Uncapped #49 | Kevin Hartz & Bennett Siegel from A*

Kevin Hartz and Bennett Siegel are co-founders and GPs at A*, a five year old early-stage venture capital firm with $1B in AUM. A* has invested in companies like Notion, Cape, Whop, Paraform, Simile, Krea, Mercor, Watney Robotics, Andera and others. Kevin is also the co-founder of Eventbrite (NYSE: EB) and co-founder and board member of Xoom, an online money transfer service that IPO’d in 2013 and later acquired by PayPal for $1.1B. Notable investments, primarily at the seed/early stages, include PayPal, Airbnb, Pinterest, Reddit, Anduril, and Palantir among others. Bennett was previously a partner at Coatue building out their venture capital business where he invested in earliest financing rounds for Ramp and Decagon, among other investments. We discussed how AI is reshaping venture capital, software, and startup building – from the rise of younger founders and AI researcher-led companies to the growing pressure on traditional software businesses. We also covered the changing economics of seed investing, the influx of mega funds into early-stage venture, AI rollups, robotics, and why this may become the biggest technology boom yet. --- Timestamps: (0:00) Intro (0:25) The A* Capital story (1:16) Why big funds went into seed (7:50) The mother of all bubbles (10:46) Why founders are getting younger (13:00) Mapping talent, not markets (16:31) The rise of AI researcher founders (19:16) Why seed investing is so hard (22:54) Concentration and venture returns (27:34) The AI rollup craze (31:15) AI vs traditional software (33:15) Robotics and the future of AI (35:39) What’s next for A* Capital --- Links: https://x.com/kevinhartz https://x.com/BennettSiegel https://x.com/jaltma https://www.a-star.co/ https://uncappedpod.com/ --- [email protected]

• 0:00Speaker 00

  I don't know the last time we've heard a founder pitching a traditional software business. Now, part of that is the meme that everyone's just, everything's an AI company. Now everyone puts AI in their deck. I think the issue, as we all know, is if you can vibe code an app in a matter of minutes, and why do you need so many engineers? What's the value of the workflows that you've built? But we're seeing on the application layers, people are going after systems of intelligence. They're going after systems of action. It's new types of spend and we're going to continue to back those.

• 0:25Speaker 01

  All right, I'm really excited to be here with Kevin and Bennett from Astar. You guys, thanks for doing this with me.

• 0:29Speaker 00

  Thanks for having us.

• 0:30Speaker 02

  Thank you.

• 0:31Speaker 01

  I want to start with just the quick history on Astar, how the firm came to be, how you guys started working together, and then I want to kind of go into seed investing. But can you give us sort of like the quick backstory on Astar?

• 0:40Speaker 02

  Well, we first met through Ramp and that was at the seed stage. Eric and the team were out raising and I participated as an angel. This is pre Astar and Bennett was at COTU and that's where we first interacted.

• 0:57Speaker 00

  And we started Astar five years ago now with our third partner, Gotham. And the idea was to build a new kind of venture capital firm that could focus on partnership with founders at the earliest stages and work closely with them as they continue to grow and mature. Five years in now, we just closed our third fund. We're at a billion of AUM and the idea is to bring something different to the early stage market.

• 1:16Speaker 01

  So a year ago, I started this podcast basically a year ago. And one of my first guests was Josh Koppelman. And obviously, you know, founder of first round, amazing seed stage firm. One of the things he was talking about was the venture arrogance score. That really stuck. And basically what he was saying was, you know, bigger funds are super arrogant to think that they can have big returns, directionally speaking, because you own X percent of a company. How big can the companies be? What return do you getting and so on? That argument really resonated. It's funny now to me, looking back, you know, 10, 11 months later, whatever it is. It's like a lot has kind of happened. There are more of these like five to 15 billion dollar funds than ever. The rounds are more expensive than ever. There's these like three plus huge looming IPOs, which kind of gives. Koreans to the big funds, you know, some of these big funds are doing really well, actually.

• 2:01Speaker 01

  So anyway, there's this whole situation. I'd be curious your guys' take on sort of like the landscape and being a smallish, seed-focused firm relative to sort of, you know, this market moment.

• 2:11Speaker 02

  Well, look, you always have to play the hand you're dealt. And we live in this world of giants. Yes, it's true about Anthropic, SpaceX, and OpenAI, and these massive returning large capital necessity companies. But at the same time, you know, big funds, you know, the thing that is right is big funds, big fees for those partnerships. And, you know, we stayed small so we can be agile. It's kind of like the equivalent of when you're the CEO of a new startup and you don't take a salary.

• 2:44Speaker 01

  Do you think if the fees were like, instead of two and 20, if it was like capped, and it couldn't go past a certain amount, like, let's say, like, after a billion, there were no more fees, you think VCs would behave way differently?

• 2:55Speaker 02

  Absolutely, without a doubt. I've seen funds go from small to large, and the behavior absolutely change. No names, no name drops here, but it happens that way. And then, you know, there was so much in this really exciting upswing of the market. LPs want to get in, and they're not going to be, they're not able to negotiate those fees down.

• 3:19Speaker 00

  If you think about it, the fees haven't changed as the asset classes change. Look at long only oriented funds in the public markets. They charge 1%. They charge 10% carryover hurdle.

• 3:29Speaker 01

  Yeah.

• 3:29Speaker 00

  At this point, these growth funds that are raising five, six, seven, eight, nine billion dollars, they're investing in what would have been public companies a decade ago, and they're essentially indexing the asset class. Why should you make two and 20 for that? We built A-Star to be aligned with founders, which is that we want to partner early, we want to take risk, we want to work hand in hand with them.

• 3:46Speaker 01

  Yeah.

• 3:46Speaker 00

  It's a different craft, but our incentives are aligned. We only win as they win.

• 3:50Speaker 01

  Right.

• 3:51Speaker 00

  Which is different than I think the prevailing view is of the bigger, the bigger firms.

• 3:55Speaker 01

  Yeah, I mean, you do need to do well enough as a big firm. Like, you need to, like, cross some threshold that you can, like, keep raising your funds.

• 4:01Speaker 00

  Yes.

• 4:02Speaker 01

  But you think about, like, a five or 10 billion dollar fund, and you think about them playing it seed. Joking with you before we started that like you guys' fund is like 450 or whatever. And you know, some of these funds, if they raised 8.3 versus 8.8, like none of us would kind of clock it. But that's like a whole extra A star. And then they can use that going into seed rounds and their incentives there are different. So I'm curious, like, you know, maybe could you walk out like, what is their strategy? Like, what is a $10 billion fund doing at seed and why are they doing it?

• 4:31Speaker 02

  I like any unit of measurement that is an A star, you know, unit of measurement.

• 4:35Speaker 01

  Yeah.

• 4:35Speaker 02

  And maybe it's be adopted as a practice.

• 4:37Speaker 01

  I'll talk about A stars going forward.

• 4:39Speaker 00

  I think there's two facets. We used to joke at Code Two, there was like two ways to make a billion dollars. And the one way was like the benchmark way, like you find incredible Series A, you lead it, you partner, you have a generational public outcome and you earn, you know, your percentage of the company. That's hard and takes a long time.

• 4:52Speaker 02

  Or the A star.

• 4:53Speaker 00

  Or the A star way.

• 4:54Speaker 02

  In addition to benchmark.

• 4:55Speaker 00

  In addition, or you put a billion dollars into a company and you double your money as it goes public in three years. And that also earns you a billion dollars to distribute carry. One is a lot easier than the other and one where you're more repeatable. So I think incentives have shifted in a way that reflects the market reality. Seed specifically, and we see this with a lot of our sort of friends at multi-stage firms, it's option value. Let me build a basket of companies with a certain amount of ownership and see what pops. And if it pops, I could double and triple and quadruple down. I don't think founders want to be thought of as an option, as part of a basket.

• 5:27Speaker 01

  I obviously want to believe that too. But can I give you sort of like the counter there? And I'm curious how you sort of manage it in the market. The counter is basically, look, I also don't want to be thought of as an option, but 10 at 100 sounds a lot better than 3 at 30. And I have 7 million extra dollars to go hire a team, run my experiments, like see where I'm at. And that is kind of like the discrepancy that's been created. So like, how do you navigate that as a seed specialist?

• 5:52Speaker 02

  You know, we're a boutique firm, so we, we can't be everywhere and we can't cover every scenario. And we find enough founders that are looking for a great partner to, to work with and, and to go through this battle. And we've been through it before. I've been involved in founding a couple of companies from inception all the way through, through IPO and, and beyond. You know, we I guess can't win them all.

• 6:18Speaker 01

  Yeah.

• 6:19Speaker 02

  I would also say that, you know, the challenge of this era, and maybe I'm biased by this, is just that, you know, the amount of capital in the market does mean that you don't have as much kind of help in oversight. And I've seen more mistakes, rookie mistakes being made in this environment that just shouldn't have happened.

• 6:38Speaker 01

  It's funny, there's like a class of thing that is very hard to sell in a fundraising process that are, you know, in the quadrant of like true, false, and like easy to sell and hard to sell. There is this set of things, like what you're talking about, like help during the hard times, which I think is very hard, it's real, but it's very hard to communicate in a round process in a market moment like this. I think when markets are hard, maybe that resonates more. But I think when markets are really frothy, like, you know, in many ways it is right now, it's just tough. So it's just, it's an interesting time, I guess, as a seed specialist.

• 7:09Speaker 00

  We've seen this before, though. In 2021, that was the era where Tiger was offering every software company the lowest dilution, highest valuation offer. Solo GPs were promising very little help, but they were hitting the highest price bids in Series A. Most of those companies and most of those outcomes did not.

• 7:24Speaker 01

  I mean, the pitch was, we'll be uninvolved.

• 7:27Speaker 00

  Yes.

• 7:27Speaker 01

  It's like the sell was, we won't talk to you.

• 7:30Speaker 00

  A hundred percent. And building a company is a marathon, not a sprint. I think a low dilution lead offer is relevant for founders. And when we compete and when we win on deals, we're not trying to get a value deal. We are also offering what we think is like a low dilution competitive offer and, and support and partnership and things that founders, I think, should care about.

• 7:50Speaker 01

  You guys invest like, I know you start at seed, but you seed A and B. And so you're like very in tune with all of those market stages. What have you seen over the last six or 12 months in terms of like how these rounds are happening in succession? Where valuations are going, how dilution's happening across them? Like, what are the trends along those rounds?

• 8:09Speaker 02

  Well, I'd like to think that we're headed, we're not top ticking, we're not there yet, but we're headed to the mother of all bubbles, you know, like a historic, you know, precedence. And, you know, if you think of the eighties in the personal computer and what came out of that era or the nineties. In the internet and the 2000s and mobile, well, AI and the platform and the boom that we're seeing right now is immensely exciting. We have such a global audience to to reach and I think we're going to have a few years of this continuing to grow. But unfortunately, you know, as in capitalism, it always ends badly, you know, like, and I don't mean end.

• 8:51Speaker 02

  I mean, we all know that after 2000, you know, Amazon and Google and so on came out of the the internet bubble. And now they're multi trillion dollar companies, Netflix and PayPal and so on. It's an exciting time, but yes, capitalism is like a pendulum. It's either too far one direction or too far the other.

• 9:08Speaker 01

  It's funny on the bubble topic, I have a friend at a at a growth stage firm and he and I kind of keep track of like all of the signs that we might be in a bubble. And things like how quickly are the rounds, you know, coming in rapid succession? Like what are sort of the like degenerate gambling behaviors we're seeing from people in and out of venture? You know, what's happening with SPVs like, and you kind of go through this list and you're like, a lot of the signs are there. The counter and, you know, which is a strong counter is there's like a lot of extremely interesting companies. And there's a lot of companies getting to 100 million of revenue with like happy customers and crazy new technology faster than ever. I'm guessing that you're probably feeling a mix of like, whoa, this looks like a bubble, but these companies look so interesting.

• 9:46Speaker 00

  I mean, look, we're optimists by nature. That's why we were venture capitalists. And I think like in any platform shift, you're going to have some incredible companies that come out of this vintage. And in fact, they're probably going to be larger than anything we've ever seen. But you're also going to have a lot of companies that aren't going to go the distance. And I think we all see it in our portfolios, who's building durable revenue streams? Who's building modes around their business versus what the labs are offering? And if we're doing our jobs correctly, we're going to find these handful of companies that matter and that have relevance. But there's going to be carnage in their wake and not every company is going to to make it. And that's, I think, true in every prior cycle. I think the other thing I would say is what's changed since we started A star seeds used to be 20 to 30 posts. They're now 40 to 50. A great series A used to be 100 posts. Now they're happening at 250. Series Bs used to happen with real traction at a few hundred million dollar valuation.

• 10:31Speaker 00

  They're 500 million, a billion. Everything has changed, particularly as large funds have gone earlier. And this will end absolutely fine for the best companies that will continue to grow and mature. But it will also be more challenging for founders that struggle to raise above their pref stack and don't go the distance.

• 10:47Speaker 01

  So you guys are investing at like the earliest stages where like you're basically just looking at teams. I mean, there's like an idea, but there's probably not much of a product. The idea is probably squishy and you've got this backdrop where you're like, this is both like the most exciting time ever. And it's kind of like a scary time in certain ways as an investor. So what are like the founder attributes that you look for right now? And maybe if there's any contrast to what you looked at in like the pre AI cycle, I'd be interested in hearing that too.

• 11:12Speaker 02

  There's a curious movement around age as in founders are getting younger. I guess they're not aging in reverse, but they're like they're getting into.

• 11:22Speaker 01

  You just look at like a Y C batch, there's a ton of people in their teens.

• 11:25Speaker 02

  I bet they have great data on on like.

• 11:27Speaker 01

  It's going young.

• 11:28Speaker 02

  Yeah, it's it's going young and it's interesting because I see it as like in the, I guess in the seventies when late seventies when Steve Jobs. Founded Apple and Bill Gates founded Microsoft, they were nineteen. And and then you kind of fast forward and there's some other examples along the way. And then you had Zuck and then you really had this accelerate. You had Peter Thiel and Luke Nosick devise Thiel Fellows, Thiel Fellows in two thousand and ten. That was very prescient.

• 11:58Speaker 01

  Which has been incredibly successful.

• 11:59Speaker 02

  Yes, and it's a nonprofit.

• 12:01Speaker 01

  Fellows is unbelievable. Yeah.

• 12:02Speaker 02

  It was very prescient of what was coming and that is like this lowering of the age and dropping out.

• 12:08Speaker 01

  But it wasn't quite like this right before AI.

• 12:10Speaker 00

  It was never like this before. I mean, there always were young founders building incredible businesses, but you and I have spoken about this. I mean, it's in this paradigm shift, who cares if you know how to build a SaaS product or sell a SaaS product or hire a traditional enterprise go to market team? This is new for everyone. We're all rewriting the rules as we build these companies in real time. And young founders are situated very well because they're the first adopters of this technology. So it's why you're still seeing very large companies built by people under the age of twenty five or thirty at an unprecedented rate. And for us in practice, that means more and more of our founders are skewing younger and younger.

• 12:44Speaker 02

  Just the other day, I was speaking to a founder going over some documents and he said he would run things by his lawyer. And I said, like, isn't your lawyer your mother? And he cut his sheep, so he said, he's a teenage founder. He's like, yes, she's a good lawyer, by the way.

• 12:59Speaker 01

  Yeah, that's good. What else besides age? You know, we're talking about durability and the world is changing. What other attributes aside from just young founders have certain advantages now?

• 13:08Speaker 00

  We generally map talent, not markets. I think to be a seed stage investor, you have to be founder centric, but also you have to be recognize what's happening around you. The labs are not just infrastructure companies now. They are legitimate competitors at the application layer, which happens to be where most seed stage companies are building, because that's where you raise attritional around and you launch a business. And obviously, there's Cogen, which is like the central battleground, but it's going to proliferate to every part of knowledge work and every part of the enterprise. We do try to think about where is there white space to build or where can you have enough of a runway to finally build differentiation?

• 13:39Speaker 01

  Yeah.

• 13:39Speaker 00

  Nobody is differentiated seed. I think this whole idea is like, what makes this different? Why couldn't your competitor do this? Every seed stage company can obviously be disrupted or built by an incumbent.

• 13:49Speaker 01

  Yeah, there's no moat.

• 13:50Speaker 00

  But we need to figure out where there's at least enough white space, enough of a runway, you can start to achieve lift off.

• 13:56Speaker 01

  When you say you map talent, what does that look like in practice? Like, what does like a day look like? You know, is it just sort of reaching out to interesting people in certain networks? Are you tracking people that you've already known? Like, what does it actually tactically mean to map talent?

• 14:09Speaker 02

  You know, it's a lot like, you know, mining, you know, where you are in a vein of like gold and you've found, you know, an area, but that exhaust and you've got to find new talent in new areas. I don't know if that's a good analogy, mining, but you know, like, things are constantly switching, but you know, the founders are always the same. They're always, you know, those that have had to overcome some kind of obstacles and still achieve at a very young age and be able to recognize the signs, you know, in the talents, you know, we've gone through this big phase of IOI and all the coding competitions and things of that nature as a, you know, as a measurement for, you know,

• 14:53Speaker 02

  like teens that are achieving on that side.

• 14:56Speaker 01

  Yeah.

• 14:56Speaker 02

  So you're looking for, you know, these types of.

• 15:01Speaker 02

  You know, these types of attributes, but the reality is-

• 15:03Speaker 01

  People who worked at like Jane Street, I feel like has been like another good one recently. There's been more interest from ex-Jane Street people to be in startups and obviously it's a very talented group.

• 15:10Speaker 00

  And this is in like some unique insight, but high quality people want to hang out with high quality people. So when you go to the top universities, when you go to the accelerator programs, when you go to companies, like the most talent dense nodes work very closely together. So as you start to work with founders in those nodes, you naturally meet their friends who go on to start great companies. I also think as you see people leave companies, you see certain patterns, certain companies breed better founders than others. Airbnb, Stripe, there's so many of these companies are magical businesses. They worked and not to say there wasn't a hardship in the early days when they took off, they really took off. So it doesn't necessarily breed as many founders that like run through walls to start companies. Palantir is an example. Everyone's a mini CEO. Everyone had to build and launch a product and find product market fit. It's why I think Palantir has the highest like per capita rate of unicorn founders of any company.

• 15:55Speaker 00

  And part of what we need to do is continue to find those areas where the next founders come out of.

• 15:59Speaker 02

  Yeah, we love those Palantir founders. I mean, like you can't get enough, like they're so good, like whatever. Whatever they feed them over there works. Whatever they feed them over there is like really working.

• 16:08Speaker 01

  I also think probably with Palantir, there's um, there's a certain non-consensus mindset implied simply by wanting to work at Palantir. And at least that was true at a certain time, you know, now it's maybe become a bit more. But I think people who worked at Palantir and Andoril at a time before it was popular and, you know, on the contrary, even it was sort of something that you had to like defend. And that takes a certain mindset that is like kind of related to being a founder.

• 16:31Speaker 00

  One thing we didn't talk about, there's a whole new crop of founders that never existed, at least in my time of doing venture. It's the researchers. It's folks that are leaving labs or PhD programs that are raising massive quantum of capital.

• 16:41Speaker 01

  Which by the way, used to be a big anti-pattern of like researchers.

• 16:44Speaker 02

  Absolutely. Yeah, that's hard. You're totally right. Researchers tend to be, to have high intellect, but not as commercial.

• 16:51Speaker 01

  But now obviously there's all these counter examples for like maybe the first time. I mean, I'm sure there were examples in the past, but that's a whole new thing that people have to grapple with. It's very hard.

• 16:59Speaker 02

  It is. You know, I think that's where, when you're spending time with a founder and getting to know them, if they can really articulate what they're doing, you know, you have to listen so carefully because every word, like a great founder will have every word very much meaning, you know, have great meaning and and intention about what they're going to build.

• 17:20Speaker 01

  You're saying like, there can be cues with the language someone's using of like where their head's at?

• 17:24Speaker 02

  Yes, and how they prepare and how they're thinking about the business and that is much. Sequoia had backed my previous two companies and they were always sticklers on, you know, your presentation, how you presented and how you showed up at the same time.

• 17:43Speaker 01

  Do you guys find that meeting founders in around versus getting to know them before their fundraising is some huge difference? Do you have good examples of success with each? Do you prefer one over the other?

• 17:53Speaker 00

  So I think the Decagon team's a great example. I mean, you know, Kevin, why don't you talk about the history with Ashwin? But I think the prior history informed how we thought about this company.

• 18:02Speaker 02

  I had been an angel in a company that Ashwin had founded called Helia. Russell Kaplan and Daniel Barrios were in that too. Russell's now the president of Cognition and Daniel's over at Meta.

• 18:15Speaker 00

  Yep.

• 18:16Speaker 02

  But, you know, that company didn't make it, but stayed close and was always a big fan of that trio. And when Ashwin went off to and met up with Jesse to start Decagon, it was a kind of no brainer to get involved in the seed round there.

• 18:33Speaker 00

  Funny thing about Decagon, there wasn't really an idea. You know, they had this insight.

• 18:37Speaker 01

  But you knew the team was great.

• 18:38Speaker 00

  We knew the team was great. We knew there was white space and building on top of the foundational models in a moment in time when no one had really, you know, commercialized different enterprise applications. And you had the history of the team to say, wait a second, we understand why their prior companies were a modest success, but why one plus one equaled more than two in this situation? And that's an easier bet to take in some ways when you have that history. The flip side is, you know, there are founders we meet during a process where we, you know, we try and build as much of rapport and relations as we can. We try and understand them as people. We try and understand the opportunity and those have worked. For us well, but you it's a shotgun marriage.

• 19:13Speaker 01

  Totally.

• 19:13Speaker 00

  And you need to move faster many times with less.

• 19:15Speaker 01

  Especially in a market like right now that can you sometimes you meet them, you have three days or something like that or less.

• 19:20Speaker 00

  Three days. So, you know, I would say at A Star, more than half of our seeds have been pseudo proprietary in nature. And that doesn't mean no other funds around it. That doesn't mean they're not meeting.

• 19:29Speaker 01

  It just means you didn't start cold during the process.

• 19:31Speaker 00

  Exactly. We maybe were first to reach out to them. We had some informed knowledge. We had a dinner with them in the past. There was some relationship of relevance and some insight we had going in around their, you know, who they were as a founder, what they wanted to do.

• 19:43Speaker 01

  Is it obvious to you off the cuff which half of your investments are better?

• 19:47Speaker 00

  Yes, the the half that we had some prior relationship or somewhat proprietary have disproportionately generated returns. Though we have done well with some of these shotgun marriages, but there's a, I would say, higher volatility.

• 19:58Speaker 01

  One of the things that I think is sort of interesting in seed is there aren't that many firms that stick around seed for a long time and are very successful. You know, I gave the example of first round. You guys are obviously doing great. There's a couple others that have been around for long periods of time, but a lot of times people either leave seed or, you know, they kind of stop doing what they're doing entirely or something else happens. Why is it that it's a less persistent sort of part of the market than multi-stage in your guys' view?

• 20:28Speaker 02

  Well, I mean, seed is just incredibly hard. It's so challenging. It's investing in, you know, just people and no product and no, you know, hardly even a roadmap or anything else. And so you just have a great deal of uncertainty day in and day out. And then compound that with the current environment where we've had, you know, the multi-stages come in and want to get a toehold and in seed. And so, you know, spray money in.

• 20:56Speaker 01

  When you say seed is hard, do you mean hard in the sense of high effort or hard in the sense of difficult to get a good result?

• 21:03Speaker 00

  Both. You work incredibly hard to build relationships with founders and earn the right to invest two, three, four, five million dollars in a company that by all odds will likely not work. Because most companies do not become billion dollar plus companies. And if it's not a billion dollar plus company, it has almost no relevance to the performance of your fund. It is genuinely hard to find these founders. It is genuinely a lot of work to convince them to partner with you. And it's even more work afterwards to support them in building a company. So I think what you have is two facets of this. You have historically seed firms that have been successful. They maybe do not continue to adapt to the environment. They don't refresh their networks. They don't continue to be aggressive as new types of founders and new technologies emerge. And they tend to fall by the wayside and that's a crop of seed type funds.

• 21:47Speaker 00

  And others that have been successful, that have founded one or two or three amazing companies with years, they grow up, they graduate, they raise opportunity funds and growth funds. And what's left is a relatively small group of firms that still specialize in seed and look to work with the best founders and don't try and find value deals or diamonds the rough, but compete to be the partner for the next generation of winners. And if you can't do that, seed is a bad asset class.

• 22:12Speaker 02

  Just to emphasize, venture capitalists should be much better managers of people too. You know, the generational change, handing things off.

• 22:20Speaker 01

  Yeah.

• 22:21Speaker 02

  You know, very, very few firms kind of make it on from there. They usually like die with their original GP.

• 22:27Speaker 01

  What do you think is like the big source of difficulty in generational transition? Do you think it's finding talent? Is it older partners letting go? Like, where do you think most people get it wrong?

• 22:35Speaker 02

  I mean, my perception has always been finding talent, but I'm sure maybe older founders or older GPs are holding on, you know, a bit long. But it is, you know, you've got to find that needle in the haystack out there of somebody that's going to be able to identify the next Google.

• 22:54Speaker 01

  It's also interesting because as funds grow and you start, you know, you guys could very easily make a lot of investments in your seed companies that are performing well and start putting huge amounts of capital behind them. And then one day you could wake up and your growth fund was bigger than your seed fund. And now the incentives are to make right by as many of your dollars as possible. I think that sort of explains where the focus goes.

• 23:15Speaker 02

  Are you inviting us to do Series As now?

• 23:18Speaker 01

  A hundred percent.

• 23:18Speaker 02

  Okay.

• 23:19Speaker 01

  A, B, C, whatever, do it all.

• 23:20Speaker 02

  Do it all.

• 23:21Speaker 00

  I do think, and we're a little different than traditional seed fund. We do have a reserve heavy model. We do have more capital available for fallons than seed. I think if you, all you're writing is the first check in seed, it's exceptionally hard to drive returns. I mean, for our best companies, we've piled in every single round. And out of a portfolio of Forty seed investments, we might have three, four, five companies that have the lion's share of our capital. It's concentration, but different than the way that a traditional growth fund would talk about it.

• 23:48Speaker 01

  You're saying seeds hit so infrequently that if you don't double down on the few that work, it's very hard to get good returns as a basket?

• 23:54Speaker 00

  I think that's absolutely true, and I don't think your fund is going to return the multiples. And we look at other of our peers who look at prorata and say, what's peanut butter prorata everywhere? You always want to support your founders, but as you look at the Series A, the B, the C, the D, that those fall line decisions are actually, in many cases, more important than your initial investment.

• 24:11Speaker 01

  Well, what's interesting is I would argue that, you know, from a basket of seeds, I would guess that most of the time, it's actually very difficult to tell by the Series A where you should be concentrating. But a lot of funds just do their prorata in the next round, and that's that. But that really looks kind of just like, you know, a peanut butter across all of it. I would think it's much easier to know where to put huge amounts of money, like a stage or two even later than that.

• 24:33Speaker 02

  Agree. I think in our case, we do agree to support our companies in the A.

• 24:39Speaker 00

  Yes.

• 24:40Speaker 02

  And so we'll always do the prorata in that round.

• 24:42Speaker 01

  Yeah.

• 24:43Speaker 02

  And then watch. But you're right, like that inflection.

• 24:46Speaker 01

  But there's a different pool of concentration. Like, let's say you had, you know, a fund that was a hundred dollars and forty of it's going into initial seeds, and then there's twenty for those proratas. I would think for the last chunk, that's probably like, I would guess done right, you're probably doing just, you know, ten percent of the fund into a few companies each, kind of thing. Is it that concentrated, or?

• 25:05Speaker 02

  You know, this is interesting because Brian Singerman is creating this LP fund to find new managers to be able to concentrate and help them like go all in. And that's, you know, I think since 2005, that's what Founders Fund kind of pioneered was like breaking the old venture rules.

• 25:23Speaker 01

  Right.

• 25:23Speaker 02

  And putting this inordinate amount of money, like when they sold all their Spotify off at a nine billion valuation and rolled it into Airbnb.

• 25:32Speaker 01

  Right.

• 25:33Speaker 02

  That was pretty monumental.

• 25:35Speaker 01

  Which is interesting, because that's more of a trader mindset, which you don't normally see in venture. But I mean, Spotify did well, but I guess that was a good trade because Airbnb was at what, two or something like that?

• 25:44Speaker 02

  Yes, two and a half.

• 25:45Speaker 01

  Two and a half. So getting a five X, you got a fifty X. Great.

• 25:47Speaker 00

  I think you need to know what Great looks like to be successful. So for us, we have $450 million fund, more than 50% of the dollars come after seed. Most growth investors look at seed companies, they think they're like completely uninteresting. It's a founder, it's a product, it's raw. Like, most seed investors look at growth companies and they say, these are all amazing. Oh, my God, they have product market fit and revenue and scale and the founder can actually string together two sentences. And that's historically why people create separate early and growth stage teams. I think to be really great as an early investor and to follow your founders as they mature, you need to know what great looks like at every level. And to your point, the Series A may be a hard stage to do that. Obviously, you, as a practice now, are picking that stage to... But it should get easier over time, but as things become more consensus, as you know, they get more expensive.

• 26:31Speaker 00

  It's harder to buy a ownership. So it's always that pendulum on where you want to be on the risk curve.

• 26:35Speaker 02

  The other side is like when you do back the truck up and, you know, really go for it, you know, ensuring that it is the money round. Like, I kind of think of,

• 26:45Speaker 02

  in like 06 or 07, we used to sit on the floor and project SpaceX launches over, like, that were going off. You know, they'd launch them in the, in the South Pacific somewhere and they would blow up every time. And, you know, like, that was the sucker's bet is to actually invest in those rounds as these things were blowing up. But as soon as, you know, they got one into orbit and that landed the contracts and that put forth the sequence of events, then, you know, that's that next phase of, of putting money in. And then certainly Starlink was the big unlock more recently.

• 27:19Speaker 01

  I mean, Founder Fund SpaceX concentration is extremely impressive to do it over and over into that company. I guess the key is you got to have a SpaceX in the portfolio that's worth concentrating into for 15 years, but it's still pretty impressive to do it. A lot of people, you know, just wouldn't have the stomach for it. I'm curious about some of your guys' opinions on, obviously, I know you spend most of your time trafficking in founders and talent, but I also know you guys have strong opinions about the market and where it's going, and I'd be curious to hear some of those. Bennett, maybe starting with you, we had, we had talked a little bit about, like, you know, rollups and sort of buying businesses that are sort of, you know, older established companies and applying AI to them. And you've, you know, got a background doing growth as well, so you kind of have some more familiar... With this, like, what's your view here?

• 28:01Speaker 00

  There are a few things that are going to be worse than for incumbent businesses. And the venture capitalists that are participating these then work buying and transforming and dealing with the culture and the process changes. Like, everyone thinks it's as easy as buying a business, deploying AI, improving free cash flow margins and earning a return. I mean, private equity firms have been doing rollups forever. It's incredibly, incredibly challenging to turn around an existing business. I think this is actually a great business for founders. It used to be that you have to raise capital, you had to buy an asset and you had to improve the asset. And you would keep 20% of the profits. Now a founder can go and raise venture capital dollars, dilute 20%, so keep 80% of the profits and go buy a business. It is phenomenal for them. I think it's an exceptionally tough asset class that allows venture capitalists to raise lots of money.

• 28:46Speaker 00

  But I think it will be very hard to achieve real profits doing.

• 28:48Speaker 01

  By the way, on that point, as the venture capitalist, don't you need the thing to like appreciate a lot just to get back to even?

• 28:54Speaker 00

  Yes.

• 28:55Speaker 01

  If you gave somebody a billion dollars and then they went and they bought an asset for a billion dollars. And you only own 20% of that thing. Don't you now kind of have $200 million?

• 29:04Speaker 00

  So that's

• 29:05Speaker 01

  Think I'm not thinking right?

• 29:06Speaker 00

  No, the ironic element of this is like, the founder can't lose. The founder has literally bought into a business with embedded asset value that they now own a large percentage of. But unless these companies appreciate dramatically in value, the venture capitalist owns a relatively small percentage. Now, people are doing convoluted structures where there's an holdco and an opco and there's carry and there's waterfalls. But no one has actually proven a way that you can monetize this in any way that resembles venture-like returns.

• 29:32Speaker 01

  Yeah.

• 29:32Speaker 02

  The other dimension of it, you know, in this like private venture capital, private equity play is simply that like venture capitalists are very good at watching the top line, like they want things to like blast off and they're not so precise. And, you know, this is all about the top line, but the bottom line more importantly. And, you know, venture capitalists don't pay as much attention to that, you know, with their companies. So it just doesn't feel like the right culture fit for this sort of stuff.

• 30:02Speaker 01

  Are there any forms of rollups or structures that you are bullish on? Like, when you look around the different types that are happening, is there any form where you're like, all right, if I had to buy one, that's the one I'd buy?

• 30:11Speaker 00

  I think there is something to be said for looking at his services oriented professions that have largely recurring, if not truly recurring revenue sources and looking at how you could replace people with technology. Because if AI has been very good at one thing, it's looking at traditional pockets of labor spend and automating it. So I think there's a reason why I think accounting rollups are interesting for people. There's a reason why HOA rollups are interesting for people. I think ITSM as well for that reason. It all deals with tickets and deflection, replacing call center people. That feels like a very interesting area, but I would argue 90% of the value created is going to be buying the asset for the right multiple, which once again venture capitalists are historically very bad at.

• 30:50Speaker 01

  So you're not going to be doing any rollups?

• 30:51Speaker 00

  We will not be doing any rollups today, Star.

• 30:53Speaker 02

  I mean, the other side, there are always great teams where they're exceptional teams in using tech, technology. And bending spoons comes to mind as we just sold Eventbrite to bending spoons. And that's an incredible operation of how they integrate all these assets. And what they're doing in Milan is remarkable.

• 31:15Speaker 01

  What about within AI? What are you guys most excited about? Where are you anxious? You know, like maybe to like frame up sort of like a common meme right now that like software is extremely difficult because the labs are sort of just expanding and everything's being, you know, workflows are being replaced by agents and the workflows I need that are important, the labs are going to own and so, you know.

• 31:34Speaker 02

  We can't take that position. I mean, we have to, you know, we want to back these independent companies and the labs like they need to. You know, they need to have a very audacious appetite and keep the growth up. But, you know, we'll still keep, you know, backing the application layer all around where we see the right barriers, the right teams and so on.

• 31:58Speaker 00

  And there's a distinction, obviously, between application layer AI companies and more traditional incumbent, you know, software. I don't know the last time we've heard a founder pitching a traditional software business. Now, part of that is the meme that everyone's just, everything's an AI company now. Everyone puts AI in their deck. But, you know, I think systems of records are still very sticky for a reason. I think the issue, as we all know, is if you can vibe code an app in a matter of minutes, and why do you need so many engineers? What's the value of the workflows that you've built? But we're seeing on the application layers, people are going after systems of intelligence. They're going after systems of action. It's new types of spend and we're going to continue to back those. I would say in terms of the public markets, I mean, there is a reason software is having significant drawdowns. But the best. Companies should be able to navigate this.

• 32:42Speaker 00

  Kevin mentioned early on that like we were investors in RAMP. I would say they are a great example of an incumbent pre-JATGPT company that has now become an AI business and agents are driving top line and margins. The best teams are going to adapt. So I think you're fine if you're in an incumbent software business as long as you have a team that is going to re-architect everything from the ground up.

• 33:01Speaker 01

  What about hardware and hard tech? I know you've been incubating a company that is sort of like software-enabled hardware thing. And I assume you guys have been investing in it. But how do you guys think about like non-software, potentially even non-AI, but at least sort of like hard tech hardware companies?

• 33:15Speaker 02

  It's again, like, we want to go where the talent is. And we're being drawn to these, you know, various hardware companies for the reason of, you know, they're being, you know, really, really impressive people. It's happening kind of across the board. There's a revolution there. You know, we certainly don't want to get caught in the same traps that have been difficult for hardware in the past. But yeah, hardware gives you, you know, it puts you out in the real world. Like before in software, you know, we were like kind of trapped like a brain inside of a jar and, and hardware and robotics and so on is an exciting new world for us.

• 33:56Speaker 01

  There is some good defense if you have some like sensors and things out in the world at least. Someone can't just come along and vibe code that.

• 34:01Speaker 00

  I think that's exactly true. I think we just haven't hit the chat GPT moment for robotics. So I think, I mean, AI for the physical world should be as large, if not larger than what we've seen for the knowledge world. The challenge is right now, we haven't seen as much of the commercial applications. We don't care received investors. We're backing robotics companies. We're backing companies working on sensors and edge AI. But we do think about a number of robotics companies have raised at huge valuations with very little commercial promise. So we think a lot of this is still to come.

• 34:26Speaker 01

  Are there types of companies that you are excited about, but given your fund size, you just like can't engage in? You know, I'm thinking of like Neo Labs or, you know, heavy robotics projects or things like that that don't, you know, start with it's five to $10 million seed round?

• 34:41Speaker 02

  You know, alas, those are tough, you know, to see and have them go by us. But, you know, with that said, I mean, we're in, we've been able to invest in. A lot of scrappy, verticalized robots. So we're in a company, Watney Robotics. It's data center cabling in robotics that is a very specific task that's very high value. And that differs from, you know, going after a full horizontal market.

• 35:12Speaker 00

  Or we backed a research team out of Stanford called Simly, which is focused on market research, which went on to raise a hundred million after the seed round, but at the time only needed a little bit of money to prove out and commercialize their research. Those are the rare exceptions, as you know.

• 35:25Speaker 02

  Right.

• 35:25Speaker 00

  The normal cases.

• 35:26Speaker 02

  They skip that little seed round.

• 35:27Speaker 00

  They skip the little seed round despite how hard we try to convince them of the value of it. And they raised 10, 50, 100 million dollars. And by the way, that is where a lot of the multi-stage dollars are going.

• 35:36Speaker 02

  Definitely.

• 35:36Speaker 00

  Seed and that we can't really do those rounds.

• 35:38Speaker 01

  Yep, makes sense. So you guys have this new fund now. Any changes coming for A-Star overall, or it's just more of the same, bigger, better, faster?

• 35:45Speaker 00

  I think it's more of the same. I mean, there's, as you know, there's inflation around size. There's a larger volume of founders that are flocking to start companies than ever. And I think we just need to be playing the game in the field. We need to be meeting founders where they are moving quickly and leading seed rounds. And hopefully we can be a bigger and better partner over time as our fund size has grown modestly. But we started A-Star with a $300 million fund five years ago. Our new fund is not that much larger. Like, I think we look to a lot of our peers who've stayed focused, who've become experts at their craft. And that's what we look to emulate and what we'll continue to do.

• 36:17Speaker 02

  And we can also, I mean, extend out. I mean, we've shown to be very patient and we're not just trying to put capital to work. And we kind of wait patiently for those right companies, even if it takes a little longer to deploy.

• 36:34Speaker 01

  And you guys are moving into this building, right?

• 36:35Speaker 00

  We are.

• 36:36Speaker 02

  We are.

• 36:36Speaker 00

  We want our founders to keep moving up the floor when they raise their future rounds.

• 36:40Speaker 01

  You guys fund them, send them over here. It's beautiful. Yeah.

• 36:41Speaker 02

  We could put a fire pole.

• 36:43Speaker 01

  I love that. I think we dig a little hole somewhere. I don't know if you're above or below, but.

• 36:47Speaker 02

  We're of course below.

• 36:48Speaker 01

  Okay.

• 36:50Speaker 02

  It's a seed thing.

• 36:50Speaker 01

  Yeah, exactly. That's right. All right. Well, thank you, guys. This is super fun. I appreciate you both making time for it.

• 36:54Speaker 02

  Thank you.

• 36:55Speaker 00

  Thank you.