We raised 900 million in new funds for USV, which is by far the most USV has ever raised in a new fund cycle.
I don't think a trillion is what we need to underwrite to at USV. I think if our biggest winners are in the single-digit 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 100 billion, but a lot of our biggest winners are in the $10 billion range, and that's produced enormous returns for us.
It'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?"
We 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. We're going to do a sit-down with Fred Wilson, Rebecca Kaden, and Mike to go over what we're about to announce.
We just raised a new fund. We raised 900 million in 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.
Oh well, you know, we're, I would say, with USV we have always been 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. And so the 900 really comes from that strategy and that model. We don't raise funds as vanity metrics, you know, it's not like we got to hit a billion or we got to hit two billion.
I want to be a unicorn fund.
The 900 really comes from the strategy bottoms up, which again I think we'll probably get into, right?
Yeah. Okay. So maybe we can do what you do best and we can walk backwards to hide all the equipment.
And then we can pick it up around the corner.
All 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.
Lots of people here today. Yeah. This is, I don't know, a bit of a seating living room area. Obviously, we've got the kitchen. My favorite feature of this kitchen is this XBloom pour-over machine. Have you seen this thing?
It's basically a pour-over robot. So if you like pour-over coffee, this is a robot that makes
I don't know. No, it's not. But it's really cool. I've seen these in a few offices, a couple startup offices, a couple VC offices. So it's not like USV is the only place that has this, but if you like coffee, it's pretty good.
It's cool. I've never seen that.
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?
Board is the world's first tabletop gaming console.
Founded by Ben Putnam, who founded Mirror.
This is an amazing product. Every game comes with its own set of pieces, unique pieces that the screen reacts to.
And they also have a platform to make it really, really easy for developers to build games for this. It's really, it's an awesome product. I would definitely recommend.
Do you play chess on this?
They have all their own games that developers write. Well, I guess you could do chess where you sort of like shave off the edges or something, but it's awesome. Highly recommend.
This is what we call the pit.
So, 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.
There's nothing bad on the screen.
We 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 very actively every day just continues right when we leave here.
So no one has an office or are they?
No, no one has an office except, well, actually Tyranny and Carrie and Christine have offices.
Because they don't want to deal with the madness of the pit, which I don't blame them. This is where a lot of board meetings happen, some of our full partnership meetings. We also have another room in here that we use for these types of meetings. One of my favorite things about this office is pretty much every room has really epic views.
So, you've got great views all the way to the Hudson River over here. You've got views uptown over here. 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 Avenue, which I think is really cool. Yeah.
I 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.
Totally. 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.
So, you guys have invested in 263 companies?
That number sounds right. Yes.
And how many do you expect to invest in with this fund?
You know, I think we try not to be too strict and specific about the number, but I think generally speaking, you know, probably somewhere 30-ish, maybe 30 to 40. 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 Rebecca and Fred, but you know, going earlier we believe is becoming more and more important just given how many startups are emerging as a result of AI and how competitive the market is.
Yeah, this is the library. So this room is great. 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 desks here where we often host portfolio companies or companies that aren't in the portfolio that need a place to work. It also actually is a library and has lots of books on the shelf here that many of us have read.
Let's see. Do I have a favorite? You know, one of my favorites is The Messy Middle. Shout out USV product advisory partner Scott Belsky. This is his book. This is about sort of the middle of the startup journey. There 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 I believe Scott's vision with The Messy Middle was really about what happens in the middle, which is the hardest part, as most startups are not straight lines. So that's a great book. Let's see what else. Shoe Dog is obviously a classic. I mean there are a lot of good books on this bookshelf.
Well, speaking to your point of going earlier with this fund, you guys are also incubating companies. You just released one that you incubated yourself, Supertake.
Yes. 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. 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. Right? 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 literally does all that for you through an agent. You just give it an idea or belief you have in the world and Supertake will go and invest in that idea directly through your Robinhood 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. And it really speaks to the types of companies that we look for in the theme of obliterate, don't automate, which, you know, we could talk about, we talk about our thesis. 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, Supertake is a great example of that and something that we were able to at least for the initial product just build ourselves.
That's awesome. Did you build it in this room?
We did not build it in this room. We built it in lots of other rooms though.
So 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?
So I mean it's still expensive for a startup to operate and scale a business. Obviously things like inference are becoming more and more 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 of customers.
The 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 go-to-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 maintain, to operate, to build, to break out. It's just building the actual product, I would say, is arguably easier than ever before.
So, we just walked through the entire floor. This is like the main floor, right?
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. So, what's your favorite like vibe about this space?
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. Obviously, people working, talking. 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?
There really are like actual different sort of personalities to this office and we have light.
Yeah. 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.
Do you have a good window cleaner? What's the?
It's a good question. I'm not sure who cleans the windows, but they clearly do a great job.
We've made it to the rooftop. What goes on up here?
This is just a really great place to work when the weather's nice. We'll come up here. You know, I'll take some calls. People do lunch up here. We also, you know, occasionally have different get-togethers and, you know, meetups with founders. There's a party that we often do here every fall that people really like. And you know, much like downstairs, as I mentioned, the nice thing about being upstairs on the roof is you have an amazing view from 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. Also on really nice days, the sunsets on this side of the roof are really spectacular. So, it's a great roof. It's a great feature of the office and it's something that I think we all really appreciate.
We're experiencing some good fall weather today. Okay. What is your hottest take right now?
My hottest take I would say the user interface is not going away. 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 build trust with a product, where they gain comfort and know how to navigate different experiences. I think that 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. They're not going to watch YouTube for us. 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.
Okay, pretty good hot take.
All right. So, next we're gonna go and do a sit-down with Fred, Rebecca, and Mike. So, stay tuned. Okay. Do I start with USV? Welcome to Sorcery.
Thank you. Thanks for having us.
Thank you. Thanks for having us, Molly.
So, we have Fred, Rebecca, Mike. How are you guys doing?
All right. So, we have a huge announcement we need to discuss. Who wants to take it away?
I think you should take it.
All right. Yeah. Well, we're excited. We closed our most recent set of funds, raised $900 million. You know, in many ways, it's a continuation of what USV has now been doing for many decades of, 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. But it's also a bigger number than we've raised before, somewhat significantly, and marks a new strategy for us. The market has evolved. We think the outcomes are bigger, the swings are bigger. 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 really be able to attack that market.
Amazing. So maybe we go back to the 2004 LP letter. So what were you talking about then and how is it different today?
Well, that was early on in the internet era. Commercial internet had arrived in '95 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 big applications will be, right, that will get built on top of it. And that's where we were in 2003. The 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 web. And I think the moment we're in right now reminds me a lot of that, except now it's AI.
Couldn't agree more. I 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 with Instinct and Muse and Grokbot. And so it feels like 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.
So I'm curious how do you justify the round size increases if models are, if it's preferred now to go to open source and it's cheaper, like where does all that capital go to?
Yeah. I think, you know, something we talk about often is how it is getting dramatically easier to build a product. You know, we recently announced that we incubated a product that we built very, very quickly and very, very cheaply and lots of other builders are doing the same thing. But what that means is that there are so many more startups that you have to stand out from and break through the noise from. And so, you know, one area that a lot of the capital is going is doing just that, breaking out, you know, marketing, messaging, positioning. I think we're seeing a lot more investment, especially in consumer, for startups trying to break through the noise.
We'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 cost space. There's a bunch of big questions out there. How much does that go down? And I think we're in this time and we feel like we've been in this time where we don't know the asymptotes of things, right? We don't know when models stall. We 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 kind of cost block of companies that really wasn't 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 any other time in USV history. Right? So 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. But we 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, sensor businesses. And 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, it actually reminds me of kind of an earlier era of technology, maybe the mobile era or even, you know, sort of the post-internet era where, you know, you had these great consumer products and businesses subsidized the usage to make sure these products could get 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 expensive to build large-scale consumer businesses if you don't want your customers on subscription.
OpenAI 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, ChatGPT has been free for how long? Gemini is still free, right? A startup can't come in and charge for something that their competitor is giving for free. And so I think you're right that inference or compute is going to be an expensive subsidy for fast-growing apps for a while.
Yeah. 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?
They did need a lot of money. I mean, Twitter, the original financing was 5 million and then a year later it was 25 million and then a year later it was 100 million. At that time those were big numbers relative, right? Like we could multiply by 10 and you'd get to 50, 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 are not that retentive, right, because there aren't things like network effects. But back then 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 network effect.
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 have a subscription so we can have 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 will be able to finance the company. We 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.
I wonder if one analogous thing is 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 is you actually may still need a network effect in order to maintain longevity and have retentive behavior and that network effect is going to come with who can really be the first and best at multiplayer behavior and taking these kind of new single-player 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.
I want to push back on the agent 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 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, Databricks even launched theirs for most of like management work and that kind of thing. Like, every company will 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 I just have to push back on that. So, like do you think that's a viable long-term category? Like how does that compress versus years ago?
We do. We do. We think that Amazon will have an agent. So, I'll have my Amazon agent and I'll have my Shopify agent 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 conversations with each and every one of those agents. I can just have my agent go off and do a task. Today, 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." But I think eventually what will happen is there will be some standard or some way of agents connecting to the agents that each service offers you and making it easier. So I think we're in the early innings of how this plays out, but we do believe that people will want their own agents that represent them as opposed to my Amazon only having my Amazon agent.
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Before we go too far, let's talk about USV's strategic positioning, where you guys are investing and what your typical check size is.
Yeah. 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 play the same game, invest in the same stages, for the most part. But to Rebecca's point from earlier, we're going to be doing it with a slightly larger capital base. Not so that we can do many more deals or fewer deals, but more because, as we talked about earlier, the shape of the market and the shape of the deals has changed. As it's gotten easier to build, you know, there's also much, much more demand flowing in in the form of capital and startups are 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 reflection of where the market is today.
And what was the pitch to LPs? Was it an easy one?
It, 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 and good to them as well. And so there's a lot of trust established there. And we added some new ones. And you know what was interesting to me was LPs see the same thing we're seeing.
Yeah. We're not living in different worlds. They see it too. And so, I think, you know, maybe a few years ago, this would have been an edgier push than it was right now because the market has pretty clearly moved in a direction. And 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, 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, you know, in conversations like this, on our website, with our LPs, with founders. Rebecca mentioned them: physical AI, AI applications, AI infrastructure, and energy. And so those are the areas that we're investing in and we're consistent about that everywhere. Our LPs understand that. So there are other areas out there. Founders who are working in those areas have lots of places to go to, but they don't come to us because we're not loud about those things. But the things that we are loud about, founders find their way to us.
And 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. You know, 900 million may represent a big jump up for us but relatively speaking it's still 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.
Well 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. You typically know which ones you're going to invest in like a year before you invest. It's all dated and like very much 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. We talk to them a lot. We don't take for granted their support. We do quarterly calls. We update them on our strategy. We 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. I was a little surprised how many of them said, "Are you sure you shouldn't raise more?"
Yeah. Again because we're not living in a bubble, right? They're seeing the same things in the world, you know, that we are. And they're seeing the landscape of what's advantaged, but also that they appreciate that we...
So why have a small, relative in any world, a small fund?
I think there's a bunch of reasons. One, you can return it easier and get into carry and have the dynamics of the fund work the way you want it to. Two, you can be pickier, right? We always want to manage a fund in a bottom-up 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 align with, this fund is going to be a big success. And so we don't want to get bigger than that strategy allows for. But that number has shifted. And so that was an ongoing conversation with the LP.
It 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 potentially distorts the incentives a bit. And that's one thing that I've really appreciated about USV's small fund strategy.
When 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 like 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 where we wanted to be and that's where we still want to be.
What is a typical Series A today?
I'd say it starts with 10.
It's like, yeah, I think 10 is now on the small side.
That's why I say it starts with 10.
Yes, 10. You know, you're obviously seeing some Series As that are 100 or...
A billion, right? Like we also know what's not in our zone, right? That's not in our zone. We want to overall, and there will be exceptions to every rule, we want to lead or co-lead investments. We want to make real bets in things and stand behind them. Well, there might be a time where we break that and write a, you know, strategic check into something in a different way, but overall that's really our strategy. The checks that we believe in, the Series A checks in this fund will probably be 10 to 30 in order to 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. 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 to get real ownership at the seed stage, right? One thing could be taking more pure founder bets, which as a thesis-driven firm, like we haven't done a ton of that in the past. Another thing could be, you know, earlier we talked about 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 thesis. And so in some cases, we feel like it might make sense to actually build something inside the partnership as a bit of an incubation.
Yeah. And there's another slant on that. We have a couple venture partners, Jared Hecht and Scott Belsky, who are really accomplished entrepreneurs and product thinkers and builders. And working with them and Mike, who is also very much in that camp, 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 off the ground. So we're not the founder per se, but 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. And so this is all kind of, I think, a continuum between real incubation and founder bets and maybe what I would call like proprietary seeds. And I think maybe those will make up as much as a third to a half of all the seed investments we make. Because as Mike said, it's getting easier and easier to prototype something and take it to a small group of users and actually get real feedback and see if you've got something or not.
That'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?
I think one of the things that I've been really excited by coming in as USV's newest partner is how much this team cares about products. You know, it feels like the deals that we've dug in on sort of always require, not requires, 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. Now obviously that can't always work, especially in today's market where as we just mentioned, you know, in 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, it's a combination of what Mike said, which is using the product and getting kind of an instinctive 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'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 I think it's a combination of using product and sort of a product-native mindset combined with a lot of data and really looking at cohorts and understanding what real users are doing.
I 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 less. But I think in today's world team is playing, you know, it always plays an important role. I would argue it's playing a more important role than ever for really a bunch of reasons. One is that 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. You need the right founders that can really kind of mobilize a world around that. The other reason is I think narratives and market narratives are aggregating faster than they ever have. So the market is designating winners, right? And 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 is super important, right, both for investors and raising money, for team, for customers. That narrative piece and storytelling, I think we are paying way more attention to now than we probably have in other markets. Also, 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.
I know this is like, you know, we're talking early stage, but the companies mature. Like you guys are sophisticated investors, like you are actually looking at performance metrics. Like 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. Like what do you want that team to be focused on? Is it retention? Like is it revenue? Like what do you care about?
So, last time I was on Sorcery, 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 think ARR 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 you know, I think one thing that we care a lot about is kind of clicking a layer deeper than that. You 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. 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 actually coming back to this product and using it. Are they coming back every day? Are they coming back every week? Do they churn out after a month? 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. But 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 we used to, I'd say, in an earlier era of investing.
I think it's user retention and product innovation. I think we're in a moment in the market on the consumer application side where trial behavior is at an absolute high.
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.
You 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 Robinhood?" 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.
