Is Non-Consensus Investing Overrated?

Is non-consensus investing overrated—or the secret to venture returns? a16z General Partner Erik Torenberg is joined by Martín Casado (General Partner, a16z) and Leo Polovets (General Partner, Humba Ventures) to unpack the debate that lit up venture Twitter/X: should founders and VCs chase consensus, or run from it? They explore what “consensus” really means in practice, how market efficiency shapes venture outcomes, why most companies fail from indigestion, not starvation, and the risks founders face when they’re too far outside consensus. Timecodes: 0:00 Introduction 0:27 Consensus vs. Non-Consensus: Investor Perspectives 3:14 Market Efficiency and Company Valuations 6:06 Anecdotes and Data: Hot Rounds and Outcomes 11:10 The Role of Founders and Fundraising Dynamics 15:21 Risks and Rewards: Indigestion vs. Starvation 17:50 Market Cycles, Efficiency, and the AI Craze 19:54 Personal Startup Stories & Lessons Learned 32:46 Fund Size, Ownership, and Mega Outcomes 38:50 What's the New Norm? 43:39 Venture Identity vs. Market Reality 45:00 The Future of Venture: Efficiency, Competition, and Growth 54:00 Seed vs. Multi-Stage Funds: Who Wins? 55:24 Closing Thoughts Resources: Find Leo on X: https://x.com/lpolovets Find Martin on X: https://x.com/martin_casado Stay Updated: Let us know what you think: https://ratethispodcast.com/a16z Find a16z on Twitter: https://twitter.com/a16z Find a16z on LinkedIn: https://www.linkedin.com/company/a16z Subscribe on your favorite podcast app: https://a16z.simplecast.com/ Follow our host: https://x.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details, please see a16z.com/disclosures.

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

• 0:01Martin Casado?

  It's dangerous to do non-consensus investing. Like, that's a dangerous idea. If you're alone in your view, you may just be missing something.

• 0:13Speaker 01

  Eventually, you have to get to consensus. If you're dependent on capital markets, it's very hard to keep the company alive if nobody wants to fund it.

• 0:19Erik Torenberg?

  Peter Thiel once had a line, which was like, the faster and higher the up round, the more you should invest because it's working.

• 0:25Martin Casado?

  Most companies fail from indeduction, not starvation.

• 0:30Speaker 03

  Is non-consensus investing overrated? Or is it still the secret to venture returns? Today on the podcast, I'm joined by A16Z general partner, Martin Casado, and Leo Pulovitz from Humba Ventures to unpack a debate that lit up Venture X. Should founders and VCs chase consensus or run from it? They explore what consensus even means in practice, how market efficiencies shape venture outcomes, the dangers for founders for being too far outside of consensus, and why some of the biggest winners in tech history look non-consensus at first. Let's get into it.

• 1:04Erik Torenberg?

  So, Martín, it looks like you've helped spark a little bit of an existential crisis on Venture Twitter. And I thought we'd all come here to talk about it.

• 1:11Martin Casado?

  Great, super. I'm still excited to be here.

• 1:14Erik Torenberg?

  Why don't we recap, Martín, from your perspective? What were you saying in that tweet? What were you trying to say in that tweet? Then we can get into the great back and forth that you and Leo had and get into the conversation.

• 1:23Martin Casado?

  So, let me paraphrase the tweet. The paraphrased version of the tweet is, "It's dangerous to do non-consensus investing." Like, that's a dangerous idea. The impetus of the tweet, which, by the way, wasn't well thought out, which I think a lot of the viral tweets happen to be not well thought out, is, you know, I've been an investor for 10 years. I've done almost 200 investments, either as like running the fund or being directly involved. And it seems being blinkered to how VCs view companies is actually quite dangerous because you're so dependent on follow-on capital. And actually, it reminds me a lot of being an academic. I used to write a lot of papers and like you do all of this great research.

• 2:06Martin Casado?

  But when you wrote the paper, if you didn't actually think about how the program committee would view it, like it wouldn't get accepted, right? It felt very similar to that. And so that was the origins. But I want to be very clear. I did not say, and I would never say consensus investing is a good idea. I'm just saying not being aware of consensus is a bad idea. And I think the last thing I'll say on this, I think that my underlying belief is early markets are actually pretty darn efficient, a lot more efficient than people realize. And so if you're alone in your view, you may just be missing something.

• 2:41Erik Torenberg?

  Leo, we're stoked to have you join us as a friend, fellow venture nerd. What was your reaction?

• 2:46Speaker 01

  Yeah, I mean, I actually agree with a lot of what Martin just said, which is eventually you have to get to consensus, whether it's when you're investing or later. Cause otherwise if you're dependent on capital markets, it's very hard to keep the company alive. If nobody wants to fund it. I would say like for me, and maybe we invest like a tick earlier, more like towards pre-CMC. But for me, a lot of my best investments have been more on the non-consensus side. Not in terms of I had some crazy good insight and nobody else had it. And like, I'm just brilliant, but more like these companies often struggled in the early days. Cause before there's proof points, it's not obvious that it'll be a good idea. And then once they get good, the valuation skyrocket so fast that like you could still get good multiples, but they're just much lower than at early stages.

• 3:27Erik Torenberg?

  Yeah. And then there was sort of broader commentary on looking at a list of big winners over the last 15, 20 years and say, hey, what was consensus, which were consensus, which were non-consensus? And then Martin, what were kind of your reactions to that sort of broader commentary?

• 3:43Martin Casado?

  Well, listen, I mean, again, it wasn't meant to be a technical tweet where like the wording was exact. And so like, like on the face of it, it's almost like an ill-defined statement because we don't know what consensus means, right? And so then everybody picks apart the consensus. But here's my reaction to the list of like the Airbnbs and this and that, which is, I think we need to be very careful not to conflate a company having a hard round with market consensus. Right? Like if you look at the list like Keith Rabois put out, which is great, and I love Keith. I mean, these are like MIT founders, known spaces.

• 4:22Martin Casado?

  Like, I'll bet if you took like the median value of their raises over the lifecycle of the company, I'll bet they're way above market. Many of the companies were YC companies. And so I just think it's so easy to like come up with these anecdotal, oh, this one company had a tough raise. When that's definitely not within the spirit of what I was trying to say, which is markets are actually quite efficient. If the market's efficient and it's a good company, the price is going to be high. And if you don't recognize that, then you're probably beating yourself as opposed to the market. Right. And so like, it really comes down to you shouldn't be looking for good deals with respect to other investors.

• 5:02Martin Casado?

  You should be looking for good companies and price shouldn't sway you from that. I mean, that's really at the heart of this. And so I just don't think that list, unless you actually run the numbers, which we haven't done. I just don't think it demonstrates that the idea that consensus is important is wrong at all.

• 5:20Erik Torenberg?

  Yeah, I think there are a few quibbles I had with some of the names on that list. Like some people put Andrel and it certainly was a controversial investment, but you know, Palmer Lucky.

• 5:28Martin Casado?

  I mean, second time founder, billion dollar exit Trey, who's phenomenal. You know, this is in the shadow of Elon, who shows that you can already create these defense tech companies. I mean, if that's our definition of non-consensus, it just shows how insular we are as a community. I mean, it's almost an indictment of us that we even make this list.

• 5:48Erik Torenberg?

  And wasn't the seed round at like 100 or something like there was a very expensive.

• 5:52Martin Casado?

  Every round, every round was super expensive.

• 5:56Speaker 01

  I'm not sure an ex unicorn founder would ever be not consensus, really.

• 6:01Erik Torenberg?

  Yeah, it is interesting because there's also sort of, you know, there are rounds that are maybe non-consensus at 10 million or something, but then become super hot rounds at 50 or 100 and then become 10 billion dollar companies or 100 billion dollar companies. And even if you invested at that consensus round, you 10x or 100xed. And so it's sort of in the face of, hey, if it's a hot deal, that must mean it's not good. Peter Thiel once had a line, which was like, the faster and higher the up round, the more you should invest because it's like working.

• 6:30Martin Casado?

  Yeah, I would love to do a correlation analysis. Actually, Leo and I had, I thought, a very interesting discussion. I'm trying to figure out how you'd actually measure this, how you actually throw some data at it. We actually have an analyst working on it now, like the data isn't ready yet. So I have a new one. Actually, I want to test this with you, Leo, on a good thing to test. So I'll bet the best prediction of a, the best correlate of a high up round outside of the business is the fact that the previous round was hot.

• 6:54Speaker 01

  I think that's probably true.

• 6:56Martin Casado?

  And if that's the case, it would suggest that the market's actually pretty efficient because it's almost inductive that like the previous round knew that the next round was going to be hot.

• 7:06Speaker 01

  So I do agree with that. I think the question for me is like, where is there more opportunity? Right? Because if the five hot companies keep having great rounds and then there's like 10,000 not hot companies, but 100 of them will become hot over time. Even though the odds of becoming hot are low, most of the hot companies end up coming from the not hot batch, right?

• 7:25Martin Casado?

  Right. So the question comes down to, is it easier to spot the company nobody sees or get into the company that's obviously good? And maybe even further than that, which is to what extent do even high-priced rounds underprice hot deals? Because if I'm right, if the view is correct that hot deals are hot because they're good companies, not like actually the market is very efficient and that drives the most of returns, then I think the next obvious question is, well, if that's the case, then the market isn't that efficient because it's underpriced the company, right?

• 8:09Martin Casado?

  If the majority of returns are on high-priced rounds and the market has underpriced it. But I think risk adjusted, that's not necessarily true, which is it could be still priced right because there's still chances it goes to zero. So. I guess my sense is until we run the numbers, we're not going to quite know the answer. But I think a lot of these theories prove out pretty anecdotally. And I think maybe that's the problem. There's a kind of an anecdote for every theory.

• 8:37Speaker 01

  Yeah, I think the basket analysis is probably the most interesting one. I have like, not how did this one company do, but how did this portfolio of companies that raised a really quick follow on? Or had like 10 term sheets at the series A, like how it does end up doing overtime.

• 8:51Martin Casado?

  There are even cases in my portfolio where a super hot company from an investor standpoint, so many term sheets. The business didn't work out at the level that you would kind of expect, but the outcome was still really good. And so in some level, even independent of the productive asset, like human opinion about it matters. So there's almost two ways you can slice this conversation. One of them is like, the asset is what's productive and produces the value. Right? And the market will determine if that's valuable or not. Right? So that's kind of this productive asset view. And that's kind of the one that I hold, which I think that actually investors are very smart. I think that they know which companies are good and then they pay for those.

• 9:36Martin Casado?

  That's kind of my view, but it's a productive asset view. But there's another view, which is independent of whether the company is good or not. There are things that people think are good. And so you're almost like playing to like the human perception of the company, independent of the underlying business. And I would say, again, anecdotally, until we run the numbers, we won't know. That also seems to be a bit true.

• 9:58Speaker 01

  Yeah. So I've been a venture for like 12, 13 years now. I've definitely seen this in sectors where like sectors falling in and out of favor. Right? We have like e-commerce was hot and then it was dead. And then like Dollar Shave Club got acquired and it was hot again. And it's like e-commerce, I think the fundamentals didn't change that much year to year. But like the valuations and the like appetite for investing and maybe starting companies changed a lot year to year. And so that to me sort of an indicator, like it's not just the fundamentals. There are all these other like forces, as you mentioned.

• 10:24Erik Torenberg?

  Yeah, totally. One other part to your tweet, Martin, that I think was underappreciated was sort of the risk to founders of being seen as non-consensus. In the same way that. Because founders need to raise money and they need to raise follow on funding within 18 to 24 months, sometimes even sooner. And so if everyone's passing on you, people are bragging about how other investors don't want to do your deal, that's not going to be super helpful to you in your next round.

• 10:51Martin Casado?

  I actually think the most interesting aspect of the tweet was like the sociological study that followed of like how different people interpret it, right? Like the tweet itself was pretty banal, right? It's just this kind of non-statement. It's almost tautological, but like the like different constituencies viewed it very differently. So like, I would say relatively inexperienced investors kind of used it as an opportunity to be like, oh, Andreessen Horowitz consensus invests, which anybody that knows anything about our investment knows is just totally not true. Even my own portfolio, many of the top deals I've done, nobody else was in the deal, et cetera, right? So like, this is a statement about consensus investing. So that was one cohort. There was another cohort like Leo and Keith, who have a lot of data and they've had a lot of really interesting things to say, and that ended up in great discussion.

• 11:35Martin Casado?

  I think there's still a lot more to do there, but most of the founders, and I got a bazillion DMs were like, you're totally right. So the founders clearly feel this tension that it's dangerous to be non-consensus because they have to cater to VCs and they know it and they see the pattern match responses. They deal with this all of the time. And so from a founder perspective, it's like, you almost have to be non-consensus to have alpha in the actual product market, but you have to look consensus when you're raising. And I think that's actually probably right.

• 12:10Speaker 01

  I think this is probably one area where I differ a bit. I think there's benefits to being non-consensus because from the company side, I think when the money's hard to raise, you tend to be more frugal with it. And then also if the next round is less certain, like I think there's less of a sort of like it could crumble at any moment aspect, right? Because I think when it is hot and you're raising something around very quickly, I must the assumption that things will go perfectly. If anything slows down, it's like, now you can't raise any more capital all of a sudden, right? And I think if you're in the mentality of growing quickly and spending, I think that's pretty hard. On the flip side, if you're not consensus, it tends to be like, you tend to be more cash efficient, tend to be more frugal out of necessity. I think the other side is. Depends on the form of consensusness, but sometimes there's also much softer diligence.

• 12:53Speaker 01

  Like, I think the worst form of consensus I've seen is like, oh, Sequoia and Andreessen did this round. Like, let me just do a 2X markup in two weeks because I want to be in the same company. And then like, there's no diligence there, right? It's just like, oh, this is hot, let me do it. But I think then, like, maybe we're looking like, is it actually a good business? Like, Sequoia and Andreessen, like, we all make good investments and bad investments. And so it's like, maybe this is one of the bad ones and you're just marking it up because you want to be in the hot deal. And like, that ends up not being good for anyone.

• 13:19Martin Casado?

  I think this is a tremendously important and good point. I tend to believe now that most companies fail from indigestion, not starvation, which is they just raise too much money too easily. They don't listen to the actual market, which is the customer base. And as a result, they just have a bunch of bad practices and end up running out of money. And I think that there's a lot to that. I actually think in 2021, if you just did a study of that cohort, the companies that had these, you know, these billion-dollar Bs, if you remember that time, it was totally crazy. I bet that's probably one of the biggest wipeouts of capital. So I definitely think consensus investing is definitely very dangerous. And only leaning into this for a founder is definitely dangerous.

• 14:04Martin Casado?

  But I also think the flip side is true, which is you're totally blinkered to it. I think your life is pretty tough.

• 14:08Erik Torenberg?

  And then there's a very odd question as to like, of the companies that do win, how many of them are sort of competitive rounds versus not competitive rounds? And sort of what is the duration between them being non-competitive rounds and then becoming non-competitive? And what percentage are really able to? And one question I have is like, is the market getting more efficient over time? Lot more investors, but we should be getting smarter as an asset class on how to evaluate these companies. A lot more capital. Are we getting better? And if so, what does that mean?

• 14:40Martin Casado?

  I'd love to hear Leo's view on this.

• 14:42Speaker 01

  It's something I've been thinking about for a while. My take would be that for non-consensus companies, it's getting more efficient. Because the more investors there are, the more likely you are to find at least one or two that like what you're doing. I think for the consensus companies, it's starting to get more inefficient, right? Which is like, when you have 10 term sheets, you get, you know, 5X the market, like what the, maybe the fair value should be. And then like, it's great for the founder, and maybe again, a little bit more of a house of cards if things go south at all. But it's also like, it's not necessarily great for investors, right? Because you might have to pay 2, 3, 4X over like, the actual intrinsic value of a company. Or like, the future, like the likely future value of a company in order to get in.

• 15:21Martin Casado?

  But that would be actually, but that would be actually efficient, right? It's just, it's the price is actually approaching the return profile. From a market standpoint, that'd be efficient. I mean, it sucks from an investor standpoint, because prices go up.

• 15:33Speaker 01

  Yeah, that's what I'm saying, right? Like, for founders, it's getting like, hyper-efficient, or maybe like, you know, like, there's such an imbalance for like, the really hot companies that, you know, maybe your price gets bid up way past where it should be. And similarly, like, for non-consensus companies, it's the opposite, right? Where like, there's not enough investors, so your price is lower than it should be, perhaps, right? But I think there's like, like, there's, for me, like, those two are kind of opposite ends of the spectrum.

• 15:59Martin Casado?

  Yeah, this is a great, this is a great, I totally agree, this is a great question. So, I think we can all acknowledge that there's a failure mode where the consensus gets bubbly, and then companies raise too much capital, and then there's a bunch of wipeouts, right? So that, that has always happened, that will always happen. So that's, that's just part of the market. We, I think, can also all agree that there's parts of the market where there's probably unnecessary pessimism. Like, so for example, right now, during this AI craze, like, you know, in my area of traditional infra, or of infra, a lot of the traditional companies that, you know, two years ago would be great, like, can't even raise right now, just because they're not in the sweet spot.

• 16:43Martin Casado?

  And so I think that will always be an aspect of the market too. But in general...

• 16:52Martin Casado?

  For the mean investment, I do feel like the market over time has gotten a lot more efficient, meaning, you know, we can deploy more dollars with more regularity and the price is converging on what will ultimately be a fair price. You know, this is acknowledging both of these failure modes on either side of this.

• 17:16Speaker 01

  Yeah.

• 17:17Martin Casado?

  I mean, we're seeing one right now. I mean, it's the reality. I mean, AI, you know, there's, there's AI companies that clearly are raising, you know, speculative money where nobody even really understands the business model. And there's great companies that can't get invested. So we're seeing this right now. But I will still say, the reality is, is OpenAI has grown tremendously and Anthropic has grown tremendously and Cursor has grown tremendously. And so like, there is some underlying market signals to, to, to, to fuel the chaos.

• 17:48Speaker 01

  Yeah. I think part of it's like, if you ever look at vintage year data for venture funds, it's probably a good way to see if, you know, how consensus and not consensus do over time. Because when you look at like the dot com bubble years, like I think the, the median fund was terrible. And I think it's just like, hey, everyone overpaid and then the companies weren't worth that. And so like, you know, even though everything was hot, like it didn't do well. And then a lot of the funds didn't do well. And if you look at like the Airbnb, you know, Uber, like 2010ish era, it's kind of the opposite. I were like, I think the, the top quartile funds like crush it. And it's because the market was pessimistic. And so if you're willing to invest in like, you had a different opinion, you did really well. And now it's probably kind of somewhere in the middle.

• 18:28Martin Casado?

  I mean, maybe, maybe I'll just go through like, kind of my own startup, just as kind of a, a single anecdote to friend the conversation a little bit, right? So, you know, I did my PhD at Stanford. I was a classic, you know, take the research, do a startup.

• 18:45Martin Casado?

  You know, we had so many term sheets before we had any idea of what we were doing, you know, and it was like the hottest thing ever and, um, and, and it was great. And so we did a seed fund, actually Andy Radcliffe, you know, benchmark Andy Radcliffe, joined my board and, you know, we, we rose at the time, which would have been a super, super high priced kind of seed round, which is 10 million post. This is in 2007.

• 19:09Martin Casado?

  You know, then, then the market tanked in 2008 and we still didn't know what we were doing. And, you know, it was just a bunch of researchers and so we couldn't raise any money at all. I mean, Sequoia very famously, you know, gave us a black eye and, you know, we couldn't raise.

• 19:29Martin Casado?

  And then, you know, as we started to come out of the, um, uh, of the recession, Andreessen Horowitz, uh, NEA Lightspeed, a few got very interested and then we had a pretty hot round again. We went and Andreessen, it was actually over the market price, even though the business wasn't quite working, but it was starting to signs of life. Then we had an incredibly hot round because beans started working. And then when we actually sold the company, I mean, it, you know, it returned a fund. You know, it was one of the highest acquisitions on multiples of revenue at the time in enterprise software. And so you kind of asked the question,

• 20:06Martin Casado?

  was the initial flurry of interest warranted or not? Because it turns out like we were probably a month from going bankrupt and we actually didn't know what we were doing. Uh, and the company definitely wasn't working and then, and then actually what we had pitched at that time didn't make any sense. Like we were like, we're going to change, you know, um, you know, switch hardware, which didn't make any sense. And so there's one view that's like, the, the market was over exuberant. You were lucky. There's another view that says, actually, the initial conditions were there to do it. I just feel like if you run the data, it just seems that the companies that have good outcomes did have sufficient interest along the way because there are enough signals to do it.

• 20:47Speaker 01

  I think at least on my side, for a lot of the precedes and seeds I've done, I went back, I think over my top like 10 investments, maybe six or seven or eight, took a month to raise a seed round. And, you know, like a lot of times, like a lot of passes, like they were all, you know, down to the wire. But then they ended up doing better over time. I think that transition from like non consensus to consensus ended up being really important. Because if you never transition, it's really hard. Right? And if you're always, you know, if you're always consensus, that's great for you. But like, one thing I noticed that was interesting is a lot of the companies that struggled, obviously, some of them just go to zero, right? Because they struggled because the business isn't that great. People recognize it. But the ones that did well, a lot of times, the gap between like the

• 21:32Speaker 01

  seed and A or the A and B was literally like 20x or 50x. Right? And so I think part of it's like, as an investor, you can still get good returns at like the series A or B in those companies. But it's just, I think it's so different to invest at the seed, where there's like 1000x versus like the A at a billion, where now, maybe there's still like a 10x or 20x, which is very different.

• 21:53Martin Casado?

  So I've got a question for you, Leo, because I think that you play a bit of a different game than we do, which is, so if you have a seed, which is, let's call it non consensus. And again, we're using this very vague definition of a consensus. But like, you know, they're having a tough time raising, you're, you're the only person putting money in. Do you have a theory on how it will be consensus? Or is your belief that the underlying productive asset is going to do very well? And that by definition is consensus? Do you see the question? So the question is, is it, this is just true belief in the underlying business? Like, like, the ultimate, I mean, the ultimate sign of success is just the business is really working? So are you like, for the next raise, the business will definitely be working? Or do you have some other theory on what will

• 22:38Martin Casado?

  attract the investors?

• 22:41Speaker 01

  I'd say it's off in the latter. I would say, and especially true these days because I'm investing more in deep tech companies. And so at seed, it's very rare to see like, oh, there's an asset that's going to be working here at the series A because usually the asset's still going to be like being developed at the series A or maybe series B. I think what I'm looking for is like, there's maybe not enough here for somebody to write a five or 10 or $20 million check, but the company has milestones that I think if they hit them, then it would become, you know, sort of consensus enough to merit a check of that size. And then I'm basically trying to evaluate like, okay, the company has these milestones. Do I think they could hit them or not? And also if they hit them, are they compelling enough? But I think that's sort of the big, you know, investment wager.

• 23:23Martin Casado?

  Yeah. Yeah. So I mean, so in this case, you do think about like what the follow on thing is going to want to see. You have reached a conclusion for the current round that is non consensus.

• 23:36Speaker 01

  Yeah. And I would say like the consensus piece is part of it in that I definitely meet companies where they're like, we're raising three right now. It'll help us do these milestones. And then we think we can raise 10. And then there's other ones where, you know, it's like, we're raising three now, we're going to hit these milestones and then we want to raise like a 50 to $100 million series A. And that's actually a much harder bet, right? Because you're saying like, you have to assume they're going to be consensus by the time the next, they raise the next round and it's going to be like a top 5% series A. And that's a hard bet to take for the companies where the capital needs are more modest or they have like a more tranche roadmap planned. I think it's a little bit easier to, you know, to predict like, hey, would these milestones be enough to raise 10? Like a lot of times I don't know if it'll be enough to raise 100, it's like probably not. But 10 feels like pretty feasible if you do

• 24:20Speaker 01

  the things you think you're going to do with this three.

• 24:23Martin Casado?

  As your, as your kind of view on this shifted in the last, like, do you feel, find this AI wave to be different than previous waves or are fairly similar?

• 24:34Speaker 01

  Probably a bad person to ask. Actually, I haven't invested much in AI because of the deep tech angle. So maybe like 10, 15% of my companies are pure AI. Others obviously use it in some way, but that's not the product.

• 24:46Martin Casado?

  Well, how about, how about deep tech then? Because I think that's also, you know, like, pretty different than what we were all investing in five years ago.

• 24:54Speaker 01

  So maybe on the AI side, and I'll search deep tech next. I think AI is interesting to me because on the one hand, I've never seen faster growth. Like people talked about the like triple, triple, double, double, double thing for a while of getting from a million ARR to 105 years. And that seems so antiquated now, right? Like the best companies are doing like one or two years. I think on the flip side, the kind of the endurance, like, like, how, how long those companies endure and last and grow feels like much more of a question mark. Because in the triple, triple, double, double, double, like, if you hit 100 million ARR and there was no one close to you, probably just keep growing. And now it feels like you could hit 100 and then you drop to 50 because someone else came out with a better product. You know, I think there's like, the growth is amazing

• 25:37Speaker 01

  and then the modes are weaker. And so I think there's a counterbalance there. I'm not sure I'd evaluate it because I haven't invested that much in that stuff.

• 25:42Martin Casado?

  I agree, yeah.

• 25:44Speaker 01

  On the deep tech side, I definitely see areas with a lot of hype from time to time. Like we, for example, we invested in defense a lot three, four years ago. And then we, we kept looking, we basically paused for a year and a half or two because after the Ukraine and Israel thing, you know, prices just went up like two, three, four times. But the company fundamentals didn't change. And then it started being an opportunity cost of like, should I invest in this defense company at 40 when there's this really great, you know, energy company at 15? And so I think defense was kind of like that. I think bio has had a lot of ups and downs. I think in robotics, like humanoids are probably like one of the most hyped areas where the valuations just get crazy before there's any revenue. So I think that, actually, I feel like I kind of lost the thread in the original question, but.

• 26:29Martin Casado?

  No, this is great. I mean, I was honestly just wondering like how you thought about this current wave. You did a great survey of the set of the waves. I actually, I actually agree.

• 26:36Speaker 01

  I would say like for the consensusaries like humanoids, like we end up not explicitly, but implicitly avoiding them. Because once you have a few companies that are raised like hundreds of millions, whether they end up being great outcomes or not, I think it's pretty hard for someone to start something new with like, you know, near zero resources and team.

• 26:54Martin Casado?

  Yeah, you know, it's interesting when you do the humanoid. So I, I think there's all sorts of types of investing and they're all pretty valid. One type of investing is humanoids are are clearly interesting. Big companies are clearly interested in it. So why don't you back a bunch of good teams and worst case they get acquired. And I think that's totally legitimate, but that's not how I think at all. Like for me, like the company has to make sense as a standalone business at scale. So things like humanoid are are tough for that just because the unit economics right now are just so unknown. Like competing with a human body is a very, very hard thing to do. And then, of course, you can be like, okay, well, you know, we'll put it where human beings can't go like a

• 27:38Martin Casado?

  a car factory, but then all of a sudden now, you know, you're building a manufacturing company, you know, so you verticalize heavily and the company has to look at kind of whatever sector that the robot's going into and is more constrained and I don't understand the competitive set and, you know, yada, yada, yada. So I just feel like from my standpoint, the idea that this is very buzzy and hot, you know, in the industry for big companies and it may have an M and A, I don't know how to invest that way. I just don't know how to to handicap that. And so the way that I tend to view these things, I mean, like for AI, for better or for worse, like you have great unit economics. I mean, you know, everybody knows kind of like, and we always talk about the open

• 28:19Martin Casado?

  AIs and the antropics, but do you talk like the 11 labs, for example, or mid journey? I mean, these are just famously model companies where the unit economics are great, they're grow, you know, very quickly. And so I understand that. But, you know, I think there's kind of been this weird,

• 28:37Martin Casado?

  and this happens, you know, a lot where people take the, the example of these model companies and they apply it to totally different spaces where you don't have the proof points, you don't have the economic case and they kind of apply it. And that's one thing I don't know how to do. So certainly I don't believe

• 28:54Martin Casado?

  You know, we should all just follow like the common consensus around areas to invest in. But I do think that like, there's going to be a pool of capital and it's going to want companies to look a certain way. And if you don't consider that when you're investing, I think life will be a lot more difficult.

• 29:08Speaker 01

  Yeah, I agree. I'm sort of aside here on the humanoid stuff. I think what I've, what I've seen over the last like 10, 15 years is if, if the market is big enough, it really distorts like VC investing because everyone, you know, it used to be that you'd look at a market and you're like, oh, it's, you know, it's a $2 billion a year market. If there's a 1% chance they could capture it, they'll be worth this much.

• 29:29Martin Casado?

  So true.

• 29:29Speaker 01

  So let me justify a seed price. If the market's like $5 trillion of human labor or something like any price makes sense, right? But then, but then I think that really distorts of like, how much value is there?

• 29:39Martin Casado?

  The most boneheaded partner meetings were like, well, yes, it is cold fusion, but this is the largest market ever. So on the off chance it works, I'm like, this is an engineering, man. This is like laws of physics. I'm not sure that like, you know, a, a, a good, you know, software founder is going to bend the laws of physics. But yeah, I, I, I think I totally, I totally agree. I, I also feel like, I don't, I don't, I don't want to harp on this too much, but like unit economics is so important. I mean, like, what is the story for autonomous vehicles, right? The story for autonomous vehicles is, is that even after the industry's put $100 billion in it, 100 billion, the unit economics are still, you know, let's call it on par with Uber. Let's just call it that. Right?

• 30:23Martin Casado?

  And so, does that make sense for venture investment? It's really, really hard to build a standalone business with those types of economics. I mean, Google can do it, sure. And Tesla can do it, sure. But can startup X do it? No. And so you're either playing for, this is a great company that got acquired, which a lot of that happened and people made good money. But like, that's again, that's not saying that, you know, the startup,

• 30:51Martin Casado?

  or you're building picks and shovels, like, like applied intuition where you're like, you're building software for this market. But I do think that a lot of investment dollars do follow these spaces where there really is no thesis on the ultimate unit economics. And I think you're exactly right. I just think that there's this kind of market TAM sloppiness that says, well, if the market's infinite, then the expected payout is high.

• 31:15Erik Torenberg?

  Also invented.

• 31:18Martin Casado?

  I also invented it exactly right. Yeah.

• 31:20Erik Torenberg?

  When I look at my portfolio, I see both. There were some of the winners, you know, Pave and Scale were non-consensus, non-competitive, unproven, but very talented founders. And then on the more consensus competitive, Jack Altman and Casser.

• 31:38Martin Casado?

  Wait, how is Scale non-consensus?

• 31:41Erik Torenberg?

  At seed. I was under Wang was 18.

• 31:46Martin Casado?

  It's a total known space. He's phenomenal. The A was done by Volt B, who's amazing. I mean, I just feel like this is a very narrow definition of non-consensus.

• 31:59Erik Torenberg?

  For nearly most of the rounds, it was competitive. So yeah, I can agree.

• 32:07Martin Casado?

  I mean, Dan Levine, Dan Levine was, I mean, come on, these are like the best investors in the world.

• 32:12Erik Torenberg?

  I just mean to say that, I brought the example to say that Casser's round was almost an order of magnitude more expensive. And I think what people have been late to really internalize, and what A and Z was super early to internalize, was just the outcomes are order of magnitude bigger, maybe two orders of magnitude bigger. And so you can get seed-like returns at order of magnitude, or even two orders of magnitude more expensive. And remember YouTube, Instagram were considered very expensive acquisitions at just a few billion dollars. And in a few years, we're going to have more trillion dollar companies. And so, once we truly internalize the outcome expansion in order of magnitude, I think it makes sense to Leo's earlier point that then it would beg the argument of like,

• 32:54Erik Torenberg?

  okay, but can you have 1000x like returns at not just what we used to consider a seed-like pricing, but maybe at Series A, or maybe even Series B?

• 33:02Martin Casado?

  Well, this is a very interesting question because you actually do run into fund mechanics as an actual.

• 33:12Martin Casado?

  Price modulator in this discussion, right? So you're exactly right. So again, I'll go back to my companies. My company was acquired for $1.2 billion. We had, let's call it, you know, less than 10 million in ARR, right? So does that make any sense? And then a lot of people are like, this is totally crazy. This makes no sense. Except for when I left, you know, the run rate of the three and a half years later, like the run rate was, you know, $600 million within VMware who acquired the company. And then right now it's, you know, let's call it 2 billion, right? It was actually at one point in time, I think it was 40% of the growth of VMware, like the business unit that I ran, that was part of the acquisition. So clearly it made sense to VMware. So as a result, you should say all the check sizes should be high for the winners because the outcome was so good.

• 33:54Martin Casado?

  And this was, you know, this actually returned a lot of money to a lot of investors. The problem with that is I just think that that would mean fund sizes would be too large and you'd have to unlock different pools of capital, which, by the way, did start to happen during the SoftBank and the Tiger and the Code Two era. So you could argue that all of their theses were correct, right? Like SoftBank was actually right and Tiger was right. And it was actually a macro issue that caused all the pullback and that's going to come back again. I mean, that's, I think, a very legitimate thesis. But I really feel the reason that prices don't continue to go up is more just access to LP capital.

• 34:38Martin Casado?

  So let me just try to make this a bit more concrete, which is, I think what Eric said is correct, which is the outcomes are so big, it suggests that, that high prices, like the prices are too low that we actually pay. I think the prices, you know, the fact that we get the returns we do suggests the prices are too low. So the question is, is why are the prices too low? And I think the answer is, is like, we just don't have the dollars to place all of those bets. And a number of people have actually questioned exactly this, very famously. SoftBank questioned this.

• 35:09Martin Casado?

  Tiger questioned this and so they raised these, you know, raised these insight questions. They raised these huge funds and they've deployed a lot of capital and those experiments had very mixed success, but I'm, I'm not, it's not obvious to me that the reason they had mixed success is because the prices were too high. I mean, there's a lot of reasons why those could not have worked, including kind of macro cycles and also the fact that none of them were Silicon Valley insiders. None of them were, you know, traditional early-stage investors, et cetera. So there's a very reasonable question, which is, you know, maybe someone should just go run the tiger strategy again, but as a, as a Silicon Valley insider.

• 35:44Erik Torenberg?

  Well, in some ways, you know, there's the, the failure cases to some degree, but, but in some way, you know, I mean, Thrive raised bigger funds, Founders Fund raised bigger funds, we raised bigger funds, you know, the winners are also, you know, multistate have raised bigger funds.

• 35:58Martin Casado?

  It just could be that this is just the market being efficient. Like, like actually the reason that more money is going into this and the funds are getting larger is because the opportunity set is larger and this is just a market working its way out. But Leo, you're very quiet. This is actually a pretty controversial statement, so I want to make sure that like.

• 36:15Speaker 01

  Well, I guess, uh, I'm not sure what you mean by we should be paying more. Do you mean that like, you think the current prices are still like well below where they should be? And, and I guess if so, but like.

• 36:30Martin Casado?

  I'm riffing off of Eric's statement, which I thought was right, which is, which is, venture capital has been a top-returning asset class and you can look at individual investments. If you just take the top 10 percentile of, of funds, you know, they return so much money. So there is an argument that even with these high prices, they're still underpriced.

• 36:52Erik Torenberg?

  And, and put it differently, Leo, it's like, um, a seed fund may say, oh, I'm not going to invest in something at 50 post or 100 post because I don't think there's a thousand X, you know, potential. I don't think Anthropic is going to be a hundred billion dollar company or, or, or, you know, OpenAI is going to be a hundred billion dollar company or whatever it is. But it turns out is, it like, it turns, you know, what we used to think.

• 37:13Speaker 01

  I'm comparing not to say OpenAI is going to be a hundred billion dollar company, right?

• 37:16Erik Torenberg?

  Exactly. Yeah, exactly. I mean, I mean, a few years ago, you know, um, and so, it doesn't seem like we've sort of truly internalized that this is the norm, that there's going to continuously be a hundred billion dollar, you know, outcomes. If not.

• 37:33Martin Casado?

  Or that the market just continues to grow and therefore it necessitates larger fund sizes. I mean, I would say that probably the venture market was what 100 the size 20 years ago.

• 37:44Speaker 01

  Yeah, probably something like that. It's kind of wild to think about.

• 37:47Erik Torenberg?

  Yeah. And yeah, we did. And we did think a few years ago that there'd be a great contraction in the in the asset. That 2021 was a blip and that, you know, it would sort of right size back to where it used to be. And it doesn't seem to to be the case that it's going to 2010 levels. I'm not sure if you guys have the the data on you, but when I talk to our team, when I talk to Thrive, it seems that people think, no, more capitals is just going to keep entering.

• 38:13Speaker 01

  I think that's just because companies stay private longer too.

• 38:16Erik Torenberg?

  Right?

• 38:17Speaker 01

  Yeah. But but I think that the actual number of hundred billion dollar plus companies in the last 20 years is pretty small. I don't know the exact number, but I bet it's like 10 or 15 or maybe 20 or something. So it's like, you're really betting you can get like the one every year or two that gets there. If you're, you know, let's say you're doing a series A at like a billion posts or something, right? And you want 100 X, even ignoring dilution.

• 38:43Erik Torenberg?

  You have to bet that there's more of them and that more of them going to happen. And that there are also more ways of getting liquidity from them as well. Martin, you agree?

• 38:53Martin Casado?

  But but also just, but that also kind of suggests purely by the numbers that the most important thing is just being in one of those and not. If you can, the most important thing is being in one of those independent of price. I mean, that's the higher bit.

• 39:08Speaker 01

  So I think, I think that's, I mean, I generally agree, right? Like if you're in like the best company of the year, I don't think like, I don't think ownership matters that much. I don't think like the price matters that much if it's going to be the best company like 10 years forward.

• 39:21Speaker 01

  I guess to your earlier point where, you know, if venture funds had more money, they'd like do higher valuations. I mean, I mean, it sounds like then you could do the higher valuation today too, though, right? Because you could just be like, hey, if we just want to get in this one, we'll pay twice the price and get half the ownership or something, right?

• 39:36Erik Torenberg?

  But you also need a diversified portfolio. You need enough companies.

• 39:39Martin Casado?

  No, you need the fund size to run that. This is why I think a lot of this comes back to fund size. I mean, even in the Andreessen portfolio, I was just thinking off the top of my head, we have three companies that are at the 100, four companies at the 100 billion dollar mark, right? I mean, there's Stripe. Databricks, Coinbase, OpenAI. And so they're not that rare.

• 39:57Speaker 01

  You guys have awesome coverage. I mean, like, like, like, I, I, I think, I guess the question is like, how many more could you name, though, from the last, like, you know, 15 years?

• 40:07Speaker 01

  My guess is not 15, not like 100, right?

• 40:10Martin Casado?

  Yeah, yeah, yeah, yeah. I mean, 20, 20 billion plus, there's a lot. And that used to be so rare. And enterprise software, it used to be an adage that nobody ever broke, you know, 20 billion or 10 billion, right? And Paul Alto Networks was at 15 and we were like, this is crazy. And now there's so many of them that have. And so maybe with 100 billion, you're right. But in the world that I live in, the amount of like Decacorns is or probably in order of magnitude more than what it was 10 years ago. And, and, and on the face of it, that would argue for an order of magnitude higher fund size. If you want to play the strategy of being in the winner. I mean, there's clearly multiple strategies. But if you want to, again, I don't know the, the, for me, the key question, I don't know the answer.

• 40:52Martin Casado?

  I want to run the numbers is if you take a dollar of earnings, like a dollar of earnings for a venture capitalist, did that come from a company that raised at high prices or not?

• 41:05Martin Casado?

  And I, I would guess the answer is yes, just because the winners are so outsized.

• 41:10Speaker 01

  I mean, I look like there's like multiple ways to play it, right? Which is if the outcomes are 10x bigger, you can have a 10x bigger fund and basically run the same playbook, keep the same ownership and like a big outcome still returns the same amount of the fund. You could also do like more investments at like, you know, a fraction of the ownership. And then each investment maybe moves the needle less, but you have a higher chance of hitting like, you know, the spike of the year, the Uber of the year.

• 41:35Martin Casado?

  Yeah, yeah.

• 41:36Speaker 01

  Yeah, so I, I think, I think there's definitely different models that could work here.

• 41:39Martin Casado?

  Yeah, that's a good point. Yeah, no, you're right.

• 41:40Erik Torenberg?

  I want to make a few, few related points here. So one is, I remember someone quote tweeted Martine's tweet and said, this is a sign that the asset class is dead, or the idea of a more efficient market. And I think what that really means is more that that individual's firm is, if an individual firm can't compete and win deals in an efficient market, they're going to lose. And so I, it might really is my second point, which is, I think there's a lot of venture capital, venture capitalist identity is tied in being non-consensus, in being able to see things that others can't see, because it's hard to win against all these other much bigger, much more well-funded players.

• 42:25Erik Torenberg?

  And for that reason, I less want to use the terms consensus and non-consensus, because it's so core to people's identity, and more want to use the term, like, either it's a hot round, or it's not a hot, you know, it's competitive round, or not competitive. And I think another way of framing that, it's not perfect, is, is the company working? Or is the company not working at the point of investment? And let me add some nuance to it, which is, if it's, if something is working, then it's okay, it's like, you know, what is the price? And what, you know, what is sort of the, you know, potential return multiple? And how does that work with your threshold, et cetera? There's some things that are competitive and not working, but have an incredible founder, or people, you know, whatever, it's early enough that people believe the vision, and so you're still paying that price based on what you think.

• 43:09Erik Torenberg?

  And then there's lots of things that are, that are not working, or are not obviously working. But, and we've chosen to do less, I believe, consumer, things that are pre-traction. So it's basically, it's like, do you want to invest in things that have traction, or no traction? And there's failure modes with both, but it's, and not every hype thing, not every competitive thing has traction, of course, but it's just another way of framing this to me. I'm curious, feel free to quibble with my framing.

• 43:37Speaker 01

  I think I saw the same quote tweet. I'm probably somewhere in between. I like, I don't think venture is dead. I think it gets a lot more fun if it's purely consensus. The reason is, I think in a purely consensus world, like it all just comes down to the cost of capital. Right. And so if my LPs want 5X and yours want 2X, you could pay two and a half times higher prices. And the company's not better is just like, oh, like your cost of capital is lower. So you're going to win all the time. But also it's, it's like, we all see the same value. Everyone sees the same value of just like, who wants the smallest return that could suck for a business? And that just feels, feels less exciting to me. Yeah.

• 44:15Martin Casado?

  I, I mean,

• 44:17Speaker 01

  That's exactly right.

• 44:18Martin Casado?

  I'm going to, I'm going to, I'll get a little bit philosophical on this, but like the thing that I've always, that's always bugged me about PE investing and public market investing is it just doesn't care about productivity, really? I mean, it does, it does to some degree, but I just like, you know, if you're in a large public company, like I was, you realize that the public markets really care about predictability over innovation. For sure. I mean, and so innovation is stifled so much. And in fact, it, it kind of, it kind of causes large companies to protect themselves through a kind of incumbency and monopolistic practices and everything else, just because they're not allowed to be aggressive on growth.

• 45:03Martin Casado?

  Right. So I feel like it's almost this negative force on progress and innovation. And I don't want to be too dramatic about it, but I just feel like, I'll bet if you draw a dollar at random that gets invested, you know, 90 cents of those, of that dollar goes into like, keeping incumbents alive and/or, you know, predictability and not to growth. And I'm, I'm a huge believer in creative destruction, man. I'm like, fuck, man, get them out of the way. Let's invest in growth. And so I love the idea of ventures and asset class getting more efficient. And I love the idea of more money going into it because the entire thesis is growth.

• 45:46Martin Casado?

  You never invest on, I don't, I mean, I'm sure you don't like, I never invest on, on, on downside loss. I don't care. Right. You only invest on upside. And so to me, more dollars going into venture is only a positive for humanity. And again, I don't mean to sound too grandiose, but I, I, I do feel it's just a net positive.

• 46:04Speaker 01

  Well, so maybe on that front, like, I think it's a really interesting perspective. I feel like a lot of the, more from a company perspective than investor perspective, I feel like a lot of the most disruptive products were maybe non-consensus at the time.

• 46:17Martin Casado?

  Totally.

• 46:17Speaker 01

  Where you start with, you know, like, no buttons on the iPhone, or you got Uber instead of taxi, it's a stranger driving. And those are the ones where I think if you were like, I'm gonna build a taxi company, but it's like 20% more efficient, like, probably can be a big business, but not quite the same level of disruption and growth as, like, you know, you take a big bet and you might, very high chance you're wrong, but if you're right, like, you're gonna be, you know, in a really good position.

• 46:41Martin Casado?

  Yeah, and this is so critical. I'm glad you brought it out. I really believe the best companies themselves are non-consensus to customers. I just think that the investing market is different than that. Like, they kind of understand that, and therefore, a comment on investors being consensus is very different than a product being consensus. Does that make sense? Like, investor sentiment, I think, is actually much smarter than people think. Like, I think the adage is VCs are dumb, like, you know, they just, you know, chase trends, and all of that is true, but the reality is, is as a group, we have identified a cohort of companies that are quite disruptive and invested in them

• 47:26Martin Casado?

  and priced them, and those, the companies themselves, tend to be actually quite non-consensus to the actual consumer, to the market.

• 47:36Erik Torenberg?

  I do want to build, Martin, on your point, because I think it's so interesting, just to comment on how not everyone's incentives are totally aligned here, especially between sort of what's good for the individual and what's good for the ecosystem. And so, in the sense that, yeah, you know, if you're an individual VC, you don't want more capital, or if you're a founder, you don't want more founders in your space. But to your point, like, competition is, and some people were saying, "Competition is bad, you don't want competition," but competition is what fuels incredible product. It's like the Darwinian process, like, this is how, you know, we get, you know, a bigger, you know, a bigger startup outcomes, startup ecosystem having more value, incredible products for customers and users.

• 48:15Martin Casado?

  This is how we solve cancer, man. More money goes into VC, and we invest in companies, and as opposed to investing in dying companies' ability to retain their place. 100%. Like, all of finance needs to change.

• 48:26Erik Torenberg?

  And I think VCs are trying to straddle sort of LP incentives, founder incentives, their own incentives, and there is some overlap and there's magic there, but it's also just worth acknowledging that not every individual person is aligned and that's okay. I also do still very much believe in the barbell that there will be these big, these big, you know, sort of massive funds that continue to win and invest in compound value and also these, you know, smaller focused concentrated

• 48:54Martin Casado?

  The buttes.

• 48:55Erik Torenberg?

  Yeah, the buttes who absolutely crush it and we all work together.

• 48:59Martin Casado?

  So Leo, we're gonna run, we're gonna run the numbers. I was trying to get it done by now, but there's a lot to do. The numbers are fuzzy. I just want to walk through what we're gonna be looking at and then maybe we'll schedule another podcast once the numbers are out to actually discuss it. So one of the numbers we're gonna look at is if you look at, if you cohort companies into winners and not winners, call it, looking to whether on average for any, for that company, the rounds were priced above or below median for other companies at a similar stage. All right. So this is gonna, this will say whether,

• 49:41Martin Casado?

  you know, is relatively high priced for winners or not. And then the other one, which is even more difficult to determine is given, given actual returns, are the bulk of the returns from companies that were on average high priced or not? And I think these two numbers will give us a sense to whether the market is actually pretty smart about the value and the price. You should not look for price arbitrage if you're looking for returns. Does that sound fair?

• 50:15Speaker 01

  Yeah, I think that sounds fair. I definitely agree with the not looking for price arbitrage piece because I will say for me personally, my best investments have been ones on average that took a while to raise their seed round. A lot of people didn't get it or didn't like it.

• 50:30Speaker 01

  But on the flip side, some of the biggest misses are also the ones where it's like, oh, we liked everything except the price and like, we thought it should be a 10 and some, you know, some big fund gave them a term sheet at 20 and we passed. And then now it's a $10 billion company. So maybe that was like, maybe that was not a good pass.

• 50:44Martin Casado?

  Yeah. You know, honestly, as we go through this conversation, it does strike me that I think a lot of this is honestly is just, we have a bit different perspectives. Like I have to deploy a lot more money than you do, right? Like I'm a series A investor who needs to basically cap out 30 to 40 million in order to have a significant position. And so I may have to be a bit more concerned about this than than you do at the early stage. And I'm sure stage does color this conversation quite a bit. Yeah. Because everything, everything you're saying is totally sensible to me. So I don't think there's any disagreement.

• 51:16Speaker 01

  It was definitely something I was thinking about, which is like, I think if you, if every check you write has to be at least 100 million, I think it's actually very hard to do non-consensus.

• 51:24Martin Casado?

  Yeah.

• 51:24Speaker 01

  Right. Cause there's not a lot of companies that hit a stage where you invest 100 million, but it's still not clear if it's a good company or not. And I think the earlier you go, if it's like $30 million checks, 10, 5, 1, I think you get more and more of a category where like you have the option and you could do either one, assuming you have access to the consensus opportunities.

• 51:40Erik Torenberg?

  Leo, I'm curious, and you know, you guys have absolutely crushed it at seed with some, you know, Robin Hood and Flexport, et cetera. But I'm curious what you think of Romton's sort of thesis that multi-stage has won seed more or less in the last like 10 years. And then when you look at a lot of the big winners, they were done from multi-stage firms, you know, at seed. I'm curious, one, if you agree with that sort of, you know, reading of history? And then two, if, if you think that's like, well, definitionally you probably don't think it's like they're going forward.

• 52:10Speaker 01

  Hey, you guys.

• 52:11Erik Torenberg?

  Yeah, exactly.

• 52:13Speaker 01

  I actually thought this was an interview.

• 52:17Speaker 01

  Sorry, what's the next part of the question?

• 52:21Erik Torenberg?

  Does, did multi-stage win seed or more seed than seed firms win seed? Obviously there's some, you know, first round, SUSE, you know, like lots of great seed firms, but when you look at the aggregate of, of, you know, of winners, do they have a multi-stage of seed or not? That's Romton's argument is they had a multi-stage seed and that's why he co-invests with multi-stage as a whole strategy. And then just, you know, passes and, you know, isn't the future necessarily? What do we think about the future?

• 52:44Speaker 01

  So, I mean, I haven't looked at, I haven't rigorously analyzed like the 10 billion, $50 billion outcomes for, over, over the, the course of SUSE, I think we've invested in like 10 or 12 unicorns roughly. Maybe like a third of those or quarter of those had a Series A investor at seed.

• 53:02Speaker 01

  And I'm not really counting like sometimes it was like, oh, the Series A investor did a 50K check in the YC round or something. I like, I mean, like actually took half the round or more. So most of them still were seed only or like seed funds dominated the early round. And then they went to multi-stage very quickly after that. But so my experience, like, I think there's a subset of seed where, I don't know if I'd say multi-stage funds won, but they have like a very strong advantage, right? Where if it is a founder that previously built a business that exited for a hundred million and they're like in the space that they know super well, that's going to get done at like 40 instead of 20 or 80 instead of 20 post. And chances are it's going to be a multi-stage and not like a boutique seed firm.

• 53:45Speaker 01

  So I think for that segment, like multi-stage hasn't won, but I think it's probably like the predominant, like the majority of the time they have a big leg up. I think for the other ones where it's less obvious, it tends to be much more seed dominated or seed fund dominated.

• 53:58Speaker 03

  Martin Leo, this has been a great conversation.

• 54:03Speaker 03

  Thanks for listening to the A16Z podcast. If you enjoyed the episode, let us know by leaving a review at ratethispodcast.com/a16z. We've got more great conversations coming your way. See you next time.

• 54:16Speaker 03

  As a reminder, the content here is for informational purposes only. Should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com/disclosures.