TWIST VC Roundtable: Startup Valuations, Secondary Markets & the YC Revenue Illusion | E2137

Today's show: Alex moderates a TWIST VC Roundtable with Jason, Paige Doherty (Behind Genius), and Altimeter's Megan Reynolds about the state of early-stage venture capital. They break down the rise of secondary markets as a key liquidity path for VCs, analyze the resurgence in M&A activity from major players like Meta, Databricks, and OpenAI, and question whether inflated ARR figures from YC startups are distorting valuations. Jason shares his year-zero investment thesis and offers tactical advice on secondary structuring and identifying high-quality revenue. Whether you're raising, investing, or building, this episode delivers essential insights into the evolving early-stage landscape. Timestamps: (0:00) Episode Teaser(1:28) Meet our panelists!(2:37) Will secondaries replace traditional M&A?(10:10) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups(14:28) Has M&A actually bounced back?(20:06) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year.(25:35) Secondary market advice, just for founders(30:10) Retool - Visit https://www.retool.com/twist and try it out today.(32:49) Why is it so hard for emerging managers to raise funds? (38:28) Seed funds: the math is not mathing(52:07) Why early investors become "collateral damage"(56:31) The importance of revenue quality in early-stage startups(1:06:43) Quick Fire Question Round! Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.com Check out the TWIST500: https://www.twist500.com Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp Links from episode: Altimeter: https://www.altimeter.com/homeBehind Genius: https://www.behindgeniusventures.com/ Follow Meghan: X: https://x.com/MeghanKReynolds LinkedIn: https://www.linkedin.com/in/meghankreynolds/ Follow Paige:X: https://x.com/paigefinnn LinkedIn: https://www.linkedin.com/in/paigedoherty/ Follow Alex: X: https://x.com/alex LinkedIn: ⁠https://www.linkedin.com/in/alexwilhelm Follow Jason: X: https://twitter.com/Jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis Thank you to our partners: (10:10) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups (20:06) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year. (30:10) Retool - Visit https://www.retool.com/twist and try it out today. Great TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland Check out Jason's suite of newsletters: https://substack.com/@calacanis Follow TWiST: Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups Substack: https://twistartups.substack.com Subscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Jason Calacanis?

  This is the Y Combinator strategy. Sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on them. That is actually really good advice. But then the gamesmanship that happened was you buy my product, I buy yours. Can I get five people to buy mine? And people kind of created these little round robins. That I don't want to say it's unethical, but it's unethical.

• 0:23Speaker 01

  Paige, thoughts? I'm gonna throw that one right to you.

• 0:28Jason Calacanis?

  You know, throw bombs. I don't care. I'm already rich. I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm gonna be Bill Gurley after dark.

• 0:38Speaker 01

  I know, but I want to give Paige a chance here to stand up and get and get whacked. So.

• 0:43Jason Calacanis?

  Paige, you want to incinerate your career and relationships go.

• 0:45Speaker 02

  Oh, thank you so much for that kind introduction.

• 0:48Speaker 01

  No worries.

• 0:49Speaker 02

  I'm so happy to be here today.

• 0:53Speaker 03

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• 1:28Jason Calacanis?

  All right, everybody. Welcome back to This Week in Startups. One of the things I love to do is have a roundtable. You may have heard a roundtable now and again in my podcast, Wheelhouse. Well, here we go. Wednesdays on This Week in Startups. And everybody wants to hear what's going on, Alex, from the venture side of the business. Founders want to know how that's going to impact, you know, their fundraising, their prospects. Should they raise money? Should they just go for the revenue? When should they go for an investment? When should they wait? And who should they target?

• 1:58Speaker 01

  All right. So on the show today, we have Paige Fend Dorte. She's a founding partner at Behind Genius Ventures, which writes quarter million dollar checks. And as of today, we checked before the show, has written 52 different investments. Then we have Megan Reynolds, a partner at Altimeter Capital, where she is the head of Capital Formation. If you don't know Altimeter, they're a technology investment firm that invests in both startups and public companies, or she puts it from Series A through public. And then, of course, we have Jason Calacanis here today, not in his suit, which gives five demerit points, but he is the founder of the Launch Fund and the Launch Accelerator. And as Jason said, my name is Alex. So guys, today, I know that everyone wants to talk about secondaries, so I thought we just start there.

• 2:39Speaker 01

  To set the groundwork here for everybody, do recall that Industry Ventures data shows that global secondary activity is rising and should set an all time high this year. If you're on the audio version, the firm estimates that there'll be about $122 billion worth of VC secondary this year, up from, say, about $105 billion in 2021. Paige, starting with you, how is your firm considering use of secondary for liquidity? And do you think it's going to replace M&A as the majority source of liquidity for early-stage funds?

• 3:14Speaker 02

  Okay, Alex, thank you for the great question. There's a couple of pieces in that that I want to discuss. Like one, one of your questions was like, do you think that secondaries will replace M&A and IPOs as a primary source of liquidity? I think there was like a, there was some data showing recently that 74% of exit value has been from secondaries, whether that's GP-led, LP-led, or tender offers. So I feel like the secondary's market will continue to rise as like a primary source of liquidity. However, when I think about that on the fund level, the premiums are rising for secondary. So it used to be that secondaries would trade at a pretty significant discount.

• 3:54Speaker 02

  And I think that as premiums rise, looking at opportunistic secondary sales where they're almost like inbound opportunities, I think those will be the ones that will have like the best price on the secondaries. But when it comes to like behind Genius, I think it's really like deferring to our LPs and their liquidity needs and really understanding, you know, based on the timeline that they're expecting, like, how can we come together to create a solution?

• 4:23Speaker 01

  Jason, I want you to weigh in on the discount and premium side of things. What is launching in the market and how much more or less attractive have secondary offers been to you in the last couple of quarters?

• 4:34Jason Calacanis?

  Well, during peak Zerp, we took advantage of a number of our unicorns that had secondary opportunities. And when we did that, looking at, say, the top two, in both of those cases, those companies, four years later, three or four years later, are trading at below or, you know, far below on the secondary market, the price that we sold at. So that would be a great trade. And we look really smart to our LPs for having trimmed our positions and still having a lot of our position left. In both those cases, we still have 80% in the game, but we've trimmed 20%, one in two transaction, one in one. And when I look back at my Uber sales, I did a sale confidentially, don't tell anybody, directly to the company.

• 5:19Jason Calacanis?

  When the company was at a peak valuation, probably around 30 or 40, low 30s a share, my friend Travis, who was running the company at the time, was able to provide me personally with some liquidity, which was incredibly good for my family and for my diversification, because it had become such a polarized position on my balance sheet. And then I sold some to Masayoshi Son, then I held the rest and still hold to this day. And those have also been good trades. So, you know, even though I sold some to Masayoshi, I think at 37, and a little bit to the company at 30, you got to remember, that was like eight years ago, and six years, maybe five years, six years ago. So if you look at those two trades, Megan, I think, you know, they, you have to look at time. I put that money to work

• 6:00Jason Calacanis?

  in other investments that also did fantastic in that time. So while I may have left 2.5X on the, or 2X on the price of Uber today in its 80s, I was able to buy a house that doubled in value in Hillsborough. So the same, and I got to live in that amazing house. So this is where I think the old girlie said you can't eat the paper gains, TVPI.

• 6:22Speaker 04

  Can't eat TVPI.

• 6:24Jason Calacanis?

  You can't eat TVPI, Megan knows this quote. And so, you know, the way I look at it now in talking to my LPs, I've told them, we now have an explicit, and this might be the difference between Paige and I now, I've gotten my ass kicked for, you know, maybe, I guess, maybe six or seven more years than Paige. I'm like, any chance we get, evaluate it. So much so that I took one of our 11 investment team professionals and I put them directly in touch with all the secondary markets. And I said, I want you to tell me every change in price, and I want you to, guys, to keep me honest and tell me what we should trim, what we shouldn't, and why. And so we do this now as an ongoing thing. And Megan really informed me of this. We were on a trip to Abu Dhabi and Dubai and the region years ago. By years, I mean two, maybe.

• 7:09Speaker 04

  Dog ears.

• 7:10Jason Calacanis?

  Dog ears for us, tough couple of years. And on that trip, you know, I was just asking her a lot of questions about this and portfolio construction and communication with LPs. So I added two things to my fund. We are hyper communicating with our LPs and we have a very, very specific strategy. Sell 10% when we're 50x, sell another 10% when we're at 100x, 200x, and just keep doing that four times, four 10% cuts until the eventual exit is my strategy.

• 7:40Speaker 01

  All right. So Megan, I'm curious, is Jason's approach here something that you're seeing in funds that you guys back? Or is he a bit of an outlier in formalizing a secondary process as opposed to just being opportunistic with the chance to get a little early liquidity?

• 7:53Speaker 04

  Yeah, look, I mean, the pressure for DPI is very real for GPs today. I mean, I think I saw a stat recently that if you look at all funds, 2015 to today, 75% of those funds have not returned a dime, not a single dime. And that's inclusive of funds that are 10 years old. And so there is huge pressure from LPs for liquidity. And that comes in two forms. When you look at the data that you put in the chart earlier, there were two stacks. One of those is the LPs that are selling funds. And so there the LPs on their side are driving liquidity and the other is direct secondary. So this could be, that comes in a different form. That's GPs that are selling

• 8:38Speaker 04

  positions directly, or strips of positions, or slices of their portfolio, or it's GP, like secondary funds that are investing in secondaries on company cap tables directly. So employee liquidity, et cetera. So I just want to draw that distinction. I think there's going to be an explosion of both. I think the secondary market for venture is maturing in real time.

• 9:02Speaker 01

  Megan, can you explain strips and slices for us, just for folks out there a little bit less familiar with the different forms that secondary transactions can take?

• 9:09Speaker 04

  That's right. So if, and Jason was just talking about this, about him selling a piece. When I say a slice of a position, so Jason's 50x into a deal and he decides he's going to send 10, sell 10% of the value of that to a buyer. I would call that a slice. I'm selling a little slice of my position. I still have plenty of skin in the game, but I want to return some capital back of my gains to my LPs. Another way that you can do it is you can actually sell a strip, what I call a strip sale, of your whole portfolio. So I'm actually going to effectively just sell, and I think,

• 9:50Speaker 04

  I think maybe N A A did this this year. There was a big fund that had announced this, that they had done a strip sale. So it basically just said, I'm sold 10% of every single company in my portfolio, just to, it's not making a call on one position or the other, but I'm just gonna sell, sell a strip of the whole thing.

• 10:12Jason Calacanis?

  Hey founders, I want to share with you an experience I love. It's when I get an ad that is relevant and not some nonsense. Like the other day, I got an ad for a fund management platform and it was like a new one I'd never heard of. I clicked on the ad because, well, I manage for venture capital firms. We scheduled a call with them and it was amazing. How did this happen? Well, I was on LinkedIn because I like to share links from the podcast, The Speaking Startup, right on. LinkedIn. In fact, we live streamed to LinkedIn three days a week and we get a great audience over there. And I happened to be presented with this fund management platform, and it was a direct hit. Like, I mean, talk about hitting the bullseye. If you're in business and you're making a product or service, it's really hard to find customers in the business

• 10:53Jason Calacanis?

  to business space. And doing B2B advertising is hard, but LinkedIn makes it so easy because, you know, their tools let you target people by job title, industry, company size, and more. So this fund management platform obviously was looking for people in venture capital, who had a fund size and a number of people, maybe 10 people, maybe 50 people. And they found me. They got me. They split the arrow. Boom, right on target. And there's two things you really need to know about LinkedIn going into 2025. First, they broke a billion members, and 130 million of those billion are decision makers, and 10 million of the billion are C-level executives like myself. Where can you get to those people? It's really hard. And the second thing you need to know, LinkedIn makes an impact. B2B marketers report two to five

• 11:36Jason Calacanis?

  times higher return on ad spend, or ROAS, return on the ad spend, you should know that acronym, compared to other social platforms. 79% of B2B marketers say LinkedIn is the best platform for paid media. LinkedIn is going to let you build the right relationships. It's going to drive results, and you're going to reach your customers in a super respectful business environment. It's not a place where people are dancing around, saying inappropriate things, or debating politics. Nope. LinkedIn equals business. Business equals LinkedIn. Start converting your B2B audience into high-quality leads today. We'll even give you a Hyundai $100 credit on your next campaign. Go to LinkedIn.com/thisweekinstartups to claim your credit. That's LinkedIn.com/thisweekinstartups. Terms and conditions do apply.

• 12:17Jason Calacanis?

  I think that's what Industry Ventures and Dave McClure's fund are doing as like their primary activity now, is those strip sales.

• 12:26Speaker 04

  They'll, they do a lot of that. There's another thing that you you'll hear in the market that's very popular to talk about called continuation vehicles. So this is where you actually take an asset out of a fund, roll it into a new fund, you give your LPs the option to participate or not, but it's a way to deliver. So you effectively return the capital back to your fund, but you continue to own it. There's some LPs who won't want to participate. And so you bring in people like Industry Ventures, or Dave McClure, or StepStone Group, or Caller capital, like there's tons of secondary buyers out there. So there's all of these different technologies for returning capital and all of them are important and growing in

• 13:11Speaker 04

  a world where there's just, there's no M and A and no IPOs. Like the volume is still like, it's just not where it has been in the past and it's not commensurate to deliver liquidity that people, that our LPs need to continue to fund the ecosystem.

• 13:27Speaker 01

  It's funny, when I learned about venture capital, we didn't talk about strip sales and slices and secondaries as much. And it does feel a bit like the private equityization of venture, Meghan. I'm curious Paige, if you thought you were going into like baby private equity when you started a venture capital fund, or you thought you were actually going to get to some IPOs?

• 13:46Speaker 02

  Well, I guess I actually started in what you would call like baby private equity. I had an internship at TVC Capital, which is a growth equity firm in San Diego and focused on buying large minority positions in software companies that were doing between like one to three million in ARR. So like ironically, that's almost the profile of like a seed company today, given how much metrics have moved. And so when I was there, I learned a lot from the partners about like the secondary's market in growth equity and how that was growing. So I feel like it was something that I came into venture with a consideration of.

• 14:26Speaker 01

  All right. I want to talk about M and A a little bit. It's the other side of the liquidity equation. According to NVCA data, we did see a relatively strong Q1 compared to recent years in total exit volume, still very much below what we saw in 2021. Recently, Crunchbase reported that in May, we saw a strong uptick in global venture backed M and A, pretty encouraging, clearly less than March, but certainly a lot better than we saw in 2024. So I want to go around the horn here. What are we seeing in the market regarding M and A transaction velocity and pricing? And are you guys optimistic that things will get better? And Jason, we'll start with you.

• 14:59Jason Calacanis?

  I always look at not what the administrations say, but what they do. Many administrations are effervescent and vocal. Maybe they start with incredibly bombastic behavior and words. And then we see the reality. So if you were to look at, say, trade and tariffs, it started with this incredible bang. And, you know, depending on how cynical you want to look at it, it's moved to a 2.0 phase, which seems incredibly reasonable. We can debate if you should do extreme things and then do very, you know, moderate things. And if that's chickening out or a strategy in 4D chess, come out with a big ask and then revert back to what you actually want.

• 15:43Jason Calacanis?

  Politics aside, every M&A transaction during the Biden administration and the rap of Lina Khan was faced with extreme pushback. Every single one of them. I can't remember one of them where people weren't hand wringing. And we even saw the unwinding of the great Adobe Figma, when he billion dollar, you know, rained down pure cash on the venture industry. That was a pure cash boom, you know, massive amount of distributions. That company was half owned by Venture, I'm sure. Would have been $10 billion to the L people. And what do we have? Two-year wait, right? Until they go public, probably. So that's two more years.

• 16:25Jason Calacanis?

  And I bet you the IRR is only going to go down on those investments. Megan will back me up here because she probably has the inside dope on it. So because that got delayed two years, there is a value to money and it's going to be the same valuation, perhaps less. So if it's a lower valuation, those folks are going to be like, ah, bummer, I could have got that money back, put it to work and got two years at 10% or, you know, just in money market from 6%. But when I see Salesforce make a big purchase, when I see the new potential king of M&A, Sam Altman, make two purchases in one month, he's, you know, he's, he studies people.

• 16:59Speaker 04

  Databricks has been acquisitive.

• 17:01Jason Calacanis?

  I was going to say. Thank you. Uber's been buying little, you know, tuck-ins here and there, you know, in different markets. That's pretty interesting.

• 17:10Speaker 01

  DoorDash as well.

• 17:11Jason Calacanis?

  DoorDash bought two.

• 17:13Speaker 01

  Hmm.

• 17:14Jason Calacanis?

  And these, if you look at them, I think all the ones we described, Megan, are one to six billion on average, one to eight billion. And whiz obviously happened. I think that's your big spike there. So even if the MAGA folks are anti-tech supposedly, anti-M&A supposedly.

• 17:33Jason Calacanis?

  This is a flurry of really exciting deals, really exciting deals. And then the 10%, 20% of the last value of a company offers we were getting in the trial are now to 50, 60, 70% of the high watermark. Something's happening here. People are optimistic based on their behavior. Put aside all the news reports, all the debates on All In, all the debates on BG2, of politics, of hand wringing and administrations. Game on the field. Stock market's about to hit a new high. Tariffs have been, they retreated on tariffs and M&As going crazy.

• 18:10Speaker 01

  Paige, Megan, I'm curious if you're seeing similarly strong M&A vibes out there in the market? Megan, start with you.

• 18:15Speaker 04

  I would definitely note exactly what J Cal was saying, that there's, yes, we haven't had this big deal hit the market that creates a wave of cash coming back to LPs. And Figma not happening yet. Wiz is going to take a year to close. I mean, it's going to take a while, even if you have a big announcement, for some of these things to actually hit LPs pockets. But in the meantime, smaller deals have been happening. You know, they really don't hit the radar. And unfortunately, when you have a concentration of growth assets that represent a large percentage of value in venture portfolios, it's hard to feel the effect of the Databricks $2 billion acquisition of Tabular. But it is happening.

• 18:59Speaker 04

  And I am optimistic about the market. I don't think venture is dead. I don't think M&A is dead. And I think IPOs are going to come back. It's a matter of time. And in the meantime, the secondary markets that we started talking about are a creative way to put some cash back in LP pockets to keep the funding ecosystem going.

• 19:24Speaker 02

  One of the sales I thought was really interesting was, Zuck's 49% purchase of Scale AI. I think that the regulatory pressure that's been happening in the M and A world, like I had a friend at Figma and like that would have been like a life-changing acquisition for her. And it was really interesting to see the aftermath and ambiguity of it. And I think we'll start to see more purchases in that like 49% that doesn't trigger some of the regulatory pressures. I remember reading that headline being like, I think we're going to start seeing like a lot more of these, especially for larger companies so that they can still operate like autonomously, but provide liquidity to the ecosystem.

• 20:06Jason Calacanis?

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• 20:50Jason Calacanis?

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• 21:32Jason Calacanis?

  Here's the thing, when you come up with a hack, it has a half-life. And I think when Zuck does the hack, that's the end of the half-life.

• 21:42Speaker 02

  And we're done.

• 21:43Jason Calacanis?

  Yeah, I think we're done because people don't like Zuck and people have a lot of scar tissue about that Instagram and WhatsApp application in government. When Tim Cook does something, Satya does something.

• 21:55Jason Calacanis?

  Google does something. It's like, oh yeah, I like Google. Google search is good. Oh yeah, I have Windows. My kids use Xbox. And you know, you bring up a toxic brand like Metas, which people are like, yeah, Instagram is this, you know, scourge on my family and my daughter, you know, is like obsessed with it. Oh yeah, you know, people are getting bullied and harassed on this other platform on Facebook. I stopped using it. It's like a certain toxicity there. And I think Lena Kahn was starting to investigate this before she left. I think he's just basically put out a huge sign like, look at me. I don't care what you think. You can't stop me. I think he should have just done the regular acquisition and dealt with some.

• 22:33Speaker 02

  Interesting.

• 22:33Jason Calacanis?

  Yeah. So I don't know. That's just my personal belief is we have a new regime in town. And I understand doing it with Lena Kahn because she had no choice. But he's been donating heavy to this MAGA stuff. He put Dana White on his board to appease Trump. You know, he did the big apologies. He just made up with Palmer Lucky. Shout out to my guy two weeks ago, my guy Palmer Lucky and him broke bread and now they're besties again. You were there for the breaking of the bread?

• 22:57Speaker 02

  No, no, I was there for the before.

• 22:59Jason Calacanis?

  Oh, oh, when Palmer and I hashed things out. Yes. So yeah, I do think he should have just gone straight. What do you think, Megan? Curious. Like, do you think like these hacks are a good idea, a bad idea?

• 23:14Speaker 04

  I don't know. I, I, I'm not sure that I have a view, to be honest.

• 23:18Jason Calacanis?

  Forty-nine percent hack?

• 23:20Speaker 04

  The forty-nine percent hack, people are, look, people are, they're smart. They're going to find a way. And they're, they're just, they're gonna, you're just gonna find a way. And this is like in the world, in the, there is no way that Zuck is gonna lose in the battle for AI supremacy. And he is gonna find a way to do it. And whether it's a forty-nine percent hack, or stealing teams, or other things, like I, I wouldn't, I wouldn't bet against him. And I think he's very strategic and is gonna do what he needs to do. But in the, and in the meantime, like, these big companies, Gurley was talking about this on Invest Like the Best, and was just talking about the cash balances of these large companies where they've, they've

• 24:05Speaker 04

  got the capital to put to work. It's gonna find a home. We're gonna find a way to do it. We're in a more friendly regulatory environment. But in the meantime, we just haven't.

• 24:15Speaker 04

  The ecosystem hasn't really reaped the benefits of it.

• 24:17Jason Calacanis?

  Life, ah, life.

• 24:19Speaker 01

  What's the word?

• 24:20Jason Calacanis?

  Finds away.

• 24:21Speaker 01

  Yes.

• 24:22Jason Calacanis?

  That's my Jeff Goldblum. It's terrible. I gotta work on it. Life finds a way.

• 24:29Speaker 01

  I think, I think Megan's point, though, is really good because Meta has had enough money and enough profit to lose tens of billions of dollars on VR and then keep doing that while also investing so much in AI. It really speaks to the, the fundamental strength of the meta model over the last couple of years. I'm, I'm blown away, Megan, by their ability to just have that much cash. Um, I want to look back.

• 24:47Speaker 04

  And they've gotten fit. They've gotten fit.

• 24:49Speaker 01

  They've gotten fitter. I don't think.

• 24:51Speaker 04

  Preserving cash, right? Getting more efficient, being more efficient. So.

• 24:58Speaker 01

  Well.

• 24:58Speaker 04

  We'll see. Lots, there's, that's what's gonna play. I mean, this, this year is just gonna be, I think it's gonna be fascinating.

• 25:03Jason Calacanis?

  They have less employees now than they did three or four years ago and Brad started dunking on them and being like too many people. Like, I think they literally have less people now than three years ago and they're growing at 15% a year. I mean, that's crazy.

• 25:17Speaker 01

  Yeah, big, big tech has slimmed down. I think we've all seen that in the forums from recent graduates complaining about a dearth of, of job opportunities. I want to put a cap on the secondary conversation, though, because I'm just curious what founders should know about approaching Jason raising capital from investors that might be leaving their board earlier through an exit or just having to deal with multi-stage funds versus early-stage investors. There does seem to be a bit of a dichotomy now between people that will exit early and people that will exit at IPO. So for founders, just advice on how to handle the new secondary.

• 25:47Jason Calacanis?

  Very simple for founders. If there's a market for your shares, control it, embrace it. Do not try to fight it because it will happen with or without you. Mark Pincus learned that. People just started trading his shares and then the, you know, the horse was out of the barn. Just say, we're gonna do it twice a year. Um, we're gonna put a price on it. As CEO, I'm gonna do the price discovery. I'm gonna control who sells. You put in your requests and then now you've got ball control. You've said to the market, this is gonna occur. It's gonna occur July 4th. And, uh, you know, the week after Thanksgiving, those are the two dates. You put in how many shares you wanna, how many shares you own, how many you want to sell. We'll get back to you in two weeks after that as to if we can fill any of that demand.

• 26:30Jason Calacanis?

  And now you don't have people going off and running amok on the street trying to find buyers. Right? You have ball control. You've told them. Now you've, now you've put it in the VCs and the LPs in their hands to say, oh, no, no, I want to go around the back door and I want to disrespect you.

• 26:47Speaker 04

  Jason, I have a question. What do you think is the, the size threshold for that? Like, at what point, at what, what size of a company do you think it needs to be for them to take that institutional approach to liquidity? Is that something that, and or like a series B or C company needs to be thinking about because they're 10 years into their journey? Or like, how do you, if you're advising founders, like, that's obvious if you're ByteDancer, if you're the Carlson Brothers, but like, what, at what point do you think that happens?

• 27:16Jason Calacanis?

  I, I think it's a distraction, obviously.

• 27:18Speaker 04

  Yeah.

• 27:18Jason Calacanis?

  So I would set the parameter that employees who have been with the firm for four years can make requests. Investors who have been in the company for three years can make the request. So I would do it based on how long you've held your investment, that, you know, we're going to provide this for people who've been investors over X amount of time. Now you've narrowed the pool. People who are at the end aren't flipping and you get this sort of transient nature to it. And you're rewarding the people who were the early investors. So, oh, Paige and I did a seed round and Brad wants to double down with Altimeter. Great. We can participate. Oh, Brad buys a position and it's year two and Brad's like, oh my God, this thing's 3X. I need liquidity. The founder can say, you know what, Brad? You, you just bought your shares. Like, can you just

• 28:01Jason Calacanis?

  hold your horses here? Uh, you know, give us three years of your investment. So I like that strategy rather than the revenue or whatever. And it really is demand side. There's no demand. There's no demand.

• 28:11Speaker 04

  Mm hmm.

• 28:12Jason Calacanis?

  So, you know, but I, it's, this is a new thing. I, I, my, my only piece of advice for the founders is have ball control, set your own rules, and then force your employees, force your management team, force the LP and VC community, force retail investors to stay within your rule set. And then, you know, if they want to step out of it, great. Now they're no longer friendly with that founder. And as a founder, you should then just call them and you should say, you'll never invest in another one of my companies if you go off the reservation. You jump the fence, you're out of the family. You play by the rules and you're respectful. You're in the family. Would you like to be outside the family? Or you want to be in the family?

• 28:53Speaker 01

  All right. Paige, a founder calls you and tells you that, what are you saying back?

• 28:56Speaker 02

  Um, well, I, I guess like, I would, I would be like,

• 29:02Jason Calacanis?

  Yes, sir. Yes, ma'am.

• 29:03Speaker 02

  Um, yes, ma'am. Uh, the, also like the other thing of like staying inside the family is there are like Q S B S holding requirements of five years. So you wouldn't reap any of the capital gains benefits if you held for under five years. So I think that would also be a consideration if you're like an individual investor and you're like, hey, like at three X, I want to get out, but I might have some tax liabilities because I haven't held for that long. You can like determine that, but I feel like most funds would hold through the Q S B S holding period because it's like 10 million in, in, in the Q S B S side. So I feel like there is sort of a lock in due to that naturally built into

• 29:41Speaker 01

  the system. And Q S B S is the qualified small business exemption, I believe?

• 29:46Speaker 02

  Yes. Yeah. And I, I think that's like something that a lot of people gloss over as well in these discussions, but yeah, usually you have to hold a company's shares for five years. So you almost have that built into the system.

• 29:59Jason Calacanis?

  And you have to have been invested when it was under 50 million. So this applies to seed funds in a major way. It's a major part of the seed event. First 10 million, no cap gains.

• 30:09Speaker 02

  Yes.

• 30:10Jason Calacanis?

  Let it sink in. Yum, yum.

• 30:13Jason Calacanis?

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• 30:58Jason Calacanis?

  sophisticated user interfaces, agents and processes without sacrificing performance or customization.

• 31:04Jason Calacanis?

  Retool is trusted by over 10,000 companies, including our pals over at Ramp. So check out Retool today and get your AI on doing more than just talking. Go to retool.com/twist to learn more. That's retool.com/twist. It literally is one of these rare moments where capitalism works. It looks terrible on the optics. Like, why should Page and J Cal, a seed investors, you know, get 10 million tax free? Because, you know, my mom, who's a nurse, has to pay taxes every year. And it's like, because we're taking bets that go to zero 90% of the time. And if you don't give us that kind of tax advantage, we might just move further down the line and there'll be no angel investors, no seed funds. At least that's Paige and I's position.

• 31:48Jason Calacanis?

  We're going to keep to that, that we would quit if you take it away. Paige and I and the rest of the seed investors union are quitting.

• 31:55Speaker 02

  The innovation economy is dead.

• 31:57Jason Calacanis?

  Dead. We're gone. Paige and I are retiring. She at 26, me at 54, we're done. And we're taking 100 seed funds.

• 32:05Jason Calacanis?

  100 seed funds are retiring as well.

• 32:07Speaker 01

  Sticking to policy then, why don't we try to double the number? Why 10 million? Why not 20? What would that unlock for the early-stage growth?

• 32:14Jason Calacanis?

  Oh, well, remember, you have to be 50 million or under assets. So there's like some reasonable math here that has to math out.

• 32:22Speaker 01

  Okay.

• 32:23Jason Calacanis?

  We can't own more than 10% of a company in, you know, in our best investments. Usually it's five, you know? Paige is doing 250K checks. She's net-net hitting 5% to 2%, 2% to 5% ownership on average. And getting diluted by 50%. So we're small ball. You don't worry about us. We're just sliding a little check. Don't worry about us.

• 32:43Speaker 01

  Well, no, I really, I care a lot about the small investors because data on emerging managers is pretty stark. I want to show everyone a chart here.

• 32:52Speaker 02

  Oh, let's show the chart.

• 32:53Jason Calacanis?

  There's the segue. Look at that.

• 32:55Speaker 01

  He set his screen and he just boom dropped the ball. Roll it on two wheels here. How about that for a segue? Here we go.

• 33:00Speaker 04

  Elegant, elegant.

• 33:02Speaker 01

  All right. Here is a chart that Bloomberg called trouble for new VCs. They define emerging managers here as firms in their first three funds. And it shows if you're on the audio version, a rise in the amount of capital raised by these firms through 2021. And then what I would call a precipitous collapse. To put some numbers on this, emerging funds raised $64 billion in 2021. That fell to 17 billion in 2024. And through May 8th of this year, it was $4.7 billion. I think that is a collapse. And so Paige, just starting with you because you are the emergingist manager here. Uh, what the hell has happened on the LP side? And why is everyone struggling to raise a couple of nickels?

• 33:43Speaker 02

  It's always a joy as an emerging manager to wake up and see that chart. But I, like, I think.

• 33:50Speaker 01

  Why is it a joy?

• 33:50Speaker 02

  I'm joking. No, I'm joking.

• 33:53Speaker 04

  No, you, no. I would actually argue that you should feel joy because you did it. You have a fund.

• 33:59Speaker 02

  Yeah, that was like very exciting to make it through. Cause when we raised our first fund, it was 2021, raised 5 million. Like I would say the fundraise was on all, we talked to like a lot of investors. We have like 120 LPs, but the second fund was like much more institutional. This like sales cycles for um, closing institutional investors is longer. Um, but I think there's almost the same like time expansion happening that you're seeing in funding of companies. Like the time to go to a series A has never been longer. And each like milestone keeps expanding. So I almost think it's like that happening, but in emerging manager land where we had this like massive influx of capital in one year,

• 34:43Speaker 02

  where it might've in other markets been spread out. The rise of family offices moving into um, the venture space can also have a dramatic impact because venture is like a tiny crumb of the overall private equity market. Um, if family offices get super excited in one year about the massive returns they're seeing in venture. And they're like, let's all pile in. And then uh, you see like a large market drop in 22, 23. And those were like very challenging fundraising years. Um, those, yeah, those like sales cycles take longer. The relationships that you're building um, have to go deeper. So I, I think. It's been like a very interesting ecosystem to navigate and I feel very lucky to have closed

• 35:26Speaker 02

  our second fund in such a challenging environment. Yeah, and then just like continuing to educate folks who are interested in like professionalizing their either like angel or syndicate investing into a fund. And then last point on this is I think there's like, there's also a dramatic opportunity cost. Like with this whole AI gold rush going on, like you have a, you know, if you're a super talented generalist who understands growth and distribution, like analyzing companies, why would you not go join an AI company that's like growing at a dramatic clip that could, yeah, change your life. It's like because you love doing the work. So I think that's been the, one of the other things that I've been seeing.

• 36:12Speaker 01

  Megan, I want to get you in on this because you know the LP side best. So why have the purses begun to constrict around the necks of these emerging managers who are doing God's work by funding people with an idea?

• 36:23Speaker 04

  Yeah. Can you pull up the chart again?

• 36:25Speaker 01

  Absolutely.

• 36:26Speaker 04

  I just want to point.

• 36:26Speaker 02

  Let's do it again.

• 36:27Speaker 04

  Let's, I just want to flash it. Cause I want to like have a reference point.

• 36:31Jason Calacanis?

  Kind of like Squid Game pace. It's like Squid Game. It's like me, you and like four other people are still in the game.

• 36:38Speaker 02

  Oh, yeah.

• 36:40Jason Calacanis?

  Red light, green light.

• 36:42Speaker 04

  Oh, God. Oh, God. It is that tough, though. It's so, so tough. I, you know, I compare emerging manager fundraising to like basically going to Hollywood. Like it is that hard. Like there is so much exceptional talent out there and there is talent that's been around the industry that's, it has an amazing track record and has big films under their belts and they're competing against the same roles that you are. So like breaking in is that hard. And the reason I was referencing the chart again is because the last time you saw the same drop off in emerging manager fundraising activity was

• 37:26Speaker 04

  oh nine. It's liquidity issue. Like that's not a surprise. Liquidity is the problem. That is why managers are not getting back. But there's a few other dynamics I want to mention. One, the primary funding base of emerging managers is endowments and foundations.

• 37:44Speaker 04

  And family offices, because if you're a large institutional investor, you're not, it's, you're not going to write small enough checks unless you dedicate capital to emerging managers. Like you just can't get enough capital to work to make it move the needle in your program unless you have some strategic reason to be doing it. And who's been hit the hardest in liquidity shortfall? Endowments and foundations. And so they are the ones that are with, and I'm sure you've talked about on the show, or there's been so much press about what's going on in the endowment community and their constraints, but the fact that they have, they have very limited capital to be putting to work in new managers is part of the reason they're facing this constraint.

• 38:28Speaker 01

  Paige, something that Jason and I talked about on the Monday show was this data set from Andreessen Horowitz. This is the enterprise generative AI startup benchmarks that I really think blew a lot of minds. Now, for people watching this, this shows bottom median and top quartile results. Jason and I kind of thought that if we're just looking at companies that Andreessen has backed, or has gotten to the point to which they've gotten data during an investment conversation, we're talking about already the cream of the crop. But these numbers that we're seeing here, you know, enterprise gen AI companies going from zero to 5.3 million in the top quartile in a year is, is pretty bonkers.

• 39:03Speaker 02

  Well, I mean, like when I, when I started investing in 2021, it might be like, okay, you need to maybe have like a million or a million and a half to raise an A. And now it's like, okay, you need like five and to be growing at like 20% month over month. Like the like metrics have gotten much more aggressive. And then like I'm going to YC demo day later this afternoon and they, I think most of the companies in the batch have been told it's like, you have to hit like 200K in MRR in, I'm forgetting what it was, but they all have this like very specific like timeline on it. And I think if you, they're like a pretty good signal to look at for like how the market is moving with regards to the targets that they're setting, but.

• 39:47Speaker 01

  Paige, just jumping in, 200,000 MRR, ARR for a seed round?

• 39:51Speaker 02

  200K in MRR. Well, YC's, I mean, depending on like how you think about YC, I kind of consider as like premium pre-seed, I would say. So it'd be like to get to either a seed or A. Cause I do feel like a lot of the companies are getting.

• 40:10Speaker 02

  More capital efficient or they're being forced to because it's like, okay, it's no longer like good enough to be at five million in AR or Series A. You also have to have like not raised a ton of cash to get to that point because they're looking at like burn rate. So it actually is becoming more like baby private equity with the venture optionality of like 50, 100 X on these companies. So.

• 40:31Jason Calacanis?

  As your 50, out of your 50, how many went to Y Combinator, would you say?

• 40:35Speaker 02

  Um, I think six.

• 40:37Jason Calacanis?

  Got it. Do you think you can actually do the portfolio math in your fund paying 30 million for a pre-seed company with 200K?

• 40:47Speaker 02

  We don't pay 30, like our, our average entry point on our fund today is 16 million. And in fund one, it was 15 million post. So we, we own like 1% in fund one and like roughly 2% in fund two. And I would say have been like pretty dogmatic. And then we've made exceptions for like exceptional founders. Like in one case we like doubled, doubled our like average seed check size in a, in a company that was more expensive that was led by like top VCs because I want to get our ownership percentage.

• 41:16Jason Calacanis?

  That's the big lesson, Megan, is like if you, you need to have a real portfolio strategy here, right? You have to have some bankroll management and entry price does matter. And if you're going to own, you know, 50 basis points versus 2%, you know, and you're going to get diluted 50% along the journey, that's 25% or 1%, 25 bips or 1%. You know, the math just doesn't matter. Every investment has to be a fund returner. And I have a couple of winners in fund three where we made small bets to kind of get to know the firm, you know, put in a 50K or 100K check and then it got away from us. No way to invest.

• 41:56Jason Calacanis?

  And now we're sitting there with a, you know, 50X on 50K and it's great, except now we have to explain to LPs why we suck at our job and we didn't put a bigger check and we had conviction or why we didn't put a second check in. And it's like, well, they went from, you know, a $30 million valuation to a 500 million. And it's like, yeah, so I just.

• 42:18Speaker 02

  There's so much nuance to it.

• 42:20Jason Calacanis?

  It is, and it's like.

• 42:22Speaker 04

  People ask so many questions to your point too. Like you have to explain every portfolio construction decision in the way that LPs diligence funds today.

• 42:33Jason Calacanis?

  It used to be they were like, we like you, great story. Okay, here's a check.

• 42:37Speaker 04

  Performance looks great.

• 42:39Jason Calacanis?

  Performance looks good. And now it's like, our analysts were looking at these seven companies and we did a, you know, a search on them and it looks like they were complete utter disasters. Tell us, why did you back this? And I'm like, yeah, they totally absconded with the money. They didn't return our emails for a year and they kept their laptops. And I'm like, welcome to the game, guys. Yeah, that founder was committing securities for odd. Yeah, it's like, this is the wild west out here on the margins. Like crazy stuff happens, you know, like you back somebody and they disappoint you. So it's, it's hard. But I just don't think the math at Y Combinator maths for seed funds, which is why my best advice, and this isn't, don't aggregate this, folks.

• 43:23Jason Calacanis?

  Nothing against YC. We don't really compete with them because we accept less than 1%. They accept less than 1%. You know, we, there's just plenty of people, if you want to make 125K bet on them in an accelerator. The issue is if the valuations are that overpriced, which you have to ask yourself, in one year, when they come back to market to raise their next round, what will the valuation of those companies be? If they were valued, you know, if they're at 100K in ARR, I think is what the data was showing in that sample. I'll pull that back up. I think it was 100 or 200. Let's say it's 200. We'll give them a huge benefit at 30 million. Okay, so, or let's say it's 300. So they're trading, no, 200, let's do 150. So they're trading at 200 times revenue.

• 44:06Jason Calacanis?

  Bizarre to even put that valuation on it, I know, but that's not how you're making the bet, but it's part of it. Okay, so they're trading at 200X. They go back to market. Okay, what do you think they're going to go back to market at after they've doubled their revenue? Okay, now they're at 300. They're going to go back to market at 100 times revenue again, 30 million. They're going to do an extension 99 times out of 100. They're not going to get an up round. So just stick around the basket, maintain the relationships and say, hey, we couldn't get there, but we want to be helpful to you. We'd like to get to know you. And you check in with them. Hey, can we get coffee again? How is it going? And that's what we do. We just like, if we meet somebody great, hey, let's stay in touch.

• 44:47Jason Calacanis?

  I would say the other piece of this puzzle is that nobody ever talks about the bottom third of Y Combinator companies that don't clear market.

• 44:55Jason Calacanis?

  So all these statistics are so massaged. I trust none of them. I don't trust any of this data that we pull up here because the game I see on the field is selective um data sets. What are the selective data sets? I saw like a Y Combinator slide you showed me the other day and it was all based on TVPI. Putting this one aside, remember the TVPI one?

• 45:18Speaker 02

  I think Nicole's tweet.

• 45:20Speaker 01

  Yeah, this is from, Jason's talking about data. I thought I'd put it up. This is from Nicole Wiskoff for Scott Ventures and this shows YC's class of spring 2025 against a number of similar stage companies outside of the YC world.

• 45:31Jason Calacanis?

  These are the ones she met with, just to be clear, not all. So you would think she would meet with the best ones because she's a good venture capitalist and she has some thoroughness in who she meets with and they would probably pick her and but you know, this basically shows 5X leverage to invest in seed, seed companies, pre-seed companies that don't go to YC. That actually tracks my lived experience.

• 45:53Speaker 02

  I don't know, YC is such an interesting one because I do feel like a large amount of the valuation actually bakes in like the network of founders that they bring and like the talent that they're able to recruit as a function of like having the YC brand. So I almost think it's like if you look at it on like a purely metrics based thing, like yeah, it might look different, but I think that they have built such an incredible brand in the ecosystem like YC is like you could go like talk to someone in the Midwest and they'd be like or like a family office in the Midwest. They'd be like, yeah, I like, I know YC, like I, you know? And so I think that there, there is like a global brand element that they've done like an incredible

• 46:33Speaker 02

  job building and then they also have like very strict guidelines around like each cohort. So and they like move with the market like they establish like an additional cohort. So I don't like, it's like if you look at it on just a metric basis, yeah.

• 46:49Jason Calacanis?

  Twice the price.

• 46:50Speaker 02

  It'll be different.

• 46:51Jason Calacanis?

  One third the metrics or the traction. So, you know,

• 46:54Speaker 02

  But they're, okay, but the

• 46:55Jason Calacanis?

  But your argument is correct.

• 46:57Speaker 02

  They also started, they started later. So some of the seed companies that you might be looking at might have started like three, four years ago and might have raised capital. Like a lot of these Y Combinator companies are coming in only having raised YC and maybe like 100K in angel checks. And so like, you're paying up for like their velocity as well. It's like they went through the YC program and like got to 200K in ARR in like a much faster time period than another company. So that's like also to your time value of money question.

• 47:25Jason Calacanis?

  Yeah, I would, I think it's a good counter argument. And the other counter argument is yes, they have a selection process that only accepts 1% like Harvard. So if you're only selecting great founders, you know, you do get less, I think, you know, mistakes in the portfolio as it might be, like people who just aren't cut out to be founders. So there is that. So you are paying for value. And then the question is, I think if you're a hardworking seed manager, your job is to find all the people who are the second, third, fourth percentile that didn't get in because they're no different than the first. That's your job as a seed fund is to find value. Warren Buffett's whole premise and his whole career is based on buying companies, you know, when they're not popular and you can get a good entry price. And then

• 48:08Jason Calacanis?

  these businesses and these management teams just keep growing with them and you just want to own that business forever. You know, that's kind of the philosophy I've come to in my life with my own family office. I'm never selling a share of Robinhood. I'm never selling a share of Uber. The end. Like, why would we sell any shares in these companies if their management is extraordinary and the products are extraordinary? They'll be here in another 10 or 20 years. But I think as a seed manager, Megan, what I've come to is it's my job to find companies before they go to Y Combinator and the ones who are in that second, third and fourth. And then be able to buy three companies for the price of one YC company. And I'm willing to have seven people screening companies in my company who are researchers and analysts

• 48:52Jason Calacanis?

  in order to find that, those ones, so that I can make rebats for one. What do you think of my strategy? Rate my strategy as an LP might.

• 49:00Jason Calacanis?

  Candidly, brutally. Am I wrong?

• 49:03Speaker 04

  I'd give it an eight.

• 49:05Jason Calacanis?

  Okay, eight, I love it. Room for improvement, but solid.

• 49:09Speaker 04

  Yeah, no, I think that's a solid strategy.

• 49:11Jason Calacanis?

  I'm devastated right now. I always got his 8.5.

• 49:14Speaker 04

  Right now.

• 49:16Jason Calacanis?

  Literally, she knows how to motivate me.

• 49:18Speaker 04

  Without having, you know, the chance to really distill it. I think, no, I'm just kidding.

• 49:23Jason Calacanis?

  I mean, I like it.

• 49:24Speaker 04

  I think, look, I think

• 49:27Speaker 04

  that like the 1%, right? There is like, that's the selection rate. Like you said, there's a million, there's, there's other great founders out there and finding those that may not get in, but need to find the right home.

• 49:42Jason Calacanis?

  I just figured out how to frame it and make it a nine. Megan, let me try one more time pitching this.

• 49:46Speaker 04

  Okay, do it. Okay, let's see.

• 49:47Jason Calacanis?

  All right. Our job is to out hustle the other seed funds. And we want to make three bets for every one for the lazy funds that just go to Demo Day and just pick whatever, you know, the, the great team at Y Combinator is pre-sorted. And here's the truth, Megan. It's an uncomfortable truth for Y Combinator, but the best founders do not take the Y Combinator deal. The best founders say, I can do better. And so when you see the 1% that get accepted to Y Combinator in our lived experience, that's the sixth percentile. The top 5% did not go to Y Combinator. The majority of unicorns that you see that have gone public did not go to Y Combinator. And those are the ones we're focused on. And then we focus on 7, 8, 9, 10, that percentile. So if you look at the top 10% of startups,

• 50:33Jason Calacanis?

  top 5% don't go to Y Combinator. The bottom 5% after the sixth percentile that Y Combinator gets, they're of equal value, but you get, they're of equal quality, but you get to invest in three for everyone. So that's really our portfolio strategy is Y Combinator is awesome, but you can't overpay for startups or else you break. Your portfolio construction.

• 50:53Speaker 01

  I'm sure Gary Tang won't have any thoughts about that whatsoever.

• 50:56Jason Calacanis?

  No, no, no, Megan was supposed to score it. You didn't let her score it, Alex.

• 51:00Speaker 01

  All right.

• 51:01Jason Calacanis?

  I'm seeing it away from my score.

• 51:03Speaker 04

  Okay, I give it a nine.

• 51:04Jason Calacanis?

  Oh.

• 51:05Speaker 04

  And let me tell you why you got a point deduction. One, I like data. You had more data there.

• 51:09Jason Calacanis?

  Oh, good.

• 51:11Speaker 04

  But you got a point deduction for calling them bets.

• 51:13Jason Calacanis?

  Oh.

• 51:14Speaker 04

  You know, I don't like that.

• 51:16Jason Calacanis?

  Literally in her talk. Our investments, and you know, we don't call them bets, our investments, because we like to help them grow. We're not looking for just, you know, to make a quick hit here. We really want to learn from these investments. Each investment is a chance for our team to get better at the craft.

• 51:30Speaker 04

  Add value.

• 51:31Jason Calacanis?

  And add value. Yeah. Oh, good. Good punch. We're learning, Paige. Look at this. We're getting free mentorship from Megan.

• 51:35Speaker 02

  That's great. It's always, yeah. Yeah, jokes aside, it's always about the founding team. It's like the teams and bringing them in as part of your community. And hopefully, I mean, yeah, following like a similar playbook to YC and like building an incredible like community and brand around the firm. I feel like that, yeah. And then, yeah, and then all your companies will be able to raise a 30 posts right after you do the accelerator.

• 52:00Speaker 01

  I'm actually curious if we're talking about seed prices being too high for seed stage fund economics when that's not really the game on the field. There was an interesting conversation about this and Bill Gurley weighed in discussing how seed valuations are going up. I'll just read this tweet. A mega VC with $5 to $10 billion annual funds is really searching for only one thing, a company they can pile over $1 billion into with a potential to 5X, 10X on that 1 billion. With this seed fund is inconsequential money used to increase the odds of main objective. You are collateral damage. And so I wonder, because going back to what Megan said about, you know, you can put money into any funds you want. Mega funds are getting larger as smaller funds get crunched. I wonder if seed pricing is more reflective today, Megan, of just what the Andreasons want versus what's good

• 52:45Speaker 01

  for the launches of the world.

• 52:48Speaker 04

  I think the dynamics of fund size cannot be ignored. And I think that it does have an impact all the way, like from the top to the bottom of the ecosystem, I do. And look, I think that was a, that's a wise but generalized statement. And I'm sure there's, and I haven't fully thought through it to say like, why it's seed fund money still makes sense and why it's not just collateral damage. But the idea that you have these very, very large pools of capital that want to deploy. A billion dollars or at least 500 million dollars or a billion dollars and don't have the same return thresholds that they that funds used to have before is really having

• 53:31Speaker 04

  some like a major impact on the industry.

• 53:35Speaker 01

  Yeah, Jason, we've talked about this ad nauseam on the show, just about how these mega funds just have a different expectation for returns and you guys have to work a little harder for your IRR.

• 53:45Jason Calacanis?

  I just love Bill Gurley after dark. You know, Bill Gurley after benchmark is just great. He just.

• 53:50Speaker 04

  After dark.

• 53:51Jason Calacanis?

  Yeah, Bill Gurley after dark. He's he's got it. He's had a couple of ranch waters. He's he's he's lost a couple of big pots in the poker game and he's ready to speak truth to power. But it's the truth. If you have one of these mega funds, you know, you are going to make $1 billion bet. Everything you do, that's.

• 54:08Speaker 04

  Investment.

• 54:09Jason Calacanis?

  I'm sorry, investment. Thank you. You're looking for a billion dollar investment that can 5 to 10x to return the fund. You need a fund returner. A C check where you own 10%. You know, the chances of it becoming, if it, it is just a way for them to get the option to be on your board or be in a board observer and have information rights so that they can preempt that billion dollar check. So when you have Paige as an investor or me as an investor, we're with you all the way. When you get dilution, it really matters to us because we're not putting a billion dollars in at a 3 billion or 4 billion or 5 billion dollar, you know, valuation. We made that 125K bet, that 250K bet, we're probably not

• 54:53Jason Calacanis?

  making another one. So we're with you, making sure, hey, you sure you want to dilute that much? You sure you want to add that person to your board? You sure you want to burn through your capital and chase like 4x growth this year instead of maybe being more thoughtful and going for 2 and 1/2x and really getting your product market fit and your product team dialed in? So our investment in your company is more aligned with you.

• 55:17Jason Calacanis?

  Their investment is aligned with an 18-month period between when they drop that billion-dollar check in, that $500 million check in, and you going public or getting bought. It's a much different game. It's mezzanine financing.

• 55:31Speaker 04

  Jason, the only edit I'd say to that is that I think the very large funds, the $5 to $10 billion funds that are at the growth stage are not looking for fund returners. Like, I don't actually think they're underwriting deals for 5 to 10x. Because I think that they are, it's a different portfolio behavior than venture, where you have a very high percentage capital loss. I actually think they're underwriting for zero capital loss. But you have a 2 to 3x, they're underwriting for 2 to 3x outcomes. So it's just a little bit of a different dynamic.

• 56:06Jason Calacanis?

  Got it. Yeah, that makes sense. So maybe three or four of those 4xers make the fund?

• 56:12Speaker 04

  Yeah, like you, you kind of, it's a more consistent driven return buildup than you have one, the rest lose money, and one returns the fund.

• 56:25Jason Calacanis?

  And maybe they hold into the public markets for an extra year or two after it goes public?

• 56:30Speaker 01

  Yeah. All right. I want to talk a little bit about revenue quality, moving a bit away from just kind of the intra-venture dynamics, because we've seen companies like Glean, Synthesia, Together AI, Cursor, Loveable, and others scaling to 50, 100, 200 million in ARR. And whenever I see these headlines, I also see people from the venture world casting mild doubt on the quality of the revenue. People are worried that things are being conflated into ARR numbers, or that ARR is not going to be actually recurring, that it's going to dissipate. I'm curious, from your portfolios, are you seeing revenue quality issues amongst AI-predicated startups? Or are those only in other funds? And Paige, I want to start with you on this one.

• 57:11Speaker 02

  Oh, wow. That's uh, that's exciting. I mean, um, so in terms of revenue quality, I think that one of the things I'm seeing is like, as the, our founders got to raise their next round, is that this is like a topic of conversation when they're raising their seed, if we back them at pre-seed or their A. And so I'm having the conversation with them like, far before they're raising is like, this is what investors downstream are expecting. And it's like, part of the reason I moved to San Francisco last year is like, more deeply understand the downstream capital dynamics, um, is like, revenue quality really matters. Uh, I think like, there can be mistakes or over-representations in reporting that are quite common.

• 57:55Speaker 02

  If you don't have the background of like, startup accounting, which like, if you're an engineer or like, you did something else before, like, you might not know it. So I think, um, some of it is like, a factor of educating early-stage founders on like, he, like, reporting ARR should be like, an annual recurring contract. Um, if you're a marketplace, it should be reported as like, this is your GMV. And then you'll have like, your, um, like, your, uh, like, net profit based on that. And not reporting like, the GMV of the marketplace's run rate. I think that's like, a very common thing that I've seen in companies we've evaluated. So I, I think that, that like, more education on startup accounting is needed.

• 58:37Speaker 02

  Earlier stage, as the metrics change to raise a seed or Series A. I mean, by Series A, you'll know, but like, I think seed is getting more Series Ae on the metrics that they're looking for. So.

• 58:50Speaker 01

  Seed is the new Series A, pre-seed is the new seed, angel is the new pre-seed. And I don't know what we're gonna do next, but there'll be like nano-investments at some point.

• 58:57Speaker 02

  No more summers in Italy.

• 58:59Jason Calacanis?

  We call it, um, we call it year zero startups. It's my big focus now, uh, as we invest in earlier-stage startups. And, uh, we found that half the applications for funding, as Paige mentioned, uh, with her strategy of building community, come to us before they're incorporated with an idea, perhaps a prototype and a team member, but looking for a third. We had all this energy and we told them, oh, listen to the podcasts and let us know after you incorporate. But then all of a sudden, those founders could get away from us, right? They could find another investor who believes in them and wants to write that check. And then, you know, now we're chasing. And so we said, well, how could we be of maximum value to them?

• 59:42Jason Calacanis?

  And so we took a two day event we were doing to help support founders called Founder University, and we made it into a 12 week program. And I put all 11 investment team members on this. We are in our 10th cohort. We have a curriculum. We've invested millions of dollars in this. And 3,000 or 4,000 people apply. We picked the top 300 teams. We invest in the top 10% of those. And we get to watch them work for 12 weeks. And boy, has that changed how we invest. And we will give people their first 25K check to form their company. We found that was another innovation we found. People couldn't get their first check. First check's the hardest. So we're like, okay, you just check a box every week. Would you like the 25K check? Would you like the 125K check? And it just changed everything for us. And on revenue

• 1:00:27Jason Calacanis?

  quality, the fact that we're even having that discussion now is just so encouraging. Because a lot of investing, but 10 years ago, did not have revenue quality as a term, as a discussion point. It was just, what's the revenue? How's it growing? That's it. There was no, are you hacking the revenue? And again, I don't want to make this a pile on for YC, but founders are clever. And what YC, you know, did better than anybody was figure out how to create this really aggressive marketplace where everybody felt like they were going to get left behind in maximum FOMO. How do you create maximum FOMO? Two ways was how Y Combinator got to it. They told everybody, you cannot raise money or meet with investors until the

• 1:01:12Jason Calacanis?

  last week. That was like their best and kind of strong advice. It wasn't, they didn't ban people from doing it, but most people complied with that instruction. Why? You want to get everybody in the room. You want to create a marketplace and you know, all of the language around this is consensus in the industry. Get everybody into a three-week process, get everybody stoked, make it competitive, and then close fast. That's actually really good advice. But then people were like, well, how do I differentiate? I can't just scream for one minute during demo day. I think it got down to like a one-minute presentation. So it was kind of like meaningless. It's meaningless. Let's call it what it is. It's meaningless. Like it's just one minute of performance art where you go up there and scream like you're going to change the

• 1:01:55Jason Calacanis?

  world and your TAM is a trillion dollars. It's meaningless. So what they did was they created the handshake protocol, which is another high-pressure sales tactic, and combined it with a chart. And when we slowed down the process, we would just say to every founder, which is why we kind of opted out of it the whole process, we just say, well, we take like, you know, three, four, five, six weeks to make a decision. If you're on a three, four, five, six day, that's not for us, but we'll talk to you the next round. And some founders were like, okay, we'll talk to you next round. Majority of them were like, oh, no, no. Well, you can take as much time as you need, J. Cal. We want you on the cap table. When we looked at their charts, we found a disturbing trend. When we asked, how did you source these 10 customers? Five of them were other YC companies. Two of them were friends of

• 1:02:41Jason Calacanis?

  the founder. So that high pressure led to unnatural acts. And the unnatural act was to make a 12-week chart that didn't have quality revenue. Where did you source the first 10 customers? We asked them, who are your first 10 customers? They say, oh, we can't share that with you. Okay. They're like, okay, so you want to invest? No, we can't invest without knowing who those 10 are. Then we say, okay, these are the 10 first customers. How many, what's their usage like? How many of them used it in the last 10 days, the last five days today? We want to see the actual usage of those. Okay. And now give us where you sourced them from. And boy, did that change. All of a sudden, people started panicking when we asked for that simple information.

• 1:03:20Speaker 01

  That seems like very basic diligence.

• 1:03:22Jason Calacanis?

  It's very, very basic diligence that a dentist has no idea about. So if you invite a bunch of dentists, they're like, oh my God, this is Airbnb. They told us you invested in Airbnb. This is Airbnb. The problem is, you know, when you, and this is in all companies, we just, we found too many of these for it not to be an explicit trend. And we asked people, how did you come up with this strategy? This is the Y Combinator strategy. Sell to other Y Combinator companies. Now, in some cases, startups are the best customer because startups will take a chance on that. That is actually really good advice. But then the gamesmanship that happened was you buy my product, I buy yours. Can I get five people to buy mine? And people kind of created these little round robins that

• 1:04:06Jason Calacanis?

  I don't want to say it's unethical, but it's unethical.

• 1:04:11Speaker 01

  Paige, thoughts?

• 1:04:13Jason Calacanis?

  I don't want to like, you know, throw bombs. I don't care. I'm already rich. I'm already on my fourth fund. If I can't raise another fund, I can just use my own money. I don't care. I'm going to be Bill Gurley after dark.

• 1:04:25Speaker 01

  I know, but I want to give Paige a chance here to stand up and get, and get watched.

• 1:04:28Jason Calacanis?

  Paige, you want to accelerate your career and relationships, go.

• 1:04:31Speaker 02

  Oh, thank you so much for that kind introduction.

• 1:04:34Speaker 01

  No worries.

• 1:04:35Speaker 02

  I'm so happy to be here today.

• 1:04:38Speaker 02

  I mean, I don't know. I feel like my belief is like they have built a strong brand and community. I think it has gotten to the point where there are people who see it as like a shiny badge that they want to like check off and might not be going into it for the right reasons, but have like the chops and the mission and the product to like get in. And, and I think that's a reality of like, whenever a brand or community gets big, you're going to have those actors in the system. But I think there's still like incredible talent. I would say the, the way that I meet most of the YC companies that we invest in is like, the first one we invested in is Beacons. It was one of the first investments I made, like a Lincoln BioTool.

• 1:05:19Speaker 02

  Grew super fast. So like one of the leading creator tools startups. And then they introduced us to like a few more YC companies. So I feel like for me, it was more like finding a founder who I really loved working with. And then they would refer me to other YC founders. And then I didn't really have to deal with any of the competitive dynamics. So it was just like Paige is an awesome investor. We love having her on the cap table. Like you should take your money. So then it was, it was no longer, so I've always found like, if there are more competitive dynamics, it always helps to have someone in their network refer me. It's always like the strength of the introduction and like vice versa. If, if a founder Like one of our portfolio founders yesterday was like, I have this founder, I will like, I'm like dragging her by the arms, like all of my investors offices, like she is the one,

• 1:06:04Speaker 02

  like you need to bet on this founder, like that will make me like very incentivized to, yeah, to like, take a deeper look. So I, I think it's like the same in like competitive situations, you have to have like a really strong founder reference. Um, and then do your due diligence.

• 1:06:23Speaker 01

  All right, guys, we could literally talk all day because there's so much going on, but we do have to make sure Paige makes the demo day on time. So what we're going to do to wrap up today-

• 1:06:31Jason Calacanis?

  Your badge doesn't work, Paige. Wait, your badge didn't open the door?

• 1:06:36Speaker 02

  Wait, sorry.

• 1:06:38Jason Calacanis?

  Just stand like 10 feet away from me when I start throwing those bombs.

• 1:06:41Speaker 01

  So one question for each of you, we're going to go in order of my screen, which means Jason, we're going to start for you. Just quickly, what is a contrarian place or market where you are currently looking for startups and founders today?

• 1:06:52Jason Calacanis?

  Oh my God, what a spicy question. Contrarian place. Um, I think AI-enabled services like Athena are, you know, one of these areas where investors say, oh, that's a services business. It does, you know, it's not venture scale. Just like they told me, oh, Uber's in the real world, Airbnb is in the real world, Tesla's in the real world, SpaceX is in the world. Those are not venture scale businesses. When I hear it's not a venture scale business and the founder says, I, I, I think there's a way for it to be a venture scale business. Here's how I think it gets really big. Then I pay attention. And, uh, you know, sometimes it turns out to be CPG and it's a dead end. It's a road to nowhere. Other times, you know, they, they do figure it out.

• 1:07:34Jason Calacanis?

  Hardware as a service like density.io, we're not investors in whoop, but I would put whoop in that category where the hardware just enables a SaaS subscription that's very high. Eight Sleep, I think is like, kind of like, um, a, a healthcare product more, and we're investors in Eight Sleep. I think it's a healthcare product. So, you know, hardware as a service would be one that I, I think we, we figured out early. And then this new one, which is, okay, you're abstracting some human services, maybe picking the developers as Micro One does with AI and providing AI human services. These could be very interesting. Um, and most people would say that's not venture scale.

• 1:08:16Jason Calacanis?

  And when I hear that's not venture scale, but I see it growing quickly, that cognitive dissonance makes me go, say more.

• 1:08:25Speaker 01

  All right. Thank you, Jason. Paige, over to you. What is a breakout portfolio company that you have that you think deserves more attention?

• 1:08:33Speaker 02

  Oh, um, one I'm really excited about is a company called Intramotive. So one of our big theses is backing incredible technical storytellers. And the founder, Tim Lucini, was a engineer at Boeing, based in St. Louis. They have like an incredible team of 50 engineers building electrified autonomous trains. And it's just like, it's so cool. Like, I watch their videos and their investor updates, and I'm just like, I can't believe this is my job. Um, that's a company that I am

• 1:09:07Speaker 01

  What's the URL?

• 1:09:08Speaker 02

  Excited about. Intramotive.com, I think. Let me

• 1:09:13Jason Calacanis?

  M O T E V dot com. Intra, M O T E V dot com. I just asked for an intro.

• 1:09:18Speaker 02

  Yeah, just like, so incredible. So I'm excited, hopefully, to get to go out and visit them. Yeah, I mean, like, how sick is that? So we've invested heavily in applied AI, consumer wellness and longevity. And then the third space I'm spending more time in is deep tech. I spent like, three years at Northrop Grumman in college, and side mechanical engineering and computer science. So that's an area of like, deep passion of mine. And then, yeah, my dad was like, he worked at a contract manufacturing company that built MVPs of like, Formlabs and EcoATM and MinuteKey, all these like, cloud-enabled kiosks. So I'm really interested in the intersection of hardware and software, as it relates to like, what happens when it gets

• 1:09:59Speaker 02

  like, human AI symbiosis. And then on the other side of that, like, how does that affect like, us as humans living like, healthier and longer lives? So it's kind of like the dual enterprise consumer lens I take.

• 1:10:15Speaker 01

  All right. Thank you very much. And then to close this off, Meghan, last word goes to you. I was thinking, what can I ask her that would drive her slightly nuts? And I figured this is the most annoying question I could possibly come up with. So, does the stock market close this year above or below current levels? Prognosticate.

• 1:10:29Speaker 04

  Above. Above, obviously. Not annoying.

• 1:10:33Speaker 01

  Really?

• 1:10:33Speaker 04

  Not annoying. Easy, easy. Easy. We're no, we're at altimeter, we're super constructive on the outlook for the back half of the year. I think we think we were through the worst of the volatility. Of course, there will still be some volatility. The, what one LP called the tariff tantrum took us all on a big ride. But we are very positive, particularly in tech, as we look forward.

• 1:10:58Speaker 01

  All right. Well, thank you, Meghan. Thank you, Paige. Thank you, Jason. This has been Twist.

• 1:11:01Jason Calacanis?

  Great job, Alex. Just give it up for Alex. Good job.

• 1:11:04Speaker 04

  Alex.

• 1:11:05Speaker 01

  Thank you all.

• 1:11:06Speaker 04

  Thank you.

• 1:11:07Speaker 01

  It turns out I've been doing this since I had hair. Thank you all very much for coming. I appreciate it. Twist is back on Friday with the live news at noon, Texas time, 1:00 PM Eastern. We'll see you then. Bye.

• 1:11:17Speaker 04

  Thanks, guys.