good technology

and in a position to do what they said they'll do. Just on the one point about the Apple deal with OpenAI, they went through great lengths to talk about that deal, being swappable, hot swappable, I think they're going to swap it out the second they get a chance. And I think it's going to get swapped out in one of two ways, either to the highest bidder, like they did with Google and search, in which case, your Apple stock's going to go up because that's going to be a pretty penny to be the default LLM on there. And these are cash-rich companies. So can you imagine, you know, Claude, Groch, and OpenAI, and Gemini, all fighting it out. to become the default, or not to mention Microsoft's version of Open AI and their co-pilot, fighting it to be the co-pilot on Apple's devices with those high-end consumers. Man, that could cost $10, $20 billion a year.

Who knows? I mean, that could be just a huge check every year. And then the other possibilities they work on the open source projects and build their own and have complete control, which I think they plugged a hole because they didn't want Siri to be completely embarrassing and have their phone fall behind and then have other people saying, look, look what you can do on an Android phone that you can't do on an iPhone. So it was existential for them to plug the Siri embarrassment and have the ability for you to say, like, hey, can you, you know, start my order in DoorDash, or can you call my Uber and have

Siri actually be able to do that correctly with AI? But, yeah, this is too core to their business. They're not going to give up their iPhone franchise to anybody. I bet they have their own version that they'll slot in there, or they will. buy a company or they'll charge the highest bidder. I give like open AI almost no credit for this. I think it's like an instant swap out. I don't give them any credit. They just happen to be six months ahead of everybody else right now. I would almost, I would place a bet in five years. They do not have the default or if they do have the default, they're paying billions a year for it. Yeah,

I was going to jump in and say, I think that they'll, rather than being one winner, there'll be multiple winners, right? So there may be somebody in the kind of the, you know, financial market space where Bloomberg GPT plays one role in kind of the medical space. And, you know, so I, you know, I take the view that the data is so differentiated, the folks that have the best data in their sectors, military-milly B-winners. So you think Siri fires off the Bloomberg when you ask a stock question. Sure. Sure. Yeah. out of the WebMD or whoever's version, Gemini, if it's better for health. That's actually a really clever idea.

I was thinking of it more like the search engine swapping or your browser swapping. But what you're saying is this might be so important there. You might have 10 defaults. Who do I want for medical? Who do I want for entertainment? Who do I want for news? Who do I want for financial news? That's actually a really good idea.

The data sets in different places, so it would be more efficient from a rather than having it centralized. And a better user experience, I think, most importantly. It is wild that it seems like we're living in two different decades. You take your phone and you're like in 1990 and then you put on your computer and you're like in 2030 and you're switching between these different data sources. So it's it's wild to see that two of the largest consumer brands, Amazon, Apple have basically been playing defense this entire time. It's a very predictable problem set that they haven't gone in front of. All right. You might not realize this, but we're all produced.

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the world's lowest error rate and up to 30% fewer hallucinations. So here's your call to action. Build powerful AI experiences for your end users on the industry's leading speech to text models, head to AssemblyAI.com slash Twist and get 100 hours free. Hey, that's great. Go play with it. You're a developer. You want to play with this. Check out, AssemblyaI.com slash twist today. on. On the latest episode of All In Podcast, President Trump declared support for increasing H-1B visas for highly skilled immigrants and even expanding it to any graduate of two-year and four-year programs. Since the episode aired, the Trump campaign has had to walk back the statements a bit, clarifying that would not automatically be given to anyone that graduates any program,

and that there would be further vetting. Several conservative groups, such as the conservative Immigration Accountability Project have criticized the policy saying that U.S. immigration policy must serve the interests of all Americans, not just the interests of elite business leaders who seek cheap labor. Logan, what are your thoughts on this? So I was at Stanford Business School graduation in 2013. I was graduating and Mike Bloomberg was speaking and he said emphatically, and I totally agree with this statement, that we need to staple a green card or visa to every single diploma in this football stadium. And it's done at the Stanford football stadium. And he meant that more broadly, obviously, than the cohort that was graduating that year. And I think we do such a

poor job retaining talented immigrants in this country. And obviously, the NBCA, pitchbook, there's been a ton of data supporting the obvious, which is immigrants are founding amazing companies, particularly in technology in this country. And we treat them like second class citizens when we should be bear-hugging them. And so we, for example, pay for all visa and green card sponsorships within our own firm. We're sponsoring several now, and it's one of my kind of favorite things to do as a leader. And I think other VC and P investors and certainly companies and technology should be advocating and pressing on this. And immigration policy in this country is broken.

This administration has tried to make strides to fix it, but they've focused on the border immigration versus I think what is more low-hanging fruit, which is the H-1Bs and the talent that is leaving this country to go either back home or to other countries that are more accepting of them, like a Canada, for example. So I think Trump was hopefully leaning into saying the right things and then walked it back a little bit, but I'm hopeful that we continue in that direction. I agree 100% with both Logan and Mike Bloomberg. I think, you know, one thing that both parties, I think, get wrong is that this belief that, you know, immigrants themselves want open borders.

And I think it's just not true, right? Immigrants, particularly, you know, my family's from India. And, you know, I speak to immigrants all the time. And all the immigrants I speak to are fiercely patriotic. And really, like, first in terms of, you know, being pro-America and being kind of the concept of being an American. The concept of, you know, as Americans, we have the best universities and institutions in the world. And it's just silly that we force them out after training them and educating them. So, you know, 100% agree.

And hopefully that's something we can pull off. And Neil's got a great insight there about immigrants. They understand the value of immigrating to the country. They understand, you know, in how hard it is to do that. And if they came in legally, it feels profoundly unfair, at least the ones I've talked to, when somebody, you know, crosses the border. legally and, you know, they also understand the pain and suffering because they might know somebody who did make that really difficult journey. So, you know, this is a highly charged issue. The reason I push Trump on it is I've been trying for close to a decade now to change the dialogue and reframe it. Reframing in psychology is just, you know, like how you perceive the world, how you perceive a challenge or, you know, something bad that happens to you, etc. So if you reframe it from immigrants coming across the world, how you perceive the world, how you perceive a challenge or, you know, uh, something bad that happens to you, etc. So if you reframe it from immigrants, the border, to commit crimes, and to take our jobs and take lower wages. Let's reframe it as recruiting. Okay, if we were going to recruit for this great country, if we are a sports team,

who would we want to recruit? Well, we'd want to look at the current team and say, hey, what are we missing? Do we need a center? Do we need a point card? Do we need three point shooting? Do we need a wing? What do we need on the team? What do we need on the team? We know that we need people to work in healthcare. We don't have enough of those. We need people who are nurses and doctors. We got a shortage. We need labor to work in restaurants. We have a shortage of that specific type of labor. We also need people who want to create companies and be competitive. Do we want people going back to India, to Saudi, to China, to Australia, and creating their great company here? We'd rather they be building the companies here and we get the tax and we get the jobs. So there's a big picture,

you know, that you kind of have to reframe here. There's recruiting, there's illegally entering the country, and then there's compassionate immigration. Let's separate these things and make them less politicized and then put numbers on each one. Compassionate immigration, that could be, you know, whatever, 100,000 people a year from countries where they are absolutely going to be politically prosecuted

if they stay. Workers? Well, that should just be based on our, unemployment rate. If the unemployment rate is low single digits, we're going to accept a million people. If it's 10%, we're going to accept nobody, right? We're going to keep it, we're going to turn it off until the unemployment rate comes back down. You could actually have a very thoughtful, logical, mathematical, you know, and recruiting based discussion on this. And, you know, when I saw them walk back my question and me pressing him on it, what I saw was there's a base of people

who lost their jobs when, you know, Bush, Clinton, globalization, Obama, we gave jobs to China, we move factories out of here. That's the people who are, they're, I don't want to say, pandering, but they're trying to address there. And they're also trying to address the issue of terrorism. Yeah, of course, we don't want this to be a back end for terrorists to come to the country. Yeah, some basic vetting, obviously. And yeah, we don't want people to hack the system. So it should be, you know, people with green cards are tracked in a way that Americans are in track. Like, you will get pulled into an office with a green card.

You will get stopped at customs with the green card. Anybody who has a family member or friend who's had a green card understands the anxiety they go through just going home. Can I get back in? Are they going to stop me? So that's kind of built into the system. I think that's what the Trump campaign was doing is just making sure that those constituents don't feel like

he's talking out of both sides of his mouth. And I actually like the clarification because I didn't even think, oh, yeah, some terrorist group's going to send 100 people here to go to University of Phoenix. Shout out University of Phoenix, no offense, and get some Fugazi degree or something and, you know, that blow up a building, God forbid.

So I kind of like the walk back in a way. And Trump was, I think Trump 2.0 is being very thoughtful and he's winning a lot of moderate. So maybe Democrats need to take some notes. I don't think this is a partisan issue. I think this is a message. I think this is a messaging issue. There's not enough people really advocating for immigrants, specifically highly skilled immigrants.

The NVCA is really taking a leadership role here, but it's just one's smaller group that's pushing for it. Just to give you some stats, 44% of Fortune 500 companies were founded by immigrants or their children. This is a new tech companies. These are the Fortune 500, the bread and butter companies of the economy. 76% of patents awarded at the top 10 universities have at least one foreign-born inventor as well. And one of the interesting things about this policy is that we actually are able to AB test it.

Trump alluded to it, but there are people that were not giving green cards that go back to India or go back to China or even go back to Canada or Europe and start these multi-billion-dollar companies. And that has enormous multiplier effects on those economies, and that really robs us of the next generation of great companies. And one of the reasons the U.S. has really incentivized entrepreneurship is because

entrepreneurship and the benefits of it don't just accrue to the founder. It's not just the founder getting rich and getting a tax break. It's also the employees. It's also the employee's taxes, the goods that they buy, all that effect goes into the economy. So I think if people, people really were educated on the multiplier fact that every highly skilled immigrant came in the country. I think it would go from a partisan issue to just, you know, more of question of nuance. You know, do you want to really bring in everybody from a two-year degree? Or maybe we should start with PhDs. Why is it that we have a single PhD in the United States that doesn't automatically get a green card?

To me, that's a very low-hanging fruit. or maybe we start with four-year degrees. So I think we really need to continue talking about it and continue, you know, leading with data on this issue. And I think it's going to be something that over time, just like anything that's kind of an obvious policy over time, it'll continue to gain steam. And hopefully either in the Trump or Biden's second term, something that we could get passed through. I mean, did you guys see the interview? Do you guys have any questions for me on it or any thoughts on it? Jason, what was your biggest surprise?

A surprise. You know, the H-1B visa was a really great moment, I think, for him to, you know, show, hey, it's not just all xenophobia. And, you know, that was kind of what that first administration, his first term, felt like. And if he has a second term, I think maybe lowering that rhetoric and just having a more pragmatic approach to immigration would settle down a lot of the, I think, tension about. his presidency and his personality. I think overall his tone is on at least on the on a business program like all in was very um what I put in that Trump 2.0 not insulting people not that like rhetoric that makes everybody go oh god here we go again it's going to be chaos and I think he's

running against himself. I think Trump is in 2024 is running against Trump's chaotic president the first time around. And I think people are going to make the decision a lot of moderates of do they believe this time will be more or less chaotic than the last time, January 6th, the, you know, trying to overthrow the election results, you know, depending on how strongly you feel about those two instances, and just the general chaotic nature of it. And so if he can come across as presidential and refined and less chaotic and more and less name-calling and less I'm going to be your retribution, that kind of stuff, I think, turns off the moderates,

and they're going to flock to Biden if he's moderately cognizant. So to answer your question, he did a really good job. And I didn't expect him to be so presidential and focused and deft at speaking to the business community. And he's not my preferred candidate, but boy, does he come across better in that interview than Biden does, generally speaking, to moderate. And I'm just watching those moderates in women and wondering, I think women aren't going to vote for him, but moderate might.

And I think he's got a pretty good chance of winning. I don't know if you saw Nate Silver and other folks coming out today, they think he's got like maybe a two-zero chance of winning. Yeah, 66%, two-thirds, maybe. Jason, you're still officially undecided. What are your top two issues? Top two issues? You know, number one, I think we have to cut spending. You know, Freiburg and I are both, you know, concerned about that.

And we talked about it here earlier, you know, this existential spending is crazy. So we need less government. So that's definitely number one for me. I'm not too worried about the foreign wars, I'll be honest. I think actually they're pretty contained. Wars are terrible. There's always wars. And these two seem to be somewhat contained, right?

You know, given how horrific wars can be. And I do think we need to have a very pro-business environment. So I'll put taxes, M&A, you know, antitrust and immigration recruitment, all in that bucket of just being pro-business. We have to keep pushing our advantage in building these next generation of companies like we all do here as capital allocators and founders do. Because the world is getting decided by how good your companies do. It's really that simple. If you have jobs, if you have the best companies, you have the best tax base, you can basically, win the global competition with your balance sheet. And I'm worried about our balance sheet. So I guess both of those issues are balance sheet related. Revenues coming in, incentives to build great companies. It's like a Anne Rand novel right now. What are your number one and two issues, everybody, since we're already here in the deep end of the political pool? Issue one, issue two.

I think for me, immigration is important. Just having young children living in New York and the crime piece is. is something that I worry about. And then the economy, you know, inflation, jobs, just general feeling, consumer sentiment, you know, the way people are feeling obviously has a lot of effects on spending and business activity and startups and things like that. On my end, definitely spend and business environment as well, Jason. I think, you know, spends out of control, we're now getting notified by other countries, including the EU and UK, banks, respectively, central.

government saying, hey, look, U.S. are spending way too much money and we continue to do that, particularly given interest rates, our servicing on the existing debt is incredibly high approaching a trillion, right? So that can't persist. On the business environment, we continue to see laws around carried interest adjustments, and that's just going to create really bad, negative incentive loops. We saw what happened when, you know, the California government in the middle of COVID, right, was going to pass a surcharge on carried interest. And we're all emailing Gavin and saying, hey, like if this happens, we're out, right? We're all searching for homes in Tahoe, Miami and Austin around those times. And many left, right? And many have not come back.

I think, you know, third is on defense and what we're doing there. I do agree. Hopefully these wars are contained. I agree with some of the, hey, we need to fix our own problems at home versus of sending money out, but we have a global role to play, as we always have, and that will ultimately reap the benefits of stability globally that we've had long term. And so it's going to be a very interesting election. I think the challenge is that it's creating uncertainty alongside of obviously interest rates on the IPO environment. And between that and the antitrust issues, DPI is a huge question mark for so many. And that's that flywheel effect of LP return and then commitments and then deployment is broken for many of us. And I think that's going to continue to

create meaningful challenges in the fundraising environment and create challenges and extended round dynamics for the portfolio companies. It could basically take this incredible flywheel we have and we're literally throwing junk into it. It's like, let the flywheel go. Stop throwing sticks and rocks and ranches into the flywheel. We have the best capitalistic flywheel ever created in humanity. somehow trying to, you know, muck it up. We should be doing the opposite. We should be trying to accelerate it, make it an even more well-oiled machine. We should have more company formation, more exits, more IPOs, more winning, and all of it

trickles down. All of it results in that lowest unemployment of our lifetime, right? And if we keep screwing with it, and there's less companies and less M&A and less capital allocation, you know, a lot of people retiring. and you're not going to have a lot of productivity in the economy. And that's what we want. We want a productive economy where people are spending. They're clenching it up.

Don't clench up the machine. I think the math on the national budget and on the economy in general is very simple. It's revenue in and costs. And the only non-zero-sum aspect of that is company creation is entrepreneurship. It's the thing that makes everything else possible. And although people argue about lower taxes versus, more entitlements, you know, that money has to come from somewhere. So I think if we just refocus the debate on how we can make it a better economy,

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U-R-E.com and learn how they can help you today. Speaking of the economy, let's move on. Carta has released the average amount of time from incorporation to important funding milestones, and the data is around 14,433 primary rounds. The median amount of time to raise a series A was 3.1 years, and the median amount of time to series D was a whopping 8.1 years. Logan, what are your thoughts on this? I'd really, really interested to see this data split between 2019 to December of 2021 and then

2022 through May, right? I have a feeling that median's been pulled upward as a result of the non-ZERP environment. And I think as we've all observed, rounds are taking longer. The pendulum has swung back to investors' hands in terms of valuation, multiple consideration. More structure in rounds and more structure means, longer negotiation times, more legal documentation, et cetera. And then third, less competition. And I think on the less competition side, that's a double-edged sword. It means there's more leverage from investors to be able to say, hey, we're the only game in town. We're going to put a

bunch of structure in place and we're going to have meaningful dialogues around the valuation and the multiple. And then insider and bridge rounds also take longer, right? Because everybody at the board is pointing to somebody else. It's like, who's going to leave this? Who's going to price this, right? So I'm not surprised at all by the data, but I am in Cicomacartan analysis, I wish they would have some macro overlay. And I'd be curious, and I'm guessing, right, that this 2022 through May of 24, the medium got pulled up meaningfully. And a large percentage of that kind of 8.1 years in the Series D time frame has been driven by the last couple of years, where it's just been much more challenging to get financing done. And the bar of metrics and efficient growth,

particularly for those Series D companies where people want to see profitability or near-term profitability are so much more important to investors. Logan, you have a healthy growth equity franchise. What are you seeing on the ground today in the growth equity side in the later stage rounds? We're seeing companies that are growing efficiently. We have to remember top decile IPOs from a growth rate perspective is 30%. So if you're growing at 30%, you go public, you're in the top decile. That's pretty amazing, given that we all thought 60 to 80% growth was what good looked like. And so if you can tell a company grow slower, bring EBITA forward and improve your gross margins and position yourself to have top decile SaaS metrics, because this is a software

data here, before you go public, or give yourself the ability to control your destiny on the M&A side. So you don't have to force an equity financing that will probably lead to a recap and restructuring the business, right? And massive dilution for the founders. So I think that conversation is happening every day at the board level and certainly within our growth in PE book. And then we have a number of companies that have a file to go public or in the IPO queue. They look like public companies and they just won't get out, right? I love Dan Premax piece the other day where he's like, hey, just a reminder, the IPO window is open people, right? let's go. Let's go. It's definitely

the rules, when the rules change dramatically from the ZERP to a high interest rate environment and it's hard to close around, you know, you see behaviors change and people have to try to adapt and all of a sudden, 100% growth, but burning money is just not as attractive as 30% growth with a line of sight to break even in profitability. So you have to be nimble as a founder, especially at the later stages and understanding, like, hey, what's the overhang on this company? How much preference stack is there? And did we raise that, you know, all those warnings about raising too much money or raising at too high of evaluation, now we're seeing why that advice came from the elder statesman and stateswoman. Like, they've seen this movie before. You raise

that too high of evaluation. You get caught in this valuation trap. And now how does anybody on the management team ever make money? How does their equity become worth? something, you know, you look at Instacart, you know, that became an $8 billion company, a private market valuation, $30, $40 billion, I think, the last one. So these are really hard, you know, formulas to try to net out. And a lot of it just has to do with capitulation at a certain point. Like, this company's been private for far too long. Reddit's got to get out.

Instacar has got to get out. At some point, Stripe's got to get out. AdGen's still not, still private, I think. So yeah, people need to get these companies out there. You know, when you look at the data from Carta, Pitchbook, or any of these places, they're generally, because there's private company data, it's not going to be perfect. And you have to maybe squint a little bit, look for trend lines,

because Carta's data is a subset of people who use Carta, right? That's all they have is Carta data. They don't have the companies that aren't in Carta. And so, you know, the fidelity of this data is probably imperfect, but the trend is probably correct. It's taking longer. And then there's a lot of nuance in here, which is people are doing a lot of convertible notes.

And so they're not naming their rounds series A, series B, series C, but you'll see a convertible note for a five or $10 million round with nobody joining the board. These are really concerning to me. I just passed on an investment

because they don't want to start a board. They don't want to have a board. I would have done it. The lead investor doesn't want to have a board where like this, we would have been the second lead. we've put less money in, but, you know, we want to have a board seat. We want to have at least an observer seat. People don't want to have governance. They want to raise large amounts of money. I just have a problem with this approach to building businesses because I watched Bill Gurley and Michael Moritz and Doug Leone and these folks, Bill Jim Gatz, build these businesses and they seem to take it seriously. And these like never-ending convertible notes, no board meetings, million dollars in ARR, no plan. like let's can we make plans can we have a board meeting where we talk about the plan and if we're on a plan or not like i think

the industry got a little bit loosey goosey and i think this is all a process of tightening things up right and it's just it's arduous it's painful but it's necessary logan do you see a lot of structure in the market do you see people putting 1.5x2x press in the late stage absolutely uh quick record connection Corrections. So Audion is a public company. They went public in 2018. We own and like the stock. And on the lick preff, ratchets, warrants coverage, deeper discounts on safe notes or convertible notes, all those things are back in vogue. We never could approach those conversations in 2021, 2020, 2019, maybe 2020, right? So in 2020, with some COVID uncertainty, there was definitely some structure that quickly dissipated going to 2021 and now it's back from 22 into the present.

we all have to remember 2009, 2010, 2011, three best venture capital vintages in history. Terrible macro, awesome returners. And if you sat on your hands those three years, you missed Airbnb, you missed Uber, you missed Stripe, you missed Plaid, on and on and on, right? It's a long list. And so from our perspective, we were the most active fintech investor in the world last year. We finished second next to Tiger, as did the rest of the world in 2022. And that's because we saw more structure, better EV and multiples and less competition,

which is, as we all know, the number one driver evaluation dynamics versus fundamentals in private markets. So you got to spend more time with the management teams, make more thoughtful decisions, and then create a structure where, you know, if people were optimizing for valuation, you had some downside protection. Yeah. seems like thoughtful behavior to build meaningful businesses. And, you know, that's what's got me very excited. I've been a capital allocated just over 10 years.

As you guys know, I started as the Sequoia's first scout, right? And, you know, just the quality of the companies and the seriousness, which people are building businesses, reminds me of when I made that Uber, Com, Robin Hood investment 10 plus years ago, it feels like people are serious. because if you're not serious as a capital allocator, you're just not going to start, you're not going to raise your next venture fund. The statistics on people not raising their next funds, I think, David, you brought that statistic up once on this pod. I mean, it's pretty crazy.

People are now saying, hey, maybe I won't do another fund or, you know, and so maybe there'll be less investors, and maybe there'll be more board meetings, and maybe they'll be more planning and less foosball and Aspen, six-week trips and people being on silent retreats. And maybe more work ethic.

I'm starting to sound like Trump or like an old man, but, you know, there was a period of there where I was just watching behavior in just going, I think I am a seller right now. And we sold, we did like three or four secondary transactions. I did personally with my Uber shares, some secondary transactions with Masayoshi-Shan. And then we just sold some shares in peak surplus. era because I said, I don't understand how you're valuing this company at 50 times top line revenue. But if you are, I guess I'll sell 20% of my holding.

Sure, why not? But this, now it feels like being a buyer is a good idea. Like, some of these SaaS companies are trading at absurdly low multiples in public markets. So maybe, you know, we should all just be buying them. And 50X for a private company. company that's growing 30%. 7, 8, 9x for a company that's growing 30% in the public markets. That's liquid.

I mean, the great rebalancing is still happening, I think. Neil, what are your thoughts on the card of data? You know, I think from a macro perspective, zooming out for a second, you know, it feels like we're in a correction for venture, you know, by what's going on and what you're hearing in the space. But if you're zooming out and you're looking at more of a 20-year track, a 30-year track, It's really not. It's more of a return to the mean to Logan's point and Jason's point. I think it's good. It's cathartic, right? It forces companies to be scrappy. It forces companies to think outside the box.

And, you know, that's when the greatest American companies were created when it wasn't a ZERP environment. They were forced to be creative with their problem solving. So, I mean, I'm bullish on America, bullish on venture. And I think it's a great time to be an investor. Well, speaking of great times to be investors, let's go on to lightning rounds with everyone's latest, latest three investments. We'll start with Logan. All AI companies, shocker. So liminal.aI, healthy.a. And Articulate. And Articulate are in that orchestration, middleware theme I mentioned earlier. So I'll start with those two. Healthy's in the application. So liminal is, I'm a bank or I'm a health care provider or I'm a government. I have source of record data. I have PII.

I have I probably have social security numbers and data bursts and all kinds of very sensitive data. I have regulated data. I still want to use AI. How do I get source of record data to application and use AI without disclosing all that, right? And liminal is basically that pipe of data sitting in between. those two things. And so they can encrypt and then they can extract data out that you don't want to be sharing. And we think that's incredibly important for this orchestration problem, right? We have still a

massive crossing the chasm moment for enterprise adoption of AI. It's just not really happening in these large enterprises yet, right, outside of some co-pilot use and some playing around with chat GPT. So we think orchestration of middleware is a massive theme. If you think about where money was made in the cloud. If you look at the return pie of just the cloud wave, and that wave is still going on, but 80% of the returns we estimate in the cloud transformation were made by public equities. Where was the money made in the private markets? It was made really by the on ramps of the cloud and the orchestration of middleware players like a snowflake. Same thing we believe is happening in AI, where 80% of the returns are getting made by Navidia, Microsoft, Google, etc.

And the 20% is going to be a little bit of application, maybe some of these LLMs, although we definitely are seeing some commoditization there and there's going to be one or two winners. But third, we think there's going to be massive power in orchestration. So that's what LIMANL does. Articulate carries that theme where they're focused on deploying generative AI on-prem. So again, if I'm a regulated player and I actually want to use an LLM and I need to deploy it on-prem with the right integration and so forth at scale. I'm going to use Articulate to deploy that.

This was also our very first investment where we took a public team. So this was Intel's AI team and they spun out to form Articulate. Intel basically figured out we're not going to keep up with Navidia. We have this amazing AI team that's about 50 people. Let us support the spin out working with a couple of investors to help drive this company forward. So we think that's super interesting. And then third is healthy. So we all really struggle as employers and employees of picking your health care plan, right, as well as understanding your benefits.

And health care insurers are just designed to try to suboptimally provide you health care. Healthy helps you navigate that journey. So both for me and all you guys who are making decisions about your employees in terms of what health care benefits and plans you should be providing to them optimally, based on geography, age, demographic mix, et cetera, and then healthy provides. effectively an AI agent to say, hey, does my insurance cover this? How many times can I get physical therapy? All these questions that you have to typically call an 800 number four, Healthy helps you navigate predominantly through payroll and benefits providers.

So really excited about those three investments. Yeah, three strong ones. Neil, what do you got? So not as interesting as Logan, but most recently, my two most recent investments from the private credit space, I did one with a Blue Owl, big kind of private credit math. manager also with Star Mountain. I think private credit continues to get a lot of interest from big family offices. Maybe a little bit more interesting is I did a recent investment in a fund

called Guardian, life settlement space, super fascinating. What really attracted me was that I learned that 92% of life insurance policies in America expire worthless. So only 8% of the time where in America you're buying a policy does someone actually collect the death benefit? it. So that creates this huge secondary market that is largely untapped by institutional investors. So this group, they've been doing this for a long time. They started flipping this policies, and they built a fund around it. And it's actually, you know, quite, quite novel that you're, you know, you can leverage the advances both in AI and medical records to quickly make decisions on these policies and build a portfolio around, you know, diverse geographies, diverse life

expect to see as diverse, you know, in terms of size of investments. And ultimately, it's, you know, I mean, it's fascinating because there's a huge appetite upstream from the TPGs and the policies of the world. So they package these policies up and flip them. And then they keep policies on their balance sheets, what they think are most compelling. So that's what I'm working on. And I guess that shows just, you know, that there are other options for family offices to put their money to work other than venture and we're in a competition to get returns. And we have to prove it on the playing field. Crepling's a great company that, you know, is building on this incredible e-commerce

revolution that's occurring. And they let you with a very simple drag and drop interface, as you can see here, build sequences for customers. So somebody registers, then they join your mailing list. They order something. Oh, they abandon their cart. Now I want to retarget them with this specific. based on that skew or skews that are also put into people's, you know, buckets.

This is incredibly complex stuff that maybe a Nike would do or an Amazon might do, but that generally has not been available to your average mid-sized or smaller e-commerce vendor. And so that's crepling.com with a K. AI and computer vision obviously is in the real world going to help make everything better, faster, cheaper, right? And that's just such a winning proposition. Quick service restaurants really need to monitor how long people are in the drive-through, right? And you're dealing with low-wage employees. Maybe they're not focused at work.

Maybe they had a gummy or something. Who knows? Anything can happen. And so they're using computer vision and AI to watch people, you know, through just standard cameras coming around or restaurants drive-through or inside of the restaurant and then watch with computer vision how long it's taking these vehicles to get through the restaurant or what are people doing? How long are they in line for? What's going on with the dining room? All of this from, you know, door to dine and to manage your drive-through. And then also you get a little bit of security benefit.

maybe people are stealing. Maybe there are people, you know, who shouldn't be in the facility who are, and this is all done by a company called hellometer.io that we found, just computer scientists, making things better, cheaper, faster,

using AI, really clever company. Valley, doing something similar, using AI to take SDR, sales development reps, which are kind of the front line of every SaaS company. Everybody understands there's millions of people selling SaaS products,

and business solutions. How do you pick the next best customer? Well, you typically have an SDR out there finding a sales development rep, trying to nurture leads. What if this could all be done by AI? What if you could have your schedule fill up? And so basically you set up Valley, you give it access to your data, Salesforce, HubSpot, whatever you're using.

You got your prospect list, and then it uses AI to book sales calls. And so we believe that SDRs will either be made bionic or be AI. or some combination of that, and that's what Joinvalley.co is doing. It's called Valley. And they want to be your highest performing SDR for only 500 bucks a month, Joinvalley.co.

And these are all, you know, early stage companies, which is our speciality at launch. If you want to apply for funding, launch.com slash apply and get a meeting with my team. I like both of those companies, Jason. Hellometer.io.

I just sent to my dad. We're very large owners of five guys. So I'm going to get you some customers on that one. You guys own five guys franchises? A bunch of them, yeah. Oh, man, that's got to be the nuts, man. I love five guys. Those fries.

Yeah, amazing. And then also, I love, you know, they're very generous with the peanuts. I love getting those peanuts while I'm waiting, but those french fries and that burger, that's, right now, for me, I go, right now, my order. It's five guys shake shack in and out. But sometimes shake shack, it goes above. You know, it just depends on my mood. But, man, I love those. I'll work on getting Hello meter in there.

We'll get you some free food. There you go. I don't need it. I don't need any free food, man. I just lost the weight. It just loves the weight. It's dangerous. Which are anybody else got a burger ranking?

Anyone else got a stack ranking for their burgers? You got a stack rank your burgers. I'm a big Chick-fil-A guy. I'm going contrary at here. Really? What do you like? Spicy chicken? You're a spicy chicken guy.

Spicy. Yeah. Oh, you go grilled? Yeah. Oh, you go grilled? Yeah. Oh, so healthy but spicy. Keep it relatively healthy.

Yeah. I like it. And the fries. I'm a big fan of fries at Chick-Falette. Have you tried Schnippers in New York, Jason? Snippers, no. Snippers, yeah. So it's in Midtown.

So we used to have annual, at my office, an annual burger contest. And he would do like blind taste testing. It was a whole big thing. So it was either five guys. Look at this. Five guys or, or Chick-Flyer would typically be the winners. Yeah, I had a friend. And he started a, when I lived in New York in the 90s and 2000s, he started a bird.

club and all he would do is find the next great burger and, you know, a half dozen of us would go take over and get the burgers and rank them, but here's your shippers. It's a good-looking burger. A good-looking burger. All right. There you have it, folks. Take us out, David. Another great episode of Liquidity Podcast for Logan Allen, Neil Data, Jason Calacanus. This is your host, David Weisperd. Thanks for listening. See next time.