This Week in Startups - Sequoia & Union Square Returns, the Post-AI Labor Market, and the Return of SF? | E1907

Episode Date: March 1, 2024

This Week in Startups is brought to you by… OpenPhone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. TWiST listeners can get an extra 20% off any plan for your first 6 months at http://www.openphone.com/twist Squarespace. Turn your idea into a new website! Go to Squarespace.com/TWIST for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. Coda. A new doc that brings words, tables and teams together. All your valuable data, plans, objectives, and strategies in one place. Go to https://coda.io/twist to get a $1,000 credit! * Todays show: David Weisburd hosts Erik, Guy, and Jason Calacanis to discuss Sequoia & Union Square Ventures' returns (1:15), AI's impact on startups and labor (17:35), US startups' risk tolerance (38:10), and much more! * Timestamps: (0:00) David Weisburd intros Erik Torenberg, Guy Perelmuter, and Jason Calacanis (1:15) VC returns have been leaked, including returns from Sequoia Capital and Union Square Ventures (11:33) OpenPhone - Get 20% off your first six months at http://www.openphone.com/twist (17:35) Bearish signs for the startup employment market (25:17) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/twist (26:12) The emergence of the first one-person unicorn (36:46) Coda - Get a $1,000 startup credit at https://coda.io/twist (38:10) Founders & investors are now returning to San Francisco (47:35) Rapid-fire segment on recent investments * Mentioned on the show: https://www.wsj.com/tech/san-francisco-ai-boom-silicon-valley-307816b2 https://jam.dev https://www.perplexity.ai https://www.antaresindustries.com https://mesodyne.com https://limacharlie.io https://www.cloudnc.com https://codemate.ai https://www.golfgolf.tech https://www.terrakaffe.com * Follow Erik: X: https://twitter.com/eriktorenberg LinkedIn: https://www.linkedin.com/in/eriktorenberg/ Check out: https://www.turpentine.co/ * Follow Guy: X: https://twitter.com/guyperelmuter LinkedIn: https://www.linkedin.com/in/guyperelmuter Check out: https://www.gridscapital.com/ * Follow David: X: ⁠https://twitter.com/DWeisburd⁠ LinkedIn: ⁠https://www.linkedin.com/in/dweisburd⁠ Check out: ⁠https://10xcapital.com * Follow Jason: X: ⁠https://twitter.com/jason⁠ Instagram: ⁠https://www.instagram.com/jason⁠ LinkedIn: ⁠https://www.linkedin.com/in/jasoncalacanis * Check out the Launch Accelerator: https://launchaccelerator.co * Check out Founder University: https://www.founder.university * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Great 2023 interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

That framework, I think, that Elon came up with was elegantly simple, yet very complex. And then he executed on it very definitely, as you can see, because he's shipping more product with 15% of the people. And some people were saying, oh, no, Twitter is going to die. You know, the website's not going to work. The team is not there. They were rooting for it not to work. Exactly.

And blue checkmark people? It works just. And so that's inspired a whole generation of founders to think, hey, I could operate this company with a fraction of my team. This week in startups is brought to you by OpenFone brings your team's business calls, texts, and contacts into one delightful app that works anywhere. Get 20% off your first six months at openphone.com slash twist. Squarespace, turn your idea into a new website.

Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code. Toad Twist to save 10% off your first purchase of a website or domain. And Coda is the all-in-one doc for teams. Get started for free and get a $1,000 startup credit at coda.io slash twist. Welcome back to this week's liquidity podcast. With me today I have Eric Torrenberg, co-founder of On Deck and Village Global and now founder of Media Company Turpentine.

Next, we have Guy Perelmuter, founder and CEO of Gritz Capital, a deep tech VC fund, and author of present future. And of course, we have Jason Calicanus from the launch fund. I'm your moderator, David Weisberg, co-founder of 10x Capital. Today, we have three topics on the docket. VC returns have been leaked, including returns from Sequoic Capital and Union Square Ventures. VCs may be sacrificing returns in order to return cash back to their investors, also known as limited partners.

And we now have bare signs for the startup employment market. We'll end with the latest three investments from each of our guests. Let's dive right in. Hot off the press, U-Timco, the University of Texas Endowment, which currently sits at $65 billion under management, was forced to disclose their VC returns due to a public records request by blogger Eric Newcomer. While many top-branded VC firms did not have the returns one would expect, one firm that stood out was Union Square. Union Square is sitting on a sensational 9.14X cash on cash return for you, Timco, across nine funds, with founder Fred Wilson telling newcomer that there's a lot left in every other fund than the 2004 vintage,

meaning that these returns will likely go up. Gee, as a limited partner, tell me about VC returns over the past three decades. So what happened over the past 30 years in VC is basically we have created a market that started with about $30 billion back in the 90s, and now it's anywhere between $300 and $400 billion globally. The U.S. is about half of that, maybe a little more. Over time, the secretive attitude that GPs have had towards their own performance has been a constant, so it's very hard to get accurate data when it comes to performance of the venture capital world. But it is very fair to say that over time, we have seen

returns that will go anywhere between 1.8 and 3.2x. That would be like a big chunk of the returns over a broad interval of time. However, the tricky thing with VC is that the difference between top quartile and bottom quartile or top 5% and bottom 5% is just gigantic. It could become 10x, 40x, 60x. You can basically pick your number. And the other thing that I believe is quite important, especially for the time we're living in now, is that those vintages that started at the tail end of very severe crisis like NASDAQ, the dot-com bubble back in the late 1990s or the financial crisis of the late 2008-2009, those vintages, they, on average, they outperformed. So at the end of the day, if you are an investor, you should first and foremost try to stick to an investment program because every vintage has a story.

But if you want to be picky about when you want to dip your toe in the market, I guess the tail end of crisis is probably historically at least a very, very good time for you to start doing some VC investing. Jason, you started angel investing in the mid-2000s at Sequoia. how have your returns? Have your returns been countercyclical, meaning that if you invest in the bear market, your returns have been significantly better than the opposite? Yeah, so there's two things to take from this chart, and people need to understand this, especially journalists, because they don't understand something called the J-curve.

So if we pull up this chart one more time, all the way on the left, you have Union Square Ventures 2004-2005 vintage, right? Do you see that there, the second hash mark? and then if you go all the way to the right and we were to look for a Union Square Fund or Thrive Capital Partners 8 is a 2022 fund, right? So you see that they're down. What this shows is you have a bunch of them that are down there.

Well, those are funds that were just started deploying. Of course they're down. There's no time for those investments to get marked up. And then in the middle, you see a bunch of ones that are flat, right? the 2020 to 2022, they might be flat. And then, you know, smaller returns on the IRA and then all the left, you have the fully returned funds. So you can't judge these things until you get to year 7, 8, 9, 10.

So realistically, if it's 22, this data runs to and it's 2023 now, 22 minus 7, 8 years, you can start looking at the 2015 funds, which is maybe 10 funds in. And you start to get a realistic idea. These rest of these funds are still baking. And I think that's probably why Fred Wilson gave that caveat. So that's just number one thing to think of is you really can only judge the ones on the left. And what I see there is, well, it looks like everybody, it looks like they've done spectacularly. If you were to just take from 2017 that dark blue line to the left, those first, you know, 12 funds or so, they're all 20% IRA, 40% IRA.

You've got a couple here, sure of that are 10% IRA. you know, but still pretty fantastic. So this just tells you what a great vintage, you know, it's been since the 2008 financial crisis. That's my number one takeaway from this. And of course, you know, when you double click, if you have the second chart, if you pull that up on Fred Wilson and Union Square Ventures specifically, what you'll see is the cash on cash return, right, column four, those first three funds, 2004, 2008, 2012, they've had time to bake, right? Man, something happened to 2012 fund that they hit 22x.

I think that's the Twitter fund, I'm going to guess, and some other names in there. And that just shows the power law. You know, if you were the, he did the Series A in Twitter. I remember when Evan Williams was asking me and some palace intrigue, that deal was between Sequoia and Union Square, that series A of Twitter. and I had, you know, talked about it with actually Evan Williams, which one to pick, and he went with Union Square. I had advocated both. I told them to split the round between the two, like Google.

And then you see the later ones, you know, have less upside in them. So it really is about time. And Fred Wilson's been a spectacular investor for a long time. And they always kept their funds at a small size, too. So we don't have the fund size here of each of these. But my understanding is 200, I bet you those are 200, 300 million dollars funds, of which the University of Texas, it looks like they put 20 million, 25 million at each fund, so they were probably 10% of each fund, which might have been their upper limit.

So anyway, that's my analysis of this. You had another question, but I thought I would go with the question I wanted to answer. Absolutely. You mentioned the dispersion between top quartal and everybody else, and the variance. I think few asset classes in the world have this kind of variance, where over 10 years in the same time period, something could go up 10x and something could go up 1.5x. How do you build a portfolio, your fund of funds, how do you build a portfolio of managers that continues to return?

So ultimately, when we try to, the fund of funds part of our portfolio, basically we try to ask ourselves, you know, a very simple question. If I were an entrepreneur, would I want to have money from that particular GP? Because I think this is the key to build a healthy portfolio. you want to be with GPs that are, you know, the first picks for every top entrepreneur out there. And in our world, in the deep tech world, that's a relatively short list. There are a lot of sector specialists. There are a lot of generalists. But at the end of the day, what you want to do is you want to make sure that in your portfolio,

you are taking the managers that will be able to attract the best entrepreneurs of that particular vintage, of those particular subject matters that they are trying to invest in. One thing I just want to mention on top of Jason's point earlier is that some firms get lucky and have one big winner that returns nearly everything. But USB has many winners. It's not like they caught a Facebook or Nvidia and they've held it. They've got, you mentioned Twitter, but Etsy and Tumblr and Coinbase and Mongo and Lending Club and Zinga, their hit rate is phenomenal. Yeah, Mongo is a big one. That's probably one of the big ones here.

Tumblr was a billion, right? Etsy was probably a billion. So those, you know, still great if the series A, but I think Mongo and Twitter are the big outliers, right? Yeah. And then Coinbase. And Coinbase, yeah. Depending on when you sold,

because my understanding was they liquidated their position, right? I think that was also like another question mark is when do, I think Fred's philosophy has always been to just immediately sell everything, or distribute immediately. His philosophy, as far as I understand it, is a mixed position, which is a third, a third, a third. So sell a third once it's reached some threshold, hold a third irrespective of price, and then seller hold the last third around lock up expiration based on your thoughts on valuation. So they definitely sold a bunch of the IPO, which probably turned out to be a good decision,

and held some. And I think this was his reaction to his experience riding in the dot-com bubble. where they rode up a bunch of the winners and then wrote them down as well. And so this strategy of hold some, sell some is sort of a regret minimization strategy where at the very least you return some to LPs, you make sure they're happy, but then you also get to keep some for later. So it's a strategy where if the company does great, you're a little regretful because you could have held on to it.

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plan for the first six months at Openphone.com slash twist. And if you have existing numbers with other services, no problem. Open phone's going to pour them over easy, peasy, lemon squeeasy, no extra cost. Head over to openphone.com slash twist to start your free trial and get 20% off. As an LP, as a fun of fun, that's in a bunch of GPs, do you want your GPs just always swinging for the fences or do you want them to take some money off the table? So what I want really is that there's a very clear policy on how they're going to deal with exits. That's for me is more important because the one thing that I think investors hate not maybe as much as losing money, but right up there are surprises, right?

Inconistencies. You want to make sure that you're dealing with someone and you actually can understand where they're coming from. So as long as there's a very clear policy, okay, this is how we do it. It's like a third, a third, a third policy. or we immediately sell everything or whatever, that's what you want to hear. From our perspective, every single position that we own that has crossed the 3x mark after we compare entry cost versus market cost, it's out the door. We will do that every time.

We did that and felt like schmucks a couple of times because then the market continued to go up. And then, as Eric said, we felt like geniuses a couple of times because everything went south and we were looking really good. So I think consistency is key here, and I think it's important for every single GP to have a very clear policy on how they will deal with success, with an exit, and how they will compensate the LPs when that happens. Can I follow up to that in terms of how do you think about consistency across the board

for your managers? Because sometimes the facts on the ground change, and they may say, oh, you know, it was a great time. Like, we allocated a certain amount for following investments, but these prices are going up too high and such we think we should, you know, move more dollars to first checks. Is that a type of change that you like your managers to make or do you like your managers to say, hey, here's what you invested in, I executed on it and, you know, and we'll reevaluate for the next fund. And I think it's a great question because at the end of the day, what we do investing is a blend of arts and science, right?

And whatever percentage of art or science you're going to use, it's kind of up to each and everyone. There are a few managers that are much more quantitative driven, a little more dogmatic. Others are a little more flexible. But again, to my earlier point, as long as they don't drift too much out of the style they have, some managers, I would not be surprised if they came back and said, you know, we do believe that we should have a little more leeway here because of X, Y, and Z. As long as it's for the greater good, the great good of the portfolio, that's okay. But what I really don't like to see is when a manager that is typically very quantitatively

driven, kind of drift into a more qualitative, subjective approach. That's where you start to worry because you don't see them performing to the best of their own abilities, if that makes sense. Great analogy for this, David, is like, when you play poker, you'll see somebody run up their sack playing a very disciplined strategy. You know, they're playing tight. They're playing a great range of cards. They're letting go of things when they feel like it's not right.

They're going all in when they think they got, you know, when they know they've got the strongest hand, or most likely have the strongest hand. And then they win a bunch of pots. They go up, 5x, and then they start playing every hand. And they totally change their game. And they get Lucy Goosey because their chip stack is so high. That's where you get yourself in trouble. This is why I think, you know, as a fun manager, I think I've learned going into my second decade is you really have to write these policies down and then go back to them and then have a team where they hold you accountable to them. So my team holds me accountable to a lot of our investing.

And I was looking at a CPG company. And I had said, you know, listen, no more CPG companies. But this one had come through a friend of mine who built one of the largest CPG brands ever. And I was like, okay, this is an exception here. And I explained to the team why we're going to make an exception here and perhaps, you know, go into this. We didn't mind up doing it. But, you know, those are, that's where it's super important to Ghee's point, have a philosophy, be thoughtful about it, hold your self-accountable. Our philosophy is pretty simple. We'll sell 10% two or three times on the way up.

If we're investing at companies, you know, at $2 to $20 million valuations and it gets to $500 million, a billion, $2 billion, you know, as seed investors, we want to start pairing our position and then deploying into more pre-seeing seed state startup, which only makes sense, right? Our window is slightly different. It's a little bit earlier than Fred's. And so, yeah, you would start selling a little bit earlier. But be thoughtful is the key, I think. on all of this. Yeah, I agree on that. I think it makes sense to sell, you know, 15 to 20% if it's really meaningful to the fund, especially if you're emerging manager trying to put numbers on the board. And even if it's still 10x is from there, you still, you know,

get 80 or so percent of the upside. Next up, January employment numbers are out and it's not looking good. According to Carter, January 2024 was the first month since February 2003, where the amount of people laid off exceeded the number of people who quit. This helps shed light on unease in the startup ecosystem among employees. The increase in quitting shows that employees are reluctant to quit and find new positions at other companies. Jason, what do you think of this data? And is this a temporary setback or a new normal for startups with the advent of AI?

Well, we're certainly going to find out. I think, you know, the pendulum swings, you know, both ways. And for over a decade, Silicon Valley has coddled elite programmers, salespeople, product managers, etc. We all live here. We all see it. We've all been on the other side, been on boards of companies and seen somebody come in with a request. This person's got an offer from Uber, Airbnb, and Google. And, you know, we have our hot growing startup that just raised 10 million.

We want to get it in the sweepstakes. And I would be like, is there another person who could do this job, who doesn't live in Silicon Valley, who doesn't cost $500,000? maybe we could hire three people at 150 each and save 50K and it'd be 10% cheaper and they would do more work and you could have them working 24 hours a day or whatever, you know, in aggregate. And, you know, a lot of times people didn't buy into that, you know, alternate philosophy. Now we're seeing the opposite. Now people are saying when they're running startups, I'm sure Eric, you see this in a lot of your contemporaries and early stage startups. How do I get, how do I hire people offshore?

How do I not hire somebody for this position and automate it? And so I wrote a piece earlier this year called my ADD framework. And I've been working on this for a couple of years internally at my companies, but I told everyone in the company, you know, every quarter, look at everything you did for the weeks, you know, in the 12 weeks in that quarter, and ask yourself, what can be automated, what could be deprecated, what can be delegated. And we are now on that journey of automating stuff, delegating stuff, deprecating stuff. And my hope is we can stay at 21 person firm, but be 10%, 5% more efficient every month,

which means that's the equivalent of, you know, doubling the size of the team every year without actually adding headcount. And that is a very, that little mark there where the yellow of the laid off leaves the, crosses the left by choice is a very significant moment in time, I think. Death cross. What does you call it?

Death cross. It's a death cross because, listen, if you are at one of those big companies and you see this on TikTok with young people who are at these companies who are holding on for dear life, I've got this incredible pay baggage. I've got these incredible RSUs. I hope I don't get laid off by Discord on Monday.

Oh, I got laid off. And they just do another TikTok or whatever. I think a lot of those folks are realizing that they may have experienced their peak employment package at 30, at 35, and that they may just be going to, they're going to get paid less for the next 10 years. And it may take them time to beat that high watermark that they experienced. and AI is definitely part of this. This is two things.

One, what Elon did, cutting and showing everybody that he could run Twitter with 15% of the people and then Zuckerberg following him, like Zuckerberg tends to do. And then, you know, he follows a lot of other entrepreneurs, kind of copies them, you know,

Spiegel from Snapchat, you know, Elon, whatever. But he does it better sometimes. Well, he's a memetic machine. I mean, I think that's like, he's like a perfect photocopier. I mean, and so then you look at this, the cross, you know, AI is definitely part of this. I think people are looking at customer support, customer success, sales, and just saying,

yeah, we can get rid of the top 20, the bottom 20%, and then just use tools to make the top 80% 20% better. No problem. Easy peasy. Lemon's wheezy. And Jason, you were at Twitter now X with Elon, uh, shortly after the acquisition. A lot of people know that how he cut. employees, but how did it actually work on a granular basis? How was he able to, you know,

keep so much of the infrastructure and company running with so little staff? I will say what he said publicly because I don't want to speak out of school. And my involvement has been over, over, overstated. You know, it's just a friend of mine and I hung out with him for the first month. So I don't want to overstate it. You know, there was already a plan in place. Everybody knows this to cut 25% of the team. So there was a plan in place that Twitter was going to execute anyway. And then there was a plan in place that Twitter was going to execute anyway. And then there was Elon's plan. And so I think, you know, he had a really interesting moment.

Me, David Sachs and Elon were there. And Elon just said, who is, who kicks ass at their job? Like, who is incredible at their job? And then who is essential? Those two things. And then David's, you know, kind of repeated it back to him. We were kind of grocking it. And I just went up to a whiteboard and I drew four quadrants.

And I just put exceptional, average, essential. not essential. And you look at those four quadrants. Well, if somebody's not great at their job and they're not essential, it's a pretty easy decision, right? And I think that's what Zuckerberg did. That's what Google did. Everybody's done that now. That's a really easy quadrant, right? Then you've got the quadrant essential and exceptional. Well, that's an easy quadrant too. You're keeping them. So then you've got just two quadrants that people would fall into. Exceptional, but, you know, maybe they're not essential, right? So they're exceptional at their job, but they're not essential. They haven't been deployed to the proper place. So you've got a sniper

and they don't have a sniper's rifle. So that person should probably be redeployed into an essential position. And then you have somebody, it's just not good at their job, but they're doing something essential. And okay, yeah, maybe you can keep them around until you can automate it or whatever. So it just, that framework, I think, that Elon came up with was elegantly simple, yet very complex. And then he executed on it very definitely, as you can see, because he's shipping more product with 15% of the people. And people at the time thought that, or people, you know, some people were saying, oh, no, Twitter is going to die.

You know, the website's not going to work. The team is not there. They were rooting for it not to work. Exactly. And blue checkmark people. It works just. And so that's inspired a whole generation of founders to think, hey, I could operate this company with a fraction of my team.

You know, there's this phrase, first time founders care about product. Second time founders care more about distribution. Similarly, first time founders care a lot about how much money you raised and how big your team is. And second time founders are trying to raise as little as possible sometimes or as much as they need. And they're trying to do it with as few people as possible. Yeah. It used to be a status symbol how many employees you had? You know, how many people work there?

And, oh, 60 people. Oh, wow. You're 60 people? Eric. How many people work at them? Oh, I have 120. Oh, Eric's company's twice as good. Exactly.

It's a very perverse thinking. And then also the benefits you gave people, that was the most pernicious thing of this last cycle was, oh yeah, no, no, we have dry cleaning, we have 20% time, we've got Neiman Ranch stakes. I remember when I went to Google for the first time, you know, this is 15, 20 years ago, and I had Neiman Ranch steaks. And I was like, I can get a Neiman ranch steak here? I'm like, how much is it? And they were like, it's free, dummy. I was like, beginning of the end. Now it's high status is Instagram, you know, 12 people.

WhatsApp, you know, in the teens, or mid-journey, you know, $200 million revenue bootstrap company. Yeah, no outside funding valued at $10 billion. Martin Scoresi makes gorgeous movies. Squarespace makes gorgeous websites. So it's not really a shocker that Squarespace convinced Scorsese to direct their recent Super Bowl ad, which you can see on the video right now. Or you can go ahead and Google it or look for it on YouTube. Squarespace is known for helping people build beautiful websites,

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It may be already out there and they just don't want to tell us because they don't want the world to know, right? It's perfectly possible. There's this thing that I believe is going to be very well known in the very near future. And some of us have already heard about that, read about it. But they're just guy, this economist back in the 19th century, a guy named Jevons, William Jevons, I think. and he was observing the world through the lens of someone who was experiencing the first industrial revolution, right? And he saw that coal became this incredibly inexpensive good because now people had mastered coal, the steam engine and so and so forth. And logic dictated that, okay, now it's so efficiently used that people will not need it because the efficiency has reached to new heights.

And what happened was just the opposite, right? There was this incredible demand for coal and for that new source of innovation. And what he wrote, which was proven through like for 150 years, is that when something, a good resource, any sort of special talent becomes widely available and much more inexpensive, the market will create demand, the market will create new uses. And what we're witnessing right now is the creation of a very efficient intelligence, right? Inexensive and efficient intelligence. It's what I think Sam Altman referred to as the marginal cost of intelligence dropping dramatically. So what I believe is going to happen is instead of people going into a shortchard of labor, maybe in the short term we'll definitely see careers ending and new paths being created.

But on the long run, I think we're going to see more demand for human labor in different types of expertise, different types of areas and fields. And this, I think, will open all those possibilities for companies that are going to be managed by just a handful of people and that are going to be doing some incredible stuff. And there probably was a billion dollar company already. My friend Phil Kaplan's company, Distro Kid. You know, he's pretty famous for creating these small companies. and I don't know if it was a company one, but pretty close to it.

I do think it won't be one. I think in that betting pool, I would bet it's going to be like a three-person company because it's kind of boring to work alone. I don't think people want to work alone, but it's possible. It's just not probable. But what you're talking about also is the induced demand, right? If you build, you know, an extra lane on a highway, and they did this in L.A. over and over again.

And they just kept adding lanes. to the 405, and every time they added a lane, more people from the valley would commute to Santa Monica to get dinner or to go work there, or to go to the beach. And then all of a sudden, it's the 405 and the 10 exchange are backed up. People would then see the 405 and 10 exchange, and they would not get on the highway. And when I was living in Brentwood, they wanted to take the beautiful median when I lived in Brentwood in L.A., David had this gorgeous median. And then they had the sunset part and then they were going to take away the sidewalks on sunset and add a lane. And I said, I went to the council meeting and I gave my presentation because I lived on sunset

Boulevard. And I said, if you let them do this to this five block stretch and you take away this lane, the next thing they're going to do is look at the median on San Vicente, the gorgeous median that is part of our culture. And they're going to take two lanes away and just leave a thin strip there and it will destroy and we're going to destroy our neighborhood for people commuting. And I got the most rousing round of a plus. I just,

I explained the concept of induced traffic. That's my story of winning. I literally squashed the expansion of Sunset Boulevard to an extra lane. I said, you know, it's already four. Six makes it kind of like a highway, doesn't it? And they're not going to stop at six.

Eric, you're very deep in AI, both through your funds and through your previous personal investment. What's your take on this? So I think the greater threat short term to people losing their jobs is less from AI and more from what Jason mentioned earlier, offshoring. The threat to me hiring a U.S. employee, whether an assistant or engineer, it's not going to be replaced with an AI agent any time immediately soon, but it's going to be replaced by the startup Athena that I use by assistant or the startup squad. that I have outsourced engineer operating at a fraction of the cost.

So short term, I don't think the sort of technology is good enough to wholesale replace key employees, though I think offshoring is a concern for them, for those employees. That said, at some time scale, I think there will be a threat. I think that we'd like to imagine this sort of co-pilot for everything, AI that makes us better, this idea that, you know, it's the human plus the AI that beats the AI in chess. And that was something that was true for a minute. But over time, the AI gets so good that it actually doesn't need the human anymore and defeats the human in chess. Now, there are going to be certain areas where we're just going to want people to do them, even if they do them worse.

You can imagine certain fields in health care where you just want to be, you want to talk to a human, or work with human, even if they can't, can't sort of operate as effectively. And there are going to be other areas that are just going to be so regulated, even if people don't want them. We're just going to ensure that there are humans in the loop there. So I was with Vinot Kostla earlier today, and he said that 80% of 80% of all jobs in the future will be sort of replaced by, but the productivity gains will be so vast that we will will, whether it's some combination of UBI or some government works programs,

we will have some redistributionary, redistributionary effect that will take care of the remaining people who are working, not because they have to, but because they want to. So I think it really depends on what time scale we're looking at, but in the short term, I don't really see a threat, but in the long term I do. What do you think impact this as GE on LPs in VC in general? If companies need less capital, there's less opportunity to buy shares. The founders keep more of their shares.

Do you think this ever has an existential risk for, you know, making VC smaller and a more intimate pursuit again? I think at the end of the day, what we're going to see, as we have seen before, is the creation of absolutely new careers and new paths. And here, let's imagine for a second at this scenario that Vinod mentioned turns out to, you know, to become true, all of a sudden we're going to see a bunch of new funds that are going to be pitching ideas or enterprises that have nothing to do with any of the previous subject matters that we were interested in, right? I remember reading an article a few years ago about the advent of the comparison between the advent of AI and the Excel spreadsheet, right? So there was this great article and the, I think it was the journal. and it said that there were a bunch of jobs that almost disappeared after Excel showed up,

like bookkeepers and stuff, but then auditors and financial managers and managers as a new category of labor just skyrocketed. So I think that even today, if you look five years back and we think about the prompt engineer role, we're going to look at each other and say, what the hell is that, right? And now people talk about it like it's the most normal thing in the world, someone who will be proficiency in building prompts for an LLM. And I think we're going to continue to see that. I don't see that as an static movement. So I think there will be opportunities, maybe and hopefully smaller funds are going to be uncreated because maybe the opportunity set may be a little tighter. But I would be very, very surprised if we come into a world where the opportunity set is not larger.

it's actually smaller because I think that's where we're heading to. We're expanding the horizon of opportunities for us. Kind of like that version of the world, to be honest. One analogy is actually crypto. If you look at crypto, a lot of these protocols do not need hundreds of millions. And if you look at VC, it's been a bundling of resources, whether you're sitting on the board, you're giving advice, you're giving money, you're giving brand and signal. In crypto, that's been unbundled.

So you have somebody that's a kingmaker that will lend their name. to a project that'll make introduction to a couple of exchanges. And there, they're basically taking a much lower fee. So instead of taking 20% of around or 10% of around, they're taking 1 to 2% of advisory. So we might see some companies that are not as capital, that are much more capital efficient in the VC, in the startup ecosystem,

look for people that could give that advice and that brand, that signal and do it for a much lower cost. Yeah, if only of those crypto projects had ever shipped a product. Still waiting on some of them. Although your guy, Eric, your guy Eric, who's doing Farcaster, that seems like a real product. Yeah, he's a, Farcester's taking off. It's a decentralized, or it's a crypto Twitter, where the idea is developers can build on top of it and trust that they won't get rugged like they were, you know, back in the day of Twitter.

And Facebook. Yes. Yeah, exactly. And so it's really taking off. Yeah, awesome. Shout out to him. Okay, listen, I got a lot on my plate. I've got to do a couple podcasts.

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moving on. The Wall Street Journal is reporting that founders and investors who moved to locations such as Miami during COVID are now returning back to San Francisco. Eric, you were quoted in the article as one such person that moved from SF to Miami and then back to SF. What made you move to Miami in the first place and then what made you move back? Well, to be to be sure, I was quoted without my consent. I did not want to be a pawn in these location wars. My moved to Miami was always temporary. My family and friends are in California. And I wanted to check it out. I was really impressed with what Keith and Delian and some of my other friends were doing there. I'm always inspired by people trying to sort of create new communities. And I wanted to check it out

for a few years. And it was great. I think what they've done there is pretty impressive. You know, one of my better investments is Traba, which was started there and still operates there and in New York, I believe. And I think what Keith and Dellian have done, the kind of meamed the movement into existence is pretty impressive. And I think people would be better to highlight the sort of the positives of what they achieved as opposed to maybe where they've fallen short in a sense of, of course, Miami was never going to be another Silicon Valley.

That's an impossible proposition. But I think one lesson that we've learned in the last few years is just how network effects remain undefeated, whether it's Twitter or San Francisco. If you've got strong network effects, it's very hard to disrupt no matter how incompetent the governance is. And so San Francisco, obviously, the government is tremendously incompetent. And in Twitter, whether you think Elon is incompetent or you think the previous regime is incompetent, no matter what, most people are staying in Twitter.

and staying in San Francisco. Or Reddit. Yeah, exactly. Reddit and the years that I went through without management or with corporate management just continued chugging along. Totally. Moving back to San Francisco, I felt like a journalist who left Twitter and then, you know, came shirking, you know, crawling back because of the distribution.

Now, I never announced that I was leaving San Francisco or announced that I moved to Miami because sort of the temporary nature of it. But I support the movement that's happening in Miami. me, but I'm really excited about what's happening in San Francisco now, too. A lot of something I didn't appreciate is how every five to seven years, there's a new generation of young entrepreneurs in San Francisco is getting a lot of them right now. But then also, the emphasis on changing San Francisco and its politics specifically is higher than I've ever seen it.

I was in San Francisco from 2012 to 2020 or 2013 to 2020, and I never really, politics wasn't really something that the best people focused on. Quite the opposite. Exactly. They ignored it. And now I see talented entrepreneurs who are saying, hey, let me run for supervisor or let me run for this. You see Gary Tan, you see all these other people who are saying, hey, it's, San Francisco,

the votes are actually just in the low hundreds or low thousands. Like, if you just organize a little bit, maybe we can change things. And so just like going to Miami was feeling, I felt like I was part of movement, coming back to San Francisco, for the first time, it also feels like there's a little bit of political consciousness, and it's exciting to be a part of that. I would look more at how those other regions are growing, you know, independent of San Francisco. San Francisco is always going to be the heart of this. We know that, and you can't have Apple and Google and Facebook here and not have this be the epicenter, but, you know, Amazon and Microsoft are not here. They're in Seattle, and, you know, Tesla is now a Texas

company, SpaceX is a Texas company or Nevada slash Texas company. So I think in the future what we'll see is those regions are going to grow at a much higher rate than San Francisco. And San Francisco is kind of topped out, right? You can't fit any more people here. The nimbism is going to take decades, you know, if it ever, you know, breaks in the right direction. So it's going to still be hard here.

And great companies can be built anywhere. So, you know, you have tons of great. great companies being built all over the country. I think Austin, Miami, New York, and L.A. are going to continue their growth and continue to be destinations. And then this is a great place to start. I would tell any young person, come here if you really want to be in the industry and just get a place in like San Bruno, Milbray, San Jose, like one of these really gnarly, not in San Francisco neighborhoods in the peninsula. Because that's actually where a lot of the tech workers live. That's where all the VCs live. San Francisco, yeah, people live.

live there, but San Francisco was always kind of an afterthought to the peninsula. And then it got popular and then, you know, kind of fell off again. It's just hard to live there, too. So anyway, San Francisco's going to do great. The press is like a review mirror. I don't know. People should not, founders and VC should not pay attention to the press anymore. Just ignore it.

Go directly to the source. How much does geography play into the GPs that you back in? Do you want them in the city that they're investing? So I think that the, The fact of the matter is that the Bay Area in general, or California, more broadly, especially over the recent years with Los Angeles becoming some sort of a manufacturing hub and aerospace hub. But California in general, I think it's almost like this shopping mall where everybody wants to be seen and to see where everybody who has an ID and a company will try it in that particular part of the world.

So every single manager we back, they are U.S.-based. We have folks in New York, we have folks in Boston, we have folks in the Bay Area for sure, folks in San Diego. And for me, it's less of which state they live in or they work at, but more of the fact that they are in the U.S. And the reason for that is the U.S. brings in a few very unique features that I think every single ecosystem should pursue in what you want another. First, there is this very close relationship between universities and the market and the industry. It's relatively easy for you to just develop your patent, go through your technology transfer office at university, go to market, license some of that. The university will license some of that to you, and you're off to the races. Second, there is this willingness,

the government, and more recently, especially the military, if you look at the history, the history, history books, every time militaries were interested in funding ventures and trying to push the boundary of technology without the confines of the government, but getting the entrepreneurs to try their hand at it, we saw incredible advances and history is filled with those, and that's something that we're seeing again in the U.S. And third, the willingness of taking risks and of rewarding people that take risks. That's something that U.S. citizens take to. for granted, but that is very different elsewhere, right? In the U.S., you can wear your failures.

If you fail right, right, trying to do the right thing, you can wear that as a badge of honor. You know, I try this. I was wrong, but this is what I learned, and then this is what I was able to build on top of that. So I think for me, the mindset is very unique and it's very critical. So all our funds, regardless of where they're based, I guess I wouldn't mind if they're based in Texas or Florida or whatever. But I think that the mindset, the U.S. mindset in venture and the whole ecosystem is still absolutely unique.

And I wouldn't change it for anywhere else in the world right now. Amen to that. So our competitive advantage, I was talking to the CTO of Palantir today. And, you know, we're just talking about how capital allocators, you know, help us create these amazing defense companies, right, that are now emerging and space companies. And, you know, those are going to help us win the future, obviously. You know, we've got a very hot planet right now with a lot of potential conflicts, conflicts going on, future conflicts.

Well, you can't have those defense companies and SpaceX and Andrel and everything. If you don't have capital willing to have 50, 60, 70 percent of bets go to zero. And imagine you're in Japan. Guy, to your point, I don't know if you spend time in Japan or France. I mean, failure in France and Japan is looked at, and entrepreneurship, looked at much differently than here. And so this crazy pursuit we're in to invest in 100 companies and have 60 or 70 of them return $0, but be stoked that the founder tried, is unique to American DNA. It's unique to the American spirit and to the American operating system.

It is literally as important or more important than the battleships we own. That's it. I can wave an American flag behind me. Moving on now to our segment, our weekly segment of our panelists, last three investments. Eric, let's start with you. Sure. So the first one is JAM. Jam is trying to do for engineering what Figma did for design.

So Figma made it so that non-designors can more easily communicate with designers and eliminated a ton of meetings. the process. Jam is trying to do the same thing, but make it so any product manager, anyone without any engineering background can communicate with engineers on what they need to do. Think of it like instant replay for bugs right after the bug just happened. It's a super sticky product. No, no. No, okay.

Yeah. Super cool. Yeah. It's growing really fast and it's very sticky. How do you size the Tam on something about it? Well, it's sort of how many, you know, engineering, uh, engineering, uh, teams are there. Every company has an engineering. Yeah, totally. How many products are in the world? How many digital products are in the world that are being maintained? Right. I mean, I guess as a proxy, you could look at the number of GitHub, active GitHub accounts.

Right. Anybody who has a GitHub account who's pushing code is going to push a bug once and a while. Therefore, there is the possibility that somebody could correct their bug, right? I like that one a lot. It's seed stage? Where is it at? And it's funding. It's just announced Series A. Oh, congrats. Awesome. Yeah. The second one is Antares.

Antares is a company started by Julia DeWall, former SpaceX executive, and Jordan Bramble. And it's a nuclear company. It's a microreactor. It's 300 kilowatt-sized diesel generator. And they don't have to go through the nuclear regulatory commission. And they're trying to sell to entities like the top. Department of Defense. Department of Defense is interested in resilience. They want a power source that can last for five years without needing refueling. And that's what Antares is trying to offer.

And Julia has gotten extremely passionate about nuclear in the past few years because nuclear is this category of energy that we should all want more, but environmentalists for some reason don't want. And so there's an arbitrage opportunity where most talented people weren't going into nuclear because it's either been regulated away or because culturally there's been a stigma against it. The third one is perplexity. We all know perplexity, the conversational search engine that's trying to overtake Google and is even ahead of Chad GPT and has a founding team from OpenAI and is growing like crazy. And every time I'm trying to make sense of what's happening in the world at this moment,

I go to there instead of set up to Google because I feel like. there's less bias. And what's happening to Google in the last few weeks is amazing for perplexity because they're not putting their thumb on the scale in the same way that Google is. Great ones. Guy, you're next. Yes. So we start with Mesodyne.

Mesodine is a very cool company. They basically have built a technology that allows you to just use some fuel to generate heat. The light waves that are being emitted, are captured, and are turned into electricity, simple as that. They are able to create sources of energy that are 10x more durable than existing battery technology, and they already have working prototypes. They're in talks with the Defense Department, and I think they're going to be a very interesting choice going forward when we're avid to search for actionable sources of energy for multiple types of missions,

both when it comes to defense, but also for remote locations that need power generators where maintenance is hard to get to and so on and so forth. So that's Mesodite. So next step is Lima Charlie. Lima Charlie, they're basically a sec-ops company. They're basically cloud native. They're building this infrastructure to be able to defend and to protect companies through multiple API calls and multiple coverage of.

every single data point, every single surface of attack that the company has. And this one plays to our view that, you know, while everybody is very excited about the positive uses of AI and rightly so, there is this very nasty side to it where it can create code, create viruses, Trojan horses, ransomware, every single type of, you know, evil digital entity you can think of. And I believe that Lima Charlie, with its nature, its cloud architecture, it's going to be able to really play a part in trying to protect companies that have large surfaces of attack. So that's Lima Charlie. And last but not least, it's Cloud NC. Cloud NC is an interesting company. It plays into our manufacturing thesis. We believe that there's, you know,

a lot to be done in the so-called industry 4.0 world. And Cloud They have developed, they have, they're all about CNC and machining and milling and have created this assist, assistant that allows you to use a very little time for very tedious tasks. It's unbelievable how the current generation of professionals that are using those milling machines is simply retiring and there's no replacement, no incentive to do that. But that's a cornerstone of modern manufacturing everywhere. And what CloudNC has done is they are able to automate and make the process efficient. You can forecast how much time, how much material, how much energy. You can plug into very well-known brands of CAM software like Autodesk, where you can just use it as a plug-in and expedite your work that could take days

to make it just take a handful of hours. And we believe that they are going to do some very, very interesting stuff when it comes to multiple traditional industries going forward. That's a killer idea. I guess it's my turn. Sorry, I just gave a whole thing. We don't do consumer electronics, consumer packaged goods anymore.

So Terra Cafe is one of our investments we did a while ago. That is just doing absolutely awesome. They make a super espresso machine called the TKO1 and the TKO2 is coming out. And these things just sell like hockey. cakes. They have a great margin. And yeah, we're just really happy with the company. If it's really hard to be in consumer electronics, but they figured it out. Obviously, I don't recommend too many founders get into this kind of space because

it's really hard. Golf Golf is in our founder university, and we knew somebody would do something like this, but you basically just take pictures of your swing, and it gives you advice. and it's getting smarter and smarter with reinforcement learning and talking about like a one-person startup, this is kind of like one of those startups could have a small number of people, a very affordable price,

and you might not pay for this if it was at a very high price, but because it's AI, because it's accurate, customized, if you couldn't afford golf lessons, which are hundreds of dollars an hour, maybe this makes you a little bit better each time. And so we think there's going to be

a lot of these kind of approaches to getting better at sports or anything, writing, poetry, whatever you're into. And codemate.aI is looking at existing codebases and trying to clean them up. So, you know, Chrome extension lets you do, you know, a co-pilot type experience, but most importantly, debugging code

and looking at legacy codebases to make them work better or help people who inherit legacy codebases fix them. And I think that's going to be their speciality over time. Two extremely early startups, golf, golf, golf, and code made. And one that's been around for a little bit, Tara Cafe, that's doing wonderfully. So great job, entrepreneurs. And great job, David. Well, done.

Thank you. Well, it's been another great episode of the liquidity podcast for Eric Tornberg, Guy Perel Luter, Jason Calicanus. This is your host, David Weissford. Thanks for listening.