This Week in Startups - TWIST VC Roundtable: Startup Valuations, Secondary Markets & the YC Revenue Illusion | E2137

Episode Date: June 12, 2025

Today’s show: Alex moderates a TWIST VC Roundtable with Jason, Paige Doherty (Behind Genius), and Altimeter’s Megan Reynolds about the state of early-stage venture capital. They break down the rise of secondary markets as a key liquidity path for VCs, analyze the resurgence in M&A activity from major players like Meta, Databricks, and OpenAI, and question whether inflated ARR figures from YC startups are distorting valuations. Jason shares his year-zero investment thesis and offers tactical advice on secondary structuring and identifying high-quality revenue. Whether you're raising, investing, or building, this episode delivers essential insights into the evolving early-stage landscape.Timestamps:(0:00) Episode Teaser(1:28) Meet our panelists!(2:37) Will secondaries replace traditional M&A?(10:10) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups(14:28) Has M&A actually bounced back?(20:06) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year.(25:35) Secondary market advice, just for founders(30:10) Retool - Visit https://www.retool.com/twist and try it out today.(32:49) Why is it so hard for emerging managers to raise funds?(38:28) Seed funds: the math is not mathing(52:07) Why early investors become “collateral damage”(56:31) The importance of revenue quality in early-stage startups(1:06:43) Quick Fire Question Round!Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.comCheck out the TWIST500: https://www.twist500.comSubscribe to This Week in Startups on Apple: https://rb.gy/v19fcpLinks from episode:Altimeter: https://www.altimeter.com/homeBehind Genius: https://www.behindgeniusventures.com/Follow Meghan:X: https://x.com/MeghanKReynoldsLinkedIn: https://www.linkedin.com/in/meghankreynolds/Follow Paige:X: https://x.com/paigefinnnLinkedIn: https://www.linkedin.com/in/paigedoherty/Follow Alex:X: https://x.com/alexLinkedIn: ⁠https://www.linkedin.com/in/alexwilhelmFollow Jason:X: https://twitter.com/JasonLinkedIn: https://www.linkedin.com/in/jasoncalacanisThank you to our partners:(10:10) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups(20:06) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year.(30:10) Retool - Visit https://www.retool.com/twist and try it out today.Great TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarlandCheck out Jason’s suite of newsletters: https://substack.com/@calacanisFollow TWiST:Twitter: https://twitter.com/TWiStartupsYouTube: https://www.youtube.com/thisweekinInstagram: https://www.instagram.com/thisweekinstartupsTikTok: https://www.tiktok.com/@thisweekinstartupsSubstack: https://twistartups.substack.comSubscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

This is the Y Combinator strategy. Sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on that. That is actually really good advice. But then the gamesmanship that happened was, you buy my product, I buy yours. Can I get five people to buy mine and people kind of created these little round robins that I don't want to say it's unethical, but it's unethical.

Hey, thoughts. I'm going to throw out on right to you. You know, throw bombs. I don't care. I'm already rich. I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm going to be Bill Gurley after dark. I know, but I want to give Paige a chance here to stand up and get and get whacked. Paige, you want to incinerate your career and relationships go. Oh, thank you so much for that kind introduction. No worries.

I'm so happy to be here today. This weekend startups is brought to you by LinkedIn Ads to redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash this week in startups. Pilot. Focus on your product. Let Pilot handle your bookkeeping. Pilot provides the most reliable accounting,

CFO, and tax services for startups and small businesses. Head to pilot.com slash twist and get $1,200 off your first year. And Retool. Bridge the gap between AI demos and business impact with technology that's designed for developers and built for the enterprise. Visit retool.com slash twist and try it out today. All right, everybody. back to this week in startups. One of the things I love to do is have a roundtable. You may have

heard a roundtable now and again in my podcast, Willhouse. Well, here we go. Wednesdays on this week in startups. And everybody wants to hear what's going on, Alex, from the venture side of the business. Founders want to know how that's going to impact, you know, their fundraising, their prospect. Should they raise money? Should they just go for the revenue? When should they go for an investment? When should they wait? And who should they target? All right. So, all, On the show today, we have Page Fendorty. She's a founding partner at Behind Genius Ventures, which writes quarter million dollar checks, and as of today, we checked before the show, has written 52 different investments.

Then we have Megan Reynolds, a partner at Altimeter Capital, where she is the head of capital formation. If you don't know Altimeter, they're a technology investment firm that invests in both startups and public companies, or she puts it from Series A through public. And then, of course, we have Justin Calacanis here today, not in his suit, which gives five demerit points, but he is the founder of the launch fund and the launch accelerator. And as Jason said, my name is Alex. So, guys, today I know that everyone wants to talk about secondaries. So I thought we just start there to set the groundwork here for everybody.

Do we recall that industry ventures data shows that global secondary activity is rising and should set an all-time high this year. If you're on the audio version, the firm estimates that there will be about $122 billion worth of VC secondary this year up from, say, about $100,000. $105 billion in 2020. Page, starting with you, how is you from considering use of secondary for liquidity? And do you think it's going to replace M&A as the majority source of liquidity for early stage funds? Okay.

Alex, thank you for the great question. There's a couple of pieces in that that I want to discuss. Like one, one of your questions was like, do you think that secondaries will replace M&A and IPOs as a primary source of liquidity? I think there was like a, there was some data showing recently that 74% of exit value has been from secondaries, whether that's GP led, LP led, or tender offer. So I feel like the secondaries market will continue to rise as like a primary source of liquidity.

However, when I think about that on the fund level, the premiums are rising for secondary. So it used to be that secondaries would trade at a pretty significant discount. And I think that as premiums or eyes looking at like opportunistic secondary sales where they're almost like inbound opportunities, I think those will be the ones that will have like the best price on the secondaries. But when it comes like behind genius, I think it's really like deferring to our LPs and their liquidity needs and really understanding, you know, based on the timeline that they're expecting. like how can we come together to create a solution? Jason, I want you to weigh in on the discount and premium side of things. What is launch seen in the market and how much more or less attractive have secondary offers been to you in the last couple of quarters?

Well, during peak ZERP, we took advantage of a number of our unicorns that had secondary opportunities. And when we did that, looking at, say, the top two, in both of those cases, those companies four years later, three or four years later, are trading at below or, you know, far below on the secondary market, the price that we sold at. So that would be a great trade.

And we look really smart to our LPs for having trimmed our positions and still having a lot of our position left. In both those cases, we still have 80% in the game, but we've trimmed 20%, one in two transaction, one in one. And when I look back at my Uber sales,

I did a sale confidentially, don't tell anybody, directly to the company. When the company was at a peak valuation, probably around 30 or 40, low 30s a share, my friend Travis, who was running the company at the time, was able to provide me personally with some liquidity, which was incredibly good for my family and for my diversification because it had become such a polarized position on my balance sheet. And then I sold some to Masa Yosh's on, then I held the rest and still hold to this day. And those have also been good trade.

So, you know, even though I sold some to Masa, I think at 37 and a little bit to the company at 30, you got to remember, that was like eight years ago and six years, maybe five years, six years ago. So if you look at those two trades, Megan, I think, you know, they, you have to look at time. I put that money to work in other investments that also did fantastic in that time. So while I may have left two and a half X on the, or two X on the price of Uber today in its 80s, I was able to buy a house that doubled in value in Hillsborough. So the same, and I got to live in that amazing house. So this is where I think Bill Gurley said you can't eat the paper gains, TVPI.

You can't eat TVPI. You can't eat TVPI. I'm making this quote. And so, you know, the way I look at it now in talking to my LPs, I've told them we now have an explicit, and this might be the difference between Paige and I now. I've gotten my ass kicked for, you know, maybe, I guess, maybe six or seven more years than Paige. I'm like, any chance we get, evaluated so much so that I took one of our 11 investment team professionals and I put them directly in touch with all the secondary markets and I said, I want you to tell me every change in price

and I want you to guys to keep me honest and tell me what we should trim, what we shouldn't and want. And so we do this now as an ongoing thing. And Megan really informed me of this. We were on a trip to Abu Dhabi and Dubai in the region years ago. By years, I mean two maybe. Dog ears. Dog ears for us. It's a tough couple years. And on that trip, you know, I was just asking her a lot of questions about this and portfolio construction and communication with LPs. So I added two things to my fund. We are hyper communicating with our LPs and we have a very, very specific strategy. Sell 10% when we're 50x, sell another 10% when we're at 100x, 200x, and just keep doing that four times, four 10% cuts until the eventual exit is my strategy. All right. So, Megan, I'm curious. Is Jason's approach or something that you're seeing in funds that you guys back? Or is he a bit of an outlier in formalizing a secondary process as opposed to just being opportunistic with the chance to get a little early liquidity?

Yeah, look, I mean, the pressure for DPI is very real for GPs today. I mean, I think I saw a stat recently that if you look at all funds, 2015 to today, 75% of those funds have not returned a dime. not a single dime. And that's inclusive of funds that are 10 years old. And so there is huge pressure from LPs for liquidity. And that comes in two forms. When you look at the data that you put in the chart earlier, there were two stacks. One of those is the LPs that are selling funds.

And so the LPs on their side are driving liquidity. And the other is direct secondary. So this could be, that comes in a different form. That's GPs that are selling positions. directly or strips of positions or slices of their portfolio or its GP, like secondary funds that are investing in secondaries on company cap tables directly. So employee liquidity, et cetera. So I just don't draw that distinction.

I think there's going to be an explosion of both. I think the secondary market for venture is maturing in real time. Megan, can you explain strips and slices for us just for folks out there a little bit less familiar with the different forms that secondary transactions can take? That's right. So if, and Jason was just talking about this, about him selling a piece when I say a slice of a position. So Jason's 50X into a deal and he decides he's going to sell 10% of the value of that to a buyer. I would call that a slice. I'm selling a little slice of my position. I still have plenty of skin in the game, but I want to return some capital back of my gains to my LPs. another way that you can do it is you can actually sell a strip, what I call a strip sale, of your whole portfolio. So I'm actually going to effectively just sell, and I think maybe NAA did this this year. There was a big fund that had announced this, that they had done a strip sale.

So it basically just said, I'm sold 10% of every single company in my portfolio just to, it's not making a call on one position or the other, but I'm just going to, sell a strip of the whole thing. Hey founders, I want to share with you an experience I love. It's when I get an ad that is relevant and not some nonsense. Like the other day, I got an ad for a fund management platform, and it was like a new one I'd never heard of. I clicked on the ad because, well, I managed four venture capital firms.

We scheduled to call with them, and it was amazing. How did this happen? Well, I was on LinkedIn because I'd like to share links from the podcast, this weekend startups right on LinkedIn. In fact, we live streamed to LinkedIn three days a week, and we get a great audience over there. And I happen to be presented with this fund management platform. And it was a direct hit. Like, I mean, talk about hitting the bullseye. If you're in business and you're making a product or service, it's really hard to find customers in the business to business space. And doing B2B advertising is hard, but LinkedIn makes it so easy because, you know,

their tools let you target people by job title, industry, company size, and more. So this fund management platform obviously was looking for people in venture capital who had a fun size and a number of people, maybe 10 people, maybe 50 people. And they found me. They got me. They split the arrow, boom, right on target. And there's two things you really need to know about LinkedIn going into 2025. First, they broke a billion members. And 130 million of those billion are decision makers and 10 million of the billion are C-level executives like myself. Where can you get to those people? It's really hard. And the second thing you need to know, LinkedIn makes an impact. B2B markers report, five times higher return on ad spend or ROAS return on the ad spend. You should know that acronym.

Compared to other social platforms, 79% of B2B marketers say LinkedIn is the best platform for paid media. LinkedIn's going to let you build the right relationships. It's going to drive results. And you're going to reach your customers in a super respectful business environment. It's not a place where people are dancing around saying inappropriate things or debating politics. Nope. LinkedIn equals business. Business equals LinkedIn. Start converting your B2B audience into high quality leads today will even give you a hundy, a $100 credit on your next campaign, go to LinkedIn.com slash this week in startups to claim your credit. That's LinkedIn.com slash this week in startups terms and conditions do apply. I think that's what industry ventures and Dave

McClure's fund are doing as like their primary activity now is those strip sales. They'll do a lot of that. There's another thing that you'll hear in the market that's very popular to talk about called continuation vehicles. So this is where you actually take an asset out of a fund, roll it into a new fund. You give your LPs the option to participate or not, but it's a way to deliver. So you effectively return the capital back to your fund, but you continue to own it. There's some LPs who won't want to participate. And so you bring in people like industry ventures or Dave McClure or Stepstone Group or Collar Capital. Like there's a tons of secondary buyers out there. So there's all of these different technologies for returning capital

and all of them are important and growing in a world where there's just, there's no MNA and no IPOs. Like the volume is still, like, it's just not where it has been in the past. And it's not commensurate to deliver liquidity that people, that our LPs need to continue to fund the ecosystem. It's funny. When I learned about venture capital, we didn't talk about strip sales and slices and secondaries as much. And it does feel a bit like the private equitization of venture, Megan. I'm curious, Paige, if you thought you were going into like baby private equity when you started a Metro Capital Fund or you thought you were actually going to get to some IPOs. Well, I guess I actually started in what you would call like baby private equity.

I had an internship at TVC Capital, which is a growth equity firm in San Diego and focused on buying a large minority position. in software companies that were doing between like one to three million in ARR. So like ironically, that's almost the profile of like a seed company today, given how much metrics have moved. And so when I was there, I learned a lot from the partners about like the secondaries market in growth equity and how that was growing. So I feel like it was something that I came into venture with a consideration of. All right. I want to talk about M&A a little bit. It's the other side of the liquidity equation. According to NVCA data, we did see a relatively strong Q1 compared to recent years in total exit volume, still very much below what we saw in 2021. Recently, CrunchBase reported

that in May we saw a strong uptick in Global Ventrabeck M&A. Pretty encouraging, clearly less than March, but certainly a lot better than we saw in 2024. So I want to go around the horn here. What are we seeing in the market regarding M&A transaction velocity and pricing? And are you guys optimistic that things will get better. And Jason will start with you. I always look at not what the administrations say, but what they do. Many administrations are effervescent and vocal. Maybe they start with incredibly bombastic behavior and words. And then we see the reality. So if you were to look at, say, trade and tariffs, it started with this incredible bang. And, you know, depending on how cynical you want to look at it, it's moved to a 2.0 phase.

which seems incredibly reasonable. We can debate if you should do extreme things and then do very, you know, moderate things. And if that's chickening out or a strategy in 4D chess, come out with a big ask and then revert back to what you actually want. Politics aside, every M&A transaction during the Biden administration and the wrath of Lena Khan was faced with extreme pushback. every single one. I can't remember one of them where people weren't hand-wringing. And we even saw the unwinding of the great Adobe Figma, $20 billion, you know, rain down pure cash on the venture industry.

That was a pure cash, boom, you know, massive amount of distributions. That company was half owned by venture, I'm sure. Would have been $10 billion to the L people. And what do we have? Two-year wait, right, until they go public, probably. So that's two more years, and I bet you the IRR is only going to go down on those investments. Megan will back me up here because she probably has the inside dope on it. So because that got delayed two years, there is a value to money, and it's going to be the same valuation, perhaps less.

So if it's a lower valuation, those folks are going to be like, bummer. I could have got that money back, put it to work, and got two years at 10%, or, you know, just in money market from 6%. But when I see Salesforce, make a big purchase, when I see the new potential king of M&A, Sam Altman make two purchases in one month. He studies people. Data bricks has been acquisitive. Data bricks, thank you. Uber's been buying little tuck-ins here and there in different markets.

That's pretty interesting. DoorDash as well. DoorDash bought two. And these, if you look at them, I think all the ones we describe, Megan, are one to six billion on average, one to eight billion. And whiz obviously happened. I think that's your big spike there.

So even if the MAGA folks are anti-tech supposedly, anti-MNA supposedly, this is a flurry of really exciting deals, really exciting deals. And then the 10%, 20% of the last value of a company offers we were getting in the crowd are now to 50, 60, 70% of the high watermark. Something's happening here. People are optimistic based on their behavior. you put aside all the news report, all the debates on All In, all the debates on BG2, of politics, of hand-wringing and administrations. Game on the field. Stock market's about to hit a new high.

Tariffs have been. They were treated on tariffs, and M&A is going crazy. Paige, Megan, I'm curious if you're seeing similarly strong M&A vibes out there in the market. Megan, start with you. I would definitely note exactly what J-Cal was saying that there's, yes, we haven't had this big deal hit the market. that creates a wave of cash coming back to LPs and Figma not happening yet. WIS is going to take a year to close. I mean, it's going to take a while, even if you have a big announcement for some of these

things to actually hit LPs pockets. But in the meantime, smaller deals have been happening. You know, they really don't hit the radar. And unfortunately, when you have a concentration of growth assets that represent a large percentage of value in venture portfolios, it's hard to feel. the effect of the data bricks $2 billion acquisition of tabular. But it's, but it is happening. And I am optimistic about the market. I don't think venture is dead. I don't think M&A is dead. And I think IPOs are going to come back. It's a matter of time. And in the meantime, the secondary markets that

we started talking about are creative way to put some cash back in LP pockets to keep the funding ecosystem going. One of the sales I thought was really interesting was Zucks 49% purchase of scale AI. I think that the regulatory pressure that's been happening in the M&A world, I had a friend at Figma and like that would have been like a life-changing acquisition for her. And it was really interesting to see the aftermath and ambiguity of it.

And I think we'll start to see more purchases in that like 49% that doesn't trigger some of the regulatory. pressures. I remember reading that headline being like, I think we're going to start seeing a lot more of these, especially for larger companies so that they can still operate like autonomously, but provide liquidity to the ecosystem. If you're a startup founder, you've got a million things that you're worrying about at this moment. You know what you shouldn't worry about? Your bookkeeping. Your bookkeeping should be perfect. And you should have a partner who makes sure it is so. And that partner is pilot. It's the industry.

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Focus on your product. let Pilot handle your bookkeeping. This week in startups, listeners get $1,200 off their first year. Just go to pilot.com slash twist. That's p-I-O-T dot com slash T-W-I-S-T. Here's a thing. When you come up with a hack, it has a half-luck. And I think when Zuck does the hack, that's the end of the half-line.

And we're done. Yeah, I think we're done because people don't like Zuck. And people have a lot of scar tissue about that Instagram and WhatsApp application in government. when Tim Cook does something, Satya does something, Google does something, it's like, oh yeah, I like Google, Google search is good. Oh yeah, I have Windows. My kids use Xbox. And, you know, you bring up a toxic brand like Metas, which people are like, yeah, Instagram is a, you know, scourge on my family and my daughter, you know, is like obsessed with it. Oh, yeah, you know, people are getting bullied and harassed on this other platform on Facebook. I stopped using it. It's like a certain toxicity there. And I think Lenacom was starting to investigate this before. before she left. I think he's just basically put out a huge sign like, look at me. I don't care what you think. You can't stop me. I think he should have just done the regular acquisition and dealt with some. Interesting. Yeah. So I don't know. That's just my personal belief is we have a new

regime in town. And I understand doing it with Lena Kahn because you had no choice. But he's been donating heavy to this magist stuff. He put Dana White on his board to appease Trump. you know, he did the big apologies. He just made up with Palmer Lucky. Shout out to my guy two weeks ago. My guy Palmer Lucky and him broke bread and now they're besties again. You were there for the breaking of the bread? No, no.

I was there for the before. Oh, oh, when Palmer and I hash things out, yes. So, yeah, I do think he should have just gone straight. What do you think, Megan? I'm curious. Like, do you think like these hacks are a good idea, bad idea? I don't know. I'm not sure that I have a view.

to be honest. 49% hack? The 49% hack, people are, look, people are, they're smart. They're going to find a way.

And they're just, they're going to, you're just going to find a way. And this is like in the world, in the, there is no way that Zuck is going to lose in the battle for AI supremacy.

And he is going to find a way to do it. And whether it's a 49% hack or stealing team, or other things. Like I wouldn't I wouldn't bet against him and I think he's very strategic and is going to do what he needs to do. But in the and in the meantime, like these big companies, Gurley was talking about this on Invest Like the Best and was just talking about the cash balances of these large companies where they've got the capital to put to work. It's going to find a home. We're going to find a way to do it. We're in a more friendly regulatory environment. But in the meantime, we just haven't the ecosystem hasn't really reap the benefits of it. at all. Life, life, what's the word? Fines away. Yes. That's my Jeff Goldblum. It's terrible. I got to work on. Life finds a way. It's good. I think Megan's point, though, is really good because meta has had enough money and enough profit to lose tens of billions of dollars on VR and then keep doing that

we'll also invest in so much in AI. It really speaks to the fundamental strength of the meta model over the last couple of years. I'm blown away, Megan, by their ability to just have that much cash. I want to look back. They've gotten fit. They've gotten fitter. I don't think. Deserving cash, right, if gotten more efficient, being more efficient. Well, we'll see.

There's got that's going to play. I mean, this year is just going to be. They have less employees now than they did three or four years ago, and Brad started dunking on being like too many people. Like, I think they literally have less people now than three years ago and they're growing at 15% a year. I mean, that's crazy. Yeah, big tech has slim done. I think we've all seen that in the forums from recent graduates complaining about a dearth of job opportunities. I want to put a cap on the secondary

conversation, though, because I'm just curious what founders should know about approaching Jason raising capital from investors that might be leaving their board earlier through an exit or just having to deal with multi-stage funds versus early-stage investors. There does seem to be a bit of a dichotomy now between people that will exit early and people that will exit at IPO. So for founders, just advice on how to handle the new secondary. Very simple for founders. If there's a market for your shares, control it, embrace it. Do not try to fight it because it will happen with or without you.

Mark Pinkis learned that. People just started trading his shares. And then the horse was out of the barn. Just say, we're going to do it twice a year. We're going to put a price on it as CEO. I'm going to do the price discovery. I'm going to control who sells. You put in your requests.

And then now you've got ball control. You've said to the market, this is going to occur. It's going to curb July 4th. And, you know, the week after Thanksgiving, those are the two dates. You put in how many shares you want to, how many shares you own, how many you want to sell. We'll get back to you in two weeks after that as to we can fill any of that demand. And now you don't have people going off and running amok on the street trying to find buyers. Right?

You have ball control. You've told them. Now you've put it in the VCs and the LPs and their hands to say, oh, no, no, I want to go around the back door and I want to disrespect you. Jason, I have a question. What do you think is the size threshold for that? Like, at what point, at what size of a company do you think it needs to be for them to take that institutional approach to liquidity?

Is that something that, like a series B or C company needs to be thinking about because they're 10 years into their journey or like, how do you, if you're advising founders, like, that's obvious if you're bite dancer, if you're the Kalsam brothers. but at what point do you think that happens? I think it's a distraction, obviously. Yeah. So I would set the parameter that employees who have been with the firm for four years can make requests, investors who have been in the company for three years to make the request.

So I would do it based on how long you've held your investment that, you know, we're going to provide this for people who've been investors over X amount of time. Now you've narrowed the pool, people who are at the end aren't flipping and you get this sort of transient nature to it. And you're rewarding the people who are the early investors. So, oh, Paige and I did a seed round and Brad wants to double down with Altimeter. Great. We can participate. Oh, Brad buys a position and it's year two. And Brad's like, oh, my God, this thing's three X. I need liquidity. The founder can say, you know what, Brad? You just bought your shares. Can you just hold your horses here? You know, give us three years of your investment. So I like that

strategy rather than the revenue or whatever. And it really is demand side. There's no demand. So, you know, but it's, this is a new thing. I, I, my only piece of advice for the founders is have ball control, set your own rules, and then force your employees, force your management team, force the LP and VC community, force retail investors to stay within your rule set. And then, you know, if they want to step out of it, great, now they're no longer friendly with that founder. And as a founder, you should then just call them and you should say, you'll never

invested in another one of my companies if you go off the reservation. You jump the fence, you're out of the family. You play by the rules and you're respectful. You're in the family. Would you like to be outside the family? Well, you want to be in the family. All right, Paige, a founder calls you and tells you that. What are you saying back? Well, I guess, like, I would be like, sir. Yes, sir. Yes, ma'am. Um, yes, ma'am. Uh, the, also, like, the other thing of, like, staying inside the family is there are, like, U.S.BS holding requirements. of five years. So you wouldn't reap any of the capital gains benefits if you held for under five years. So I think that would also be a consideration if you're like an individual investor and you're like,

hey, like at 3x, I want to get out. But I might have some tax liabilities because I haven't held for that long. You can like determine that. But I feel like most funds would hold through the QSBS holding period because it's like 10 million in the QSBS side. So I feel like there is sort of a lock-in due to that actually built into the system. And QSBS is the qualified small business exemption, I believe? Yes. Yeah. And I think that's like something that a lot of people gloss over as well in these discussions.

But yeah, usually you have to hold a company shares for five years. So you almost have that. And you have to have been invested when it was under 50 million. So this applies to seat funds in a major way. It's a major part of the seed event. First 10 million, no cap gains. Yes. Let it sink in.

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on the optics. Like why should Hage and JCal a seed investors get 10 million tax free because, you know, my mom, who's a nurse, has to pay taxes every year. And it's like, because we're taking bets that go to 90% of the time. And if you don't give us that kind of tax advantage, we might just move further down the line and there'll be no angel investors, no seat funds. At least that's Paige and I's specific. We're going to keep to that, that we would quit if you take it away. Page and I and the rest of the seed investment union are going to die. The innovation economy, dead. Dead. Dead. We're gone. Page and I are retiring. She had 26, me at 54. We're done. And we're taking a hundred seat funds. We're going to post 50. 100 seed funds are retiring as well. Sticking with

I see then. Why don't we try to double the number? Why 10 million? Why not 20? What would that unlock for the early stage world? Oh. Well, remember, you have to be 50 million under assets. So there's like some reasonable math here that has to math out. Okay. We can't own more than

10% of a company in, you know, in our best investments. Usually it's five. You know, Paige is doing 250K checks. She's net net hitting 5 to 2% to 2% to 5% ownership on average. And getting diluted by 50%. So we're small ball.

Don't worry about us. We're just sliding a little check. Don't worry about us. Well, no, I really, I care a lot about the small investors because data on emerging managers is pretty stark. I want to show everyone a chart here. Oh, let's show the chart. There's the segue.

Look at that. He set a screen and he just boom, drop the ball. Rolling it on two wheels here. How about that for a segue? Here we go. Elegant. Elegant. All right.

Here is a chart that Bloomberg called Trouble for new VCs. They define emerging. managers here as firms in their first three funds. And it shows if you're on the audio version, a rise in the amount of capital raised by these firms through 2021. And then what I will call a precipitous collapse. To put some numbers on this, emerging funds raised $64 billion in 2021. That fell to $17 billion in 2024. And through May 8th of this year, it was $4.7 billion. I think that is a collapse. And so Paige, just starting with you because you are the emerging ist manager here. What the hell has happened on the LP side? And why is everyone struggling to

raise a couple of nickels? It's always a joy as an emerging manager to wake up and see that chart. But I think, why is it a joy? I'm joking. No, I'm joking. I would actually argue that you should feel joy. Because you did it. Yeah. You have a fund. Yeah. Yeah. That was like very exciting to make it through. Because when we raised our first fund, it was 2021, raised five million. million. Like I would say the fundraise was on all. We talked to like a lot of investors. We have like 120 LPs. But the second fund was like much more institutional. The like sales cycles for closing institutional investors is longer. But I think there's almost the same like time expansion happening that you're seeing in funding of companies. Like the time to go to a series A has never been longer. And each like milestone keeps expanding. So I almost think it's like that happening. And I almost think it's like that happening. but in emerging manager land where we had this, like, massive influx of capital in one year where it might have in other markets been spread out. The rise of family offices moving into the venture space can also have a dramatic impact

because venture is like a tiny brum of the overall private equity market. If family offices get super excited in one year about the massive returns they're seeing in venture, and they're like, let's all pile in. and then you see like a large market drop in 22, 23, and those were like very challenging fundraising years. Those, yeah, those like sales cycles take longer. The relationships that you're building have to go deeper. So I think it's been like a very interesting ecosystem to navigate and I feel very lucky to

close our second fund in such a challenging environment. Yeah. And then just like continuing to educate folks who are interested in like professional they're either like angel or syndicate investing into a fund. And then last point on this is I think there's like there's also a dramatic opportunity cost. Like with this whole AI gold rush going on, like you have a, you know, if you're a super talented generalist who understands growth and distribution, like analyzing companies, why would you not go join an AI company that's like growing at a dramatic clip that could, yeah, change your life?

It's like because you love doing the work. So I think that's been the one of the other things that I've been seeing. Megan, I want to get you in on this because you know the LP side best. So why have the purses begun to constrict around the next of these emerging managers who are doing God's work by funding people with an idea? Yeah. Can you pull up the chart again? Absolutely. I just want to point.

Let's do it again. I just want to flash it because I want to have a reference point. Kind of like Squid Game page. It's like Squid Game. It's like me. you and like four other people are still in the game. Oh yeah. Red light, green light.

Oh, God. Oh, God. It is that tough, though. It's so, so tough. You know, I compare emerging manager fundraising to like basically going to Hollywood. Like, it is that hard. Like there is so much exceptional talent out there. And there is talent that's been around the industry.

that has an amazing track record and has big films under their belts and they're competing against the same roles that you are. So like breaking in is that hard. And the reason I was referencing the chart again is because the last time you saw the same drop off in emerging manager fundraising activity was 09. It's a liquidity issue. Like that's not a surprise. Liquidity is the problem. That is why managers are not getting back. But there's a few other dynamics I want to mention. One, the primary funding base of emerging managers is endowments and foundations and family offices.

Because if you're a large institutional investor, you're not going to write small enough checks unless you dedicate capital to emerging managers. Like you just can't get enough capital to work to make it move the needle in your program unless you have some strategic reason to be doing it. and who's been hit the hardest in liquidity shortfall, endowments and foundations. And so they are the ones that are with, and I'm sure you've talked about it on the show, or there's been so much press about what's going on in the endowment community and their constraints. But the fact that they have very limited capital to be putting to work in new managers is part of the reason they're facing this constraint.

Page, something that Jason and I talked about on the Monday show was. was this data set from Entresen Horowitz. This is the Enterprise generative AI startup benchmarks that I really think blew a lot of minds. Now, for people watching this, this shows bottom, median and top quartile results. Jason and I kind of thought that if we're just looking at companies that Andreessen has backed or has gotten to the point in which they've gotten data during an investment conversation, we're talking about already the cream of the crop. But these numbers that were seen here, you know, enterprise gen AI companies going from

zero to five point three million in the top quartile in the year is pretty bonkers. Well, I mean, like when I when I started investing in 2021, it might be like, okay, you need to maybe have like a million or a million and a half to raise an A. And now it's like, okay, you need like five and to be growing like 20% month over month. Like the like metrics have gotten much more aggressive. And then like I'm going to YC demo day later this afternoon. And they, I think most of the companies in the batch have been told to like you have to hit like 200k in MRR in I'm forgetting what it was but they all have this like very specific like timeline on it and I think if you they're like a pretty good signal to look at for like how the market is moving with regards to the targets that

they're setting but page just jumping in 200,000 MRR for a C round 200k in MRR well YCs I mean depending on like how you think about YCA, I kind of consider is like premium pre-seed, I would say. So it would be like to get to either a seed or A because I do feel like a lot of the companies are getting more capital efficient or they're being forced to because it's like, okay, it's no longer like good enough to be at five million an A or at series A. You also have to have like not raised a ton of cash to get to that point because they're looking at like burn rate. So it actually is becoming more like baby private equity with the venture optionality of like 50, 100 X on these companies.

As your 50, out of your 50, how many went to my combinator would you say? I think six. Got it. Do you think you can actually do the portfolio math in your fund paying $30 million for a pre-seat company with $200K? We don't pay 30.

Like our average entry point on our fund today is $16 million. And in Fund 1, it was 15 million posts. So we own like 1% in Fund 1 and like roughly 2% in Fund 2. And I would say I've been like pretty dogmatic. And then we've made exceptions for like exceptional founders. Like in one case we like doubled our like average seed check size in a company that was more expensive. That was led by like top VCs because I think that's the that's the big lesson, Megan, is like if you you need to have a real portfolio strategy here, right? You have to have some bankroll management, and entry price does matter.

And if you're going to own, you know, 50 basis points versus 2%, you know, and you're going to get diluted 50% along the journey, that's 25% or 25 bibs or 1%. You know, the math just doesn't math. Every investment has to be a fund returner. And I have a couple of winners in Fund 3, where we made small bets to kind of get to know the firm, you know, put in a 50K or 100K. check and then it got away from us, no way to invest. And now we're sitting there with a, you know, 50x on 50K. And it's great. Except now we have to explain to LPs why we suck at our job and we

didn't put a bigger check. And we had conviction or why we didn't put a second check in. And it's like, well, they went from, you know, a $30 million valuation to a $500 million. And it's like, yeah. So I just, if you're so much nuance to it. It is. And it's. And it's, People ask so many questions to your point, too. Like, you have to explain every portfolio construction decision in the way that LPs diligence funds today. It used to be, they were like, we like you, great story. Okay, here's a check. Performance looks great.

Performance looks good. And now it's like, our analysts were looking at these seven companies, and we did a, you know, a search on them. And it looks like they were complete utter disasters. Tell us, why did you back this? And I'm like, yeah, they totally absconded with the money. They didn't return our emails for a year. And they kept their laptops. And I'm like, welcome to the game, guys.

Oh, yeah, that founder was committing securities fraud. Yeah, it's like, this is the Wild West out here on the margins. Like, crazy stuff happens, you know, like you back somebody and they disappoint you. So it's hard. But I just don't think the math at Y Combinator Matt's, for seed funds, which is why my best advice, and this isn't, don't aggregate this folks, nothing against YC. We don't really compete with them because we accept less than 1%. They accept less than 1%. You know, there's just plenty of people, if you want to make

125K bet on them in an accelerator. The issue is, if the valuations are that overpriced, which you have to ask yourself, in one year when they come back to market to raise their next round, what will the valuation of those companies be? If they were valued, You know, if they're at 100K and ARR, I think is what the data was showing in that sample. I'll pull that back up. I think it was 200 or 200. Let's say it's 200. We'll give them a huge benefit at $30 million.

Okay. So, or let's say it's 300. So they're trading, no, let's do $150. So they're trading at 200 times revenue. Bizarre to even put that valuation on it, I know. But that's not how you're making the bet, but it's part of it. Okay, so they're trading at 200X. They go back to market.

Okay. What do you think they're going to go back to market? market at after they've doubled their revenue. Okay, now they're at 300. They're going to go back to market at 100 times revenue again. 30 million. They're going to do an extension 99 times out of 100. They're not going to get an up round. So just stick around the basket, maintain the relationship, say, hey, we couldn't get there, but we want to be helpful to you. We'd like to get to know you. And you check in with them. Hey, can we get coffee again? How is it going? And that's what we do. We just like, if we meet somebody great, hey, let's stay in touch. I would say the other

piece of this puzzle is that nobody ever talks about the bottom third of Y Combinator companies that don't clear market. So all these statistics are so massaged. I trust none of them. I don't trust any of this data that we pull up here because the game I see on the field is selective data sets. What are the selective data sets? I started like a Y Combinator slide. You showed me the other day and it was all based on TVPI. Putting this one aside, remember the TVPI one? And I'm Like, yeah, this is from,

Jason's talking about data. I thought I put it up. This is from Nicole Wiskoffes ventures. And this shows YC's class of spring 2025 against a number of similar stage companies

outside of the YC world. These are the ones she met with, just to be clear, not all. So you would think she would meet with the best ones because she's a good venture capitalist and she has some thoroughness

and who she meets with and they would probably pick her. But, you know, this basically shows 5X leverage to invest in seed companies, pre-seat companies that don't go to YC. That actually tracks my lived experience. I don't know.

YC is such an interesting one because I do feel like a large amount of the valuation actually bakes in like the network of founders that they bring and like the talent that they're able to recruit as a function of like having the YC brand. So I almost think it's like if you look at it on like a purely metrics based thing, like yeah, it might look different. But I think that they have built such an incredible. brand in the ecosystem like why i see is like you could go like talk to someone in the midwest and they'd be like like a family office in the midwest and they'd be like yeah like i like i know i see like i

you know um and so i think that there there is like a global brand element that they've done like an incredible job building and then they also have like very strict guidelines around like each cohort so and they like move with a market like they establish like an additional cohort um so i i don't Like, it's like if you look at it on just a metric spaces, yeah. Twice the price. It'll be different. One third the metrics or the traction. So, you know, if they're, okay, but the other thing is they also started.

Yeah. They started later. So some of the seed companies that you might be looking at might have started like three, four years ago and might have raised capital. Like a lot of these Y Combinator companies are coming in only having raised YC and maybe like 100K and angel checks. And so like you're paying up for like their velocity as well. It's like they went through the YC program and like got to 200K and ARR in like a much faster time period than another company. So that's like also to your time value of money question. Yeah, I would I think it's a good counter argument. And the other counter argument is yes, they have a selection process that only accepts 1% like Harvard. So if you're only selecting great founders, you know, you do get less, I think, you know, mistakes in the portfolio as it might be like people who just aren't cut out to be a founder. So there is that. So you are paying for values.

And then the question is, I think if you're a hardworking seed manager, your job is to find all the people who are the second, third, fourth percentile that didn't get in because they're no different than the first. That's your job as a seed fund is to find value. Warren Buffett's whole premise and his whole career is based on buying companies, you know, when they're not popular and you can get a good entry price. And then these businesses and these management teams just keep growing with them and you just want to own that business forever. You know, that's, kind of the philosophy I've come to in my life with my own family office. I'm never selling a share of Robin Hood. I'm never selling a share of Uber. The end. Like, why would we sell any shares in these companies if their management is extraordinary and the products are extraordinary? They'll be here in another 10 or 20 years. But I think as a scene manager, Megan, what I've come to is it's my job to find companies before they go to Y Combinator and the ones who are in that second, they're in fourth, and then be able to buy three companies for the price of one YC company. And I'm willing to willing to have seven people screening companies in my company who are researchers and analysts

in order to find that those ones so that I can make rebats for one. What do you think of my strategy? Rate my strategy as an LP might candidly, brutally. Am I wrong? Am I right? I give it an eight. Okay, eight. I love it. Room for improvement, but it's solid. Yeah. Yeah. No, I think that's a solid strategy. I'm devastated right now. I always got on this open 8.5. Fee me right now. She just literally she knows it. You know, without having, you know, the chance to really distill it. I think, no, I'm just kidding. I mean, I like it.

I think, look, I think that like the 1% right. There is like that's the selection rate. Like you said, there's a million. There's other great founders out there and finding those that may not get in, but find the right home. I just figured out how to frame it and make it a nine. Megan, let me try. One more time pitching us. Okay, do it.

Okay, let's see. All right. Our job is to out hustle the other seed funds, and we want to make three bets for every one for the lazy funds that just go to Demodea and just pick whatever, you know, the great team at Y Combinator is pre-sorted. And here's the truth, Megan. It's an uncomfortable truth for Y Combinator, but the best founders do not take the Y Combinator deal. The best founders say, I can do better.

And so when you see the 1% that get accepted to Y Combinator, in our lived experience, that's the 6th percentile. The top 5% did not go to Y Combinator. The majority of unicorns that you see that have gone public did not go to Y Combinator. And those are the ones we're focused on. And then we focus on 7, 8, 9, 10, that percentile. So if you look at the top 10 percent of startups, top 5 percent don't go to Y Combinator. The bottom 5 percent after the sixth percentile that Y Combinator gets, they're of equal value, but you get, they're of equal quality, but you get to invest in free for everyone.

So that's really our portfolio strategy is why Combinator's awesome. You can't overpay for startups or else you break your portfolio construction. I'm sure Gary Tam won't have any thoughts about that whatsoever. No, no, no. You meant it was supposed to score it. You didn't let it. Alex, you check. All right.

I'm seeing you're ready from my score. Okay. I give it a nine. Oh. And let me tell you why you got a point deduction. One, I like data. You had more data there. Oh, good.

Good. But you got a point deduction for calling them bets. Oh. You know, I don't like that. Our investments, and, you know, we don't call them bets, our investments because we like to help them grow. We're not looking for just, you know, to make a quick hit here. We really want to learn from these investments. Each investment is a chance for our team to get better at the crowd and add value. Oh, good.

Good. Good punch. We're learning page. Look at this. We're getting free mentorship for Megan. That's great. It's always, yeah. Yeah, jokes aside, it's always about the, the foundation. team. It's like the teams and bring them in as part of your community. And hopefully, I mean,

following like a similar playbook to YC and like building an incredible like community and brand around the firm. I feel like that. Yeah. And then yeah. And then all your companies will be able to raise it a 30 post right after. Yeah. I'm actually curious if we're talking about seed prices being too high for seed stage fund economics when that's not really the game on the field. There was an interesting conversation about this, and Bill Gurley weighed in discussing how seed valuations are going up. I'll just read this tweet. A mega VC with 5 to 10 billion annual funds is really searching for only one thing, a company they can pile over a billion dollars into with a potential to 5x 10x on that one billion. With this seed fund is inconsequential money used to increase the odds of main objective.

You are collateral damage. And so I wonder, because going back to what Megan said about, you know, you can put money into any funds you want, mega funds are getting larger as smaller funds get crunched. I wonder if seed pricing is more reflective today, Megan, of just what the Andresans want versus what's good for the launches of the world. I think the dynamics of fund size cannot be ignored. And I think that it does have an impact all the way, like from the top to the bottom of the ecosystem, I do.

And look, I think that was a, that's a wise but generalized statement. and I'm sure there's, and I haven't fully thought through it to say like why it's seed fund money still makes sense and why it's not just collateral damage. But the idea that you have these very, very large pools of capital that want to deploy a billion dollars or at least $500 million or a billion dollars and don't have the same return thresholds that they, that funds used to have before is really having some, like a major impact. the industry. Yeah. Jason, we've talked about this ad nauseum on the show, just about how these megafuns just have a different expectation for returns. And you guys have to work a little harder for your IR. I just love Bill Gurley after dark. You know, Bill Gurley after benchmark is just great. He just, after dark. Yeah, Bill Gurley after dark, he's got it, he's had a couple of ranch waters. He's, he's lost a couple of big pots in the poker game and he's ready to speak truth to power.

But it's the truth. If you have one of these mega funds, you know, you are going to make one billion dollar back. Everything you do that's investment. I'm sorry, investment. Thank you. You're looking for a billion dollar investment that can five to 10x to return the fund. You need a fund returner. A seed check where you own 10%, you know, the chances of it becoming, if it, it is just a way for them to get the option to be on your board or be in a board observer and have information. information rights so that they can preempt that billion dollar check. So when you have page as an investor or me as an investor, we're with you all the way. When you get dilution, it really matters to us because we're not putting a billion dollars in at a $3 billion or $4 billion or $5 billion in, you know, valuation. We made that $125K bet. That $250K bet. We're probably not making another one. So we're with you making sure, hey, you're sure you want to dilute that much? You sure you want to add that person to your board? You're sure you want to burn through your capital and chase like 4X growth this year instead

of maybe being more thoughtful and going for two and a half X and really getting your product market fit and your product team dialed in? So our investment in your company is more aligned with you. Their investment is aligned with an 18-month period between when they drop that billion-dollar check-in, that $500 million check-in, and you going public or getting bought. It's a much different game. It's mezzanine financing. Jason, the only edit I'd say to that is that I think the very large funds, a $5 to $10 billion funds that are at the growth stage, are not looking for fund returners.

Like, I don't actually think they're underwriting deals for 5 to 10x. Because I think that they are expect, it's a different portfolio behavior than venture, where you have a very high percentage capital loss. I actually think they're underwriting for zero capital. capital loss, but you have a two to three X, they're underwriting for two to three X outcome. So it's just a little bit of a different dynamic. Got it. Yeah, that makes sense. Yeah, so maybe three or four of those four Xers make the fund? Yeah, like you, you kind of, it's a more consistent, driven

return buildup than you have one, the rest lose money and one returns the fund. And maybe they hold into the public markets for an extra year or two after it goes public. Yeah. All right. I want to talk a little bit about revenue quality, moving a bit away from just kind of the intra-venture dynamics because we've seen companies like Glean, Synthesia, Together AI, Cursor, Loveable and others scaling to 50, 100, 200 million in ARR. And whenever I see these headlines, I also see people from the venture world casting mild

doubt on the quality of the revenue. People are worried that things are being conflated into ARR numbers or that ARR is. is not going to be actually recurring, that it's going to dissipate. I'm curious from your portfolios, are you seeing revenue quality issues amongst AI predicated startups or are those only in other funds? And Paige, I want to start with you on this one. Oh, wow. That's exciting. I mean, so in terms of revenue quality, I think that one of the things I'm seeing is like as our founders got to raise their next round is that this is like a topic of a conversation when they're raising their seed if we back them in pre-seed or their A. And so I'm having the conversation with

them like far before they're raising is like this is what investors downstream are expecting. And it's like part of the reason I moved to San Francisco last year is like more deeply understand the downstream capital dynamics is like revenue quality really matters. I think like there can be mistakes or overrepresentation. in reporting that are quite common if you don't have the background of like startup accounting, which like if you're an engineer or like you did something else before, like you might not know it. So I think some of it is like a factor of educating early stage founders on like reporting A or R should be like an annual recurring contract. If you're a marketplace that should be reported

as like this is your GMV and then you'll have like your like your like your, you're, like net profit based on that and not reporting like the GMV of the marketplace's run rate. I think that's like a very common thing that I've seen in companies we've evaluated. So I think that like more education on startup accounting is needed earlier stage as the metrics change to raise a seed or series A. I mean by series A you'll know, but like I think seed is getting more series A e on the metrics that they're looking for. So seed is the new series A.

pre-seed is the new seed, Angel is the new pre-seed, and I don't know what we're going to do next, but there'll be like nano-investments at some point. No more summers in Italy. We call it year zero startups. It's my big focus now as we invest in earlier stage startups. And we found that half the applications for funding, as Paige mentioned, with her strategy building community, come to us before they're incorporated with an idea, perhaps a prototype, and a team member, but looking for a third. we had all this energy and we told them, oh, listen to the podcast and let us know after you incorporate. But then all of a sudden, those founders could get away from us, right? They could find another investor who believes in them and wants to write that check and then, you know, now we're chasing.

And so he said, well, how could we be of maximum value to them? And so we took a two-day event we were doing to help support founders called Founder University and we made it into a 12-week program. And I put all 11 investment team members on this. We are in our 10th cohort. We have a curriculum. We've invested millions of dollars in this. And three or four thousand people apply. We picked the top 300 teams. We invest in the top 10% of those. And we get to watch them work for 12 weeks. And boy, has that changed how we invest. And we will give people their first 25K check to form their company. That was another innovation we found. People couldn't get their first check. First check. the hardest. So we're like, okay, you just check a box every week. Would you like the 25K check? Would you like the 125K check? And it just changed everything for us. And on revenue quality, the fact that we're even having that discussion now is just so encouraging because a lot of investing, but 10 years ago did not have revenue quality as a term, as a discussion point. It was just, what's the revenue? How's it growing? That's it. There was no, are you hacking the

revenue. And again, I don't want to make this a pile on for YC, but founders are clever. And what YC did better than anybody was figure out how to create this really aggressive marketplace where everybody felt like they were going to get left behind in maximum fomo. How do you create maximum fomo? Two ways was how Ycomini got to it. They told everybody you cannot raise money or meet with investors until the last week. That was like their best and kind of strong advice. It wasn't, They didn't ban people from doing it, but most people complied with that instruction. Why? You want to get everybody in the room. You want to create a marketplace. And, you know, all of the language around this is consensus in the industry. Get everybody into a three-week

process. Get everybody stoked, make it competitive, and then close fast. That's actually really good advice. But then people were like, well, how do I differentiate? I can't just scream for one minute during demo day. I think it got down to like a one minute presentation, so it was kind of like meaningless. It's meaningless. Let's call it what it is. It's meaningless. Like it's just one minute of performance art where you go up there and scream like you're going to change the world and your team is a trillion dollars. It's meaningless. So what they did was they created the handshake protocol, which is another high pressure

sales packet and combined it with a chart. And when we slowed down the process, we would just say to every founder, which is why we kind of opted out of it, the whole process. We just say, well, we take like, you know, three, four, five, six weeks to make a decision. If you're on a three, four, five, six day, that's not for us. But we'll talk to you the next round. And some founders were like, okay, we'll talk to you next round. Majority of them were like, oh, no, no, well, you can take as much time as you need, Jake, we want you on the cap table. When we looked at their charts, we found a disturbing trend.

When we asked, how did you source these 10 customers? Five of them were other YC companies. Two of them were friends of the founder. So that high pressure led to unnatural acts. And the unnatural act was to make a 12-week chart that didn't have quality revenue. Where did you source the first 10 customers? We asked them, who are your first 10 customers? They say, oh, we can't share that with you.

Okay. They're like, okay, so you want to invest? No, we can't invest without knowing who those 10 are. Then we say, okay, these are the 10 first customers. How many, what's their usage like? How many of them used it in the last 10 days, the last five days today? We want to see the actual usage of those. okay, and now give us where you source them from. And boy, did that change? All of a sudden,

people started panicking when we asked for that simple information. That seems like very basic diligence. It's very basic diligence that a dentist has no idea about. So if you invite a bunch of dentists, they're like, oh my God, this is Airbnb. They told us you invested in Airbnb, this is Airbnb. The problem is, you know, when you, and this is in all companies, we just, we found too many of these for it not to be an explicit trend. And we asked people, how did you come up with this strategy? This is the Y Combinator strategy. Sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on that. That is actually really good advice. But then the gamesmanship that happened was, you buy my product,

I buy yours. Can I get five people to buy mine and people kind of created these little round robins that I don't want to say it's unethical. but it's unethical. Paid. Thoughts. I'm going to throw bombs. I don't care. I'm already rich.

I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm going to be Bill Gurley after dark. I know, but I want to give Paige a chance here to stand up and get one.

You want to generate your career and relationships go. Oh, thank you so much for that kind introduction. No worries. I'm so happy to be here today. I mean, I don't know. I feel like my belief is like they have built a strong brand and community.

I think it has gotten to the point where there are people who see it as like a shiny badge that they want to like check off and might not be going into it for the right reasons, but have like the chops and the mission and the product to like get in. And I think that's a reality of like whenever a brand or community gets big, you're going to have those actors in the system. But I think there's still like incredible talent. I'd say the way that I meet most of the YC companies that we invest in is like the first one we invested in is Beacons. It's one of the first investments I made like a Lincoln BioTool.

grew super fast or like one of the leading greater tools startups. And then they introduced us to like a few more YC companies. So I feel like for me it was more like finding a founder who I really loved working with. And then they would refer me to other YC founders. And then I didn't really have to deal with any of the competitive dynamics. So it's just like, that's awesome investor. We love having her on the cap table.

Like, you should take your money. So then it was, it was no longer. So I've always found, like, if there are more competitive dynamics, it always helps to have someone in their network refer me.

It's always like the strength of the introduction. And like vice versa. If a founder, like one of our portfolio founders yesterday was like, I have this founder. I will like, I'm like dragging her by the arms, like all of my investors offices.

Like she is the one. Like you need to bet on this founder. like that will make me like very incentivized to um yeah to like take a deeper look so i i think it's like the same in like competitive situations you have to have like a really strong founder reference um and then do your two diligence all right guys we could literally talk all day because there's so much going on but we do have to make sure page makes it demo day on time so what we're going to do to wrap up today your badge doesn't work page you wait your badge didn't open the door Wait, sorry.

Just stand like 10 feet away from me when I start throwing those bombs. So one question for each of you. We're going to go in order of my screen, which means, Jason, we're going to start for you. Just quickly, what is a contrarian place or market where you are currently looking for startups and founders today? Oh, my God. What a spicy question. Contrary in place. I think AI enabled services like Athena are, you know, one of these areas where investors say,

oh, that's a services business. It does, you know, it's not venture scale. Just like they told me, oh, Uber's in the real world, Airbnb's in the real world, Tesla's in the real world, SpaceX is in the world, those are not venture-scale businesses. When I hear it's not a venture-scale business, and the founder says, I think there's a way for it to be a venture-scale business. Here's how I think it gets really big.

Then I pay attention. And, you know, sometimes it turns out to be CPG, and it's a dead end, it's a road to nowhere. Other times, you know, they do figure it out. hardware as a service like density.io. We're not investors in Woop, but I would put Woop in that category where the hardware just enables a SaaS subscription that's very high. Eighth Sleep, I think, is kind of like a healthcare product more, and we're investors in AteSleep. I think it's a healthcare product. So, you know, hardware as a service would be one that I, I think we figured out

early. And then this new one, which is, okay, you're abstracting some human services, maybe picking the developers, as Micro One does with AI and providing AI human services, these could be very interesting. And most people would say, that's not venture scale. And when I hear that's not venture scale, but I see it growing quickly, that cognitive dissonance makes me go say more. All right. Thank you, Jason.

Page, over to you. What is a breakout portfolio company that you have that you think deserves more attention? Oh, one I'm really excited about is a company called Intramotive. So one of our big VCs is backing incredible technical storytellers. And the founder, Tim Lucini, was a engineer at Boeing. Based in St. Louis, they have an incredible team of 50 engineers building electrified autonomous trains. And it's just like, it's so cool.

Like, I watch their videos and their investor updates. And I'm just like, I can't believe this is my job. That's a company that I am. What's the URL? Excited about intramotive.com, I think. Let me. M-O-T-E-V.com. Intra.

M-O-T-E-V.com. I just asked for an intro. Yeah, just like so incredible. So I'm excited hopefully to get to go out and visit them. Yeah, I mean, like, how sick is that? So we've invested heavily in applied AI, consumer wellness and longevity. And then the third space I'm spending more time in is deep tech. I spent like three years at Northrop Grumman in college and side mechanical engineering and computer science.

So that's an area of like deep passion of mine. And then yeah, my dad was like a, it worked at a contract manufacturing company that built MVPs of like form labs and ecoatm and minute key, all these like cloud enabled kios. So I'm really interested in the intersection of hardware and software as it relates to like what happens when he gets like human AI symbiosis. And then on the other side of that, like how does that affect? Like us as humans living like healthier and longer lives. So it's kind of like the dual enterprise consumer lens I take.

All right. Thank you very much. And then the closest off, Megan, last word goes to you. I was thinking, what could I ask her that would drive her slightly nuts? And I figured this is the most annoying question I could possibly come up with. So does the stock market close this year above or below current levels?

prognosticate. Above. Above, obviously. Not annoying. Really? Not annoying. Easy. Easy. We're at altimeter. We're super constructive on the outlook for the back half of the year. I think we we're through the worst of the volatility. Of course, there will still be some volatility. The one LP called the tariff tantrum took us all on a big ride. But we are very positive, particularly in tech as we look forward. All right. Well, thank you, Megan. Thank you, Paige.

Thank you, Jason. This has been Twist. We're back on Friday. Just giving up for Alex. Good job, Alex. Alex. Yeah, thanks you all. Wow, Alex.

Very impressive. It turns out I've been doing this since I had hair. Thank you all very much for coming. I appreciate it. Twist is back on Friday with the live news at noon, Texas time. 1 p.m. Eastern. We'll see you then. Bye.

Bye, bye, bye, bye. Thanks, guys.