The Twenty Minute VC — Why Now is the Time for the App Layer

📋 한국어 요약 보기 →

So, speaking of being on the extremes and constraints, you know, Lighteed is a cash constrained world to be in. It's tough over at Lightseed and you made the move to the extremely wellunded USV. I'm obviously joking. We're going from the very large to the very small constrained USV in comparison. Why did you decide to make that move, dude? I decided to go to USV because I am from New York. Uh I've always been in or around New York and as a builder when I was building Anchor in New York 10 years ago I got to meet USV and I had an incredible ex despite them passing had an incredible experience started a very very long friendship. I ultimately became an LP in the funds and I just really always appreciated their ability and their willingness to be really opinionated and to be very very thesis driven even at times in which the market said it makes made sense to be very consensus driven and by the way there have been times in the market including recently where being consensus driven has been extremely valuable and extremely lucrative as a fund. But the way I like to work, the way I like to build, the way I like to bet is is by being thesis driven. And and I recognize that being thesis driven can also be super risky, right? If you bet on a thesis and you're wrong, you miss and you fail.

Well, the trouble is the thesis thesis driven can also be conventional. And and and so what I'm actually worried about is that what if the winners of venture and what if venture is just from this point out consensus driven? So I think that we are coming out of a time in the market where we have undergone we we have went through a massive infrastructure buildout in AI. We've had these new companies these new these companies building these brand new technologies which has which have required vast amounts of capital to build out the infrastructure and obviously I'm talking about the labs. I'm talking about open AAI, Anthropic, XAI, SpaceX etc. And those required a lot of capital and they produced magical technology that has generated billions. We're we're about to see trillions of dollars in value. Um but now that infrastructure is built and it reminds me a lot of the early days of the of the internet when we built out fiber and we built out broadband and then we had these new technologies to play with and the internet came along and an application layer came along and took advantage of that new technology. To me, it feels like we are back in that mode right now where we've got this infrastructure and now it's time for the applications to be built. And I think there's going to be so many applications, so much software, uh, that you're not really going to be able to make a bet unless you know what you're looking for. And I think that's what USV has always been great at, knowing what they're looking for and placing the bet when they see it. Brandon at Mccor said the other day uh we will see much greater value acrew in the next 24 months at the infrastructure layer than we will at the application layer. Agree or disagree?

📋 한국어 요약 보기 →

I think there is still value to be created and acred to the infrastructure layer. We're not done. The buildout's not done. Um but I also think now that we've got uh enough new toys at the technology that we will see massive value creation in the application layer as well. Do you think the future of AI is always on? Sam Alman is suggesting so more and more in his kind of verbiage. God, it makes me excited for Nvidia. The future of AI is always on. Do you agree with that? I do think that we're entering a world in which context is increasingly valuable for the labs and also for the application layer. Right. And so I think we will see products and businesses increasingly try to push us further and further along the edge to an always on world. I mean I can remember 10 years ago when I got, you know, an Alexa in my home and thinking to myself, wait a minute, this is this is always listening for the wake world for the wake word. And now we've I think to your point we've kind of moved past that where you know let's say you're in a meeting uh you know you're you're you're having a meeting you're having a you're in a conference room I think you know more often than not I'm hearing somebody say hey I'm granolaing this right so I think we are moving more and more towards that world for better or worse. Do you think the multi-stage funds deliver an amazing preede and seed product? Because I Okay, so I say this, I think you're probably also, and there's no problem with this, but I think you're a little more protective of your brand than me. I don't worry about upsetting people. Like the worst place to be is a 50 to 100 million seed fund. You will get crushed by the large funds who are able to write large checks and lead rounds, but you're also not small enough to be collaborative. Very difficult middle ground to be in. I think do you agree?

I think the best funds in the world at doing seed are really really good about building their networks and meeting amazing people. I think you've been doing a good job recently at empowering a new class of entrepreneurs here in Europe and in London uh with very very very early stage seed check. So I think you have to build a great network. I also think to do seed well you have to put your ideas out there into the world. You have to show the market what you're looking for. You have to be willing to take a stand and take a position and say, you know, I I just put out a a post yesterday about uh the Rebel Alliance and saying, "Hey, USV, we're really interested in the Rebel Alliance, this new univer this new universe of openweight models and open- source harnesses and distributed compute and agents, right? Human aligned agents." And I think when you put things out into the world, you're you're sending up a bat signal that's telling these early stage founders that maybe haven't gone out into the world yet with a product, oh this is the VC or this is the person or this is the team I should be talking to. So I think you need a great network. I think you need to ship your ideas and I think you need to be willing to take bets on people which again I think you've done a good job of with your program. Can I ask you on the kind of shipping ideas? And this why I love asking advice Bunny is

what if the ideas aren't fully formed? What if I'm just wrong and and then I get a deluge of companies and actually the thesis wasn't what I thought it would be?

I think that's totally okay. I think much like building a startup or building a product, I think if you're investing, you also have to be willing to put yourself out there and take a risk and and place a bet. Now listen, you can hedge that bet a little bit. You can place a counterposition bet and something else maybe to offset the risk of that. But I think you have to be willing to put yourself out there if you want to succeed at anything in technology, whether it's a startup or a venture capitalist.

📋 한국어 요약 보기 →

Open weights, open harnesses, open models. Ding, ding, ding, ding. We're going to do a prediction round. Fun. We I told you we had this like truth or like donate round. Yeah, this is a new prediction round. the model landscape in five years time. What does that mature uh not mature but maturer market look like in terms of composition the players their waitings what does that look like? You know, one future is that the labs, especially the ones that are starting to approach something that feels like super intelligence, once they reach it, uh if they reach it, once they reach it, we will have some form of recursive self-improvement such that we hit this exponential growth of intelligence. And you know, the the the thinking goes that whoever gets there first will run away with it, right? Once you reach recursive self self-improvement, you're gone. No one can catch up. And I think that is uh yeah, that's that that's not necessarily the future that I am hoping for.

For everyone who doesn't know, what is recursive self-improvement?

This is this is this is self-improving AI, right? This is this is super intelligent AI that can do its own AI research, right? So once you have it, once you deploy it, it can just continually improve itself on the exponential forever until it plateaus until it self-limits in some way. And by the way, we don't we don't know what that self-limiting factor may be. It may be that for some reason these architectures, you know, the transformer architecture, let's say, doesn't scale past a certain point. We don't know if that's going to happen. It could be that uh the model needs uh some amount of data that it can no longer access, right? There's a limit to the amount of data. It may mean that we can't keep up with the hardware infrastructure built that we need to to keep uh recursively self-improving. So in the in the past in the history of new technology adoption, I mean if you study them, they actually all follow S-curves, right? They have a slow takeoff. Then they have what feels like an exponential ramp up and then they plateau for some reason like we just discussed and that's potentially the second future for AI, right? We we reach some plateau in terms of intelligence. And I think if that happens then the technology might start to look somewhat more like a commodity, right? If it plateaus then we're at a point where all the other labs can catch up and they can all have the same technology. Okay. And if they all have the same technology, then we're going to have a lot of competition. We're going to have a lot of competition in terms of price, in terms of product experience, um, and in terms of the various components that make up the new intelligence stack. Okay. So if we go on the route one recursive self-improvement and it leads to this kind of exponential advancement is that done by an open AI or an anthropic or a leading model provider today or is that done by a recursive or one of the many others going after I was literally for two hours in shortage yesterday with one or is that done by an entirely new company focused on recursive itself? Yeah, I I think it's probably done by one of the labs that already has all of these advantages, these vast compute advantages. They already have models that are at the frontier. They have the infrastructure. They have the chip. So, I think it's probably done by one of them. That said, there are a bunch of amazing researchers working on incredible new architectures that maybe haven't broken through yet, but maybe they can. Maybe they're building something that is better than the transformer, right? There are a number of these labs out there. thinking machines, safe super intelligence from Ilia and Daniel. I think if I were to to bet, I would I would say the labs that already have the advantages, but that doesn't mean there isn't a new architecture being worked on in a lab somewhere that could leaprog all of it.

Okay. Number two is that actually we have less of this kind of exponential and more of a linear style. when you look at that kind of more mature market on the S-curve basis, what does that composition look like in terms of market between open and closed and anthropic and open AI?

I think in that world, enterprises and and and individuals are probably optimizing for a couple of things. I think they're probably optimizing for cost, right? They're starting to think about the trade-offs between intelligence and spend and how they can optimize their token spend. So, what does that mean? It probably means, you know, leveraging things like openw weight and open source models. It probably means leaning into things like the routing layer to optimize the token usage towards, you know, the the model that maybe gives you the most bang for your buck rather than always just token maxing and picking the most powerful model. I think the other thing it looks like is choosing tools and products and you know one of you know hate to use the new the new buzzword of the past six weeks harnesses that are maybe a little more human aligned.

Can you help me what the [___] is a harness? No serious I feel so bad you know on on X I really want to do Grock what is a harness but I know everyone will be like oh

I think of the harness as the application that tightly tightly couples with the model. So in the case of, you know, Claude, it's like the Claude desktop app and I would say specifically Claude Code and Claude Co-work that are sort of having this this loop, this this flywheel of product and model sort of engagement. Um, you know, some other harnesses that I think people are pretty excited about are things like Hermes. I consider Hermes a harness that you that takes over your Mac Mini. I don't know if you've set it up yet. Um, Pi from Arendelle is another great harness. European company. Um,

someone someone legit called a harness after like one of the greatest fashion brands.

What's that?

Hermes is like a fashion brand.

Oh, right. That's Well, isn't that Hermes?

Well, it's spelled the same, dude.

Good point. So, anyway, I think I think having products, agents, harnesses that are human aligned and aligned with your own goals and incentives, I think is going to be really, really important. And I think people are going to be a little more self-conscious about the incentives of the model they're using. Obviously, the incentives of the models that come out of the big labs are to make the labs models smarter, better, faster. And you might you might think to yourself, hey, if I'm outsourcing all of my agency and all of my personal information and these goals and my credit cards and all these things to an agent, I want that thing to work for me. I want that thing to be completely aligned with my incentives. Um, you know, I published a thing a few weeks ago, a few weeks ago on X called, um, who is your agent working for? And that was the big idea we were trying to get across with that. And that I think in the future as you become more and more comfortable handing over the keys to an agent, you're want you're going to want to know that it's working for you. So, I think that's a little bit like what that second future looks like. I have to say I think people will get incredibly comfortable handing over the keys in the same way that we got incredibly comfortable putting our credit cards online using Apple Pay, finding our husband or wife online. Um, and I think that will be de facto in 5 years.

I I I think there's a chance you're right. In fact,

I don't think anyone gives a [___] about privacy other than hardcore technologists. And I know that's blunt. I'm going to get killed for that.

No, no, no. You're not. I I think there's a good chance you're right. uh you know if we're just thinking in terms of bets and probabilities I think the history of the internet and personal computing suggests that you are right Harry

📋 한국어 요약 보기 →

but two things first is I think we have never handed over so much of ourselves to a technology before than we're about to do with agents yes you're right we browse the web chrome we used um

but it didn't do [___] for us

it didn't do [___] for us right we we still got to control it, right? Yes, maybe we we we let these companies learn about our interests and the things we care about, but it wasn't out buying stuff for us, right? It wasn't out sending very personal messages to family members and loved ones. It wasn't a second self, right? It was it wasn't us. I think now we're going to be doing stuff like that and it might just make us think a little bit more about the incentives of the model that are doing those things for us. That's number one. Number two, I'm not sure that every model and every agent needs to be superhuman aligned. I'm not sure every person needs to care about it. I just think enough people have to care about it such that one player or a few players keep the others in check, right? I think we need market forces where a couple of good actors keep the rest of the other actors in check. So, I I I think it's possible. Now, is it going to happen? I don't know. History says it won't, but I think it's possible.

Do you think Dario has had a massive own goal in terms of marketing and messaging? He's been saying about labor displacement for years. Everyone's going to be unemployed and telling your customers they're going to be unemployed is always a bold statement.

What I see in Anthropic is I see an extremely missiondriven company. And I believe that missiondriven companies can be very, very successful. And Anthropic, you know, love them or hate them, there's no doubt they've been extremely successful. I think at the time of us recording this, they're the most valuable privately held company in the world.

📋 한국어 요약 보기 →

You know, I think core to the will they continue the exponential revenue growth that they've had is percent of spend in terms of developer salaries on tokens. And Mark Benoff said that he spent $300 million on anthropic, which on specifically for the dev team, which equates to 3.8% of dev salaries spent on tokens. Now, if that goes to 20%. Anthropic's grossly undervalued. That exponential revenue will continue and well done everyone who's invested in all their employees. Great. If it goes to 100%, holy [___] this is just so much more big larger than we ever thought it could be. But if it stays or if we see migration to open models, it's a very different game.

I think it's a risk. I think there are two schools of thought playing out right now with regards to token spend. I think one school of thought which we're seeing and I think when I really think about it probably applies more to the incumbents and the big companies, the sales forces of the world rather than the startups is that if every employee is just spending like crazy on tokens, the fundamentals of these businesses are going to be in trouble. They're just too big, right? there's too many employees at a Salesforce or I don't know a Microsoft such that every employee can just have an unlimited token spend budget. So I think we're going to see a lot of those companies start to constrain their spends and we've seen mentions of things like these on

you see Meta, Uber, Microsoft. Yeah,

I think if you're a startup the calculation probably looks a little bit different. Your organization is smaller, right? So you're not going to have a situation where you have 5,000 10,000 50,000 employees just spending out of control. You can you can more tightly control the spend. But also I think as a startup you need every advantage you can get right now. And so if I you know if I were the CEO of a startup right now I would actually still be pounding the table to maximize token spend on the on the right things right definitely with coding maybe not with other things just for simple tasks like summarization or you know operations type work I'd probably be leveraging sonnet or something but if if I'm at a startup and I'm coding I want to be using the frontier I want every advantage I can get against Salesforce. So if you are the best dev, are you going to go to a big incumbent who are going to give you a budget and really constrain your abilities in terms of model usage or are you going to go to an startup where fundamentally they say, "Hey, it's a free-for-all. Be your best self."

I think you're going to go to a startup, especially the startups right now that are missiondriven. Especially the startups that are mission driven, which by the way, I don't know that we've really been in that mode for the past couple of years. Yes, Anthropic's been mission driven, but there's so much money and capital sloshing around the valley in this ecosystem. I think a lot of companies haven't needed to be missiondriven. I think now they will and it's going to work to their favor.

Do you not think we enter a world though now where Fable will come back in some rejuvenated form one way or another where Fable comes back and newer and better models come back and you just have the 100x engineer and you pay for that token spend which is enormous with the replacement of the 10 other mid engineers. I do think engineering organizations are going to evolve. Um I don't know exactly what it looks like yet, but I think you will increasingly have probably somewhat smaller teams of higher caliber and higher quality engineers because I think a lot of the lower level tasks increasingly can be delegated away to agents. In terms of the open ecosystem, when we look at it today, what percent of enterprise workflows do you think can be done with open?

80% of non-coding tasks in the enterprise can be done with models that are not at the frontier. I think if you're coding, you probably want to be leveraging frontier models. But I think things like, you know, um, summarization or the generation of docs and briefs and things like this, I I I don't think you need to be at the frontier. And so you probably can leverage open source models. I think a lot of the open source models we're seeing are catching up faster than they were previously. So um I I I don't know that you need to be at the frontier if you're not coding.

China have the best open source models. It's unbelievable to see the rate and the evolution of their open source ecosystem. Is that concerning do you think?

I think look I think startups and teams go where the incentives are. I think as we shift to a world in which this rebel alliance might actually have a fighting chance, we're going to see a lot of smart teams going more and more towards open.

I'm really intrigued you said about the rooting layer. Do you fundamentally think there will be 10 to50 billion companies built in the rooting layer or do you think candidly your inference providers like fireworks or base 10 eat into that or candidly if you want to go a step above that you've got Nebus who sits on top. When I had the founder of Nebios on, he's like, "We need I'm not going to put on his accent cuz I'll sound like a bon villain, then he'll [___] kill me." But like, you need to eat all of the stack.

📋 한국어 요약 보기 →

I do think routing is interesting and important right now, right? I think again, as enterprises are trying to optimize their token spend, they want to make sure that the model they're using is the right model for the job. Not only in terms of its capability and what it can get done, but its cost. And so you're going to have companies that are singularly focused on this. Companies like Open Router uh out of New York, which is doing some really interesting work. And then you're also going to have companies that are leveraging uh other parts of the stack for their products that build their own routing layer uh as an opportunity to monetize. Actually, we've talked to a number of companies building at various different levels of the stack that when you talk to them about their business model, they talk about building a routing layer and monetizing the routing layer. So, I think it's a really interesting area that has a lot of opportunity and a lot of different companies are going to go after it uh because they see the potential.

How do you monetize a routing layer without becoming just a commodity pipe?

It's a good question. I think a lot of companies right now are thinking about, you know, charging a small margin on top of it. And I think to your point, that might not be a great business model. Um, I put out a piece on X about this a few weeks ago and a number of people chimed in with some of their ideas. And one interesting idea I heard was this notion of almost a bounty model at the routing layer where the where the routing layer gets um gets rewarded for choosing the right model, right? So if you choose the most efficient model or the best model for a certain task, that's when they collect a fee. And I thought that was kind of an interesting idea. Haven't necessarily seen it built out yet, but I thought it was a pretty interesting idea.

I think it's hard to see that $50 billion company built in routing alone. I have to say

maybe on the other hand you know we've seen time and time again in the enterprise in infrastructure specifically that these infrastructure companies they become deeply embedded in the developer work workflows and in the developer ecosystems and you just can't rip them out because it just becomes the gold standard. So maybe somebody will build that routing layer that every developer adopts and never wants to remove.

Would you say it's unfair of me to say that USV missed the model game? I think USV was playing a different game and that's actually been the history of USV. US

is the game not unbelievable returns in generational defining companies.

So USV again I think has never been afraid to take a position and I think USV maybe uh did not invest in any of the big model layer companies. Um, but what USV now has been doing for a number of years and and I'm I'm a big believer that we haven't seen the full circle of this narrative play out is they've been betting on energy. And they've been they've been betting on energy since 2001. Um, and the idea has been for a long time now that no matter what model wins, if you believe in AI and if you believe in intelligence, there's going to be an energy layer underneath that is going to be needed to power these things. And over the time since 2001, we've we've learned that we only need even more energy than we thought and we need more portability of energy than we thought. And so, um, you know, energy is a big theme at USV. was starting in 2001 and it still is to this day in 2000 or 2026. Did I say 2001? I meant 2021.

How do you think about investing in energy given the capex intense nature of it? You know, we're invested in a company called Fuse Energy which I think is incredible. I'm so happy but it it's a capex intensive business in terms of like the energy space.

It is. But I think there's also a lot of innovation happening and where there's innovation you can you can find early teams that are doing science experiments before anyone else is thinking about them. USV a few years ago uh invested in a great company called Radiant which is building small nuclear reactors that literally come off of a factory line you know and it's going to be one of the first companies in the world to test um in the dome in the United States um for for nuclear energy. And so I think there are a lot of interesting models and ideas happening on the edge of of innovation. And I think those are the best places to bet as a venture capitalist because in the earliest days they're actually not that um capital intensive.

You know one story I [___] love boom supersonic

crazy.

Yeah. Like turbo like you know don't get me wrong we all love Concord and Blake I love flying too dude.

Yeah.

Game on. But like it's like but there's this massive business in turbines for AI.

Yeah. What a wonderful world.

We we have a bet in a company called Rune. Amazing company. Have you heard of Rune? No.

They're building micro data centers that sit directly next to generators wind, you know, wind farms and things like that to solve the portability issue. How do you get the energy as close as possible as quickly as possible to the compute to the data centers? And so, you know, I think we're we're we're on the lookout for things like this that are sort of innovating the model of energy and portability of energy. Isn't this just like the joy of capitalism? I met Pantherasa, you know, this company that does data centers at sea.

Um, and it's just like fundamentally to Adam Smith's invisible hand kind of the market solves itself.

In terms of we got an energy crisis and then you get Rune and Panthalasa and Elon building data centers in space.

It's crazy.

It's awesome. It's a cool time. It's a fun time to be investing.

📋 한국어 요약 보기 →

It is. And this is why I get really pissed off with a lot of European entrepreneurs who are still building SMB accounting solutions. Hey, look, I mean, I think that there's an opportunity for for automation in in the enterprise. Personally, I I I would much rather uh build products and companies that obliterate. That's actually something we talk about at USV all the time. Don't automate, obliterate. Um, but hey, people want to automate.

What does that mean, don't automate?

Well, you just talked about automation and you talked I think you were talking about SAS in a sense. I think there have been amazing companies built that automate existing workflows, existing processes. Um, but at USV, we like to bet on businesses that obliterate that literally obliterate markets and existing business models. And so, you know, we're we actually don't do a lot of enterprise investing for this exact reason. Enterprise investing often requires selling to a middleman, you know, selling to um selling to customers or building things that just make existing businesses faster. We want to invest in businesses that literally reinvent the way something is done. Take doctronic as an example. Are you familiar with Dtronic?

USV led the seed in Docttronic a couple of years ago. At the time, it seemed like a crazy idea. was the idea of AI putting a doctor in literally everyone's pocket. Now, we could have invested in AI that make medical practices faster or more efficient or help you with, you know, insurance claims or that's what I did.

We can put doctors in everyone's pocket and totally reinvent the model with AI. So, I think that's what we're talking about when we talk about obliterate, don't automate, dotronic, doctor in your pocket, da da da. It reminds me of education. Sorry, I didn't mean that disparaging. It's awesome and like,

but it reminds me, sorry, education kind of reminds me of the same actually. And do you know who the biggest winners are in both education and in um uh medicine in most cases?

What was that?

It's a horizontal place. It's YouTube

and my worry is especially with like health

chat GPT's second most used thing

maybe

health. And so my question to that tide is not tied to doctronic. It's how do you think about where model providers will go and eat into the application layers and not kill our lunch? M

maybe we just talked about a bridge. I think you had Shiv on here recently.

A bridge has been working on this problem for close to 10 years now and it's given them a massive advantage. It turns out in highly regulated industries like healthcare, you can't just walk in the door and and say, "Hey, we're going to do healthcare now." you have to actually build relationships, build partnerships, clear through regulatory hurdles and that ends up being a form of a moat. And so, you know, USV invested in a bridge, I think in 2018, right? Eight years ago now. And it took that company, you know, five, six, seven years to hit this inflection point now where this product is being used by so many doctors in so many different health care systems because they were able to clear those hurdles. And so look, I think we can say that we live in a world where the labs and the hyperscalers can take over any product and any market, but the reality is that's been the story of technology and innovation since the beginning of time. There are always going to be startups and founders and entrepreneurs that specialize and do the really hard things before anyone else has thought of them that end up prevailing. I mean, just take Spotify, which we talked about at the beginning, right? Spotify went up against a behemoth. It's classic David and Goliath story and they could have be could have been killed 50 different ways along the way, but they specialized and they did the hard thing early and often and now they're obviously the winner. So, I hear you uh that the labs can kind of go into any application layer, but not only do I think that that's not true, I also just think it's not really fun. And what fund can we have as venture capitalists if we don't believe that startups can take down the Goliath?

I'm also not sure if it's as binary even if they do. You know, you saw Claude and Anthropic dedicate an entire team to design and to go up against Figma. Figma is still a business that does multiple billions in revenue and there's still multiple players in the space.

Great product.

Great product. It's not

trusted brand.

Trusted. You know that my biggest mistake also especially on the developer landscape was I thought that there would be like a runaway and of course Claude has run away and done amazingly well but Lovable's at 500 million era Cognition is Rapid is you know anthropic clock CEX is crushing they've all crushed there usually isn't a market winner that takes 100% of the market or you know 80 80% of the market. Usually what you see is that the market winner takes something like 30% of the market, right? Which means the 70% remaining is totally up for grabs. And if the market's big enough, that can produce some really large winners.

Can I ask you, do you see different deals at USV to the types you saw at Lightseed? I'm not saying bad or worse. Do you just see different? I think that when you know going back to what we talked about earlier with seed, I think if you put yourself out there in the world, you're going to see deals that match those themes and ideas. Not to say I didn't do that at Lightseed. We did that at Lightseed as well. But to the point earlier about being very focused on energy, right? Or now being very focused on this Rebel Alliance. We're going to see a lot of those companies come to us. And I think when you're small, you kind of have to pick your spots. you have to have constraints and focus on a small number of things. And so I think to the extent that we see things different, it's because we focus really really deeply and for a period of time we may only look at a couple of different areas that we have thesis on.

What are you unsure of right now that is worrying you? Like to my point earlier um I think a lot of people are concerned by the intrusion from model providers into the application layer. But we're investors in Lagora. Anthropica are very openly suggesting they want to come into legal. I think that's [___] moronic for multiple reasons when you're chasing AGI to be like ah we're going to go after your lunch Clifford Chance or Slaughter and May doesn't make much sense. Look, I as much as I say that there's always going to be opportunity for startups and that, you know, one model or one camp company can't can't do everything, of course, you still worry about competitive threats. Um, you know, I I'm, as you know, like I I partnered closely with uh Granola when I was at Lightseed, Sunno as well. I mean, those are two startups going up against massive massive incumbents. Granola in particular, you know, OpenAI launched a directly competitive product, right? Notion, a very well-funded startup, launched a directly competitive product. And so I I do worry about that, but I think again that's that's always been the worry when you're building in startups. Is the worry not for Granola just breaking into enterprise like like that traditional enterprise like notion have found it incredibly hard to break into traditional enterprise. These are startup and venture funded products which is amazing and you can get to 500 million in revenue but you need to be five billion in revenue. I think the nice thing about Granola, what it really has going for it and one of the things that I believe has helped that company and enterprise penetration is being really focused, right? They're just doing notes. They're just doing notes. I think there are other companies, startups selling into the enterprise that try to do, you know, many different things.

But dude, I think you got to do more.

Maybe, but I think you want to get your foot in the door. And I think when you want to get your foot in the door, you want to sell one thing. And once you're in, then you can you can expand horizontally to different categories. But I think if you come in expanded really really wide, now you have to convince the enterprise to give up all these different things, right? You got to give up your Gmail and your Google Docs and your Google Sheets and your calendar, right? And this and that. Whereas, if you're just doing meeting notes, it's like, "Hey, we're just going to be your second brain for your company, right? We're not going to do anything else. We're just going to be your second brain. Oh, and by the way, we're the best at it." Do you not worry about the enduring wave of Microsoft and bundling, whether it's Teams that crushes or whether it's, you know, co-pilot that it's I mean, these products are Microsoft has built a business on doing 65 to 70% meh products, but with the power of bundling beat the competitors. I do worry about that. Of course, absolutely. We saw this play out with Slack. By the way, Slack is still around. It's still a massively valuable product. But yes,

27 billion. I love the way we say this. It's like 27. I'll take it.

Yeah, I do worry about it. What I've also learned about AI products and granola is that context is extremely valuable. Right? If granola gets inside of your organization and everyone in the organization starts using it and producing and accumulating all of this amazingly rich and valuable context, that's not something you as an enterprise want to give up. You don't want to give up that context. You've built out this incredibly rich history of information um that actually helps you work better. So I I I think I think this era of building AI products is in many ways about being first and about moving really really fast. You know what worries me is just like the meh of such large outcomes and and again this all sounds incredibly disparaging and it's not meant at all because [___] I'm a podcaster so incredible disclaimer

and a VC

but my point being like when you have a SpaceX at 3 trillion Elon Musk made more money overnight than Warren Buffett has done in his entire career.

Credit to him.

Credit to him. Well done. God bless capitalism.

Amazing entrepreneur.

Amazing entrepreneur. God bless capitalism. But my point is like when you have the outcome sizes of anthropic and open AI and the trillion dollar companies, the kind of the company that does 500 million in tough. I think it all goes back to what are you optimizing for? What's your mission? What are your constraints? We talked about VC early on um before we stepped into the studio here. USV has always had small funds. It's the game we like to play. And you know, you can be very successful in terms of what you're trying to accomplish as a venture firm with a small fund. Now, maybe it's maybe that same model can't work if you have a $10 billion fund, but we're playing a different game. And I think you're playing a different game, too.

📋 한국어 요약 보기 →

I I would not do venture without media. I said to my LPs the other day two things that really shocked them. Um, I said, "You can't do series A unless you have a $400 million fund today. Absolutely no chance."

Well, series A's are expensive now. They're, you know, they're 100 million post. Um, they're 80 million post. They're occasionally 150 million post. And so, yeah, if you want to write a check into around that size and get decent ownership for your your your fund, you have to have a slightly bigger fund than you had 3 years ago.

Are you being more elastic on ownership?

I think it depends on stage. I think at the you know the way we think about it USV is at the the seed and series A stage ownership is important and the reason is the outcomes are bigger right now. you talked about it and the companies that end up doing really really well raise a lot of capital a lot very very quickly and the valuations get very high and in those later rounds it's actually very very hard to buy ownership especially if you're a small fund and so you have to get that ownership early on and see it at the series A seed in series A are kind of the rounds where you can do that now once a company sort of crosses that chasm maybe into the series B or to the series C and you can identify them as being market leaders and potential generational companies then I think it matters less then it's just about getting capital into those companies and underwriting it as a cash on cash type outcome forgetting about percentages just imagining okay if we put $25 million into this you know what can the multiple be on that is it a 10x is it 100x is it a 1000x if it is you know if it's something really big like that then you don't really need to think about ownership.

We just did a deal together. Uh, and by the time this comes out, it'll be announced. I actually got a message from the founder overnight, which is why I'm able to talk about it. Paul at FOMO.

Oh, nice.

Yeah. And you guys did that round

later.

Later for us.

Yeah. And that was why I asked that question.

But you saw the size of market. And for people that don't know, it's a next generation trading app in many respects.

Um, I guess you saw that multiple expansion at the entry price you came in at. That's a perfect example. You know, we we saw that where it was and we said to ourselves, how big can we see this getting? We think it can be a lot bigger than it is now. And so for this one, we're not going to be ownership focused. We're just going to we're going to put a check in. You know, we we may not be able to bet every round from here out because again, we have constraints to the size of our funds. Uh but we think there's enough opportunity and enough upside from here that it's worth it.

Should you do it if you don't think there's like a mega outcome? I know that sounds strange. I'm not sure for for us for USV at the later stages if we don't think that there's a gigantic outcome, it probably doesn't make sense for us to bet.

But even should you do it early if it's not a gigantic outcome is my kind of

Look, I think in general you always want to believe that the things you're betting on are playing in large markets with very very large service areas and we're going to look at every company that way. But I do think that because our funds are smaller, similar to yours, there's probably more downside protection for us in that model than say at a larger fund where you have to multiply billions of dollars. For us, the fund that we're investing out of now, the core fund, it's a $275 million core fund. And so you can you can multiply that a lot easier than multiplying say several billion dollars, especially if you get the same type of ownership that a that a larger fund is getting. I think it will be the best time ever though for the very large platform funds and I think they'll be able to deliver a venture- like returns because of the expansion and outcome sizes. Do you think that's true or not? You look at like a thrive.

I mean their numbers are better than 90% of seed fund numbers on their growth growth vehicle. Yeah.

When you look at I mean you know they made a precursor phenomenal. The open AI fund obviously incredible like they are getting venture outcomes on multi-billion dollars. We we think that we are coming out of a period where there has been a massive infrastructure buildout and very very capital intense companies. Um I think that firms large firms that were able to invest in those very capital intensive companies have done phenomenally well. But again, I think we're also now playing in a world where there will will be a proliferation of startups and apps at the application layer that are less capital intensive. And for those, again, I think you're going to need to know what you're looking for. And I think you can you can get in those companies at more modest check sizes. Now, I don't think you can have a fund that's in the middle to do that. I think you need to either be on the on the large end and play the consensus game or be really small and really opinionated and multiply a much smaller fund.

Are you elastic on price? You know, I candidly we we've lost two deals in the last year.

Mhm.

Um and listen, we got outbid. I don't know if we would have won if we' paid the same price. I hate people that say that.

Yeah. But by like two or 3x we bid 150 and another we got bit out bid by 300 another we out bid 400. Should I have just paid?

📋 한국어 요약 보기 →

I I talked to my partner Fred Wilson got a shout out Fred one of the one of the goats and I asked him a question. I said what is what is the biggest lesson you've learned in VC? Actually I asked him what are a couple of the biggest lessons and one of them was never pass on price. So Fred says never pass on price. I think in reality there's probably some nuance just to bring it back to the USV strategy. I think for us again if we're investing a little bit later stage we need to really believe that it's a market winner and the multiple can be very very very high and in that case I think we can be a little bit more elastic on price but I think at the earliest stages especially when we're investing out of our you know our our small funds um I I do think there will always be a limit for us on price just because otherwise we can't make the fun math work.

You know why my job is just incredible is cuz I Yeah, I I really am a student of this business. And by the way, you said shout out to Fred. I emailed Fred when I was 17 years old and him and Brad Fel both responded to me within 30 minutes.

Wow.

Like that is the testament to giving time to people when you know candidly there was I had nothing. Um I

I told a story on that that podcast uh where when Anker first launched, I had never met Fred and um the Ankor app accidentally auto tweeted for Fred and he has a big follower count on Twitter at the time. Uh now it's X obviously and he was not happy about that. He he started lighting me up on on on Twitter. This is one of the day like the day after we launched Ankor and um obviously that was uncomfortable for me as a first-time founder, but to your point, I cold emailed him right after the fact and I apologized and I offered to troubleshoot it with him and he responded immediately and he was super gracious and and forgiving and understanding and so I I had a similar experience

and I think all publicity is good publicity.

Yes, true. Actually, you probably

we got a lot of publicity from that.

Yeah, you probably do. Um, never pass on price. Where I was going with the student adventure style is I think it actually goes something that Peter Fenton told me, which is use price as a litmus test for your conviction.

There you go.

And it's like actually there are founders like Alan Chang at Fuse or Jack at Air Wallace. You could treble the price and I'd still pay it today.

You have founders like this where if you doubled the price, you're like, I'd still pay it. I'd

Yeah. Yeah. Absolutely. I can think of some of the best deals I've done and you know even though I'm I'm happy with where the price landed in hindsight I'd probably pay double the price if I could go back and do it again.

If I were to ask you what are your biggest lessons now having been in venture in the same way that you asked Fred

what would you say they are?

You you can't project your own ideas on the founder. Sure, you can offer ideas of course if the founder wants, but especially as a as a former operator, you know, you often think, "Oh, I know how this business should be built or I know how this product should work." And I think that can really really get you into trouble. You know, one of my uh former partners, uh Jeremy Lou at Lighteed, I I made this mistake a few times and and he called me up one day and he said, "Hey, I I think you're you're you're projecting as a former founder." And he's like, "In my experience, that's very, very dangerous and very risky." And I think it was a great lesson. Um, the reality is even if you have great ideas and you think you know the answer, even if you're right, by the way, the reality is it's the founders's company and they may want to build it a completely different way. And not only that, if you project your ideas on a team that you're evaluating, um, you might get it completely wrong, right? You might look at a business and say, "I know what this company needs to do. it needs to do A, B, C, D, and then it's going to win. But if you make your bet based on that evaluation and that judgment, and that team doesn't do those four things, you made a bad bet. So don't project. Don't project. You have to really believe in the team and the team's judgment and the team's ability to execute on their own plan. So that was a that was a big lesson for me as a former CEO.

Founder, market, product, greater than one through three. When I first started this job, I would have said product, market, founder. I've completely flipped that. Now I'm founder, market, product. Um I think that the founder is the most important thing. Um at the end of the day, most startups, especially early stage startups, they're going to pivot in in some form or another. What's most important is are they resilient? Can they execute? Can they adapt to change? When you get founder reads wrong, what do you not see that you wish you'd seen?

I often see communication as a as a big hurdle for for founders. I think one of the hardest things you can do as a leader is communicate effectively because I think communication touches every part of company building. Uh it's part of recruiting which as we know is one of the most important things you could do. You have to be able to communicate your mission, your values, why you exist, what you're trying to accomplish. Um, you have to communicate to investors, right? If you're not a great communicator, you're not going to be able to raise capital. You're not going to be able to put venture dollars into the business. You need to be able to communicate your product vision to your team, right? How can you align the team around building the perfect product if you can't communicate it? You have to be able to tell your story to the market. When I think about some of the the the mistakes I've made in evaluation, it's it's it's maybe been on communication. That's probably been one of the biggest.

What do you think the single biggest mistake in venture is you've made in terms of miss? I would say mine probably is one that you gave me which is well two of yours. I I turned down Sunno when David Franklin founder collective introduced me at the seed. Um you know what the lesson was there really interesting and I hope Mikey's okay with me saying this. I'm sure he is. Um it it was a 250k check or a 200k check. And so the ownership was you know 1%. And I was like no I need to be high ownership. My LPs tell me high ownership and granola honestly was a lack of imagination. Chris I saw was great but like it was a very unformed idea

and I was like I can't

founder first founder only thing when founders the other two don't exist.

Terrible mistakes there for both. Ironically both you know you did very well on. Congrats.

Two different motions, by the way.

Sure.

Granola for me was a pure founder bet. Pure founder bet. I knew Chris. I've known Chris now for 15 plus years.

He's also not an amazing seller. I'm just going to give it and be blunt.

He But I knew Chris up close. That's

um you know I I so when I was building Ankor the the Socratic office, Socratic was his previous startup was right behind ours. And we did a few meetups together. you know, we've got our we got our teams together for a few happy hours and I and I, you know, I would talk to him as another founder and we would share our struggles and, you know, get advice from each other and I I just I was like, "This guy, I know he can do it. I I've seen him. I've seen him do it." Pure founder bet. Sunna was something very different. Sunna was a pure thesis driven bet. For me, the thesis came from actually the days of Ankor and seeing what it meant for a product to democratize a creative medium. And music had never really been fully democratized before AI. So, I went out and I met with every team building AI for music. I went out and I hunted down every team and and then of course I met Mikey and the team and I was like, "Wow, this is an incredible team." And and then the founder then the founder lens came on and I was like, "This is incredible team." How obvious is it when you meet a founder that you want to invest?

Um, with Mikey and the Sunno founders, it was immediate. I I met Mikey.

Was it normally immediate?

Um, not always. Not always. With Suno, it was uh Mikey and I sat down uh at a restaurant in uh near my home in Hoboken, New Jersey. He his his family's in Jersey. So, we met up uh in Hoboken and um we just immediately hit it off like just instant instant connection and you know I immediately recognized how not only how smart he and the team were about the models they were building about their vision for the world but also how passionate they were about the problem. Mikey is a former musician and so I felt like he could deeply deeply connect to this idea of how do you make music creation expressing yourself creativity how do you make it easier and so um

when you're doing sunno of 5 billion what are you underwriting that to

so we believe that has you know I'm I'm using this term loosely but unlimited upside potential um you know if you look back at the history of media on the internet and you think about the generational platforms that truly democratized a medium, right? YouTube, Tik Tok, um you know, Twitter, Facebook to some extent with writing and publishing. I mean, these are insanely valuable platforms and you don't and you don't really think about the upside of

Does Sunno not have to move from a tool to a platform then?

So, I probably would have said yes when I invested. First of all, I I I do think it is a platform, but I think you're asking about something different. You're asking,

yeah, you're talking about do you need a creator side and a consumer side, similar to what we saw play out on on uh Spotify as an example.

I think when I originally invested, we thought that it did. Now, I'm not so sure that we understood what Sunno could be back then. What is happening now in Sunno is what what what Mikey and the team have been saying for a while and what I now believe uh it's that it's literally a new behavior. The team calls it creative entertainment. People are coming into Sunno. They're making music for the pure joy and entertainment value of making music. You know, previously like let's say on Ankor, you would make a podcast for the purpose of getting distribution and eventually monetizing it. Right now, AI has made music creation so much fun that you're making music to make music. And I think it's actually not too dissimilar to what we see with Claude Code or Midjourney, right? Or some platforms that are making it easy to make games with AI. You have no greater aspiration for this content, right? You're not trying to become a hit game developer. You're just having a lot of fun making games on your computer. And we see that a lot in Sunno. What miss? I'm brilliant, but you should be a politician. I asked you what miss. I'll tell you about my two greatest hits. Thanks, dude.

So, one company that I would have loved to invest in a long time ago, which we didn't at Lightseed, we met them a few times. Um, and I think we could never really wrap our head around um kind of price also at the time where they fit in the market. Now, I think with the the benefit of hindsight, um I really regret not ever having the having had the opportunity to invest in Substack. I really believe in Substack. I realize it's not your traditional sort of AI company, but I think, you know, over the past eight years, and I think the trend is continuing, I think we're moving more and more and more towards a world of self-publishing and people um controlling their own destiny in terms of media and what they create and what they publish and how they monetize it. And I think no company maybe other than X has done a better job of that than Substack. And so uh that's a company where you know I love the founders. I love the purpose behind the company. I love the product and the platform. Uh unfortunately never got a chance to invest.

Is traditional media dead?

I think traditional media in many respects is dead. I think you know

I I go to these large houses your your times is of the world your skies and dude they have these insane production places

for pods that I know no one listens to and the teams are ridiculous and and it's all like guys you don't get where this game has gone.

I probably underestimated just how big independent media could become. When we built Ankor, you know, we had this vision of democratizing audio and giving everyone a voice. And I would say by the time I left Spotify in 2022, I I'll admit I kind of thought the opportunity was baked. I was like, "Okay, it's it's done. It's done." You know, we've got YouTube, we've got Spotify, we've got, you know, whatever. We've got X. Um, it's gotten so much bigger since then. And that was only four years ago. So much bigger. I mean, every traditional um TV show or, you know, media personality, everything has made the leap over to self-publishing or independent media. I mean, I think you're a model example. You've been doing this forever. But also just like huge names that were on some of these large uh media organizations that just made the leap and now they just have a YouTube show or they just have a show on Spotify. And so like I don't even think we've reached the peak yet. I think I think television is still in the process of being massively unbundled.

When TechCrunch Europe shut down and now Wide Europe shut down, I coalesed the best riders in Europe and I had 10 million bucks from very rich billionaires to bring together the next generation. And then I sat down with my investing team and they're like, "Why the [___] are we doing this? We have no editorial control on them just like Open AI don't on TBPN. We can't influence it."

What's the point? Yeah.

And to your point, editorial freedom is everything.

It's it's amazing. It's incredible. Again, which is why I love Substack and why I like X and why I like YouTube and Spotify. I think these platforms are amazing.

Are you ready for a quick fire round?

Single best first founder meeting you've ever had and why.

Bren Putnham, CEO of Bor. Have you seen Bor? Tabletop gaming console. Just announced uh the series A few weeks ago from from USV. Um when I met board, when I met Brin, I was blown away. uh force of nature founder such clear vision such deep domain expertise. So prior to board which is a beautiful tabletop display uh Brin was the founder and CEO of mirror the the mirror uh workout device which she sold to Lululemon. She took that domain expertise and said I know how to build a tabletop gaming console now with the same hardware and the same supply chains and just crushed it. When I met her, I walked out of that meeting and I thought to myself, I have to invest in this company.

One of the single greatest axes. Also, you have to give her credit.

She's brilliant. She's brilliant.

Um, you can invest in one seed fund. Which seed fund you invest in?

I'm a big fan of what Matt Hartman is doing with Factorial. Uh, Factorial is a fund. Do Do you know Matt? And do you know,

dude, I met Matt years ago when he was at Beta Works with John and I went to Beta Works and I remember they had a company called Poncho. Do you remember Poncho? You you mentioned chief weather officer earlier was the original chief weather officer.

Yeah. And so I remember them doing better.

Matt's brilliant. So Matt has innovated on a completely new model of venture where he arms angel investors. These are not scouts. These are angel investors. He arms them with additional funds on top of their own capital which uh then factorial obviously then you know monetizes through carry and whatnot. But the brilliant thing about that model is now he's got all these great angel investors part of the factorial network. You know these are people like Clem from Hugging Face like real angel investors. So I think that's brilliant. Uh second answer I would say tied for you know my favorite seed fund has got to be Haystack. I'm just a huge fan of Samil, uh Divia and the work they do. It's an incredible fund. Obviously they've produced some generational outcomes.

Who when they send you a deal is the highest signal of quality? Um, I was really fortunate at Lightseed to uh collaborate closely with uh Nat Freeman and Daniel Gross before they they went over to Meta. And yeah, when Nat would send me a deal, which he did on multiple occasions and I and and by the way, that's actually how I met Mikey from Sunno. Um, you know, I always knew to pay attention. You know, if Nat sending me a deal, uh, I got to pay attention to that.

That is the greatest shame in venture about them not investing. They were just so good.

So good.

So good. I mean, those guys. Oh my god. What is your favorite growth fund if you were to invest in one?

I think the Lightseed Growth Fund is phenomenal. I mean, again, they've done Anthropic, they've done XAI, they've done SpaceX, they've done amazing amazing uh investments over the past, you know, uh I mean over the history of the firm, but really over the past four years of AI, they've been phenomenal.

What is your biggest lesson from working with Fred for the short time you have done? I would say one of the biggest lessons I've learned from Fred is that there is really nothing more important than your relationship with the founders. A because that's probably the the the best thing you can do to help a founder is just to be there for them, right? Like that's what founders need. Founders are lonely. I I you know I could tell you as a former CEO, it's a lonely, punishing job. And so just having somebody you can actually trust and actually feel you're aligned with um is is very very important. But but secondly, you know, selfishly um I think reputation is everything in this business. You need a great reputation. And the only way you're going to have a good reputation is if you have great relationships with founders.

What's your biggest parenting advice? I heard that you are an incredible papa. You're also a great investor. What's the biggest parenting advice?

I feel I was extremely fortunate growing up in that I had parents that were extremely supportive of me and my interests, but who also did not pressure me in any one direction. You know, I I I grew up um I'll give you an example. I grew up in a home where um baseball, an American sport, I don't think it's very popular here, was a very big deal. Baseball is a very big deal. and I played some baseball growing up, but I didn't continue with it. And you know, I think there are a lot of homes like that in the United States where you know, if you're not playing the sport or going to the university or pursuing the career in the thing that the family really cares about, you know, you're a failure or you get pressured into sticking with it. And you know, my parents, my dad who, you know, former coach and baseball player just like, great, what do you want to do next? And I think that that is so important. And it's definitely something that I really try to remember and try to instill uh in the values of my family with my kids. You know, I really want my kids to do what interests them, but I never want to pressure them to do it. I want to support them. You know, I want to be there for them. I want to drive them to practice. I want to do everything I can to empower them, but I never want to pressure them too much.

I remember calling my mom and telling her I was dropping out of law school to do this podcast that made no money, having worked so hard for years to go to law school. She was like, "Cool. If that's what you think is best."

Yeah. She might pressure test you, right? Hey, are you sure? Like, talk me through it. Talk me through it. But once you I'm sure once you or No, not even. Okay.

I said, "Listen, I fell asleep in the first law lecture and I skipped and that is for you." And she was like, "I think law's not for you." Yeah. Yeah. Um uh but penultimate one for you. What have you changed your mind on most in the last 12 months? I do think that there was a moment not that long ago where where I and I know I said the opposite a few minutes ago, but where I thought the model providers could do everything. I did, you know, I I thought that we were headed towards this world where there would be one company or five companies that would just do everything. And I think fortunately what I've been reminded of over the past year or so or two years is that companies can't do everything. They can't do everything. Even the biggest companies can't do everything. And I'm and I remember, oh man, 10 years ago, 15 years ago, we thought the same thing about Google. We thought the same thing about Apple. We thought these companies are going to just take everything. And the reality is they can't and they don't. And so I've been reminded of that recently and it's and it's been a surprise and I'm I'm glad for it.

You work with Fred who's obviously been around the block a few times. I don't work with him, but he's my papa is Roryo Driscoll from scale who likewise has been around the block a few times. He got into venture the same year I was born and he reminds me that Microsoft at one point were looking at becoming a bank. That is how like the incumbents just looked at every

totally it works sometimes, right? AWS great example. Um but they can't do

Final one for you. When you look forward to the next 5 to 10 years, what are you most excited for? I like optimism. What do you like? It's going to be amazing. So, my partners the other day, uh, Rebecca and Nick, we we asked each other actually like, "What are you know, what do you want? What do you know, what do you want to do at USV?" And I said three things. First thing is I want to show up to work each day and collaborate with people who I love being around, people who I enjoy collaborating with, people who I just have fun with. That's actually number one for me. Number two is I want to partner with some incredible founders and again like similarly I want it to be about that relationship and that dynamic you know and I want these founders obviously uh who are going to change the world and number three is I want to produce generational returns in terms of funds in that order. Number one for me is show up to work have fun with the people I work with. Number two is partner with founders who who I love and who I believe can produce generational companies. And then number three is produce generational returns as a fund in that order. And I think that's a good recipe. I think if you optimize for fun and like enjoying your day-to-day, good things will happen.

Mike, I so appreciate you taking the time out on the London trip. I so appreciate you putting up with my bold stances. As you recoil back and go, don't don't attribute it to me. Don't don't attribute it to me. Uh I I really appreciate the decadel long friendship now. You are a star, dude. Thank you so much.