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?
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.
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.
Yeah, I think it's a little too exciting now.
Is your mic on? Take this one. Is there any tech help in the house? We might need some. Check. Check. Hello. Hello. Yeah.
All right, Ben, introduce yourself and talk loud. Project.
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?
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.
Pretty much the only LPGP conference where there's actually more LPs than GP.
Three to one. That's our goal every year.
Not not most people are full of it when they say that.
It's in October in the Presidio.
Yeah. Unless you're really nice to these guys.
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.
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.
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?
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.
Wait a minute. What's the success rate out of 1800?
Pretty shitty. Pretty shitty.
Give us some rough numbers. About money back.
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.
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.
Is Canva your biggest success? Is Canva your number one?
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.
How do you get access to these? I mean the average in bars in San Francisco that Doug Dalton owns.
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.
Did you want to say something, Ben, or can I ask the next question?
You can ask the next question.
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?
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.
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.
But do you consider like the top five companies are probably half the overall transaction volume. Maybe top 30 companies are 80%.
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.
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.
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.
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.
The biggest thing is they don't have liquidation process.
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.
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.
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.
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.
I'm in a public company. You actually have to have... I can't talk about this.
You can say if they're in your portfolio though.
Yeah. But it's... you own positions in... and Open AI and SpaceX, not Anthropic.
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.
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.
You feeling good about their stock? Can I ask that or no? Should we not ask that?
SpaceX is what we would call fully valued.
Less full today than it was last week.
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.
I think discovering how big a nose bed price people will pay is discovery.
And so you will not know what SpaceX is worth until all the shares are unlocked.
When will the shares be unlocked?
I believe. And there'll be some kind of a correction, I guess, right?
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.
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.
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.
It's really nice weather we're having today. Have you noticed the sun is out? This is not financial advice.
California this time of year.
Anything you want to say about Anthropic or Open AI before Nick asks the next question?
Anthropic public any thoughts?
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.
So private round we know was done at about a trillion dollar valuation and that happened super fast. No problems filling that round.
Estimates are I think they've disclosed that they were doing $45 to $50 billion run rate.
People are suggesting they'll be at $100 billion run rate by the end of the year easily.
Yeah. So would you think that $100 billion if they were running at $100 billion and they go public?
I think it's likely going to be two trillion plus.
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.
So maybe they might have taken their data and... I mean, who knows?
Well, I think you are absolutely going after conspiracy theories.
Is this not true? It was like... very convenient. That's all I'm saying.
Dario Amodei was not saying, 'Hey, let's figure out a way to screw over Figma.'
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.'
Right, and the fact that...
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.
You want to say anything, Ben, before I ask the next question?
Anything you want to say about OpenAI before we go to the next segment of questions?
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.
Yeah. So thank you. We'll do questions in just a few. We have this one section we need to get to.
Can I point? You should take this one.
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.
10 years ago that wasn't really so much of a thing.
Well, we have actors doing geopolitics. We've got athletes doing geopolitics. How do you feel now? We got VCs doing geopolitics.
Everybody's got an opinion.
Can we do our All-In pod impersonations now?
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.
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.
It's going to be like... okay.
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.
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.
Oh, wait a second. That is heresy what you just said right there.
We care about profits and growth and carry, not fees. We don't care about management fees hardly at all.
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.
He is a large man also. Yes, you're right.
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.
In their defense, if you two were invited to sit back there, would you have gone?
I don't think... the answer is yes. You 100% would have gone too.
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.
What if they said no to your partner? We only want you. That is not actual reality whatsoever.
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?
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.
I was going to say the answer was you know when you can.
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...
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.
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.
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.
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.
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...
I would say access is almost more the issue than size of checks.
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.
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.
Like the fund's been doing great.
