00:00You're here to tell us a little bit about what's impacting your investing approach.
00:04And first, give us your thesis on why it's obviously an AI bubble.
00:07Right. Well, I think we can debate whether we're in a bubble or not.
00:11You know, for the better part of the day, I definitely think we're in a bubble.
00:16But what's more interesting, I think, to talk about is how we as early stage investors react
00:21and how we invest in incredible companies that will be the next, you know, sort of, you know,
00:27five trillion dollar companies and how we how we execute on that no matter where we are in this hype cycle.
00:32Well, Rebecca, for example, those that would say we're not in a bubble or not in similar to dot com
00:37is that actually a lot of these companies are very profitable.
00:40NVIDIA, very profitable. Alphabet, Amazon, all the likes.
00:43But OpenAI and the private side, we know that thus far they haven't been profitable because they're having to invest so much.
00:49So let's turn our attention to the private side.
00:51What security are you getting from the companies you want to invest in that they are keeping pace with growth trajectory on the bottom line and the top line?
01:01Very interesting. So what we're doing is we're really having to dig in and the companies we invest in on on the customers
01:07and go in and talk to their core customers and ask questions, questions I haven't had to ask, honestly.
01:13And since I've been in venture, like, let me see all of your contracts for every single deal that you have signed up,
01:21because what we're seeing in private markets is the ARR is probably the most overused term in the English language.
01:28And so people people are misused. Let's just say misused.
01:32Annual revenue. That's what you're trying to get at the idea that you look at what revenue you've had in the month past
01:37and you can extrapolate that out on a 12 month basis.
01:40Exactly. Or annual recurring revenue. How much have they contracted with these with their customers?
01:46And when when a company gives you that number, you really have to peel back the onion.
01:50You have to go and talk to the customers. You have to look at the contracts.
01:53And in the contracts, oftentimes what they're accounting as annual recurring revenue is not at all.
01:58There are things like pilot revenue or, you know, very installation revenue, things like that.
02:04Very ephemeral revenue or the revenue could go away with a 30 day out clause at any point in time.
02:10So we really look for companies where customers have have used are using the company not just as a trial or an R&D experiment,
02:18but are really using that company and count on that company for their day to day operations, either in financial services or health care.
02:25I think back to the lessons learned in FTX and when we all suddenly realized this company that everyone had piled into thinking it was a winning formula
02:37was actually, I think, using QuickBooks in terms of its own accounting methodology.
02:42How much have investors, VCs become so savvy to the cult of a personality, to the CEO, to a story that is of growth,
02:50but actually really trying to peel that onion, as you say you're doing?
02:53Yeah, I mean, it's just what we stay focused on.
02:56I tell my team, do the right deal, not the hype deal.
02:59And it's hard.
03:00It's hard when they bring a company in and, you know, people are piling in, you know, $500 million valuations with really no revenue when they're great.
03:07They're great firms.
03:08We call them the big box firms here in Silicon Valley who have, you know, raised hundreds, you know, over a billion, $2 billion to invest.
03:16And they just have a fundamentally different problem right now.
03:19I think they're not doing a lot of the diligence.
03:21They can't do that really deep diligence because they simply have too much capital to deploy.
03:27And when I talk to my, you know, brethren over there, they'll say things like, you know, our job is in part just deploying capital.
03:35And so I think sometimes, unfortunately, they skip over the part that I think is the most important part of the job, which is diligence and governance on these deals and really diving deep to say, is this a company that can make it for the long term and really return a lot of capital?
03:51Or is this a company that might be running on QuickBooks, like you said?
03:55The thing is, you're in the Series A and Series B.
03:57I think of just the extraordinary numbers that, look, we were talking about a potential project that Bezos is launching with initial seed funding of $6 billion.
04:09You've got Mira Morati raising a company's funding at potentially a $50 billion valuation is what's being reported by Bloomberg.
04:15When ultimately a seed round was giving her a valuation of $12 billion and she raised $2 billion on that.
04:21What are the numbers that you're seeing to get into these rounds?
04:24Well, I think first of all, what you have to realize is that, you know, the large majority of capital is going into a handful of deals.
04:31I think 62% of all the money that went in last year in venture or actually this year is going into eight deals.
04:37And so I actually see that as an opportunity and it's a it's a feature, not a bug in terms of what I'm doing.
04:44And we are seeing deals. We're seeing your Series A's that we were interested in initially with sub five, sub ten million dollars of actual revenue going for 500 million plus in valuation.
04:56But I think the more interesting thing, I actually walked away from two deals in the last, I would say, 30 days that had that profile.
05:05But even if you could get comfortable with the valuation, what people really aren't talking about right now are the governance issues.
05:12And so in both of the deals I walked away from, the founder demanded in the Series A complete and total board control, not just in voting shares, but on every major decision that the company could make going forward.
05:25And what I've seen, you know, my I was around for the dot com bubble and as an operator, I've been investing through multiple cycles.
05:33And what I've learned is that that is a recipe for disaster in most situations.
05:37And so I'm actually more concerned with the lack of governance going on right now, even than the actual valuations and the money going in.
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