0:00We raised 900 million in new funds for USV, which is by far the most USV has ever raised in a new fund cycle.
0:08I don't think a trillion is what we need to underwrite to at USV. I think if our biggest winners are in the singledigit billions given our fund size and our ownership, we can produce really really healthy returns for our partners. Yeah, there have been some outliers at 50 billion or h 100red billion, but a lot of our biggest winners are in the $10 billion range and that's produced enormous returns for us.
0:30It's also a bigger number than we've raised before somewhat significantly and marks a new strategy for us. The market has evolved, the outcomes are bigger, the swings are bigger. I was a little surprised how many of them said, "Are you serious?
0:53We are here at Union Square Ventures USV in New York City with Mike McNano. And we're about to go on a bit of an office tour. After that, there's more. Uh we're going to do a sit down with Fred Wilson, Rebecca Kaden, and Mike to go over what we're about to announce.
1:11We just raised a new fund. We raised 900 million in uh new funds for USV which is I would say by far the most USV has ever raised in a new fund cycle but there's a reason for that and I think we will get into that in a little bit. Um so why not 1 billion?
1:27Oh well um you know we're I would say with USV we have always been uh extremely intentional about fund strategy not just fund size but fund composition. how many companies roughly, what size checks do we plan to write, stages, number of companies. Um, and so the 900 really comes from that strategy and that model.
1:49We we don't we don't raise uh funds as vanity metrics, you know, it's not like we got to hit a billion or we got to hit two billion.
1:56I want to be a unicorn fund.
1:58The the 900 really comes from the strategy bottoms up, which again I think I think we'll probably get into, right?
2:04Yeah. Okay. So maybe we can do what you do best and we can walk backwards to hide all the equipment.
2:11And then we can pick it up around the corner.
2:13All right. So we are here at Union Square. We're going to walk into the kitchen. These are some main areas. It's very active today.
2:20Lots of people here today. Yeah. This is uh I don't know, a bit of a seating living room area. Obviously, we've got the kitchen. Uh my favorite feature of this kitchen is this XBloom pourover machine. Have you seen this thing?
2:35It's basically a pourover robot. Um, so if you like pourover coffee, um, this is a robot that makes an investment.
2:42I don't know. I don't No, it's not. But it's really cool. I've seen these in a few, uh, offices, couple startup offices, couple VC offices. So, it's not like USV is the only place that has this, but uh, if you like coffee, it's it's pretty good.
2:54It's cool. I've never seen that.
2:55Um, yeah. We've got our little bit of a dining room table here. We've got a board, one of our portfolio companies board. Do you know what?
3:04Board is the world's first tabletop gaming console. Um, founded by Bin Putnham, who founded Mirror Mirror.
3:12Uh, this is an amazing product. Uh, every game comes with its own set of pieces, unique pieces that the screen reacts to.
3:21And, uh, they also have a platform to make it really, really easy for developers to build games for this. Uh, it's really, it's an awesome product. I would definitely recommend.
3:28Do you play chess on this?
3:29Uh, they don't have chess.
3:31They don't. Uh, they have all their own games. that developers are right. Well, I guess you could do chess where you sort of like shave off the edges or something or something, but um it's awesome. Highly recommend.
3:42Um this is what we call the pit.
3:46So, the pit is where we all work and we all hang out. This is my desk. It's very cluttered. I hope you don't get a shot of it. Um talk there's nothing bad on the screen.
3:55We talk about deals. We talk about whatever might be going on on X that day. There's also a group chat for the pit. So the conversation that happens here uh very actively every day just continues right when we leave here. Um so no one has an office or are they No, no one has an office except Well, actually Tyranny and and Carrie and Christine have offices.
4:18This is special ops because they don't they don't want to deal with the madness of the pit, which I don't blame them. Um this is uh where a lot of board meetings happen. Um some of our full partnership meetings. We also have another room in here that we use for these types of meetings. Uh, one of my favorite things about this office is pretty much every room has really epic views.
4:41So, you've got great views all the way to the Hudson River over here. You've got views uptown over here. Um, there's a really, really cool view from here where you can see straight up Park Avenue, which I really love. actually at my desk in the pit. If I turn to my left, it's literally like a perfect vertical view of Park A, which I think is really cool. Um, yeah.
5:04I mean, this represents New York pretty well if you can see all of it if you're coming as a founder from I don't know.
5:11Totally. And I'll take you up to the roof in a minute where we have literally like 360 panoramic views of pretty much all of Manhattan, which is really cool.
5:18So, you guys have invested in 263 companies? I that number sounds right.
5:25And how many do you expect to invest in with this fund?
5:28Um, you know, I I think we we try not to be too strict and specific about the number, but I think generally speaking, you know, probably somewhere 30ish, maybe 30 to 40. Um, a mixture of both seeds, NAS. I think we'll do probably a lot more seeds than we've typically done in the past. And you know, we can get into a little bit of the fund strategy later with uh Rebecca and Fred, but you know, going earlier we believe is becoming more and more
5:58important just given how many startups are emerging as a result of AI and how competitive the market is.
6:04Um yeah, this is the library. So this room uh is is is great. Uh it's beautiful and we use this for a variety of reasons. We host events here with our founders and different people within the community. As you can see, we also have these these desks here where uh we often host portfolio companies or companies that aren't in the portfolio that need a place to work. Um it also actually is a library and has lots of books on the shelf here that many of us have read.
6:33Do you have a favorite?
6:35Um let's see. Do I have a favorite? You know, one of my favorites uh is The Messy Middle. Shout out uh USV product advisory partner Scott Bellki. This is his book. This is about sort of the the middle of the startup journey.
6:51There are many books written about the early days and the formations. There's also obviously lots of books written about the success stories, what happens at the end, but uh I I believe Scott's vision with the messy middle was really about what happens in the middle, which is which is the hardest part. Um as most startups are not straight lines. So uh that's a great book. Uh let's see what else. Shoe Dogs obviously a classic. I mean there are a lot of lot of good books uh on this bookshelf. So well speaking to your point of going
7:21earlier with this fund, you guys are also incubating companies. You just released one that you incubated yourself, Supertake.
7:29Yes. Yeah. So, you know, one of the things I'm sure we'll talk about is it's getting easier and easier to build products and get them to market quickly and test them quickly. Um, one of the things that we've been talking as a partnership for a long time now is this idea that it's never been easier as a result of AI for people to take control of their own financial independence.
7:51Right? We're coming out of a world in which, you know, huge huge companies and a huge market has been built on paying people for financial expertise and financial services. With Supertake, we believe that regular consumers should be able just to invest in their ideas without having to know anything about the stock market, anything about picking stocks or building a portfolio or what it means to rebalance or actively manage a portfolio. And so with Supertake, it
8:20literally does all that for you through an agent. You just give it an idea or belief you have in the world and Supertech will go and invest in that idea directly through your Robin Hood or Coinbase accounts or brokerages and then it will actively manage it for you. So it will tell you how it's doing. It'll check the news for you regularly. If something's broken in the portfolio, it'll automatically rebalance it for you. Um and it really speaks to the types of companies that we look for in the theme of obliterate don't automate
8:48which, you know, we could talk about we talk about our thesis. Um, we just think that AI companies are not only making it easier and faster to achieve existing processes in the market, but literally restructuring markets completely because humans now have access to intelligence and expertise that previously they had to pay a lot of money for. So, Superte is a great example of that and something that we were able to at least for the initial product just build ourselves.
9:15That's awesome. Did you build it in this room?
9:17We did not build it in this room. Uh, we built it in lots of other rooms though.
9:20So if it's becoming so much easier to start companies and you can do it with just one person, why do we need venture capital?
9:30So I mean it's still expensive for a startup to operate and scale a business. Obviously things like inference are becoming more and more uh of a line item for startups, right? Great products are getting built, but to subsidize those products and make sure that customers can actually use them maybe without having to pay themselves at first. More and more startups are subsidizing inference on behalf on behalf of customers.
9:54The other thing I would say is as it is becoming easier and easier to start a company. There are so many more companies and therefore it's probably harder than ever to actually stand out and break out from the pack. And so, you know, we're seeing startups getting more and more aggressive about their goto market and about their marketing strategies and making sure that they can really break through the noise. And so, I think startups are always going to be expensive to uh to maintain, to operate, to build, to break out. Um, it's just
10:23building the actual product, I would say, is arguably easier than ever before.
10:27So, we just walked through the entire floor. This is like the main floor, right? So, yeah. Yeah, this is the main floor. What are your favorite parts about this office? You've worked at different offices not too far away. Yes. So, what's your favorite like vibe about this space?
10:40I I tell you like one of the things I really love about the USV office is there are lots of different vibes in the office, right? You come in, it's very comfortable. It's very homey. Obviously, like beautiful furniture and chairs and couches. And then as you get further in, it's more of like a co-working space.
10:54Obviously, people working, talking. Uh as you go in the back, you have a little bit more of like an introspective place in the library. you can get some quiet and then as we'll see in a bit the roof offers a whole different element. So, you know, whereas I feel like most New York City offices, especially small offices, it just feels like you're in a room, right?
11:12There really are like actual different sort of personalities to this office and we have light. Yeah. Um, pretty much, like I said from earlier, pretty much every corner of this office gives you a different view of New York City, which I think is really cool because it's my favorite.
11:27Do you have a good window cleaner?
11:28What's the uh It's a good question. I'm not sure who cleans the windows, but they clearly do a great job.
11:34We've made it to the rooftop. What goes on up here?
11:36Uh, this is just a really great place to work when the weather's nice. We'll come up here. Uh, you know, I'll take some calls. Uh, people do lunch up here. We also, you know, occasionally have different gettogethers and, you know, meetups with founders. Uh, there's a party that we we often do here every fall that people really like. And um you know much like downstairs as I mentioned the nice thing about being upstairs on the roof is you have an amazing view
12:06from pretty much everywhere. I mean right through this archway here again you can see a perfect view straight up Park Avenue which I think is incredible. You can see the Empire State Building. If you walk over this way you can see all the way across the Hudson River to New Jersey. Um, also on really nice days, the sunsets on this side of the roof are really spectacular.
12:29So, it's a great roof. It's a great feature of the office and it's something that uh I think we all really appreciate.
12:35We're experiencing some good fall weather today. Okay. What is your hottest take right now?
12:40My hottest take I would say uh the user interface is not going away. I I think one of the things we're seeing all over X, people love to say that the user interface is dead. everything is being collapsed and folded into a chatbot. I don't believe that to be true. I think the user interface is where people uh build trust with a product. Uh where they where they gain comfort and know how to navigate different experiences.
13:06Um I think that the the user interface is how products convey different concepts and ideas visually. And I have a hard time imagining that we're just going to be delegating all of our computing away to agents. Yes, I think agents will do many things for us, especially the things we don't want to do. They might go shopping for us. They might file our taxes for us, but they're not going to watch Netflix for us.
13:30They're not going to watch YouTube for us. Um, they might not even scroll X or Instagram for us, right? I think we're going to want to do those things. And so, I have a hard time imagining that the user interface is just going to turn into a chatbot everywhere.
13:42Okay, pretty good hot take.
13:44Thanks. All right. So, next we're gonna go and do a sitdown with Fred, Rebecca, and Mike. So, stay tuned. Okay. Do I start with USV? Welcome to Sorcery.
13:56Thank you. Thanks for having us.
13:57Thank you. Thanks for having us, Molly.
13:58So, we have Fred, Rebecca, Mike. How are you guys doing?
14:04Feeling really good.
14:05All right. So, we have a huge announcement we need to discuss. Who wants to take it away?
14:09I think I think you should take it.
14:11All right. Um Yeah. Well, uh, we're excited. We closed our most recent, um, set of funds, uh, raised $900 million.
14:19Um, you know, in many ways, it's a continuation of what USB has been now been doing for many decades of, um, you know, thesis driven, great partnership with founders, backing businesses that we think are going to be leaders of their markets over the next decade. Um, but it's also a bigger number than we've raised before, somewhat significantly.
14:41and marks a new strategy for us. Um the market has evolved. Uh we think it's um the outcomes are bigger, the swings are bigger. Um the opportunity to leverage the new technology in the market and the applications that will be built on top is super super significant and the rounds are bigger and more expensive and faster and we are evolving our strategy to keep up with that and um really be able to attack that market.
15:09Amazing. So maybe we go back to the 2004 LP letter. So what were you talking about then and how is it different today?
15:16Well, that was uh early on in the internet era. Internet commercial internet had arrived in '95 and and by 2003 a lot of the underlying infrastructure had been built. Not very different from where we are with AI. you know, a lot of the AI infrastructure has been built, but we're still waiting to see what the the big applications will be, right, that will get built on top of it. And that's where we were in 2003.
15:43The infrastructure was there. We had Google, we had Amazon, we had Yahoo, we had eBay, but we didn't yet have Facebook, we didn't yet have Twitter, we didn't yet have YouTube, we didn't yet have iPhone. And so we imagined that there were going to be all these new applications that would be built on top of what we now think of as the the web.
16:03Um and uh I think the moment we're in right now reminds me a lot of that. Uh except now it's AI. Couldn't agree more.
16:10I think we feel like Fred said, you know, the AI infrastructure has been built. Obviously, it's still getting built. there's going to be more and more opportunity, but we're at this moment where we're starting to see the beginnings of what feels like an explosion of the application layer of AI. Obviously, there are products that we've all now been using for the past couple of years like, you know, Granola and Suno and things like that, but you know, just over these past weeks, obviously, everyone's been talking about a whole new type of application layer
16:39with Instinct and Muse and Grockbot. And so it feels like uh we're entering a new phase where agents will be powering a lot of new experiences both for enterprises and consumers. And that's really really exciting for us.
16:54So I'm curious how do you justify the the round size increases if models are if if it's preferred now to go to open source and it's cheaper like where where does all that capital go to?
17:07Yeah. I I think you know something we talk about often is how it is getting dramatically easier to build a product.
17:14Um you know we recently uh announced that we we incubated a a product that we built very very quickly and very very cheaply and lots of other builders are doing the same thing. Um but what that means is that there are so many more startups that you have to stand out from and and and and break through the break through the noise from. And so, you know, one area that a lot of the capital is going is is doing just that, breaking out, you know, marketing, messaging,
17:42positioning. Um, I think we're seeing a lot more investment, especially in consumer for startups trying to break through the noise.
17:49We're excited about open source models and we see the trend moving in that direction and there's kind of a lot of promise there. If you look at the fundamental cost that companies are spending on compute, it's in a totally different hemisphere than it's ever been. Even if you take something like Instinct, right? Like the numbers that they're talking about on what they're going to have to spend on compute to service their needs is pretty wild. And so that's a really different um cost space. There's a bunch of big questions out there. How much does that go down?
18:16And I think we're in this time and we feel like we've been in this time where we don't know the asimtotes of things, right? We don't know when models stall.
18:24We don't know how low compute goes. And so one of the challenging and maybe exciting things is you're playing a little bit against an unknown field, but there's a fundamental cost of compute that is part of the conversation and and kind of cost block of companies that really wasn't really there before. The other thing going on is that the types of companies we are investing in and that are scaling in the market are different and more varied than probably in any other time in USV history. Right?
18:52So we have software applications that are emerging that we believe are going to leverage this new technology that's been built to totally transform how we live and how we work and how we are productive and all these kind of things.
19:03But we've also have a robust energy portfolio, right? And we believe that programmable, cheaper, faster energy is the horizontal undercurrent of everything being built on top. And the cost structures of those energy companies are totally different or our investments in physical AI and the physical world, right? Where we're investing in things that are really full stack robotics companies that are building their own models and also the deployment on top um sensor businesses.
19:30And so they have different cost structures that are requiring both different levels of capital and sometimes different types of capital than previous eras have justified. You know, one thing on the inference, uh, it it actually reminds me of kind of an earlier era of technology, maybe the the mobile era or even, you know, sort of the post internet era where, um, you know, you had these great consumer products and businesses subsidized the usage to make sure these products could
19:59get as adopted as far and as wide as possible before customers are forced to pay. I think right now, you know, we're coming out of a period where I think, you know, AI applications in the enterprise and consumer have been more paid for by customers. We're coming out of a lot of subscription businesses, but now products like agents, you know, to your point about the inference, we're seeing that startups actually want to subsidize the inference and pay for it on behalf of customers to reach that critical mass of adoption. So I do think it's actually going to be pretty
20:28expensive to build large scale consumer businesses if you don't want your customers subscription. Open AAI and Anthropic are still subsidizing core chat offerings, right? I mean, you know, Claude will ask you to start paying at some point, but you know, this is chat GPT has been free for how long? Gemini is still free, right? A startup can't come in and charge for something that right their competitor is giving for free. And so I think you're right that inference or compute
20:58is going to be an expensive subsidy for fast growing apps for a while.
21:02Yeah. I have a question. In the early days of a Twitter or Facebook, right, they offered something for free to the market. And I think one of the things that USV believed in those days is that giving away a lot of value for free in order to back into an opportunity to create a network was a very very good strategy. Did it feel like they needed more money than other companies had ever needed because they were doing that?
21:23They did need a lot of money. I mean, Twitter, the original financing was 5 million and then a year later it was 25 hundred million. Um, at at that time those were big numbers relative, right?
21:35Like we could we could multiply by 10 and you'd get to 50 uh 250 and a billion and that's kind of what we're seeing now, right? And that was also, you know, 2007. So that's 20 years ago. Just pure inflation is going to give you a multiple too. I think what's also interesting about that era compared to this one I think a lot of these products people have pointed out um are not that retentive right because there aren't things like network effects but back
22:04then with a Twitter with a Facebook I have to imagine that you all were seeing these and saying we need to scale these things as quickly as possible because once we do we're going to have this incredible network effect and there's going to be this incredible lock in. It feels like it what was different then that I don't think is true anymore was that not every VC saw that the network effect.
22:23Yeah. In the early days of Facebook and Twitter there were venture capitalists who were arguing we need to monetize this you know we need to you know have a subscription so we can you know have a a revenue line that will allow us to finance the company. And there were others we were in the other camp who were arguing that no if we can get 10 million 50 million 100 million users we we will be able to finance the company.
22:45We ended up, you know, winning that argument and we were right about that and that's really how that model emerged that companies used, you know, even to this day to get to network effect.
22:58I wonder if one analogous thing is there's there's the belief right now that if you look at these kind of emerging consumer agents, the answer is scale, right? that functionality is not all that different among them, but that if you hit breaking points of scale or maybe distribution that you can win markets and so it's a race to see if you can have the right compute and have the right distribution to get there. There's another strategy which is one that we've been talking a lot about which is maybe more analogous to the Twitter era which
23:27is you actually may still need a network effect in order to maintain longevity um and have retentive behavior and that network effect is going to come with who can really be the first and best at multi-player behavior and taking these kind of new singleplayer behaviors and figuring out how to make them truly multiplayer. And it's not that we don't need network effects anymore. It's just that we need to get there and we haven't seen a new way. We haven't really seen them yet.
23:54I want to push back on the agent like economy so much because it's kind of obvious every single company is going to have an agent of some sort. You'll probably have more securitized boxing within those. I mean, we we were joking about this earlier, but it's kind of true. You like input all of your sensitive data and it kind of roams free. But it's clear with Facebook and Muse. I mean, deal even launched theirs for most of like management work and that kind of thing. Like, every company
24:22will have an agent of some sort. Obviously, it's one of the most cost intensive things because it's running so many different programs at once and nodes and that kind of thing, but uh I just I just have to push back on that.
24:35So, like do you think that's a viable longterm category? Like how does that compress versus years ago?
24:43We do. We do. We we think that Amazon will have an agent. So, I'll have my Amazon agent and and um I'll have my Shopify agent um and I'll have my Etsy agent. But I think I'll also want to have my shopping agent or maybe just my agent that will talk to my Amazon agent and my Etsy agent and my Shopify agent so that I don't actually have to be managing um conversations with each and
25:12every one of those agents. I can just have my agent go off and do a task.
25:16Today, what's happening is the agents, as you point out, are logging into these services and kind of pretending to be me. Amazon doesn't like that. I think last week they said to Facebook, "We're not going to let Muse access Amazon, right? We'll see more of that." Um but I think eventually what will happen is there will be some standard or some way of agents connecting to um the agents that each service offers you and making it easier. So I think we're in the early
25:45innings of how this plays out, but we do believe that people will want their own agents that that represent them as opposed to my Amazon only having my Amazon agent.
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27:47Before we go too far, let's talk about USV's strategic positioning, where you guys are investing and what your typical check size is.
27:55Yeah. So, you know, USV has always been, you know, for its history really been focused on the early stage, mainly series A, sometimes some seeds, sometimes a little bit more than that. I think we're going to continue to to play the same game, invest in the same stages, um, for the most part. But to to Rebecca's point from earlier, we're going to be doing it with a slightly larger capital base. Uh, not so that we can do many more deals or fewer deals, but more because, as we talked about
28:23earlier, the shape of the market and the shape of the deals has changed. uh as it's gotten easier to build um you know there's also much much more demand flowing in in the form of capital and startups are raising raising more and so for a fund like ours to stick to our strategy to stick to our various ownership targets and make the fund math work we need to write slightly larger checks. It doesn't necessarily change the way we think about deals or the way we think about companies or our thesis driven investing. It's more of a
28:51reflection of where the market is today.
28:54And what was the pitch to LPS? Was it an easy one?
28:58It, you know, I think USV has a long history with a group of LPs that have been very very loyal to USV and I think USV has been loyal um and good to them as well. And so there's a lot of trust established there. Um and and we added some new ones. And I you know what was interesting to me was LPs see the same thing we're seeing. Yeah.
29:17We're not living in different worlds. Um they see it too. And so, um, I think, you know, maybe a few years ago, this would have been, uh, an edgier, um, push than it was right now because the market has pretty clearly moved in a direction.
29:34And I don't know, one thing that I feel like I've kept saying to myself is you cannot like things about the market, but you're unlikely to change the things about the market. And so, um, you know, we believe that it's a pretty unique time to be on the field investing, and we want to be on the field in the right way. And we have four areas that you know we talk a lot about um you know in conversations like this on our website with our LPs with founders Rebecca
30:02mentioned them physical AI um AI applications um uh AI infrastructure and um energy and and so those are the areas that we're investing in and we're consistent about that everywhere. where our LPs understand that. So there are other areas out there. Um founders who are working in those areas have lots of places to go to but they don't come to
30:30us because we're not loud about those things. But the things that we are loud about founders find their way to us.
30:36And I think that's what we mean when we say like you know the strategy is kind of the same as it's always been at USV. We're thesis driven. There are things we like. There are things we don't like.
30:45um you know 900 million may represent a big jump up for us but relatively speaking it's still maybe maybe considered small relative to a bunch of other funds and I think that size and this thesis driven approach is what enables us to play the game that we want to play relative to the rest of the market.
31:01Well to that point I was an LP at one point in my day and there are very like there are very few funds to invest in.
31:10You typically know which ones you're going to invest in like a year before you invest. It's all dated and like very much uh organized. Were they waiting for you to raise larger? Did you have pressure for that over the years? One thing that I think USV has always done quite well and I think you know Fred and Brad said this is we're very very communicative with our LPS. Um we talk to them a lot. We um don't take it for granted their support. We do quarterly calls. We update them on our strategy.
31:40We update them on our portfolio. We tell them what's working. We tell them what's not working. We tell them what we're thinking and where our heads are. So by the time we come and say, "Okay, we're going to shift the fund size from X to Y." They've known it's coming. This is part of a conversation that's been going on for a long time. Um I was a little surprised how many of them said, "Are you sure you shouldn't raise more?"
32:02Yeah. Be again because we're not living in a bubble, right? They're seeing the same things in the world, you know, that that we are. and and they're seeing the the landscape of what's advantaged, but also that they appreciate that we so so why have a small relative in any world a small fund. I think there's a bunch of reasons. One, um you can return it easier and get into carry um and have the dynamics of the fund work the way
32:30you want it to. Two, you can be pickier, right? We always want to manage a fund in a bottomup way. And when I say that, what I mean is there's a universe of companies. We don't want to say we need to be an X% of them for this math to work. We want to say we have strong hypotheses and ideas about what we want to do and if we're right enough about the ones we do aligned with us, this fund is going to be a big success. And so we don't want to get bigger than that strategy allows for. Um, but that number
32:58has shifted. And so that was an ongoing conversation with the LP.
33:01It also aligns interests, right? Like when the funds are small, it kind of focuses the results on the performance of the portfolio companies and everyone rallies around that. When the funds are really big, it it it potentially distorts the incentives a bit. And I that's one thing that I've really appreciated about USV small fund strategy.
33:20When you started USV, did you want it to stay a small fund or did you ever want it to be a really big fund? I I like the the earlier stage of investing and so the ability when we started it, you know, we were thinking of writing like a $3 million series A check. Obviously, that number's changed a lot over the years, but that's how that's where we wanted to be and that's where we still want to be.
33:40What is a typical series A today?
33:42I'd say it starts with 10.
33:44It's like Yeah, I think 10 is now on the small side.
33:47That's why I say it starts with 10.
33:48Yes, 10. You know, you're obviously seeing some series A's that are a hundred or a billion.
33:53A billion, right? Like we also know what's not in our zone, right? That's not in our zone. We we want to overall and there will be exceptions to every rule. We want to leader coine investments. We want to make real bets in things and stand behind them. Well, there might be a time where we break that and and write a, you know, strategic check into something in a different way, but overall that's really our strategy. um the the checks that we believe in the series A checks in this fund will probably be 10 to 30 in order
34:22to do that. They don't have to be the whole round. So the rounds could be bigger than that, but that's probably what we're looking at. And then we'll do a lot of seeds and we'll even do some earlier than seeds. Um maybe Mike can talk a little bit about that too. Yeah, we, you know, one of the things that we've been thinking a lot about at the seed stage is, you know, what are some new and different strategies that we can pursue as a partnership that maybe USV hasn't traditionally pursued um to get real ownership at the seed stage, right?
34:52One thing could be taking more pure founder bets, which as a thesis driven firm, like we haven't we haven't done a ton of that in the past. Um, another thing could be, you know, earlier we talked about uh how much easier it is to build something than ever before, how much cheaper, how much faster. We have a lot of strong opinions about different categories and and and thesis. And so in some cases, we feel like it might make sense to to actually build something uh
35:20inside the partnership um as a bit of an incubation.
35:24Yeah. And there's another slant on that.
35:26We have uh a couple venture partners uh Jared Hec and Scott Bellski who are really accomplished entrepreneurs and product thinkers and builders and working with them and Mike who is also very much in that camp. Uh we can do things that aren't really an incubation but we have an idea we go find somebody who maybe wants to start something and we kind of partner with them to get it
35:54off the ground. Um, so we're not the founder per se, but it's it's a it's a situation where we have like full ball control, if you will, and we'll provide maybe the first two checks into it before it goes out to market. Um, and so this is all kind of, I think, a continuum between real incubation, um, and founder bets and maybe what I would call like proprietary seeds. And I think maybe those will make up as much
36:23as a third to a half of all the seed investments we make. Um because as as Mike said, um it's getting easier and easier to to prototype something and take it to a small group of users and and actually get real feedback and see if you've got something or not.
36:41That's a good point. So how has the measurement at which you diligence these companies and the milestones and the success metrics changed over time? What do you look for now or what do you overlook now that you might have looked at before?
36:55I think one of the things that I've been uh really excited by coming in as as USV's u newest partner is how much this team cares about products. um you know it feels like the deals that we've dug in on sort of always require not requires doesn't there's not a hard requirement but it feels like there needs to be somebody on the team that's like really excited about the product.
37:20Now obviously that can't always work especially in today's market where as we just mentioned you know some cases we want to go earlier and earlier and just bet on a founder maybe somebody that's in our network that we really trust but or we're betting on micronuclear reactors you know right exactly so it can't always be that's a little different so in the energy side of our business it's different but I would say in anything that touches the consumer um it's a combination of what Mike said which is using the product and getting kind of an
37:48instinctive feel for whether the product is good or not. And when you combine that with retention data and cohort data, the magic is when you can start to the thing you feel is the thing you see in the data. Either the retentiveness of it that you feel and you see or maybe you you're like, you know, I might churn off of this because of XYZ and you see that in the data and you're like, oh, you know, they're going to have a churn problem. And so it's I think it's a combination of using product and and
38:17sort of a product native mindset combined with a lot of data and really looking at cohorts and understanding what you what real users are doing.
38:26I think the other thing though is that team right now is playing team is always the most important thing right no great company can be built or started without an A++ team. We actually debate that sometimes because sometimes there are these examples of crazy runaway network effect businesses where the momentum of the network can carry it far enough that maybe team matters left. But I think in today's world team is playing, you know, it's always plays an important role. I would argue it's playing an more
38:54important role than ever for really a bunch of reasons. One is that um I think great hiring is harder than it's ever been. there's massive massive talent competition and so the ability to pull people away who are excellent from really really strong other opportunities sometimes where they're getting paid a lot of money by large labs or incumbents or whatever it is or startups that have raised billions of dollars. Um you need the right founders that can really kind of mobilize um a world around that. The
39:23other reason is I think um narratives and market narratives are aggregating faster than they ever have. So the market is designating winners, right?
39:33And um telling these stories in a way where value aggregates often in a way that way way way precedes where the business is. And so the ability to be the founder that drives that story and gathers that attention and breaks through the noise and designates themselves as the owner of a market very early um is super important right both for investors and raising money for team for customers that narrative piece and
40:02storytelling I think we are paying way more attention to now than we probably have in in other markets. Also, if it's if it's easier than ever to build a product, you know, we want to back founders that we believe can really go the distance, right? And that's I think that's more rare than ever.
40:17I know this is like, you know, we're talking early stage, but the companies mature like you have you guys are sophisticated investors like you are actually looking at performance metrics.
40:28like it is clear and it's also clear which ones end up becoming scams because they're really good at marketing themselves and then which ones like actually have performance and revenue and that kind of traction. So I'm kind of trying to get below the layer of like yes it's a great product, yes it's a great team, yes it's a great founder.
40:46Like what do you want that team to be focused on? Is it retention? Like is it is it revenue? Like what do you care about? So, last time I was on Sorcery, there's a there's a clip now that I see on X all the time from that interview where I guess I said ARR is a fake metric. I said something like that. I see this.
41:04I I think ARR is has become, you know, a metric that a lot of investors pay attention to given how fast the revenue rate has ramped for so many of these companies. But um you know I think one thing that we care a lot about is kind of clicking a layer deeper than that.
41:22You know so many of these products now because so many are subscription based right we talked a little bit earlier about how so many products are subscription based. Um I think it's easier than ever before to get somebody to pay for a product via subscription without knowing if they actually like that product. Right? A lot of the subscription plans are annual. A lot of the time you have to pay just to try the thing. And so we try to look often more at the true usage retention of the product. Like how often are people
41:52actually coming back to this product and using it. Are they coming back every day? Are they coming back every week? Do they turn out after a month? Um I think that's probably a more telling thing to look at than just revenue revenue retention. Yes, great. If the company can hold on to that revenue for a year or two years or three years, obviously that's going to show up in the business.
42:10But if the product isn't good, at some point they're going to churn and the business is going to fall apart. So I think people should be paying more attention to that like like we used to I'd say in an earlier era of investing.
42:23I think it's user retention and product innovation. I think we're in a moment in the market on the consumer application side where um trial behavior is at an absolute high totally and engagement behavior is at an absolute low. And that makes sense, right? We're getting thrown so many new things all the time in the market and you have to pay to try them.
42:42You have to pay to try them and we want to. It's on the news. It's the main discourse in the world. Everyone's like, "Are you up to speed? Have you tried Instinct? Have you tried Muse? Have you tried Robin Hood?" Like, we want to try them all. We're going to stick with very few. So, the trial behavior is a little bit of a fake out, right? because we know you can get people to try, but it's only really going to have long-term value if you can get it to integrate into someone's life.
43:07And so figuring out how to tell that is, I think, the whole thing. And part of that is watching how someone iterates on product, right? I don't only think it's like great product insight. It's what are the little hooks and things they do and changes they make that keep that product going and fresh and different because realistically the idea that we get you know full insight into retentive product behavior before we get to make a decision is not really true right like if we really needed that we'd be having
43:35to write way way bigger checks than we would like to write here so we're going to have to make an inference about that with less data than you know maybe we would like and so I think you're looking for proxy for that both on the team and on the data side that give you the sense that that's to come.
43:52But a lot of this that we've just been talking about I think of as like seed series A series B kind of conversation.
43:58One of the hallmarks of USV is that we are very long-term investors. We're we still all of us are still working on companies that you know we funded over a decade ago. And so as these companies grow, what you want to see is that the team can can launch new products and new lines of business. We we had all of our CEOs together last week at our annual CEO summit. And one of the stars of our 2016 fund is this company called the bridge, which is an AI for healthcare
44:26company. And Shiv uh was telling a bunch of us just in a casual conversation that they had made all of their money for the last what five or six years on a single product. and he's most proud of the fact that in the last 12 months they've launched two new products, really two new lines of business. So now it's a three-legged stool instead of a one-legged stool. It's going to be a much more stable business. Um and and the three products are very synergistic.
44:53So when a customer adopts one, they're kind of locked in. When they adopt the second one, they're more locked in. When they lock in when they adopt the third, they're kind of all in on a bridge. So that to me is the evolution of a company that's that's going from being, you know, a great company to being potentially a fantastic company. And and the the thing about venture capital, as anybody who studies it, you you've been an LP, so you know, is that it's usually
45:21two or three, maybe four companies per fund end up being the stars of that fund. And and and to be one of those companies, one one of two or three things has to happen. and what's happening in a bridge isn't probably my favorite example of of a company that can make something can make a company that could be like a 100x.
45:39Well, one of the things I like about that that I think is that if you think about a bridge or like a bunch of the winners that have emerged in including Twitter, they're often not straight lines. It's not like they popped immediately and like it was it was obvious, right? A bridges in 2016, you know, and we're seeing a lot of companies now that feel like they are straight lines. Obvious unlikely that that's the story.
46:00That's a good point. So to dig into I guess this pattern if there is one over time like is it obvious to see that in a company is it a straight line to Abeca's point if we go back USV has probably now had over 10 early stage funds in in the life of USV and every single one of them have produced two to three really great companies and if you you know you just sit there and you you list them in our first fund we had Twitter we had Etsy we
46:30had indeed.com Indeed.com, you know, we still see ads on TV. We we haven't been an investor in that company in 15 years, but I I suspect that company is like 50 or 100 times bigger than when we sold it um a decade or or more ago. And then in our second fund, we had MongoDB and we had Twilio um you know, which were you know, products that developers used. And then we had Stripe and then we had Coinbase
46:56and then we had Dualingo. And then um now we're getting into the more recent era like a bridge is a 2016 company and and I' I've left off a few um u but there are probably 20 or 25 companies that you know we've invested in over the last 20 years that I would you know consider to be extraordinary um companies in terms of not just the investment that we made but like what
47:25they become. I mean Indeed is really interesting like you know we were there at the very beginning it was Paul and Ronnie and a couple engineers and they had this idea today it's like probably the largest job hiring system in the world right you know and it just came out of nowhere to become that right you watch these things emerge that way it's it's remarkable I mean Twitter you know well now we know you know what it is it's one of the most important you know pieces of media infrastructure in the world and you know when we invested it
47:55was like five or six people, right? So, that's pretty interesting. And one of the things that we can give founders, and we're not alone in this, by the way, um is that there are plenty of people here at USV who have that kind of perspective on what it takes to really build uh a generational type of company and and the and the the fact that it's not a straight line, right? like Coinbase was like, you know, you know,
48:23like it was like a series of like little moves and then flat for a long time, then a little move, flat for a long time with a couple big breakouts in 17 and 19 that led to it becoming a public company. Um, so it's it's never a straight line to the top and and um sometimes there's management changes.
48:40Twitter's sort of famous for having kind of a revolving door of CEOs for a long time. Uh so that's its own set of things that you have to work through sometimes.
48:52But if you take a bridge for instance like a bridge the idea of the product was very similar but it went down a a a very different go to market road for years. Um that didn't get them anywhere and turned out to not be the goto market road right that made sense for that product at that time. What was it?
49:11The idea was you would walk into a doctor's office and record the uh appointment. Well, it turns out it's actually the doctor who wants to record the appointment.
49:19And so, like you think you back a whole business, right? You think you back, you know, you get conviction on this idea that patients want to record themselves, you know, in their medical appointments for XYZ reasons, and you're backing this team to go after that. What you learn you're backing is not that. you're backing kind of a a team, a product sense, and a direction, right? And what you backed was the idea that Shiv could build the team that took this like kernel of an idea that was directionally right and kind of wrong in the details
49:48to start and navigate it to the place where the right product and then as Fred talked about eventually the right series of products met the right go to market at the right time. And that sometimes happens right away and sometimes takes a while and you need the teams that are gonna be able to kind of go on that journey and fight that out.
50:07It's usually an extraordinary founder though. Um not always but Shiv's an extraordinary founder and the other uh startup that we backed in Pittsburgh Duolingo again an extraordinary founder and more of a straight line.
50:20No no the first product was that No, the first product had nothing to do with what they ultimately What was the first product of Duolingo?
50:27It was like uh translating, you know, uh foreign like foreign language documents. No, it had nothing to do with I mean, but the but he's amazing.
50:37Founders, Rebecca said this earlier, founders who can combine a vision for something that they want to exist in the world with the ability to tell that story and galvanize the right people and the right investors and the right product. That's we've all seen it. We know when we look at it, we're like, "Oh, that's a great founder." But it's easier to see it when they're, you know, the CEO of a public company than, you know, when they're just walking in our
51:06door with an idea. And we get that wrong more than we get it right. Um, but how do you get it wrong?
51:11Well, we think somebody can be a Louise or a Shiv, but it turns out that they can't get out of their own way. They overthink things. They struggle recruiting. They struggle retaining. They're a micro manager.
51:25They struggle making hard decisions to make the big changes early enough, right, to say this go to market's not working. Let's try something really different. It's hard to burn boats as startups.
51:34Mike's been a founder, so he he has a lot of empathy for this.
51:37Not a straight line.
51:40Yeah. It's it's never a straight line.
51:41But, you know, everything these two are talking about right now is what I love about USV being thesis driven, right?
51:48you know, all of the examples that they both just cited, if you think about them in the context of when the bets were made, it's extremely early, right? Like the Coinbase bet was very, very early on in the history of crypto. The a bridge bet was very, very, very early on in the history of AI and data capture, AI and healthcare. And I think, you know, Rebecca's framework that she just laid out a few minutes ago about a great team and a direction of an idea, I
52:17think, is is so so important and so key. And I think that's how USV has been successful. These bets early. Another one that, you know, we've been talking a lot about is Radiant, which which, you know, Fred is on the on the board of.
52:29Um, you know, that bet was made before it was obvious to everyone in the world that energy was going to need to be so abundant for AI. Um, but you know, this team had a had a thesis and had a point of view about the importance of energy, which is what led to that investment. And now, sure enough, how how many years later we radiant in 21. So, we're we're five years into that one.
52:52So, I mean, anyway, it just speaks to the power of I think thesis driven investments. But I think to your point and, you know, to to your answer, Fred, we don't always get it right. And sometimes, not only is the team wrong or the person, but sometimes the thesis is wrong. Sometimes the the the benefit of thesis driven investing is you can I think a few things. One, you can bet on spaces that are more on the come or less obvious because you have a prepared mind and perspective that you're bringing to it of something you believe. You're not just seeing a company seeing what they
53:22believe. You have a belief. You can also start the conversation with a founder in a different place, right? Because you're saying, "I have a set of hypotheses on something and you have a set of hypotheses on something. Where do we align?" Right? which I think is actually a lot more fun and and probably sets you up for a relationship in a different way, but also I think tends to get us to a better outcome than than otherwise.
53:43The risk is like there's a lot of ways you can be wrong. You can be wrong and people you can be wrong on the whole thesis, right? You can go down a road that isn't, you know, the right road to go down, but when you go down the right one, it's worth it. Today's episode is sponsored by VCX by Fundrise, the public ticker for private tech, allowing investors of all sizes to invest in venture capital. Learn more at getvcx.com.
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55:23I guess to distill this this like theme down. What are the key behaviors or actions that successful companies make that win each technological shift? Like we're in a major technological shift right now. How have you seen that throughout time of what the key behaviors are of those teams or of those founders and maybe the key traits of those types?
55:48It's getting the idea right. Uh what I mean by that is um uh everybody knows that we're all going to have personal agents. But if you if you look at each of the products that are out there, they're all a little different in terms of how they feel, how they work. Um getting it right um is the right set of features. um kind of stitched together in the right way and delivered with the
56:15right business model um and then also with a team who has the ability to access capital and scale against the opportunity if they actually catch fire.
56:27So that that I think it's it's not just the ability to raise capital. There's lots of people who are great at raising capital but they can't build a product that really wins. And there are people who build a product that really wins, but they can't they can't galvanize a team or money and so they get beat. It's the ones who can do both that ultimately really win.
56:49Was identifying that aspect of fundraising ability um as important maybe 10 years ago? Was it was it as obviously important 10 years ago? The interesting thing, and Rebecca alluded to this earlier, sometimes if a product really catches fire, um, it can raise money even without the right team around it. And then you have to kind of scramble, you being the founding team and the board kind of have to scramble
57:18to figure out how to fix the team and get it right so that so that all the all the things can come together. Um, and I would say that was true at Twitter. That was also true at Etsy. Um, so it isn't always the case that the the right product emerges from a team who has maybe the right stuff to to make it a a lasting business.
57:45Why is one of the categories called Rebel Alliance? Well, rebel just in the sense that um there are now the sort of established winners in AI, which would be open AI, Anthropic, Grock, um Gemini, I guess, all that's Google. Um, and then there's this sort of open-source world out there of open source models, open weight models, open source harnesses, and and all this other infrastructure
58:12that you can stitch together to build something that looks like claw or looks like um um cursor or some sort sort of full stack product. We call it the Rebel Alliance because a lot of developers out there, they don't want to build on a like a closed stack. They're worried that if they build on top of Claude, for example, just to pick on Anthropic, um that somehow Anthropic will ultimately
58:41compete with them and then they'll get cut out. And this famously sort of happened in the early days of social media. People built lots of businesses on top of Facebook and Facebook ultimately decided they wanted to be in those businesses themselves and they got cut out, right? And so developers out there have this concern. I need I need a stack that I can control and I can trust. And so we call it the Rebel Alliance because there are people who are kind of rebelling against the the leading emerging stacks and trying to construct their own.
59:10And it turns out like that stack is actually very very large and there are lots of layers to it um for not only opportunity but for the different needs of of the developers, right? There's things like um alignment with the models and making sure that the models are aligned with the needs of the enterprise or the customer. There's things like memory. There's things like routing.
59:31There's things like the models themselves and making sure that they're open weight and you you know a developer can actually manipulate them the way they need to. And so we feel like not only is there this I don't know if we want to call it like uprising of developers wanting to not be beholden to this uh this one sort of player ecosystem but it's also very very very large with lots of layers which is why it represents an entire thesis for us. I mean, we had a we had a moment on on stage last week at the USB CEO summit
1:00:00where I was interviewing the CTO of Coinbase um about some of the changes that they've made organizationally to be more AIcentric and how they do the work.
1:00:09And he just casually mentioned that they moved away from Claude and they built their own uh harness, their own coding agent harness on an open source product called Pi. Well, we're an investor in this company, Arendelle, who put Pi out into the market. I didn't even know that this had happened. I was just like, "Yes, you know, it's great." Um, but that's, you know, tons of developers.
1:00:31So, a company like Coinbase and Shopify has has has done the same. They they were, you know, pretty loud about it.
1:00:37Um, and I I imagine many other companies, too, where the CTO and the engineering leaders look at it and say, "Oh, we we can't just build everything on top of Claude, right? we have to have something that's more flexible that we can evolve with our needs and and all of this is really getting built up uh in these in these open source tools. We're very excited about that area. It's an area that we feel like we have a lot of conviction around that maybe uh other
1:01:05venture capitalists uh aren't aren't as excited about as we are which is something we like because the founders feel a kind kindred sort of spirit with us and so we tend to be really competitive in that those environments.
1:01:20Any other areas? Well, I think energy in general was an area that, you know, I think we staked out early. Um, and you know, we basically said, look, if you want if you really want just a simple way to bet on AI and not have to think about all this other stuff, just bet on energy. Yeah.
1:01:36Now, we're not just doing that, by the way. It's 20 30% of our portfolio. But we feel like it's a very levered bet on AI.
1:01:44It's a good one. We talk a lot about obliterate don't automate which is kind of another phrase for the uh investments we're making at the application layer of AI. The way we think about that is it's the idea that a new AI is going to kill us all. No, no, no, no. Opposite that it but that it may obliterate an existing market, right? Um there was an era of software, you know, over the past decade, SAS, enterprise, uh that was
1:02:12really about automating businesses and automating markets that already existed. But with AI, you know, businesses and consumers can tap into uh intelligence that was previously gatekept by really large organizations or really large institutions at a fraction of the cost.
1:02:30And we believe that through that literally entire markets can be restructured through that democratization of intelligence. So a great example of this is something like healthcare. We have an investment in a company called Docttronic where they're leveraging AI not to just make the existing uh health care system more efficient or more practical but to literally give consumers a doctor in their pocket in the form of AI that can actually write prescriptions in some states.
1:03:00What kind of prescriptions?
1:03:01You name it. What do you mean?
1:03:07Probably not controlled substances. It's not controlled right now retail.
1:03:13But but you can see anything you want.
1:03:16But you can see that if everyone had access to a doctor literally on demand, immediate for virtually no cost, what that would do to the existing healthare market in this country in this one of the things that I love about Obliterian automate is that it's perfectly applicable to this moment in time, but it's probably the best articulation of the thesis USV has always had. Fred actually wrote a blog post in 2014 called Obliterate Don't Automate about the USB thesis. We've always believed in the opportunity to
1:03:44restructure markets and drive the value back to the end user away from the centers of power in the middle. Um you just can do that with a whole new tool set right now. So the opportunity to restructure healthcare or restructure education or restructure manufacturing or whatever gives this opportunity to drive the value out of the middle to that end user in a totally different way um because of the tool sets at hand.
1:04:09A simple way to think about this is don't hire a lawyer, use an AI lawyer.
1:04:15Don't hire an accountant, use an AI accountant. Don't hire a doctor, use an AI doctor. No human whatsoever in the loop. not about selling AI to doctors or AI to lawyers or AI to accountants. It's like I'm not going to have an accountant. I'm literally going to tell my AI to prepare my tax return. I'm going to give it access to my bank and it'll just do the numbers and and send the IRS my, you know, I don't need a human. I don't need to pay a human. I would say 20 to 30% of the legal work that we do here at USV does not get
1:04:44touched by a human lawyer anymore. Now, we know what our AI lawyer can do and what our AI lawyer shouldn't do. that that's increasing over time, but we're not careless about it. But there's certain things like issuing a term sheet. We do not need a lawyer to do anything.
1:05:00How many of those have you issued?
1:05:02Right. And so we can train a model on all our previous term sheets and issue them. Right? And so, and the thing that is exciting now isn't where everything is, it's the slope, right? And and if you just play out that slope, it covers a lot of your AI lawyer is as bad as it's ever going to be.
1:05:17It will never be as bad as it is today.
1:05:19the company that we recently announced that you know we talked about as sort of an incubation super take I mean this is another great example of this the whole idea of that company is you don't need expertise around the stock market or you don't even need to pay uh a financial manager to come up with a portfolio strategy for you and then deploy it you can just have the AI do that and so that's another example of sort of breaking down the the barriers of sort of gatekept uh institutional knowledge via AI
1:05:46the age-old question to this would be why can't incumbents do that?
1:05:52They won't do it. They have people. I mean, lawyer is a perfect example of it, right? Um we say to a lawyer, um you know, you can issue the term sheet.
1:06:01We're just not going to pay you to do it. And they're like, well, why would I do that? You know, I have I have people to pay. Okay, fine. Then I'll just use an AI lawyer to do it. Like, and their business model depends on the people. The incumbents, the incumbents cannot, and I think it's particularly powerful in people-based businesses. The incumbents cannot offer something for free.
1:06:24Our partner Brad is, I think, always says this the best, but his line is always the best time to bet against an incumbent is when them doing what you want to do fundamentally threatens their current business. It is very very hard for major incumbents to burn their own votes and to take that kind of risk. So if you think about, you know, there's plenty of news out there about certain law firms, right, hiring engineers and
1:06:53machine learning and Morgan is going into AI. Did you see that?
1:06:57Yes. Exactly. Um and trying to build the models and some of them will do it and some of them will try but overall it would come it will cannibalize their own business.
1:07:07Right. I mean Google has done I think an admirable job. They know that Gemini is going to cannibalize Google search and the numbers are staggering. I saw last week search is way way down. It's dramatic.
1:07:21They are doing it. But they have all these other businesses. They've got YouTube, they got Whimo, they've got, you know, Gmail, they've got Android. Like they can literally kill the thing that funded all those other businesses because now they have all the other businesses. If all they had was search and they never built those other businesses, they'd be in a world of hurt right now.
1:07:38Yeah. A lot of publicly traded incumbents are going to have a really hard time doing this because they have to answer to their shareholders and keep revenues going up and to the right.
1:07:46But I think your fundamental question is the one we're thinking about all the time. It's not only why can't incumbents do it. It's why can't anyone do it.
1:07:53Right. It's why can't I build that agent to do my taxes or why can't I train my we trained our own, you know, legal model. We didn't buy it. And so what is going to create advantage in this moment in time when the building is faster and more efficient than ever, you know, and that is something we're thinking about and that goes back to network effects and speed and team and product decisions that are going to make these abstractions the ones that people rely on and also some of these other
1:08:22categories like physical AI and data at the edge and you know energy and things that operate in a little bit of a different way than software. So an area where all of this is directing, it's part of Rebel Alliance is trust and security. And so how are you thinking about cyber security and all of those types of things as we obliterate and automate everything?
1:08:45It's it's definitely an area that I think is about to change. Um I think a lot of cyber focus uh over the past few decades has been focused on the enterprise. It's probably going to undergo a lot of change at the consumer uh layer now just because of how many consumers are going to be I think you said earlier just like handing over everything to their agent whether it's instinct or Grockbot or Muse. I mean one of the things I was thinking about just this morning was the concept of password
1:09:14reset is going to have to change. If you give your agent access to your email, which is where all your password reset emails go, they just automatically will be able to access literally every account you own. So, um it's definitely an area we're thinking about. You know, we haven't traditionally made a ton of investments there, especially at the enterprise as we mentioned.
1:09:32Um but it's an area that's going to change dramatically.
1:09:34We we have a portfolio company. They call themselves Common Fabric now.
1:09:39Uh they just announced, right?
1:09:41Yes. Common Fabric. uh and um it's a sandbox um that's focused on this very issue about how do you give users the security that they want um but also the power that they need. Um they have a particular approach um I think it it will be interesting to see whether that approach or a different approach will emerge but we have a lot of conviction that users are going to need some new help in security around this stuff. I
1:10:09mean, I think about my mom who's 96. She she's not prepared for this world. Like, she she's not going to be able to know what's real and what's not real. I'm not sure I know what's real and what's not.
1:10:20People get spooked by or spooked by those AI videos all the time.
1:10:24All the time. Well, we've always been interested in this idea of security and privacy and control with the user versus the platform. And we've done that to kind of more and less success over time in terms of how much the end user actually cares about it. There have been companies like Duck.Go that had enough of an audience that really cared about privacy and search that created a really really strong business around it. And there have been plenty where we may want them to care about privacy and security, but there's not enough of an incentive
1:10:53system for the end user to really care about it. That may be changing. Yeah.
1:10:58Right. It may be part of the conversation in a big enough way where things like ondevice and private models and these kind of personal security and and more consumer oriented products may have a moment that in previous iterations it didn't have because of the awareness and the the scale and all those kind of things. I also think things like biometrics may have a different kind of moment in terms of proving humanity. And so I think we may be entering a time where things that previously struggled to get attention have this moment to grow. The other
1:11:27thing to think about is if you can run models locally on a secure device like a iPhone, then you can give a lot of this um uh secure information to your local model and have it do the work locally as opposed to out there in the cloud. We're not there yet, but I don't think we're very far from some pretty powerful models being able to run locally.
1:11:49Nil and I saw a company this weekend that's doing local models on your phone. Um, so we're there.
1:11:54Yeah, I think we're there. Wow.
1:11:59Well, Fred, you'd know of all people though, it doesn't just stop at that. Even in crypto, like you could click a link and your whole wallet will be erased.
1:12:08You've done it. Oh, wow. Do you have anything left?
1:12:14Uh I should be worried.
1:12:16I So, so what stops your agent from clicking the link? So, I have owned crypto assets for 15 years and I've been hacked four times. Um, but I still have like 99% of all my crypto.
1:12:32Um, so, but I've been stupid uh and done things I shouldn't have done and not had my crypto as sec as as secure as it needed to be. And I've learned the hard way. Uh, as most people in crypto have. Um, I I think if you talk to most people who have been in crypto for as long as I've been, they will tell you something similar to that. Hopefully, the the ratio of losses to what they've kept is the same as mine because I feel good about that. There are some stories
1:13:02out there that are horrible where people have lost everything. But I think most people, you know, got hacked and it scared them enough to kind of take the proper measures.
1:13:12I almost lost all my crypto once. I got very close to being scammed. I was on the phone with a scammer for like 15 minutes thinking they were legit.
1:13:20Yeah, it was bad. And my wife, she she was like, "You need to hang up the phone right now." And sure enough, she was right.
1:13:28But I came very close to losing all of my crypto.
1:13:31I mean, Coinbase, uh, you know, company that I'm still on the board of and was, you know, one of our really great investments over the years here at USV. Um, that's a big part of what they do.
1:13:42you know, they have cold storage where they store assets super securely for their customers. And there's a lot of um, you know, there's two factor and there's like delayed withdrawals and there's all these things that they do to protect those assets and literally protect their customers from their own stupidity, which I'm guilty of by the way.
1:14:04Yeah. In many ways, it's a security company more than anything else. Right.
1:14:07Yeah. I mean that well that's an interesting analogy because like people wanted to get into crypto and were interested in it but it was it felt dangerous because you could get scammed all the time and there was a big privacy risk and Coinbase came along and said just give it to us and we're going to handle that part of it for you brandusted brand.
1:14:29Yeah. And and most they're the most trusted brand in the sketchiest industry ever. That's that should be their tagline. No, they make it literally seem so normal. Like it's awesome. I've talked to them about it. Even cat, they're like they do a great job marketing and most people don't know how exactly they're keeping it safe, right?
1:14:44Well, that's on purpose.
1:14:46Totally. Probably.
1:14:48Yeah. And also, they don't really care as long as you trust that it's safe. You don't really And I wonder if we're kind of at that tipping point or moment in AI as well where like everyone's interested. We know it's going to provide a lot of utility, but we're looking for these kind of trusted brands and platforms that can kind of give the comfort that things are in good hands.
1:15:06I went to their last system update product launch in New York just a couple blocks away and that was one of the questions that I asked both Cat and Brian is like, "You guys built the most trusted brand in one of the toughest markets. Like, what do you think all these AI companies are getting wrong?"
1:15:23What they say? Well, I mean, like, they're telling people they're going to lose their jobs and die, so that doesn't help.
1:15:31That doesn't help.
1:15:32It definitely doesn't help.
1:15:32It's a good way to destroy trust.
1:15:35Okay. So, um I hope you don't mind. I I went over a bit because this like dynamic just works really well. It's It's awesome. So, we might not have that much time for solos, but I just figure this like this is just awesome. Um maybe we just do like the quick office thing. Three of us can just do that. You have to go in a few minutes. What time is it?
1:15:57Yeah, I got eight more minutes.
1:15:58Okay, cool. So, I figure uh just like two or three more questions, but like this is awesome.
1:16:03Great. So, then maybe we're You guys are so fun to talk to and like the vibe and the dynamic is great.
1:16:09This is the vibe. I mean, what you're seeing is is the vibe among our partnership and frankly the entire team. I don't mean to make it just about the partners. Um, it's a very conversational kind of back and forth, wanting to hear what the other person thinks and collectively kind of coming to ideas together. That's how we work.
1:16:28Okay. So, I'm going to ask you the hard question now.
1:16:31Do you expect every company to become a trillion dollar company?
1:16:34No, of course not. Um, you know, if you expect if you expected every company to become a trillion dollar company, you would not somehow you would not be taking enough risk, right? like venture is based on an outlier mechanic but we don't invest in companies that we don't see the opportunity ahead of us. Do you think it's realistic to think that like these companies right now will become I mean obviously Anthropic is not that old. We have chat that's a little bit
1:17:02older open AI but like I I maybe I have kind of two takes on the question. What part of your question is does every market have to be a trillion dollars right? Can you get into a market that you don't see it today? I think one of the things that USV has done quite well historically is be willing to bet on markets that aren't yet there but are on the come. crypto being maybe the best example of it, energy right now as well, education, these markets where if you were underwriting exactly the dollar spent in crypto at the moment of a
1:17:30Coinbase investment, you would never get close to being able to underwrite the value of what that became, nor what that market became. So, you need to bet on markets that you are excited about today, but even more excited about where they're going. We're certainly doing that right now. We've been talking about things like robotics, like what can happen because of a sensor proliferation. None of that is that interesting today in what is live in the market. But do we think when we look at 2030 or 2040 or 2050, those can be
1:18:00trillion dollar markets? Absolutely.
1:18:02Radiant nuclear, right? The market for nuclear energy today is almost zero, right? They it doesn't really exist. But we believe it's going to be one of the most essential energy sources that are out there. So we have an interest and ability to write forward on markets on what we think markets can become versus only what they are today which I think is really important to our strategy. I think there was a time where we could underwrite businesses of different scale. Part of it was fund size. Part of it was market dynamic. There was a time
1:18:31where like number three, four, five in the market could still actually acrew a lot of value. I am not as sure that that's where we are today. Others may disagree, but I actually think value is aggregating to top players faster than they ever have before. And interest isn't really existing in the longer tale. So, we are less interested in saying, well, we're not in the one or two player, but maybe this three or four player can get enough value that it's a great investment. I think there was a time that worked. I'm not sure that time is now.
1:18:59Yeah. In many ways, every USV investment has to you have you almost have to believe that it's a TAM expansion opportunity. if you're if you're sort of evaluating the size of the TAM as a fixed TAM when you make the investment, it's it's probably not going to make sense.
1:19:14But I also think that if there was a time when we felt if a company could be worth a half a billion dollars, um we could make an investment, then I think the number, you know, kind of grew to a billion. Um I don't think a trillion is what we need to underwrite to at USV. I think if if our biggest winners are in the singledigit billions given our fund size and our ownership, we can produce
1:19:44really really healthy returns for our partners. And that's where it's been.
1:19:48You know, there've been some outliers at 50 billion or, you know, hundred billion, but you know, a lot of our biggest winners are in the 10 billion range and that's produced enormous returns for us. I asked this also because I just came from Bending Spoons and so you know they're obviously buying up a lot of companies. Uh they're doing it in the low1 billion dollar range.
1:20:09They did some earlier ones and that kind of thing but it was you know remarkably like the Zerp era of funded companies that were at 11 billion 15 billion and they got written down to around 1 billion or two billion that kind of thing. Um, but how do you think about that valuation sensitivity today and where does it get irrational?
1:20:30I mean, if we get into companies early enough, at the earliest stages and with the right ownership size, as Fred just said, even exits in the single-digit billions can still be enormous for us given the small fund size of our strategy.
1:20:47This will always happen. There will be some companies that overshoot what they're really worth and they'll come back to Earth. Not all companies. Some companies just are rocket ship. But some companies, they have a moment where the world thinks they're worth five or 10 billion, but they really are worth a billion. And that's perfect for a bending spoons, right? Like their model's really interesting. They can, you know, pick things up um you know, when the venture journey's over and and grow those businesses, you know, with a different, you know, kind of capital structure.
1:21:15So, as we close out, this is my partner question, but my partner, my favorite partner, I don't know where my camera is. There's like 500 cameras here, but Sorcery is sponsored by Brex and so they think a lot about performance spending smart or moving faster. Um, I think about this, you've gotten this question before in terms of who you surround yourselves with and uh, you know, performance is like a met measure of like maybe the five closest people to you. Um, without pumping your book too
1:21:44much, I will try to get you to think outward of that. It could be an author.
1:21:49It could be like a historical figure. It could be just a longtime mentor of you yours. Who are the people that really keep you inspired or keep you challenging yourself?
1:22:00I know that was I mean it really is founders. At at our uh CEO summit last week, we all went around the room and said who inspires us the most? And our partner Brad got up and said entrepreneurs. And I thought to myself, damn, he did it again. That's why it's great to be a venture capitalist. every day someone walks in and you're like, "Oh, wow. That person is thinking about things in a completely different way and changes the way you think about something." So I I have to say most venture capitalists will probably tell you the same thing that
1:22:29founders are the real inspiration for us and our go I was you when you see an outlier founder start to kind of chug right and like hire that talent.
1:22:40Are there any particular names that you guys have? Yeah, I've been thinking a lot about like, okay, I have a a founder I work with named Zach Caner. He's the founder of a company called Steady. He sent this email out, an update yesterday. He's been at this for 10 years, right? It's a long time. The business is cranking. That really happened in the last three years. And he fought that out for seven years and then he got there and he knew exactly how to take advantage of the moment when the stars aligned for him. Some of it was
1:23:08external market. Some of it was a really high bar of team even through really hard times. Some of it was just like getting the product at the exact right place that when it was useful it was there. And that kind of like intensity and lining up the puzzle pieces is so hard. And I think about the kind of halves and halves not in the portfolios I work with. And a lot of it is that of like, can you make these things line up so you're really ready at really the right time and you just keep that
1:23:38intensity at full charge even when it's like the wind's not at your back. Um, and that I find really inspiring to work with.
1:23:47A thing I always say about like the best founders at a certain point, you know, they reach this level where it's almost like they see the matrix and they can just they can they can do anything. Um, you know, a great example, um, you know, you know, you and I know that, uh, we've talked in the past about Sunno, Mikey Schulman, which is a, you know, Sunno is a USV portfolio company.
1:24:09Um, you know, when they just started out, they were so, you know, obviously so excited about the opportunity ahead of them, music, but they they had never founded a company before, and they had never operated in music before, which is such a challenging market to operate in. And after now going through the paces for a couple of years and obviously having a tremendous amount of success, I mean Mikey is just operating at an insane level um that you know if you met him
1:24:36when he had just started um it's just a it's just a world of difference and we learn a lot from him and from all of our founders.
1:24:44Thank you very much Fred, Rebecca, Mike.
1:24:47Really appreciate it and congratulations.
1:24:49Thank you so much.
1:24:50Hey it's Molly. If you enjoy our interviews, check out our newsletter, sorcery.bc. BC where we deliver a once a week top deals and tech headlines email and also go deeper on our podcast interviews. Subscribe to Sorcery today and don't forget to subscribe to the podcast on YouTube, Spotify, Apple or wherever you listen. Link in description to sign up.
