Is there an advantage to being AI native Architecture versus traditional software SAS architecture with an AI feature in Other words are we disrupting a Generation of SAS with AI native Applications that to me is the critical Thing the hyperscalers will will have a Business model like you say whether it's Infan as a service workload as a service They will figure it out but it's Everything else at the Venture ecosystem Systems funding and has funded over the Last six years that is where I'm trying To figure out the technical assistance And that is with Constantine and I talk About this weekend startups is brought To you by open phone create business Phone numbers for you and your team that Work through an app on your smartphone Or desktop twist listeners can get an Extra 20% off any plan for your first 6 Months at open phone.com Twist Eight sleep good sleep is the Ultimate Game Changer the newest generation of The Pod the Pod 4 ultra has arrived head To 8sleep.com Twist and use code twist to get $350 off The Pod 4 ultra and Dev Squad most Dev Agencies only offer developers why Because product management is hard get An entire product team for the cost of One US developer plus 10% off at Dev Squad.com Twist welcome back to this week's
Liquidity podcast with me today I have Constantine buer from Sequoia next we Have Anna Marshall from the hulet Foundation of course we have Jason Calanis from the launch fund I'm your Moderator David weisbord co-founder of 10x Capital today we have several great Topics to discuss uh the number of VCS Who have decided not to raise another Fund has doubled from the same time last Year Cisco is investing $1 billion into The AI startup ecosystem and will finish With the latest three investments from Constantine and Jason before we dive in Here I'd love to hear a little bit about Seo's relationship with the hula Foundation Anna how did you and Constantine meet I met Constantine at an Annual meeting uh many years ago fulet Has been part of seoa the seoa family For over the 20 years that I've been There um it was a relationship that Preceded me since I got to the Foundation and my job at every annual Meeting is yes to hang out with the Managing Partners but it's also to go And develop relationships with all the New talent and what at one annual Meeting Constantine and I struck up our Conversation and I am very deep in the Weeds in Tech and so I love having my Conversations with Constantine on Whatever the newest thing is intact and We go deep deep deep on things things
Like AI or crypto or any other subject Great well let's get started according To pitchbook the number of VCS who don't Plan to raise another fund next year Doubled from 6% for the first half last Year to 133% for the first half this Year though likely to be double from Last year this number is likely under Reported given that 38% of VC's disappeared from deal making With only 2725 active firms in the market right Now Considerably down Constantine obviously Seoa doesn't have much issues Fundraising but you are affected by this Weaker Venture Market is this reflected In the pricing and valuations you're Able to achieve today so first David uh You pulled up the chart this is Cancelled or pulled in it looks like and I imagine how much of that is being Pulled in I mean people are taking a Longer time to deploy I don't know how Much of that is actually we're not going To go people are not going to go raise Another venture fund versus their Extending the length at which their Current Venture fund is going to be Deployed and frankly that's a Responsible thing to do and I can speak To the value of time diversity and I Think that's probably good for the Industry you asked me about valuations
It's a little bit of Tale of Two Cities Right now we have not seen a correction In valuations across AI world uh those Valuations remain very high 2021 22 type Levels we have seen a coreduction Valuations on traditional software of Service businesses consumer businesses And the like those are uh a lot more Involved fundraising processes for Companies and the valuations reflect it I would just add that from an LP Perspective because of AI there is a lot Of sort of the pacing of new Investments Whether they are in AI or not AI which Is how the world seems to be sorted These Days in the Valley I would say That we're seeing great companies being Funded by our partners in non-ai sectors At reasonable Valuations and I think we also have to Take into consideration it looks slow Versus the last three or four years but It's not slow when you look at sort of The last 20 years of venture Fundraising um I would say that we're Probably going back to a normal Pace as Opposed to the frenetic Pace that we Were at So I would just put it in context Jason Your thoughts um you know I speak to a Lot of uh fund managers we created Something this year inside of our Company called The Whisper Network I'm Always trying to productize what we do
As a highs scale investor we do a Hundred new Investments a year through Our different programs found University Launch um accelerator like why combinat Or techar so we really um want to meet a Lot of other uh funds so that we can Share with them the early stage Companies year zero year one companies We're investing in so that they can pull Through and raise a seed fund or a Series a from from other great funds and Um there are a lot of emails not getting Returned and I think there's a lot of VCS who are out of Market they're not Actively investing they're managing Their existing funds and I would say These numbers you know 6% 12% are Probably low a lot of people aren't Clearing market and I think there's Going to be some ulation where people Realize man Venture is too hard it's Really hard uh you have to wait 10 years You could hit these storms like we just Went through for the past two years LPS Are raising expectations they're Sharpening their pencils everybody's Getting very focused on exits and it Feels uh broken right now uh the Venture Ecosystem feels a bit broken when you Have you know SAS companies trading at Five six seven multiples in the public Market and then 100x or 50x in the Private markets how does that Gap get Closed um and it's really uh you have to
Have a lot of faith that these companies Are going to break out and the power law Man unless you've experienced the power Law yourself with a bet it can be very Hard to wait for your moment in time to Hit one and I think that's what's Happening right now people who Maybe Started funds in the past five years Started investing at the peak of the Cycle now they're seeing all those Markdowns seeing shutdowns and maybe They're realizing I'm not going to hit An outlier I'm not going to be part of The power law this is too hard I quit Which you know what it's probably a good Thing we probably got a little bit too Big it's a boutique industry it probably Shouldn't have as many people marking up Investments you know at 50x or 100x Revenue um and if you have too many People doing that and fighting for too Few strong deals then your entry price Get screwed up and and the exit price we Know because of public markets so I Think the industry still has a lot of Indigestion to work through and people Shutting down their funds and not Raising another one is part of them it's Part of that capitulation just like Sometimes Founders have a hard time Shutting down their companies I think Some of these uh funds are having a hard Time shutting down and um yeah it's a Moment of Reckoning for a lot of them
Constantine Jason mentioned the power Laws when funds like SEO you focus on The early stage as funds get larger are You still looking for every investment To return the fund or is there some Other calculus that you're going through Yes I work on the early stage team so Seed series a efforts and for those we Absolutely need that type of power Law Return on every potential investment we Do look for for companies that have the Potential to be so big that they can Return the fund or more I want to just Double click on something that Jason Said a moment ago though he was talking About how this total disconnect between Public markets and private markets and Paying a 100 times ARR and what Companies are actually at today is bad For fund managers I just want to point Out it's also really bad for Founders I Mean working with Founders the past 10 Years when you can raise a high Valuation generally that's directionally Good if you're one of those power law Businesses because it means less Delution and you're on a path that has Uh same type of outcome with more Ownership for the founders but in all The other cases it's actually a ton of Money that goes onto a preference stack And the preference stack gets thicker And thicker and thicker and that's Actually really rough for a lot of these
Founders you know as the audience Probably knows a preference stack needs To be paid back in an acquisition first So it actually operates somewhere Between debt and equity and that's not Good for Founders uh who are not on the Right side of the power law and then Also they end up operating companies for Years more than they really should Because they still have Capital uh to Burn or to at least see how they're able To build the company with the amount of Capital remaining and they've got a Bunch of investors who to Jason's Point Want to see it through or want to see if They can see it through and it is just As big of a problem to the founders as It is to all these Venture funds right Now and it's going to take uh years to Play out Jason you've seen a couple more Of these Anna you've seen a couple more Of these how long did it play for this To actually work out of the system I Would was kind of hopeful 2022 Correction comes along 2024 we'd have it Worked out of the system but it's still Working through the Pipes okay juggling multiple devices and Apps to run your business is a mess we All know that open phone is here to make That simple I have an open phone number I use it to communicate with Founders And it really works for me I have a Desktop app boom I can go in there I can
Do Voiceover IP in this beautiful Elegant app right on my phone or on my Desktop I use it a lot on my desktop I'm Being totally honest because I have my Headset on and sometimes Founders want To do a call they don't want to pop open A video conference my sales team loves It why uh because they get to keep their Private phone number for their private Phone number and then they have all of Their business stuff tracked in one Location so if they need to make a phone Call to somebody they talked to last Week they can see their call history Click on it send a text message and Start a phone call with that person and The op team uses it when we have people Calling they have questions about their Investments LPS Etc we have a round Robin phone number so it will forward The call to two or three people on our Team because we like to have really Customer support and all this is easy to Do with open phone it's super affordable At just $13 a month but twist listeners Get an extra 20% off of any plan for the First 6 months at open phone.com Twist What if you have an existing phone Number with another service no problem Easy peasy lemon squeezy open phone is Going to Port them over at no extra cost So head over to open phone.com Twist Start your free trial get 20% off you're Going to love this product it is so
Affordable and it's so elegant just to The product team and open phone great Job I look at products all day long and Yours is elegant and simple and Powerful Well done and you see a lot of these Startups raise massive amounts of Capital and sometimes they literally end Up being roadkill for some of these uh Disruptions like AI how does that play Out when you see these startups that Have hundreds of millions of dollars on Their balance sheet and no real Exit Plan um what happens in those cases so It depends on why they have the hundreds Of millions of dollars so if they have Aund hundreds of millions of dollars Because they were opportunity to Founders and they saw that in 2021 it Was very easy to raise Capital but what We really focus on is what are they Doing with this Capital so what is the Return on that dollar of capital that They have in place if they're investing It for a future market share gain if They're investing it for you know market Dominance new ideas new pipeline new Products that's a very different thing Than if they are doing ping pong tables And giving it to their employees like Honestly like we look at the return on Capital employed and try to understand Why it is and what is the end product of Those dollars so you can't make a Blanket statement like you know a
Company that just has a couple hundred Million dollars on their balance sheet That could be to do good to really make You know grow and invest in their Business for five years from now or Should the best thing for that $500 $500 Million doll be that they can't see Their way out of the box and therefore They should actually return it down Through what Constantine was talking About through the waterfall and actually Try to fold this recoup as much money as Possible move on and move on to their Next startup like not every startup in The old days of venture 25 to 40% of Startups Failed so like not every Venture idea Has to Work and I think we've forgotten what That's about I mean Venture was one of These industries where yes it's a power Law that one you have to underwrite Everything for that one thing to to Deliver the fund but you also have to be Realistic about your chances and just Being like left for dead on the side of The road with like 15% Growth is not what Venture is about Sometimes it's better to take your 300 $ Million that you've got in the bank put It down the waterfall and let people Move on to the next thing so that the Return on invested Capital can actually Change yeah and if you look at it like a
Poker hand sometimes your starting hand Looks really great it's a great team It's a great market and then you get the Product out there and the product's not Very good or it doesn't connect with Customers and you sometimes you got to Fold the hand right like you could have Ace King and pre flop and you get 3 four Five comes out on the board and you're Like gosh I think I'm going to be Barbecue sauce here I should just let This hand go if somebody's shoving all Their chips in and I think that's really Hard work for managers especially these New managers so to dovetail that Experience of the founders with the Managers we've gone through our Portfolio recently we're doing this like Summer of um you know assessment of the Portfolio and we just basically said one Two three one we've got companies that Are clearly growing three we've got Companies that are in the process Process of accepting that this is going To be shut down or sold or merged or Whatever it is and the founders have Kind of made that clear to us that you Know they're in their last Harrah and They're doing that then there's this big Open number two section which is hey We're figuring it out right and so at The scale that we invest you know when We have those number ones we know what We have to do put as much money into
Them as possible get good dollars into Those companies with number three You know we we're trying to encourage The founders to hey wrap it up if you Don't think it's going to work out and Let's talk about your next company let's Talk about the next adventure what did You learn here because a lot of times Our second uh investment with the Founder is the big winner superhuman Comes to mind we had invested in when I Was a sequoia Scout uh Ro's first Company reportive sold it to LinkedIn it Did fine we tripled our money it was a 50k investment we got back 200k or Something I dribbled our money and I Just said hey R promise me I'll be the The first investor in the next company And we put 500k into superhuman when it Was just a tiny little company uh was an Idea actually and so we really want them To move on and wrap it up and then I Think some funds you know are having That same experience they just they Didn't hit it so what are you going to Do you know probably either going to Shut the fund down um or you're going to Try to raise a fund with no performance It's really hard um and LPS now are Cutting their commitments while they Wait to get DPI So I think some people are being Realists now and it takes you know Driven humans sometimes they hold out
Hope they're holding out that like 5% Chance that they hit that last Ace in The deck or whatever card they need Whatever magical card on the River it's a magical it's called a Magical card and a one or two outer for A reason it's probably not going to Happen so got to be realistic about it And I think people are figuring that out This year Constantine how do you look at A lot of emerging managers bring you Investments for for the series a and for Seed as well what do you see in the Emerging manager space today look the The emerging manager space is is still Very active because they raised all These funds you know one two three years Ago um and I think that the quality of Companies that they're bringing at the Seed in Ser series a are are really high Um we partner with a bunch of early Stage funds or seed stage funds that Find businesses and a particular Vertical a couple that come to mind a Virtue which is specifically focused in The healthcare vertical or working with The folks at gg1 uh who focuses in going Global uh so products that actually can Go Global and those specialized funds Are really interesting to us because You're able to hey understand this Person is exceptional at seeing Everything in the market under this area And sharing the things that are most
Promising uh with us um at the same time I do think it's been pretty uh Challenging to be an emerging fund Manager uh it's not easy to show DPI It's not even easy to show Tvpi uh with your new funds and by the Way that's the uh that's the by far the Easier of the two to show um and I do I Do wonder how it's going to play out for A lot of emerging managers I'm Optimistic that if you put in great work You'll get great outcomes and we have a Lot of friends in the emerging manager Space we have a whole ecosystem fund Which is all about helping emerging Managers it really came out of the Structure that you were describing Earlier Jason where we had the Successful Scout fund helped launch Amazing Scouts like you Jason over the Past decade plus how do we actually grow With them more actively we weren't able To do that as effectively you know 10 Years ago let's have an ecosystem fund That's going to help managers grow Beyond an initial Scout and into uh more And more of an emerging manager we also Partner with a variety of funds through That and then also even a fun of fun in In sandana capital which is a uh LP in Early stage Siege funds and so we see a Lot of activity there a lot of companies Coming out of these emerging managers And frankly a thousand flowers blooming
Is really great for the entire ecosystem And what we're hopeful for yeah it's a Great time I think to have programs like We have thank God we have our Accelerator and then we created this pre Accelerator founder University I talked About a bunch of times where just two or Three developers creatives who aren't Even Incorporated yet can work with us For 12 weeks to kind of Polish their Idea and then perhaps get Incorporated If they think it's a business and if They don't that's fine and um we offered Them 25k checks and uh we've done 80 of Those 25k checks already everybody Thought in my internal team hey this is Crazy to put 25k in for 2.5% I was like Is it because that would be like right Before Tech Stars right before our Accelerator right before y combinator We've got 20,000 people applying for Funding and half of them fall into this Category let's see if we can capture That and uh I'm really excited that we Have um because trying to compete at the Series a space where these things are All overvalued and it's super Competitive is really hard um so as a Manager you have to kind of find a place To be super helpful to Founders if you Find a place where you can be really Really helpful to Founders and you love It I think you'll be fine if you're Trying to compete with seoa and
Benchmark and you know Founders fun on a Series a i think you're going to get Your butt kicked I'll be totally honest And I think that's where a lot of the Emerging managers tried to compete and It did not work out well for them I Think they overpaid for companies that Maybe weren't great um or maybe weren't The right teams this is one of the Things we respect a ton about you is the Innovation there I mean going further Upstream if you view it as a stream Where the top of the the absolute source Of the stream is all these great Individuals who come up with an idea or Might not even have an idea And they end up saying hey do I take This risk or do I not take this risk Well historically you've waited for Accelerators to have the idea and the Person and have the person all ready and Have a pitch and an application and so I Love what you're doing of finding people Even earlier risking less Capital but Enough to actually contribute time and Effort and say hey you know what I'm Actually going to spend a few weeks or Months developing this idea seeing if it Turns into something and by the way the Person who makes that first bet on you Uh you are so loyal to them so to all The managers listening the amount of Loyalty uh to someone who makes the First bet I know the person who made the
First bet on me uh as a investor when I Was in grad school and I was a AI Engineer grad student who had some Interest in investing in Kevin Harts uh Was a a speaker and he said hey I'll Give you a couple hundred, do to start Investing and that turned into a great Multiple for him that was huge for me I Still think about it to this day I'm Still grateful to him to this day that Was more than 10 years ago and so Finding those people super early top of Funnel less competition more distributed More local and the way to win in the Long term could not agree more with you Jason and you know just give you a Little story there little story time in The early days of the scouts program I Started something called open Angel Forum I would just bring five or 10 Angel Investors together to look at new Ideas and one of those was Uber who came To it another one was Jonathan and Marco From Thumbtack we put a small check in We were the First Investors in thumbtack Through the scouts program people don't Know this I introduced them to ruoff to Michael to Doug Leone everybody and they Passed on the series A J cats did it Over at Javelin and then Marco and Jonathan figured it out and seoa did the Series B in Thumbtack famously and Jonathan contacted me about a year ago Six months ago and said hey I got a new
Company I need you to be the first Investor of my new company I was like Jonathan you're rich you know you're Doing fine why do you need me he's like Oh well we've got like millions of Dollars in ARR but I you're my good luck Charm I need you to be my first investor In Athena and I said tell me what Athena Is we had dinner and so if you go to Athena wow.com now it's the first time I've ever endorsed the company as like Their spokesperson I'm the spokesperson For it when we did this whole Big Marketing push for them and I put the First million dollars into the company Outside of the founders and they raised A huge round um it added like $10 Million in ARR uh and so this can go Full circle where you can really be Helpful to these uh Founders and they'll Remember and give you that opportunity To be the first investor in their next Uh company and so your reputation is Built by how helpful you are and um yeah Thank you for the Kudos constant Absolutely and Anna is that the secret To your success I know we can't talk About all your funds you've invested in But you're pretty much in every great Fund is it just being earlier how have You been able to build your Relationships with VC's so I would say That the VC furbs like every other Company is like a living organism and so
You have to look at what a firm is doing And how it's evolving how it's Developing its bench what are the Principles what are the people who are Doing the deals how networked are they And so that changes over Time and our job is to have you know we Have a venture portfolio where we only Have 10 managers like we really have 10 Core managers if you're a huet venture Manager It's because our bar is so High um we've been fortunate to be on Sand Hill we've been fortunate to have These great relationships and there are Some firms where we will we will hire Every once in a while every couple of Years we find a new firm to back and we Will do we will do a check and we will Just sort of take that flyer on a new Fund but it's very much of a portfolio Where we believe that inventure at least The access and the reputation of a firm Still attract the Founders and it is that competitive Advantage is unlike any other asset Class in my portfolio and that hasn't Eroded so you're looking at Anna does That manager connect with Founders does The manager connect with Founders and Does the manager have the network to be Able to access the best Founders be able To get on those cap tables be able to Get the ownership
Interest um that we desire because we Know you know by the time the company Goes public it we will be diluted enough To where we need to really have really Good ownership interest at the beginning And more than anything else do we think That the partnership Thinks so far ahead that they're able to Have the right team in place To have that technical expertise and so That's why I spent so much time with Sort of with Constantine and with people Like Constantine's peers across these Firms because I learned so much from Them about what they're seeing in the Marketplace and that informs not just my Opinion about their firms but my opinion About what we should do with our Venture Portfolio how this ripples through our Public Equity portfolio how it ripples Through the buyout portfolio I mean it has implications for Capital Allocation across the entire web so I Want to kind of bring this full loop Here because Jason and I were just Talking about the importance of being There early the Loyalty of being there Early the value of actually being a true Partner to to a company from start to Finish and then how that compounds over Time and how you get the call in the Next one Etc andna you have a repeating Game and you are from you are one of the Most uh legendary and prestigious
Foundations n LPS There is full stop and I want to kind of Connect these two because you also get To know people really early I've been at Seoa five years now first LP meeting First one that I was ever invited to After joining seoa I was going around Doing my best job trying to engage with The limited partners and you tracked me Down Anna you said hey can we sit and Have some breakfast you done all this Research on me asked me all these Excellent questions about artificial Intelligence And my grad work in it and all the Technologies that I was looking into and The recent investments in the portfolio And you You' done the research on all of That and that left such an impression on Me early on because at that first Meeting years Ago no one else had done that kind of Work or research to understand so early And I think that's the connection the Relationship has really grown still Because you said hey I understand where This person is expert where he can add Value I want to connect early on even Though as one of the best LPS in the World you don't have to do that Jason You don't have to find people when it's 25k and not even an idea and help Develop it with them and by the way Sequa doesn't have to do that with
Legendary Founders from idea from Inception as well but but that's how you Become excellent you find people early On you invest early you do the extra Work and I certainly feel an extra Closeness because of that uh to you Anna And so I'm grateful for you for you Doing that as well it's very much a part Of the hulic culture which is these Longstanding Partnerships I mean we do Projects like in Western conservation Where we literally have spent 20 years Restoring the clamo River so part and parcel of the culture Of the foundation is to be long-term Partners and to help Partners become the Best version of themselves and when I Was saying firms evolve firms evolve Like the managing Partners leave you can Get the Next Generation I mean in some Of the firms we're with we're on the Third generation of investors and you Have to be able to identify what it is That that next Generation brings how you Can help them become the best version of Themselves because when the firm does Their best work you as an LP get the Best returns and so it is very much of a Partnership eight Leep has released the Pod for Ultra besides Heating and Cooling you know all about that now it Elevates automatically which is so nice For reading or if you want to do a Little Netflix and chill it is the best
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Can get it down under now okay well done To my friends at eight sleep speaking of Partnerships Cisco is getting into the corporate AI Game by launching a billion doll fund to Invest into AI startups the fund has Already committed into cohere mistol and Scale Ai and has already deployed $200 Million out of their fund Constantine You not only invest in AI you actually Have a master's in AI from Stanford how Do you look at the a AI ecosystem today And where do you see the large AI Players positioning themselves Only a billion I'm kidding that's a a Hu A huge amount the number of people that Have raised AI funds or strategic AI Funds or the rounds the rounds in AI Space are shocking frankly and I don't I Don't see how in aggregate they're Sustainable like individually there will Be exceptional Investments without a Doubt this is a transformative Technology that's decades in the making And will have Decades of run uh however I don't see how the aggregate dollars Invested are going to create the kinds Of returns that the anas of the world And the hits of the world and Jason's LPS and your allps David expect um I Really wonder how these me mega rounds Play out uh in aggregate things that I'm Interested in that SEO is interested at This point there's been a lot of build
Out in the infrastructure layer uh Things are going well there there's been A lot of spend actually in the Infrastructure layer I think that's Actually become I wouldn't say mature But that's developed uh probably as we Would expect it where a lot of Innovation budgets are spending on Inference or training and that's moving Into production and that's yielding some Nice Revenue growth now I think we're Starting the application era and that's What I'm super focused on and we're Super focused on is finding great Application layer companies in Artificial intelligence how do you build A great application layer company in Artificial intelligence well it's about The human I think AI actually makes it More about the human not less about the Human because your Moes and your Barriers of Entry are actually going to Be less about the technology because AI Can actually do much more of that Technological work and much more about How you make something sticky to a Person how you make it something that They engage with and that one person is Going to be able to do a lot more work So we're looking at AI applications that Do that effectively and we'll talk about A couple of them in in the recent Investments at the end of the at the end Of the show I would just add that I
Think part of what you're seeing is we Literally have Team meetings where we Start every week with like this week in AI like the speed at which things change And so you see your man you know some of These rounds and you're like wow that's A lot of Conviction for a technology that is Changing faster than anything we've ever Seen and that to me is just I'm not sure I I'm not here to make a judgment of Whether that's huous or whether that's Great but I do think you need to Consider the evolution of business Models as you're doing this we saw this A little bit during Crypto where all of a sudden like our Brains had to get around are there Different business Models and I'm not sure we've we know What the business models will look like In the AI app world like is this going To be like an inference as a Service like are we going to do discret Workloads are we gonna do you know Edge AI like there's a lot of things that I Think we don't know and so going slow And steady and trying to figure out you Know is Transformer technology here to Stay forever or are we moving to Something else like all of these things I think Merit is a prudent judgment in Deployment of capital as we see this Wave takeoff yeah I would I wouldn't
Read too much into the Tea Leaves of Cisco with you know 20 billion or Whatever they've got in in cash laying Around and a profitable business Throwing a billion dollars into the Space because it might be their hope is To get BD deals out of this right we've Seen a lot of round tripping or Boomerang Revenue we've talked about it A bunch on the different podcasts and so Maybe they just feel like we have to Have a little AI pixie dust here maybe That's their way of educating their team And looking they've always been a very Acquisitive company they were known for M&a uh over the decades so you know What's really interesting is the Application Level that is emerging and We're in a little bit of like a triout Of Despair you had this like massive Hype when people are like wow this thing Can do anything and then they were like Oh I just checked the facts two-thirds Of the facts are wrong and now we're in The put up or shut up phase I think Anna Sort of alluding to that is like how Does this thing actually make money and Are you going to pay an extra 10 bucks a Month per person per seat on slack for AI I'm not we you know I just saw that Pop up and I was like yeah I don't think I need this but we do pay for a Corporate account for chat jpt 40 I've Been you know paying for Claud and some
Of these things and I'm watching the Results and I'm like this is saving a Really large amount of time so Everybody's had the moment where Research or some job was done by these AIS in verticals where it saved a ton of Time so it's definitely here to stay and It's going to be subscription model it's Going to be infrastructure payments it's Going to be all of that um and the Founders tend to figure this out it's it Reminds me a lot of what happened in the App space where entrepreneurs got really Excited because it was like a new format With some new uh hooks into it oh we I Can use this on a mobile phone so the Person's got it with them all the time Okay that's interesting uh oh it's it's Got GPS built in okay that's interesting Oh it's got a camera okay Instagram you Get the idea people started um looking At the feature set of the device and Then backing into experiences that's What I see people doing with a lot of These AI models they're like what can it Do okay let me see if I can build a Product out of that we have one I've Talked about here Saga which is doing Like it started with screenplay writing There's a famous piece of software Called final draft so they kind of like We're going to make an AI final draft And then they started doing Uh storyboards and so now like people in
Hollywood are like make me some Storyboards of this action sequence and AI is like really scarily good at that And it unlocks a lot of creativity and So this idea that like even the people In Hollywood who kind of thumb their Nose at AI they're all using it on the DL they're all using it to come up with Ideas to write jokes to do dialogue to Try to figure out interesting scenes or Views and angles to do so every single Person's J is going to be impacted by This everything's going to be made more Efficient and uh people will be willing To pay 20 bucks a month 200 bucks a Month for it if it saves time and you Just think about you know the amount you Can save on salaries if you make Somebody who's $100,000 or $200,000 Asset inside an organization if you make Them 5% more efficient it's 10K or if You don't have to hire every 20th person Because everybody's getting 5% more Efficient a year with AI which seems Like a very low benchmark if I'm being Honest so I think this is going to be The greatest efficiency Revolution ever I do think there's going to be a lot of White Collar middle manager product Managers who have hit Peak uh salary in their lives and they May not be able to hit those salary Notes they hit so it's going to be Pretty chaotic but I'm liking what I'm
Seeing from Founders early on they're Really running their companies with AI And building AI into their thing and When they run their companies with AI I See them writing content faster making Videos faster writing code faster doing Sales faster organizing data faster just They're they're like bionic they're like Little superheroes like they got some Superpower just based on being able to Use these tools so it's this is the real Deal this is not crypto in my mind you Know crypto was like an Intellectual weird grift where people Were like yeah I can sell and exit my Position before I launched the company It was like really weird Moment in time I think we'll look back On it as a complete grift and a failure If I'm being honest um and I think we're Going to look at AI as actually the real Deal hey startups I want you to take a Second and picture the ultimate Allstar Team for your business okay you got that Image maybe it's the Avengers or the X-Men maybe it's the dream team in the NBA but let's be real until you've Raised your series a maybe your series B You're going to need help to build this A team and that's why you need Dev Squad They will get you a complete product Team loaded with top tier Talent Straight from Latin America your Specialized team is going to consist of
Two to six fullstack developers a Technical product manager along with Specialists in product strategy UI ux Design devops you know all that good Stuff as well as quality assurance so You will be all synced up and you're Going to be on the same time zone and Not only are you going to be on the same Time zone it's going to cost you 75% Less than the equivalent team in the United States with Dev Squad you're Looking at seamless collaboration and The flexibility of monthly payments Without any long-term commitments so are You ready to build your team of Superheros we'll head right over to Dev Squad.com twist go to Dev squad.com Twiist and stag an exclusive 10% off Your engagement that's Dev squad.com Twist and transform your startup with The allstar team you deserve Anna you Mentioned what's crazy about AI is There's tens of billions of dollars Going into it and not clear business Business models in different cases do You expect this to be kind of like the Early 2000s where there's a couple Winners and if so you know if you had Invested in everything like Google and Amazon you would have done pretty well But do you expect some of your funds to Do really really well and some of them To to have a couple um bad vintages so This really tells you how old I am
Before you could make the investments Into Google and Facebook and all of Those there were the people who laid the Cable for the Internet all of whom Overspent things like Global Crossing Companies that no one on this podcast Has ever heard Of that overspent and built the Infrastructure to allow the internet to Flourish Globally and we didn't actually see the Fruits of that investment until we Saw Facebook and Google and all of these Companies get created in 2004 but prior To that from basically 1998 to 2002 a huge amount of CeX investment Like you're seeing now I'm not saying Today's is any different today the Business model for the hyperscalers is Very clear you invest in having it and You have a cloud business it's sort of a Loss leader for your Cloud business it's Great the cloud business is the business And the more Enterprises want to have Secure walls for their data the better The cloud business is going to be so There is definitely a business model for The Hyperscalers whether there's a business Model for all of the apps and everything That we've seen I think what's really Interesting to me and I would love to Throw it out to this group is is there
An advantage to being AI native Architecture Versus traditional software SAS Architecture with an AI feature in other Words are we disrupting a generation of SAS with AI native Applications that to me is the critical Thing the hyperscalers will will have a Business model like you say whether it's Inference as a service workload as a Service they will figure it out but it's Everything else at the Venture ecosystem Is funding and has funded over the last Six years that is where I'm trying to Figure out the technical assistance and That is what Constantine and I talk About so I'll throw it to Constantine First Well I'll jump in and say one of the Main reasons why AI first companies are Succeeding and will succeeded is because Of what Jason was describing they just Move faster they use these Technologies To get more done faster more efficiently And I don't think that using AI in the Product itself is going to be enough Differentiation period full stop you Have to solve a real problem you have to Integrate this new capability which is Knowledge as a service into some Application that solves a real new Problem for your customers but moving Fast is a sustainable Advantage for any Company and the ability to integrate AI
Cut costs boost efficiency that is Lasting I wanted to connect two things Here which is all this AI conversation And Cisco and their Cisco AI fund and it Kind of gets to how I think about the Huge amount of investment in the past Couple years in AI to me all of this Investment in AI is kicking off an era Like this is the starting gun this is by No means the end of it and we're going To see in the hard work over the next 10 15 years how that plays out there have Been 12 companies that have been the Most valuable company in the world on The S&P 500 in the past 100 years and I Just want to run through them really Quickly because they each were more or Less starting guns to Major Technological revolutions 1925 AT&T most Valuable company 1927 so that was Telefony 1927 General Motors that was The automobile Revolution 1955 and that Actually General Motors kept for 30 Years 1955 Dupont chemicals 1957 and These two are tied Exxon that was the Era of oil and petrochemicals 1967 kind Of this initial movement towards Computing in IBM and that lasted all the Way until 1992 and by the way this is is That is the case for NVIDIA enduring Because IBM was kind of this Foundational layer for the compute layer For almost 30 years until 1992 Philip Morris Altria Group for a very short
Period of time just eight months until Walmart in retail then General Electric Microsoft Cisco and Cisco was the Foundational layer for infrastructure For the internet and so that was the Internet Revolution Uh Cisco was Peak Apple this is the First times they became uh the most Valuable company obviously there's a lot Of back in4th Apple then and that was The really mobile era and now Nvidia and That just happened in 2024 and that is The past 100 years every single company That has been Mo the most valuable in The world uh on the S&P 500 every Company has been tied to a major Technology Revolution you've never seen A most valuable company that isn't tied To a long-term Trend these are enduring I think Nvidia is a great sign that the AI Revolution is going to be invested in For 10 20 plus years and we have to be Really smart about the companies that we Pick to partner with to build legendary Companies from there yeah I think that's Exactly correct a it's a great overview And there's going to be a ton of winners Here I I hope with this next Administration it seems like it's going To change um not making any political Commentary here we got to get m&a back On the table um we got to get m&a back On the table there's so many great Companies here that are being built that
Are hitting tens of millions hundreds of Millions in Revenue that maybe they're Not going to be Standalone IPO Candidates but you know would be Incredible Acquisitions for the Googles Apples even the Ubers and airbnbs and Coin bases of the world we need to have A high functioning m&a ecosystem and we Don't have it right now everybody's Scared to you know after figma they're Just scared to to even try to sell a Company that's Dysfunctional um you know now on the Other side not going public and staying Private forever that's also Dysfunctional we need a really much more Vibrant m&a situation here and I don't Know how we get there without you know Somebody other than Lena Khan being in Office so we need some DPI for Anna and And our LP friends it's more than DPI I Mean I get that LPS like you're painting LPS is all they care about is DPI And yes we care about DPI but part of The reason we venture in our portfolios Is because we are investing in Innovation and so we want to see Innovation we want to see these Founders We want to be able to Bath these Founders that are going to create and Continue the US dominance Technology but we feel like not every Company can be a legendary Standalone Company some companies create just great
Technology that can then be Commercialized much better by somebody Else and that is part of the US Innovation ecosystem and I feel like That is what being stopped it's not like The greedy DP yeah no it's not like People are just like give me my money It's I think a healthy ecosystem to Anna's Point needs to have a place for The midmarket companies they just need To have a place to land where they can That technology and that team can be Full fully utilized to create Productivity in the world and that's What's missing and it's all the way back To the start of the conversation it's It's people's highest and best use right Like if you can make the impact on the World that you want to more effectively By being part of a huge platform and you Build the Great product that plugs in Nicely don't waste the time like go go Get it into the hands of everyone yeah Seoa knows this you sold YouTube for 1.6 Billion um and it's done maybe a little Early that might have been a little Early but they did have the sword over Their neck with that lawsuit but then You sold what's that for 19 billion Right so like these are two Extraordinary sales um could those Companies you know YouTube maybe could Have been uh you know you could do all The hypothesis you know hypotheticals
You want maybe YouTube could have Survived but it probably would have got Crushed by the lawsuit and and this was A different era of venture capital there Weren't unlimited amounts of money for a Company with a trillion dollar lawsuit Over their head and Google was brave Enough to take that risk right um and so You just you need to have to these Places I'm very curious Constantine You're a great first principles thinker Do you ever invest into companies that You think will be only m&a do you ever Go swing for triple at the seat stage or At the early stage so I don't think We've ever set out for that but we're We're we're pretty sober that that is a Large probability of Any Given Distribution if you reach for the stars Like you you might fall and catch the Moon or something uh along those lines But we never kind of reach for the the Clouds right in in other words we reach For the stars and you know what like Let's do our absolute best and we will See where that goes from there yeah it's Fine to have a backup plan but you don't Want to make the I I never make an Investment thinking hey you know this be Microsoft's going to bail us out on this One it's nice if that's a possibility if You build a great team you got a good Customer base you got some solid Tech But it's not that's generally not where
The power law takes place right David What you're getting at is the difference Between early stage which is like early Stage which is where Jason and Constantine live and then the growth Stage and just the shift in what Venture Capital has become over the last 20 Years from very much of an early stage Industry to having an industry that has Evolved into the the at bats might be Smaller in growth stage but the dollar Checks just overwhelm the amount of Money that's gone into early in series a And so you're talking to to three people That like spend their life thinking About Venture as very much of a you know Massive multiples a 3X would be like no One would ever approve a deal if you Thought you were going to get a 3X Inventure that the the risk worth War Just wouldn't make sense and so Venture Became sort of this venture has evolved As an Industry over the last 20 years as more And more money has come in and and sort Of started this growth effort some Growth efforts are extraordinarily Successful on their own merits some are Not what you've seen there is more Willingness to underwrite to a 3X or a 2X and the the lines have blurred Between sort of what used to be growth Buyout and growth pre IPO stage of Venture
Capital so I think that's where the 3x Doesn't really apply to Jason and Constantine because they're just like Yeah we got to be we try to underwrite Everything to a 500x minimum right like We're getting in at a one to15 million Valuation how does this become a unicorn Is like the whole name of the game now On to our lightning round with Everyone's latest three Investments all Right just three quick ones super proud Of the fact that uh many of our founder University companies I explained earlier In the program these 25k checks a lot of Them are getting accepted into other Accelerators so will sometimes make the 25k check and then they'll come to our Accelerator other times they'll apply to Another accelerator so tax GPT is a Co-pilot for for CPAs we put in uh you Know a little bit of money they got Great product velocity some traction With customers and they got accepted to Y combinator again the application Level Verticalized AI I think this is uh you know going to be A big winner this next one fitted great App for people sharing their daily Outfits and then there's this big Recycling Trend amongst young people Millennials they don't want to buy Sheen Disposable clothes they care about the Environment again a very small Investment for us we we helped get the
Product going with the team and they Also got accepted to why combinator uh I Believe and then uh cicada we found this Um artist a musician a wonderful Individual who started growing his Mailing list and trying to figure out Ways to earn more money by selling merch Or engaging with fans with this Interactive media so you could be a fan You could ask for a cover song Etc you Can tip and this is really becoming a Thing just like podcasting is Becoming um you know there's a long tale Of podcasting people making a living From it cicada is helping people Monetize their passion for music and Gigs virtual and real world they just Got accepted into Tech Stars so this is A big focus of what we're doing at our Firm every year I try to make a new Focus for our team sometimes it's every Six months we really worked on a couple Of years ago getting massive amounts of Deal flow now we have 20,000 people Applying for funding we can't possibly Get more applications for funding then We did a big push how many meetings Could we do with Founders we started Breaking a 100 introductory meetings a Week over Zoom that got crazy it was Almost too much Process um and now we're focused on uh What I mentioned earlier uh oh and then We also did decision-making how to
Really make thoughtful decisions and What we're looking for in companies Multiple developers and Builder Founders Product velocity great design and we Have a whole framework of 13 Reasons Why We invest in 25 red flags finally this Second half of the year I've been Working on this whisper Network which is Us saying hey this this uh founding team Got traction and then hey here are some People that's here's some people at Craft here's some people at Valor here's People at techar here's people at y Combinator who should know about the Company and we really kind of serve These companies up to those interested Parties on a platter with very detailed Specifications but we know what they Like so we know this firm loves you know Multiple co-founders who are technical This firm loves goto Market uh and they Love marketplaces okay and we put that In our database and now we have 450 Uh members of The Whisper Network across Our 11 um investment team professionals About 40 people each that means we can Really customize the pitches so every Week twice a week we say who who should Know about this company we go into that 4 list of 450 and we find the 30 people We think need to know about the company And we really customize an introduction To to that firm of why we think it's a
Fit for them and it's working I'll jump Right in and first Jason thank you for Whisper Network We certainly appreciate it and it is one Way to get in touch with us as AOA and Certainly such a smart value ad for the Huge top of funnel and the great Companies that you work with throughout Thank you um yeah smart Innovation like Venture changes just like any industry Um so I'll also screen share and uh Share two that are announced and one That is public so this first one is Called dust dust. TT it was founded by Second time founders who' sold their First company to stripe one was an open AI researcher they started the whole Europe office because he was so good Back in the day the other one was a Brilliant product mind uh who ran uh French uh product or in Alan and really What it does is they said hey we have This new capability with llms with AI How do we make a productivity Suite That's as fluent as slack for you to Communicate with AI be able to Communicate with the information in your Enterprise database and actually have a Product that makes you super productive So let's just try it out I'll call gp4 I'll also call Mol I'll also call Anthropic so what you see me doing is Call GPT for Claud and anthropic just Like I'd call someone in slack and I'd
Ask them to uh please give me a Rundown of the VC Market in 2024 Conversation we talked about just a Moment ago and what you'll see is it's Quering all of them in parallel Um and and first thing is I get to say Hey actually I really like gp24 is Answer to this one I might prefer cla's And another one my PR prefer mistras in The third and I can actually have them Build on each other so I can ask mistr And Claude to then you know add Citations to the GPT for Example uh answer Above and they're really good at adding These citations and you'll actually see You'll actually see that they're pulling In yeah pulling in some of these Citations to make it much more rigorous So you actually have these AIS working Against each other but also with each Other to have much better Solutions this Is just the tip of the iceberg it also Does multiaction it also queries my Entire internal database here at seoa so If I'm doing diligence on a particular Company I can write an entire memo with A single query um or if we do market Research let's say market research tell Me about the VC Market in 2024 that's a Custom bot that's built from a lot of These and what you'll see is it's going To do exactly what I like it has Headlines it's highly quantitative it's
Actually giving a rundown I've already Told it and designed it how much Hallucination temperature Etc uh to Include in this and uh it's pretty Phenomenal um huge productivity booster In uh my work and I think the future of AI is going to be many of these AIS Working together it's one AI checking The other Ai and making sure like they Are better at spotting the mistakes than We will be and so I think this is this Is a huge deal so so thank you for Saying that and yeah try it out um Number two this is a a brilliant team Four post dos three post dos and a and a Stanford Professor Christos karakis Another Greek Jason uh who are some of The best in the world at not just Computer vision but Technologies Relating to uh actually pipelining and Analyzing computer vision and they are Taking on the body camera market so There's a huge body camera Market it Supports tens of billions of dollars of Market cap uh currently it's almost Exclusively focused on body cameras for Uh police and by the way that's really Good for police because one it keeps Police safe but two it also helps with Uh the Integrity um of of patrolling and Service and making sure that things are Well documented so that both police and Civilians are behaving uh appropriately In these circumstances clicks has said
We're going to take this we're going to Bring it to the private markets we're Going to make it so that a private Security guard can have an AI enabled Camera that understands the world around It actually makes inferences around the World around it uh verifies that all the Doors that are being checked are in fact Being checked uh infers exactly the Behavior that the security team has to Uh has to take from there so this is a Example of a hardware plus software Computer vision business uh going into An existing market and opening up uh new Doors with a great technical team and The third is actually a stealth company Um but I will give you guys a little bit Of context because it is officially the Newest so this is a go to market Oriented agent so the idea is you've had Salesforce for the past 20 plus years as Your single source of Truth uh now you Can actually have yes your sales Development reps and your AES and all of That plugged into Salesforce but you can Also have ai agents plugged into Salesforce they can make decisions they Can be constantly talking to you Anna if You're the AE they can say hey by the Way you can upsell Jason who's engaging With your product in this way or that Way or the other way uh you can actually Engage with them a little bit better by Doing this action or the other action so
It's constantly monitoring the single Source of Truth and uh helping you make Better decisions they've already got Customers like confluent and Lace works Up and running to double the sales Productivity Pipeline and this is a team That's built Ai and go to market at Google at Cisco at New Relic and a bunch Of other places uh so those are our Recent three you just got a customer I Just signed up for dust. 29 bucks a Month and I just did three queries that I was recently doing on Claude and chat GPT 40 in separate windows and now I've Got them Consolidated pretty clever idea I like welcome in welcome in thank you Jason all right but but again one of the Things that you that I think there some Watching is how much of the stuff is Being done in Experimentation and then the lag time Between when experimentation by all this You know the other startups that are I Think one of the lessons of the last Three years has been you can't just sell To other startups guys yeah you have to Sell through to actual Enterprise Customers that will have long lives and So and lots of seeds and so how long it Takes for Enterprise customers to Actually adopt and change internal Processes you are so right Anna that Going be an issue you maybe about six or Seven years ago I realized this trick
Cuz somebody at an accelerator explained It to me they're like yeah we got 20 Customers I'm like how'd you get the 20 Customers like oh well I went to our Internal discussion board i w say which Uh accelerator I'm not trying to give Anybody a hard time and they just said Hey can you can 20 different people buy My product and I'll buy yours and they Did their own little round tripping Thing so what we did in our diligence And we do diligence even at the seed Stage which is nuts people tell us our Diligence is insane for doing 25 and 125k checks and I say the reason we do This is because we're trying to train Our Founders on what diligence is so That they're smarter and they have it Dialed in when they go meet with sequoia Or craft or in good such a service yeah And and and we basically give them the Diligence list and we walk them through And they're like uh we don't have you Know enough employees for any of this to Matter anyway putting it all aside we Tell them give us your 10 customer Customers top 10 customers what date They started using the product when they Churned if they churned and then tell us How you Source them and we put in there We tell them and we understand that you May have asked your friends and family Or previous colleagues or cohort mates In your class to buy your product so
Just note that for us and then tell us Like even if like eight of the 10 you Got because they're friends and they're Doing your favor let's focus on the two That you know you earned on LinkedIn or Through a cold call and just kind of Diffuses the little scam that goes on Where people are doing this but we we've Caught people and the the other really Interesting hack on it was people would Take their 100K check from their Accelerator and they were told by their Mate at the thing here's what you do Over the 12 weeks week one you spend $500 on Facebook ads week two you spend A th week three you spend 2,000 you I Think you get where this is Going and then you have this beautiful Curve of website visits and of people Triing the prod and then you sell that To a bunch of dentists who are coming to Demo day these things do not work on Real investors so you may be able to Fool the dentists you will not fool Sequoia or launch we will find out Immediately and then reputation goes Down as opposed to up and you're trying To build your reputation up not down Public Service Announcement thank you you wouldn't Believe what we find in diligence oh oh Oh consider You Somebody on diligence we had somebody
Literally like took their family on Vacation and like their Airbnb their ski Trip champagne I was just like did you Accidentally use your corporate Card for this stuff and they're like no I just didn't pay myself a salary so I Took the equivalent in like vacation I'm Like IRS is going to consider that a big no No they're like really I'm like Income tax sales tax you're breaking all The tax rules like look up AEL DeMarcos Like she went to jail for this exact Thing yeah these are the people we do Not want to partner with and the person You're doing the biggest disservice to Is yourself it's crazy I mean I Understand like you thought your off Home office I get the home office thing In the age of remote but the ski trip no No ski trips Please rap is out of here David well it's been another great Episode of liquidity podcast for Constantine berer and a marshall Jason Calacanis this is your host David Weber Thanks for listening
