CEOInterviews.AIThe Death (and Rebirth) of Venture Capital Ft. Dave McClure & Ben Black

H

Host0:06

Right. Well, welcome everybody. Okay, here we go. Check, check, check. All right. So, welcome everybody to Silicon Zombies where we bring you the best brains from THE BAY. WHAT a treat. We have two absolute legends in the venture capital space and we're going to be learning about how and why they were pioneers and what is coming for tomorrow. If we think about AI, we're turning electrons and sand into intelligence. That's pretty impressive. But intelligence without control is chaos. And this actually represents a huge opportunity as it's a paradigm shift in venture capital. And what better who better to tell us a little bit about that but these gentlemen. So just to kind of kick us off, do you want to ask the first?

N

Nick0:49

Yeah, I think their resumes are so big and impressive and they're such big important deals. I think it's best if they introduce themselves. So Dave, why don't we start with you, tell everybody who you are and don't hold back. You don't have to be humble. Yeah, we're gonna tease.

D

Dave1:06

Hello. And welcome to Movie Phone. If you know the number of the movie wishes, sorry, wrong. My name is Dave. I'm a Hillbilly VC. Grew up in West Virginia many years back. Came out to California in 1989 just in time for an earthquake, which was a lot of fun. I was a software engineer at the time and last 30 years have gradually gone from software engineer to entrepreneur to marketing at PayPal, investing at Founders Fund, and then started a firm called 500 Startups about 15 years ago, which like the name suggests, we did a lot of early stage investing not just in Silicon Valley but all over the world. And then about five or six years ago started a firm in the secondary space and tried to copy a lot of moves from this guy. At the time, secondary was really boring and now it's not.

N

Nick2:00

Yeah, I think it's a little too exciting now.

D

Dave2:02

Yeah. Very, very.

H

Host2:03

Is your mic on? Take this one. Is there any tech help in the house? We might need some. Check. Check. Hello. Hello. Yeah.

N

Nick2:10

All right, Ben, introduce yourself and talk loud. Project.

B

Ben2:17

All right, there we go. Ben Black. First of all, thank you guys for having us. Really appreciate it. So lovely to see a lot of friends here as well. I started doing secondaries back in 2010. Back then the idea of a shareholder selling stock was a very, very controversial taboo. The VC industry either loved me or hated me. I had to educate a whole bunch of people about secondaries. Over the last 16 years, we've done over 875 secondaries across seven funds. But for my new fund, I decided I wanted to piss off the VC community again. I don't know if you guys have noticed, but there hasn't been any liquidity for a really long time. So I started to say, look, the VC community is selling a product called a 10-year fund. Does anyone believe that the fund is going to be over in 10 years?

D

Dave3:18

No. Right.

B

Ben3:19

Maybe follow that. I won. So for our seventh fund, instead of doing a 10-year liquid fund, we did a closed publicly listed closed end fund. We raised money privately, deploy it in late stage, you know, the names, and it's listed now on the NASDAQ called Power Law. So you can buy it today. PWRL. PWRL book by the same name. There you go. I was actually able to trademark the word power law, which shocked me. Along the way, I became really passionate about helping build the emerging manager ecosystem. I thought to myself, if I can be friends with somebody when they're creating their business, you'll have a friend for life. So I created a conference called the Raise Conference, the premier conference that brings together the hundred best emerging managers you can find around the world with 350 institutional LPs who are looking for the next great generation of talent. Probably more known for that than anything else.

H

Host4:15

Pretty much the only LPGP conference where there's actually more LPs than GP.

B

Ben4:20

Three to one. That's our goal every year.

D

Dave4:22

Not not most people are full of it when they say that.

H

Host4:25

When is that conference?

B

Ben4:26

It's in October in the Presidio.

D

Dave4:28

But you can't get in.

B

Ben4:30

Yeah. Unless you're really nice to these guys.

N

Nick4:34

So, so much of investing, Ben, we think of as the first check-in, but the majority of your career is actually what comes after. So, unpack that for us a little bit.

B

Ben4:42

Well, you just sort of answer your own question because I tell you, we in VC don't think of ourselves as a product, but we are. When I had a little seed fund that I took through the great financial crisis, it was a crazy time. I looked around the world and said everyone's doing early stage. Is there another way to do growth stage investing? That was the inspiration. I looked around and said, you know, companies are taking so much longer to go public. If you're a VP of marketing that has all of your wealth stored up in your company, you're completely concentrated. I wanted there to be another path for those people to get liquidity while creating a new pathway for exposure into companies. I saw a new product class that could be created, and that's why I went into the growth stage. Too many good early stage guys, and I didn't want to compete head to head with them.

N

Nick5:40

Dave, you built one of the most influential seed funds in history. If you were to start over in 2026, what would you do today? What would be completely different?

D

Dave5:50

Uh, you mean do 500 again today? I would not do that. I would probably do something different. To give some context, we started probably about five years after YC started and TechStars started a little bit after that. I was kind of chasing Paul Graham for a long time, and it really sucks being number two in a business when number one is dramatically larger than you. But we did a lot of investing. Like the name suggests, probably about 400 companies per fund. I ran the first four funds, so probably close to 1,800 companies, roughly about 150 to 160 million deployed across those companies.

N

Nick6:31

Wait a minute. What's the success rate out of 1800?

D

Dave6:33

Pretty shitty. Pretty shitty.

N

Nick6:35

Give us some rough numbers. About money back.

D

Dave6:39

About 2% maybe 3% go public or become unicorns. Those are maybe 50 to 100x. About 8 to 10% are probably 100 million plus acquisitions, those are maybe 10 to 20x returns. 60 to 70% fail, and half of those fail fast, half fail slow, but those are probably we get less than 1x, so zero maybe to 1x back. And maybe there's another 10 to 20% where you get like 2 to 5x, but the returns are very concentrated.

B

Ben6:46

It's a power law.

D

Dave6:48

About full circle. At least for our first two funds at 500, they've already returned about 3x net or more, and hopefully a little bit more on the way with Canva and a few others. So we did fairly well at least for the first two funds. We'll see how the rest do.

N

Nick7:28

Is Canva your biggest success? Is Canva your number one?

D

Dave7:32

My biggest I think probably not completely realized yet, but Canva right now is about a thousand times back, maybe 2,000 times back when they finally go public. Earlier Credit Karma and Twilio and a few others were like 400x or so.

N

Nick7:50

How do you get access to these? I mean the average in bars in San Francisco that Doug Dalton owns.

D

Dave7:57

Doug right here. Hey Doug. I've been a nerd and I was on the engineering side for a while. When I was working at PayPal, I started working on the marketing side. A few engineers there actually trusted that I wasn't completely full of it. Gradually started investing with a bunch of folks. Co-invested with Angel, Angel Fund, Ron Conway, First Round Capital, and others. I didn't really have much money then, but I got some really great deal flow. We knew a lot of people at PayPal that also started great companies. One thing led to another.

N

Nick8:33

Did you want to say something, Ben, or can I ask the next question?

B

Ben8:35

You can ask the next question.

N

Nick8:36

Okay. You guys started talking about secondary markets. So let's dumb it down a little bit. What are the secondary markets? After you explain that, what is secondary? And what should people be paying attention to on the secondary market today?

B

Ben8:52

So secondary, you know, there's two ways you can get equity in a company. You can go primary investing, when you're buying shares from the company and the money stays in the company. Secondary shares are when you're buying shares from other shareholders. It's a very different dynamic, process, contractual restrictions, market dynamics. For many years, this was a very much a cottage industry with a small number of people doing it and relatively small volumes. But over the last five to seven years, it's just blown up, especially with exchanges like Forge, Equities End, and Hive, and now family offices and everyone else are buying on the secondary market. The secondary market is based on no information. It's really hard. It's legalized insider trading, because usually people who know know.

D

Dave9:49

He's not lying. No, that's not even a joke. It's private. This is private markets. A lot of the trades you see are highly concentrated in a small number of companies that you all know. These are the most volatile markets in venture because one day the market can be there and the next day it can be gone.

N

Nick10:13

But do you consider like the top five companies are probably half the overall transaction volume. Maybe top 30 companies are 80%.

D

Dave10:20

Do you really think that's secondary? Because I think it's really more repackaged primary that's in demand. You're not getting discounts.

B

Ben10:28

Right. So what I trained a whole generation of LPs who love to just talk to me about what discount did I get off the primary route. In our earlier days, the traditional secondary funds, my goal was to buy a year after the last preferred round at a 30 to 50% discount when revenue had gone up twice.

D

Dave10:54

What a racket. It was a racket and it was great. It was great while it lasted. Because guess what? It is a bad thing to buy common stock for the same price as preferred. That is not a winning trade. And yet that seems to be the case for people in the audience. Common shares are more likely to be diluted than preferred shares. Usually they trade at least at a 10 to 20% discount to the price of preferred earlier in the company.

B

Ben11:21

Unless you have like a non-dilution clause or something, right? But no.

I'm getting really nerdy here like Nick. The biggest thing is they don't have liquidation process.

D

Dave11:26

The biggest thing is they don't have liquidation process.

N

Nick11:29

So for anybody who didn't understand what Ben said, secondary is basically the used car market for startup equity. By the way, it's also VC funds, not just startup equity. And it's really more specifically the pre-owned luxury segment of the used car market.

D

Dave11:47

Very well said. And if you think back 10, 15, 20 years ago, it used to just be new cars and used cars. Used cars were generally perceived to be not as great. Then somebody really smart came up with this pre-owned thing and they started selling the hell out of that Lexus and Acura and others. I say this having bought a 10-year-old Acura, one of my best purchases ever. It became its own category. If you notice in the public market, something interesting has happened over the last 20 to 25 years: the number of companies has been cut in half. A lot of that happened in the late 90s and 2000 crash, but even in the last 20 years, the number of public companies is about 20% smaller, but the size of those companies is now four or five times larger.

B

Ben12:40

Yes I agree.

D

Dave12:42

So what happened? What the hell happened? The number of companies and the requirements for those companies to go public have gone up. Nowadays, companies go public with 500 million to a billion dollars in revenue. 10, 20 years ago, that was probably only 50 million. All those companies that used to go public, VCs realized, hey, these are great companies. They're still growing at fantastic rates when they go public. We should keep them private. Masayoshi Son's Vision Fund was the first crazy person that really realized this, and he is actually kind of crazy but he was not wrong. Then everybody else started going after that strategy. As a result, a whole bunch of companies that used to go public at 500 million in revenue are now staying private for another 5 years, and that's really the secondary market.

H

Host13:32

Um can somebody close that door please? Thank you so much. All right, let's talk about Anthropic, SpaceX, and Open AI, right? Because they haven't been talked about enough. Uh, talk to me about Anthropic going public. Talk to me about SpaceX, do you think? What do you want to say about their stock and Open AI? How are they doing? Ben, you own these companies, right? No one wants to answer.

B

Ben14:01

I'm in a public company. You actually have to have... I can't talk about this.

H

Host14:08

You can say if they're in your portfolio though.

B

Ben14:10

Yeah. But it's... you own positions in... and Open AI and SpaceX, not Anthropic.

H

Host14:14

Okay. And we own positions in SpaceX actually because I worked at Founders Fund was really why we have that position. So SpaceX went public. It's our biggest position in our second fund.

N

Nick14:30

How you feeling about how long have you had it? Can we ask that? I've had it for 17, 18 years because I worked at Founders Fund. But our fund has had it for four years.

H

Host14:42

You feeling good about their stock? Can I ask that or no? Should we not ask that?

B

Ben14:48

SpaceX is what we would call fully valued.

H

Host14:51

Less full today than it was last week.

B

Ben14:54

But I think it gets to a really important issue: the private markets. How do we value companies in the private markets? All right. So let's look at what SpaceX did. They were at 200 billion and then they went to 200 billion last year? Actually, two years from 200 billion to... what they did was every six months they would sell a tiny sliver of the company either in a preferred financing or in a secondary tender. By the way, tender offer means a company organized secondary sale for employees and sometimes investors. The global demand for this company was just insane. They could pretty much put up any number they wanted and they would be able to fill that allocation. So they just kept on ratcheting up the price in the private markets. That is not price discovery. That is price manufacturing.

D

Dave15:59

I think discovering how big a nose bed price people will pay is discovery.

B

Ben16:03

And so you will not know what SpaceX is worth until all the shares are unlocked.

D

Dave16:08

When will the shares be unlocked?

B

Ben16:12

Well, September.

D

Dave16:13

Oh.

B

Ben16:13

I believe. And there'll be some kind of a correction, I guess, right?

H

Host16:16

September shares will begin to be unlocked in about a month and a half after the next earning announcement. It's about 20% of shares become unlocked for certain investors.

B

Ben16:27

No, it's September. And it's an unusual lockup. It's not a traditional six-month lockup. It's a staggered release over those first six months. And Elon and senior execs are actually locked up for a year.

H

Host16:39

So for the fine folks in the audience, if they're thinking about investing in SpaceX, kind of maybe wait to see how things shake out after.

N

Nick16:45

It's really nice weather we're having today. Have you noticed the sun is out? This is not financial advice.

H

Host16:52

California this time of year.

Anything you want to say about Anthropic or Open AI before Nick asks the next question?

N

Nick16:58

Anthropic public any thoughts?

B

Ben17:00

Let's talk about Anthropic because that's the next thing that's coming up. We don't actually hold a position in Anthropic, so I can say whatever the hell I want. Ben, would you say that Anthropic is likely to go public at a higher valuation than SpaceX? That's a good question. I think that again goes back to the no information problem. The private market investors are pricing all these companies and they don't really know what the economic models look like. Until you see the light of day of the S1, I can't tell you how public market investors are going to value these things. It's the greatest revenue ramp in the history of ever seen in our entire world. But public market investors have a way of getting their teeth into the financials in a way the private market investors just don't.

H

Host17:51

So private round we know was done at about a trillion dollar valuation and that happened super fast. No problems filling that round.

B

Ben17:59

Absolutely.

H

Host18:00

Estimates are I think they've disclosed that they were doing $45 to $50 billion run rate.

B

Ben18:04

People are suggesting they'll be at $100 billion run rate by the end of the year easily.

H

Host18:09

Yeah. So would you think that $100 billion if they were running at $100 billion and they go public?

B

Ben18:15

I think it's likely going to be two trillion plus.

H

Host18:18

Trillion plus. Yeah, there was a little bit of fishy business as I understand it. Figma for example was a customer of Anthropic. They saw that Figma was going through the roof. Then they made Claude Design and now Figma stock 50% lower.

B

Ben18:35

So maybe they might have taken their data and... I mean, who knows?

H

Host18:39

Well, I think you are absolutely going after conspiracy theories.

B

Ben18:42

Is this not true? It was like... very convenient. That's all I'm saying.

H

Host18:48

Dario Amodei was not saying, 'Hey, let's figure out a way to screw over Figma.'

B

Ben18:51

You're right. His job isn't to make money. I forgot. Figma is kind of a rounding error from Anthropic's perspective. What I think you meant to say is that Anthropic came out with Claude for Design a few months ago and everybody in the markets reacted like, 'Oh shit, every design company is dead.'

H

Host19:09

Right, and the fact that...

B

Ben19:12

Isn't our data?

H

Host19:14

I'm curious if the public market might have had its own challenges going public at a very optimistic amount, fell down much lower than that. SaaS apocalypse happened in the middle of it, multiples for SaaS companies got crushed. Figma just actually had a great quarter and is doing over a hundred billion? Sorry, billion dollars in revenue, I think, and valued at like 12 billion last time I checked. Even though SaaS apocalypse happened, even though Figma is supposedly being destroyed by Anthropic, it's a company with a market cap of 12 billion doing a billion plus in revenue, profitable. Yeah.

N

Nick19:52

You want to say anything, Ben, before I ask the next question?

H

Host19:54

Anything you want to say about OpenAI before we go to the next segment of questions?

B

Ben20:00

I would say OpenAI has had its challenges. Probably a longer list than I could name right now. A lot of execs changing positions, maybe slowing growth rates at least relative to Anthropic. We won't get into all the other things, lawsuits, etc. But still valued at $800 billion. And recently sort of more trading happened.

H

Host20:27

Yeah. So thank you. We'll do questions in just a few. We have this one section we need to get to.

B

Ben20:35

Can I point? You should take this one.

H

Host20:38

Ben's Power Law being like one of the cool new things that's happening.

All right, we're going to get to Power Law right before we open it up to questions, but I want to talk about VCs in geopolitics.

B

Ben20:48

Do you now?

H

Host20:49

10 years ago that wasn't really so much of a thing.

B

Ben20:52

Well, we have actors doing geopolitics. We've got athletes doing geopolitics. How do you feel now? We got VCs doing geopolitics.

H

Host21:00

Everybody's got an opinion.

B

Ben21:02

Can we do our All-In pod impersonations now?

H

Host21:05

I mean, how do you feel about, you know, should you guys be talking about geopolitics? I mean, how much is Silicon Valley's future determined by founders versus politicians in the next 12 months? You know, do you think about China invading Taiwan tomorrow? What's going to happen to venture capital? Like, do you think about these things? Do you talk about these publicly? VCs, we are experts on all of these topics.

B

Ben21:31

Yeah, I will say that was last week. Anyway, as a secondary buyer who loves to get things at huge discounts, if China does invade Taiwan, it's going to be a buying opportunity for us.

D

Dave21:46

It's going to be like... okay.

B

Ben21:47

That is not wrong. That is also not... I'm talking to my own book here, but I think there are plenty of people who can talk about geopolitics. What probably matters to us is how it affects interest rates and the IPO market. Those are things that we care about as secondary investors because we want to know when are things going to go public and at what price. Interest rates have a significant impact on valuation, particularly for fast-growing companies. If there's geopolitics going on, IPO markets might get shut down or less active. So that's why I care about geopolitics.

H

Host22:31

VC is becoming more and more intertwined with politics in general for good reason. When Salesforce came out with SaaS, no one cared about where your CRM because it had no national security implications. It didn't matter to the people of this country. When you talk about the amount invested now in national defense, the geopolitical implications of semiconductors, these are issues that VCs have to think about. We are no longer insulated from the world. VCs become like we used to say we hate capital intensive businesses, we love capital efficiency. Remember all that stuff? No, the VC business loves industries that suck up as much money as possible because that increases everyone's assets under management, which is how they get paid.

B

Ben23:21

Oh, wait a second. That is heresy what you just said right there.

H

Host23:25

We care about profits and growth and carry, not fees. We don't care about management fees hardly at all.

B

Ben23:34

Every two years out stacking, stacking, stacking. But it's Marc Andreessen who is the largest or one of the largest donors to the Trump campaign.

H

Host23:43

He is a large man also. Yes, you're right.

B

Ben23:45

I think when you saw the Trump inauguration and you saw the tech executives on the stage, that is actually kind of a seminal moment in politics. Think about the intentionality for who sits behind the president of the United States. The amount of ass-kissing of Donald Trump done by tech executives in the last year or two is phenomenal. We used to be Democrats. I'm not commenting whether it is a good or bad thing, but it absolutely is.

H

Host24:09

In their defense, if you two were invited to sit back there, would you have gone?

B

Ben24:14

I don't think... the answer is yes. You 100% would have gone too.

H

Host24:21

I would have sent my partner who is a conservative Republican and I would be holding up the Democratic side of the equation with my protest.

B

Ben24:29

What if they said no to your partner? We only want you. That is not actual reality whatsoever.

H

Host24:34

All right. You're no comment. Dodge the bullet.

Let me ask one more question about geopolitics. We will get off of it. The growing usage of Chinese open AI. What's the US perspective on that?

B

Ben24:46

What's the mean? Government open as a long time. Yeah. I invest in companies based on momentum all the time. People always ask me when should I sell my stock in a company, and I always tell them the moment it seems like everything is perfect and nothing can go wrong, that is the moment when you feel like I'm going to be so rich because this thing is going to go on like this for the next 5 years. Sell something. Sell something.

D

Dave25:19

I was going to say the answer was you know when you can.

B

Ben25:23

Right. Right. And so I say this because open-source is a really big threat to the frontier models because it is just so much cheaper. It's part of China's strategy to have great open-source models to undermine the economic models of...

D

Dave25:42

Again, that is conspiracy. The reason that Chinese are developing technology is because technology is great and it makes money the same way that we develop technology. It's not because 'oh, we're going to take over the US' because we develop technology like that.

B

Ben25:53

It's a great strategy.

D

Dave25:54

Like China's going to do open source because it's a good idea and it makes money. Tons of Chinese companies are using those models. Turns out they're really great models and a lot of US startup developers are also using those models because they're 80 to 90% as efficient as US models at 10% or less the cost, and probably close to 100% in some categories.

B

Ben26:16

People are finally getting trying to screw over the US. It's 'cause we're greedy bastards trying to make money just like us in the US. We're greedy bastards trying to make money.

H

Host26:25

Gentlemen, I want to talk about the power law thing. You can say whatever you want about that, but then I have one more question before we open up to the audience. So Ben, tell us about power law.

B

Ben26:37

All right. So like I said, after doing secondary and traditional tenure liquid funds, one of the things that we haven't talked about is just the fact that retail investors around the world, they want demand. They demand to have access to these great companies that are being created here. And all of the value is because these companies are being kept private so long it's out of reach. You have to be a credit investor. Even if you are a credit investor, you can't write big enough checks. You don't know the people. You don't have the access. So we created...

N

Nick27:10

I would say access is almost more the issue than size of checks.

B

Ben27:14

Absolutely. And so we really wanted to try to bridge the gap and say anyone with a brokerage account around the world with a click of a button can get access to the best companies coming out of Silicon Valley. And we think it's the beginning of a long-term trend. There's going to be more and more pressure. The Trump administration is very much behind this because it's not really fair that all the money is being made in the private markets and people are shut out. So we believe that every American should have the opportunity to lose money becoming a venture capitalist.

H

Host27:48

Very important.

B

Ben27:49

So is that the American dream? Is that what you're describing? Is that available now? Is there a website?

It's traded on the NASDAQ through your brokerage account. PWRL. You can go buy, get exposure.

N

Nick28:02

And how's it doing?

B

Ben28:04

Like the fund's been doing great.

N

Nick28:05

Congratulations.

B

Ben28:06

I don't think you're supposed to say that.

N

Nick28:07

No, it's okay. I can say that.

B

Ben28:09

The fund's been doing great. The fund has been doing great. The trading's been a mixed bag, but the fund itself, we raised 400 million. It's worth 700 million now. It's only been about a year and we're pretty happy with where things are.

H

Host28:21

All right. All the joking aside, this trend of publicly traded venture capital firms is fairly recent, just in the last three to six months. Ben is one of like five or six funds that's available to almost everybody who wants to bet on venture capital markets. It's pretty freaking cool.

All right, I'm gonna ask one last question. I'm gonna open it up. One of the things we gently ask, please don't over the top pitch your company and what you're doing. Like, ask a question.

N

Nick28:47

We can do that. We'll just rip you apart.

H

Host28:51

Do that. Make it freaking interesting. I want you guys to talk about your biggest failures, the amount of money you lost. I think that's really encouraging for everyone to hear.

B

Ben29:05

My biggest miss by far... I failed to invest in an opportunity when you have it. That's by far the most painful. And back in 2013 or 14, I was looking at three companies in the NoSQL database space, this kind of technical space back then. It was MongoDB, a company called DataStax, and a third one that I can't remember the name of. And I had a chance to do all three. And I should have just bought them all. But I passed on MongoDB because I did three reference calls with three of the smartest technology people I knew who were managing 50,000 developers at huge corporations. And they all hated it, except all the developers loved it. And they said, 'We're trying to get this stuff out of our stack. It's a nightmare.' And they said, 'Ben, don't touch this. Buy DataStax.' That would have... I missed a 40x from where I would have had it, and it would have returned my fund three times.

N

Nick30:04

Can I ask you a question about that? How much were they asking you to invest, dollars?

B

Ben30:08

Oh, I think it was about $7 million. My fund was really small.

N

Nick30:13

So how much did you lose? Give us the dollar.

B

Ben30:16

I missed out on... How much would you miss out on, like $400 million? You know what I mean? Like 7 million change.

N

Nick30:24

For Ben, that's Trump. But actually, that's... Did you say anything to those guys?

B

Ben30:29

Against the advice of the experts, the smartest people, no.

N

Nick30:29

Did you say anything to those guys?

B

Ben30:31

I never talked to them again.

N

Nick30:32

Good. I wouldn't talk to them again either. And that's actually pretty wise. Like whatever the developers are doing, that's going to be the next thing, right?

B

Ben30:41

So for developers, developers, developers, developers.

N

Nick30:46

Developers, developers, developers, developers, developers, developers. Sorry.

H

Host30:51

All right. Do you want to mention any other dogs or should we jump to Dave? Because Dave's got a lot.

N

Nick30:59

Go ahead, Dave.

D

Dave31:00

Ben's got way more good stuff going on.

N

Nick31:03

You're talking about like fuckups?

D

Dave31:05

Yeah, the ones you said no to.

All right. Strikeouts. This is painful. Uber at 10 million. Zapier at 8 million. TransferWise at 6 million. Carta at 6 million... Actually, Carta at 6 million, Carta at 25 million, Carta at 100 million. Carter, oh my god. I think Uber was the worst of those, but the other ones were probably...

N

Nick31:33

How much would you have made on Uber? What would have...

D

Dave31:36

I don't know. This is really painful to think about. I probably would have written a $25,000 check out of our fund or a $10,000 check personally. And I believe it was a 4,000x.

N

Nick31:49

What's the number?

D

Dave31:51

$100 million, something like that.

N

Nick31:53

$10,000 to $400 million?

D

Dave31:54

I got the email from Travis. I could pull it out if you want. From like...

N

Nick31:57

What was the pitch like?

D

Dave32:00

What was the pitch like?

N

Nick32:01

Why did you say no?

D

Dave32:02

I... um... So I knew Travis. I thought Travis was a rich playboy and wasn't going to work hard. I was half right.

N

Nick32:18

Did you know that Travis was once sued for a quarter trillion dollars?

D

Dave32:22

And did they win?

N

Nick32:24

No, I don't think they won. Like Red Swoop or something. Anyway.

H

Host32:29

All right. Listen, I know there's a lot of questions. We're not going to get to everyone. I just throw that out there, but let's keep it fun and enjoyable.

N

Nick32:37

This has been so boring, right?

H

Host32:38

Yeah. So, all right. So we'll start with...

Okay. We all have those missed opportunities. What I want to hear is the company...

N

Nick32:46

That's a brag, by the way. When we talk about our misses, it's the best brag ever. Like, 'Oh, I had the opportunity to invest in this company and I didn't.'

D

Dave32:54

That's my deal flow.

N

Nick32:55

Exactly. I'm calling you out.

D

Dave32:58

You're calling me out. Okay. Sorry.

N

Nick32:59

What are the investments that you made that turned out bad? That you thought were good or pretty good, but it was a big mistake?

D

Dave33:07

How long do you have? That'll take us all week.

N

Nick33:12

By the way, that's half of our portfolios.

D

Dave33:15

Yeah. I think the one thing that people just don't appreciate is that every year, no matter how well your portfolio is doing, there are companies that are about to get hit in the head by something, right? And when ChatGPT came out and OpenAI and then Anthropic, the impact it's had across portfolios, company after company going, 'What are we going to do?' with the older assets. So what you have is how close it is to a good deal going bad. If you invest in something and you think it's going to grow 35% a year and it grows 20%, you're not making any money. This happens all the time, so I don't have one that comes to the top of my head. There's too many.

H

Host34:07

All right, the next question. Oh, did you want to say something, Dave, or can we go to the next one?

D

Dave34:12

Gee, nice weather we're having today. Next question is back here.

A

Audience Member34:16

Hey guys, I'm Lisa. I do a lot of media in the consumer space, the tech space, and consumers are so terrified of AI. I want to understand from all three of...

D

Dave34:28

US consumers. Chinese consumers feel very different.

A

Audience Member34:33

It's better because they have a better model. But actually, lots of other consumers around the world. US is probably the most negative about it.

Yes. But how do we as a marketer, how do we change the narrative to show them all of the amazing things going on so we can start to turn the narrative down?

B

Ben34:56

I can say I'm very much of an optimist on this point. We're investors in Gusto, which is the payroll company that does sort of one employees to six. Another deal that I turned down at a $24 million valuation.

N

Nick35:10

It was a good one.

B

Ben35:11

You don't like Josh?

Josh was actually my student in a class at zero and their business is absolutely booming because AI is making it so much easier for everyone to create. The explosion of creativity we're seeing. And we just got to get those stories and that narrative out there because the explosion of creativity, the number of new businesses being created, and like I know kids my daughter's age who are creating incredible businesses at 21 who never went to college with AI. I think the enabling power of AI is really a net positive. And the fear-mongering, I get it. Always ask yourself who benefits from the fear-mongering, right? The next question's here.

N

Nick35:57

Politicians probably.

A

Audience Member36:00

Hello. My quick question is the relevance and access to data centers. How does that play into the AIs that are up for IPO?

N

Nick36:11

Picks and shovels would be the simple answer. But you could probably even go down a layer from that from the data centers. You're also now constrained by power and access to the grid and probably a million other things. But those most notably, I don't know if people heard in the last two days, there was a billion dollar acquisition by an individual that was not announced. Anybody heard about that? Know what it was?

H

Host36:37

Next question here.

N

Nick36:38

Come on. Somebody really quick.

A

Audience Member36:42

Elon?

N

Nick36:43

APR Energy for a billion dollars. Didn't announce it. Why? Because it's mobile gas and diesel that he can move around to data centers. It's incredibly not environmentally friendly. So for someone like Elon to buy a gas and diesel generator company, he bought it so they could do much more data center growth. So picks and shovels is the broader answer to your question. But yes, AI is constrained by data centers. Data centers are constrained by chips and energy and a whole bunch of other stuff. But picks and shovels probably a better bet than actual gold sometimes.

H

Host37:22

All right. You ready?

N

Nick37:23

Ready for what?

H

Host37:24

The next question.

A

Audience Member37:25

Hey, thank you so much for being here. This has been such a valuable interaction. What are the top five things that you would want to tell upcoming VCs in 2026?

D

Dave37:39

Don't become a VC. Number one, that's it. Stop.

B

Ben37:42

Yeah, just stop.

D

Dave37:45

Yeah. I work with emerging managers all the time. There are way too many people who try to do it. From my own conference, Raise Global, that I do every year, we get a thousand applications for 100 spots. When I go through them, I look at so many and I say, 'This is not a career for you.' That's just the truth of it. It seems sexier than it actually is. Early stage is a fuckload of fun, but you won't make money. Most of you spend your time just saying no to people all the time. No, no, no, no. And I would say build a bunch of companies first, then become a VC.

H

Host38:28

Over here.

A

Audience Member38:29

Hi guys.

H

Host38:32

I'm not taking... ladies and gentlemen.

A

Audience Member38:37

I have a question. Do you have any reluctance to invest in companies that are vibecoded by just one developer, one person using Claude or something like that with no other team, and does that factor into your investment?

B

Ben38:53

I do growth stage investing, so it's not really relevant.

N

Nick38:56

I'm not doing early stage, but when I was doing early stage, that would not have bothered me except I'd probably prefer two people rather than just one because anyone can get hit by a bus. Whether they're vibecoding as opposed to a traditional engineer maybe is an area of concern, but less and less. The real issue is something I sort of had a crisis of confidence three or four years ago about AI investing in general, because it's kind of easy to get revenue with an AI company. You don't need a lot of cash. Even though people raise tons of money, you can get to profitability quick, but then you could just make a lot of money on cash flow and never exit the business. So it really misaligns equity investors, minority equity investors, and founders, because a founder could run an AI business for three years, make $10 to $20 million in cash, and then shut down the company. Or they could be disrupted by other AI startups. As a traditional VC equity investor, most of us are not on boards. A lot of early-stage VCs are very small, tiny minority equity investors. If you have a minority interest and you're not on the board, and some really smart person who makes $20 million shuts down the company, you get zero. So you're very misaligned with an AI founder who doesn't need a lot of cash and doesn't need to ever exit. That was my biggest concern. I think it's still a concern.

D

Dave40:30

But I would think it a little differently. I say something's vibecoded by one person who's not a technical person but got really good at Replit, like my wife who's amazing at Replit. And I wonder how hard it is and how sustainable it is. You'd have to convince me there's some kind of moat, because in the age of AI, you can knock everything off so easily. The minute you start making money, there's going to be 100 copycats. I'd rather be like a PE-style investor and get a share of cash flows. So I think you change the structure of the investment and it could work. There's a lot of complications in trying to create a whole new investment memo style for AI companies.

B

Ben41:08

Right. Well, that's like we both came to that conclusion: early stage is really expensive and tough, and late stage is actually a lot easier but still risky. Late-stage companies can also get disrupted by AI literally overnight, and valuations can crash through the floor in days.

A

Audience Member41:28

Sure. My name is Chris. Just a quick question for LPs. Advice for LPs, particularly those who are new to getting into investing in venture. What advice would you provide?

B

Ben41:43

I'm going to be way out there. Many people would not agree, but I think venture capital as an asset class is a home run business. If you're going to be in the game, you got to be shooting for home runs. So if I was new and I wanted to do fund investing, I would do 15 to 20 investments in fund ones because we have data on 6,000 funds through the Raise conference.

N

Nick42:07

You're arguing for lots of diversification.

B

Ben42:08

Lots of diversification at the early... I thought you were going to say...

N

Nick42:11

Yeah. I think the first answer would be don't. I mean, it depends on what kind of LP you're talking about. But for patient endowments and foundations, alternative assets in general are a good bet in the David Swensen school of thought. But there's so many people who have now bought into that philosophy that a lot of people are piling in. I don't think you should be doing concentrated investing in venture. If you wanted to do a strategy like bet on one retail fund, buy into power law, that's one way. If you have $50 to $100 million, I would say bet on at least 10 to 20 funds where you're going to get access to 30 to 50 companies per fund. Maybe with a portfolio of 500 underlying companies, you might get enough diversification to see five big outliers. But we're just talking about diversification across funds and companies. There's also diversification across time, stage, vertical, and country. It's just not easy for an individual or even a wealthy family office to do enough diversification.

H

Host43:25

Next question's here.

A

Audience Member43:28

The valley's seen a pretty steady stream of reverse aqua-hires in which the companies are stripped of their founders, their tech. It's not an acquisition. Whether that makes it seem like the company's the victim there, but I would say those founders are quite compliant.

N

Nick43:43

Founders are probably very happy, right?

D

Dave43:45

Kind of screwing over the rest of the employees maybe.

A

Audience Member43:47

So my question is, have you made any changes? How are you protecting yourselves against that kind of situation in your investing?

B

Ben43:57

Take Witurf for example.

N

Nick43:58

No, you know what Nvidia just did with Grok, like that. We were investors in Grok. It was a perfectly good deal for the investors at the end of the day, very tax inefficient. It's very hard in growth stage investing unless you're the one writing the biggest checks to protect yourself. You're along for the ride. So it's something you're going to run into once in a while. You hope it works out. It worked out fine in that one. And in other cases, I don't know. I hope it's not a trend.

D

Dave44:31

I don't think so. I think it's gotten a lot of attention and there's certainly some high-profile cases, but it's still a minority of scenarios. Even minority of good outcome scenarios, it doesn't happen that often.

H

Host44:43

All right, the next question's over here.

B

Ben44:45

And if it does, it will be its own negative that...

A

Audience Member44:50

Hi, Michael. I'm curious if you're more excited about the accelerator model, take YC or EFs of the world... or...

D

Dave44:57

I was excited about that 15 years ago.

A

Audience Member45:00

Or the frontier lab spin-off model, like the spin-off Anthropic, now we've seen since 15, 20 years ago. Curious to hear your thoughts.

D

Dave45:09

I would love to be Ali Partovi right about now. He's done fantastic with Neo. I think in general it's really hard to compete with YC in the broader case of accelerators. If you're doing something specific or vertical or niche, I think you can be successful. HFZ and Neo are pretty good examples. There's plenty of others, but it's still hard. I would probably say you still need to do it at volume and you still need to wait 10 to 15 years for the results. Um, would I prefer a venture studio model? Or just be an entrepreneur running my own company?

A

Audience Member45:51

So the question was if you could bet on 10 companies only in the next 10 years, would it be those?

D

Dave45:57

I would not take that bargain. I would bet on more than 10. You can't force me into a question I don't have to do.

H

Host46:06

Only...

N

Nick46:09

If you could only date three people for the next 20 years of your life, who would they be?

H

Host46:13

Hold on. Let the guy say the question, bro.

D

Dave46:16

I think the real choice is, do I want to be a VC? And if so, what kind of VC? Or do I want to be an operator and what kind of operator?

H

Host46:23

No, listen. I think he has a decent question. Go ahead.

A

Audience Member46:28

So I'm trying to say, take the present designs of the world which employ four to 10 employees that ends up being acquired by OpenAI or Anthropic. Do you take, are you more bullish on small teams executing and later being acquired, or more so the core accelerator model where you're betting on a few companies?

D

Dave46:46

Okay, I think you're assuming your path to success is getting acquired. As I was just talking about, your path to success is just making money. As an entrepreneur running an AI company, your opportunity to make money now is better than ever. And regardless of whether you're a sole proprietor, a venture-backed company, or a bootstrap person, times are great. If you are entrepreneurial, it's now. There's never been a better day than today to start a business. Because your capital costs are relatively low. Hiring might be a challenge, but you don't need as many people as before. You don't need as much money to build a product. You can probably get more revenue and profit. You don't have to sell. You can just be a business owner generating positive cash flow. I know that's a crazy concept for people in Silicon Valley, but hey, you could run a business that makes money and have dividends.

Holy shit, what? That get disrupted next week too, though.

B

Ben47:45

So just planning for an exit, that's the fucked up thing the valley gives people: only businesses that exit are successful. No, businesses that sell products to customers profitably are successful, hopefully giving jobs to people who work hard. So I would probably say the equation has shifted. It's probably better to be an entrepreneur right now than an investor. It's really kind of hard to be an investor right now.

H

Host48:12

We can talk more in over drinks outside.

D

Dave48:17

Sure. Go for it.

N

Nick48:21

I love this kind of shit. This is great.

H

Host48:34

One would be better off as a researcher.

N

Nick48:38

There are a lot of really smart people who have joined Anthropic who I thought would have started their own companies or funds. It's astonishing.

H

Host48:46

All right. Ask them outside. You're gonna have some time with them. You're gonna be the last question, so it better be good.

A

Audience Member48:56

Introduce yourself. Hi everyone, I'm Ankit. My question, thanks for the amazing insights. So today I think everyone would have seen Alex Karp rant on CNBC about the forward-deployed engineers and OpenAI basically eating everybody.

D

Dave49:14

Consultants are cool all of a sudden.

A

Audience Member49:17

So I kind of agree with a lot of the points he made on that CNBC appearance. My question is that most of these companies are going to go for forward-deployed engineers, even OpenAI and Anthropic are going that route. So how do you see startups being able to maintain a moat, given that these are incredibly talented people? What advice would you have for founders?

N

Nick49:45

How do I create a moat in the AI world? Is that the question?

A

Audience Member49:50

Yeah.

N

Nick49:52

OpenAI and Anthropic are going to have their business. But smart entrepreneurs are always going to find ways to compete against them. In an AI world, you do have to think about different kinds of moats, and you have to think about business differently than we did software. But I have zero concern that there are going to be many smart people with many good ideas that are defensible, scalable businesses, regardless of forward-deployed engineers. I think maybe working on harder problems, more niche problems is defensible. You have access to proprietary data, although that term is overused. Regulatory-driven, compliance-driven businesses might have some advantages as well. But harder problems where you understand the problem better is still a defensible area, but AI is going to catch up faster.

H

Host50:44

Okay. Listen, we're about to end the show. But you two put down your mics, stand up, and I need you to walk out those doors right there. A round of applause.

Wait, before we go, we want to be valuable to you both. So maybe share a website for the folks at home and in the audience. How can we be helpful to what you both are respectively building?

D

Dave51:16

There's a very bad VC podcast that you folks should never listen to about the secondary market called Trading Places, our VC secondary podcast where we cover the latest trends in the secondary market. We break down a company in our valuation corner every week and occasionally say things that might be true.

H

Host51:34

We'll put the show notes in the down below. Thank you, Dave.

Ben.

B

Ben51:41

Check out powerwrl.com and of course drink your liquidity.

H

Host51:48

Liquidity. All right. We're all here.

All right, thanks so much everybody. Check out siliconvz.com for more of the best brains. And be sure to keep January 14 open for the Longevity Summit and September 3rd for the other Longevity Summit. Talk to this gentleman over here.

N

Nick52:05

Thank you everyone.

H

Host52:07

If everyone could go out, Dave and Ben want to talk to you right out there. Thank you all for coming tonight.

The Death (and Rebirth) of Venture Capital Ft. Dave McClure & Ben Black

About David Mcclure