Roundtable #6 with Rebecca Kaden, Nicole Quinn, Eurie Kim, Harry Stebbings | E1083

1. 0:00 – 0:44

   Intro

   1. NQNicole (Nicky) Quinn0:00

      AI is akin to winning the lottery. It is the lottery of time. If OpenAI really do the, like, App Store of AI, then that's gonna be like a new Search. The valuations are going to be slightly higher but honestly, that's worth paying for.

   2. EKEurie (Yuri) Kim0:14

      I guess if you are trying to find the Google AI equivalent, think about all the applications that have come on top of that and that's just like a Wild West.

   3. RKRebecca Kaden0:21

      We're seeing across the board, investors are very hesitant to come in and re-price things, and to do the down round and deal with the anti-dilution and navigate the messiness.

   4. HSHarry Stebbings0:30

      What is your spiciest take today?

   5. EKEurie (Yuri) Kim0:33

      I mean, I would say...

   6. HSHarry Stebbings0:36

      I am so excited for this. I've wanted to do this one for a while. So I want to start with a little bit of intros from each of us. So let's start with

2. 0:44 – 3:05

   Introductions

   1. HSHarry Stebbings0:44

      you, Yuri, and then let's go Rebecca, and then Nicky. Yuri, over to you.

   2. EKEurie (Yuri) Kim0:49

      All right. I'm Yuri. Uh, (laughs) I'm a partner at 400 Ventures. We invest in all things consumer, um, and we've been in business for the last 13 years now, thinking about the changing behavior and different evolution of, um, needs and priorities of consumers and how that bubbles into real business ideas.

   3. HSHarry Stebbings1:08

      Rebecca?

   4. RKRebecca Kaden1:10

      I'm Rebecca Kadin. I'm a managing partner at Union Square Ventures, a New York-based early-stage venture fund portfolio that's increasingly global. We like to invest early and look for businesses with core network effects in markets that we believe you can tip over that are in moments of transformation where you can go direct, avoid gatekeepers that are sitting on the edge and working toward the center.

   5. HSHarry Stebbings1:35

      Nicky?

   6. NQNicole (Nicky) Quinn1:36

      Hi, folks. Um, I'm Nicole Quinn, um, or Nicky as margarita-drinking good friends like Harry call me. (laughs)

   7. EKEurie (Yuri) Kim1:44

      Who we keep on forcing you to respond to. (laughs)

   8. NQNicole (Nicky) Quinn1:46

      No, I love it. That's what all good friends call me. Well, I am, um, a GP at Lightspeed Venture Partners. Um, when I started nearly a decade ago, we were raising $700 million funds. They're now $7 billion funds. Um, and so we really scaled because it's so important to us that when we invest in the generational change businesses at the seed or series A, because we'd love to be first institutional capital in, then we really want to stay with them through the journey, and so for us, we've been raising growth funds, then opportunity funds to stay with those companies and invest in, like, the pre-IPO round. We can even talk about the benefits of that later. Um, but for us, it really is investing in companies and just staying with them for, as very active, helpful investors across sectors. I run consumer, then we have enterprise, healthcare, fintech, crypto, um, and yeah, the generational change companies of tomorrow.

   9. HSHarry Stebbings2:41

      I mean, Nicky-

   10. RKRebecca Kaden2:41

       What's the difference of a growth fund and an opportunity fund?

   11. HSHarry Stebbings2:44

       Ooh.

   12. NQNicole (Nicky) Quinn2:45

       Yes, good question. Opportunity is later stage, like over a billion, and then the opportunity fund mainly goes into a company we've already invested in, whereas-

   13. RKRebecca Kaden2:53

       Okay.

   14. NQNicole (Nicky) Quinn2:54

       ... select new companies.

   15. HSHarry Stebbings2:57

       Love that, and by the way, Nicky, thank you so much for teeing me up because my first statement, we're going to make this spicy, as Rebecca said before this. But my first statement was:

3. 3:05 – 7:19

   Traditional Seed Funds and Hot Seed Companies

   1. HSHarry Stebbings3:05

      it's not possible for traditional seed funds to invest in the hot seed companies of today given, respectfully, Nicky, multi-stage funds wanting to be in so early as the first check. Do we agree that it's not possible for traditional seed funds to play that game anymore?

   2. RKRebecca Kaden3:24

      Disagree.

   3. NQNicole (Nicky) Quinn3:24

      Disagree.

   4. RKRebecca Kaden3:25

      I disagree with that for a bunch of reasons. One, I think, um, more than anything, structure, structural venture favors hustle, and there's a long history of that. Um, the hungry, the new, the people who are out there building new ideas and seeing things earlier. Big platforms can hire a lot of people. They can put a lot of feet on the ground, but they're also really busy. There's a lot of ground to cover. There's a lot of companies to manage. There's a lot of, um, big checks to write and to manage to deploy the capital, and a dedicated seed fund that can be focused on meeting people before it's obvious when they're just getting started and put all the energy there can absolutely get in it. I also think, um, we are increasingly back to an era where the returns are going to be created through outsized and better ideas and hypotheses versus then consensus, that anyone can have a better idea and find the non-consensus person working on it.

   5. HSHarry Stebbings4:25

      Can I ask you this, sorry, Rebecca? Or, and this is open to everyone. I get you, and I love that idea as a seed investor, but how on earth do we play when it's like coming up on six on 30? I've had many rounds where I'm like three on 15, and then Andreessen come in and go, "Here's six on 30."

   6. EKEurie (Yuri) Kim4:42

      But I think the good founders have seen the, the story play out. You get a big round and a big raise, and maybe somebody shows up to help you, maybe they don't. But if you're a founder that understands what you're building and what type of people you want to partner with, then you do see that people are taking a lower, um, price point valuation in the beginning, with the understanding that they want help. They want the help that you have to offer, and hopefully you've got some specialization at your firm or at least yourself as an independent partner, um, and that's how it used to be. You were picking somebody that you were going to be working with for the next ten-plus years, and certainly all of us who did seed investing ten years ago, like, I'm still on many of those boards. Enough has happened with the, the rise of all the money coming in, all the exuberant valuations, all the flameouts, and now you're left with people who still want to do this, still want to start companies even though it's hard, and I think they're more thoughtful about how to build a board and the, you know, trajectory and the journey that they want to be on.

   7. NQNicole (Nicky) Quinn5:42

      I'm very much, by the way, on the same page as Rebecca and Yuri, and at Lightspeed, we really like to work with seed funds and be collaborative with them, and so maybe it's also splitting a seed round together, um, or you guys doing the seed and us doing the A. The vast majority of the deals that I've done have been series A. Um, Harry, you know, we've definitely worked together on some, hopefully many more. Um, there was just a deal internally that we were discussing yesterday, and we're leading that deal, but there's two other seed funds coming into that deal as well, um, and some amazing angels, and I also think, Harry, that you're in such a special position because the seed funds have great relationships with the angels, so you're in a terrific spot to be able to then do the pre-seed or seed rounds, whereas we work with seed funds that we love to work with, and so it's about building those relationships. And listen, this is a long-term game. Yuri, Rebecca, myself, you know, we've been doing this for, for one decade. Hopefully we'll be doing this for another couple of decades, and so it's about, like, staying true to the relationships, not messing people over, um, and realizing it's a long-term game.

   8. RKRebecca Kaden6:46

      You know, one way to do it is to have a strong perspective on something that other people aren't focused on. This assumes that everything is aggregating over specific things, and that's very much been the story of the last...... however many years. But that is often not the case for us. In many of the best examples that I studied from USV's history, it was very much not the case and so I think a lot about, "Where can I develop strong perspective that may not be the hottest thing of the moment?"

   9. HSHarry Stebbings7:18

      I- I- I totally agree

4. 7:19 – 7:47

   Seed Investment and Microcycle Immunity

   1. HSHarry Stebbings7:19

      with you. C- can I also, when we think about like seed itself as an asset class, everyone likes to talk about the negativity in macro. Do we agree though that seed is unimpacted and seed will continue to be bluntly immune to macro cycles given pricing hasn't really been impacted?

   2. NQNicole (Nicky) Quinn7:37

      So interestingly, we actually ran the data on this yesterday. Um, one of my partners, Alex Taussig, um, did a huge amount of data. Everybody knows him on this-

   3. EKEurie (Yuri) Kim7:45

      He loves data. (laughs)

5. 7:47 – 8:37

   Pre Seed Rounds

   1. EKEurie (Yuri) Kim7:47

   2. NQNicole (Nicky) Quinn7:47

      ... call because he is so good at data. His Drinking From the Fire Hose newsletter is so good 'cause it really goes into all the data. But, so you're exactly right. Like, the evaluations in seed have not dropped and we've looked at this data really over like 10-plus years. I think it's primarily because the growth stage rounds, right, will come down as public market rounds come down. But there is that lag. And so then the Bs come down, the As come down. The seeds, I would just say there is a lot of money there and so I'd say it's number one, the reason is because of the lag of public markets by stage, and number two is just there is a lot of capital. And like when people leave big funds to start their own seed funds, well then it's more money that then goes into those seed funds, as well as the big funds starting their own seed separate funds within the multi-stage vehicle. So, there's a lot of capital going into seed.

6. 8:37 – 12:29

   Seed Valuation Trends

   1. NQNicole (Nicky) Quinn8:37

   2. RKRebecca Kaden8:37

      I'll take the other side. I think seed valuations are gonna go down.

   3. HSHarry Stebbings8:40

      Oh, spicy. Come on, hit me.

   4. NQNicole (Nicky) Quinn8:42

      (laughs)

   5. EKEurie (Yuri) Kim8:43

      Here's, here's, here's the hypothesis.

   6. RKRebecca Kaden8:43

      She wanted to be spicy this morning, here we go.

   7. NQNicole (Nicky) Quinn8:46

      (laughs)

   8. RKRebecca Kaden8:46

      Here's the hypothesis of why. You are gonna have an era, a- a vintage of big funds that are godawful performances, right, that are really bad. And as a result-

   9. EKEurie (Yuri) Kim8:59

      Not yours, Nicky.

   10. RKRebecca Kaden9:00

       Not any of ours, guys.

   11. EKEurie (Yuri) Kim9:01

       (laughs)

   12. NQNicole (Nicky) Quinn9:01

       (laughs)

   13. RKRebecca Kaden9:01

       Our funds would be great. But everyone else's- (laughs)

   14. NQNicole (Nicky) Quinn9:06

       (laughs)

   15. RKRebecca Kaden9:06

       ... godawful bad. It's gonna force funds to look in the mirror and say, "What was wrong with that strategy?" And one is gonna be, "We paid too much money for things," but another was gonna be, "The strategy of very large funds writing $2 million checks does not work. You can't follow them through, they're actually not great option values, that it's a- that it may be the wrong allocation of capital." And if that is the case, and we're seeing this a little bit already, you're gonna push those funds back upmarket. They all retreat from writing as many seed checks. The, the seed funds that are often earlier in their vintages, first or second, are, are gonna stop growing with every successive fund as much as they were before because the market's gonna constrain it, which will stop seed rounds from continually expanding. Some seed funds won't be able to raise another fund given the vintage we just left, we're hearing that from LPs, and the capital dynamics will change and at the same time, we're seeing growth rounds were harder, then Ds were harder, then Cs, then Bs. We're in an era where we're seeing it. As are getting harder, right? You have seed companies who raised a lot of money that, you know, $1 million of revenue or $2 million of revenue isn't raising you on 80 anymore. And that's if seed companies can't reach their, reach their benchmarks, I think all of these pressures combined are going to, over time, drop the cost of seeds.

   16. HSHarry Stebbings10:28

       But I d- I think that's predicated though on the realization of the large multi-stage firms.

   17. EKEurie (Yuri) Kim10:32

       Yeah. Correct.

   18. HSHarry Stebbings10:33

       And bluntly, they are so entrenched within large endowment funds, institutions, multifamily offices. I see it in Europe where they're like, "We know we're gonna lose money on X firm, but the brand is so valuable that we get customers because of it and so we don't even care." I mean, there's f-

   19. EKEurie (Yuri) Kim10:51

       Yeah, the lag is long.

   20. HSHarry Stebbings10:53

       And so the-

   21. EKEurie (Yuri) Kim10:53

       You know, by the time you've had a bad fund, you might have had another good fund, you know, start to return, and so it all gets mixed in where, you know, the returns are happening from funds that are earlier than the bad ones that we have yet to see play out. And by the time the bad ones play out, hopefully there'll be a couple of new good ones to speak of. So I think memory is very short in this industry, and Rebecca's absolutely right. Like, that is what should logically happen if you let the whole sort of, you know, economics play out. But I do think that even if you have one of these earlier checks that were at a valuation that truly doesn't matter to a later stage fund, if one of those works out and they can deploy hundreds of millions of dollars after that, then it'll validate that that's still a, a viable sort of, um, gambling effort. And it's, uh, it's, candidly, it's an effort for their earlier partners to get some experience because they're not gonna be able to put growth dollars to work. Because growth is harder, the traction needs to be higher. Now you're like, "Okay, well, why don't you put a couple million dollar checks to work and see what you can do with them and see if you can bring something to the table?" Um, but Nicole, I mean, I'm wondering how you guys do it at LightSpeed. Like, do you all invest across all of the stages? Like we do at Forerunner, you know, we do seed all the way through to growth across our fund and it's the same partners that are doing that work.

   22. NQNicole (Nicky) Quinn12:05

       No, we're very much specialized, um, by different stages, by different sectors. Um, we really believe at LightSpeed that we can be the most valuable board member by specializing. And Harry, on what you said earlier on the LPs perspective, I would say that as GPs, we care. Like, we really care about those results. How do we do that? How do we keep putting money back into the fund and recycling so that-

   23. HSHarry Stebbings12:27

       Do you think, do you think that's-

   24. NQNicole (Nicky) Quinn12:28

       ... we can get the

7. 12:29 – 16:42

   Shifts in Fund Strategies

   1. NQNicole (Nicky) Quinn12:29

      funds?

   2. HSHarry Stebbings12:29

      ... properly though, Nicky? Like, we see a lot of funds move away from carry optimization to fund deployment and AUM, which is pretty understandable.

   3. NQNicole (Nicky) Quinn12:36

      There is a fund that we were talking about earlier that is doing that. We are definitely not doing that. So for us, it has nothing to do with AUM. We are laser focused at LightSpeed on making sure that it is about the carry. It is not about the AUM. That is part of our DNA, always has been. We remind each other of that every single week.

   4. RKRebecca Kaden12:54

      With $7 billion funds-

   5. EKEurie (Yuri) Kim12:56

      Yeah. (laughs)

   6. RKRebecca Kaden12:56

      ... you don't think it's at all about the AUM?

   7. EKEurie (Yuri) Kim12:58

      (laughs)

   8. NQNicole (Nicky) Quinn12:59

      (laughs)

   9. EKEurie (Yuri) Kim13:00

      And do you think you're getting into the carry in this lifetime? (laughs)

   10. RKRebecca Kaden13:03

       Only optimized about the carry for the $7 billion dollar, and I love you and all your partners, but I have to call it out.

   11. NQNicole (Nicky) Quinn13:11

       The key to what you just said is, "And all my partners." So as we have increased the AUM, we have increased the number of partners, right? When I first started, we had three offices globally. We now have 11 offices globally. And so we really have made sure, like, hey, listen, like there was a year where two of the largest global outcomes were in Europe. We were like, "We don't have boots on the ground in Europe. We need to make sure we're doing that." Rebecca, you said you just did a deal in Europe. And so, like there are huge opportunities out there. So now we have a London, Berlin, and Paris office, and that's how it scales. Unfortunately, the costs also scale. It's not just the AUM.

   12. HSHarry Stebbings13:47

       I mean, not, not, not linearly. I mean, you're looking at 140 million in ARR. I mean this is a pretty good SaaS company, (laughs) Nikki. But I totally agree.

   13. NQNicole (Nicky) Quinn13:56

       The costs do grow. (laughs)

   14. HSHarry Stebbings13:59

       Rebecca-

   15. RKRebecca Kaden13:59

       The costs absolutely grow, and you guys have tons of partners, and it's a whole... It's just a very different asset class. Like I think the other argument is that venture has become a very different asset class, same way that a lot of other asset classes have evolved, right? Private equity followed a very similar trajectory. And as that evolves, the desired outcomes, the way people make money, all of it changes depending on what you're looking at. I don't think that's bad. I just think you're bifurcating this into different buckets of capital. And right now, there's a lot of overlap in what we're all looking at from a company perspective. Some could argue there'll be increasingly less overlap, that those asset classes will evolve towards different fits for the type of platform and firm you've evolved. You see that with General Catalyst buying a hospital system, right? Like, that's an example, right? You can build a very large platform and say, "Hey, an, an asset that before was totally not in spectrum could be super interesting for us, like a hospital system."

   16. NQNicole (Nicky) Quinn14:59

       We're doing the exact same thing where we never had a biotech team beforehand. We had one venture partner part-time doing healthcare. And then we said, "Listen, the returns in healthcare are so enormous. We need to bring in..." Shelly is leading our team there, and she is exceptional. And so yeah, it's setting up new practices, new franchises that we never, you know, looked at or we part-time looked at before and tested it out for a few years. But now we're really doubling, tripling down on that. So I think that it's super important to do that.

   17. EKEurie (Yuri) Kim15:29

       I think the place that it gets difficult is once you start to say, "I've got a very large firm from an umbrella level, and then I've got a bunch of different mini portfolios." Not mini, they're pretty large at that stage anyway. But then there are sort of teams that are running portfolios under a portfolio. Maybe they work together, maybe they don't. Maybe everyone's responsible for their own returns. But that is one thing that we feel is differentiated at Forerunner, where all of us are working on the same portfolio. We have different companies, but we don't have differentiated carry. We don't have differentiated economics. It's the same fund. And so if there are reserve dollars that, you know, are limited, then we need to decide, hey, is it gonna be this company or that company? Which one do we think is gonna move the needle here on the whole fund? And I think that's a conversation that, in our partnership, makes it a, a team effort versus if you're, you know, running your mini portfolio of a hundred million or a billion, then you're gonna be optimizing for your own outcome. You know, and not, not to say that that's what Lightspeed's doing, but just like there are other firms that get so big that you have to start splitting things up because you literally can't have everything be consensus up from, like 20 partners and 20 different strategies.

   18. NQNicole (Nicky) Quinn16:35

       Definitely not consensus. (laughs)

   19. EKEurie (Yuri) Kim16:36

       (laughs)

   20. NQNicole (Nicky) Quinn16:36

       You don't want to be investing in those decisions. The best ones are non-consensus.

   21. HSHarry Stebbings16:40

       Exactly. Can I ask, when we think about kind of the immune

8. 16:42 – 20:13

   Series A Investment Challenges

   1. HSHarry Stebbings16:42

      nature of seed, uh if we go to series A, uh, you know, Rebecca, you mentioned kind of you were recently doing a series A deal. What are we seeing in terms of series A markets? Are they as frothy as ever? Often people are actually saying that's where we're seeing a crunch. What are our thoughts on frothiness or crunch at series A?

   2. RKRebecca Kaden17:00

      I, I think the series A market right now is actually really interesting because you're seeing, um, tale of many different worlds depending on what you're looking at. Things that are, I think, getting outsized multiples, still probably less than they were 18 or 24 months ago, but dramatically different than other pockets. Anything with momentum. Momentum I think has a giant premium on it now because it's gotten much rarer. Kind of across category, momentum-driven businesses, we are seeing this. Obviously, things in high-flying categories, things that touch AI and have momentum, right? Massive multiples right now. And I think there's a big premium for, um, seasoned teams.

   3. NQNicole (Nicky) Quinn17:42

      Mm-hmm.

   4. RKRebecca Kaden17:42

      People who have seen it before, and particularly if they've seen it before with good outcomes because it feels like this market is quite complicated, and, and there's a desire for teams that have been able to navigate things before. On the other hand, I think anything with a complicated story, things that are figuring it out and are seeing, um, some growth curve, but it took a while for that to figure it out so maybe they had to spend some of that seed money so their, you know, ultimate revenue is less than what you ultimately would like and their curve is newer. Very hard to raise money for, big opportunity in, right?

   5. EKEurie (Yuri) Kim18:19

      Yeah.

   6. RKRebecca Kaden18:19

      Anything in complicated markets, like things that have complexity, I think, are very hard.

   7. EKEurie (Yuri) Kim18:24

      And that might be the opportunity for the seed funds where-

   8. RKRebecca Kaden18:27

      Yeah.

   9. EKEurie (Yuri) Kim18:28

      ... if you are a specialist and you understand that complicated market and you're able to see that trend earlier than a series A fund or a l- later stage fund that needs to see more traction to get that over the line, then that's your opportunity to have and hopefully your valuation to have. I just pulled up, we had a slide in our A- AGM, uh, meeting last week or two weeks ago, and essentially A valuations are at 35, which was the same as '21. And now we all know about the spikes in the 20 and 100 and all of that, but like as an average, it was 24 in 2020, 35 million bucks in '21, 40 million in 2022, and then back to-... 35 most of this year. So you aren't seeing the drop that you are in the series D, which kind of ballooned to $740 million in 2021 and now is back down to 340.

   10. NQNicole (Nicky) Quinn19:15

       You've blown Harry's mind.

   11. EKEurie (Yuri) Kim19:16

       Yeah. It's like you're still at the same levels right now. In the seed, we were joking just before we started that, you know, I had a two on seven back in the day that, you know, I'm still working with now and is doing really well. We're talking a ten and eleven over the last two years as your average seed price. So we definitely hear more about these really high-priced rounds, but, like as an average, things are still trending. Um, you know, they're- they're just kinda holding stable.

   12. HSHarry Stebbings19:42

       Yory, I- I respectfully feel nauseous listening to you because-

   13. EKEurie (Yuri) Kim19:45

       Why? (laughs)

   14. HSHarry Stebbings19:45

       ... th- those are not the prices that I did. (laughs) . I mean, Lord, like...

   15. EKEurie (Yuri) Kim19:48

       Well, and we- we were lovingly giving you counsel that those were not good deals to do, Harry. (laughs) .

   16. RKRebecca Kaden19:54

       Stop chasing the heat.

   17. HSHarry Stebbings19:56

       (laughs) .

   18. EKEurie (Yuri) Kim19:56

       You like hot deals.

   19. RKRebecca Kaden19:57

       (laughs) .

   20. HSHarry Stebbings19:58

       They liked me. You know, I-

   21. EKEurie (Yuri) Kim19:59

       Ah, exactly, exactly.

   22. RKRebecca Kaden20:01

       Oh, my God.

   23. EKEurie (Yuri) Kim20:01

       Everyone likes you. (laughs) .

   24. HSHarry Stebbings20:03

       But- but I- I guess-

   25. NQNicole (Nicky) Quinn20:04

       I would also- I would also just add, like for us, like something is worth what someone's willing to pay for it.

   26. EKEurie (Yuri) Kim20:09

       Yes, yes.

   27. NQNicole (Nicky) Quinn20:10

       So on the acquisition side of things, everybody thought it was insane

9. 20:13 – 21:07

   Big Tech Investments in Context

   1. NQNicole (Nicky) Quinn20:13

      when Facebook paid 19 billion for WhatsApp, right? But now, beauty of hindsight, my gosh.

   2. EKEurie (Yuri) Kim20:18

      Yes.

   3. NQNicole (Nicky) Quinn20:18

      Was it worth 10% of Facebook's market cap to buy WhatsApp? Absolutely.

   4. EKEurie (Yuri) Kim20:22

      Yeah.

   5. NQNicole (Nicky) Quinn20:22

      So the same applies on the other side of the spectrum at seed and series A. It's like, listen, it's really worth what someone's willing to pay for it. And at Lightspeed, we are huge believers in AI. And by the way, I can't believe we've talked for, like 23 minutes and we've only mentioned AI once. So, um, that to us is really worth like paying, you know, a slight premium, not a crazy premium, Harry, for, because we're such believers that that is the new technological wave. And if like OpenAI really do what they do, uh, plan to do with regards to, um, the like app store of, um, AI, then that's gonna be like a new search distribution wave. And so you've got like at least a couple of like really powerful tailwinds coming together on AI.

10. 21:07 – 22:51

    Lightspeed's Investment in AI

    1. NQNicole (Nicky) Quinn21:07

       The valuations are gonna be slightly higher, but honestly that's worth paying for in this market if you truly believe in the upside of AI.

    2. HSHarry Stebbings21:14

       What percent of your deal flow is AI in the first line?

    3. NQNicole (Nicky) Quinn21:18

       (laughs) So I can give you some stats. We've invested at Lightspeed in 54 companies in AI. We've spent, we've, uh, invested over a billion dollars in AI, but, big but, that was not all this year. That is not all generative AI, all right? That's been over the few year- over the last few years. A lot of those companies are doing exceptionally well. Generative AI though, like again, we're real believers in.

    4. RKRebecca Kaden21:41

       Right, I think AI is- is quickly becoming a sometimes critical building block piece of many companies versus it being an AI company.

    5. NQNicole (Nicky) Quinn21:50

       Yes.

    6. RKRebecca Kaden21:50

       For us, we- we've invested in a good, like I don't know the number off the top of my head, but you know, a- a good handful of new AI first focused, um, investments of different kinds of categories, both kind of the enablement and the application layers of it, um, and have been for a while. But the dramatic impact in the portfolio has actually come from existing portfolio companies' application of it, which has, for many of them changed trajectory or meaningfully evolved their business. And it's a technology, one of the remarkable things about the technology is that it's pretty easy to use. The packaging is very different than previous shifts. And so the opportunity to easily implement, um, toolsets that are coming onto the market and match it with platforms already at some scale in different categories is so powerful that we're seeing the outsize impact there, um, so far even more so than kind of the net new businesses.

    7. HSHarry Stebbings22:49

       So I was just having breakfast this

11. 22:51 – 24:25

    Worthiness of Investing in AI Today

    1. HSHarry Stebbings22:51

       morning with one of the best venture investors in the world, I think.

    2. EKEurie (Yuri) Kim22:54

       We didn't have breakfast.

    3. HSHarry Stebbings22:56

       And, uh, and-

    4. NQNicole (Nicky) Quinn22:56

       He runs a company exclusive, Harry.

    5. HSHarry Stebbings22:58

       And, uh... You just dissed my entry pricing, okay?

    6. NQNicole (Nicky) Quinn23:01

       (laughs) .

    7. EKEurie (Yuri) Kim23:03

       (laughs) .

    8. HSHarry Stebbings23:03

       Um...

    9. EKEurie (Yuri) Kim23:03

       You needed it.

    10. NQNicole (Nicky) Quinn23:04

        (laughs) .

    11. HSHarry Stebbings23:04

        I did. Uh, my ego did need a blow. Don't worry. It's okay. Um, but he said, "You just can't play the AI game today. There's no way you can play it. You can't play it and make money because the pricing stay for anything good is untenable." Is that fair?

    12. EKEurie (Yuri) Kim23:17

        I mean, what is the AI game? I guess if you are trying to find the Google AI equivalent, then, you know, you- you're at this place where you're trying to really think about infrastructure building. But think about all the applications that have come on top of that. And that's just like a- a wild west. I mean, you have, it's not even begun. And I think what we get really excited about is AI versus like a crypto or NFT craze. AI is something that can actually change consumers' lives. Things that could not be delivered because it took too many human hours and was too expensive are now conceivably being delivered for fractions of- of the cost. And so thinking about all the different ideas that have come to bear to improve people's lives just day to day and what then this technology could do to make that actually a business model that makes sense for somebody else to build, that's what we really get excited about. And so we're still thinking about everything from a consumer lens, like what is the thing that you're solving that will, you know, meaningfully change somebody's life? And then is there an AI orientation to it that could make it more cost-effective, more scalable, you know, faster to market?

    13. NQNicole (Nicky) Quinn24:23

        I would say

12. 24:25 – 26:48

    AI as a Time Efficiency Tool

    1. NQNicole (Nicky) Quinn24:25

       AI is akin to winning the lottery.

    2. HSHarry Stebbings24:27

       (laughs) .

    3. NQNicole (Nicky) Quinn24:27

       And what I mean by that is it is the lottery of time. So in your, like say, 10-hour working day, you spend maybe f- an hour writing a newsletter. Well, that could get compressed down to ten minutes, right? Use Beehive's newsletter platform and use their AI and, you know, you can just do it in a fraction of the time. You don't have to spend the same time on your customer support. Your operations is made much more efficient. You then have an AI chief of staff or an EA or a family planner. And it's incredible. Like we can't all afford to have family EAs, but hey, if you're paying like $10 a month with AI, you definitely can. They can take so much off your plate. So you suddenly wake up and you have two or three hours extra in your day that you did not have before. It is like winning the time lottery. And what are you gonna do with that time? Hopefully more experiences, hopefully more travel, hopefully more enjoyment. So then it becomes what is the future of fun and entertainment? Maybe you're using character AI and talking to your favorite characters. But there's so much we can do with our new lottery of time.

    4. RKRebecca Kaden25:29

       If you believe all of the value is gonna aggregate in a very small number of underlying models and platforms, that may be correct. But I think what you're hearing here is there is a tremendous amount of excitement around application layer and, um, point solution tools that actually...... are likely to aggregate a lot of value, not because they are AI, but because they are meaningfully solving problems that have existed for people, for businesses with a new toolset to do that better, faster, cheaper.

    5. HSHarry Stebbings25:57

       Fair. And for those that are good, I'm just seeing eight on 40, eight on 50 for any seed round.

    6. EKEurie (Yuri) Kim26:03

       Well, and by the way, eight on 40 was a series A price that made sense because you've got the, the deal math at a certain point, a percentage ownership, a certain amount of dollars, a certain valuation kind of coalesces to a, a price, a clearing price. That just means that team and that idea is deserving of getting both rounds at the same time. But they're still gonna need to do the work to be at a series B metric level to be able to get the next round that's gonna clear that price. Otherwise, their series A is gonna be at the same price that that was at. Time might be, um, different in this moment based on which founder you have and, and what you're, uh, building, but ultimately the metrics all converge to the same. You have to have a real business at some point in time.

    7. HSHarry Stebbings26:46

       Speaking of a real business at some point in time,

13. 26:48 – 34:31

    Navigating A Rounds with Changed Expectations

    1. HSHarry Stebbings26:48

       are, are we nervous of doing As cognizant of the fact that... I don't know about you, but there really is a crunch at B. B and C, it's like, where the rubber hits the road and the crunch is real. Are we nervous about doing As given the very different and changed expectations at B?

    2. NQNicole (Nicky) Quinn27:06

       I'm on the board of a company where we did the A, and Rebecca actually just did the B. Um, and so it's, A, wonderful being on board with Rebecca, um-

    3. HSHarry Stebbings27:15

       (laughs)

    4. EKEurie (Yuri) Kim27:16

       Yeah.

    5. NQNicole (Nicky) Quinn27:16

       And B, like, those founders are so thoughtful and so smart. It's Daybreak, um, and what they're doing is mental health for adolescents. Um, and so I would say, listen, like, there is a crunch in terms of valuation, definitely that is coming down. But I do still believe the best teams and the ones that are growing, you know, two, three, four, five X year on year, they will continue to get funded. And so really, we're just moving to, like, a flight to quality, and that's okay.

    6. HSHarry Stebbings27:45

       Do you think that realization has hit in the minds of founders in terms of the valuation crunch? I find they're still holding out for the good time, valuing in-

    7. RKRebecca Kaden27:52

       I think it's starting to.

    8. EKEurie (Yuri) Kim27:53

       Yeah, I think it's starting to.

    9. RKRebecca Kaden27:54

       Yes. We're seeing it kind of just split into a couple categories. We've had a bunch of Bs and Cs kind of raise in the last kind of couple quarters. Things with momentum raise great Bs. We are seeing that. We've had, uh, I had two in my portfolio last quarter, they raised great Bs. It takes a little longer, maybe they, the process is more intense for them, but they get done.

    10. HSHarry Stebbings28:14

        Is momentum enough, or is it momentum and efficiency now?

    11. RKRebecca Kaden28:17

        Momentum, a market that is deep, um, and expansive, um, and exciting that has a wine-out to it, and fundamental economics underneath that, that is exciting to people and look to be sustainable. You need that whole package for that strong round right now.

    12. HSHarry Stebbings28:36

        Yeah, the efficiency is crucial, I think. 'Cause before-

    13. RKRebecca Kaden28:38

        Absolutely.

    14. HSHarry Stebbings28:38

        ... the momentum alone was enough.

    15. RKRebecca Kaden28:40

        No, no, no. It has to be momentum paired with a very strong efficiency story and, I think, a really good market story. Then there's this other group where actually, like, I'm excited about value, which is, um, these are interesting businesses. They're sitting on messy cap tables because they raised at too high of a price, and what's slowing down their round is that the business is pretty interesting, but it's not all the things we just talked about for some reason, and beating... Or it was just priced too high. And beating-

    16. EKEurie (Yuri) Kim29:12

        Yeah.

    17. RKRebecca Kaden29:12

        ... whatever post it last raised at is gonna be hard, and people are very scared of that. We're seeing across the board investors are very hesitant to come in and re-price things, and to do the down round and deal with the anti-dilution and navigate the messiness.

    18. HSHarry Stebbings29:27

        Do you not, do you not think that's fair? 'Cause it's just, it's just so painful to do a down round, the impact on company culture.

    19. RKRebecca Kaden29:32

        It's not that painful. Like, it's, it's not great, but...

    20. EKEurie (Yuri) Kim29:35

        It's either that or you go out of business. So I think, you know-

    21. RKRebecca Kaden29:38

        Or you, you need to-

    22. EKEurie (Yuri) Kim29:39

        ... I, I had a conversation with a, a founder who was like, "Look, we got the message. The board, the, you know, the founding team, everybody understands this is not 2021 and we wanna, you know, have a great partner, clean, clean terms, and we wanna move forward. There's, like, something great here and we want somebody who believes in our growth in what we're building." That is a very sound head on shoulders across the board, and I think that is what you're gonna start seeing because the last six months it was quiet 'cause everybody was waiting on the sidelines 'cause nobody wanted to do the dirty work of re-pricing things. But if it's acceptable to just not re-price for the sake of it, but just to do it with logic, then I think people will start to say, "Okay, well, this is the price that I would pay for this asset at this stage, and here's why."

    23. HSHarry Stebbings30:20

        Yeah.

    24. EKEurie (Yuri) Kim30:21

        So it's not personal, it's just this is what the market is bearing right now.

    25. NQNicole (Nicky) Quinn30:25

        And the operative part of that is very much, um, clean terms. So I would much rather take a significant down round than having structure on that. And so for... That's what I'm really encouraging our portfolio companies to do. I think Klarna is a good example in Europe, right? Didn't they do a 90% down round rather than taking, like, a lot of structure? 'Cause that structure then sticks with you for multiple rounds. So it's like, take the straight vanilla simple terms, keep it clean, do a down round. You can come back from that. Don't put a bunch of structure on.

    26. RKRebecca Kaden30:57

        Also, I think a lot, some of the founders understand that the last rounds, they never, they don't think their companies were really worth that at the last round.

    27. EKEurie (Yuri) Kim31:07

        Yeah.

    28. RKRebecca Kaden31:07

        It's not like, you know, they, they under-

    29. EKEurie (Yuri) Kim31:08

        They're not ruining anything. (laughs)

    30. NQNicole (Nicky) Quinn31:09

        (laughs)
14. 34:31 – 38:37

    Future of M&As and Company Dynamics

    1. RKRebecca Kaden34:31

       I actually think that M&A is really hard right now.

    2. HSHarry Stebbings34:33

       Mm.

    3. RKRebecca Kaden34:33

       I think you're just gonna see a lot of them unfortunately die because m- M&A works if some other piece has a lot of cash, right, or has a lot of, uh, asset and, and you're seeing later-stage companies being told to really focus, right, to really focus in, to really focus on brand, to really focus on, you know, the essentials of the business, which often goes against the opportunistic M&A. I think you'll see acqui-hires. I think you'll see it in, in kind of small ways. But, uh, we're also not really in an era where you can just sell a lot of stuff to Facebook and Google.

    4. EKEurie (Yuri) Kim35:04

       And whatever the sell might be, the market multiple and the clearing price is gonna be based on public comps. And so you're down to a very paltry one X at best for a lot of assets. (laughs)

    5. NQNicole (Nicky) Quinn35:17

       I have asked a lot of banks but also, like, the corp dev, biz dev teams this at, um, the larger consumer companies, and they're all hiring. They're all really busy, so they're definitely doing work, but they're not putting money to work. They're just analyzing a lot of businesses and then unfortunately not pulling the trigger.

    6. HSHarry Stebbings35:36

       Can I ask, does this gen- uh, Rebecca, you said earlier about, um, maybe a challenging set of numbers coming from, um, the last generation of venture firms. Does the generation just get a pass? Is it like, "Well, you know, huge quantitative easing, bad vintage, we all get a pass," or are there repercussions?

    7. RKRebecca Kaden35:57

       I think there's gonna be some repercu- You're hearing from LPs they've been overallocated to venture, the liquidity cycle isn't really there. Um, they're nervous about these vintages. Um, I don't think it's like there's gonna be a massive retreat, also because innovation is exciting and it will always be, and this is at the heart of it, and long term such a believer in it. But I, I think you're gonna see at least a little bit of a reshuffling and a press towards focus in a different way.

    8. EKEurie (Yuri) Kim36:27

       And probably a press more towards what is tried and true, what, you know, has stood the test of time. And where that unfortunately magnifies some of the sp- disparity is probably amongst earlier emerging managers who may have raised over the last few years and as a result, their first or second fund is the fund that's gonna, uh... You know, one of my partners called it, like, the s- the special child that needs, you know, extra help. And it's that fund in 2020, 2019 that unfortunately had to live through COVID and then had the run-up and then s- overspent and then couldn't pull back fast enough, and so a lot of the market dynamics, um, disproportionately affect those vintages. And if you had vintages prior and you have vintages after, then you probably can get through it. If those are the only two funds you have, you're probably gonna suffer.

    9. NQNicole (Nicky) Quinn37:18

       The key to this is liquidity. Yes, the IPO market is looking miserable. That window is (laughs) not exactly wide open, to say the least. Harry, you know my brother Jamie Quinn.

    10. HSHarry Stebbings37:28

        Hm.

    11. NQNicole (Nicky) Quinn37:28

        Um, he is at a fund, New View Capital.... and he runs the part of the business that is, um, saying to funds, like 4Runner, USV, Lightspeed, "Hey, do you want to sell some of your older positions to us, gives you liquidity?" Um, and then they continue to, you know, take those positions on, um, for the future. So I feel like there's, like, new creative ways where folks can think about getting liquidity and, and, uh, making sure that they do have those, you know, solid, consistent returns.

    12. HSHarry Stebbings37:58

        I've loved this. This has been so much fun. I feel, I feel like we should do a podcast called The All-Out Podcast. (laughs)

    13. EKEurie (Yuri) Kim38:06

        (laughs) With no, no straight talking points, just, like, riffing for an hour. (laughs)

    14. HSHarry Stebbings38:09

        Yeah, yeah, yeah. No, just riffing and no politics.

    15. EKEurie (Yuri) Kim38:12

        Like, "What did we cover here?" (laughs)

    16. HSHarry Stebbings38:13

        Yeah. No idea. Yeah, I want to finish, though. Like, I loved your statement earlier, Rebecca, that, uh, "Let's make it spicy." Uh, love a bit of spice. Uh-

    17. NQNicole (Nicky) Quinn38:21

        Same here.

    18. HSHarry Stebbings38:21

        What, what is your spiciest take then today that you would like to share? If you have one each.

    19. RKRebecca Kaden38:29

        I think mine is we are exiting the time of consensus-based venture capital, that we are gonna learn that this idea

15. 38:37 – 41:29

    Spicy Takes

    1. RKRebecca Kaden38:37

       that everything gets bid up 'cause there's this, like... That, that the myth of a hot deal is a myth, that over time most of those are not gonna be worth very much at all, and that if you can't... You know, that, that the industry is gonna go towards development of ideas and perspectives and the edges of it, versus consolidating at the center towards chasing heat, because the ultimate value creation of that has, is gonna prove out to have been low.

    2. EKEurie (Yuri) Kim39:03

       I love that spice. I mean, I would say, you know, whereas we're all paid to be, you know, innovative thinkers, here at 4Runner, we're back to the basics. This is about building businesses that solve real problems, and that takes a lot of time and a lot of thought.

    3. HSHarry Stebbings39:17

       Is that a spicy take, Yuri?

    4. EKEurie (Yuri) Kim39:19

       Isn't it? Because it's not about what's... I mean, it's a little bit of what Rebecca was saying. It's not about what's hot, because half the stuff that's hot, I don't even know what they're talking about. What, what is the behavior that's happening, and why does it matter? And so, some of the investments that, you know, we've made this year, actually, (laughs) my partner invested in one that's a, it's an auto body shop, uh, a chain of auto body shops. And you're like, "Well, how is that venture?" Well, it's venture because a lot of the technology that goes into powering that can then start to create a digitally native franchise, which then is scalable. So, I think we're having a lot of fun going back to let's not think about just tech for tech's sake, and let's think about problems to solve and how tech can make that more efficient. But ultimately, you know, like you said, um, I think Rebecca said GC bought a healthcare system. That's been around for a long time, but suddenly returns in that investment strategy makes sense in venture, um, because other things are not returning as much.

    5. HSHarry Stebbings40:15

       Nicky, hit me. What's yours?

    6. NQNicole (Nicky) Quinn40:18

       Hot take, going back to where we started from, on the multi-stage funds. I think we spent far too many years with the multi-stage funds and then suddenly realizing, "Wow, now I'm the only one on the cap table. There's no one else to turn to. There's no one else around to, like, help support this company with me." And so I think we're gonna go back to the old times of being like, "Great, let's work collaborative with seed funds. Then we'll do the A, we'll share it with our favorite people for the B, then maybe we'll split the C with them, show it to our favorite people for the D." We're going back to that time.

    7. HSHarry Stebbings40:53

       I welcome that time. (laughs)

    8. EKEurie (Yuri) Kim40:55

       Back to basics, just the way it used to be. Good.

    9. RKRebecca Kaden40:58

       I have another one. The next era of, of consumer applications starting very soon, many of them will look like a consumer application and have crypto rails buried, um, beneath the hood, and that's starting to take off and is gonna revive a crypto winter.

    10. HSHarry Stebbings41:15

        Oh. Now is the best time ever for crypto, right, Rebecca?

    11. EKEurie (Yuri) Kim41:18

        That's, yeah.

    12. RKRebecca Kaden41:19

        Now is the best time ever for crypto.

    13. EKEurie (Yuri) Kim41:20

        (laughs) Let's end on that. That's, uh, where do you go from there?

    14. HSHarry Stebbings41:24

        Guys, I have loved this. Thank you so much for doing it. You have been amazing.

    15. EKEurie (Yuri) Kim41:28

        Thanks, Harry. Thank you. Always on time.

Episode duration: 41:29