Adam Besnivick: How to Invest in Pre-Seed & Seed Stage Companies; Looking Glass Capital | E1020

Adam Besvinick 0:00 I think the winners are the ones who are willing to adapt, and the losers are people that have nothing distinct to offer.

Harry Stebbings 0:06 Adam, I am so excited for this. We've been back and forth on Twitter many times.

Adam Besvinick 0:10 (laughs)

Harry Stebbings 0:10 I've wanted to make it happen for a while. So thank you so much for joining me today.

Adam Besvinick 0:15 Thanks for having me, Harry. Excited to be here.

Harry Stebbings 0:17 Well, we're gonna start with a little bit of context. So tell me, how did you make your foray into the world of venture and make those first moves?

Adam Besvinick 0:25 Yeah, I mean, it started, honestly, I joined Twitter in 2009, which feels like a, an epically long time ago, given where, you know, the Twitter product sits today with Elon owning it. But that was my entry point into understanding the world of venture. And so I just started following dozens and dozens of VCs on that platform, going back and forth with them when I had like 200 followers, and used that as a platform for potentially cold emailing hundreds of investors and trying to figure out how to move from traditional finance to venture, and ultimately, um, ended up working for Chris Sacca and Lowercase Capital while I was in business school off of a cold email to Chris, and then diligently annoying and following up with him until he caved and gave me some work to do basically.

Harry Stebbings 1:13 I, I, I, I absolutely love that. Before we kind of go any further, I just have to ask. Chris is such a good dude. What did you learn from working with Chris at such a young and formative stage of your career?

Adam Besvinick 1:24 I think the number one thing that I learned from Chris was his deference from, for founders, just the absolute respect that he has for entrepreneurs and how that translates to your reputation as an investor, and the thing that I think is so critical as a young VC, and really hopefully this compounds over time, is that reputation is the number one currency as an investor that you have control over. The other one, obviously, is your track record. But you and I both know that, to a certain extent, that's out of the investor's control. You know, we can hopefully select great founders and hopefully they build amazing companies, but ultimately we're not the ones building them. But reputation is the one thing that you have 100% control over as an investor. And from working with Chris, I sort of developed this hypothesis that if you have a great reputation, that should compound over time, should yield higher and higher quality deal flow, should yield higher and higher quality references from other founders, and ultimately give you the best possible chance of picking the best founders.

Harry Stebbings 2:28 Do you feel that many VCs today still hold reputation as the number one currency? I find the transactional nature, the short-term, deal-oriented, "I'm gonna win this deal and fuck our relationship" to be very prominent.

Adam Besvinick 2:43 Well, I think there's a difference between reputation with founders and reputation with other investors. And so your reputation with founders needs to be sterling. Your reputation with other investors ultimately I think some people take different tacks as to how they appreciate that one way or another. I personally have always felt that if you have a great reputation with other investors, that should hopefully allow you to be brought in to other deals, allow that there would be a respect that you're gonna punch above your weight on the cap table and other investors want you on board. To your point, maybe not every investor operates that way. But I think reputation with founders is something that you can absolutely not compromise on.

Harry Stebbings 3:27 I, I, I totally agree in terms of that being central. You mentioned there about kind of reputation being number one currency and the importance of knowing that. When you think about all that you know now and you go back to those early days following VCs on Twitter, what do you know now that you wish you'd known when you entered? Before we dive into fund models.

Adam Besvinick 3:43 I think the number one thing is probably, it comes down to a mindset issue. When I originally started getting coffee and jumping on phone calls with VCs trying to, like, in some ways kind of do your job when I wasn't recor- (laughs) recording, uh, on a podcast, I was blown away by the fact that so many investors felt like it was better to see an amazing company and pass on it than never see it at all. And as a 24-year-old at the time, that just blew my mind. Like, I couldn't wrap my head around the fact that y- you were more comfortable seeing something amazing and passing on it and that becoming Uber or Instagram or any iconic company. I sort of had this notion of, uh, as someone who was not doing the job that ignorance was bliss. I would rather not see that deal and not have the sort of regret living with me every day that I missed this thing. And I've been doing venture now full-time for almost a decade, and that, I don't know when that, when that change in mindset change occurred, probably within a couple years of doing the job, but now as someone who runs their own fund and has been doing this for quite a while, I 100% understand that feeling where you would much rather be in the flow, you would much rather have seen the multi-billion dollar outcome and passed on it than have never seen it at all.

Harry Stebbings 5:02 I agree with you totally. But I do also think there's this unwavering belligerence around having to see every deal. I don't need to see every deal. I just need to see enough of the great ones. And actually, I find that so many can have such a scatter gun approach that actually they're not focused and targeted enough to actually, "I'm okay missing a deal if I'm working on something great as well." Do you see what I mean?

Adam Besvinick 5:28 Absolutely, and I think that's, you're, you're feeding my argument for my thematic style of investing.

Harry Stebbings 5:35 Yeah.

Adam Besvinick 5:36 So when we get to that-

Harry Stebbings 5:37 That we're on-

Adam Besvinick 5:37 ... I'm gonna, I'm gonna, I'm gonna come back to this.

Harry Stebbings 5:39 Okay. Well, let's go to the fund then. Um, uh, first, I have to ask, why Looking Glass as a name? Before we dive into model.

Adam Besvinick 5:46 There's definitely an allusion here to Lewis Carroll and Alice in Wonderland and sort of Through the Looking Glass, and I think the fantastical elements that are necessary for, you know, what some of these founders are building, the sort of suspension of disbelief that's required for investing in something that's...... pre-product, pre-revenue, pre-everything. Um, sort of the idea that if you put down a pros and cons list for virtually al- virtually every investment I've made, the cons would significantly outweigh the pros. But yet, I've still said yes 27 times (laughs) in the last, uh, nearly three years. So that's where the name comes from.

Harry Stebbings 6:26 I want to start on, uh, Looking Glass. What is the

Harry Stebbings 6:29 fund size and why did you decide that as the optimal size?

Adam Besvinick 6:33 Sure. So the, the fund that I'm currently investing out of now is a 20 million dollar target, and really the o- really I chose that size because I felt like it was incremental from Fund One. So Fund One was a little over eight and a half million dollars, generally investing 300 to 400K into pre-seed and very early seed rounds, so really 750K to three million dollar rounds. And so I felt like the step up from eight and a half to 20 was iterative enough for me to essentially go from 300 to 500K, really 400 to 500K, sort of, incremental ch- step up in check size, allow me to invest in 30 companies versus 24, but still maintain the exact same entry point.

Harry Stebbings 7:16 O- Okay. So I am, I'm loving this already 'cause I'm just going for it. Okay, so we have 24 companies in Fund One. That's a pre-seed fund. Man, that's very, very constrained in terms of number of companies. Do you think you can do a pre-seed fund with that few companies, being 24?

Adam Besvinick 7:35 I think you can if the ownership is sufficiently high enough. My goal with the fund was to make sure that every investment can move the needle and return the fund with a billion-dollar outcome. So fundamentally, I believe if you're investing out of a, a 50 million dollar fund or smaller, a billion-dollar outcome has to return the fund, or this job becomes even harder than it already is. So, you know, all things considered, I would have rather had more, like, 27 companies than 24, but I was operating within the constraints of a smaller, smaller fund size. But with Fund One, I need to own 86 pips at exit of a billion-dollar outcome to return the fund. My average ownership was close to 4% on average at entry across Fund One. So even if I get diluted by 60, 65%, which I expect to over the life of that investment, I'll still own well north of 85 pips. In fact, if I get diluted by 60%, I'll actually own, like, 1.7%. So a billion-dollar outcome, 2Xs my fund on, out of Fund One.

Harry Stebbings 8:43 I, I totally agree. My question is, I didn't see any of these deals. I mean, we invested at the same time. Th- th- these deals were not priced in that range. What was the average entry price on those deals and-

Adam Besvinick 8:56 9.1 post.

Harry Stebbings 8:58 Sorry, I'm confused. How does... (laughs) How did I miss them, Adam? I saw five on 25 for the last three years. Where were you fishing?

Adam Besvinick 9:07 That's part of the strategy. I, um, I don't operate amongst the regular way seed investors, or at least the... Put it this way, the multi-stage seed investors that have driven up the price of seed valuation significantly and are still doing so. So my, my strategy is to make sure that I'm part of the first money into rounds. Ideally, first yes. I literally own the domain firstyes.vc. It redirects to the Looking Glass website. And so, the deals that I've done over the course of Fund Two have been six million cap, eight million cap, eight million cap. Um, and I'm stretching on one now, which is at 11 million cap. But this is-

Harry Stebbings 9:52 A-

Adam Besvinick 9:52 ... this is all first money into companies over the last eight months.

Harry Stebbings 9:56 Okay, so when, when we go back to that first eight, so you're doing 3, 400K checks and you're earning, say, on average, 4%. Um, t- are you, are you leading those rounds? How, what do those rounds look like, just in terms of construction?

Adam Besvinick 10:09 Out of those 24 investments, I was the first fund to say yes, the lead, or a co-lead in 14 of those 24 investments.

Harry Stebbings 10:19 Okay, got you. Are the majority outside of San Francisco and New York?

Adam Besvinick 10:25 Outside of, of the 24, I think 10 or 11 are Bay Area.

Harry Stebbings 10:30 All right.

Adam Besvinick 10:31 Or at least they have one founder in the Bay Area. Some, some of these teams were split. Only four or five were in New York. Um, none were in LA. One was in... One was a team split between the Bay Area and Miami, so I guess you can count that as a Bay Area (laughs) deal. Um, but a lot were in other, I'll call secondary, tertiary tech hubs. Austin, Chicago, Boulder, San Diego, Portland, Oregon, Toronto, Durham, North Carolina, Boston.

Harry Stebbings 11:04 So I, I, I wonder wha-

Adam Besvinick 11:05 And that definitely keeps, that keeps valuations down.

Harry Stebbings 11:07 Yeah, I was thinking that. But I want to ask you, that 8.4, that's, it's quite a nice fund size to raise for, bluntly. It's individuals, 100K, 250K checks. You can get that pretty easily, bluntly, if you have a good network. Um, 20, uncomfortable. You're too large, really, for those institutions really to start stacking up and making a difference. And you're too small for really other institutions to want to invest at that stage without hitting, you know, 10, 20% thresholds. Why did you choose 20, and is that not the hardest fund size to raise for?

Adam Besvinick 11:42 20 is definitely not the easiest (laughs) fund size to raise for, I'll put it that way. But really, it came down to I'm trying to build a firm over the next 20 to 25 years, and I wanted Fund Two to be an iterative step up from Fund One. And I felt like going from eight and a half, eight-six, whatever Fund One was, to 20 allowed me to incrementally increase my check size in such a way that...I was very comfortable doing so. LPs don't require a major leap of faith to believe that I can go from writing a 325K check to writing a 425K check, on average. From owning four per- 4.2% on average to owning five and a quarter to five and a half percent on average. This is, these are baby steps in terms of increases that I felt like were very easily underwritable. Now, in terms of LP type, yes, that fund size definitely plays below the sort of normal threshold of institutional LPs. I generally think 40, really 50 is kind of the floor for a lot of those, a lot of those, uh, those groups. And so I'm living in a world of smaller fund of funds and family offices and, you know, high net worth individuals who sort of look and act like a family office, but they don't have a family office sort of entity created yet. And that's generally the majority of LPs that I'm

Adam Besvinick 13:10 spending time with.

Harry Stebbings 13:11 On, on the fund raise, before we kind of go to actually, like, being i- on the battlefield, so to speak, what docs do you have ready? How do you think about the materials that you need to get in place to go out and raise?

Adam Besvinick 13:22 I mean, that's a big lesson learned from Fund One. I started having conversations and people were like, "Send me sub docs." I was like, "Oh, no. I don't have sub docs ready." (laughs) I was just, like, in a unbridled enthusiasm phase of having conversations and I thought processes were gonna take a lot longer than they did on Fund One, um, when I was out in market. And so now I've, you know, given my sort of background operating at Anchorage Capital before starting Looking Glass, sort of the most institutional of institutional places, I err on the side of formality in terms of data room and materials, and I write an investment memo for every single investment I make, even though it's just me reading them. Um, so every single one of those investment memos is in the data room that LPs can pore over and see my thought process at the time of investment. Every LP update I've sent out over the last... You know, I started at the m- as samples, and now it's beyond samples. It's really, like, every LP update I've ever sent out. I write a very lengthy letter every eight weeks that's very transparent on every company in the portfolio to LP, so potential LPs can see how I communicate transparently and regularly with, with my investors. And then obviously, of course, deck and an appendix to that deck, and s- statement of investments, and all the necessary legal, legal docs.

Harry Stebbings 14:42 How do you advise founders on the docs they need to get ready? The one thing that worries me when I hear you speak there is, there's a lot. And actually, respectfully, LPs often don't go through docs that efficiently, and actually really have to nudge them to even go through them. Do you worry that, one, LPs are not engaging 'cause there's too many? And what advice would you have to founders on the doc preparation element?

Adam Besvinick 15:04 I do sometimes wonder if there's, like, paralysis by analysis in where, you know... I'm sure you and, and I have experienced something similar when evaluating companies, and you're just inundated with materials and you don't r- really know where, where to begin. My philosophy as an investor and, you know, and founder of this fund has always been to err on the side of providing more information to LPs, and if they so choose not to engage in it, then that's fine. It's the same way I t- I tell founders. After our first meeting, if they have a data room, just send me everything. I'd rather not be drip-fed one piece of material after another and rely on me to ask a question that, like, unlocks, like, another door for me to see something. Just throw it all at me, and I'll pore through it. I've been doing this job, you know, for almost a decade, so there's, I think, a lot of information that I have accumulated over time that I think LPs find valuable. If you're a first-time fund manager, and maybe you don't, maybe you have some angel investments or maybe you have a track record that you can point to, you probably don't necessarily have, like, 24 investment memos from Fund One that LPs wanna, wanna read to understand your thought processes. So, think a deck, basic info on track record, a list of founder references and other investor references that people can get to quickly if they need to understand who you are and how you operate is, is probably enough for most small fund early conversations.

Harry Stebbings 16:32 Do you send the deck ahead of time before the call?

Adam Besvinick 16:35 If it's required to start to get a conversation going, for sure, either through an, a warm intro or because someone insists upon it.

Harry Stebbings 16:42 Yeah.

Adam Besvinick 16:43 I don't think I, I've never walked through a deck on a call.

Harry Stebbings 16:47 Yeah.

Adam Besvinick 16:48 I, I just, I, I don't think that's really necessary as an investor in the same way that it is as a founder who has, like, screenshots, and competitors to show, and revenue charts. Like, I, I just don't think that that's as necessary as a, as a VC.

Harry Stebbings 17:02 Okay, interesting one. You said revenue charts there, and I know where you invest. I fucking hate it when it's like investors are like, "Hey, financial models. I wanna see year three projections." We have no idea where this is going to go. It probably won't even be the same idea. Do you expect founders to have financial models that pre-seed?

Adam Besvinick 17:22 No, of course not. My general view is that a fou- a financial model, if a founder so chooses to have one, it's a great level of insight into what they think the drivers of their business are and the levers that they can pull over time. But ultimately, I am fully aware that what I'm underwriting is 100% going to change and not occur, (laughs) um, as it was... I mean, I was an investment banker in a previous life. I know I can make a model say whatever I want. So-

Harry Stebbings 17:49 (laughs)

Adam Besvinick 17:50 ... it doesn't matter what the model says. I just wanna understand that the founder knows what the drivers of their business may end up being over time.

Harry Stebbings 17:57 I, I really struggle. Like, pre-seed, I have an in- incredible partner who leads our pre-seed investing. But I struggle with pre-seed because unless I have an existing relationship of trust, there's nothing to go on. No data, no cohorts, no revenues in most cases. And so you're meeting me for the first time, and I can sell well, and you buy. I'm, a- at, my point being, how do you determine that?... like, concreteness without any existing relationship and with no data.

Adam Besvinick 18:29 I spend a lot of time trying to understand the motivations and origin story of founders that I'm investing in. And so I describe this nature of founder profile on my website as mission-driven. And I don't mean social mission, though certainly many of the companies that I'm investing in have a, you know, world-positive, social, you know, good element to them. They're in healthcare and climate and sometimes education. And so you naturally can't help but have some of that. But really what I'm trying to get at is, is this person the best person in the world to be building this product in this market? Are they uniquely suited to be building this company? And why is that? And why do they choose to spend the next decade building this business when maybe they quit a job at a, you know, large tech company that was very well-paying? Or, you know, you're a founder, you can choose to do anything you want. Why did you choose X? And so to me, that origin story is critical. And I think the founders that I invest in and the categories that I invest in self-select for uncommonly resilient entrepreneurs. If you're building in healthcare, in climate, in education, even in some of the tools serving small businesses that I invest in, like, these are really challenging areas. They are oftentimes regulatorily complex. They're oftentimes very fraught. Um, you're dealing with a lot of legacy incumbent players who may be reticent to adopt new technologies. And so if you have chosen to be building in one of these categories, you've chosen that category for a reason. You probably have uniquely suited operating experience. Maybe it's a deeply personal reason for why you're building in this category in the first place. And so I think it self-selects for a founder that's gonna, you know, run through a brick wall to make this company succeed. They're not gonna look for the early exit. They're not gonna look to throw in the towel early. Whereas there certainly are some other categories, I won't necessarily call them out, that I think attract a more fly-by-night entrepreneur, and I

Adam Besvinick 20:40 don't invest in those areas.

Harry Stebbings 20:42 I, I want to go back to the LP process before we leave that. How did you get the majority of your LP introductions? Was it warm intros? Was it direct outreach? How did you approach that?

Adam Besvinick 20:51 Before I started the process, I spoke to our mutual friend, Semul Shah, and Semul said, "The only people that are going to invest in your first fund are people that know you." And I was like, "Well, why won't..." You know, I invest in founders all the time that I don't know. And he goes, "This is different." And he was almost 100% correct. Like, every single LP in Fund 1 is someone that I knew personally over my prior, you know, years and years in and around the early-stage tech ecosystem. And if they weren't an LP I knew before the Fund 1 process, they came from an intro from an LP who said yes to Fund 1 and then introduced me to somebody else.

Harry Stebbings 21:28 Yeah.

Adam Besvinick 21:28 And so that has continued to be the case for Fund 2 as well.

Harry Stebbings 21:34 Okay, get you there. What type of LP composition do you have? What does that look like?

Adam Besvinick 21:40 Fund 1, it's, it's a lot. (laughs)

Harry Stebbings 21:43 How, how many is-

Adam Besvinick 21:43 Um-

Harry Stebbings 21:45 ... Fund 1?

Adam Besvinick 21:45 It's probably north of 80.

Harry Stebbings 21:46 Okay, north of 80. How many meetings did you have?

Adam Besvinick 21:50 I don't keep track. I know that there's some found- or some managers that come out and they say, "I had 327 meetings," and it's hundreds. I've had, I've had hundreds of meetings with potential LPs ranging from the individual who wrote a 10 to 25K check into Fund 1 to the family office that's done 10% of Fund 2-

Harry Stebbings 22:11 Gotcha.

Adam Besvinick 22:11 ... and everything in between.

Harry Stebbings 22:13 Okay. And so we had 81 there, and then w- uh, and it's, like, all individuals. For Fund 2, what does that look like?

Adam Besvinick 22:20 Virtually all. There's, there's one corporate investor in Fund 1 who's in, also in Fund 2.

Harry Stebbings 22:25 And then what does it look like for Fund 2? Does the profile change?

Adam Besvinick 22:29 It's higher net worth (laughs) individuals and more family office, more official family office types in Fund 2 that I either didn't know when I was raising Fund 1 or that wanted to track for Fund 1. And then sort of newer fund-to-fund style investors that have emerged.

Harry Stebbings 22:50 Did you notice different desires in the different profile types?

Adam Besvinick 22:55 One of the biggest surprising things to me from over the course of building this firm is how people interact with money and make decisions around money. Particularly individuals. The way that people think about investing in relation to their net worth, in relation to risk is fascinating to me. I'm not gonna go down this rabbit hole, because we could spend hours on this topic, but I've been shocked by the dollar amounts that some people have committed, both way smaller than I expected and way larger than I would have anticipated. And it's generally indicated to me that you can't come close to sizing up, at least on an individual LP, like a high-net-worth individual LP, you can't handicap what their check size is gonna be unless they explicitly tell you, because I've been shocked both directions, up and down. When it comes to professional allocators and family offices, my strategy is very inside baseball VC. And so if you don't have an appreciation for the nuances of venture capital as a business, then I don't think you're gonna say yes to invest in my fund, because you might not necessarily appreciate the strategy that I'm employing.

Harry Stebbings 24:10 And can I... O- Okay, can I ask, do you have, uh, a minimum check size?

Adam Besvinick 24:15 Yeah, it was 100 on Fund 1 and 250 on Fund 2.

Harry Stebbings 24:18 Why do you have that? Like, what, my best deals have come from a 25K head of product.

Adam Besvinick 24:26 ... I have broken that minimum-

Harry Stebbings 24:28 (laughs)

Adam Besvinick 24:29 ... lots and lots of times. Um, for Selective-

Harry Stebbings 24:33 I, I, I will say that-

Adam Besvinick 24:33 Well, that's why I said from... That's why I said from meetings from a 10K check up to a, you know, multimillion dollar check. So, I've broken it for the right people who have the right network, who I really wanted to be involved in helping me get off the ground and build this business.

Harry Stebbings 24:50 Totally agree there. I think it's really important to actually understand the strategic value, not just the dollar amount. And, like, you know, often I'll write checks, and it's like, it'll come with 20 LP intros, but my check will be, I don't know, 25 or 50K. Um, but hopefully there's more strategic value there. Okay, so we have that in the mini- How do you enforce a sense of urgency? We both know LPs. They can be a little bit slower. How do you kind of get them over the line when you feel they're around the hoop?

Adam Besvinick 25:17 I think that's the absolute hardest part of fundraising as a fund manager, compared to a founder of a company, where there's typically a lead and that lead sets the terms and everyone kind of falls in line. And as soon as, you and I both know, as soon as there's a lead investor around, it's an all-out sprint from people to secure an allocation. That's just not the way things operate in this world, unless you have, like, a very substantial anchor investor who's gonna take, like, 50% of your fund and probably take a piece of your carry and maybe even a piece of your management company. But for a regular way venture fundraiser, I think creating that sense of urgency is really challenging. LPs, just like VCs, can smell a bluff a mile away. And so, I have really, frankly, struggled to sort of set deadlines and hold people accountable, because I know naturally LPs are gonna come, you know, that deadline's gonna come and go and they're gonna say, "Oh, well, what happened to that date?" And so, the way that I've tried to demonstrate a sense of urgency is really by demonstrating compelling momentum. So, it's consistent updates and conversations with LPs to share progress and markups from fund one. It's sharing new investments on fund two, who has co-invested with me in certain instances on fund two, that they might find compelling, that they might be LPs in that fund already. Using those investors as catalysts for demonstrating that there's inertia with this fundraise and that they should be a part of it. And I think that's, that compounding of updates and progress, to me, is the best way to demonstrate less of a sense of urgency and more that, like, I'm putting one foot in front of the other every single day, and there are other people that are getting these updates too, not just you.

Harry Stebbings 27:01 I, I think it, it is exactly that, which is like, you know, this train is leaving the station with or without you, in the most respectful way. And it's not, "I'm checking in on you." I'm telling you how fast we're moving. The worst of my managers-

Adam Besvinick 27:14 Exactly.

Harry Stebbings 27:14 ... like, "I'm circling back." Never circle back, the worst. Uh, on closes, wh- how do you approach first close, final close? What was the take there and how do you advise managers there?

Adam Besvinick 27:26 Yeah, that was a huge lesson learned from fund one. I was fundraising from, in- during fund one through lockdown and peak COVID. So, I joke with people, I started fundraising in January of 2020 for fund one, and I stopped fundraising in March of 2020. And people say, "Wow, that was fast." And I said, "No, no, then I started fundraising again in June of 2020, when people started responding to my emails again." I had a lot of GPs invest in fund one who have been doing this way longer than I have, and they said, "Do a first close as soon as you have..." Whatever number I had, which I felt like it was way too small to do a first close on in fund one. And they were like, "Just get going. Just put points on the board. Just be in the game. Don't wait." And I, I frankly probably waited too long to do a official first close on fund one.

Harry Stebbings 28:14 What did you put as the threshold?

Adam Besvinick 28:17 I think I was trying to get to at least 50 to 60% of the fund before doing that first close.

Harry Stebbings 28:22 Mm-hmm.

Adam Besvinick 28:22 And now my rule of thumb to other founders would be, get to 50% of your minimum viable fund size and then do the first close. So, if your minimum viable fund size is 10, you gotta get to 5, even if you're trying to get to 20, right?

Harry Stebbings 28:42 Yeah.

Adam Besvinick 28:42 Your minimum viable fund size might not be 50% of your target, but if it is, effectively you're trying to get to 25% of your target to do a first close. And then invest like you're not gonna get beyond your minimum viable fund size, because if you do you're gonna end up with a portfolio that's way too small, if you end up with a number that's a lot lower than your target.

Harry Stebbings 29:05 Yeah. No, I totally agree with you there. Okay. No, doesn't that make sense. Um, i- in terms of, like, what you know now on fundraising that you wish you'd known at the beginning, what do you know now that you wish you'd known at the beginning?

Adam Besvinick 29:17 I would say, you need to figure out the phenotype of your LP quickly. Figure out who the LP is that's going to understand your business. It's, it's really no different than a founder who needs to find the VC that really understands their business, understands them personally, gets along with them, appreciates their approach. And I think it's a little bit easier as a founder of a company to suss that out with VCs, right? VCs generally are way more public about who they are, what they invest in, how they invest. They're more active on Twitter. You can really get a, a, a sense for who those people are. LPs are obviously a little bit more challenging to put into a box in that way. But I definitely can describe the LP who's a good fit for me way more easily now than I could three years ago, three and a half years ago. And so, when I talk to other LPs and I ask for intros, or when I talk to managers and I ask for intros, it makes it a lot easier for those people to say, "Oh, I know exactly who is a good fit for you," versus, "Well, yeah, I know hundreds of LPs. Like..."... it's not, you know, not every LP is the same.

Harry Stebbings 30:34 I totally agree with you there. I think it's very much like, um, companies really. People need to know why they come to you with a certain deal, and that's where thematic investing has its benefits. I want to discuss the strategy. You said there, and it kind of touches on that, but you said it's very, like, insider baseball, inside VC. What makes you say that? 'Cause we heard earlier 24 to 30 companies between funds, you know, 3 to 400 K, 4% average ownership. What's the insider baseball element?

Adam Besvinick 31:03 I think that the strategy that I'm pursuing of being a pre-seed investor that takes a much more institutional approach to investing and discipline is definitely uncommon. I think most sub-$40 million funds really, especially most sub-$25 million funds, have way more investments. They write way smaller checks. It's not necessarily spray and pray, but it definitely is more of a scattershot approach to, I think, use the term you used earlier in the, in the conversation. And I just don't deviate from the strategy that I'm pursuing at all. I don't make any compromises around it. I'm never gonna be like, "Oh, I got a 75K allocation here. Yeah, I'll do that one." Like, I- I stick to my target check size range. I stick to my target ownership, which is an average ownership across the portfolio. It's not like every single deal has to be in there, 'cause I know that some are gonna be higher, some are gonna be lower. And this really comes down to a lot of what I learned investing at Anchorage prior to starting Looking Glass. Though Anchorage is, you know, mostly a public fa- a public investing long/short hedge fund. I was surrounded by credit investors who took a very conservative approach to investing. They're like, I always said, like, credit investors think everything is gonna go wrong and Ves- thing, VCs underwrite everything going right. And so it required me to be incredibly buttoned up when I evaluated companies, when I went to investment committees to pitch them, and I think that mindset actually, while it's not really all that helpful at the pre-seed stage, I think it is actually quite help- in terms of evaluating companies, I think it actually is quite helpful when it comes to instituting a set of guide rails and allowing me to focus on what I invest in and what I don't invest in.

Harry Stebbings 32:56 Adam, do you worry about adverse selection? And w- what I mean by that is like, you know, when I look at Fund 1, I'm being very open here in a way that I've never been before on this show. Uh, BeReal, pre-seed 60K check, Linear 100K check, Remote 50K check. Some of my, like, on paper, definitely best investments. Um, I always went for 250, like broke the rules there, and they're the ones which were bangers. And my 250s are like, "Yeah, they- I'm sure they'll be fine," but actually, the exceptions is where I've seen the alpha. Do you worry about that? And how do you think about if you should make exceptions?

Adam Besvinick 33:37 So, I do think that having this set of rules allows for when you do wanna make an exception, it's very clear why you're making that exception, right? Like, the more constraints you put in place, the fact that when you do want to or need to make an exception, like, it means that it's reached some level that you thought might be previously unattainable. So for instance, in Fund 1, I have an investment that I made that was outside of my valuation range, a touch, but still outside of my valuation range. The round size got larger after I had committed. I wasn't gonna back out. I still got my 300K allocation, by the way, but the round size got larger after I committed, a bunch of people piled in. I wasn't gonna tell the founder, "Oh, sorry, I'm not in it anymore because you raised four and a half instead of three," right? Like, if anything, the optics were this deal was even more compelling now than it was when I said yes, and this team is by far the best executing team I've ever worked with in a decade of being in venture, like bar none. And so I obviously am very happ- happy that I didn't compromise on, you know, my valuation rules and I stuck to, stuck to that yes. Um, I don't necessarily believe that there's adverse selection or, like, if I believe that I'm getting adversely selected because I'm getting my allocation, then I should probably just quit doing this job, right? Like, I have to have the confidence to believe that I'm getting into deals at the target check size that I want and founders are selecting me because they believe that I'm a great fit for them and I believe that this is a great company. If I thought that every investment that I made was open to me writing the full amount that I wanted to because they weren't getting anyone else to say yes, then like, I definitely couldn't go to sleep at night. And so my philosophy has been be a first yes, lead around, set the terms, commit early, and then basically put on my investment banker hat and become placement agent and help bring in the rest of the money into that round by going to a select group of investors that I feel are highly complementary to me on the cap table and highly complementary to that founder in a way that they might not be thinking about, and put them in front of investors that they might not know, that might not be household names, but I know are gonna be awesome value adds to this business.

Harry Stebbings 36:11 Can you lead rounds if you're not the biggest check, Adam? (laughs)

Adam Besvinick 36:15 I have. I will continue to do so. I guess it depends on how you define lead. Like, I saw Jason Lemkin tweet the other day, like, "A lead investor is the investor who writes the next check when nobody else will." So if that's the only definition of a lead, then-... no, like, I'm investing out of small funds. I can't necessarily justify writing follow-on checks at that level. To me, that's not necessarily the only definition of a lead. To me, the definition of a lead is one that helps catalyze or raise, the one that sets the terms, the one that's the first call, the one that's the most responsive to that entrepreneur when things are going terribly, or is the first call when that, when things are going really well and that founder wants to celebrate with somebody. It's the investor who helps compel other investors to say yes to that company both at the time they're investing as well as in subsequent rounds. And so, like I said, I was the first yes or the lead in 14 of 24 investments out of fund one, uh, it's effectively been the case in every investment out of fund two so far, and I was the largest investor in only one of those 14 rounds in fund one.

Harry Stebbings 37:26 Adam, do you ever get big- do you ever get big multi-stage funds come in after you've committed and say, "Oh, fuck Adam." Like, "Fuck that little round you had going. We'll put down three on 15 or four on 20 and, like, kill that pre-seed round. You're way better than this founder." Do you ever get that?

Adam Besvinick 37:45 No. In fact, I've had General Catalyst, True Ventures, Tribe, Lower Carbon, that have come in after me, after I've said yes, and have not altered the terms of those rounds.

Harry Stebbings 37:59 Wow. Okay. And you, and you don't find your check size uncomfortable in terms of, like, unfriendly? The thing I worry about with the three to 500 range is, like, it's a lot of angel checks in that one bulk and you're not really big enough to also take more than 60, 70% of the round. Do you see what I mean?

Adam Besvinick 38:17 I haven't found it to be a challenging check size. So, like I said, in fund one, ranges were 750K to three and a half million dollar, I guess four million dollar round sizes. Um, I got what I was looking for in virtually every single investment. Um, out of fund two, the round sizes have been one and a half to two and a half, and I've gotten the allocation that I wanted in every single one. And I don't think it's that unfriendly. Like, I've been- I've come into rounds with a 300 to 400K check after there was already a lead who set terms in a couple instances, so it didn't prevent me from getting what I was looking for. I think a quintessential round for me would be one and a half to two million dollars at a 6 to 10 post. That's, like, down the middle of the fairway, you know, structure for me. And if I want to write a 500K check, if there's a $1.75 million round and they already have a, you know, quote unquote traditional lead who's taking a million, I can still get 300 to 500K and it's on me to compel that founder to give me that allocation. It's on me to sell them on why I should have that much of the remaining 750K. If the investor who's leading the round introduced me to the company, then I have a leg up and I'm not bashful about preemptively having founders give references to other founders. It's a key part of my strategy. It's a key part of why I'm investing in a thematic way, is that I can build instant credibility and rapport with a founder building in healthcare 'cause I can probably point to half a dozen other companies in the portfolio that are super relevant to what they're building that might be customers of theirs, that they might be a customer of, that they might partner with, that has immediate value for them. And if I do cold outreach to a founder, which I've done in probably half a dozen in- investments I've made so far, I immediately am validated in their mind because I have

Adam Besvinick 40:20 a portfolio of very relevant companies that they care about.

Harry Stebbings 40:23 How do you think about loss ratio? How many do you expect to fail at this stage?

Adam Besvinick 40:28 I don't know. This is a... It's not a home run game, it's a Grand Slam game. Right? Like, there are gonna be companies that inevitably go to zero. Out of 24 companies, there's only a few that make me lose- lose sleep at night right now, call it three years in. But ultimately, I know that the vast majority of returns are gonna come from, you know, 20 to 30% of the portfolio. And I'm comfortable with the inevitable zero or less than 1X that's gonna make up, I don't know, 40 to 50% of the portfolio, call it eventually eight to ten years in.

Harry Stebbings 41:01 When you look at those ones that keep you up at night, is there something that now you would have seen? And so, like, when I look at mine, there are certain things where, like, had I known what I know now, I wouldn't have made that investment. Do you see what I mean? It would have changed my mindset. When you look back, did you miss something?

Adam Besvinick 41:20 No. When I look back, I acknowledged something and I thought it could be mitigated over time and it was not. So, with every investment memo that I write, the last slide of it is a risks and mitigants section. And so I've usually put three to four risks and three to four sort of, like, counter-mitigants that could mitigate that risk over time based on what I'm currently seeing at the time of investment. And so, it's a good check for when a company inevitably fails or isn't doing well, for me to go back and look at, "Was this a risk that I was aware of but I underwrote it and was comfortable with it anyway?" Um, in the case of a couple, this might, uh, change over time, but right now, at this moment in 2023 with these particular companies, the things that are keeping me up at night are things that I was aware of at the time of investment that I was just comfortable with and thought would get mitigated over the life of that company. And in a couple instances, they have not.

Harry Stebbings 42:24 Well, I mean, at least you saw them. Most of mine I didn't see coming and I'm like, "Wow, I never saw that one coming." So, uh...

Adam Besvinick 42:30 Well, I know that... I, you know, if you do this long enough, you're

Adam Besvinick 42:35 gonna, you're gonna have those, so.

Harry Stebbings 42:38 ... totally get you. Now, you, you mentioned bu- a little bit on, touching on the benefits of like thematic investing at pre-seed. Honestly, I disagree. I just think that you have no idea what's gonna happen. It's like, Adam is amazing, we just have to get behind him. Everything pivots, it's so early. How do you think about the benefits of pre-seed thematic investing, given everything is in such transient state of flux?

Adam Besvinick 43:06 I mean, I'm a single GP. I'm also a single employee. I don't work with anybody else at Looking Glass, so my bandwidth is constrained. I can't be a generalist, I can't see every deal, I can't chase every hot company. There's nothing that gives me more satisfaction than when, uh, someone says, "You need to download this TestFlight app and play around with it. This company is, you know, taking off. They're quietly raising a round." And I'm like, "Cool, I'm gonna play a round with it," but it doesn't align with my themes, and I can be very happy not having to chase that entrepreneur and convince him or her to take a meeting with me. The thematic investing that I do is the fundamental driver of all of my sourcing. It allows me to be top of mind for other investors when they share deal flow because they know what I invest in, they know the constraints that I invest around, and they know that I could be a good fit because I invest in healthcare or climate or education or small business SaaS. Like, they know that I should be top of mind for them, compared to a generalist firm who they might not necessarily immediately think of when they're building a syndicate. It allows founders to come to me directly. Like, I invest in cold inbound, right? I respond to every single email that I get, even if it's simply to tell a founder, "This isn't a fit for me." Again, reputational, you know, reputation matters. And so, the deals that I've done that have been cold inbound have been explicitly because they're looking for investors that invest in relevant themes to what they're building, and those have been great companies. In fact, those are some of the best companies out of Fund One. And then with my own cold outbound to entrepreneurs, it allows me to build immediate credibility and rapport with them because I can point to, like I said, a bunch of companies in the portfolio that are very relevant to them. Uh, when I build a syndicate of investors around a company after I've committed to l- lead that round or just a first yes to that round, I go through a list of literally hundreds of investors that I have relationships with, that I've tagged based on stage and category that they invest in, and check size, and a bunch of other notes that I have for them, and I send that, uh, curated list over to the founder and say, "Which of these do you want introductions to? Give me a blurb and I'll send this note over." I know that I'm not the only investor that operates that way, and the ones that go to the top of the list are the ones that I know that are hyper-relevant to what that company is doing, and then the best of the best, kind

Adam Besvinick 45:38 of regardless of what that founder is doing.

Harry Stebbings 45:41 What are the single biggest mistakes founders make when it comes to round composition?

Adam Besvinick 45:45 They're not broad enough, they're too narrow with who they go out to, and they don't actually realize that there's lots of other investors that are not the household name pre-seed and seed funds that would be phenomenal investors on the cap table. And I'm not talking about like Looking Glass, I'm talking about the really nichey healthcare investor that only does healthcare that's based in Nashville that nobody knows about unless they're a healthcare investor, and this founder just thinks like, "Well, I should just go to up and down, you know, the Midas list, and that's, that's my lead list." And it's like, well, no, you need to have a much broader funnel and you also need to recognize that there's a lot of strategic value that an investor can bring to the table, that you might not have ever known that investor before this process started, but I'm gonna put you in front of them. I'd say the second point that they don't think about is they don't appreciate that the partner at the fund matters. They just think about the fund as a giant entity and don't realize that there are personalities and motivations and bureaucracy and all sorts of things that are at, you know, internal dynamics of any large organization, and venture funds are no different. And the individual partner that you get introduced to really matters because he or she might specifically be looking for a company like yours, their personality might really be aligned with yours or might be really counter to yours. And I can help steer a founder to the right individual at a certain fund in a way that they probably aren't thinking about, particularly if they're a first time founder who hasn't done sort of the dog and pony show of fundraising before.

Harry Stebbings 47:32 Ophelia Brown said on the show, from Blossom, one of Europe's leading venture investors, "Multi-stage firms have destroyed seed." In many ways, I agree. Do you agree?

Adam Besvinick 47:45 It's hard to disagree.

Harry Stebbings 47:47 And also, Adam, actually like the whole s-

Adam Besvinick 47:47 But that's why... I don't know what- I don't know how you define seed. Like, I don't know how you-

Harry Stebbings 47:51 ... let's just-

Adam Besvinick 47:51 ... define seed these days, right? So c- like I see companies... I saw a announcement in Dan Primack's newsletter yesterday that a company raised a $7.3 million seed round. Well, that's not, that's not a seed round. In fact, it's probably, you know, as a investor who started doing this a decade ago, to me that's someone who combined an A, a seed and an A into one round, and maybe they're combining, you know, two pre-seeds and a seed and calling it a $7.3 million seed, right? Like the announcements are, the announcements don't give you any signal into the dynamics-

Harry Stebbings 48:24 The annou-

Adam Besvinick 48:24 ... of these raises. So-

Harry Stebbings 48:25 The announcements don't... What, what worries me is that actually like pre-seed doesn't exist anymore if you're a pedigree founder. What if, if you've-

Adam Besvinick 48:31 No.

Harry Stebbings 48:31 ... been at Uber for, or Square or Twitter or you name it, for six years plus, they all just come out and raise five.

Adam Besvinick 48:39 That's fair, but I...... those aren't Looking Glass founders. Right? Like the founder that is, that rolls out of bed and says, "I'm starting a company and I'm leaving Stripe," like, that's not a Looking Glass founder. Or like, the person that has like eight term sheets lined up before they get their coffee at Sightglass, like that's not a Looking Glass entrepreneur. To me, the founders that I ... And no disrespect to the founders that are in my portfolio, like, a lot of them are repeat founders. A few have had material exits before starting companies, and they had the self-discipline and wherewithal to raise smaller rounds because they know that when you raise five million at 25, you have a target on your back before you've even written a single line of code. But raising one and a half to two at something high, maybe 12, right? Like, they're taking less dilution than maybe a first-time founder who has zero track record and needs to raise one and a half at six. But they're doing so because they understand that there's real discipline that's necessary to execute well, and there's significant margin for error when you raise at a lower number. I've had nine companies raise rounds since the start of Q4. Six have been priced up rounds, three have been safed with higher caps, out of 24 companies in Fund 1, and all of them have been able to do so because they raised at very sensible levels originally. And so the ability to raise an up round when your original round was quite sensible is very achievable when the market is hard, like it is now. It's not achievable when you raise fif- at 15 to 25 before you've written a line of code.

Harry Stebbings 50:26 So I totally agree with you, and what ... We're 100% aligned. My only pushback, or other people's pushback to me is, yeah, but like if we think about bluntly, the cool goal is to get to product market fit, and you need often multiple iterations to get there. A larger runway gives you that. So raise five and operate and spend like you have one and a half, and give yourself four years and V6 to get to PMF. How do you feel about that?

Adam Besvinick 50:56 You're describing a founder that has an uncanny level of discipline. It's easier said than done to say, "Raise five and operate like you have one and a half." You and I both know that most people don't have the willpower or self-control to do that. I would much rather invest in a founder that says, "I'm gonna raise two and a half and operate like I raised one." And so my general rule of thumb is you need to have at least 24 months of cash, gross burn, not net burn, when you raise your, a round that I'm involved in, initially. I assume the fact that they're probably gonna overspend a little bit, so it's probably more like 21 months, but let's call it 24 months of gross burn. If you can't find product market fit by being that disciplined over a two-year period, then you probably shouldn't have raised ... You probably didn't deserve to raise more than two and a half, or two, or whatever the number was in the first place. Like, giving someone $5 million to, and four years to figure it out, to me, is a luxury of a billion-dollar venture fund. That's a luxury of the fu- of the multi-stage fund that knows that a $5 million check doesn't matter or doesn't move the needle for them, and it's an option for writing a very large check into the series A to level up their ownership. For me, with my fund size, my fund size dictates my strategy. Right? And so I need to find founders that are on the edges, that are very well pedigreed, but for what they're doing, right? Like one of the best companies in Fund 1 that's closed an amazing number of large healthcare deals are guys in Nashville that are well pedigreed for the healthcare industry. They're not well pedigreed for the technology world, but they're the perfect people to be building this business.

Harry Stebbings 52:47 What ... Sorry. What would you advise founders who have multi-stage funds and boutique pre-seed and seed firms both offering them terms and term sheets?

Adam Besvinick 52:57 Do what's best for you, and what's best for you, as a founder, might be raise five at 25. And what's best for you, as a founder, might be raise two at 10. It's not on me to dictate what an entrepreneur does or does not do when they think about building their cap table. Like, I, I don't get to make that decision.

Harry Stebbings 53:20 I agree, but I think percent of fund is probably one of the most meaningful-

Adam Besvinick 53:24 Yes. I, uh, and it's-

Harry Stebbings 53:26 ... factors in under- in understanding how meaningful you are. If you are point ... Like I've written 50K checks from my fund and I say very clearly, "I'm just gonna be honest. This is like a brand check and use my name, but I, time-wise, you chose that, not the 500K offering-"

Adam Besvinick 53:43 Right.

Harry Stebbings 53:43 "... and so you don't have as much of my time."

Adam Besvinick 53:46 I 100%, 100% agree with that as a card to play, and I've played that card multiple times when compelling founders to accept my yes versus look in another direction. And I think being a founder myself also is a level, provides a level of empathy that, I think, raising from a large fund that's run by people that are not the founders of those firms ... They may have been former founders as, of, of startups, but like, I'm building a startup myself, and that gives me a compelling level of empathy that I think founders appreciate, you know, when I talk that way. I, I do-

Harry Stebbings 54:26 Got it.

Adam Besvinick 54:26 ... think though, when it comes to, like, my time being spent-

Harry Stebbings 54:31 Mm-hmm.

Adam Besvinick 54:31 Like, that's why I write the check sizes that I do. I don't personally have the self-discipline to invest 50K and not pour

Adam Besvinick 54:40 every ounce of my time into helping that business. And so-... having the check size range that I do makes me know that the amount of time that I'm spending is material because it's a material amount of my fund.

Harry Stebbings 54:52 Adam, I'm gonna do, we're gonna do, like, two quick fire rounds that I'm super excited for.

Adam Besvinick 54:56 Okay.

Harry Stebbings 54:56 So this is specifically on Venture. What does Venture look like in 10 years?

Adam Besvinick 55:01 What I hope Venture looks like (laughs) in 10 years is, the way that I think it's trending is, you know, hopefully smaller funds, more specialized funds. Even firms that have a lot of AUM, you've seen them spin out dedicated fir- dedicated funds that are focused on certain categories. And I think those smaller funds ultimately will outperform. And smaller doesn't necessarily mean 50, right? It could mean 250 or 300 compared to, you know, two billion. But I think what you're ultimately gonna see is a very distinct bifurcation of relatively smaller, vertical-oriented, thematic-oriented funds, and then behemoths. And if you're just in the middle, it's very tough to, to stand out.

Harry Stebbings 55:45 Totally agree. So who are the winners, who are the losers?

Adam Besvinick 55:48 I think the winners are the ones who are willing to adapt, and the losers are people that have nothing distinct to offer when it comes to compelling a founder to take their investment. And to me, distinct means tangible value add, relationships, network, oftentimes driven by thematic and industry-specific investing, or we have a boatload of cash and we could vir- we could probably lead every single one of your rounds if that was what was necessary. And I don't really know that there's anything in the middle. But again, feedback loops here are super long. So I don't know that 10 years is long enough time to have the shakeout occur.

Harry Stebbings 56:28 What happens to SoftBank and Tiger?

Adam Besvinick 56:31 I mean, it's hard for me to make a judgment call as to what's happening, what eventually happens with them. But they've been quiet this year. (laughs) Um, like, I feel like when I see an announcement that Tiger is involved in a round, it's, it's shocking versus, you know, in 2021 where it felt... I think there was one time in PreMax newsletter where they, like, led seven deals in a single newsletter. So, I think people are returning to what they're good at.

Harry Stebbings 56:59 I, uh, yeah, no, there's no... I totally agree. If you could invest in one pre-seed or seed firm other than your own, which would it be and why?

Adam Besvinick 57:09 I'd go with Boldstart. I think Ed and Elliot are phenomenal investors. They, like me, are very disciplined on how they get involved and what they invest in. Um, I've co-invested with them in a couple of times at a, at a prior firm, and they were phenomenal to work with. And they're investing in a lot of stuff now that I don't touch and will rarely touch. And so from a diversification perspective, it would be great to be an LP in that fund.

Harry Stebbings 57:40 Tell me, if you could do a series A firm, which would you do and why? One.

Adam Besvinick 57:44 Benchmark. They're still the standard, in my opinion. As someone who knows what they're good at, doesn't deviate from it, I have a ton of respect for the people that I know personally over there. And I just think they're outstanding investors.

Harry Stebbings 58:00 If you were to invest in a growth firm, which would it be?

Adam Besvinick 58:03 I'd take Lux's growth fund. I think Lux's growth fund is just... I think that firm is incredible. I think the work that they do is backing some of the most innovative and thought-provoking companies. And again, they're investing in things that I will rarely ever invest in. And I think it's, it's pretty challenging to argue with the returns that they've, that they've generated over the last few years.

Harry Stebbings 58:29 What have you changed your mind on in the last 12 months?

Adam Besvinick 58:32 Uh, the number one thing I've changed my mind on is signaling as re- relates to who is involved in your round. I used to be very, very averse to multi-stage firms being involved early with smaller checks, and I thought that there was signaling risk, and I thought, "Oh, well, if you have this family office in versus this other investor, then the optics of that don't look great because nobody knows who they are." And what the last 12 months has shown me is raise capital from reputable, reliable sources that align with your ethical standards and that are providing clean terms. And it almost, beyond that, it almost doesn't matter, at least in this current venture climate, who you raise from, because raising at all is an accomplishment right now. And so, to me, yes, all else being equal, you'd rather have, you know, tier one investor involved. They provide great optics, great signal, et cetera, et cetera. But, like, the signaling risk of certain investors being involved, in my mind, is completely

Adam Besvinick 59:41 out the window because ultimately you can overcome that with good execution.

Harry Stebbings 59:45 What's the craziest thing we saw happen in 2020 to 2022?

Adam Besvinick 59:50 I mean, I can think of companies that have, that were raising, you know, multibillion dollar valuations at, you know, 1000X, you know, ARR. Um, I think that is the craziest, like, just as a pure, like, you know, investment multiple valuation perspective. Uh, ultimately though, the, the, the craziest thing that happened was just the level of fervor and the pace of investment that you saw from funds that are now course-correcting to an extreme degree, and it's, and it's really hurting founders. The level of slow playing of funds now is just extreme whiplash for entrepreneurs.

Harry Stebbings 1:00:30 What do you mean by that? Just unpack that, because that's important if founders are getting hurt.

Adam Besvinick 1:00:35 I think the number of companies that are having a hard time raising seed and A rounds right now, like, real seed, like, "Hey, we've got..."... you know, half a million of ARR and we wanna raise, like, $3 million. Like, the level of companies that are raising seed and A, I think are unjustifiably being punished because VCs deployed way too quickly in 2021. And now they're like, "Well, we deployed, you know, hundreds and hundreds of millions of dollars in 12 months. Now we need to make sure this fund lasts for three and a half to four years, because our LPs have told us that." And so you have investors doing way fewer deals than before. They're now actually doing diligence, which slows down processes as well. And they've reserved an increasing amount of their dry powder for reserves for existing portfolio companies to keep them alive, in terms of, uh, versus net new deals, because they know that they're gonna have, they're gonna have existing companies that are doing well that are gonna struggle to raise for no fault of their own, and so they need to have dry powder to keep those companies afloat. And so when you add up all three of those things, that just means there's a lot less capital available for new deals, and a lot of companies are gonna struggle to raise, not because their businesses aren't doing well, but because there are so few people that are actually investing right now.

Harry Stebbings 1:01:56 But I don't think that's unfair. I think that's just a reversion to what venture was. Actually doing diligence where you understand the company, most didn't in the last few years, doing diligence to get to know the team, uh, yeah.

Adam Besvinick 1:02:09 Yeah, I don't think that that... I'm not talking about that part being unfair. I'm saying that when you went from investing $800 million in 12 months to now, you know, if you went from doing... Effectively, people went from doing, you know, 50 deals a year to now they're doing eight deals a year. Right? Like, unfair is probably the wrong word, because ultimately, like, founders need to figure out how to run profitable businesses and make the runway last. And even if it's not profitable, they need it to a state where they're burning so little that they're not reliant on venture funding to keep them afloat. But it is incredibly hard to advise founders in the port- my portfolio right now as to what to expect, because the difference between how investors operate now is so diametrically opposed to how they behaved in 2021. And founders are used to, frankly, in my portfolio, are used to me, who has not changed my process, has not changed my pacing from the beginning, from my first investment in September of 2020 until now.

Harry Stebbings 1:03:13 Just help me out. If you're moving from 50 to eight deals, the impact on that on founders, i- i- it's unfair? How do we think about that?

Adam Besvinick 1:03:22 Yeah, I think unfair is probably the wrong, the wrong word in my mind.

Harry Stebbings 1:03:26 Yeah.

Adam Besvinick 1:03:26 I probably misspoke there, but I think it's, it's less that it's unfair, it's more that it's very challenging to advise founders right now as to what to expect in this market. Like, what benchmarks matter, what milestones matter, what gets around done versus not done. I think the whiplash that's been experienced from 2021 to 2023 is just, it's challenging. And founders shouldn't necessarily rely on venture dollars to keep them afloat, right? Founders should figure out, "All right, how do we extend runway? How do we grow revenue faster than expenses? How do we get to profitability? How do we make... Even if we're not profitable, how do we reduce our burn to such an extent that we're able to get through 2023 and 2024 so that we have runway well into '25 and we can fundraise in 2025?" Um, that's an exercise I've done with at least half a dozen founders in the portfolio, where it's, "How much cash do you have at the end of this year? How much cash at the e- e- end of 2024? If you don't gener- if you don't raise any dollars at all until January 1st of 2025, make sure you have at least seven months of cash at that point."

Harry Stebbings 1:04:34 Sure.

Adam Besvinick 1:04:34 Um, but I do think that it's a healthy shakeout for the ecosystem. It's the way things used to be. And when I say used to, I mean like a decade ago used to be. But I think the fervor of 2021 is doing more harm than good, at least for founder mindset.

Harry Stebbings 1:04:52 I think seed is actually immune, uh, if we're totally honest. I think we're seeing multi-stage funds move down. I think we're seeing seed funds still continue to invest like they have done. Seed pricing, to me, has stayed where it always has been, and I think we'll s- continue to see it stay where it has been. I think A has been preemptively aggressively done, where anything working has been aggressively taken out of market. Anything that's in market, bluntly, has not got the support of existings. B and C and D is fucking dead and it's a death zone, but I- I think seed is actually relatively immune. Um, which is interesting. Uh, tell me, what would you most like to change about the world of venture, Adam? Penultimate one.

Adam Besvinick 1:05:30 I'd have to say I wish that things were a little bit more transparent, and I wish that things were more consistent for processes for entrepreneurs. I just, I think the, the process for raising capital as a founder is incredibly opaque. It's a game, and it probably shouldn't be. The amount of times that I've had to advise and coach founders on how to have certain conversations when they're out-raising, what certain signals mean from investors, how to position the company, and they're blown away by what my advice is, is an indication to me that companies aren't being evaluated and founders aren't being evaluated in the most transparent, sort of systematic way. And if I could change anything, I wish that that, that dog and pony show, as I said before, wasn't as much of a dog and pony show. But ultimately, I think it's really hard to change an industry that is still, in the grand scheme of things, quite, quite niche and has, you know, 10 to 15 year feedback loops before someone realizes that things need to be different.

Harry Stebbings 1:06:43 Adam, final one. Next five years for you and for Looking Glass, if we do this in 2028, where do you want to be then?

Adam Besvinick 1:06:50 Probably in the midst of investing out of Fund Three, a very iterative step-up from, from (laughs) Fund Two, maybe in, like, the 40 to 50 range. Still, uh, solo GP, still with a, you know, 27 to 30 company portfolio, still investing in the same themes. Iter step-up in check size, continuing to be consistent with how I operate. I think that's... As long as I can do that five years from now, I know I'm gonna be successful.

Harry Stebbings 1:07:16 Adam, thank you so much for joining me today. Thank you for putting up with my pressing questions and assertive remarks.

Adam Besvinick 1:07:22 (laughs)

Harry Stebbings 1:07:22 I really appreciate it, and I'm glad we got to do this after the many Twitter engagements.

Adam Besvinick 1:07:26 Thank you, Harry, um, this has been a ton of fun.

Harry Stebbings 1:07:29 You're a hero, mate.