I do think there's a really interesting Alternative approach to buyouts and Rollouts where you're getting enormous Leverage on the teams or assets that You're buying through generative AI but Then you have to do a very strong rip And replace technology cycle you have to Rework business process against Ai and Again traditional bio firms tend not to Be very good at that kind of stuff they Tend to be more we bring in an operator Who will you know cut some costs or Maybe optimize some things versus we're Going to rethink the whole thing through The lens of Technology a lot of the Stuff that happened in the last three or Four years is really around Capital Formation and not necessarily organizing Product Market fit I think we're getting Back to that it's clear that the YC Stuff is is evolving in a in a good way And I think that's all positive but We've run into them all over the world And I worry that there's just too many Folks starting companies and really Spending their wheels in a way that's Not going to help us this weekend Startups is brought to you by 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 CLA Innovation takes balance clas
CPA consultants and wealth advisors can Help you get from startup to where you Want to end up get started now at Caconnect.com And open phone create business phone Numbers for you and your team that were Through through an app on your Smartphone or desktop twist listeners Can get an extra 20% off any plan for Your first 6 months at open phone.com Twist welcome back to this week's Liquidity podcast today we have an All-Star lineup with me today I have Investor elot Gil next we have David York founder of VC fun of fund top tier Which has roughly $9 billion in assets And of course we have Jason calakas from The launch fund I'm your moderator David Weord co-founder of 10x Capital today we Have several interesting topics to Discuss We discuss how recession fears are Affecting Silicon Valley we discuss the Different incubator and accelerator Market as well as we break out cities And their dominance in certain startup Sectors let's get right to it recession Fears are taking over Silicon Valley With NASDAQ officially in correction Territory after being down 2.43% late Last week stock market fears come as a Result of recent data from the labor Department which saw unemployment rise And non-farm payrolls Rise by only
114,000 versus the 200,000 economists Predicted David you've been investing in The Venture asset class for over 24 Years in your experience what effect Does the overall economy have on the Startup ecosystem and what impact should We expect here the impact is basically In two areas one is the flow of capital And that's impacting in on the investor Side investors tend to tend to worry About their balance sheets and slow down The pace of investing uh the other area That impacts which I don't think people Think about completely is actually the Spend on the Enterprise side uh and We're going through a correction if you Will in the Enterprise space especially After the cloud computing era U kind of Morphed Enterprise spend and so that Part of the the ecosystem has actually Slowed down pretty materially and I Would say that will continue to Correlate as the economy goes through It's it's sorting out uh postco and is The startup ecosystem more greatly Effective by that or is it kind of on Par with the rest of the economy how Does that play out what we've found I Guess through that I mean I've lived Through several of these unfortunately Or fortunately depending how you think About it but you know um what happens When we have Corrections is people Reinvent themselves and Innovation
Percolates and ultimately takes hold and Creates a new economy a good example is If you go back and when when social Media really got started and around the The internet correction uh in the early 2000s 2001 23 time frame you know that Wasn't obvious to to most of us Primarily because it was happening at The household level uh if you think About people going on Facebook or group On or the like they were uh really on Their PCS they weren't on mobile phones You know the iPhone had not come out at That point and so um you're going to Have the same thing happen here I think One of the things makes this correction At least from our view more palatable And easy to kind of sit through is that What's going on with machine learning And artificial intelligence is is Becoming compellingly obvious in a way That for the first time uh we're having Essentially a pull if you will in Innovation as we get through this Correction and the other thing which I Talk about a lot with investors but you Know covid convinced us all that Technology was actually a good thing as Opposed to a Bad Thing uh a good example Is this podcast for instance uh you know We weren't doing these before Co today We are pretty regularly and I I would Say that most people in the world are Pretty comfortable with new technologies
Which coming out of the internet bubble Again that was quite so obvious uh and So I think those two things make this Correction feels like something we can Swallow and and we'll get through it you Know good example of that is kind of Where the chatter is around interest Rates I think that'll help for growth Investing as well so all those things Would make me feel like it's a good time To be putting money to work as opposed To being pulling away and elod you're in The eye of the storm when it relates to AI is the latest economic news having an Effect on AI or is it just too hot to Care yeah to some extent AI is um almost Like four market segments instead of Just one and maybe we can touch on two Of them just you know to uh talk about Them in more detail one is the sort of Semiconductor chip layer everybody knows Nvidia is one of the dominant or the Dominant player um in that market Segment or at least the biggest player Right now and if you look on a 5-year Horizon their stock is still up 2025x if You look on a one-year Horizon it's up Two 2 and a half X right now relative to Where it started just a year ago so Despite the the drop in Nvidia stock From you know recent highs it's still Doing quite well and that's because People are still buying a lot of chips To power AI applications if you go up a
Level and you talk about Foundation Models which are companies like open AI Or Google or people like that people I Think kind of misunderstand some of the Incentives in the system for those Companies their funding their Utilization Etc and so for example um VCS have invested hundreds of millions Of dollars in companies like open AI or En thropic but it's really the big cloud Providers who've invested most of the Money and they're investing billions and Billions of dollars in the case of open AI $10 billion plus to drive these Companies forward and one of the reasons They're doing it is it really drives Their own cloud businesses so for Example Azure had a$ 28 billion quarter Recently of which 8% of the quarter was New left from AI so AI generated $2 Billion a quarter in incremental revenue For Microsoft for Azure and so these are Really big meta Trends and those are Sort of the very big companies Participating on it obviously there's All the startups doing applications and Infrastructure and other things and There's just this enormous lift Happening right now now across these Various segments of AI so I think it Hasn't impacted the segment very much if At all and my anticipation actually is That the segment will continue to Accelerate because Enterprise adoption
Of AI despite being two billion dollars A quarter just on Microsoft um despite That we're in the very early days of Enterprise spend enterpris has basically Done nothing there so far so it's a very Exciting time I think from an AI Market Perspective the place Enterprises are Really slowed down the spend is in the S Ecosystem there's not as many seats uh Today as there were before and so we've Seen SAS Revenue growth really collapse Over the last last year or so and I Think these are all great thoughts and You know if you pull back a bit great Companies are built through all kinds of Markets typically so whether it's Google Or Uber you know or or pick the company Or BNB up and down markets don't really Matter for the truly great companies That get product Market fit because Consumers in the United States love Amazing exceptional products now average Products mid products they will have a Harder time because consumers or Businesses might do less sampling they Might tighten their bels a little bit so That's just a way to think about the two Groups of consumers we're talking about Enterprise consumers and regular Consumers if they feel rich they'll be Loosey Goosey you know getting a Purchase order through in 2018 1920 2020 Through your CFO or your head if you're Printing money your valuation is going
Up of your company your stocks going up You know just yeah sure whatever go to a Conference buy some software who cares We're we're printing money then when People feel bad they tighten even Beyond They need to right and so they just said We have 50 SAS products here it's got to Be 20 why 20 like it's that going to cut Into the bone or doesn't matter somebody Said to one he we've got to cut this Much and then zooming back a little bit And looking at what's actually happening In the market you have companies like Airbnb or Amazon saying hey we got Softness with the consumer specifically Consumer consumers not Enterprise uh and You know if you if you look at why uh Those are discounting brands those are People looking for discounts then you Look at Uber which is actually despite What people might think a high-end brand CU you know that's versus taking public Transportation or versus making your own Food generally speaking and they're Saying hey consumer's great things could Change but the consumer is great because They have high-end consumers so there's There's a lot of granularity here and When you start getting into Macroeconomics which I don't suggest Founders do or even Venture capitalists I really think you have to focus on Product Market fit and team building Above All Else and product those are the
Three things that actually determine Your success so um but just on a macro Basis you know inflation going up is Good for companies in some ways because They can charge more for their products It's bad because their inputs go up so It's a mixed bag and then with interest Rates going down well obviously that Could be great for the market because it Could increase the amount of investment And have people say well if I'm only Getting two or 3% in the savings account I should go for Venture I should go for Stocks and I should move money out of These you know five six% accounts people Are getting and and so All of it is a long way of saying you Know there are aspects to fundraising That are impacted I think so timing your Fundraising it is good to be thoughtful About Macro but what we do day-to-day as Capital allocators and as company Builders and Founders and and hopefully There's a little bit of overlap between Those two things you know at its best it Really is about staying focused on your Customer your product and the team that Builds that product to Delight those Customers and I I'm constantly trying to Talk to Founders about this and then They you know it's incredibly Frustrating when a Founder says I can't Raise money because the market crashed
And it's like no that's not why you Can't raise money the reason you can't Make raise money is because you do not Have strong product Market fit you have You know pretend product Market fit Where you're spending $100 to acquire a Customer that makes you 50 so you know What let never blame the outside Market Always focus on your customers is what I've learned Hard all right Founders we all know you Have too much to do so I'm going to save You time and money the two things that You value no matter what you're building You got to have a website we all know That and everybody judges you by your Website people judge a book by its cover That's why they say don't judge a book By its cover well the reason they Admonish people with that is because People do judge books by the cover That's why when you go to the airport Some covers they fly off the shelves the Good news is that Squarespace can help You because Squarespace not only will Make you a beautiful website man they do Main names and they have all kinds of Tools in AI now they got blueprint AI It's a tool that's going to help you Tweak your website by answering five Quick questions and once you have the Design sorted out and it's beautiful It's stunning man they got all these Other AI tools they going to help you
With all the copy you need you're going To save time save money and you're going To get that site online and wow your Customers Squarespace is the longest Running partner here on this week in Startups because they love startups Squarespace.com twist for a free trial When you're ready to launch you go to Squarespace.com twist you get 10% off Your first website or domain purchase And it's already affordable and it kicks Butt they're awesome they're constantly Adding new features that's all I have to Tell you I love it we use it Squarespace.com twist thank you to the Team over there for making great Products for startups elod you're Oftentimes the best friend to the CEOs That you invest in they they must ask You you know are we in growth mode are We in defensive mode how do you look at Macro factors and what advice do you Give Founders during different economic Cycles you know it it obviously differs A lot because if you're in the middle of The zero interest rate environment that We had during Co and capital is Incredibly cheap um that was a great Time for people to raise money and often During that period is actually Counseling people to not raise too much And keep their valuations within some Range so that they could always do an U Round if things collapsed and
Unfortunately things you know have Largely collapsed um in times like today The startup ecosystem is really Segmented into three pieces there's the AI stuff which we already talked about Out and then there's all the companies That got started before the AI wave and And a small percentage of those Companies say 10% 20% have started to Match or grow out of the valuations that They set two to three years ago and so They're finally hitting their stride That's companies like ripling and figma And others who've announced these sort Of ounds relative to what they've done Before there's probably 20 30% of Companies that hit their terminal value Two three years ago they'll still exit Or they'll do well but they're kind of Going to Flatline in terms of they've Hit their Peak right and then maybe half Of the companies should still um either Sell or a subset of them will go under And they just raise so much money that They have this enormous Runway ahead of Them and so to some extent the question There for for some of those Founders is If these are some of the best most Productive years of your life do you Want to keep working on something that Isn't going to work because you have the Money to do so um because you know if You sell or you on the company and Return capital or do whatever it is that
Makes sense to do in that context you May be able to go and do your next Startup or join a company that's working Really well and really take advantage of These incredibly productive years that You have ahead of you and so you know There's a lot of kind of conversations Along along those lines between those Three different types of companies what Are some options there so let's say Somebody raised 100 million and during The Zer era and you know they're not Going to be able to clear that Preference what are some options that Startup Founders have and how how have You seen that play out in the real world Yeah there's four or five options option One is to sell um if you can right and Some people will buy you for the cash Some people will buy you for what you've Built with that can accelerate it um two Is you shut down and return the money um Often Founders whove sold secondary Themselves find that to be more Troublesome option and part just because They feel bad about taking the money and Often I tell them it's okay like that You've you know the person on the other Side was an adult they knew what they Were buying in too you know they knew That they were giving you liquidity so It's okay to to to shut down um the Third is to use the cash to buy Something that is working and help scale
It or accelerate it with the money that You have and the fourth is change Direction but that tends not to work Once you've raise that much money and You're at that scale because the amount They have to catch up to for an entirely New business is so large that it's Extremely hard to do that but those tend To be the four options yeah those are Really good options and you know it's Very hard for people to reconcile I sold 10 million 20 million in secondary and This company's going to be worth zero But you know you you in some cases you Make a trade and you get the better of The other person they think they're Getting the better of youw obviously When they bought those shares because They thought they were going to get all That acceleration so um I I think it's Very good advice to understand that the Precious unit here is not the money it's Exceptional entrepreneurs time and if They just waste five years kind of Letting the money run down it's it is More problematic than just returning it Because everybody wants to get on to Spend their time on something that could Break the power law and be you know be Something exceptional we have so many Companies in our portfolio that are Great Founders who raised a ton of money Who are now sitting there and the last Three years have been
I don't want to say depressing but you Know really Depressing for some of them because Their revenue went down 30 40% they did Three riffs in three years and now maybe They're still losing customers adding Marginal customers and it just kind of Nets out to a sideways business and You're like well why am I doing all this Effort to have the business every year Do the same amount of Revenue and the Only way I make a profit is if I fire People who I love and so you just weird Things happen and it's very hard to tell A Founder even you know as a capital Allocator who's been through this so Many times like a lot it's like you're Going to tell a Founder who's being Offered some huge secondary some huge Rounds some huge valuation not to take It I know when I was in their shoes I Probably would have almost definitely Would have taken advantage of that Moment and you know then the Ramification becomes if you don't figure It out it gets weird uh so you took the Option to have a pile of cash you took Some chips off the table both were great Decisions but now you have to make Another hard decision and that's that is The challenge you know I think for a lot Of people it's just hard to to put Things to bed the thing that's clear
Just based on our experience because we Did fund a couple funds after the Internet Bubble Burst and a couple funds After the global financial crisis we're Really focused on this turnaround notion That that elad was talking about and at The end of the day it doesn't doesn't Have the right outcome it turns you can Turn it around and sell it but it's Still uh it's kind of a mediocre outcome No matter how much you try and there's a Lot of folks in the financial sponsor Realm that kind of think those are Opportunities too but I don't know I Found with technology if you if it's is The chase is if you don't product Market Fit it's really hard to find it and and Ultimately you've kind of tarnished what Your efforts are U but I'm curious both You guys how you think about financial Sponsors in in this environment or is That also kind of a loss leader at this Point because the companies are too Small what do you mean by Financial Sponsors in this firm sorry oh I see Yeah the BM sorry I was being Politically correct I ask people all the Time about what deals they've actually Seen what deals they've completed and I Haven't had many case studies I don't Know you lot if if any of your portfolio Companies have actually gone through a Successful buyout yeah there's been a Couple circumstances you know optimiz it
Got bought by Insight which was Effectively a private Equity Firm and There's a few others um you know the one That is kind of the the shop dour right Now is actually bending spoons which B Evernote and a few other companies and You know the rumor is that they B Basically Tak in very large teams it's It's kind of like Elon Musk on steroids Right you take a 100 or 200 person Company and you collapse it down to a Dozen people and you move the Engineering to a cheaper Geo and you Have this asset that you run and you Print cash right and so I actually think That's very underdone and one of the Things that Elon really showed through The context of Twitter is that you can Cut the team 80% and still have a Performing company and traditional Private Equity just hasn't done that That aggressively in Tech and so I Actually think experiment hasn't been Fully run we've seen rollups so um in The cyberspace for instance or various Other sort of what call commoditizing Software sectors with the big Tech shops Uh like Vista or um home Bravo and and I Still think that going to play but they Typically want to buy stuff that's you Know has an Enterprise value of three or 400 million and they think they can turn Into three or four billion um and They'll they'll bolt two or three
Together and and try to get economies a Scale um but it is another piece it's About a third of the liquidity that's Making its way into Venture Land over The last three years yeah one thing I've Actually been experimenting with which I Think is really um kind of interesting Is the rise of AI has actually created a New potential form of buyout and so I've Now backed one or two sort of AI driven Buyouts where the idea is um you have a Variety of companies uh in some cases in Traditional Services Industries where They have a lot what what I call like White color or email jobs right you're Kind of moving data you're synthesizing It you're writing stuff and that's Exactly the type of stuff that Generative AI can really impact if you Look at for example the Clara example of Cutting their customer Suess team by 700 People and replacing it with an AI System that's suddenly available 247 Higher MPS score Etc and so I do think There's a really interesting alternative Approach to buyouts and rollouts where You're getting enormous leverage on the Teams or assets that you're buying Through gen of AI but then you have to Do a very strong rip and replace Technology cycle you have to rework Business process against Ai and again Traditional biof firms tend not to be Very good at that kind of stuff they
Tend to be more we bring in an operator Who will you know cut some cost or maybe Optimize some things versus we're going To rethink the whole thing through the Lens of technology and so I think that's A very exciting area as well you know While we're on the topic of biots I was There for the first 30 days of elon's uh Twitter takeover and zerob based Budgeting is what was being done and you Know here's a blank sheet of paper how Many people should be in the pr group uh And Elon asked me that question and I Went and talked to them had 54 people Doing PR at uh Twitter and they the you Know what was the need we weren't going To do you know you I'm wasn't going to Do press interviews so why do we have 54 People here and these were not 54 you Know these were 54 very expensive people And it went to zero like not like one or Two like it went to zero we're not going To have a PR function if you have a Question for Elon go ask it on Twitter Was our Rule and so you can any Journalist can go ask him and if he want Answer it he'll answer it and it doesn't Need to be 54 people around the world You know uh on the phone managing these Relationships it's just a question from The Press we'll answer if we want to and So yeah that kind of thinking is really Powerful if you do it across 20 groups And like the spending spoon example with
Evernote like people love Evernote People will keep paying for it but what Do you do with a company that's making TW 10 to $50 million it's too small for Private Equity I love this idea of Somebody coming in and buying 10 of These having really good product teams And you know just delighting users and Having a huge margin it's really smart And that's how this next generation of Companies is being built anyway I don't Know if you see that on the game on the Field lead but I'm seeing so many Companies that are like yeah we're just Going to raise 500k for now we we don't Really want to raise 2 million we want To just keep the equity so we're going To just dilute 7% we're raising 500 Million at 5 six S8 million and and you Know we just want to build for 18 months It's four of us we only more money than That we're going to pay ourselves 125k Each done it's really admirable um this New set of companies that are just like Yeah I don't want the distraction of Raising a bunch of money and having a Bunch of investors and being on this Never ending fundraising Trail because I'll tell you by the end of 2020 it felt To me like many of the founders I was Working with their primary skill set was Raising money and not running the Company and they were just getting Really good at raising money like
Unbelievably good at it I mean coming Back every I don't know what the Cadence Was for you lot but I mean I had people Coming back to me every 6 to 9 months Telling me they were raising at U rounds And I'm like why I mean we have do we Need this money I like No but somebody Called us and they offered it so we're Taking it all right everybody welcome Back to the program Stephen Estis is With us again he's a principal at CLA They're a professional services provider They specialize in CPA tax Consulting And wealth advisory his areas of Expertise lie in VCB startups VC funds High growth startups with complex tax Issues in multi-state and international Filings welcome back to the program Stephen hey thanks Jason appreciate it Let's talk a little bit about the Differences between venture capital and Private Equity are you seeing private Equity people kind of dip down into the Venture Capital space as we're starting To see in silon Valley I think so Absolutely I mean we definitely see Those lines been blurred especially in The last 5 10 years but you know VC Traditionally a bit earlier stage I mean It can also be later stage but private Equity p is coming a little bit later VC A bit more high risk High reward PE Prefers to engage with startups after They've become EA positive but that
Being said I think that there's been Some shifting there and the lines have Definitely blurred for a later Stage Company private Equity can be a great Way to monetize the value that you guys Have already created and you can kind of Roll over the equity with the PE buyer So that's a great way to potentially get A second bite at the Apple if you will I Love sports so I would say PE firms like The Dink and dunk you know down the Field it's a high percentage play Minimal risk VC firms are really kind of Geared towards throwing the ball deep Down the field making the splash plays Right they're both trying to put points On the board but they're definitely Taking different approaches to the game All right you need a trusted adviser Taxes accting you don't want to play Games with this stuff get it right get a Great partner like CLA go to CLA Connect.com and let them know your boy J C senta once again CLA connect.com Next up Tech crunch is reporting that Bill Gates breakthrough energy which has Both a for-profit and nonprofit arm is Going early oftentimes reaching into Universities to find their most Promising Investments universities accelerators Incubators have all started to really Heat up and elod you've really been in The center of the storm there and we've
Seen an significant amount of entrance In the form of accelerators and Incubators going into preed outside of YC which one of the ecosystems are you Most interested in and what are ways That different groups are Differentiating in the space you know It's a really interesting question YC is Obviously still incredibly Central Important to silic Valley um there have Definitely been a variety of other Things that are either AI specific Programs or others that have risen Recently there's open AI runs a grant Program South Park Commons there's AI Grants there's uh convictions program Jack Alman has started one for SAS Related AI companies there's a variety Of these I think at a meta level the Really interesting thing is that Silicon Valley turns over in these five to seven Year Cycles where the companies that Founders aspire to be like shifts the CEOs that they look up to shifts the Companies that they try to emulate Shifts and the key networks that spawn Most of the founders shift and so right Now I think a lot of key Networks Include open AI Deep Mind Palante tier Stripe andil probably Fair out of Facebook SpaceX for Hardware you know There's a small number of places that Are spawning all the founders who are Doing the really interesting companies
And so I think um that has shifted Really over the last two to three years I think between the co era and the sort Of AI era uh we've seen a lot of Turnover and who's relevant and I think That's been a very exciting period of Time because that's usually when you Have these systemic changes in terms of Um you know what's happening in an Ecosystem can you explain maybe you Could unpack why why are ecosystems like The PayPal Mafia where you have 10 People produce such extraordinary Returns unpack that why do they have Such a competitive Advantage after being In these Ecosystems I think there's almost three Aspects of it um PayPal's kind of weird Because almost all the companies started By the PayPal folks except for YouTube Were started by Executives at PayPal and It's really under discussed you know the Founder of Y was VPN Reed Hoffman was um Initially on the board and then he ran BD was like a SV there Elon Musk was CEO Peter te was CEO Max lein was CTO they Were all Executives and the rank and File in people actually didn't start Much which is kind of odd nobody ever Talks about that um but I think what you Had is a dense network of highly Competitive individuals who both helped Each other but also wanted to see who's Going to do better or who could do
Equally good or surpass the outcome of PayPal um the second uh sort of aspect Of it is also often just like Talent Density the third is just like are People entrepreneurial or not and some Companies like the first I don't what it Was 20 30 employees of stripe a really Big subset of them were former Founders That they hired in so of course those People may go and start things again and Then there's to some extent wealth Generation and what's the balance Between people becoming wealthy enough That they can take risk but not so Wealthy that they don't want to work Again and that's also an aspect of it in Terms of how big are the cohorts that You see and so um at some of these these Companies you often see almost cohorts Of Founders that come out over time Where there's sort of uh you know They're they're almost like time Dependent where Google I think there was Two or three cohorts and sort of the Second one was the one that had Founders That started Twitter and Pinterest and Instagram and all these things and the First cohort had so much money that Often they didn't do very much yeah I Think the the competition is one of the Key things there and inspiring each Other and these collisions in small Groups of people if you look back on What happened in rock and roll as an
Analogy you know when you had Bob Dylan And the Beatles you know they really Influenced a whole generation of Musicians and then you saw you know Whether it was Leed Zeppelin dire shrait The Eagles Jackson Brown Bruce Springstein Mark knofler dire shits they Were all trying to look at each other's Songs so their medium wasn't startups it Was a song and they would look at each Other's songs and be like I need to do Something better than that I need to do Something better than blowing in the Wind like a rolling stone really hard to Top Bob Dylan um but you know Thunder Road or you know Pi pick your song Iconic song that came after it you can Follow it back to Dylan almost Universally including the Beatles um and You know obviously he got his stuff from Woody Guth and a bunch of other Interesting people now you fast forward To the 80s in New York so like I you Know I grew up in New York and I Remember rock and roll in the 70s and Punk rock and all that stuff emerging in The Lor side and at the same time I Watched bosot and warhall and then this Whole generation of artists do the same Thing and then when I came up in the 90s Magazines was the medium and I created The Cyber Surfer magazine and then Silicon alley reporter but I was Inspired by spy magazine and what they
Were doing over there or I had run into The Esquire people and my first job was Writing for this startup magazine paper And it is this sharing of knowledge that Occurs so you know when I was writing at Paper and I went to their offices I got To learn how it all worked oh that's Distribution oh that's how the cover Gets made oh these are this is the Graphic design Department oh this is Where the photographers are oh here's ad Sals and people share information it's One of the most beautiful things about Silicon Valley over our career is it Went from being like very people held All this information very close to their Vest and then two things really happened Blogging and podcasting where everybody Just got in a competition of who could Share and be the most helpful and I'm Happy to have played a part in both both Of those blogging and podcasting and so I think that's what drives these Networks a lot and then um I think right Now you know if there's another Factor That's occurring which is you know if You can get in early at a company you Don't face competition and I've been Saying this for over 10 years with our Accelerator and we're doing a 100 Companies a year people don't really Know it because they don't know about Founder University or they may have Heard of the launch accelerator but
They're not really watching it too much But we're meeting now Founders in year Zero so about half the people coming to Founder University which is 200 Companies now are haven't Incorporated Yet so we're just like if you have two Or three developers or technical people Product people will accept you into the Program and at any point in the program You can raise your hand and say can we Have 25 or 125k and we'll just write That check if it's a reasonably good Company and man that's just given us This tremendous Advantage we are Literally the first investor so now You know if I hit another Uber instead Of saying I'm the third or fourth I can Say we were the first right like I was In Thumbtack and Athena that's a really Great fun feeling as an investor to be The first second or third and you're not Competing you know we we we people Always ask us when we're raising from LP It's like how do you how do you compete For deals and I'm always like very Confused because there's no competition In years one and two it's only till you Get to like the Slate seed or series a That it gets very sharp elbowed 99% of The companies are passing the hat trying To get the first check so I think a lot Of people are looking at what combinator Did what I'm doing Tech Stars and some Of these other programs saying you know
That seems like a good life that seems Like a really good way to get in there Now what they don't realize is running These programs takes about 10 to 20 Times the resources as running a venture Firm so just pause for a second before You do it it's between 10 and 20 I have 21 people on my team right now so let You think that this is easy and we're a $50 million with 20 people which is a Lot and and David you have you have Roughly 9 billion to to deploy how do You play the accelerator incubator space Are you guys too big for that or are you Able to invest in space we've looked at Some of those we've tended to ring fats Around the ones that are interesting With the preed and Seed managers what I Keep hearing and seeing is that there is A sort of A Tale of Two Cities there's a Founder who really doesn't want that Help because they kind of been down the Road before and they kind of They actually want somebody can give and Bring some leverage to the to the cap Table if you will from their Relationships or knowledge or the like And and then there's the ones that Actually want to be in the incubators Because it's going to help them get Organized but as Jason was talking about Earlier I mean I a lot of the stuff that Happened in the last three or four years Was really around Capital formation and
And not necessarily organizing product Market fit uh I think we're getting back To that it's clear that the YC stuff is Is evolving in in a good way and I think that's all positive but we've Run into them all over the world and I Worry that there's just too many folks Starting companies and really spinning Their wheels in a way that's not going To help us do you see in this Environment in these difficult to Fundraise environment kind of more of a Resorting of talent into top companies Do do you see that in your GPS and your Portfolio it it hasn't taken hold but That's typically what happens uh or at Least that's what's happened after the Internet Bubble Burst is we have you Know a whole bunch of companies get Started and then within it took about Two or three years but in that period of Kind of between 02 and 05 there was Reality and was like we got to get Started again which is what elad was Talking about earlier about you know Selling uh and taking your chips off the Table so you could put your put your Effort into things that might work in The future def I think right yeah it's Kind of been deferred because people Raise so much money on the company side That well and Then it's created this sort of about Enthusiasm I do think uh that you know
The software stack gets Rewritten and a Lot of things that started with the old Stack probably are going to have to be Rewritten and that's a question of Economics at the board level as well as The founder level and that's not quite It's lot it has been deferred but I I Think that's coming we frame founder University as a place to run experiments We frame our accelerator as a place to Grow and accelerate the growth of a Company and if you just have that proper Framing you can really just not not Worry about the fact that there's too Many people or are these people Qualified or not or they going to quit It's really frustrating when you put a 500K C check or a million doll C check Into a company instead of them going Through an accelerator and then they Quit and they just burn through the Money and they should never have been Entrepreneurs and you realize oh my God We gave 500k or a million dollars to a Team that you know really presented well Or we maybe we got drunk on the idea or The market size and we kind of filled in The blanks Without Really knowing this Is a gritty team that's not going to Quit go on a 2-year sabatical and then Go back to some cushy job at Google or You know meta if those jobs even exist I Don't think those jobs exist anymore so This that's a kind of a question you
Didn't ask but you know I'm really been Watching these layoffs and it's been the Greatest thing ever for my business I Have to say you know so many of the Teams we have are ones who are like yeah I think I'm going to get laid off so I'm Starting a company on the side and You're like have you been laid off it's Like no I've made it through four rounds Of layoffs that you know include big Company but me and my two friends from That same company have been working on This thing on the weekend one of us quit We're doing it fulltime the other two Were kind of saving up and we're about To quit when we hit this milestone in Our you know vesting or something and um This Disillusionment with working at meta or Google or Microsoft that you're only Going to get laid off so what's the Point and they're not loyal to you has Created a little bit of a a chip you Know a little bit of like f these guys They're not loyal to us you know and Everybody's gotten a little a little bit Mercenary which I kind of like those Companies were offering such huge Packages for so long to anybody that it Just was draining the startup Market you Know and and now with people just not Trusting going to work at meta that They're going to get you know or not Trusting going to work at a company
Because they're going to get why should I go work at this company if I'm going To get laid off six months from now or 12 months from now like all those Tik Tok videos it's really putting young People's head you're on your own you Know and AI is going to kill your career So you better be resilient and you Better figure it out for yourself I like It I like this natural tension that's in The market right now between AI ending Careers and jobs and then big companies Getting fit and not needing people well What else are you going to do give up Some people are doing that you know There's a whole movement fire I don't Know if you heard about this like Financial Independence retire early like There's a whole group of people trying To get to a million in net worth it's Like a whole sub genre on Reddit they're Trying to get to a million dollars in Net worth and then take 4% out a year Which then means you you know you get to This number by 42 or 38 you never have To work again like people are saying Capitalism is screwed I'm just going to Be a homesteader I'm going to be a nomad And I'm going to quit and then another Group of people saying you know what I'm Going to compete because that's the only Way I'm going to survive I'm starting a Company and the Revenge startup thing is Like very palatable right now I think
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Direct competitor and it's like they Took secrets and documents it's like Prove it and it's like yeah we can't They didn't David I want to come back to Your question about incubators though Just an accelerators one of the things That we run into and I think some of the LPS that look at this space run into as Well is that we do have a duration clock Ticking you know our funds have a Certain amount of life to them uh we Can't hold things forever and so it's Been hard to actually enter where Jason's entering at at formation stage Today because of the the fact that it's It's kind of a 15E hold we we actually Like to see the liquidity years earlier Than that so the series a funds have Typically been where we've spent the Most of our Capital um although we do Have a bench with seed managers and the Like but that's usually usually the one Of the reasons why it's harder for LPS To do that yeah it's definitely a Problem I I definitely see that and I've Been told that by people who want to be LPS and they're like when did Robin Hood When did Uber exit and it's like year 12 Year 11 14 you know it's kind I don't Know if we're going to talk about Uniforms but there's there there is a Lot of very high highly valued private Companies today that don't feel like They're going to exit the next three or
Four years and what do you think David We we talked on the show about the Stripe uh buyback by and these kind of Different novel structures is there Anything practical being done about Liquidity you're in a lot of these Conversations what what is being Proposed and what do you see in the Future I mean the intro of really the Normality of uh private Market Secondaries and you know successful uh Private companies is I think here to Stay I mean it's it's a ecosystem that It's kind of evolved uh really since the Jobs act and some of those things allow People to talk to private companies Without interfering their ability to go Public so I don't see that changing it's Also a way for folks to get you know More exposure to things they want to own And that what's going to probably evolve And continue to get more efficient is The option Market where employees can Exercise options and actually transact Uh in a in a batch in a way that uh Helps the the uh the companies manage Liquidity for their employees you know We used to do that all in the public Marketplaces um and so it doesn't it Feels natural that it's happening in the Private Marketplace I don't see it going Away it's also where a lot of the growth Capital that was raised During the co period uh a lot of those
Managers are applying that and those and So they're very good performing private Companies to get more exposure and Frankly at better pricing I think There's going to be a set of companies Too that um never go public And space ax you know I invested in Stripe I guess 14 years ago now Something like that at least my initial Investment there um you know I have you Sold shares in secondary I have not I Have not no look at you so long he's Keep going stripe is one of those that I'll hold as long as uh as long as they Don't kick me off as long as they don't Kick me off the cap table he's yeah but I mean is the it's now the canonical Example is just you know people were in That thing since 2009 10 11 like Sam Mman and I did stripe in Uber as Sequoia Scouts in 2009 I think and like that's What's being sold or part of what's Being sold now I think is that position In this uh this Cale and I I do think Secondary is something I'm getting more And more interested in we took advantage Of almost every secondary opportunity we Had during Peak Zer um and I'm very Happy we did that uh obviously but we Didn't proactively do it it it I was Never taught by you know SEO or Bill Gurley any of the people I've had as Mentors like that I should be Proactively looking for secondary
Opportunities it was always rer winners And you know uh hold for you know the Last couple of double UPS I'm actually Thinking we should have a secondary a Person in our organization who's very Focused on looking for secondary Opportunities both buying things maybe And selling things and just be Monitoring that monitor more monitoring That more actively and that's my my Point David I think that what Jason just Describ is going to become more table Stakes within uh these Venture firms Because it just duration is going to uh Kind of kill the investor base if if They don't manage towards it don't worry Lena Khan's out she's going to be Working at I my prediction is Lena Khan's working at a venture capital firm At this time next year I think that's Why she's spending so much time in the Bay Area I could see A6z one of the big ones who likes Politicians you know and do our policy Yeah people who care about policy and Want to get closer to that because she You notice she's been speaking at why Combinator and talking about tech like Little Tech with a you know she's Basically pandering knowing she's not Going to have her job and that she's Going to get some million dollar a year Job as a partner at one of these firms It's going to be like an Al Gore type
Situation with gler I agree elot you Mentioned the Perpetual private startup How does that work in actuality yeah I Mean typically what happens is um the Companies have to do two or three things And by the way there's lots of companies That have actually been private either Since their Inception or generationally Bloomberg is an example Cargill as an Example um Coke Industries so Dupont so You know this is not a New Concept um I Think it just hasn't hasn't been applied As aggressively in Tech you know there's All sorts of arguments in terms of why You want to go public and often those Has those come down to things like a a Liquid currency that you can use to buy Other companies or do m&a or compensate People it sometimes comes down to Ability to raise money if you need it Very easily you know so there's two or Three reasons that you often decide to Go public and if you're one of these Companies that is really viewed as sort Of a generational winner in some cases You don't have to go through all that Right you may be profitable or close to It there may be enormous Market appetite To own your shares so if you need to Raise money you can do it pretty easily And then people uh will accept your Currency effectively your stock either For compensation or m&a and they'll sort Of believe your price and so if you have
Those things the pressure to do it Sometimes goes down so the way that People often do it is they if they Started off as a BCB company they need To basically buy out two types of people They need to buy out early investors who Want liquidity or need it and so often They do that in the form of tenders or Their their own buyback you know some Companies have bought back their own Shares themselves and then the other way To do it is um or the other thing you Have to focus on is a constituency is Your employees and in some cases options Have some x-r period on them where You'll lose the option if you don't use It or if you're issuing rsus which are a Specific type of structure that you Often use as you go towards getting Public those often have a clock Associated with going public on them and So sometimes you need to come up with a Way to buy those out and so often There's tax implications to your Employees in doing that and so you need To raise money to help offset the tax Basis for that so um usually it just Becomes a series of tenders or stock Purchases by new investors coming in and Clearing out prior stakeholders I think One of the issues to really solve around Is the cost of capital uh when you look At kind of venture you need to get at a Minimum mid teens really low 20s return
So company needs to be able needs to be Really like a SpaceX that's able to Compound continuously at 20% there's Just a finite amount of companies that Do that and then implicitly this the Public shareholders come in and they're Able to do like a lower teen return than Normal like a thought experiment what if Google you know or Uber um trying to Think of a company that eventually Became a money printing machine so Uber Just that just happened for the last Couple quarters but take Google as an Example or apple an even better example What if they had never gone public or They went private at some point and Instead of doing this massive stock Based comp they just gave people 50% Bonuses in a great year 100% bonuses in Whatever incredible year like these Companies would be worth much more their Enterprise Value would be much more and I don't think people would have quit and I think now that Talent is looked at a Little bit differently in you know and The pendulum swings back and forth but In the age of AI like feels like Talent Is going to be treated much differently This idea that you need tons of stock Options and incredible chefs and Neeman Mark you know a Neeman Ranch Stakes to You know to get the great talent just Seems farsal you know Uber and Airbnb And meta have less employees or the same
Employees as they did three years ago And their revenue is you know up Somewhere between you know whatever 15 To 20% a year so you know up 60 70% smaller head count or same head Count so I think this idea of like just Dumping just dumping tons of stock comp On people that might be coming to an end Too yeah to combine two your points Because because I totally agree with you I mean and that's these long private Companies that's what they do right Bloomberg and Coke and others they Basically create almost like synthetic Stock and they paid it out as cash and When you leave that gets recycled back In and honestly that's how a lot of Partnerships work in terms of law firms Or other types of firms um but to Combine to your points Jason like There's the um Capital efficiency Argument and then there's sort of like Du State private argument and the Reality is a lot of the best biggest Companies in Tech traditionally been Highly Capital efficient Microsoft Raised around right before when public Because I need the money they just some Had somebody at the Venture firm they Wanted as a board member right so as was A prea r Dell bootstrapped and they did A small round right before they went Public for similar reasons so they never Needed to raise money eBay took all of
Its money and just kept it in the bank Yahoo took all the money and just put it In the bank so a lot of the businesses Across multiple Generations were Incredibly Capital efficient and they Didn't touch the Venture Capital that They raised anyhow right and so I think People forget historically that that a Lot of the best businesses for long Periods of time printed cat in some Cases from day one mid journey is doing That now on the AI side where they're Entirely bootstrapped you know there's Other examples like that and so I think To your point earlier too many people Get on the Venture Capital train when They really shouldn't well the VC model At those companies was much different it Was that you basically let others above You pay for the performance and so you Kind of worked your way out of the Company the other thing was different And we haven't touched on it but again Back to the jobs act um you know if you Had a certain number of shareholders you Had to go public and so that was Facebook is the best example that day Yeah so I mean that's been changed in a Way that it's not quite so rigorous but Those that those are some of the things That motivated these businesses to go Public public currency to buy stuff if You go look at the pre-markets on you Know all the companies that elot
Mentioned they're all you know sub 500 Million and so it was just a different Time you know we'll see what happens you Know I could see The Regulators getting Back to making these companies go public You know time will tell and David uh you You run a fun of fund so you invest in Venture funds and in the last five years The amount of ownership that the top Fund or series a series B lead has gone Down how do you see that how do you see The future venture capital in terms of Ownership versus efficiency you have Less dilution like how do you see those Playing out and will we always see the Same model that we've had the last you Know 10 10 20 years I don't think the Venture capitalist models get a change a Lot in the near term unless we change Some some other components like taxes or Regulatory environment and the like um It's just been in place for a very long Time and and the limited partnership as A concept's been in place for such a Long period of time that they think Capital itself is kind of wedded to it And if you think about it sort of its Root level but um ownership is an issue As far as veteran models are concern Because you know at the end of the day Um you know for no matter how good you Are there's only a handful of companies That really Drive material amount of Outcome and a fund and and to make that
Really work you need enough ownership That when you do get your liquidity it's Relevant and um so I I I worry about Valuations essentially pricing The Venture firms out of that performance um You know it's part of the reason why we Focus primarily on early stage is so That the manager and the underlying Company actually you're starting at the Right spot which is reasonably Reasonably High Teens ownership the Incubations that are done inside those Shops tend to have a lot better Ownership but again the outcomes aren't Quite as you know not not always Reliable some of them really work quite Well especially in the life science Space uh we're starting to see some of This in the in the cyber security space But you know incubation is hard at the Venture fund level because there's not Enough uh essentially shots on goal with Those incubations so but the ownership's Very attractive and the other thing that Happened during that time period people Forget was this Delaware section 220 Requests which you know if you own but One share of Facebook or whatever Company and you have a decent reason it Doesn't have to I mean you can't do a Fishing expedition to specifically carve That out you can just say I want to know The revenue I want to know the employee Account I want to know how you're
Spending money I want to know the travel And entertainment expense I want to know You know whatever and this this happened To Facebook a lot of folks started suing Facebook to who had bought secondary Shares and I think they did the same to Zinga and then they had these people Coming in and they reconciled it by Having like a documents room so Shareholders could come and inspect the Documents you know pnls whatever Revenue Charts in a room with a lawyer present With their lawyer present they got all Contentious uh during that time period And you know it's great that now that There's you're able to have more private Companies but more more private Ownership in private companies without Triggering uh going public but you still Have this 220 request that can occur and I've seen it um where things get Contentious and it's like this precursor To um litigation or Discovery through Litigation and Market performance yeah it's almost like People are trying to hack the the public Markets with this new secondary concept It's one of the things I've learned now Over this last decade is like if you put Your thumb on the scale and you try to Mess with capitalism capitalism finds a Way it's literally like nature finds a Way from Jurassic Park and we're seeing All these Aqua hires you know that make
No sense like yeah we're just hiring the People we're not buying the company but We gave the company a licensing deal and I'm like how does that work how does the Tax flow through if Microsoft or Google Are buying character Ai and they give Them some deal and but they're not Buying the shares on the company like What's the tax treatment on that does Anybody understand that like they're not LLC you're going to pay Double yeah I know that there it's it's Interesting because the m&a team used to Work for me at Twitter like I don't know How many years ago now um you know over A decade ago and we actually would use That structure quite a bit cuz while That team was working for me we bought You know two three four companies a Month at Twitter for some period of time A big chunk of I think like 25% of our Engineering and productor came through That and there's basically two ways to Do m&a you would just buy a company and Buy share buy all the shares out and Then integrate it in and the other Structure that you'd use was basically This um license and release form uh Structure where basically instead of Having hundreds of pages of documents You'd have a really Slim 10 20 Page Thing where you would license the IP and Code from the company in some cases non- Exclusively
You'd um get a release to hire the team In and then the company would continue To exist and maybe somebody was still Running it maybe so it's a very old Structure that um you know we did years Ago because it was a very fast easy Performant way to acquire things and in Some cases um you know the founder Whoever wanted to keep running the Business or you know some some subset of The team want to keep going with it or And the acquired didn't see value Necessarily and maintaining that asset So or the liability of that asset in Some cases and often times El you were You were hiring teams that had a Cohesive way of working together you Would have three to five people that are Really effective in producing products Together and they they weren't going to Continue working on whatever they were Working on right was was that one of the Strategy yeah I mean that's part of the Strategy um and there's all sorts of Ways or reasons that we would do this um Even years ago and so I think this is an Older structure than a lot of people Realize and I think there's been some High-profile things that have happened More recently and and some cases they May not be Acquisitions they may be Different structures right I don't I Don't know the details of of what's Happened recently in the market in AI
Relative to these these other things Right that um were mentioned I'm just Saying years ago uh people would use These sorts of structures for um Effectively onboarding teams that they Were wonder how the LPS and the GPS and Everybody got paid then like they just Pass the revenue through through some Agreement when they when the board Approved it and then I guess they had to Pay tax corporate tax then you have to Pay different taxation so often you Would end up with capital gains Treatment least for again the things That I was involved with the Twitter Which may be very different I have no Idea how some of the did this kind of Asset purchases as well and when I sold Web logs in to them they kind of topped Us off based on the tax Delta from Buying the company and they did an asset Purchase and it was much easier for them To get it through next Up ca has put out A report detailing cities in their Dominance in certain startup sectors not Surprisingly cities like New York had a Strong presence in fintech Boston San Diego and biotech David and elod you Both still live in the Bay Area Following Co how much of a startup Investing is still local game and how Much does geography matter today let me Puse some data so um every six months or So my chiefest staff um basically pulls
Data on where is unicorn market cap Aggregating over time and it's a Unicorns are of course companies worth a Billion dollars or more this tends to be A backwards looking indicator because Ultimately you have to be a couple years Old in many cases to hit unicorn status But basically what we ask is from a Geographic perspective where are things Um so this is just the US traditionally Is about 55% of global unicorn market Cap that's about $2 Trillion in private company market cap The Bay Area loan tends to be about a Quarter of global unicorn market cap so It tends to be very concentrated and Then there's kind of a tale of cities as That sort of drops off from a Global Perspective and if you look over time You see these things tend to be Reasonably consistent the US has roughly Been 50 to 55% China has actually decreased Overtime in part because they're really Big players like Alibaba and others have Created their own subunits that Effectively play the role of startups in The US so alipay versus stripe you know Alipay is a subsidiary of alib Baba Things like that and Europe has actually Been increasing over time from something Like 8 to 12% so 50% growth over the Last five years which is impressive and You see that on the AI side the big
Shift that we've seen over the last year Or so is an AI market cap so the US is Now 90% of generative AI unicorn market Cap while it's only 58% of other market Cap in general right so AI is very Concentrated in the US Europe is next at About 4% and if you look on a regional Basis the Bay Area is about 80% of gen Market cap and these numbers um are the Latest sort of public marks for many of These companies New York is next um Although it's really a small number of Companies and then the Paris London Corridor is really emerging I think is One of the the other hot beds between Mistral and a few companies but in Reality um it's very concentrated and Gen is actually making even more so if You do break it down by industry like What CA has done we actually find that Um some cities have very clear clusters For example most of the uh market cap in New York is really fintech and crypto uh Most of the market cap in La is Basically SpaceX and andil uh which is Basically arrow and defense and so you Know these things really do cluster in a Deep way and we see a bunch of cloud Startups and things of that nature up in Seattle for instance as well with with Amazon and Microsoft um the only other Thing I was going to add to this which I Thought the slide would are a great Intro uh we continue to hear from our
Managers about the talent in San Francisco is really two to three times If not four uh times better on on the AF Front than uh other parts of the country And so we we're seeing sort of a Graduation and gravitation to the Bay Area like we did uh really around the Internet so it feels like if anything if You want to really build a good AI Business you've got to have some Presence here if not start your business Here yeah I would agree uh the bay are Is still number one will still be number One for a long time um but we see Founders coming from anywhere and most Of these teams now are distributed teams Anyway and so what you'll find is the Founders in San Francisco they got teams In Miami Austin whatever people are Spread out to the to the five points and Um I do think you know if you're looking At startups in general and the early They're very willing to move around That's actually another really Interesting part of this so um it used To be we only ran our accelerator in Person if you weren't willing to spend The 12 weeks in San Francisco then we Just wouldn't accept you why combinated With the same thing and now there's just Not enough room in San Francisco for Everybody as crazy as that seems and so People are you know wanting to you I'm Talking about these young folks outside
Of the AI Movement Like The Language Model movement people building Verticalized apps they're in La New York You know Miami Austin and so uh I made The decision I'm going to be in Austin Um for personal reasons um largely but Also because I think this is going to be The next big Tech Hub um I truly believe That with what's happening with Tesla Here and just watching Venture come here Joe Lonsdale or you know Joe jebba from Airbnb basing here and doing his new Startup here the sense of being able to Build a large team in a location I think People are going back to offices Teams that are together are going to do Great and then when companies scale They're going to need to look at places Other than the Bay Area and I think it's Going to be Austin is going to be the Place that wins long term uh you know as That second of their City just like New York did um I think New York became like A really viable option for people and I Was early to that one too with Sil alley When people thought New York's never Going to have a presence in Tech and It's like where do young people want to Live and you know I think they want to Live in basically four cities five Cities in the United States or really Interesting to them um but with our Accelerator the other thing we've done Is we're having people do two or three
Weeks in Austin a week in New York two Or three weeks in San Francisco so I'm Actually right now re-architecting How these teams work which is they need To spend a couple of weeks in the bay They need to spend a couple of weeks in New York and you know if you're in New York for a couple weeks yeah your Chances of meeting with Fred Wilson and Union Square go way up because you're There for four weeks or two weeks and so I think that's going to be the Advantage Is people who are willing to spend a Little time in each c meeting that Capital uh and that that's the bet I'm Making elot I uh I brought brought your Book uh from from my home into the Office today you wrote high growth Handbook you deal with a lot of late Stage companies how common is it for a Company like a SpaceX to up and move When it's mature and what are some use Cases on that and how does that work Yeah I think um the Bay Area and part to Toy has actually seen a number of Companies leave recently uh you know Obviously X is moving to it's its Headquarters to Austin but also actually The office is moving down to sou San Francisco strip moved to sou San Francisco coinbase basically went remote Uh you know block has sort of Discontinued some of it space in Midmarket and SF and so I think there's
Been a real transition paler I think Moved to Colorado from um the Bay Area And so sometimes you see companies move Often they're moving for a variety of Reasons and and sometimes it's driven by Regulatory changes or extra taxation or Other things that um some of these Cities or uh you know state governments Are imposing on them or they feel like It's a bad place for them to do business For political or other reasons and Entire workforces are just supplanting And moving and what's the retention look Like in those cases yeah often what you See is either people just move wholesale And in some cases it's just you're Moving a city right um uh in the Bay Area and so that's a little bit less Disruptive in some cases you're saying We're going to stop hiring in certain Regions and we're just going to open up New job recks elsewhere and we'll kind Of let it at trit out or we'll you know If we do a layoff we'll concentrate it In a certain region that Our intention Is to exit over time and so it's a mix Of both um I do think many companies Really over hired during the Zer era it Wasn't just Twitter and it's many of the Big tech companies you know like I think Google went from 120 to 19 190,000 People in two years and so despite the Recent cuts and everything else they're Still quite large relative to where they
Started just a couple years ago um and So I do think there's still room for Some of these companies to shrink and Sometimes they'll decide to Differentially shrink based on region And they're throwing the gauntlet down I Saw Dell uh recently Pensky media a Number of companies uh even traditional Ones I think Target or Walmart um have Just said you know we're coming back to Office um and then people write a Petition and then they say okay you know I guess we know who we're laying off or If you're not here at that time take That as your resignation uh and Dell Actually the Dell story is fascinating It it seems they told everybody listen If you don't come back to office you Can't get a raise and you can't get a Promotion and people are like I'm okay With that it's more valuable to me to Live at Lake Tahoe or Colorado wherever The you know Aspen wherever they're at And I don't mind I'll stay at 150k for The next 5 years I'll keep the job if That's the deal I don't need to get a Raise or a promotion I My Lifestyle Matters more and so this what happened During covid in this you know sort of War between capital and management and With Rank and file workers in the age of AI you have this superstorm Occurring you know people are hiring People internationally so all of our
Operations now is done by Athena we can Scale it up we can scale it down if we Don't like an employee we flip it and Why would we do any operations and They're training them all on AI great we Don't need to worry about like what Would be kids out of school operations People that whole thing's been Abstracted away and it's going to go Away because of AI um or be like a you Know human you know doing a lot with AI You know and then you look at marketing You know you look at sales like these Jobs are really at risk and people are Tightening their belts those things go Away if you don't want to come to the Office you don't have to and so I think You know there's going to be a major Movement to back to office and all it Took was a crisis and a little bit of Bravery what happened with Twitter and Then obviously Zuckerberg followed Twitter and got rid of 25,000 people Google followed them and now you know Listen that there is no question that if You're a manager in 2024 or a public Company the greatest way to make your Stock go up is to do a a riff and then The people who remain get more comp and They're more efficient and then you get Them to come back to an office that That's the strategy and uh you know we Call it the gentleman's riff internally We don't want to do a riff we're just
Going to tell you you have to come back To the office Amazon is doing it too you Now of course if the CEO doesn't come Back to the office it's a little bit Weird so like Zuckerberg's like we're Coming back to the office and I was Talking to some people who work for him And you know the wider group and they're Like yeah but he's in Kawai and Tahoe You Know well but and he's not in the office So it's kind of like well what are we Doing here you know or Benny off said You know uh Salesforce was never going To go back and they totally flipped that Now like we're coming back the end and I Think what people are realizing is you Can't manage a team at scale remote not And if you have competitors where you Have activist investors it's just not Going to get the same results now I I do Think the top 20% of people probably Work better at home there's probably Another 20 or 30% who are equal but the Bottom 50% is there anybody on this Podcast who thinks the bottom 50% do Better at Home I don't you know there's no Mentorship there's no camaraderie There's no you know a spr to corpse what Do you think and David uh you in this Return to office culture you you back GPS do you see a trend in the top GPS Asking everybody to come into the office
Or is it different for Venture Capital It's slowly getting there I we don't see 100% in the office but we're I would say The blend is greater than three days um And probably going to four uh it feels Like either Fridays or Mondays are kind Of you know a sacr but it does feel like Everybody is starting to get back in the Office uh we have very few remote only Firms in our EOS at least in our book I Call four plus yeah yeah I think at the Start on the startup side the early Stage startups you know seed and a that I that I'm seeing that are the best Companies like 80 90% of them at this Point are fully in office or there are Four days a week or something um as Things get later it's more mixed you Know 3 4 days a week and then there's Some companies that have always been 5 Days a week no matter what you know Applied intuition was a good example Where that was that yeah he was just Adant that's the way we're going to do It yeah the second they could be back in The office they're back in the office And they were five days a week so it's It's very cultural and you can just set The cultural tone and people will do it You just have to be consistent and it Feels like those companies sold it out In a way that It ultimately attract the Right kind of people for their culture As part of my move to Austin I am
Building an in-person culture again I'm Grandfathering and a lot of people in my Team who are amazing remote workers and We have some Arbitrage with Athena you Know and people in Manila and we have a Lot of people in Canada which is another Arbitrage they stay longer they cost 25% Less because of the currency exchange And they're more loyal uh they they stay At your company longer uh but I'm only Hiring people in person and then I'm Giving incentives for people to move in And we're going to 5day a week you know And having the accelerator be in person Because I think it's going to be a Massive competitive advantage to have And I'm I'm I haven't discussed this but I'm going to build like a retreat center Or buy one so I'm currently looking for Like a retreat center here you know they Have these like places where people have Weddings and they have 20 cabins like my Master plan here is to get one of those I'm going to buy it personally and then Have my Founders come and spend two Weeks here and then have VCS here have People who do growth you know have all The talks have the collisions have them Work with each other and then do it by Vertical so we have about 40 Marketplaces that have gone through our Accelerator that are active we're going To have a Marketplace week where I'm Bringing them all together all 40
Companies you know in Texas for two Weeks with their teams and then talks Etc and I think this is the advantage um That of the future is getting people Back with other you know driven folks Just like I was talking about you know Andy Warhol had the factory and people Were welcome to just stop by the factory And some weekend he'd be painting other Weekends he'd have Bob Dylan stopping by He'd have Ginsburg stopping by to do Poetry he had people painting in the Space you know I I think those Collisions there have been cafes in France where different authors and you Know hung out with each other you know And and were competitive with each other I believe in this Collision thing and I Believe in this kind of artists you know Looking at each other and you know Getting motivation to to build the Future and so it's a big part of my Master plan uh for our firm I think it's Important to double click and unpack why In person is so important obviously you Don't have your distraction you don't Have your dog running around you don't Have your your significant other you Know distracting you but also obviously Social isolation it's just it's like one Of those things it seems like it's fun To stay inside and and stay by yourself But after a while it it becomes very Socially isolating but most importantly
For early stage startups the success of A startup depends on the speed of which It's able to iterate and if you are Remote you're only really going to call Other team members and other people when You have a very good reason to interrupt Them but when you're in person you're Able to to just be around the office Especially with open Office cultures and You're able just to iterate quicker and Get feedback quicker and get motivated By other people working so I think you Know if you take away the speed of a Startup early on you take away a Startup's main advantage and I think That's why we're seeing that probably The top startups are going to go to five Days a week obviously four days a week Is probably a better lifestyle perk but If you're competing in something like AI That's changing every month on such a Such a fast pace I think you if you want To be the winner in the winner take-all Market you have to really go to the F Five day a week Model A lot of the Startups that I know that are um what I Consider almost like the hardcore Startups in AI are some of the ones that Are doing best are actually six days a Week in right now um I was about to make That joke it's not a joke when we came Up five days a week was a short week you Know VCS used to come to people's uh Offices on purpose this was like a
Moritz thing he would come on a Saturday Or come at night and after they finish Their day at seoa they would go to their Startups at 7:00 8:00 after they had Family dinner and they would just go Hang out with the management there and They would just know how the company was Doing based on how many cars were in the Parking lot and how much Buzz there was At 8:00 at night yeah know I wasn't I Wasn't joking I'm actually serious about It and I remember um I used to visit Square sometimes and I'd go see Keith or Jack and they'd always ask me to beat on Sunday you know and so I think um I Think a lot of that has come back I Think there is a Nuance which is um how Many days a week are you working or hard How hard are you working early on and Then there's are you remote or not and Before um Co there was a very very small Number of companies that were actually Fully remote and the only ones that Really hit scale were gitlab and then Automatic and then there was like one Other one and that was it right that was The whole world of remote companies I Actually invested in gitlab when it was Four people and I think one of the Things that they did that was really Smart is they rethought all of their Systems and processes to actually be Able to deal with remote effectively and To be able to scale that and they they
Started doing that I remember when I Founded them 2012 or 14 or what I can't Remember how what that was and so they They made it work and I think um you Know the the later the stage the company Gets and the more repetitive what They're doing is or repeatable it is to Some extent You could argue the less you Need to be in the office every day Although the you know most motivated Teams often are um but you don't have to Be that way as you get quite large and So it's really that question of Trade-off are you doing something new or Not you know because if you're doing Something new in a big company you Actually want to be in person more if You can be um are you doing something Highly repeatable what's your role so You know before covid uh sometimes you'd Make exceptions for exceptional Employees or if you were a sales team You were remote but often remote meant You were at the customer site right your Office was the customer and so you kind Of have to I think also look at these Nuances relative to some of these rules I always think like when you have a Great discussion like this I can always Tell when I have action items to to go Do stuff after fire Everyone well I'm just Kidd everybody Move back to San Francisco yeah I think The future is really like um smaller
Teams more Elite teams and lots of Intention yeah really intentional yeah Static team size is you know I keep Telling my team they're like who's gonna Do this I'm like we're going to do it We're going to automate it we're going To deprecate it or we're going to Delegate it And I just they're like did you just say Add I'm like yes automate this there's No reason for us to be you know doing This manually or delegate it to somebody At Athena or you know some outside firm Or whatever we can do to delegate it or You know and then ask yourself are we Why are we doing this right that's like One of the things I noticed people just Keep doing repetitive work and they they Don't say what is the value of this uh Thing that we're or the the busy to be Busy kind of stuff is still prevalent Efficiency versus Effectiveness yeah I mean Super to help Me and it's like you're not working you Know maybe we need to automate what You're doing so you're not so busy and Essentialism is so critical like you Know especially when you're running a Venture firm it's like who are the Winning companies in our portfolio how Do we make them win bigger like once you Really truly grock the power law it's Like yeah okay we made 30300 whatever The number is in your fund or firm
Which ones are going to actually Materially impact DPI how can we rally As many resources into that while Finding the next one and you know that's Hard for people to do um and to be that Cutthroat but I I've watched some of my Peers where like they just know this not Going anywhere yeah and they just leave They just leave the board like yeah this Isn't gonna work out we're leaving the Board I'm like but you put four million Dollars and they're like yeah and we Have another company that we need to put Our attention on that's more intentional With the firms yeah I do think there's Going to be a lot of that I think we're Going to see some Automation in our Category I still think it's about people So you're not going to lose that per say But um it we're gonna be a lot more Fishing I think as an industry yeah it's Great to see everybody thank you great Seeing everybody good to catch up yeah Great to see all thanks for let me know When you're in Texas get some rims yeaw come by the Horse ranch uh well it's been another Great episode uh great Allstar cast Thank you for joining for David York Elot Gill J Cal canis this is your host David Weir thanks for listening
