AngelList CEO Avlok Kohli: The Funding Market Today; Last-Mile Delivery; Competing w/ Carta | E1005

Avlok Kohli 0:00 Let's not have meetings about meetings, or process about process. None of that shit matters, right? The only purpose for a, a company ... It's just a group of individuals that are coming together to build product for your customers. Any process, anything that gets in the way of that, crush it. If we have too many meetings, cancel the meetings. Like, I'll regularly go cancel all of my meetings on the calendar because all that really matters is that you're shipping products that your customers love. And anything that gets in the way of that and you drag, kill it, crush it, and just focus on speed. (instrumental music plays)

Harry Stebbings 0:31 Avlok, I'm so excited for this, my friend. It's been a while since we last had you on the show, but I wanna start today with a little

Harry Stebbings 0:38 bit of context. So, how did you come to be CEO of AngelList and what was that entry to the role for you?

Avlok Kohli 0:43 Yeah. So the background is Naval, who's one of the founders of AngelList, had been an investor in all three of the companies I've started. Uh, so I started one company in 2011, then another in 2014, and then another in 2017. And Naval was an investor in all three. And when I wrapped up the acquisition of the last company, uh, I stepped back, and was effectively gonna just focus on investing. Uh, so a semi-retired life at that point for me, uh, since I wasn't building anything new. Um, and Naval approached me to consider stepping in at AngelList as CEO, uh, as he'd already stepped back, I believe, in late 2018, if I remember correctly. And it was, uh, you know, ori- originally it was a hard, hard decision. But I said, "Hey, may- ... It's probably not the right fit." I was just coming off of the last startup. And as you know, startups are a marathon and it gets quite intense. Uh, but the idea of AngelList and the concept of AngelList just stuck with me, and we kept talking every week, every other week. And six months into it, uh, I fell in love with the, uh, opportunity and officially accepted in mid-July. And, uh, Naval said, "Can you start tomorrow?" And that was it. (laughs) And it's been crazy ever since.

Harry Stebbings 2:00 Now before we dive

Harry Stebbings 2:01 into some of the craziness, I just have to ask about one of the startups you founded. Um, believe it or not, um, you know, last-mile delivery is a, a passion area of mine.

Avlok Kohli 2:09 (laughs) Professional.

Harry Stebbings 2:09 Um, and so my question to you is, I know Gokul, um, obviously, and you kind of coincided around this, uh, with Fastbite, which was 15-minute delivery. And it was the first 15-minute delivery startup. "What were your single biggest lessons from the Fastbite experience?" was Gokul's question.

Avlok Kohli 2:25 So it was act- ... Average delivery time was actually seven minutes, um, even though we billed it as 15. I, I would say, um ... I'll actually share two of the lessons. I think first one is building for yourself will lead to a much higher probability of building something that people love. Because when you're building for yourself, you then just need to believe you can find other people like yourself that are gonna use the product. Uh, and the second one, and the reason I, I wanna add this one, is you wanna think about the variables that you can optimize for the utility function of your product. So, every product, any product you use has some utility function. The utility function could be price, convenience, speed, right? Anything. The customer experience itself. And you wanna think about, what are you optimizing on? Because different products actually have different diminishing returns. And as you think about really fast delivery, uh, you can optimize on the delivery speed, but then sometimes people actually don't want it to be as fast, right? They actually want it to be a little bit slower. And so that was a pretty good lesson for me in terms of how to think about overall product experience. It isn't just about a single variable you wanna optimize on; you wanna optimize on multiple.

Harry Stebbings 3:36 Uh, Gokul made a special note of you saying that it was really the first in market to do this.

Avlok Kohli 3:41 Mm-hmm.

Harry Stebbings 3:41 How important do you think is being the first?

Avlok Kohli 3:44 I don't think being first in market matters all that much. And before I get into the answer for that question, I'll introduce the idea of, uh, the concept of idea maze, which I believe Balaji had coined, and I think there's a post on, uh, A16Z's website on it. And the idea maze basically, uh, talks about how every entrepreneur has to go through this journey of looking at an entire industry and looking at all the twists and turns. And they base their business idea and their strategy accordingly. And if you're first to market, you're effectively building the idea maze for all the other entrepreneurs that'll come after you, unless you navigate that idea maze yourself successfully. And we've seen a ton of examples where sometimes first to market isn't the company that wins the market. Uh, Google, uh, I believe was the 17th search engine. iPhone was not the first smartphone. And so, uh, the way I think about first to market is, it doesn't guarantee success. And you should probably assume you're building out the idea maze for all the future founders that will benefit from, uh, fr- from your work.

Harry Stebbings 4:51 I find so many investors oscillate on defensibility.

Avlok Kohli 4:54 (laughs)

Harry Stebbings 4:54 Um, and I think it's just complete bullshit, especially at pre-seed and seed.

Avlok Kohli 4:58 (laughs)

Harry Stebbings 4:58 Do you agree with me in finding it completely useless at pre-seed and seed, or do you think there is inherent defensibility within companies?

Avlok Kohli 5:05 So, let's define defensibility as the cost to replicate your business as time goes on, right? When we say defensibility, when we talk about moats, what we're really saying is, how easy is it or how costly would it be for someone to replicate your business and compete with you? So definitionally, you don't have any defensibility on day one (laughs) because you don't have a business. Or even day 30, unless you magically get, you know, pretty large, uh, network effects. And even then, I would, I would doubt that because that means if you were able to get a more large network within a, a few days, that means someone else can do it as well. So I agree with you. I don't think there is any defensibility on day one.

Harry Stebbings 5:45 Final one, and then I promise we'll get to the schedule. But what did you think when you saw the host of European 15-minute delivery companies launch?

Avlok Kohli 5:54 (laughs) I thought, uh, "Hope to God they are keeping track of the capital markets," because-... anything in logistics, anything in on- online, uh, offline to online or online to offline just requires a lot of capital. And capital is really a function of the capital markets and the macro environment. And so, uh, when I saw a lot of them launch, and I think some of them also were in New York, uh, the number one thought that went through my mind was, "I, I hope they're keeping track of the capital markets, uh, because they will need a lot of money to scale."

Harry Stebbings 6:28 Do they all go bust in the downturn?

Avlok Kohli 6:30 100%, because the cost of capital goes up. And when the cost of capital goes up, you can't invest into, uh, launching new cities and you can't invest into, uh, what typically ends up being the J-curve of this type of a business, where you end up losing money every order. And then at scale, it's, you know, it spins back up. And it does work, but you need a lot of capital to sink in. But when the capital markets dry up, interest rates go up, you, where are you gonna go get that capital? It is near impossible.

Harry Stebbings 7:01 We're just killing industries one by one on 20VC. Last week-

Avlok Kohli 7:04 (laughs)

Harry Stebbings 7:04 ... we were like, direct consumer subscription model does not work, boom. Now we've just killed a whole nother industry there. Good, glad that we are continuously losing friends.

Avlok Kohli 7:14 (laughs)

Harry Stebbings 7:14 It's, it's me that takes the heat for this, don't I? Um, I do wanna, we spoke about kind of funding markets there.

Harry Stebbings 7:19 I wanna talk specifically about the funding market that we have today.

Avlok Kohli 7:22 Yep.

Harry Stebbings 7:22 So much has changed, and you have this incredible purview at AngelList. What are the most notable changes that you're seeing in how companies are getting funded, given the unique seat that you have?

Avlok Kohli 7:32 Yeah. So for, for context, AngelList supports 20,000 funds and syndicates now, and we manage a portfolio of more than 13,000 startups across, uh, all of these, uh, funds and syndicates. So, we have a pretty deep and broad view, uh, of the industry. And, ah- ah, when we manage the investments for these funds and syndicates, we're actually the signatory on the funds, so we also receive all of the deal documents for follow-on rounds, all of the cap tables, all of it. Now, of course, this is being done on behalf of the funds. You can, we're effectively managing everything, uh, for the fund. And so from that purview, we actually do have a pretty deep understanding of what happens in venture, and we actually track on a quarterly basis, um, uh, to put it really, really, uh, simply, the good times and the bad times. We actually have a chart that we publish every quarter now, the rate of activity, uh, or it's actually called the boom times and the bad times. And on this chart, what we have is the activity rate as the X axis, the positive activity rate as the Y axis. Activity rate you can think of as, did the, um, uh, what percentage of startups actually had a, an investment, right? Some sort of an investment, uh, and the percentage ac- positive activity rate is what percentage of those were actually up rounds? So you, you can generally sense that, um, if you have a, uh, high number of investments and then high number of positive activity, you're gonna have a dot at the top right quadrant, which is boom times. Awesome, right? And I actually have it up here, uh, and 2022, like early 2022 and 2021 is like this top right quadrant, boom times. And then now, it's actually the bottom left, and it's actually one of the worst bad times, where not a lot of startups are actually even getting an investment. And of the ones that do, a much smaller percentage actually have a positive investment. And so we're actually in the, the depth of the bear market, if you will, for venture right now. And, and that spread between where it was, uh, in the boom times and the bad times is the farthest distance it's ever been on, uh, on everything that we track.

Harry Stebbings 9:44 Is it a different time length between the f- like, the highest and the lowest than traditional? Like, when you compare back-

Avlok Kohli 9:51 Mm-hmm.

Harry Stebbings 9:51 ... to prior, um, chasms in those two dots-

Avlok Kohli 9:56 Yeah.

Harry Stebbings 9:56 ... is this a faster compression timeframe-

Avlok Kohli 9:59 Yes.

Harry Stebbings 9:59 ... between those two dots?

Avlok Kohli 10:00 It's incredibly fast, and it's actually incredible, that, that distance is also incredibly large. So typically, when, when you have these stocks that collect, and it's reported every quarter, they all kinda collect, um, you know, pretty close to each other, right? It's like, "Okay, yeah, there's a little bit of variation quarter to quarter." And, uh, the gap between early 2022 and right now is, like, the farthest it's ever been and the fastest it's ever, uh, ever contracted, is, is the best way to think about it.

Harry Stebbings 10:26 But people still say prices remain the same, especially at pre-seed and seed, and honestly-

Avlok Kohli 10:30 Uh-huh.

Harry Stebbings 10:31 ...

Narrator 10:31 (laughs)

Harry Stebbings 10:31 ... I think they, they are staying the same.

Avlok Kohli 10:33 (laughs)

Harry Stebbings 10:33 So help me understand this, because to me as-

Avlok Kohli 10:36 Thanks.

Harry Stebbings 10:36 ... an investor day to day, they are still really high prices. But you're telling me that actually it's never been a greater chasm. Where's the disconnect here?

Avlok Kohli 10:47 So, the disconnect would be in the, uh, pre-seed and seed market versus the series A, series B, series C market. So as we look at follow-on rounds and the, uh, up rounds or down rounds, those typically happen at the series A, B, C onwards.

Harry Stebbings 11:04 Right.

Avlok Kohli 11:05 And that market has absolutely compressed pretty significantly. I mean, you're talking about deal volume in series B down more than 50%, valuations down more than 50%. Uh, series A is also down. Uh, series C is basically gone, right? Like, I mean, you don't really hear of many late-stage deals getting done anymore. It's, it's very r- it's rare. Um, and what's happened actually at the pre-seed and seed stage is all of the different investors that were investing later stage, some of them have started moving earlier and earlier. And so you just have a larger number of investors who have a lot of capital to deploy. Well, where are you gonna go? You're gonna go to pre-seed and seed. And so what you have is you have pre-seed and seed that are buoyed, and we don't see that changing. We actually, uh, still see that staying the same and the valuations staying the same. Maybe a little bit of compression, but we're not gonna see it in the same rate of series A, series B and onwards. Which I know isn't good news for, you know, for, for you, where, uh, you know, it would be great, uh, for, uh, for pre-seed and seed valuations to compress a little bit. But, uh, I don't think it, it'll happen.

Harry Stebbings 12:10 So, I think there's also an additional component here which is also bluntly, the check writers at the multi-stage funds who are writing-

Avlok Kohli 12:17 Yeah.

Harry Stebbings 12:17 ... these pre-seed and seed checks are actually principals and associates because their partners are saying, "Hey, Avlok, I'm underwater with my board positions. I'm fighting so many fires. Go and write two million dollar checks and be in market. It's good for the brand."

Avlok Kohli 12:31 Uh-huh.

Harry Stebbings 12:31 And so those new check writers are less price sensitive than ever. They're more excited than ever 'cause they're writing their first checks, and it's creating this increased less price sensitive capital entering seed-

Avlok Kohli 12:42 Mm-hmm.

Harry Stebbings 12:42 ... meaning the prices are where they are, which I think is, is really telling. Can I ask, do you not think that series A is just a shit market to be investing in right now too as well?

Avlok Kohli 12:52 (laughs)

Harry Stebbings 12:53 Reason being, any good companies have had-

Avlok Kohli 12:56 Right?

Harry Stebbings 12:56 ... everything preempted by existings.

Avlok Kohli 12:58 Uh-huh.

Harry Stebbings 12:58 And anything not good is out in market. And so there's this real adverse selection. Are you seeing that too in your data?

Avlok Kohli 13:05 What we're seeing in our data is that only the companies that actually have credible traction are raising now. So, even if you put aside adverse selection, meaning, uh, the set of companies we're raising from insiders, and insiders are leading the rounds, there, we're, we're definitely seeing a set of companies who just can't raise at all. They cannot raise a series A, they cannot raise a series B. And for them, the capital markets are all but shut down. Then you have to look at the set of companies where they're, they're raising from insiders or they have a new outside lead. Um, I would say that we're not seeing anything in our data that distinguishes between the quality of either of those companies. Now, definitionally, if you have an insider that's going to lead your company, like tr- uh, like a true lead, I'm not talking about an extension, right? Of like, "Hey, let's give you a little bit more runway." No. It's, "Hey, we're gonna, we're gonna, we're gonna invest a significant amount of capital for a little bit more ownership in your company." That, that's a real lead, uh, insider lead. Um, we're not seeing as many of those relative to just the total number of series A deals that are getting done, um, so I can't comment on the ac, uh, uh, distinction between the quality of those companies since we don't see that.

Harry Stebbings 14:07 Is the structure of seed rounds and pre-seed rounds, in terms of the investor types-

Avlok Kohli 14:12 Mm-hmm.

Harry Stebbings 14:12 ... is it changing? Is there more party rounds because traditional and institutional investors are, you know, more quiet? Are there less party rounds 'cause the tourists have gone?

Avlok Kohli 14:21 Uh-huh.

Harry Stebbings 14:21 What are we seeing in terms of the structure of those rounds?

Avlok Kohli 14:24 Let's define party round. If we're talking about party round as no investors writing more than 40% of the check, so there's no lead, I would say that, uh, we are seeing, um, what, what, what we're seeing the percentage of party round to non-party round actually being the same. But the overall volume has contracted. Now, the set of companies that could've raised on just a party round, uh, in terms of, uh, raising a little bit of capital and not hitting their target, those are gone, right? So what you, what was happening in the, uh, the heyday of 2021 and 2022 was that companies would just keep raising these successive rounds, and we would see a, like, seed, seed plus, seed plus plus, right? They just keep going on and on and on, and always just raising a little bit of capital from, like, these small set of, like, party round investors. But that's gone. We do not see that anymore. Tho- tho- those companies literally cannot raise anything at this point. Um, but we are seeing companies still being able to raise, uh, from investors where there is no lead, because you do have, uh, several investors that all come together to kinda create the round. So, we're not seeing that (clears throat) lead investors are absolutely necessary for a, a round to get closed, especially the pre-seed and seed stage, right? You're, you don't need a lot of capital to get started and to close a round. Um, but if you're getting to a larger seed round, right? 'Cause let's keep in mind that seed is, means two million or five million now. Right? It's two to five. So two million, you can do a party round. Um, five million, it's much harder to do a party round now. So I think we have to also distinguish between the, the size of the raise itself.

Harry Stebbings 15:59 Is the time to raise a pre-seed or a seed round, is that increasing or is it the same?

Avlok Kohli 16:05 So, time to raise a pre-seed and seed is definitely increasing. Also, the time to markups, uh, is also increasing. And, uh, what, we actually looked at this in our data, where we looked at a sample size of the investments over the last 18 months and we compared it to a sample size of the investments, uh, o- over time, since 2015. Uh, so, and what we were looking at was, let's not compare it to the heyday of 2021 and early 2022, let's actually take a look at historical averages. So, how are we doing today relative to historical averages? And when you just take a look at that sample size of companies from today and sample size of companies p- in the historical average, we're actually seeing a 33% drop in companies in terms of how many companies we expect would've raised by now, right? And so that's a pretty significant drop. Like, 33% is high. That, and what that's telling us is, there is a, uh, there definitely is a freeze in the market relative to historical averages. And there's a lot of, uh, repricing happening, and there's a lot of, um, still founders coming to terms with the new norm, th- a new normal, right? I mean, if you're gonna raise on 200X, uh, ARR, and now all of a sudden, uh, you're being told, "Hey, it's actually, like, maybe 20, maybe 10." I mean, that's, that's, you're coming to terms with, with brutal reality at that point. And so, uh, we, we still think we're in the thick of it, um, and we think it's gonna take another few quarters before everything just works itself out.

Harry Stebbings 17:32 Harry and Havilk, crushing one industry and then bringing you brutal reality. This is the positive-

Avlok Kohli 17:37 (laughs)

Harry Stebbings 17:37 ... show for you. Uh, I, no, I just, and I, I, I totally agree, and I, I see the same thing. You mentioned, like, kind of cramdowns to kind of deal structures.

Avlok Kohli 17:44 Yup.

Harry Stebbings 17:45 In your data, are you very much seeing the repricing begin? Or are you actually seeing so many companies have so much cash that they're not needing to come back to market?

Avlok Kohli 17:56 It's the latter, but it's starting.

Harry Stebbings 17:58 Okay.

Avlok Kohli 17:58 We're starting to see it. So, in Q1 so far, we've seen 48, all right? And so-

Harry Stebbings 18:04 I'm sorry, four, four-

Avlok Kohli 18:05 ... it's ticking up.

Harry Stebbings 18:05 ... 48 flat rounds, down rounds?

Avlok Kohli 18:07 Uh, these would be, uh, these would be the, uh, the pay-to-plays, pay-to-plays. And so we're starting to see it tick up. So it's definitely ticking up, uh, from, you know, Q3, Q4, uh-... but we don't, we think that it's still early days and we think it's more the latter o- of the scenarios you mentioned where startups do have a lot of cash, right? Because if you raise a lot of cash, you go through layoffs, you increase your runway, so you've actually pushed out your cash-out date, and so you buy a few months, right? And, and, and it's, it's, it's logical, right? Uh, you're, you're playing to your incentives. Buy a few months, hey, maybe, uh, Jerome Powell changes his mind, right? Maybe they bring down the interest rates and it'll be boom times again, which I don't think will happen. Uh, but that's my personal opinion. And so what's happening is the cash-out date was, has, has been pushed out for a lot of companies. And so our, our view is that these will start ticking up in Q2 and then definitely Q3, Q4 because these startups, they have a brick wall, right? I- investors don't really have a brick wall, right? Yes, there's a deployment period. You have to deploy by a ... by a certain amount. But in this market, I'm sure if fund managers can go back to LPs and say, "Hey, I'd like to extend the deployment period." "Great, not a problem." (laughs) "Go for it." That's much easier than, uh, having a startup who ha- does have a cash-out date and has a brick wall that they're gonna run into. And so we think that's gonna start coming to play in the next, uh, next couple of quarters.

Harry Stebbings 19:32 Do you think we'll see a spree of acquisitions, a consolidatory environment occur where bluntly some of the big incumbents pick up great teams for nothing, and, you know, companies can tweet that they got acquired and what a successful exit and, you know, bluntly, no cash is returned (laughs) ?

Avlok Kohli 19:49 I, I don't think so. Um, I, I-

Harry Stebbings 19:51 Oh.

Avlok Kohli 19:51 ... know I'm, I'm prob- probably departing from the conventional wisdom on this one. I don't think so because I think if you take a look at the companies that could be acquirers, uh, you have public companies and you have private companies. With public companies, they themselves are going through a pretty brutal, um, rewriting of what the new guard looks like, of what the investors are expecting now. And investors are, uh, looking at not just the cash that your business can generate, but also, uh, your stock-based compensation. So gone are the days of, like, constant, you know, dilution, uh, of stock-based compensation and hiding it from all of the investors. Uh, that's basically how it was being done in the public markets. Uh, and so I think they're gonna be under intense pressure, and you're seeing it. You're kinda seeing it across the board, even with some of the big tech companies. So I think, um, the appetite to just do rapid set of acquisitions, uh, in this market, I don't think is gonna happen. And then in the private markets, uh, the key question that's gonna come up is, what price do you believe, right? Uh, meaning if you're a private, uh, company and you've raised, and then there's another private company that you're looking to acquire, then the key question comes down to how do you align on what the price is to acquire the company? So I do- I don't think, I don't think the conditions are there for a rapid acquisition spree, uh, unless these are, like, rock bottom prices and it's just, like, you know, just p- I mean, literally you're getting an amazing deal. But I don't think that's gonna be good for employees or investors.

Harry Stebbings 21:22 I, I don't do- I don't think it is good for employees or investors, but I'm saying for zero-

Avlok Kohli 21:26 (laughs) Again-

Harry Stebbings 21:26 ... and I still think it wouldn't happen because I don't know many private companies that are like, "Yeah, we've just got rid of a load of people to reduce burn, but now we're gonna make this, like, acquisition and bring on 20-"

Avlok Kohli 21:37 Exactly.

Harry Stebbings 21:37 "... more people," 'cause the cost isn't zero.

Avlok Kohli 21:40 Exactly. It, it's, it's, it's not zero. It's also additional overhead, uh, for the private company, uh, to take that on because even, even if you just acquire the product or the IP, even then there's a cost of integration, right? And I, and I've been through an acquisition, I've been on the other side of an acquisition as well, and, uh, these are, the- these do take time from the company. So yeah, my read on it is we're not, we're not gonna see a lot. And again, um, because we're the signatory for all of the funds, we also see M&A. And, uh, and we, we've seen that the M&A, even with an AngelList data, M&A has gone down pretty significantly.

Harry Stebbings 22:20 How do you think that will continue or change over the next six to 18 months?

Avlok Kohli 22:26 I think it will likely stay the same. Our view is actually a little bit more pessimistic, uh, in terms of just the broader market. Uh, so if you, uh, if we look at the next six months, I suspect it'll be the same because the current macro sentiment is higher interest rates for longer. So that's a lot of downward pressure on venture as a whole because venture is a risk asset.

Harry Stebbings 22:51 Mm-hmm.

Avlok Kohli 22:51 Uh, now it's, it's, it... you know, for some investments it's a great risk profile, right? (laughs) You invest and you get 10,000X, that's awesome. At the same time, um, as a broader, uh, bucket, uh, of capital allocation, it is not e- e- it's getting compared to earning 5% risk-free, and all of a sudden a lot of people who typically would invest in venture are saying, "Hmm, maybe I'll just put it in, in US treasuries." So I think there's a lot of downward pressure on venture, and so we just, we don't think it's gonna change in the next six months. Next 18 months, maybe. Um, but you would need to see, uh, in- the interest rates starting to come down and starting to see some signs of recovery in the broader market, inflation subsiding. So I would say the summary of what I'm saying is, uh, it all depends on the macro at this point.

Harry Stebbings 23:39 Not only that in terms of kind of, you know, venture being a risk asset class and kind of the interest rate environment associated, but there's also this real illiquidity challenge-

Avlok Kohli 23:47 Mm-hmm.

Harry Stebbings 23:47 ... within the venture model. What are you seeing in terms of fund secondary positions? People wanting to get out of fund positions, people wanting to sell fund positions, defaulting? What are you seeing there?

Avlok Kohli 24:00 When it comes to LPs within funds-

Harry Stebbings 24:03 Mm-hmm.

Avlok Kohli 24:03 ... we've definitely seen an increase in appetite to sell positions, and also sometimes sell positions in name brand, you know, name brand companies that are actually just great companies. And the reason to sell, uh, can range from-... uh, either the investment, their, their own investment ratios are off, right? They were just caught on the wrong side of, like, illiquid to liquid. Or, or they actually just have a serious liquidity crunch and are just looking to sell. And so we have seen an increase in it. The key question really comes down to, who's the buyer and what's the clearing price? The- there are deals that are getting done, and there are deals that are getting done, not just in small funds, but also very large funds. And typically, these deals happen, uh, more in the background. Um, and typically, it's around the LP base shifting, right? So, when LP will purchase another LP's position. And the range of discount that we're seeing actually is anywhere from 20%. Um, but what's more common is actually 40% or 50% from last round mark. And so you're talking about a pretty significant discount to last round valuation, uh, as the clearing price for some of these deals.

Harry Stebbings 25:12 And is that on dir- uh, deals or is that on fund positions?

Avlok Kohli 25:16 On fund positions.

Harry Stebbings 25:17 Okay. But that's not too bad actually. I think that sounds quite ... Like, i- if you actually look at, like, other secondary market data, some are as much as 60 to 70% down, right?

Avlok Kohli 25:27 Mm-hmm.

Harry Stebbings 25:28 Uh, so I- I actually almost take positivity from 20% potentially and 50% on a bad day (laughs) . So, I- I think that's super interesting. I think the one really challenging segment of the kind of funding market, in terms of from-

Avlok Kohli 25:40 Mm-hmm.

Harry Stebbings 25:41 ... a fund manager's perspective is the micro funds.

Avlok Kohli 25:44 Mm-hmm.

Harry Stebbings 25:44 These were funds which rose from, you know, founders and, you know, bluntly, GPs of venture funds, which is awesome. Um, but they're not writing LP checks anymore. Do you see that trend? And how do you foresee the next six to 18 months for the micro fund segment?

Avlok Kohli 26:00 So, w- we, we track LP commitments based on the type of LP and based on the product it goes into. And, and so, for LPs, we categorize them as individuals and institutions. Institutions are typically ... Uh, I- I'm using it more loosely here, where it's a, uh, it's, there's a team around it. So, this could be a, a small family office, large family office, and then a true institution. Within Rolling Funds, uh, which is one of the products that we have, uh, both individuals and institutions' commitments, uh, aren't actually down by much. It's close to only 20%.

Harry Stebbings 26:32 Mm.

Avlok Kohli 26:32 Which is very, very, uh, very interesting. When you compare it to venture funds, uh, the ... And venture funds are the traditional structure. Uh, and we have a pretty large venture fund business. Uh, individuals are actually down 60% from, like, when, uh, uh, when we compare it to, uh, about a, uh, a year ago. So, like, the early 2022 when there was a significant amount of investment still going in. And institutions, uh, this is actually incredibly interesting, went down and then has, in recent, uh, in recent weeks, spun right back up and has recovered in our data. And so that, that was the one surprise that I saw as I was going through the data, uh, was that the, uh, uh, any of the folks investing in venture funds, uh, uh, that are not individuals, they're starting to increase their investments back into venture funds.

Harry Stebbings 27:23 What do you think that is? Do you think that's just, like, a stabilization of certainty? Knowing where we are, being aware that actually rates will likely go up a little bit more. We're all kind of aligned on where we think it will go now. The certainty is more there.

Avlok Kohli 27:36 Yeah. I think so. I think one, one part is certainty. The other part is the technology cycle we're in, which is one of the biggest technology cycles with AI and all of the possibilities of what it can do in terms of net new opportunity and rewriting industries. And, uh, a lot of the large language models and their advancements there have had a major impact on AngelList, just our own internal operations, right? It's been huge. And we've been tinkering on it for many months now, and it's actually automated a good portion of the work that we do. And so we think it's the capital from institutions recovering is a function of, one, more, a little bit more certainty of what could be happening in the macro market, and then also just the fact that we're in the middle of one of the biggest technology cycles, uh, since the internet or mobile phone. And that's our hypothesis around it.

Harry Stebbings 28:28 I'm not gonna let you just, like, glaze over that. But I do wanna just finish on this thread 'cause otherwise I get too distracted.

Avlok Kohli 28:35 Yeah, sure. Mm-hmm.

Harry Stebbings 28:35 Are we seeing the number of net new funds raising go down significantly? Or is the number of net new funds same? Where are we at there?

Avlok Kohli 28:44 Good question. Net new funds is definitely down. And so the way you reconcile this with the capital flows is the funds that are raising are raising more because they're a little bit more experienced, and they have more tra- more of a track record. The other interesting data point is looking at when does the fund raise the first dollar of capital, and when does the fund conduct their first close, right? And first close is typically when you've raised enough and you have confidence that you're gonna hit your fundraising target.

Harry Stebbings 29:16 Mm-hmm.

Avlok Kohli 29:16 Right? And, uh, we've definitely seen the time to first close has increased. It was three months, uh, in the boom times, and now it is six-plus months. And when I say six-plus months, um, what I'm referring to is the, uh, timeline went from six, and right now it's trending towards seven. And what this means is, even the, uh, even for the net new GPs, or, or funds that are raising, one, we've seen an overall drop, right? In terms of, like, how many GPs even get to the point where they're like, "You know what? I can raise this fund. Let's do it." Right? So we've seen a drop there. But the ones who've hit that confidence of like, "Yes, I can raise this fund. Let's do it," the time to first close is also extended. So I, they've, they're taking longer to close than they would have, or, uh, the first close than they would have actually expected.

Harry Stebbings 30:06 Are we also seeing a reduction in fund sizes for those going out?

Avlok Kohli 30:10 Yes, there is a reduction in fund size for, I would say, the, the m- much smaller funds, right? In terms of if you could raise a $5 million fund as your first fund-... you're not gonna raise that anymore. It's gonna be closer to 1 million, 2 million, or 3 million. So we're definitely seeing a reduction in overall fund size, actually at all stages at this point, but definitely for the first-time fund manager.

Harry Stebbings 30:35 Such a cheery topic, isn't it? (laughs) Uh-

Avlok Kohli 30:37 (laughs) It was 00:03:58 ]

Harry Stebbings 30:38 ... because you, you dangled it in front of me there in terms of, bluntly, how you're leveraging AI and LLMs to be more efficient and better as an institution-

Avlok Kohli 30:46 Huh?

Harry Stebbings 30:46 Too interested, man. Like, what have you done and what's been the effect?

Avlok Kohli 30:50 So a lot of what AngelList does in the background is we manage everything about fund, right? We manage from the initial, uh, legal docs, or sometimes we'll work with, uh, the external law firm, down to the fund set-up, down to ext- uh, reg- the filings, ADV filings, uh, and then managing the portfolio for 10 years, right, and all of the distributions that come after that. And along the way, uh, when you think about all of the different workflows, it requires judgment, right? There's human judgment, and so it requires humans. Well, with a lot of the work, uh, and the advancements on large language models, uh, we can start replacing, right, what we assumed needed human judgment to do something, uh, you can actually now replace with code. And, uh, we've taken a subset of things that typically required human judgment and we've started to replace it doing with code. And one, one example for, uh, to, just to put a final point on it is, we receive, um, I think it's something like 15,000 emails a week, right, (laughs) on behalf of all of the funds. And, and these are not emails you can just ignore. These are not emails that are like, "Hey, you know, we'll get back to you in a week." No, no. These are emails where it's, "Hey, there is this deal getting done. Here's, here are the cap tables, here are the legal docs I'd like you to review." So just a simple, um, process of how do you route, how do you make sure that the email gets into the right place for the right action, right, used to require a human, uh, to manage and route and apply judgment. Well, because we now actually have all of the training data-

Harry Stebbings 32:22 Mm-hmm.

Avlok Kohli 32:22 ... because we've been doing it (laughs) for so long, um, we essentially looked at that as one of the problems of, how do you create a automated router? Um, but it's not as simple as like, "Oh, email comes here and here's a subject line, you send it." No, you have to actually look at the content of the email. You have to look at the contents of the legal docs. Uh, so for example, if it's a follow-on round and we're reviewing, uh, the, the docs and the cap table on behalf of the fund, we know that what, what are the set of documents that we need to complete the review? And, uh, what we now do is, we'll look at the documents, we'll automatically tag, is it a sh- you know, share purchase agreement, a cap table, et cetera, automatically from the documents that we receive. And then if there's a delta, it's like, "Oh, actually this is missing a cap table." Well, we now know, "Hey," we respond back and automatically just ask, "Hey, we're missing the cap table, can you send it?" And so that's just one very small example of how we're, uh, using it. And we're in a fortunate position that we've just been building up all this training data (laughs) over the last, o- over the last five, you know, f- five to six years of just doing this at scale. And, uh, so wh- when, when, when we started tinkering with this, we're like, "Oh, this is awesome. We, we could actually just use this and start applying it right away."

Harry Stebbings 33:37 Hav, look, I mentioned before we started that I'm more direct with my questions nowadays. Um-

Avlok Kohli 33:41 (laughs)

Narrator 33:41 (laughs) Sure, sure.

Harry Stebbings 33:41 ... that would lead to cost reduction. Um, it would lead to cost efficiency and, and, bluntly, uh, increased productivity within the team. Um, I, I think I saw recently in a group someone having a moan about AngelList pricing for managers going way up.

Avlok Kohli 33:58 Mm-hmm.

Harry Stebbings 34:00 Um, help me kinda coincide the two, which is, like, increased productivity, usage of AI to make costs lower, and then pricing going up.

Avlok Kohli 34:09 I think what that's referring to is the pricing, uh, update we made on funds that are larger-sized funds. And if we think about the journey AngelList has been on, it's typically been a v- it's, it's a very different journey from most fund administrators, um, and most, um, fund back-office platforms. And the journey we've been on is, we've actually built software to help automate a lot of what it takes to manage a fund, all the way down to financial reporting, tax reporting, et cetera. And when we s- when we launched the, a fund product, which I believe was in 2017, the very first fund product, it was, like, a tiny fund. It was kind of like an offshoot of an SPV, and it could only do, like, $1 million, 'cause that was the simplest thing we could do, right? And what we had to do was, over the years, build more and more software to get more and more, uh, support more and more complex funds, more and more complex parameters, like carry hurdles, cashless contributions. Oh, I'm sure you, you've been through all of this, right? All those little details, well, to do that in software, it takes time. And so our, the path we've been on is, every year you can actually chart, uh, and we've done this, the size of the funds we take on. And every year, it keeps increasing, keeps increasing, keeps increasing. Uh, and so today, uh, we're regularly taking on, you know, 50, 100, $200 million funds, whereas two years ago, we were saying no to all of them, right? They were coming in, but we said, "Hey, we just cannot take you on, because we can't credibly serve you for the next 10 years, because we have a very strong eye towards software and automation to handle all of the, um, you know, all of the portfolio management, uh, distributions, et cetera, over the years." And so the pricing change that we made was a function of taking pricing that was actually meant for, that was actually meant for, uh, funds that were, like, 2.5 million, 3 million, 5 million, right, from a couple years ago. And there was a pricing cap that was set. It was like, you know, your p- uh, I, I believe it was 1% a year, capped at 25K a year, which effectively caps it at 250K overall, right? And that's for everything. We handle tax, uh, financial reporting, all of it. And al- what we really did was we said, "Well, the fund size that we've taken on has kept increasing," and we never removed the cap, 'cause that cap was meant for much smaller funds. And it was, uh, the change that we made was mostly just removing the cap and then right-sizing it to, like, the size of the funds. Uh, so if you actually take a look at the...... fund size relative to what it costs today, it's actually similar. And- and- and so I think some of that is just our own, uh, I think the way we rolled out the pricing probably caused a little bit of confusion.

Harry Stebbings 36:45 Is it a loss leader?

Avlok Kohli 36:46 S-

Harry Stebbings 36:46 I- I- I've obviously been a wonderful customer and- and-

Avlok Kohli 36:50 (laughs) Yeah, last time.

Harry Stebbings 36:51 ... user of AngelList, and it's amazing. But I look at them and I go, "They cannot be making money." (laughs)

Avlok Kohli 36:56 (laughs)

Harry Stebbings 36:57 And I mean it nicely, but it's a great service and it's not that expensive. What I-

Avlok Kohli 37:02 Mm-hmm.

Harry Stebbings 37:02 Yeah, so like for those small funds, is that a loss leader when you look at the 25Ks a year and all that you're doing? What are the margins on that?

Avlok Kohli 37:10 Yeah, it's- it's not a loss leader. A lot of the automation that we've built in, the- and- and that's also- also continuing to come in, keeps expanding those margins. And so anything around funds is definitely not a loss leader for us, and, uh, we're- we continue to see the margins around that increase. And the other- the other way we actually think about it is, we think about the entire business as a whole, not just- n- not necessarily on a specific product. Because when we think about a GP or we think about an LP, we think about it as, "Hey, you should just come to AngelList and we'll handle everything, all of your needs around venture going forward." So for a GP, it's all of their funds, all of their SPVs. Okay, great, they're gonna go raise AngelList Capital. Great, we have a business model around AngelList Capital. And when you're a financial platform, there are all of these other different ways of, uh, capturing more and more value as you scale. And so the way we look at margins are actually more holistically over, uh, for the entire product experience, uh, so all of the products GPs would use, all of the products LPs would use, versus on any single product. And so our margins are actually, uh, north of 80% when you actually take a look at the overall experience, uh, and you take a look at overall products that customers are using. And so again, this is the- this is the key around a platform play, right? If you're doing just only a SaaS play, it's li- little bit different. When you have a platform play, you actually have products that can feed into other products that can feed into other products. And, uh, I actually learned a lot of this, uh, in my time at Square. Uh, so Square had acquired Fastbite. Uh, that's actually how Gokul and I started working together. And when I joined, Square was, uh, basically just a payments dongle.

Harry Stebbings 38:52 Mm-hmm.

Avlok Kohli 38:52 And in my time there, I saw how Square went from a payments dongle to a platform, where you would literally have one product that feeds into another, (laughs) that feeds into another, that feeds into another, and you get this compound effect of pretty rapid revenue growth, rapid revenue, or, uh, gross margin expansion. Um, and so I- I- I definitely took a lot of the lessons from there, uh, and applied it at, uh, AngelList.

Harry Stebbings 39:17 Man, I'm loving this. What AngelList product has the best margin today and what has the worst?

Avlok Kohli 39:22 I would say funds have the best margins and the smaller SPVs have the worst. And for some of the smaller SPVs, those are a loss leader for us. And this shouldn't be a surprise for anyone paying attention. We saw Assure, which was an SPV provider, effectively blow up completely, and they blew up in a spectacular fashion. (laughs) They basically ha- took money in from all the SPVs that they were supposed to manage over six years or 10 years, and, uh, when they blew up, they were like, "Hey, we don't actually have any of the money left." And so all the GPs were now left to fend for themselves in terms of, well, how are you gonna get the money to manage all the SPVs for all the out-years? And the- the- the- the key, um, learning there, and we already knew this, but the key learning there for other folks in the industry is that SPVs and managing these SPVs, and especially the smaller ones, it looks easy at the outset. It looks easy to set up. It's like, "Oh, how hard is it to accept LP capital? How hard is it to close this SPV and invest in the company? That's great." But what they're missing, um, is that a lot of the surprises actually happen in the out-years, right? It's one of those, like, tail issues. And it's not that, uh, the SPVs, then the tail issues that come with the SPVs is like, you know, uh, only a small percentage. It's more about what could be- what could happen that could be really costly for the company, and so it can actually wipe out the margins of a larger group of SPVs. And so generally, I think most people get surprised by the margin profile of SPVs, and especially small SPVs, and I see this with GPs sometimes. Uh, it doesn't happen as much anymore. I think Assure going out of business was a pretty big wake-up call for the industry, um, but, uh, sometimes I'll see GPs ask about, "Hey, like, why is it so expensive? Why can't this be even lower and lower and lower?" And, uh, my- my response typically is, "Hey, these are complex financial instruments that need to be managed for 10 years, and it's not the place you actually want to be optimizing on costs at all." Because it's one of those things where when it's just working in the background and you have someone, you know, someone credible that can run it, you never have to worry about it. But as soon as you're dealing with a provider who's using cost and price as a way to get you in, you should stop and ask them and think about, "Why are they doing that?" Anyways, I'll- I'll pause there. It looks like you have another question.

Harry Stebbings 41:51 No, I- I- I

Harry Stebbings 41:52 mean, I have so many. What products have you done that, with the benefit of hindsight, you shouldn't have done?

Avlok Kohli 41:57 We got into incorporation for startups, and that's one, we ran that for a while, and in hindsight, and we fixed it. We actually just partnered with Stripe Atlas, and that's been great. In hindsight, I think we would've approached it by asking the question, is this something unique that AngelList can bring to the world, right? Is there something unique about this problem and unique about our view of how to solve it that we can bring to the world and bring to the table? And if not, then it doesn't make sense for us to be doing it. Why do another product where we can't contribute something new and novel that people are gonna find really useful?... and I wouldn't have, in hindsight, I wouldn't have tackled that, uh, if, if we'd asked that question. Uh, now, something like RUVs, which have obviously been a huge success, that was something where we had a very unique view of the world that, yes, RUVs should exist. AngelList is very uniquely suited to do it. Uh, we're very good at the overlap of legal innovation, product experience, um, founder tools. And so, we did it, and it's been great.

Harry Stebbings 43:06 Why not Europe? Europe seems to be a, a, a kind of shadow region for AngelList, and there's so much demand for it in Europe. What's AngelList's thoughts around Europe?

Avlok Kohli 43:16 So, when I came in, AngelList wasn't in Europe, right? We actually had a few funds, uh, that were there. And after I sat with the Europe business for a few quarters, the observation I had was we hadn't won US yet, and we weren't at scale in the US. But we were in Europe, and the regulatory structures in Europe that we needed to solve were not as standardized as they would be in the US. And so, it was the combination of, look, we need to w- let's win US first. US is also just the largest market for venture. And, and then let's make sure we have a clear view of how we can standardize the structure in Europe, and then we can go there. And so, I actually made the decision to scale back and shut down Europe, um, because it was just splitting our resources. And the one thing I deeply believe is you should always, always look at how do you, how do you sunset things? Like, you, you, you... I think it, I think it makes sense for a company to explore new products and, and new expansion. But if it's not working at the rate you expect it to, let's sunset. We gotta, uh, focus back on the core. And so, that move was more about us focusing back on the core around winning US, scaling US, because the ambition of the team is very large. And we didn't want to get distracted by these o- you know, by trying to solve for the regulatory structure there when we hadn't won the US yet. I think now we're actually in a very different position.

Harry Stebbings 44:50 What does winning the US mean?

Avlok Kohli 44:52 Winning the US for us is what percentage of venture funds are we supporting, and what percentage of venture-backed startups are we supporting on our infrastructure? And so, we look at it simply as percentage of market share, and we want to be north of 50% across all of the different segments, uh, as we scale. And it's as simple as that.

Harry Stebbings 45:14 What are we today in terms of funds and companies?

Avlok Kohli 45:16 It's, uh... So companies, we at, we just started, uh, last year with our cap table product, and, uh, it's growing quite fast. Uh, I, I can't share market share data yet, but it is growing incredibly fast, uh, and we're very, very happy, uh, with, with that, and we're, we're continuing to invest there. On the fund side, anytime we enter a particular fund s- like size we go after it, we'll typically get north of, uh, 50% market share pretty quickly. And so, that's how to think about it. It's like 50-60% market share as we kind of eat into the different funds because a- again, our product is just fundamentally different than any other, uh, back office provider.

Harry Stebbings 45:56 You mentioned the cap table product down block.

Avlok Kohli 45:59 Mm-hmm.

Harry Stebbings 45:59 Uh, again, I kind of swim for the warning sign.

Avlok Kohli 46:03 (laughs) .

Harry Stebbings 46:03 Um, it's kind of like a, um, I mean, well, let's be blunt, it's like a full-on direct competitor to Carta. How do you think about competition? What's the right way to embrace it? And bluntly, how have you been able very quickly to catch up and level with them in such a short space of time?

Avlok Kohli 46:22 So, the way we think about competition is, um, really having an eye towards competition. We're not really focused on the competition. Uh, there's, there's actually this great quote. I think it's from YC, but it may be from somewhere else, where startups die of suicide, not homicide. And I've believed that for every single company. And candidly, I've... You know, my first company died by suicide. I, you know, basically killed it. (laughs) . It, it had nothing to do with competition. And so, as we think about running AngelList and the products we build, we really stay focused on, how are we delivering an amazing experience for our customers? And what makes sense for us to pursue and grow regardless of the competition, regardless of, you know, whatever market share someone may already have? And if we think that we have a unique view on something and we can create a significantly better product experience, we will just go do it. And the thing we have working for us is, we are very product-focused. We are a team of pretty ambitious tinkerers, product builders, and we move incredibly fast once we're clear, clear on the direction. And so, I, I don't really think about competition in terms of focusing on it. I think about it more as, how do we build something amazing for our customers with an eye towards the competition? Meaning, you, you know, you can't just ignore competition, um, but that's more of a secondary thing. Our main focus is on building an amazing product and just, you know, owning that market.

Harry Stebbings 47:51 Are you taking customers from Carta, or are these net new companies created? What's that spread?

Avlok Kohli 47:57 It's all of the above. Uh, we are, we're definitely, uh, taking on net new customers. We're taking on customers that are using other providers. Uh, and so, we are just sucking in companies and customers from everywhere at this point.

Harry Stebbings 48:10 You mentioned about being a team of product tinkerers. I tweeted this, but I, I think it's something that Gokul shares, which is an awe around the speed of execution with which AngelList executes. What do you, what do you do to be able to execute on new products so fast? 'Cause it is faster than anyone else. What do you do to enable that speed?

Avlok Kohli 48:29 I think the most important we- thing we do is we've hired a group of very ambitious people. A group of ambitious people are very dissatisfied all the time, right? Like, all the time. It's like...... "Hey, why aren't we there yet?" Like, "Why aren't we building something even larger or bigger?" So that's a number one ingredient. Just hire a group of incredibly ambitious dissatisfied people all the time, which is great. From there, we just set, uh, very clear and ambitious deadlines, right? Uh, product launch timelines. And the last piece is just keeping a very tight, uh, loop between the working team and, uh, just making sure that if there are any blockers, anything coming up, just address it, and then let's just get the product out. Let's not have meetings about meetings or process about process. None of that shit matters, right? The only purpose for a, a company, it's just a group of individuals that came, that are coming together to build product for your customers, and any process, anything that gets in the way of that, crush it. If we have too many meetings, cancel the meetings. Like I'll regularly go cancel all of my meetings on the calendar because all that really matters is that you're shipping products that your customers love. And anything that gets in the way of that and you drag, kill it, crush it, and just focus on speed. Focus on getting the iterations with your customers, focus on getting that feedback. So that, that's how we think about, uh, shipping

Avlok Kohli 49:50 really quickly.

Harry Stebbings 49:51 What do you think are the biggest external threats to you achieving winning the US market? Final one.

Avlok Kohli 49:58 The biggest external threat, I actually don't think we're in that anymore. I was gonna say, I, I never, I never underestimate a group of, you know, a, a small group of really ambitious individuals, and I would say the biggest external threat would just be anyone that's looking to compete with AngelList that's a startup. But I've always been like that. I'm, I'm, I'm pretty paranoid when it comes to, with small teams, right?

Harry Stebbings 50:23 How would you respond to the suggestion that the macro sentiment is your biggest external threat? If you think about AngelList, it is-

Avlok Kohli 50:30 Mm-hmm.

Harry Stebbings 50:31 ... your, your trajectory and your transaction volume is predicated on the amount of deals done, the amount of funds closed, the amount of SPVs done.

Avlok Kohli 50:38 Mm-hmm.

Harry Stebbings 50:38 When the market shrinks and cadence is reduced massively, your business is damaged, no?

Avlok Kohli 50:44 It actually isn't. It actually is the strongest it's ever been. Again, it goes back to the platform play that we have and how we have the, uh, you know, how we're actually continuing to move up market, take larger and larger funds. And so while net new fund creation may have gone down, we're actually taking on funds who have already fundraised and deployed, right? We're not just, we're not just going live with funds that are net new. We're also going live with funds who are moving to AngelList after they've already been somewhere else, right? So we're effec- You can think of AngelList as just continuing to grab more and more market share and is not dependent on net new funds. The way we actually generate revenue is we actually have all these different products that feed on each other. And so we're actually the strongest we've ever been. And AngelList has always run as if the next bear market's around the corner. Literally every year (laughs) that, that I've been at AngelList, we've always said, "Oh, you know what? The next bear market's gonna be next year. So we have to make sure we have countercyclical products in place and we diversify the product portfolio." And every year, uh, since, uh, since, uh, (laughs) mid-2019, we're like, "Yep, next bear market's coming. Next bear market's coming." And so we've actually always been paranoid about the next big mar- bear market, so we actually built in countercyclical, uh, motions in the company as well. But yeah, it's, it's the strongest it's ever been. We are, we are absolutely firing on all cylinders right now. We have a, a series of new products coming. I'll just tease that here. It's, uh, it's coming-

Harry Stebbings 52:14 (laughs)

Avlok Kohli 52:14 ... in the next, uh, in, in, in the next, uh, couple of months. And not just one, it'll be a few.

Harry Stebbings 52:19 Do you wanna give a teaser? Do you wanna give one?

Avlok Kohli 52:21 Not, not, not yet. It's, uh, not-

Harry Stebbings 52:23 (laughs)

Avlok Kohli 52:23 Not, not yet.

Harry Stebbings 52:24 That was a moment and you I remember when you and I were having it, you were like, "Oh, really?"

Avlok Kohli 52:25 It was a moment. I was thinking, I was thinking. The, I, I'm, I'm very excited. I'm very excited. Um, but n- not yet. I was about to, and I'm like, "Ah, no. Bruce is gonna kill me." (laughs)

Harry Stebbings 52:35 I love that. I, I, listen, you can't blame

Harry Stebbings 52:37 me for trying.

Avlok Kohli 52:37 (laughs)

Harry Stebbings 52:37 I wanna do a quick fire-round outlook. So I say a short statement-

Avlok Kohli 52:40 Yep.

Harry Stebbings 52:40 ... and you give me your immediate thoughts. We mentioned the macro there. Will we be in a worse or a better place at the end of 2023?

Avlok Kohli 52:47 I think worse. But I think it'll get better in 2024.

Harry Stebbings 52:50 What trend do you see that others are not seeing?

Avlok Kohli 52:53 I think people are seeing this. Um, I just don't think they're seeing the, the rate of change, which is the rate of change, uh, through which AI will actually, uh, completely, uh, not decimate, but amplify knowledge work. But I do think there will be a l- lot of reskilling, a lot of retraining needed. And it's getting deployed extremely fast across many, many industries. And so I would say the biggest trend others aren't seeing is just the magnitude of the change that's coming for white-collar work.

Harry Stebbings 53:20 Who are best placed to instill that change? Is it incumbents integrating AI into existing product suites or startups providing new products?

Avlok Kohli 53:28 I think startups providing new products, and I think it's because the quality of the team of, like the product craft, right, or, or, or the, the team that's gonna care about the product the most typically comes from the founders and the founding team they bring together. So I think they're gonna be most suited. That said, incumbents do have, you know, a lot of advantages, distribution advantages being one of the biggest ones. So I wouldn't count out any incumbent, as we've definitely seen. But I, I, I personally lean more towards startups being able to capture a lot of value.

Harry Stebbings 53:58 I love Alex Rampell's, you know, "Will the incumbent acquire innovation before the startup acquires distribution?"

Avlok Kohli 54:04 Yep.

Harry Stebbings 54:04 I think that the whole time, actually. Okay, my friend, you can buy one multi-stage firm and you can short one multi-stage firm.

Avlok Kohli 54:12 (laughs)

Harry Stebbings 54:12 Which one do you buy? Which one do you short?

Avlok Kohli 54:15 Uh, Sequoia, to buy, multi-stage firm. No comment on shorting.

Harry Stebbings 54:20 Fuck. Fuck.

Avlok Kohli 54:22 (laughs)

Harry Stebbings 54:22 Uh, you can buy one seed-stage, like, specialist. Learning. And you can short one seed-stage specialist. Go.

Avlok Kohli 54:31 Seed-stage specialist, Haystack, um, I would buy, and then short, also n- no comment on that one.

Harry Stebbings 54:37 Fuck. (laughs) One day, I'm gonna get someone just be like, "Fuck it, I don't care."

Avlok Kohli 54:41 (laughs)

Harry Stebbings 54:42 I need someone who's, I need someone who's, like, retired and just doesn't give a shit. Um-

Avlok Kohli 54:45 I'll just be a curmudgeon and may- maybe catch me in a, in a couple years, I'll, maybe I'll be a curmudgeon. (laughs)

Harry Stebbings 54:50 What did you believe in investing that you no longer believe?

Avlok Kohli 54:54 That...A great team can go find a market, and find a great market. I actually think you need a great team and a great market to come together. Uh, otherwise, you just have a great team that can burn a lot of cycles on a market that is just utterly broken, and I've seen this time and time again. Uh, and, uh, that's the one thing I think a lot about now, is what market are they going after? And I don't, I, a- and look, I think, I think there are some founders can, that can pivot and find it, but that assumes that they'll have enough capital in the bank to go do it.

Harry Stebbings 55:28 Man, it's exactly the same for me. Like, 100%. If you are going after, uh, something really fucking hot, consumer education market, and you're raising 18 months of runway, sure, you may be the world's best team, but you're gonna take 12 months to get to that realization place, and then you're gonna raise again, or need to, with nothing but, again, a good team. That's a hard another raise.

Avlok Kohli 55:49 Exactly.

Harry Stebbings 55:50 I'm tot-

Avlok Kohli 55:50 Especially in this environment now.

Harry Stebbings 55:52 Totally with you. What do you think the biggest investment mistake of the venture landscape was when looking back over the last 18 months?

Avlok Kohli 55:59 Oh, that's simple. Lack of diligence in the companies that they're investing in. There was a lot of FOMO investing that happened in the, uh, in the, uh, in, in the heydays.

Harry Stebbings 56:09 What would you most like to change about the world of LPs?

Avlok Kohli 56:12 I think with LPs, there is a lot of focus, and especially larger LPs, there's a lot of focus on name brand, and-

Harry Stebbings 56:19 Right.

Avlok Kohli 56:19 ... I, the key thing I would change is, uh, breaking out of that cycle of only name brand and actually looking at other signals. And it reminds me a lot of what we do as a society and when we look at someone graduated from Harvard, uh, or Stanford, right? There's a lot of, uh, brand signaling, and I think that has a place. But when we look at our data, first-time fund managers are fantastic, right? Not all of them, but when you think, when you look at some of the returns, they can be great. So if you have a different way of diligencing first-time fund managers, I think it's an awesome way to invest. In fact, I LP into first-time fund managers all the time, and I'm like, "Yep, you're gonna be super hungry, and you're gonna fucking crush it, so, let's, let's, let's do it."

Harry Stebbings 56:59 Will Trump win the election?

Avlok Kohli 57:02 I don't think so.

Harry Stebbings 57:03 Who will?

Avlok Kohli 57:04 I hope not Biden, either.

Harry Stebbings 57:06 (laughs)

Avlok Kohli 57:06 I, I, I hope we get, I hope we just get a different candidate, a more sensible candidate. Um, but the way it's trending right now, it is not looking great.

Harry Stebbings 57:15 Who's your favorite angel to work with, and why them?

Avlok Kohli 57:18 Gokul is actually my favorite angel to work with. And why him? Uh, I think he's incredibly sharp and understands all of the life cycles of a company, from the idea stage down to how do you actually scale it and become one of the enduring companies? And Gokul is one of the few, uh, that actually has experience in not just startup stage, but also building an enduring company and being part of it.

Harry Stebbings 57:45 Final one, my friend. AngelList in 10 years, what is it then?

Avlok Kohli 57:50 I think on the current trajectory, uh, we will be, uh, the infrastructure for all venture funds, uh, for a lot of the venture-backed startups, and we'll just be the fabric of venture. That's how we think about it. It's one of those things where all the activity that happens in venture, investing, ownership management, uh, is just, rather than being done in spreadsheets and offline, it's all done in software on AngelList.

Harry Stebbings 58:13 Do you think AngelList will be a public company?

Avlok Kohli 58:15 I don't know. We don't actually think a lot about, uh, going public. We, we just stay focused on, how do we build an enduring company, uh, with large cash flows that compounds? That's how I think about it, from, from a p- pure quantitative lens. That's really all we focus on, is, "How do we just build an enduring, large company that we would be proud of?"

Harry Stebbings 58:36 Avlok, I so appreciated, uh, hey, your patience with me just peppering you. Um, it's been so much fun, so thank you so much for joining me.

Avlok Kohli 58:43 Yeah. No, this has been great. Thank you.