SPEAKER_04: That framework, I think, that Elon came up with was elegantly simple, yet very complex.And then he executed on it very definitely, as you can see, because he's shipping more product with 15% of the people.
SPEAKER_01: And some people were saying, oh, no, Twitter is going to die.You know, the website's not going to work.The team is not there.How can they operate?They were rooting for it not to work.Exactly.Blue checkmark, people.Yeah. And so that's inspired a whole generation of founders to think, hey, I could operate this company with a fraction of my team.
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SPEAKER_05: Welcome back to this week's Liquidity Podcast.With me today, I have Eric Thornburg, co-founder of OnDeck and Village Global, and now founder of media company, Turpentine.Next, we have Guy Perlmutter, founder and CEO of Grits Capital, a deep tech VC fund, and author of Present Future.And of course, we have Jason Calacanis from The Launch Fund.I'm your moderator, David Weisberg, co-founder of 10X Capital.Today, we have three topics on the docket. VC returns have been leaked, including returns from Sequoia Capital and Union Square Ventures.VCs may be sacrificing returns in order to return cash back to their investors, also known as limited partners.And we now have bear signs for the startup employment market.We'll end with the latest three investments from each of our guests.
Let's dive right in.Hot off the press, UTIMCO, the University of Texas Endowment, which currently sits at $65 billion under management, was forced to disclose their VC returns due to a public records request by blogger Eric Newcomer. While many top-branded VC firms did not have the returns one would expect, one firm that stood out was Union Square.Union Square is sitting on a sensational 9.14x cash-on-cash return for Utimco across nine funds, with founder Fred Wilson telling Newcomer that there's a lot left in every other fund than the 2004 vintage, meaning that these returns will likely go up.Guy, as a limited partner, tell me about VC returns over the past three decades.
SPEAKER_03: So what happened over the past 30 years in VC is basically we have created a market that started with about $30 billion back in the 90s.And now it's anywhere between $300 and $400 billion globally.The U.S.is about half of that, maybe a little more. Over time, the secretive attitude that GPs have had towards their own performance has been a constant.So it's very hard to get accurate data when it comes to performance of the venture capital world. But it is very fair to say that over time, we have seen returns that will go anywhere between 1.8 and 3.2x.That would be like a big chunk of the returns over a broad interval of time.However, the tricky thing with VC is that the difference between top quartile and bottom quartile, top 5% and bottom 5% is just gigantic, could become huge. 10x 40x 60x you can basically pick your number and the other thing that i believe is quite important especially for the time we're living in now is that those vintages that started at the tail end of very severe crisis like nasdaq the dot-com bubble back in the late 1999s
1990s or the financial crisis of the late 2000s in 2008 2009 those vintages they on average they outperformed so at the end of the day if you are an investor you should first and foremost try to stick to an investment program because every vintage has a story But if you want to be picky about when you want to dip your toe in the market, I guess the tail end of crisis is probably historically at least a very, very good time for you to start doing some VC investing.
SPEAKER_05: Jason, you started angel investing in the mid 2000s at Sequoia.How have your returns have your returns been counter cyclical, meaning that if you invest in the bear market, your returns have have been significantly better than the opposite?
SPEAKER_04: Yeah, so there's two things to take from this chart.And people need to understand this because especially journalists because they don't understand something called the J curve.So if we pull up this chart one more time, all the way on the left, you have Union Square Ventures 2004 2005.Right?Do you see that they're the second hash mark.And then if you go all the way to the right, and we were to look for a union square fund or Thrive Capital Partners eight is a 2022 fund, right?So you see that they're down.What this shows is, you have a bunch of them that are down there.Well, those are funds that were just started deploying, of course, they're down, there's no time for the those investments to get marked up.
And then in the middle, you see a bunch of ones that are flat, right?The 2020 to 2022, they might be flat.And then, you know, smaller returns on the IRR.And then only the left, you have the fully returned funds.So it you can't judge these things until you get to year seven, eight, nine, 10.So realistically, if it's 2022, this data runs to and it's 2023.Now, 2022 minus seven, eight years, you start looking at the 2015 funds, which is maybe 10 funds in and you start to get a realistic idea.These rest of these funds are still baking.And I think that's probably why Fred Wilson gave that caveat.
So that's just number one thing to think of is you really can only judge the ones on the left.And what I see there is, Well, it looks like everybody.It looks like they've done spectacularly.If you were to just take from 2017, that dark blue line to the left, those first, you know, 12 funds or so they're all 20% IRR 40% IRR, you got a couple here, sure, that are 10% IRR. You know, but still pretty fantastic.So this just tells you what a great vintage, you know, it's been since the 2008 financial crisis.That's my number one takeaway from this.And of course, you know, when you double click, if you have the second chart, if you pull that up on Fred Wilson and Union Square Ventures specifically. What you'll see is the cash-on-cash return, right, column four, those first three funds, 2004, 2008, 2012, they've had time to bake, right?
Man, something happened in the 2012 fund that they hit 22X.I think that's the Twitter fund, I'm going to guess, and some other names in there.And that just shows the power law.He did the Series A in Twitter, I remember, when Evan Williams was asking me and some palace intrigue. That deal was between Sequoia and Union Square, that series A of Twitter.And I had talked about it with actually Evan Williams, which one to pick.And he went with Union Square.I had advocated both.I told him to split the round between the two, like Google.And then you see the later ones have less upside in them.
So it really is about time.And Fred Wilson's been a spectacular investor for a long time. And they always kept their funds at a small size, too.So we don't have the fun size here of each of these.But my understanding is 200.I bet you those are 200 $300 million funds of which the University of Texas, it looks like they put 20 million 25 million at each fund.So they were probably 10% of each fund, which might have been their upper limit.So Anyway, that's my analysis of this.You had another question, but I thought I would go with the question I wanted to answer.
SPEAKER_05: Absolutely.Guy, you mentioned the dispersion between top quartile and everybody else and the variance.I think few asset classes in the world have this kind of variance, where over 10 years in the same time period, something could go up 10x and something could go up 1.5x.How do you build a portfolio, your fund of funds?How do you build a portfolio of managers that continues to return?
SPEAKER_03: So ultimately, when we try to fund the funds part of our portfolio, basically, we try to ask ourselves a very simple question.If I were an entrepreneur, would I want to have money from that particular GP?Because I think this is the key to build a healthy portfolio.You want to be with GPs that are the first picks for every top entrepreneur out there.And in our world, in the deep tech world, that's a relatively short list. There are a lot of sector specialists, there are a lot of generalists, but at the end of the day, what you want to do is you want to make sure that in your portfolio, you are taking the managers that will be able to attract the best entrepreneurs of that particular vintage of those particular subject matters that they are trying to invest in.
SPEAKER_01: One thing I just want to mention on top of Jason's point earlier is that some firms get lucky and have one big winner that returns nearly everything.But USV has many winners.It's not like they caught a Facebook or Nvidia and they've held it.You mentioned Twitter, but Etsy and Tumblr and Coinbase and Mongo and Lending Club and Zynga, their hit rate is phenomenal.
SPEAKER_04: Yeah, Mongo is a big one.That's probably one of the big ones here.Tumblr was a billion, right?Etsy was probably a billion.So those, you know, still great if the series A, but I think Mongo and Twitter are the big outliers, right?
SPEAKER_01: Yeah.And then Coinbase.And Coinbase, yeah.Yeah.
SPEAKER_04: Depending on when you sold, because my understanding was they liquidated their position, right?I think that was also like another question mark is when do I think Fred's philosophy has always been to just immediately sell everything or distribute immediately.Yeah.
SPEAKER_01: His philosophy, as far as I understand it, is a mixed position, which is a third, a third, a third.So sell a third once it's reached some threshold, hold a third irrespective of price, and then sell or hold the last third around lockup expiration based on your thoughts on valuation. So they definitely sold a bunch of IPO, which probably turned out to be a good decision, and held some.And I think this was his reaction to his experience riding in the dot-com bubble, where they rode up a bunch of the winners and then rode them down as well.And so this strategy of hold some, sell some... It's sort of a regret minimization strategy where at the very least, you return some to LPs, you make sure they're happy, but then you also get to keep some for later.So it's a strategy where if the company does great, you're a little regretful because you could have held on to it.But if the company falls down 90% after IPO, you think you're a genius because you've at least distributed some.
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SPEAKER_05: Guy, as an LP, as a fund of fund that's in a bunch of GPs, do you want your GPs just always swinging for the fences or do you want them to take some money off the table?
SPEAKER_03: So what I want really is that there's a very clear policy on how they're going to deal with exits.That's for me is more important because the one thing that I think investors hate, not maybe as much as losing money, but right up there are surprises, right?Inconsistencies, you want to make sure that you're dealing with someone, and you actually can understand where they're coming from.So As long as there's a very clear policy, okay, this is how we do it.It's like the a third, a third, a third policy, or we immediately sell everything or whatever.That's what we want to hear.From our perspective, every single position that we own that has crossed the three X mark after we compare everything, entry cost versus market cost, it's out the door.We will do that every time.
We did that and felt like schmucks a couple of times because then the market continued to go up.And then, as Eric said, we felt like geniuses a couple of times because everything went south and we were looking really good.So I think consistency is key here.And I think it's important for every single GP to have a very clear policy on how they will deal with with success with an exit and how they will compensate the LPs when that happens.
SPEAKER_01: Guy, can I follow up to that in terms of how do you think about consistency across the board for your managers?Because sometimes the facts on the ground change and they may say, oh, it was a great time.We allocated a certain amount for follow-on investments, but these prices are going up too high and such.We think we should move more dollars to first checks.Is that a type of change that you'd like your managers to make?Or do you like your managers to say, hey, here's what you invested in.I executed on it and we'll reevaluate for the next fund?
SPEAKER_03: I think it's a great question because at the end of the day, what we do investing is a blend of art and science, right?And whatever percentage of art or science you're going to use, it's kind of up to each and every one.There are a few managers that are much more quantitative driven, a little more dogmatic.Others are a little more flexible.But again, to my earlier point, As long as they don't drift too much out of the style they have.Some managers, I would not be surprised if they came back and said, you know, we do believe that we should have a little more leeway here because of X, Y, and Z. As long as it's for the greater good, the greater good of the portfolio, that's okay. But what I really don't like to see is when a manager that is typically very quantitatively driven kind of drift into a more qualitative, subjective approach.That's where you start to worry because you don't see them performing to the best of their own abilities, if that makes sense.
SPEAKER_04: Great analogy for this, David, is when you play poker, you'll see somebody run up their stack, playing a very disciplined strategy.They're playing tight.They're playing a great range of cards.They're letting go of things when they feel like it's not right.They're going all in when they know they've got the strongest hand, or most likely have the strongest hand.And then they win a bunch of pots.They go up 5x, and then they start playing every hand.And they totally change their game, and they get loosey-goosey because their chip stack is so high. That's where you get yourself in trouble.This is why I think as a fund manager, I think I've learned going into my second decade is you really have to write these policies down and then go back to them and then have a team where they hold you accountable to them.
So my team holds me accountable to a lot of our investing.And I was looking at a CPG company and I had said, listen, no more CPG companies.But this one had come... through a friend of mine who built one of the largest CPG brands ever.And I was like, Okay, this is an exception here.And I explained to the team why we're going to make an exception here.And perhaps, you know, go into this, we didn't wind up doing it.But, you know, those are, that's where it's super important to these point have a philosophy, be thoughtful about it, hold yourself accountable.Our philosophy is pretty simple.
We'll sell 10% two or three times on the way up.If we're investing at companies, you know, at $2 to $20 million valuations, and it gets to $500 million, $1 billion, $2 billion, you know, as seed investors, we want to start pairing our position and then deploying into more pre-seed and seed stage startup, which only makes sense, right?Our window is slightly different.It's a little bit earlier than Fred's.And so, yeah, you would start selling a little bit earlier.But be thoughtful is the key, I think, in all of this.
SPEAKER_01: Yeah, I agree on that.I think it makes sense to sell 15 to 20% if it's really meaningful to the fund, especially if you're an emerging manager trying to put numbers on the board.And even if it's still 10xs from there, you still get 80 or so percent of the upside.
SPEAKER_05: Next up, January employment numbers are out and it's not looking good.According to Carta, January 2024 was the first month since February 2023 where the amount of people laid off exceeded the number of people who quit.This helps shed light on unease in the startup ecosystem among employees. The increase in quitting shows that employees are reluctant to quit and find new positions at other companies.Jason, what do you think of this data?And is this a temporary setback or a new normal for startups with the advent of AI?
SPEAKER_04: Well, we're certainly going to find out.I think the pendulum swings both ways and for over a decade. Silicon Valley has coddled elite programmers, salespeople, product managers, etc.We all live here, we all see it.We've all been on the other side, been on boards of companies and seen somebody come in with a request.This person's got an offer from Uber, Airbnb and Google.And you know, we have our hot growing startup that just raised 10 million.We want to get it in the sweepstakes.And I would be like, is there another person who could do this job who doesn't live in Silicon Valley who doesn't cost 500,000?Because maybe we can hire three people.
at 150 each and save 50k and it'd be 10% cheaper and they would do more work and you could have them working 24 hours a day or whatever, you know, in aggregate.And you know, a lot of times people didn't buy into that, you know, alternate philosophy.Now we're seeing the opposite.Now people are saying when they're running startups, I'm sure Eric, you see this in a lot of your contemporaries and early stage startups. how do I get, how do I hire people offshore?How do I not hire somebody for this position and automate it?And so I wrote a piece earlier this year called my ADD framework.And I've been working on this for a couple of years internally at my companies, but I told everyone in the company, you know, every quarter, look at everything you did for the weeks, you know, in the 12 weeks in that quarter, and ask yourself, what can be automated, what can be deprecated, what can be delegated.And we are now on that journey of automating stuff, delegating stuff, deprecating stuff.
And my hope is we can stay a 21 person firm, but be 10%, 5% more efficient every month, which means that's the equivalent of, you know, doubling the size of the team every year without actually adding headcount. And that is a very that little mark there where the yellow of the laid off leaves the crosses the left by choice is a very significant moment in time.I think that's cross.What did you call it?The death cross. It's a death cross because, listen, if you are at one of those big companies and you see this on TikTok with young people who are at these companies who are holding on for dear life, you know, geez, I've got this incredible pay baggage.I've got these incredible RSUs.I hope I don't get laid off by Discord on Monday.Oh, I got laid off.Let me just do another TikTok or whatever.
I think a lot of those folks are realizing that they may have experienced their peak employment package at 30, at 35, and that they're going to get paid less for the next 10 years.And it may take them time to beat that high watermark that they experienced.And AI is definitely part of this.This is two things.One, what Elon did. cutting and showing everybody that he could run Twitter with 15% of the people and then Zuckerberg following him like Zuckerberg tends to do.And then, you know, he follows a lot of other entrepreneurs kind of copies them.You know, Spiegel from Snapchat, you know, Elon, whatever, but he does it better sometimes.Well, he's a mimetic machine.I mean, I think that's like, he's like a perfect photocopier.
I mean, and so then you look at this, the cross, You know, AI is definitely part of this.I think people are looking at customer support, customer success, sales, and just saying, yeah, we can get rid of the top 20, the bottom 20%, and then just use tools to make the top 80%, 20% better.No problem.Easy peasy.Lemon squeezy.
SPEAKER_05: Jason, you were at Twitter now X with Elon shortly after the acquisition.A lot of people know how he cut the employees, but how did it actually work on a granular basis?How was he able to keep so much of the infrastructure and company running with so little staff?
SPEAKER_04: I will say what he said publicly because I don't want to speak out of school.My involvement has been overstated.It's just a friend of mine and I hung out with him for the first month, so I don't want to overstate it. You know, there was already a plan in place, everybody knows this, to cut 25% of the team.So there was a plan in place that Twitter was going to execute anyway.And then there was Elon's plan.And so I think, you know, he had a really interesting moment.Me, David Sachs, and Elon were there and... Elon just said, who is, who kicks ass at their job?Like who is incredible at their job?
And then who is essential?Those two things.And then David's, you know, kind of repeated it back to him and we were kind of grokking it.And I just went up to a whiteboard and I drew four quadrants and I just put exceptional, average, essential, non-essential.And you look at those four quadrants.Well, if somebody's not great at their job, and they're not essential, it's a pretty easy decision, right?And I think that's what Zuckerberg did.That's what Google did.Everybody's done that now.
That's a really easy quadrant, right?Then you've got the quadrant essential and exceptional.Well, that's an easy quadrant too.You're keeping them.So then you've got just two quadrants that people would fall into.Exceptional, but... you know, maybe they're not essential, right?So they're exceptional at their job, but they're not essential.They haven't been deployed to the proper place.So you got a sniper and they don't have a sniper's rifle.
So that person should probably be redeployed into an essential position.And then you have somebody just not good at their job, but they're doing something essential.And okay, yeah, maybe you can keep them around until you can automate it or whatever. So it just that framework, I think, that Elon came up with was elegantly simple, yet very complex.And then he executed on it very definitely, as you can see, because he's shipping more product with 15% of the people.
SPEAKER_01: And people at the time thought that, or people, you know, some people were saying, Oh, no, Twitter is going to die, you know, the website is not going to work that the team is not there.How can we root for it not to work?Exactly.And blue checkmark people. And so that's inspired a whole generation of founders to think, hey, I could operate this company with a fraction of my team.There's this phrase, first-time founders care about product, second-time founders care more about distribution.Similarly, first-time founders care a lot about how much money you raised, how big your team is.And second-time founders are trying to raise as little as possible sometimes or as much as they need.And they're trying to do it with as few people as possible.
SPEAKER_04: It used to be a status symbol, how many employees you had.How many people work there?Oh, 60 people.Oh, wow, you have 60 people?Eric, how many people work there?Oh, I have 120.Oh, Eric's company is twice as good.
SPEAKER_01: Exactly.
SPEAKER_04: It's a very perverse thinking.And then also the benefits you gave people, that was the most pernicious thing of this last cycle was, oh, yeah, no, no, we have dry cleaning, we have 20% time, we've got Neiman Ranch stakes.I remember when I went to Google for the first time, you know, this is 15, 20 years ago and had Neiman Ranch steaks.And I was like, I can get a Neiman Ranch steak here.I'm like, how much is it?And they were like, it's free, dummy.I was like, okay.
SPEAKER_01: Beginning of the end.Now it's high statuses, Instagram, you know, 12 people, WhatsApp, you know, in the teens or mid journey, you know, $200 million revenue, bootstrap company.
SPEAKER_05: Yeah.No outside funding valued at $10 billion.Yeah.
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SPEAKER_05: Sam Altman has a betting pool with his friends.I don't know who's in this group, but they're betting on when the first one person unicorn will happen.And Guy, you've written about AI.You've been researching AI since I believe the 90s. When is that going to happen?What is your guess in terms of when the first one person unicorn will be started?
SPEAKER_03: It may be already out there, and they just don't want to tell us because they don't want the world to know, right?It's perfectly possible.There's this thing that I believe is going to be very well known in the very near future.And some of us have already heard about that or read about it.But there's this guy, this economist back in the 19th century, a guy named Jevons, William Jevons, I think.And he was observing the world through the lens of someone who was experiencing the first industrial revolution, right?And he saw that coal became this incredibly inexpensive good because now people had mastered coal, the steam engine and so on and so forth. And logic dictated that, okay, now it's so efficiently used that people will not need it because the efficiency has reached new heights.And what happened was just the opposite, right?
There was this incredible demand for coal and for that new source of innovation. And what he wrote, which was proven through like 450 years, is that when something, a good resource, any sort of special talent becomes widely available and much more inexpensive, the market will create demand, the market will create new uses.And what we are witnessing right now is the creation of of very efficient intelligence, right?inexpensive and efficient intelligence.It's what I think Sam Altman referred to as the marginal cost of intelligence dropping dramatically.So what I believe is going to happen is instead of people going into a shortage of labor, maybe the in the short term, we'll see definitely see careers ending and new paths being created.But on the long run, I think we're going to see more demand for human labor in different types of expertises, different types of areas and fields.And this, I think, will open all those possibilities for companies that are going to be managed by just a handful of people and that are going to be doing some incredible stuff.
SPEAKER_04: And there probably was a billion dollar company already.My friend Phil Kaplan's company, DistroKid.You know, he's pretty famous for creating these small companies.And I don't know if it was a company of one, but pretty close to it.I do think it won't be one.I think in that betting pool, I would bet it's going to be like a three person company because it's kind of boring to work alone.I don't think people want to work alone, but it's possible.It's just not probable. But what you're talking about also is the induced demand, right?Guy, if you build an extra lane on a highway, and they did this in LA over and over again, and they just kept adding lanes to the 405, and every time they added a lane, more people from the valley would commute to Santa Monica to get dinner, or to go work there, or to go to the beach.
And then... All of a sudden, it's the 405 and the 10 exchange are backed up.People would then see the 405 and 10 exchange and they would not get on the highway.And when I was living in Brentwood, they wanted to take the beautiful median.When I lived in Brentwood in LA, David had this gorgeous median. And then they had the sunset part, and then they were going to take away the sidewalks on sunset and add a lane.And I said, I went to the council meeting, and I gave my presentation because I lived on Sunset Boulevard.And I said, if you let them do this to this five block stretch, and you take away this lane, the next thing they're going to do is look at the median on San Vicente, the gorgeous median that is part of our culture. And they're going to take two lanes away and just leave a thin strip there.And it will destroy.
And we're going to destroy our neighborhood for people commuting.And I got the most rousing round of applause.I explained the concept of induced traffic.That's my story of winning.I literally squashed the expansion of Sunset Boulevard to an extra lane.I said, you know, it's already four.Six makes it kind of like a highway, doesn't it?And they're not going to stop at six.
SPEAKER_05: Eric, you're very deep in AI, both through your funds and through your previous personal investments.What's your take on this?
SPEAKER_01: So I think the greater threat short term to people losing their jobs is less from AI and more from what Jason mentioned earlier, offshoring.The threat to me hiring a U.S., employee, whether an assistant or engineer, it's not going to be replaced with an AI agent any time immediately soon, but it's going to be replaced by the startup Athena that I use as my assistant, or the startup squad that I have an outsourced engineer operating in at a fraction of the cost.So short term, I don't think the this technology is good enough to wholesale replace key employees.Though I think offshoring is a concern for them for those employees.That said, at some time scale, I think there will be a threat.I think that we'd like to imagine this sort of co pilot for everything. AI that makes us better or this idea that it's the human plus the AI that beats the AI in chess.And that was something that was true for a minute.
But over time, the AI gets so good that it actually doesn't need the human anymore and defeats the human in chess.Now, There are going to be certain areas where we're just going to want people to do them, even if they do them worse.You can imagine certain fields in healthcare where you just want to talk to a human or work with a human, even if they can't operate as effectively.And there are going to be other areas that are just going to be so regulated, even if people don't want them, we're just going to ensure that there are humans in the loop there. So I was with Vinod Khosla earlier today, and he said that 80% of 80% of all jobs in the future will be sort of replaced by AI.But the productivity gains will be so vast that we will, whether it's some combination of UBI or some government works programs, we will have some redistributionary effect there. that will take care of the remaining people who are working, not because they have to, but because they want to.So I think it really depends on what timescale we're looking at.But in the short term, I don't really see a threat, but in the long term, I do.
SPEAKER_04: What do you think impact this has Guy on LPs?And VC in general, if companies need less capital, there's less opportunity to buy shares, the founders keep more of their shares.Do you think this ever has an existential risk for, you know, making VC smaller and a more intimate pursuit again?
SPEAKER_03: I think at the end of the day, what we're going to see, as we have seen before, is the creation of absolutely new careers and new paths.And here, let's imagine for a second that this scenario that Vinod mentioned turns out to become true. All of a sudden, we're going to see a bunch of new funds that are going to be pitching ideas or enterprises that have nothing to do with any of the previous subject matters that we were interested in.I remember reading an article a few years ago. about the advent of the comparison between the advent of AI and the Excel spreadsheet, right?So there was this great article and the I think it was the journal.And it said that there were a bunch of jobs that almost disappeared after Excel showed up like bookkeepers and stuff. But then auditors and financial managers and managers as a new category of labor just skyrocketed, right?So I think that even today, if you look five years back and we think about the prompt engineer role, We're going to look at each other and say, what the hell is that, right?
And now people talk about it like it's the most normal thing in the world, someone who will be proficient in building prompts for an LLM.And I think we're going to continue to see that.I don't see that as a static movement.So I think there will be opportunities, maybe and hopefully smaller funds are going to be created because maybe the opportunity set may be a little tighter. But I would be very, very surprised if we come into a world where the opportunity set is not larger, it's actually smaller, because I think that's where we're heading to.We're expanding the horizon of opportunities for us.Kind of like that version of the world. to be honest.
SPEAKER_05: One analogy is actually crypto.If you look at crypto, a lot of these protocols do not need hundreds of millions.And if you look at VC, it's been a bundling of resources, whether you're sitting on the board, you're giving advice, you're giving money, you're giving brand and signal.In crypto, that's been unbundled.So you have somebody that's a kingmaker that will lend their name to a project that will make introduction to a couple exchanges. And there, they're basically taking a much lower fee.So instead of taking 20% of a round or 10% of a round, they're taking 1% to 2% of advisory.So we might see some companies that are not as capital, that are much more capital efficient in the VC, in the startup ecosystem, look for people that could give that advice and that brand that signal and do it for a much lower cost.
SPEAKER_04: Yeah, if only those crypto projects had ever shipped a product. Still waiting on some of them.Although your guy, Eric, who's doing Farcaster, that seems like a real product.
SPEAKER_01: Yeah.Farcaster's taking off.It's a decentralized or it's a crypto Twitter where the idea is developers can build on top of it and trust that they won't get rugged like they were back in the day of Twitter.
SPEAKER_04: And Facebook.
SPEAKER_01: Yes.Yeah, exactly.And so it's really taking off.
SPEAKER_04: Yeah, awesome.Shout out to him.Okay, listen, I got a lot on my plate.Got to do a couple podcasts.I got Founder University, Launch Accelerator, and all my personal life and, you know, things I want to do.So there's just a lot.But I'm able to manage it all with an amazing piece of software called Coda.Coda is the all-in-one platform that combines the best of documents, spreadsheets, and apps. Here's an example.We use Coda to run the Founder University.
Every week, we ask all of our founders to submit a progress update.And then all of that goes into Coda as a database.And then we can sort through all of those weekly updates and look for trends.And Coda also allows us to send automated reminders to all those founders to send in their updates.And then we track week over week growth by generating charts.So if we see strong growth, we'll reach out and we'll invest in that company.And it's all done through this beautiful product called Coda, C-O-D-A. Here's your call to action.You can use this software to solve any business problem.It is extraordinary.
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SPEAKER_05: Moving on.The Wall Street Journal is reporting that founders and investors who moved to locations such as Miami during COVID are now returning back to San Francisco.Eric, you were quoted in the article as one such person that moved from SF to Miami and then back to SF.What made you move to Miami in the first place?And then what made you move back?
SPEAKER_01: Well, to be sure, I was quoted without my consent.I did not want to be a pawn in these location wars.My move to Miami was always temporary.My family and friends are in California.And I wanted to check it out.I was really impressed with what Keith and Delian and some of my other friends were doing there.I'm always inspired by people trying to sort of create new communities.And I wanted to check it out for a few years.And And it was great.
I think what they've done there is pretty impressive.You know, one of my better investments is Trava, which was started there and still operates there and in New York, I believe.And I think what Keith and Delian have done, they've kind of memed the movement into existence is pretty impressive.And I think people would be better to highlight the... sort of the positives of what they achieved as opposed to maybe where they've fallen short in the sense of, of course, Miami was never going to be another Silicon Valley.That's an impossible proposition.But I think one lesson that we've learned in the last few years is just how network effects remain undefeated, whether it's Twitter or San Francisco.If you've got strong network effects, it's very hard to disrupt no matter how incompetent the governance is. And so San Francisco, obviously, the government is tremendously incompetent.And in Twitter, whether you think Elon is incompetent or you think the previous regime is incompetent, no matter what, most people are staying in Twitter and staying in San Francisco.
Or Reddit. Yeah, exactly.
SPEAKER_05: Reddit and the years I went through it without management or with corporate management just continued chugging along.
SPEAKER_01: Totally.And moving back to San Francisco, I felt like a journalist who left Twitter and then came shirking, crawling back.Yeah. because of the distribution.Now, I never announced that I was leaving San Francisco or announced that I moved to Miami because of the temporary nature of it.But I support the movement that's happening in Miami.But I'm really excited about what's happening in San Francisco now too.A lot of... Something I didn't appreciate is how every 5 to 7 years, there's a new generation of young entrepreneurs.And San Francisco is getting a lot of them right now.But then also...
The emphasis on changing San Francisco and its politics specifically is higher than I've ever seen it.I was in San Francisco from 2012 to 2020 or 2013 to 2020.And I never really... Politics wasn't really something that the best people focused on.Quite the opposite.Exactly.They ignored it.And now I see talented entrepreneurs who are saying, hey, let me run for supervisor or let me run for this.You see Gary Tan.You see all these other people are saying, hey... The votes are actually just in the low hundreds or low thousands.
If you just organize a little bit, maybe we can change things.And so just like going to Miami, I felt like I was part of movement.Coming back to San Francisco for the first time, it also feels like there's a little bit of political consciousness.And it's exciting to be a part of that.
SPEAKER_04: I would look more at how those other regions are growing, you know, independent of San Francisco.San Francisco is always going to be the heart of this.We know that.And you can't have Apple and Google and Facebook here and not have this be the epicenter.But, you know, Amazon and Microsoft are not here.They're in Seattle.And, you know, Tesla is now a Texas company.SpaceX is a Texas company or Nevada slash Texas company. So I think in the future, what we'll see is those regions are going to grow at a much higher rate you know, then San Francisco and San Francisco is kind of topped out, right?
You can't fit any more people here.The nimbyism is going to take decades, you know, if it ever, you know, breaks in the right direction.So it's going to still be hard here.Um, and great companies can be built any anywhere.So, you know, you have tons of great companies being built all over the country.I think Austin, um, Miami, New York and LA are going to continue their growth and continue to be destinations.And then this is a great place to start.I would tell any young person come here.If you really want to be in the industry, and just get a place in like San Bruno, Millbrae, San Jose, like one of these really gnarly not in San Francisco neighborhoods in the peninsula.
Because that's actually where a lot of the tech workers live.That's where all the VCs live.San Francisco.Yeah, people live there.But San Francisco is always kind of an afterthought to the peninsula. um and then it got popular and then you know kind of fell off again it's just hard to live there too so anyway san francisco is going to do great these the press is like a review mirror i don't people should not founders and vc should not pay attention to the press anymore just ignore it go directly to the source gee how much does geography play into the gps that you back and do you want them in the city that they're investing
SPEAKER_03: So I think that the fact of the matter is that the Bay Area in general, or California more broadly, especially over the recent years with Los Angeles becoming some sort of a manufacturing hub and aerospace hub, but California in general, I think it's almost like this shopping mall where everybody wants to be seen and to see, where everybody who has an idea and a company will try it in that particular part of the world. So, every single manager we back, they are US-based.We have folks in New York, we have folks in Boston, we have folks in the Bay Area for sure, folks in San Diego.And for me, it's less of which state they live in or they work at, but more of the fact that they are in the US. And the reason for that is the U.S.brings in a few very unique features that I think every single ecosystem should pursue in way one another.First, there is this very close relationship between universities and the market and the industry.It's relatively easy. for you to just you know develop your patent go through your technology transfer office at university and go to market license some of that university will license some of that to you and you're off to the races a second there is this willingness the government and more recently especially the military if you look at the history books Every time militaries were interested in funding ventures and trying to push the boundary of technology without the confines of the government, but getting the entrepreneurs to try their hand at it, we saw incredible advances and history is filled with those.
And that's something that we're seeing again in the U.S.And third, the willingness of taking risks and of rewarding people that take risks.That's something that U.S.citizens take for granted. But that is very different elsewhere, right?In the US, you can wear your failures.If you fail, right, right.Trying to do the right thing.You can wear that as a badge of honor, you know, I tried this, I was wrong, but this is what I learned.And then this is what I was able to build on top of that.
So I think for me, the mindset is very unique and it's very critical.So all our funds, regardless of where they're based, I guess I wouldn't mind if they're based in Texas or Florida or whatever.But I think that the mindset, the US mindset in venture and the whole ecosystem is still absolutely unique.And I wouldn't change it for anywhere else in the world right now.Amen to that.
SPEAKER_04: So our competitive advantage, I was talking to the CTO of Palantir today.And, you know, we're just talking about how capital allocators, you know, help us create these amazing defense companies, right, that are now emerging and space companies.And, you know, those are going to help us win the future.Obviously, you know, we've got a very hot planet right now with a lot of potential conflicts, conflicts going on, future conflicts. Well, you can't have those defense companies and SpaceX and Android and everything if you don't have capital willing to have 50 60 70% of bets go to zero.And imagine you're in Japan, he to your point, I don't know if you spend time in Japan or France. I mean, failure in France and Japan is looked at, and entrepreneurship is looked at much differently than here.And so this crazy pursuit we're in to invest in 100 companies and have 60 or 70 of them return $0 but be stoked that the founder tried is unique to American DNA.It's unique to the American spirit and to the American operating system.It is literally as important or more important than the battleships we own.
That's it.I can wave an American flag behind me.
SPEAKER_05: Moving on now to our segment, our weekly segment of our panelists' last three investments.Eric, let's start with you.
SPEAKER_01: Sure.So the first one is Jam.Jam is trying to do for engineering what Figma did for design.So Figma made it so that non-designers can more easily communicate with designers and eliminated a ton of meetings in the process.Jam is trying to do the same thing, but make it so any product manager... Anyone without any engineering background can communicate with engineers on what they need to do.Think of it like instant replay for bugs right after the bug just happened.It's a super sticky product.Is it a Chrome extension?
SPEAKER_04: No, no.No, okay.Yeah.Super cool.
SPEAKER_01: Yeah, it's growing really fast and it's very sticky. How do you size the TAM on something like that?Well, it's sort of how many engineering teams are there.Every company has an engineering team.Yeah, totally.
SPEAKER_04: How many products are in the world?How many digital products are in the world that are being maintained?Right?I mean, I guess as a proxy, you could look at the number of active GitHub accounts.Right.Anybody who has a GitHub account who's pushing code. is going to push a bug once in a while.Therefore, there is the possibility that somebody could correct their bug, right?I like that one a lot.It's seed stage.
Where is it at?And it's funding.
SPEAKER_01: It's just announced a series.
SPEAKER_04: Oh, congrats.Awesome.
SPEAKER_01: Yeah.The second one is Antares.Antares is a company started by Julia DeWall, former SpaceX executive and Jordan Bramble.And it's a nuclear company.It's a, it's a micro reactor. It's 300 kilowatt size diesel generator.And they don't have to go through the Nuclear Regulatory Commission.And they're trying to sell to entities like the Department of Defense.Department of Defense is interested in resilience.They want a power source that can last for five years without needing refueling.
And that's what Antares is trying to offer. And Julia has gotten extremely passionate about nuclear in the past few years because nuclear is this category of energy that we should all want more, but environmentalists, for some reason, don't want.And so there's an arbitrage opportunity where most talented people weren't going into nuclear because it's either been regulated away or because culturally there's been a stigma against it.The third one is perplexity. We all know Perplexity, the conversational search engine that's trying to overtake Google and is even ahead of Chad Chibiti and has a founding team from OpenAI and is growing like crazy and Every time I'm trying to make sense of what's happening in the world at this moment, I go to there instead of to Google because I feel like there's less bias.And what's happening to Google in the last few weeks is amazing for perplexity because they're not putting their thumb on the scale in the same way that Google is.
SPEAKER_05: Great ones.Guy, you're next.
SPEAKER_03: Yes.So we start with Mesodyne.Mesodyne is a very cool company.They basically have built a technology that allows you to just use some fuel to generate heat.The light waves that are being emitted are captured and are turned into electricity.Simple as that. They are able to create sources of energy that are 10x more durable than existing battery technology.And they already have working prototypes.They're in talks with the Defense Department.And I think they're going to be a very interesting choice going forward when we're
you know, avid to search for actionable sources of energy for multiple types of missions, both when it comes to defense, but also for remote locations that need power generators where maintenance is hard to get to and so on and so forth.So that's Mesotite. So next up is Lima Charlie Lima Charlie, they're basically a sec ops company, they're basically cloud native, they're building this infrastructure to be able to defend and to protect companies through multiple API calls and multiple coverage of every single data point, every single surface attack of attack that the company has. And this one plays to our view that, you know, while everybody's very excited about the positive uses of AI, and rightly so, there is this very nasty side to it where it can create code, create viruses, Trojan horses, ransomwares, every single type of, you know, evil digital entity you can think of.And I believe that Lima Charlie does. With its nature, its cloud architecture, it's going to be able to really play a part in trying to protect companies that have large surfaces of attack.So that's Lima Charlie.And last but not least, it's CloudNC.CloudNC is an interesting company.It plays into our manufacturing thesis.
We believe that there's... You know, a lot to be done in the so-called industry 4.0 world.And CloudNC, they have developed, they're all about CNC and machining and milling and have created this assistant that allows you to use very little time for very tedious tasks.It's unbelievable how... The current generation of professionals that are using those milling machines is simply retiring and there's no replacement, no incentive to do that.But that's a cornerstone of modern manufacturing everywhere.And what CloudNC has done is they are able to automate and make the process efficient.You can forecast how much time, how much material, how much energy.You can plug into very well-known brands of CAM software like Autodesk, where you can just use it as a plugin and expedite your work that could take days to make it, you know, just take a handful of hours.
And we believe that they are going to do some very, very interesting stuff when it comes to multiple traditional industries going forward.
SPEAKER_04: That's a killer idea.I guess it's my turn. So I just gave a whole thing.We don't do consumer electronics, consumer packaged goods anymore.So Terra Cafe is one of our investments we did a while ago.That is just doing absolutely awesome.They make a super espresso machine called the TKO1 and the TKO2 is coming out.And these things just sell like hotcakes.They have a great margin.And...
Yeah, we're just really happy with the company.It's really hard to be in consumer electronics, but they figured it out, obviously.I don't recommend too many founders get into this kind of space because it's really hard.Golf Golf is in our founder university, and we knew somebody would do something like this, but you basically just take pictures of your swing, and it gives you advice.And it's getting smarter and smarter with reinforcement learning. And talking about like a one person startup, this is kind of like one of those startups could have a small number of people, a very affordable price.And you know, you might not pay for this.If it was at a very high price, but because it's AI, because it's accurate, customized, you know, if you couldn't afford golf lessons, which are hundreds of dollars an hour, you know, maybe this makes you a little bit better each time. And so we think there's going to be a lot of these kind of approaches to getting better at sports or anything, writing poetry, whatever you're into.And codemate.ai is looking at existing code bases and trying to clean them up.
So, you know, Chrome extension lets you do, you know, a co pilot type experience, but most importantly, debugging code and looking at legacy code bases to make them work better or help people who inherit legacy code bases fix them.And I think that's going to be their speciality over time.Two extremely early startups golf golf and code made.And one that's been around for a little bit to our cafe that's doing wonderfully.So great job entrepreneurs. And great job, David.Well done.
SPEAKER_05: Thank you.Well, it's been another great episode of the Liquidity Podcast for Eric Tornberg, Guy Perron-Luder, Jason Calacanis.This is your host, David Weisberg.Thanks for listening.
