Ed Sim: Why Seed Has Never Been More Competitive & Why Pricing Has Never Been Higher | E1076

Ed Sim 0:00 The point is, the three rounds are there's a discovery round, which in my opinion is less than 2 million. So it's usually, like maybe a first-time founder exploring a new market. They'll graduate to the next round, which would be a classic. And a classic round, in my opinion, would be three to five million. And finally, this

Ed Sim 0:16 is the Megatron jumbo round, greater than five. It's usually six to $10 million round, and it's almost always a seasoned founder with a prior exit. So when multi-stage firms see opportunities like this, they wanna supersize it. (laughs) And they say, "You know what? Instead of raising four or five, why don't you raise 10, and I'll give you the whole thing?"

Harry Stebbings 0:35 Ed, I am so excited for this, my friend. We haven't done this in a long time. We planned, the world keeps on changing, but fuck it. Let's do it now. So thank you so much for joining me today.

Ed Sim 0:45 (laughs) I love it. Thank you for reaching out, and I'm glad it worked out. I know we've been planning this for a while, and I think this is number three on your show. It's been spread out over many, uh, epics, uh, I would say.

Harry Stebbings 0:56 I mean, many, many epics. We just discovered that your year of entry into venture was my year of birth. Uh, and s- sorry. I'm age-

Ed Sim 1:06 (laughs) Oh, geez.

Harry Stebbings 1:06 Uh, but I- I- I- I ... There is a reason for that. I just want to start with some context before we jump into the seed landscape.

Ed Sim 1:11 Yes.

Harry Stebbings 1:12 People that don't know you and Bold Start, bluntly, who are you and what do you do?

Ed Sim 1:17 I call ourselves an inception investor. And in my opinion, uh, the world has gotten way too complicated with pre-seed, seed, and what have you. So we love partnering with founders when they have their idea, helping them iterate and battle test their ideas, helping them pre-sell their hires, and having them be armed and ready at incorporation, and leading that round from the very beginning. And those rounds can be anywhere in size. I mean, you're talking about it could be a few 100K in size. It could be up to 10 million in size. I would prefer your classic structure of three to $4 million, to be honest with you, but sometimes there are some opportunities you just can't let get away. (laughs)

Harry Stebbings 1:57 Okay. We sai- we said this would just be a chat. Is that not just pre-seed, dude? That's what pre-seed always

Harry Stebbings 2:02 was.

Ed Sim 2:02 I think pre-seed presupposes that you need a see round- seed round. And if you look at kind of the data, frankly, uh, I just did an analysis on PitchBook. The data is skewing upwards. Did you know that the median age of a company that raises a pre-seed round is 1.2 years of age now? And the median age of a company that raises a seed round is 2.7. This just ... I'm talking about data across kind of, you know, the last 10 years. Secondly, I would tell you is that a lot of times founders who are second and third-time founders don't wanna even be called to have a pre-seed round because it presupposes you need a seed round. And what does that mean to you, Harry? It means that if you have a pre-seed round and you have a seed round, that's another layer of dilution. So what you really would rather have for the best founders is they just wanna get a seed round. I mean, I wish we could just go back to that, but the cat's already out of the bag.

Harry Stebbings 2:52 So I, I totally agree with you. So if we just take the kind of years to pre-seed, the thing that worries me most is you have — and I'm seeing this so much — you have person leave Stripe or leave OpenAI or Hugging Face, and they raise 20 on 100. And that's happening more and more. Can you just help me understand why do you think that's happening more and more now?

Ed Sim 3:14 Yeah. Well, look. Uh, I gotta be honest with you. It's ... (laughs) It's gotten really hard in venture. I mean, people raise way too much capital over the last three or four years. Uh, and everyone kept raising funds, uh, year after year after year. And the spigot dried out last year. All the big multi-stage firms with the billion-dollar-plus funds stopped investing in growth, and the data is there. And if you look at the peak, I think the peak was Q4 2021 that about $200 billion was invested. (laughs) Most recently it was 73 billion in the last quarter, right? 273 billion. So that's a massive drop. And let's talk about it. Looking at the Instacart IPO, who made money, Harry, in that Instacart I- IPO, at pricing?

Harry Stebbings 3:55 Y- YC and early Sequoia rounds.

Ed Sim 3:58 Yeah, first two rounds.

Harry Stebbings 4:00 Yeah.

Ed Sim 4:00 So these folks are like, "Okay, I need to go out and raise another fund. I've been sitting on this dry powder for a while. (laughs) Let me go write out 20, 30, 40, $50 million checks, 'cause you know what? Even if I'm wrong, I get my money back, and I am the first person on the cap table. So likely, if the outcome is enormous, I can, I can make some money." I'm not saying that's a good thing. I'm just telling you that's what the dynamic is in the market right now.

Harry Stebbings 4:23 No, I'm f- I'm saying that's a fuck thing.

Ed Sim 4:25 Yeah.

Harry Stebbings 4:25 I'm going out of my way to say that's a fuck thing. And me and Parker Conrad — not a good person to pick a fight with, by the way. Note. Uh, but me and Parker Conrad thoroughly disagree. I think that too much cash too early has a net negative impact on 99.9% of companies unless you are an exceptional allocator of capital like he is, like Daniel Ek is, like very, very few generational founders are. Do you agree with me? Too much-

Ed Sim 4:53 I agree with you 1,000%. Uh, I said necessity is the mother of all invention. And, um, yeah. Look, every person that writes that $20 million check or the 50 million, 100 million check thinks that the founder they're backing, uh, actually is the Parker Conrads of the world (laughs) and, and the Daniel Eks. The reality of it is there's only a few Parker Conrads and few Daniel Eks. So you're more likely to create major issues than you are to actually have an amazing company. And here's why. First of all, your talent has gotten way smarter, way smarter. So when they come in, it's like, "What's the valuation? Oh, you raised 100 million and a billion? Um, how am I ever gonna make money on this? 'Cause you know what? I've been sitting in a unicorn for a long time, and I'm actually not making any money here for the last three years, and I took a pay cut." So one is you've got ... uh, these people are the, the best talent in the world, wants to join a company not on the highest price, but the best price with the right amount of capital for the right, right risk. Second thing is, is that this is what we've been dealing with founders. They'll come out to us and say, test the waters. "You know, Bold Start's a bigger fund. Let me raise three to six." So we're like, "Okay. How much do you really need? You know what? I'll lead your round now if you want three, but not at six." So they come back to us, you know, a few days later. I'm like, "You know what? How about four?" And the reason I do that, Harry, is because I wanna test them.... I wanna test them to make sure that they are okay, and that they wanna operate with constraints around them. Because smart founders, there's a lot of second-time founders that can go out and raise 10 or 12, but there are some smart second-time founders that we just backed, uh, at inception, raising 3 or 4, because they want the pressure. They wanna take the heat off of the, uh, pressure to create and do dumb things and get an- a, a next up round. It's much easier to do. They wanna hire great talent, and they wanna be lean.

Harry Stebbings 6:33 Do you really find that... I mean, you mention one there, but respectfully, I come across them every day where they're, they're, mat- they're very good operations. I'm not dissing them in any way, but they're like, "Listen, dude, I love you. I wanna work with you, but I've got Andreessen giving me six on 30 and you're giving me three on 15. It gives me way more time. I just chill." So -

Ed Sim 6:53 I'm not saying it's, it's three on 15, but I'll move to, like, the four, right? R- you know what I'm saying? So I'm just testing the constraints. That's number one. Number two thing I would say is that this goes into fund sizing, and, you know, as I said, I tweeted the whole thing about what an inception round is, and there's three kinds. But, you know, the way that we've evolved now is that sometimes I have to play ball, Harry (laughs) , right? Sometimes there are some exceptional founders where, okay, you know what? I will split an eight to $10 million round for that exceptional founder, depending on what that price is, and kind of where we go. So, I'll give you a good example. We'd known this founder, Ian Swanson, for 10 plus years, and he came out, uh, he was most recently running go-to-market for AWS, uh, in their AI and ML group. Before that, he sold his other company in the ML op space to Oracle. And he said, "Look, I wanna raise 10 million bucks to go after AI security." This was in, um, October of 2021. We started iterating with him and his idea, and fleshing out the idea. At the time, it was just him. He eventually got two co-founders, kept iterating on it. In March of 2022, before AI security was hot and AI was hot, we led a... co-led a $10 million round with a crew. And fast-forward, he came out of the gates fast and said the goal was to collapse. This is collapsing a round. "I'm gonna do my seed and seed plus or whatever all at once. I'm gonna make it last three years, 'cause I don't know when the AI security market will be hot." And we closed a $40 million round just a, you know, a couple months ago, and he's got a bunch of customers signed up. So m- my point is, is that I didn't want to pass on the opportunity. I didn't love the company raising 10 million, but in that case, it made sense. So you've got to be really careful about how you do this.

Harry Stebbings 8:25 Can you just help me understand? You mentioned... you touched on the three types that you see in terms of the rounds. Can you just touch on them so we have an understanding of those?

Ed Sim 8:33 This is what I'm seeing across the board. This is even what Sequoia and Greylock are talking about, and in my opinion, an, an inception round means you're engaging with founders well before they incorporate. You're helping them ballot test and iterating those ideas. You're helping them pre-sell some of their initial hires. And when they incorporate, you're leading those rounds upon company formation so the founders don't have to dick around trying to raise money for months, and they don't have to dick around (laughs) looking for six people. They come out of the gates on incorporation with six people and money, and they're ready to go, so you save a shitload of time. And it's been happening for a very long time. And the three kinds of rounds I see at inception, um, are basically this. And by the way, this is not incubating a company. That's not a scalable model unless, unless that's all you do, and there are some firms that do that really well. It's pre-accelerator, uh, because (laughs) an accelerator, you've got to be incorporated to join so you can give them your equity. And it's pre-pre-seed. And, and the reason I'm saying it's pre-pre-seed is because as pre-seed has gotten institutionalized, a lot of these firms want to actually see a little more product at the door, are, are taking a little less risky bets around that, to be honest with you. That's what happens when you take institutional capital. And so anyway, the point is the three rounds are, there's a discovery round, which in my opinion is less than two million. So it's usually, like, maybe a first-time founder exploring a new market, maybe like WASM, Web Assembly Markup Language or whatnot. And if they, you know, they're gonna... the idea is there, a big market, but the market's really early, so they're gonna flesh it out for a while. And the idea is it would graduate. It would graduate-

Harry Stebbings 10:00 Mm-hmm.

Ed Sim 10:00 ... to the next round, which would be a classic. And a classic round, in my opinion, would be a first or second-time founder, and this is where it becomes interesting. It's about three to five million, and this is the round that I prefer the most (laughs) . And it's where that... this founder could probably raise more capital in a lot of cases, but they wanna be more constrained and, like, say, "You know what? I'm gonna take the air out of the balloon. I'm gonna take four to five million dollars, uh, I'm gonna build a lean team, and I'm gonna operate." And the reason that this is interesting is because your traditional seed-funded company now, Harry, th- if you look at the data, the median number is 2.7, uh, years old, right? That means they've usually raised a pre-seed round. Maybe now they're out going to raise a seed round right now. So that's really not an inception play. And finally, here's the, the jumbo. This is the Megatron jumbo round, you know, greater than five. It's usually a six to $10 million round, and it's almost always a seasoned founder like an Ian, that I mentioned earlier, with a prior exit. They're probably building their next company. It's probably iteration number two or three on the same idea that they've had and made money on before, and they're maybe in- reinventing an, an existing market with a huge TAM. So when multi-stage firms see opportunities like this, they wanna supersize it (laughs) and they say, "You know what? Instead of raising four or five, why don't you raise 10? I'll give you the whole thing." And that's kind of what I'm seeing in the market today. Those are three rounds, and they're all, uh, people with ideas trying to get going, and they can raise anywhere from zero to 10. And by the way, I'm saying this is because you'd say this was pre-seed. I wish this was just called seed, 'cause that was what it was when I started in 2010. There was seed and an A. And that's what would, would make the world simpler. But pre-seed usually is a smaller round in people's minds, and that's almost like a negative connotation for a really good founder.

Harry Stebbings 11:41 Listen, I, I totally get you on those three, and I agree with you. (laughs) The first thing I go to is, what worries me is, people don't think longer term on the jumbo rounds and say we're just doing a 10 on 50, yeah, just base case, 10 on 50 is the jumbo, which we both see a lot. We see 20 on 100 a lot. Okay, sure. Let's project this out 12 to 18 months. It takes longer. Customers don't convert like they thought they would. Market doesn't move like we thought it would. You're pretty fucked.

Ed Sim 12:09 ... yeah.

Harry Stebbings 12:09 'Cause you can't do another 10 on 50.

Ed Sim 12:11 Yeah.

Harry Stebbings 12:11 But if you raised three on 15, you could very easily do seven on 45. That happens. So you put yourself in a shit position, though.

Ed Sim 12:21 Yeah. And that's why I, I sometimes test founders. I know you can raise... They'll come out and say, "Three to six," and I'll say, "Why not raise three to four? And here's why." And some of them say, "You know what? I'd rather have some more comfort in my own mind to have 10 million in the bank, 'cause then I have three years of runway." But the reality of it is, having more comfort- comfort screws you.

Harry Stebbings 12:37 Also, this, like, this idea of, like, "Oh, but then it buys me the runway." I- i- that's if you put it in a bank and do not touch it. How often does one put it in a bank and does not touch it? "Oh, that'll stretch higher. Oh, that new geography we could open up or a new product."

Ed Sim 12:53 (laughs)

Harry Stebbings 12:53 Do you know what I mean?

Ed Sim 12:55 Um, it's a very rare founder that, that does that. You know, you know who actually is one founder that did that was Rahul from Superhuman. So we gave him one of the first checks, uh, back in Report If before he s- uh, from Fund 1. Fund 2, he wrote his first check into Superhuman. Uh, and he raised quietly. You know, he made us put three or four different checks in, in seed rounds, in seed notes, just to get our ownership because we'd always ask for more; he'd cut us back. That was his strategy. Then he raised pre-, uh, raised a $10 million A round and he put it in a separate bank account and said, "I'm not gonna touch this thing. I'm literally just gonna put it there. I don't want to see it. It's in a separate bank account. I'm only gonna operate on the seed money that I had." And you know Rahul

Narrator 13:31 (laughs)

Ed Sim 13:31 ... Harry, the guy is a, he's an operating machine, that guy. So having been through the experience where he's scarred for life, where when he sold his company to LinkedIn he basically had no money, he's like, "I'm never gonna be there again." And so in some ways that almost killed him because he would not move as fast as he could 'cause he had the runway. But I'm just saying it's a very rare founder that can do that, and most people can't. And you're better off feeling that pressure. When your backs are against the wall, the best people perform. When you're actually too comfortable, you don't perform. That's the bottom line.

Harry Stebbings 14:00 So my question to you as a result of this is, when I look at that, you know, seed funds, uh, back in the day, were 25 to max $100 million. That was kind of how big seed funds were.

Ed Sim 14:12 Yeah.

Harry Stebbings 14:12 This just doesn't work at all. If you're doing classic three-to-five million round, let's just project this out for people listening. Three-to-five million rounds, say that's like the lowest, three, and we're leading those rounds, say we're doing two and a half. Okay, if we do 30, which is the average that we recommend if you think about diversification, then you're done. On 100 million fund, the biggest, with no reserves, that's all you could do. Right? The seed fund structure doesn't work anymore, does it?

Ed Sim 14:42 I'll give you some different math. I think in order to win right now in today's venture climate, you've got to compete with angels, you've got to compete with pre-seed, you've got to compete with seed, you've got to compete with multi-stage billion-dollar firms, period. You have to. That means you need to get ball control in any round that is presented to you that the founder wants to have. Okay? And that means you need to, you need to actually be able to write... If someone's ready to raise a million bucks, to wr- just write a million-dollar check. And that check needs to be meaningful from you. It doesn't... It has to not look like an option, okay? At the same time, you've got to move all the way up the stack, and for that special founder like an Ian, you've got to be able to participate and lead or co-lead that $10 million round. And so what I'm saying is that, um, if you're ownership-focused and you're highly concentrated, let's just say I have 20 to 25 companies in my fund, and my average check is three and a half, three to three million, three and a half million dollars, I buy 15%, okay? You can talk about the next round being, let's just say, it could be anywhere from 50 to 150 posts, depending on what the company is, right? But let's just, let's pick a number. Depending on the f- on, on the round size, your second check could likely be bigger than your first check. And I've seen that across the board. You know, when I start with a three-and-a-half, four-million-dollar check, I'm writing a four-to-six-million-dollar check in the next round if the company's executed. If they don't execute, then, you know, that's another question altogether. Secondly, it usually takes a long time for these companies to get to product-market fit, particularly in, in the enterprise sectors we invest in. It takes a long time to build technical products. You might have to do a bridge or two, and you might have to have the deep-enough pockets as your own firm to not rely on others and find the signals to step up. You know Guy from Snyk, Harry? Do you know how many rounds he raised before he raised his A? Three rounds. Three rounds of capital before his A. Guess who gave him all three rounds?

Harry Stebbings 16:24 Were you unwavering when doing that? When you have three, at some point you must go, "Jesus, this is taking longer than we thought."

Ed Sim 16:31 Uh, we did. There was a come-to-Jesus moment, I remember, with Guy, um, after we'd done the first seed round and, like, we were getting traction (laughs) . But downloads don't equal revenue, right? This was in 2016, 2017. However, he's like, "Yeah, I got some enterprise customers here. I don't know if I want to do it. I might, I might create this new bridge between, uh, the enterprise and my cloud, and it's going to be this thing called an agent broker that I'm gonna create. And I think I can, I can charge 50K." And he goes, "I don't know how long it'll take." He did it, took a few days. He built it out, signed a few customers, we're like, boom (hand slaps) . Here you go. Right? So if you are actively involved and engaged on the board from the very beginning as well, and you have a very concentrated portfolio, you see signals. And the signals that we see may not be the signals an outsider sees. And once again, the important part is, Guy... if Guy went out trying to raise capital from someone else and I didn't have enough capital to give to him, he would have gone out of business. Okay? So (laughs) th- that's where you have to kind of come in. You've got to know the founder. And yeah, do we get all the bets right, Harry? Hell no. We don't get them all right. But if one or two of them work, you know, within the model... So all I'm saying is that the fund size actually can be larger. And I don't think it should be a billion dollars, and I think 50 million, it shouldn't be 50. But I think a fund size between 150 and 250 for doing this in a highly concentrated, uh, position with ownership, and doing it in a way that allows you to write bigger checks after the discovery round to help a classic round, you know, raise a little more of an extension, and to support these founders through the B round, I think it's 150 to 250. I don't think it's your $100 million fund or both.

Harry Stebbings 18:03 But I'm saying it has to be 150 to 250. It's not like-

Ed Sim 18:06 Oh, good. Then we're-

Harry Stebbings 18:06 Yeah. We're, we're-

Ed Sim 18:07 ... we're on the same page. We're, we're on the same page.

Harry Stebbings 18:08 We're on the same page. And I, I, I'm saying it has to be.

Ed Sim 18:10 Yeah.

Harry Stebbings 18:10 You cannot make it work otherwise. Uh, and also, yo, what's horrible with the 50 fund size is you do need to write 500 to a million. You know, Ed, if I'm writing 500 to a million, I'm a pain in the ass to you if you're trying to bring me into the round, even as a friend. You're like, "Ugh."

Ed Sim 18:27 Dude, I, I've been there, done that, Harry. I've done everything. We... Remember, we started out with a million dollar fund in Boldstart 1.0. This was in 2010 when seed was the first round of record. (laughs) And then the pre-seed category was created because seed, seed investors weren't taking as much risk. And now the pre-seed investors aren't taking as much risk, which is why I'm saying let's do inception investing. The reality of it is, is that the market and the world has changed. And the point is, is that, yeah, you know, you need to have ball control, you know? Uh, you need to be able to do anything.

Harry Stebbings 18:57 I, I get you. And so many ways I want to take this. But, like, when I chat to Jason Lampkin a lot, he's a good buddy of mine, and he's like, "Yeah, but I don't know if enterprise SaaS actually, like, is investible really anymore." And his reasoning for that, before I just destroy, (laughs) you know, Boldstart's thesis, is essentially, you know, with the expansion and inflation of entry point, the price that you pay when you come in, and the rationalization of upside being public markets and revenue multiples, it's not possible to do as well anymore by any stretch. If you think about any growth investing in enterprise SaaS, definitely isn't.

Ed Sim 19:34 When we started this fund, Elliot and I were like, "Man, if we get like a billion dollar outcome, you know, if we orient our, our funds to getting billion dollar outcomes, that'd be absolutely amazing." What we didn't see was that you could orient some funds towards 10 billion dollar outcomes, but that's kind of not the fun size we want to... Let's say we move back to a world where two to three billion dollar outcomes would be really fucking amazing.

Harry Stebbings 19:54 Yeah.

Ed Sim 19:54 Well, guess what? If you have the ownership that you, that you target, let's say in our case it's 15%, some people may have more, um, if you are disciplined on your entry price, dude, the, the... I'll give the counter argument. Enterprise IT spending is re-fucking-accelerating right now. I mean, it's... You know, look at, look at Microsoft. And they had 11 down quarters. They had their first up quarter the other day from reaccelerating numbers. So... And I'm just saying, the cloud stuff? We're still only 25% of the way of migration from on-prem to cloud right now. And cyber security spending? You know, the reality, the wonderful thing about cybersecurity is that there's always a new attack vector. (laughs) And JP Morgan, for example, spends a billion dollars a year in cybersecurity. Guess what? They're always looking to protect their next big thing. So my perspective would be, I love it when guys like Jason say it's overcrowded, because I'll just keep putting my money to work w- where I'm doing it and just being disciplined about it. And so I think there's ma- a massive upside to that from where we are.

Harry Stebbings 20:48 I do think people don't anticipate levels of dilution enough. I've been in this game, sadly, long enough to know that dilution really hurts, (laughs) and your 15% entry turns into 9% on exit, often a little bit more sometimes. My, my point being, do you have any lessons, observations from the impacts of dilution, and just what it actually ultimately means when it comes to cashback?

Ed Sim 21:12 Yeah, well, capital efficiency matters, um, you know, period, right? So that's number one. Um, and, and to that point, um, you will never find both sides. For example, funding companies where, you know, they're raising 20 or 30 million dollars and two thirds of that money goes to NVIDIA. Because, you know, if my LPs went to actually invest in NVIDIA, they can invest in NVIDIA. They don't have to take, uh, haircuts from fees from me to do that, right? So that's number one. So those aren't capital efficient businesses in my mind, and they're, they're low, lower margin businesses. Number two is, is this is also why, Harry, we created the opportunity funds. So our opportunity fund right now is almost the same size as our core fund. So our strategy is to inception invest. Um, it's to continue supporting, uh, the best founders as they, as they keep growing to maintain that ownership. And then, you know, once it, after it hits the series B, we're still able to maintain that ownership and our board seats, um, as the best ones go.

Harry Stebbings 22:06 So I'm just pushing you here for fun. These are not my opinions, obviously, but I tweeted yesterday, um, "There's a special place in VC hell, um, saved for pre-seed investors that take board seats." Am I wrong?

Ed Sim 22:20 Yeah, so look, I don't know what pre-seed is, first and foremost, because if you're raising 500K to a million, that's when I think of pre-seed, then-

Harry Stebbings 22:28 Yeah.

Ed Sim 22:28 ... yeah, you probably don't need-

Harry Stebbings 22:28 Yeah.

Ed Sim 22:28 ... a board. Yeah, yeah, you don't need a fucking board. Here's what I do. I go the other way. Founder, what works for you from a cadence perspective? Number one. Number two is, if you're doing a classic round of you're raising three to four million, I like to tell the founder that, "Hey, you should probably not do a series of SAFE notes here because you never really know what you own, especially in conversion." You, you want to actually do a proper round. What we'll do is we'll put a board together, but, you know, as I said, we are going to have our regular dialogue based on the cadence that works for you, because usually the first six months, they're just heads down building. I'm not going to be helping them build their product. Harry, I'm investing in them to build the product of the future. That's their job. They will reach out. The best founders reach out to us and know exactly what to ask for and know exactly how to ask for it and know exactly when. And then what I say is, "Let's start doing a quarterly cadence with the board. I just want text. No fucking pretty images. But what I want to do is prepare you for the day, you know, a year from now, a year, six months in, so 18 months from funding, that when you have a board, you at least have this cadence going and we're actually prepping you for, for that pace to go." So it's, it's more of a preparation stage than anything else. And it also depends on the founder. I love the founder... The best founders, in my opinion, Harry, uh, just ping me when they need me. They'll send me a text, they'll send me a WhatsApp, they'll send me iMessage, they'll hit us up in Slack. But, you know, putting onerous frameworks around founders where you need to talk every week or two weeks or whatever, or having every monthly board meeting cadences, there's no set rule. It really depends on the company, the founder, their experience. Uh, and the point is, you've got to develop a really trusting relationship with that person.

Harry Stebbings 23:56 I, I, I totally agree with you in terms of being kind of preference-led. And, uh, absolutely, when I said it, I was talking about kind of the 500 to 500 million.

Ed Sim 24:02 (laughs) I, I, I s- saw that, by the way. I was like, "Who does weekly or bi-weekly calls?" I was (laughs) , just, like, that was...

Harry Stebbings 24:09 Do you know what was so funny, though? Keith Rabois responded to that.... it's only what Sequoia's been doing for the last 50 years. And then I had another message from another GP that said, um, probably one of the most successful investors of the last 10 years, that said, "If your founder does not want a weekly call with you, you clearly are not adding much value and are shit."

Ed Sim 24:28 Here's my perspective. Look, we take board seats for the most part but, once again, if, uh, if there are smaller, really much smaller rounds, there's usually no need for it and yous- you have that relationship, right? And they're gonna reach out to you. I don't want to back someone that doesn't think we can help them and add value, and they're not gonna wanna take my money either, right? So that's why I stay qu- uh, focused in my swim lane. Uh, I don't want-

Harry Stebbings 24:47 Mm-hmm.

Ed Sim 24:47 I'm not deviating and doing biotech or, like, health tech investing. It's just not my- not my area of expertise.

Harry Stebbings 24:53 Ed, we're seeing, like, macro not looking great. We're seeing interest rates potentially going higher, we're seeing global conflict. We- I mean, the world is not in great shape. And we're talking about kind of 20 and 100 seed rounds. Uh, is

Harry Stebbings 25:07 seed immortal to macro externalities or will this shake down to the seed markets eventually, do you think?

Ed Sim 25:15 I don't even know what the fuck a 20 and 100 post is anymore, frankly. I mean, that's just (laughs) I think at the end of the day, dude, it comes down to being disciplined, right? (laughs) And I mean, I don't know, I- I think that there are some lessons that haven't been learned. And- and I'll just- I'll go on my rant. I mean, I think this whole AI thing, frankly, I think AI is the most transformational thing that we've- that we're ever gonna see in a long time. However, I still think it's really fucking hard to make money there. This is a place, I- I totally agree, that- where, um, data moats matter. I think companies, anyone could take a API call to OpenAI and test things out. I mean, fucking look at Adobe. They've done an amazing job kinda going after that space. So I think chasing anything with a .ai in their domain or an AI thing, I think is insane. However, I do think there are some opportunities there, but I'm not gonna be funding these things at 100 posts. That's what's regularly happening now. I'd love to hear your thoughts here. You're probably seeing a ton of AI, LLM, next gen stuff and I just think that this is just like I saw in an internet bubble. Everything had a .com on it back in '96 'cause I saw that, I lived through that shit, and, uh, we're gonna see the same thing.

Harry Stebbings 26:19 (laughs)

Ed Sim 26:19 There are gonna be some massive companies built, no doubt, but it's not gonna be built chasing a portfolio of, uh, 100 posts, uh, across the board.

Harry Stebbings 26:27 I would say unlike other trends, where I remember when it was like chatbot trend craze, the D2C craze. Obviously, I'm a generalist investor so we will move with trends. But, like, I now see 85% of our deal flow now purely as AI first deal flow. Like that's-

Ed Sim 26:45 But- but- but- but what does that mean to you, right? 'Cause I just did an analysis on my portfolio, okay?

Harry Stebbings 26:49 Mm-hmm.

Ed Sim 26:49 And- and I just said, okay, so, um, currently in the portfolio of our companies that are running from funds four through six, 55% of our portfolio companies have an AI-related offering today. And within the next 12 months, okay, 80% of the portfolio will have an AI offering. And in my opinion, does that mean I'm an AI investor? Well, if you want to call me an AI investor, you can, but I don't really think of myself that way. I always think about what problem are you solving first, how are you doing it uniquely, and, oh, by the way, if you're adding AI, very cool, then, you know, let me know kind of how people will pay for it and why it's gonna be better. But versus the, "I'm an AI company." I don't know, that's just-

Harry Stebbings 27:25 No, I- I- I- I totally get you. I think, like, anything that offers it, like, as an enhancement, which is, like, I don't know, lattice that say, "Hey, we now have AI to make more intelligent human resources automation," or whatever decisions around your people management. That's not an AI company.

Ed Sim 27:40 Yeah.

Harry Stebbings 27:41 This is like in the front one-liner, "We are an AI-powered wealth manager. We are an AI-powered, you know, e-commerce conversion optimizer." That's what I call kind of, like, 85%...

Ed Sim 27:53 Versus being an e-commerce optimizer, uh, that has AI in it. No, I'm just, I'm just doing the flip arou- flip way around.

Harry Stebbings 27:59 Tha- tha- that has 100 people in a third world country-

Ed Sim 28:02 It- it- it- it- it- exactly.

Harry Stebbings 28:02 ... selecting mid ones. (laughs) Uh, but- but- but- but no, so I- I see that. I think honestly the people best, uh, suited to win are actually your Canva styles of the world, who actually, dude, have all the data, but none of the incumbent regulatory downsides of being a public company. I think it's your high growth pre-IPO companies that data-

Ed Sim 28:23 I- I agree. I agree 1,000%. Did you see, uh, Snyk? I don't know if you talked about it with Guy recently, but Snyk has, uh, Snyk DeepCode AI, right? And they-

Harry Stebbings 28:29 Yep.

Ed Sim 28:29 And Guy actually had bought a company four years ago with his own machine learning expertise. And the strategy there is that, hey, you know what? Everyone's using GitHub Copilot, but they're also using CodeWhisperer and they're using everything else. But guess what? There's a hallucination problem and you need one kind of pr- a- and you don't want the fox guarding the henhouse, meaning that how are you gonna trust the, uh, company spitting out the code to also secure the code? So you need a Snyk to come in and you need AI to protect AI. But the point is, is that we wouldn't even be there if he didn't buy the company, nor if we were sitting on a data moat with hundreds of thousand customers using- using them and fixing vulnerabilities.

Harry Stebbings 29:04 Totally, but also, he probably couldn't have done that deal in terms of buying the company or moving at speed if he was a public company. It's not possible when-

Ed Sim 29:11 E- exactly. And he wouldn't be able to do it now either because, uh, he did it when AI wasn't hot.

Harry Stebbings 29:17 So I think M&A is gonna go to shit. Um, I think anything sub a billion is not meaningful enough for M&A teams and corp dev teams to actually engage with. And I think anything over a billion is gonna be incredibly arduous to get over the line from a regulatory perspective. Do you agree or am I overly negative?

Ed Sim 29:34 I think we're gonna see a lot more M&As, uh, kinda coming ahead right now and- and I'll tell you the kinds we'll see, right? All right. Well, let's look at it. There've been a lot of companies and there's, what, a thousand plus unicorns out there right now. Not all of them will go public. Many of them are overvalued right now. And guess what? There are probably some growth investors sitting around saying, "You may have five to seven years of runway, but if I can get my money out right now, um, on the tech stack, uh, on- on the stack right now, get my money back." And investors, by the way, you know, down the stack, will get their money back. And by the way, founders will probably make money. Let's just, let's just say if there's an opportunity to go do that, that would be a brilliant opportunity for people to, um, maybe exit out, take their 1X.... and they can go reinvest it somewhere else. And I'm talking to lots of growth investors who are kinda looking and saying, "Man, you know what? If can get 1X out after a few years, and actually reinvest that stuff in- into something else at a better price, or, or do some..." So, I, I think that the realization of holding onto these

Harry Stebbings 30:28 But th- th- they're- they're n- they're not get... I mean, this really... They're not getting that, dude, because the founders are sitting on this pile of cash going, "We are not having your money back." And they're going, "Please g-"

Ed Sim 30:37 Oh, oh, no, n- no. I- it depends though. I- in situations like a Loom. Look at, look at Loom's situation, right, where they had a... That was a great exit for the founders. Look at those numbers. Fucking incredible, dude. God bless them. Right?

Harry Stebbings 30:48 Yeah.

Ed Sim 30:48 So it cleared the pref stack, even though the last round investor, um, came in at, uh, a much higher price than the headline valuation, and it was a huge win for the founders. So I'm pointing at situations like that where, you know, where in the past, you've probably heard stories about VCs not wanting to get 1X back. Well, guess what? You're gonna see some smarter investors be like, "You know what? Maybe I'll take that money off the table now and put it somewhere else," and the founders in that situation killed it. I mean, the- they should. They built a great business.

Harry Stebbings 31:19 Uh, I love the TechCrunch article where it's like, "Joe put a positive spin on it." I'm like, "I'm not fucking surprised he put a positive spin on it."

Ed Sim 31:25 (laughs)

Harry Stebbings 31:25 I messaged him afterwards being like, "What a joke." (laughs)

Ed Sim 31:28 Oh, oh, oh, yeah. Incredible. And, and so yeah, and some people then say the investors failed. Well, guess what? Maybe they didn't. Maybe that was a great opportunity for them because they can go reinvest and do some other things with it, and it's a, a huge win for the founders. So, I guess what I'm trying to say is, I think those growth kinda funds that put the money at the peak, uh, I think the ones that deliver on 1X or slightly above will probably do very well. (laughs) Will be above, you know, 'cause there'll be a lot of ones that are underwater, i- is my opinion.

Harry Stebbings 31:54 So I, I, I get you. I want, I do wanna discuss the growth fund, 'cause like, you know, we've spoken about the, the frothy nature of seed today. Growth seems to have died though. It's what everyone says, and it's definitely what I see more and more. Do you agree, or do you actually think that there, there's resiliency in the growth market too and that we're overly negative on that?

Ed Sim 32:12 Look, I, I... First of all, I've been doing this long enough. This is year 27 for me where things are never as good or as bad as it seems, right? So, and, and the echo chamber is stronger than it's ever been with social media and everything else. But my point is that yeah, the numbers, the overall numbers itself in terms of growth round valuations, yeah, they're fucking down big time. Number two is, the valuations from growth rounds, I think, you know, if you look at Carta's data, I think the seed round was from, down from four... I mean, the, the series C was down from 475 to 375 already, or 275. Some- something crazy like that. So yeah, they're getting crushed. But however, there are still pockets of opportunity where people are going from one to three to four million in the infrastructure space that I see, to 10 to 12 kind of on the forecast, and they're still raising at 250 to 400 now.

Harry Stebbings 32:59 What are you saying to your founders? Like, the founders that are going out to raise, and they're like, "Ah, shit, that's a really compressed price. Like, 275? I thought we were more at the 500." Are you saying, "It's a new world, take it," or are you saying, "Hey, take another five, 10 million from us, and push it out 10 to 20 months, or 18 months," whatever that is, and the markets might be different then?

Ed Sim 33:21 Yeah, so I have a couple thoughts. One is, is

Ed Sim 33:24 that when the markets are pretty hot, we got ahead of it, we got a lot of our companies funded with a lot of capital, so, you know, I think the bigger challenge we might have is that there are some companies that have too much capital, and we had to work with them to get more efficient.

Harry Stebbings 33:35 Mm-hmm.

Ed Sim 33:35 For the ones going from, um, you know, seed to A or kinda A to B, I was doing the math, I think we got 15 next rounds done, uh, from our last annual meeting from a year ago to now, so we did get a lot of rounds done in the, in the heat of the market. We even got a cr- like, a crypto infrastructure round done in an up round, a $10 million A-round done, uh, in this market. Uh, that co- founder, founding team, by the way, happened to go from zero to 1.4 million of ARR from a standing start in 16 months. But the point is, is that the best founders now aren't... As we tell them, "Let's not worry about what the best price is, because the best price could once again set you up for performance issues down the line, uh, a lot of talent." We want to... you to get the best partner who believes in your business in the longer term, uh, at a fair price. I think the days of founders being obsessed about the highest price possible I th- I think for the most part are over, um, and I think the smarter founders want to actually, you know, get fair prices, you know, above average prices, but they also know that, A, they don't wanna take in way too much capital, which means more dilution, uh, and they also don't wanna set the bar too high, because they see what's happening in the, in the exit markets right now, that you limit your options to create value when you take money at too high a price. You're gonna... You're not gonna be able to sell your business 'cause someone's not gonna pay, pay multiples on that.

Harry Stebbings 34:53 I agree with you and I get you in some ways, but then I was speaking to a, you know, a, a founder the other day operating, guess what, in the AI space, and they were like, "Yeah, I get you Harry, but I need $10 million. Like, we need a lot of compute, um, uh, we need a lot of c-"

Ed Sim 35:06 As I sa- as I said, I- I'm not playing in that, uh, AI compute game right now, so I do understand the need for those founders to go out and raise capital, and go do it in the way that they need to. But, you know, I'm just saying that history rhymes, and, you know, you and I both know there's some lessons that we should probably learn from the last two years, and I've seen-

Harry Stebbings 35:22 Is there any other lessons that we should learn? 'Cause I'm looking at some of these. I sent you that deck for the ridiculous round, and this was from pedigree investor who's been through cycles at one of the best firms. Are there lessons... Who should know better. Are there lessons that we should have learnt that seemingly haven't?

Ed Sim 35:41 Certain firms that have lots of capital to work, checks like that, a $10 million check, may be a complete option check for that firm, you know, or maybe they're almost fully invested right now, and so I don't know what the reasons are, but, you know, I'm just saying that everyone along the stack has to do something that makes sense for them. Uh, I mean, just from my perspective, I, you won't be finding me participating in 20 to $100 million, uh, inception rounds from a, you know, a seed firm, uh, or an inception firm. But, the multi-stagers are doing it across the board. These are option checks, still option checks for them.

Harry Stebbings 36:11 What would you say to founders? What do you advise founders looking at this today going, "Oh gosh, you've given me three kinds of inception round. There's all these different options. Which one should I do?"

Ed Sim 36:23 I think the founders, for the most part, come to us knowing kind of what they want as well. They kind of know. You know, the ones who are more confident about their abilities, who have been there, done that before, usually we'll probe around and start with a $3 to $4 million round. Uh, and then sometimes what happens is, they- they will get supersized by a, um, large multi-stager, and then you need to make a decision. You know, we need to make a decision as to do we wanna, you know, co-lead in that one or not. And then, you know, as I said, there are other founders who come in, like in the Wasm infrastructure space that know it's very early, and we're like, "Look, we can write a check, like, tomorrow right now for a $2 million round 'cause there's not much we need to do, right? We know who you are, we know where you came from, we know what you can build, and then let's figure out and you can get going right now without having to hassle and raise money and ch- tell people what Wasm is." And they can go out and raise kind of that next round later. So it really depends on every situation. I don't try to tell anyone what to do. They already have an idea in their mind, and you kind of work with them as they- as they touch the market to see how the market responds.

Harry Stebbings 37:20 My biggest lesson from the last few years was actually just to sell at some points. You know, we were always told, "Lean in, lean in." Bullshit. You need to lean out strategically over increments over time. That was a big lesson for me. What was a lesson for you, in hindsight, you wish you'd done differently?

Ed Sim 37:37 I would say that the biggest lesson is not much different from you. I have two lessons that I think about. One is, no matter how disciplined you are, we talked about it, too much cash can kill startups, right? No matte- at- at any stage, okay? No matter, no matter what, right? It just, as I said, there's- there's a death spiral that can happen if you miss- miss a quarter or- or a quarter or two and just the pressure goes up, and the last batch of hires who are usually the largest percent of your business, if you're growing and if you're in hyper growth mode, are feeling like the- they're underwater, right? So that creates lots of issues from that perspective. So that's number one. Number two would be, ownership matters always, but also you have to balance that out with, you know, a valuation, uh, (laughs) a valuation as well. So I'll give you an example. There are so many preemptive rounds happening over the last few years where, you know, every six months people are raising rounds, that usually there hasn't been enough data points to merit kind of coming in on the next round or the round after, and- and, you know, the company hasn't performed enough for you to de-risk yourself in between rounds 'cause, let's say you got three rounds down, uh, done in 12 months, and there should've been situations perhaps where we shouldn't have gotten into every single one of those rounds because maybe it wasn't de-risked enough, uh, between the time you closed a round and to the next round. I think moving forward, since there are less preemptive rounds, there is more time to understand, has this been de-risked enough? Is this an appropriate time to lean in even more to actually do your pro rata or get more ownership? So, tha- that's kind of- kind of where I'd say ownership always matters, by the way, on these exits, particularly in a world of lower, uh, multiples, but you've got to be careful about what that, uh, how much you lean in.

Harry Stebbings 39:15 I take a different approach to pro rata and reserves than most people, and I think m- many LPs are shocked by this. I think actually it's often predicated on very misleading signals, and immediate traction doesn't signify sustainability over the long term. If I were to invest according to the signals, I would have put the most money into Clubhouse, Hopin, BeReal. They were, like, the outperformers within the first year of investing. They weren't the most sustainable. Snyk is not the most sustain- like, is not the most, like, outperforming in that first year. And so I find most managers invest, observe for a year, and then double down on what's working. But what's working often is unsustainable, and it's your Snyks, your Figmas, your BigIDs, which actually may take a bit longer, but you wouldn't allocate to them if you were doing it on traction.

Ed Sim 40:10 Well, we kinda- we kinda did, right? I mean, BigID, we gave three rounds before their (laughs) A round too, but their traction was different. I mean, I'm just saying so, to your point, it's a meandering path to getting to kind of product-market fit. And I've- what I've seen is that the easier it is to build a product and the more social the product is, and the more, let's say, PLG-oriented something is, is the easier that everyone tweets about it and goes out there and talks about it. But the reality is, to your point, is that doesn't mean... Those aren't the signals that you really wanna be investing in right now, even though some people may be writing checks against it. The signals you really wanna be investing in is, is this product built for the long haul? You know, what are people paying for this? And, you know, what is kind of the technical moat around- around kind of their business, right? And so some of the hardest problems to solve will take longer, and it'll look like your slowest-plodding company to start with. But in the long run, to your point, these things are the ones that can actually go, you know, hit the J-curve pretty quickly.

Harry Stebbings 41:03 Two final ones, and they're associated. What's your biggest investing win, and how did that impact your mindset? And what's your biggest loss or mistake, and how did that impact your mindset?

Ed Sim 41:13 Yeah. So I'll give you this. So m- my biggest win to date, and- and win I'll call a realization, was kind of leading the round in Inception with, um, Kustomer with a K, uh, and, uh, that was like, I don't know, eight or nine pre, I think. And we're like... Basically wouldn't let the founders out of the room, wanted to give Brad and Jeremy the check right there. They were like, "Hold on, let me incorporate first." (laughs) "Let me get my 83 (b) election filed with you guys." And I, by the way, in the enterprise space, I'd already been the first investor in LivePerson, which was one of the first hosted chats back in the day. So I was that first check in, and then I went public. I did GoTo Meeting, which had GoTo Assist. We sold that to- to, um, uh, Citrix, and then ev- eventually, you know, did 600 million of AR. So I knew the space cold, and this was their third startup, right? This was one of the ones where you're in the room, you meet them, you got the energy, you're like, "Yeah, fuck yeah." (laughs) "You gotta do this," right? So fast forward, there were some tough times. What we learned in that process was that someone going after an incumbent, at that point in time it was Zendesk, you know, it takes longer. Do you know why? Because no matter how visionary your product is... And they're- they basically built a data architecture that said, "Hey, instead of having, uh, each..."... uh, interaction be a ticket, whether it's email or chat or whatever, they're all different tickets in different databases. Let's create it as a customer. So it's Harry, and Harry chatted with me, he did a voice call, whatever. And if you do that, uh, number one, and then two is, append custom data. Like you could take in, for example, from Ring, Wi-Fi data in, and when you reached out, I immediately knew everything about you from any signal that you reached out to me, I knew that your Wi-Fi was down, why your doorbell w- was down. If you did all that, we could actually re-architect and rebuild, and actually have better customer support. The problem is, is that we went out to the market to sell the products, they're like, "Oh, you need a knowledge base now. Oh, you need FAQs. Oh, you need this." And every time we're about to sell something, we're like, "Shit, you need more product." So to go after incumbents, you actually have to build more, so it took us longer, and we had given them a bridge round between the A and the B. There's not a reported price, but let's just say it was over a billion, according to the news, um, and that was my first kind of really big win.

Harry Stebbings 43:14 And so the lesson there is that you need to build more depth to chase incumbents.

Ed Sim 43:19 Yes, you do. So no matter how, how, how big of a vision you have, you still need at least the table stakes of, you know, checkbox of four things that they may need before they even believe in your vision. So it takes longer. So that's one. And that has implied kind of similar investments now, 'cause there's a lot of founders coming back and reimagining things, 'cause that's what happens in enterprise. It's the same shit getting rebuilt every 10 or 15 years in a different way with a different pitch. Second thing I'd say is, my other potentially big win right now is Snyk. I mean, it hasn't been, you know, exited yet, but, you know, we had funded Guy in the, in the first company, right, when he sold his company to, um, Akamai, and I bothered Guy every quarter, I was like, "Hey, when are you starting, when are you starting your next thing?" And eventually he's like, "I got an idea." And I was like, "Those first two ideas are okay. The first one's terrible. The third one, I'll give you a check right now." That was Snyk. You know, those were some hard times, right, in terms of he was creating a new category. So that's a different kind of play, creating a new category. Category creation takes a long time too. It took him two and a half years to kind of get out there and get his first, you know, two and a half to three to get his first million of ARR, and there were some times where it was really fucking slow. But there was, the signs were there. The, the, the product love was there, the product is cranking along, the, the pipeline was building, it just wasn't converting. It just takes time. The, the biggest mistake I, I made probably would be, you know, as I said earlier, is that when companies do preemptive rounds, uh, and- preemptive round after round after round, uh, in a short period of time, I never fault myself for the first check, right, 'cause you have to believe in the first check. Never- usually never fault myself for the second check. But the third or fourth, th- third check, perhaps, yeah, that, that should be an opportunity where like, "You know what, dude? You own enough. Lean back a little bit." So ownership matters, but you have to be careful at kind of the pricing and everything else. And you can read between the lines, Harry, in that one, but tha- that would be leaning in too much, too quickly, without enough signals changing things, um, from those rounds. So those would be the two balanced answers.

Harry Stebbings 45:10 Uh, no, listen, I love that and, uh, I totally get that. I wanna do a quick fire round with you, Ed, so I'm gonna say a short statement, you're gonna give me immediate thoughts. That sound okay?

Ed Sim 45:19 Yeah.

Harry Stebbings 45:20 So will 99% of money going into AI startups today go to zero? Venture money, that is.

Ed Sim 45:26 I don't really know what an AI startup is, so I think AI is gonna be incorporated into every piece of enterprise software, where it makes sense and som- where someone will pay. So in my opinion, that'll probably be 80 to 90% of the software anyway. So I don't even know what the fucking AI startup is, but let's just say the money chasing all these LLMs, there'll be a lot of money vaporized, uh, uh, for sure.

Harry Stebbings 45:46 Will more money go into AI startups next year than it will this year?

Ed Sim 45:51 Once again, I don't know what the fuck AI startups are, 'cause every c- company... So let's just say if every enterprise software company has some AI rel- related feature to it, then the answer is yes, 'cause in my opinion, every enterprise software company is gonna have some AI incorporated into their product.

Harry Stebbings 46:06 What would you most like to change about the world of venture, Ed?

Ed Sim 46:08 It's gotten so fucking competitive out there, man. It, it's insane. And there's too much money out there, chasing things, and I think there's a lot of irrationality right now. I mean, gu- as I said, I'm looking at the inception rounds, right? I laid out a framework from zero to, zero to six, zero to eight, zero to 10, but, you know, you're getting 30, 40, $50 million, you know, inception rounds done, and I think it's just bonkers, man. And it skews people's brains and memories. So I just, I just wish there was some more rationality around, you know, what everyo- everything a- and everyone was doing.

Harry Stebbings 46:35 What do you advise LPs today, looking at the landscape, trying to get a grip on it, trying to understand what's going on?

Ed Sim 46:41 Well, look, I mean, the LP, the LPs will advise me too, but the answer is, is that I think being first on the cap table really makes sense in terms of making money i- in any environment, uh, with multiples compressed. I think two, I think ownership, uh, is going to matter. Uh, and I think three is, I think there's gonna be a new generation of firms kind of coming around that, uh, are building, you know, different businesses, uh, and different VC funds and trying things differently. I think that there are some legendary brands out there, and I am so impressed with how long they've been around and the teams that they have, but I think there's also, given that the industry expanded a lot, you know, the question for them is gonna be, who's gonna be the next generation of, of funds out there that, that are gonna win for a long time?

Harry Stebbings 47:22 What will crack open IPO windows, do you think? We mentioned Instacart earlier. Instacart, Arm, they, they didn't. Uh, Klaviyo sadly didn't with it.

Ed Sim 47:31 I think it's very simple, Mr. Jerome Powell signaling to the world that, uh, interest rates are under control now, and we're gonna s- and the air has been taken out of the balloon, and the interest rates have to go down. I mean, there's a direct correlation, I think, that, uh... I had some of my friends at JP Morgan gave me a chart. At its peak, I think any company growing greater than 40%, um, and there's an in- inverse relationship to interest rates and, and forward valuations, 35 times forward. Do you know, uh, today, um, that number is at 6.8 times forward as interest rates kept hiking up? And the five-year historical number is 13.9 times. So do I think we're gonna move back to a world of 35 to 40 for companies greater, going greater than 40%? Never again. Do I think 6.8 might be the low point? Yeah. Is it the five-year kinda average of 14? Eh, let's just say somewhere between 10 and 14. So you've gotta build your business and your investment strategy and your ownership strategy around looking at a world where we get 10 to 14 for the best companies forward next year's numbers. And if you can do that, then I think you'll have an opportunity to make a lot of money.

Harry Stebbings 48:36 If we project out, where do you want Boldstart to be in 10 years, Ed? Like when are we... you know, think about firm design.What do you want Boldstart to be?

Ed Sim 48:44 Uh, I think we're pretty much the same that we are now. I mean, I think what we're gonna do is that, you know, (laughs) w- we have four operate- four investment partners. We've got an operating partner, Anna, out of London, who, who you may have met with. She worked with Guy at Snyk. She was employee four.

Harry Stebbings 48:57 I did.

Ed Sim 48:58 Um, so, so we're gonna continue to add more operating partners to help really these inception-stage founders, um, get there faster. Like in Anna's case, she's bringing product expertise to the team that she learned from Snyk, all the hard-learned lessons and things that didn't work well along with the things that went well with our, you know, founders, and it's been working like a charm. We have a few others identified that we're gonna bring to the team. But I think we're gonna s- we're gonna stay where the market is in terms of we want to be in that inception round. I don't wanna lead A rounds. I don't wanna get so big where I feel like I have to put money to work to make bad decisions. I gotta tell you this. We only did... Last year, we announced our two new funds, we... and which were the, which were our largest ever. We only did three net-new lead deals in the back half of last year because we thought the markets were going a little crazy. We were seeing a lot of inc- incremental ideas, not big ideas. And then in this first part of the year already, we've done seven net-new, and we have an eighth one we're about to do, so we'll be up to 11. And that's not because we're chasing AI or anything like that. It happens to be because we have a lot of founders that we've known for a long time, second and third-time founders coming out of the woodwork, you know, ready to get going. So I wanna stay in that range. Uh, whatever you call it 10 years from now, I hope it's kind of inception investing. I wanna be in that place and no bigger. I, I don't wanna be an asset manager. It's really hard to deliver returns in this market the bigger you get.

Harry Stebbings 50:17 Dude, listen, I love chatting to you always. I can't thank you enough for this, and this has been such a pleasure as always, man.

Ed Sim 50:22 Dude, thank you, d- uh, y- your questions, (laughs) just piercing questions, my man. I, I, I love, I love working with you and thank you. Uh, it's, it's been, been a lot of fun.