How To Make Money in Venture | Josh Kopelman, Co-Founder of First Round Capital | Ep. 8

1. 0:00 – 0:25

   Intro

   1. JKJosh Kopelman0:00

      It was universally acknowledged we were in a bubble.

   2. JAJack Altman0:02

      Everybody knew it.

   3. JKJosh Kopelman0:03

      Oh, like the Fed chair, irrational exuberance, Pets.com sock puppet, like, total irrationality. And if you had said, "Oh, no, we're in a bubble," and you said, "I want to sell and exit now," you would've given up eighty-three percent of your profit. You would've made seventeen percent of the total returns you could have made.

   4. JAJack Altman0:20

      [upbeat music] All right, Josh, thank you so much for being here. I'm really excited to do this with you today.

   5. JKJosh Kopelman0:24

      I'm excited,

2. 0:25 – 4:39

   Current landscape

   1. JKJosh Kopelman0:25

      too.

   2. JAJack Altman0:25

      I wanna start with the state of venture. So you started First Round in two thousand and four, so it's over twenty years now, which is awesome, and, um, you've seen a bunch of cycles, and venture has changed, like, a huge amount in that time. And the lay of the land today is different than it's ever been. It's different than when I was building Lattice even, where now we've got not just, like, one or two big firms, but you've got, like, six or eight or ten venture firms that are billions and billions of dollars, and we're not that big of an overall ecosystem in venture. And then, of course, you have a lot of smaller firms. But it seems categorically different because now you're hearing about firms that are playing different games than we've ever played before. And so I kind of wanted to start by just hearing your reflections of where we are as an ecosystem of venture generally around this dynamic.

   3. JKJosh Kopelman1:16

      It's been fascinating to watch. So I think we should talk about it two ways. The first way we could talk about it is, how is it playing at the GP side, and how is it playing at the LP side? 'Cause at the GP side, right, in two thousand and four, you had fewer than eight hundred and fifty funds. If you looked at, like, active check writers, people that were writing more than one check a year, probably a thousand, two thousand people. Today, there's over ten thousand funds. You probably have over twenty thousand active check writers out there. That, that's a change, and I think everyone's commented on it. And, and look, does it make the industry harder for VCs? Sure. Is it probably better for entrepreneurs? Yeah, more capital out there funding more ideas. I think what hasn't been talked about are these fund size changes and what that means for LPs. You know, I think when we started, uh, David Swensen pretty much, like, created the institutional venture asset class. He put us in business at First Round at Yale, um, and you had, like, university endowments and a very select customer that basically said, "We'll take illiquidity in order to get outperformance." And they really... Like, those two matched, right? You needed to have ten-plus years illiquidity in order to get a twenty-plus percent IRR, and that was the deal.

   4. JAJack Altman2:26

      And it happened.

   5. JKJosh Kopelman2:27

      And it happened, right? Like, by and large, you had real good exits, and it, it, it really created the asset class. But, like, I think there are a lot of smart investors out there and smart VCs, and they said: "You know, there's a lot of capital out there. There's capital that hasn't been able to get into this asset class, a lot of capital with, like, bigger purses, sovereign wealth funds, et cetera, and, you know, they might be willing-- they might have a different cost of capital. They might, instead of targeting a twenty-five percent or a four X, they might be looking at a two X or a twelve percent IRR, and they'll take the same illiquidity." And when you bring new investors with different capital returns expectations, it could be really transformational for the industry. So, like, the bull case is the Blackstone-ification of venture, right? You know, what Blackstone did is say it's not about alpha, it's about scale, right? If, if... Let's, let's give an example. If you had a billion dollars, and it was a traditional venture fund, and it could do thirty percent IRR, that's awesome. That's, like, three hundred million dollars. And if you had a... Now, on the other hand, if you had a hundred billion dollar fund and it could do twelve percent IRR, well, that's twelve billion dollars. That's a lot more than the three hundred million in the first.

   6. JAJack Altman3:38

      Yeah.

   7. JKJosh Kopelman3:39

      So in terms of a total cash return from an asset under management, total profit dollars generated-

   8. JAJack Altman3:44

      Yeah

   9. JKJosh Kopelman3:44

      ... like, the Blackstone model won. And Blackstone, by the way, created an epic business. I'm not, like, using this in any condescending term. They created the, uh, you know... But, but, but definite- definitionally, what they've done is basically bring down returns to the minimum acceptable level, try to generate consistency of those returns, and expand the asset class. So the bull case is that, like, what Blackstone did to private equity and other alternative asset classes, these, this new model is going to do, uh, in venture. The bear case is, uh, you know, and, and the story is still unfolding, so we have no idea what it, what it's going to be, but the bear case is you don't get twelve or fourteen percent return.

   10. JAJack Altman4:23

       You get, like, three percent return.

   11. JKJosh Kopelman4:25

       Or zero or negative, right? Like, if you look at the average venture firm, it's negative. And like, like, venture math is so tricky. Like, when you-

   12. JAJack Altman4:31

       Yeah

   13. JKJosh Kopelman4:31

       ... look at, um, like, both the duration that's increased, when you look at the total venture dollars, like, it's hard.

   14. JAJack Altman4:38

       So,

3. 4:39 – 10:49

   Venture Arrogance Score

   1. JAJack Altman4:39

      like, obviously you've thought about this a lot. What's your sort of bottoms-up way you think about a firm and its venture model and how it's gonna get there?

   2. JKJosh Kopelman4:47

      So I have spent a lot of time on it 'cause, like, we, we, every three years, we go out, and we have to size our own fund. Um, and, and so I, I, I've created [chuckles] something which I don't think I've shared publicly, but I've wrote inside First Round-

   3. JAJack Altman4:58

      Here we are, breaking the news.

   4. JKJosh Kopelman4:59

      [chuckles] It's, it-- let's call it the Venture Arrogance Score. All right? So you take a fund, say that fund is a seven billion dollar fund. Then you look and say... So you, you need two numbers to understand any fund's business model. First is, how large is the fund? Seven billion. The next is, what percent of a company do you think they'll own on exit? And so, like, are they gonna own thirty percent like they did twenty years ago, or are they gonna own eight percent or ten percent? And, like, today, it's trending to ten percent. Like, you know, Wizz, an amazing exit, right? Um, Sequoia owned ten percent. Index owned a little more. So like, and, and I would argue that, like, when you look at prices and the competitive nature, ten percent is, like, a safe assumption, but you could plug in... You know, you could do the math yourself. So if you have a seven billion dollar fund, and you're gonna own ten percent of the companies that you're in on average, you just figure out, okay, for each turn of the fund, that's seventy billion dollars, right? Like, you... The founders need to create seventy billion dollars worth of value in your basket-

   5. JAJack Altman5:58

      Yep

   6. JKJosh Kopelman5:58

      ... for your ten percent to be worth seven billion. So if you wanna... Now, if you're still aspiring for a four X gross, three X net, which is sort of what, like, the venture long-term aspirational goal was, you're now saying-... Okay, so for each turn of the fund, that's seventy billion, so call that two hundred and eighty billion dollars.

   7. JAJack Altman6:17

      Right.

   8. JKJosh Kopelman6:17

      And here's where the arrogance scale comes in, because say you raise that fund every three years, you know, that's roughly ninety billion dollars a year of exit value that you hope to extract out of the market.

   9. JAJack Altman6:28

      And how much is exiting total?

   10. JKJosh Kopelman6:30

       Well, like, the last decade was the best decade ever.

   11. JAJack Altman6:33

       Yeah.

   12. JKJosh Kopelman6:33

       One point nine trillion dollars total of US venture, and that includes pharma and everything, like semiconductors, so let's just include it all. Um, so that's an average of a hundred and eighty billion dollars a year. It's, um, a, a median of about a hundred. So if you sit down and say-

   13. JAJack Altman6:51

       But the outliers matter, so we'll take the aver-- so it's like you need to catch half.

   14. JKJosh Kopelman6:54

       You need to catch half. By the way, to my knowledge, there hasn't been a venture fund that has ever repeatedly caught over ten percent.

   15. JAJack Altman7:00

       Yep.

   16. JKJosh Kopelman7:00

       So you're saying that you and your fund, in this hyper-competitive environment with ten thousand funds and thir-- twenty thousand plus check writers, you are going to capture half of all venture value created every year for the three-year period in your fund just to generate that. And now, there are two obviously ways that could change. Number one is you could say, well, you know, for a seven billion dollar fund, if you're playing the Blackstone matter game, it's really about total cash returns, not alpha. So you could, like, reduce the four X gross to a three X gross, to a two X gross, or however you wanna do it, and figure out what that math is. Or you could say that exits are gonna go up. You know, like, AI is gonna unlock some big things in the total value, which is probably true. But like, even if you take during the last decade, when that one point nine trillion dollars came out, twenty twenty-one was the best year by far. You had over seven hundred billion dollars created that year. Even if you say that's the best year, you're still saying you're going to capture north of ten percent in that best year. And by the way, like, twenty twenty-three was like sixty billion dollars. [chuckles] So you're saying you're going... You know, you- you-- we invest in cycles. So, so I think that, like, for me, like, the, the, the venture arrogance is trying to figure out what percent of total value created by all founders anywhere in the United States you have to capture for your fund model to be successful.

   17. JAJack Altman8:19

       I mean, we kind of collectively all need the totals to go way up, or else the whole industry is not gonna make any money at this point, right?

   18. JKJosh Kopelman8:26

       Well, the whole in-- well, I don't think people invest in venture expecting the whole industry to make money. If you look at the median fund return, even, even j-- like, primitive times, like in the nineties, it was, uh... The, the, the median fund didn't return capital.

   19. JAJack Altman8:39

       Mm-hmm.

   20. JKJosh Kopelman8:39

       So like, this has always been a game of outliers. I think, though, the challenge-- like, we-- the, the difference here is that-

   21. JAJack Altman8:45

       But does the agg-- the aggregate returns, though, right? Like, if you invested in-- if you just bought the entire basket of venture-

   22. JKJosh Kopelman8:52

       No.

   23. JAJack Altman8:52

       -do you lose money?

   24. JKJosh Kopelman8:53

       Yes.

   25. JAJack Altman8:54

       You lose money if you buy the whole basket of venture?

   26. JKJosh Kopelman8:56

       Yes.

   27. JAJack Altman8:56

       So it's like you're trying to bet on a good poker player, and we all know there is a rake. It's that kind of dynamic?

   28. JKJosh Kopelman9:01

       Yeah, I... Yeah, I don't know if it's there's a rake. I think that, that the challenge is that, like, structurally, there has always been a power law. There's always been, like, a few funds. And now the question in today's world, does like, you know, do the benefits endure to the same funds as it always-- as it used to do? That's an unknown question. When you look at returns, we call-- I, I think we've differentiated between private equity and venture capital. Private equity is controlled, ve- much lower, go to zero risk. Venture capital is minority. We have labels for those type of investments. And even in venture, we have labels for pre-IPO, early stage, late stage, and all of those have different risk and return characteristics. What's interesting, though, is that as these... Like, there are funds that are pursuing the original bespoke venture model, and, and, and I'm not trying to pass judgment on either of these. And then there are funds that are pursuing the asset under management, like cash-on-cash game, not the IRR game, right? So scale, not alpha. We don't label them differently. And in fact, the funds that are out there raising these larger funds are almost raising on their, their track record of being one of the smaller funds. Um, and so, like, the question of what percent... And, and, and again, if maybe a two X is fine, but, um, instead of four X. But like, I think there's some combination of expected lower return because the source of capital is cheaper and ex- ex- expected, like, let's all hold on and, and, and make the bet together that the next decade is going to have eight trillion dollars worth of venture created in the US rather than two. And maybe that's fine also, but I don't, I don't see LPs actually doing the math and saying, "Okay, in order for this to work, what percent of all exits am I comfortable with? Am I comfortable with thirty percent?" We've never seen a fund do that over and over. "Am I comfortable with fifteen percent? Am I comfortable..."

4. 10:49 – 14:24

   Comparing fund models

   1. JKJosh Kopelman10:49

      A- and so-

   2. JAJack Altman10:49

      In the interest of looking to sort of like, resolve what sounds like a big problem, um, what-- one counter narrative or w- one sort of, uh, sort of, uh, when an argument to this could be there's a lot of private companies that are, that should be public, but are actually staying private, and they're gonna be worth hundreds of billions. And so you've got a bunch of companies like OpenAI and SpaceX and Stripe and Databricks and Rippling and so on. You have all these huge companies that are gonna be huge, and it's gonna be longer, and so actually you can put five hundred, seven fifty, a billion into these companies, and there is actually a way to three X a five billion dollar fund.

   3. JKJosh Kopelman11:30

      That makes a ton of sense. I would also say, though, as a counter to that, um, duration really matters. And again, maybe it depends if you're playing the cash-on-cash game or the IRR game, but like, let me give two funds. Okay, so the fund, ten-year life size. First five years, capital is called.

   4. JAJack Altman11:44

      Yep.

   5. JKJosh Kopelman11:45

      The next five, like one X gets it done evenly over the second five, and then, like, the, there's three, one X per year, so it's a four X fund. One X per year in years eight, nine, and ten. So it's a four X fund, back-end loaded in distributions. Twenty-seven point five percent IRR. Now let's take a same four X fund. Same four X fund, same five-year upfront capital, same one X that comes over the, the back end, but instead of ten years, say it's eighteen. Not twenty, but eighteen. Years one through eight, no returns. One X returned nine through eighteen, and then one X on years sixteen, seventeen, and eighteen. That's a four... So four X fund's back-end loaded, that's an eleven and a half percent IRR, and it's a four X fund.... so, so now you sit down and say, "Okay, well, like we just said, maybe they'll accept lower than a four X. Maybe they'll accept a two X." Well, if a four X fund over eighteen years is, like, an eleven and a half percent IRR, what is a two X fund? What, like-- you know, I don't, I don't have my calculator, but I know it's less.

   6. JAJack Altman12:42

      It's not good. Yeah.

   7. JKJosh Kopelman12:42

      It's not big, and, like, maybe T-bills are a better risk-adjusted investment. Um, um, you know, and so, so I think, like, the, the argument that these companies are holding on for longer also means that you might have more duration risk.

   8. JAJack Altman12:54

      Right.

   9. JKJosh Kopelman12:55

      And that also is an IRR killer.

   10. JAJack Altman12:57

       Yep. If you had, like, a five billion dollar fund handed to you tomorrow, and you had to do your best with it, what would you do?

   11. JKJosh Kopelman13:03

       I don't know. Like, I, I, I don't know if I'd play the game, because I, I, I didn't sign up to play an asset under management game. Like, I signed up... Like, I think the, the earliest stage of venture, like, is, is-- I created a fund that, like, satisfies what I want to do, which is, like, invest at the imagine if stage, when founders are just saying, like: "Imagine if we could do this." Um, and I'm not looking to sort of play the access game, the pour lots of capital. N-not saying there's anything wrong with it.

   12. JAJack Altman13:28

       Yeah.

   13. JKJosh Kopelman13:28

       Like, you could-- like, founders need that product, like, LPs need that product. There's, like, there's no judgment there. It's just not the game I want to play.

   14. JAJack Altman13:35

       It's a different activity.

   15. JKJosh Kopelman13:36

       Yes.

   16. JAJack Altman13:36

       Do you think this... So this whole conversation we're having about return compression, professionalization, big funds, blah, blah, blah, it's very interesting to me as an investor. I think LPs should care a lot about it. Should founders care? Is there any reason or maybe, like, yeah, what-- if there are reasons, what are the reasons that a founder should care about this? Does it change the dynamics of working with those firms in any ways? Does it, does it matter at all, or is it just like: "This is all good, there's more money?"

   17. JKJosh Kopelman13:58

       I don't know. I don't think founders have to worry about it, like, to some degree. Like, did founders love it when there's more ca-...? Like, when SoftBank came out with a hundred billion dollar fund, that was a good thing for founders. When it went away, okay, the capital got filled elsewhere. But, like, I don't think it changes. And by the way, I don't think those VCs sit down and say: "I want to fund mediocre founders with mediocre returns." I think they're playing the same aspirational game, but they understand that, like, if you're deploying that much capital, returns are probably not gonna be the same.

   18. JAJack Altman14:23

       One of

5. 14:24 – 21:03

   The role of relevance in venture

   1. JAJack Altman14:24

      the things that has struck me is... Imagine two funds. One is a five hundred million dollar fund, and it does great, and it hits, like, a fifteen X. So it returns seven and a half billion dollars. LPs are super happy, GPs are hap- everybody's happy. There's another fund that's a five billion dollar fund-

   2. JKJosh Kopelman14:43

      Yep

   3. JAJack Altman14:43

      ... and it returns one point five X. It also returns seven point five billion dollars. Obviously, the returns are different. People have a different amount of happiness, but maybe the GPs kind of make a similar amount of money. But, um-

   4. JKJosh Kopelman14:54

      GPs made more in fees?

   5. JAJack Altman14:55

      Yeah, the GPs made more in fees, so maybe that kind of balances out.

   6. JKJosh Kopelman14:57

      [laughing]

   7. JAJack Altman14:57

      So I don't really know. Maybe everybody's equal with it. But what strikes me is the five billion dollar fund probably has more relevancy. Like, I think that firm, at least at a snapshot moment, probably is choosing what areas get capitalized. They're out and about. You hear more about them. They have more partners. There's more people. They're more in the mix. They're around more deals. You see them in the news more. They're choosing what areas get invested in, and they're deploying dollars. And so it seems like there's something twisted about that a little bit, but you've seen this play out a lot over twenty years, and so I'm curious to hear, like, a more nuanced discussion about this.

   8. JKJosh Kopelman15:38

      You're calling out a very real phenomenon. So look, in public markets, if you want to invest in public markets, anyone could access any stock, right? So, like, if I want to buy IBM or NVIDIA, I could buy that. There's no... The, the, the, the, there's no credential that's required to gain access, but unlike public markets, private markets are very different. Access is v- highly competitive, and so founders are going to judge based on who is a really active investor, who's super connected, who has other founders in their portfolio that could be helpful, who has a lot of experience because they've deployed a lot of company adjacent like... And so relevancy, as you define it, actually, like, it often creates access, and to some degree, like, I've long said, activity- in venture, activity begets activity. The more you write checks, the more relevant you are to other founders, the more founders refer you, the easier you have winning. There's the, a, an effect called the Matthew effect, which is based off of some proverb in the Book of Matthew where the, like, you know, to those who have, more will be given. Um, and, and it talks about how, like, compounding often happens based on, like... It accelerates advantages. Um, you know, in sports, people talk about the hot hand, right? Right. So like, oh, when Steph Curry is, like, on fire and, and, and sinking threes, there's the hot hand. It's actually called fallacy or phenomenon 'cause there's a debate.

   9. JAJack Altman17:02

      Yeah.

   10. JKJosh Kopelman17:02

       The hot hand fallacy is that, like, oh, like, because he sunk, like, he was three for three in threes, the next one has much better odds of going in. Like, there's proof either both ways. MIT just came out and said maybe there's a little proof. But in venture, it's a hundred percent true.

   11. JAJack Altman17:17

       Mm-hmm.

   12. JKJosh Kopelman17:18

       Uh, and the reason why is, like, ultimately, the reason Steph Curry makes fifty-five million dollars a year is because when he shoots, he hits a lot of them.

   13. JAJack Altman17:26

       Right.

   14. JKJosh Kopelman17:26

       Like, if Steph missed all of his shots or eighty percent of his shots-

   15. JAJack Altman17:29

       He'd get paid less. [chuckles]

   16. JKJosh Kopelman17:29

       ... he'd get paid less. But in venture, like, if I'm a fund and I'm stroking checks, I'm just hitting three, taking three after three, you get credit for the, for attempting the shot.

   17. JAJack Altman17:40

       Yes.

   18. JKJosh Kopelman17:40

       You don't get judged on whether that shot landed, right?

   19. JAJack Altman17:42

       Yeah.

   20. JKJosh Kopelman17:43

       So, so to some degree, while Steph's only gonna get paid-

   21. JAJack Altman17:46

       For sure

   22. JKJosh Kopelman17:46

       ... if his ba-- if his shots go in, some of these ventures get real compounding. And because of the venture, unlike private markets, there's the gossip mill. The speed of where, like, of where it's, like, a reputation for a firm or an individual can be created by activity-

   23. JAJack Altman18:01

       Yes

   24. JKJosh Kopelman18:01

       ... or destroyed by activity is super, super fast.

   25. JAJack Altman18:05

       There's also a dynamic of just, like, you are a part of the most important companies or you're not, and that doesn't include how many other investments did you make that did or didn't work out? What price did you pay, you know, to get into that investment? You're just... And so I-

   26. JKJosh Kopelman18:19

       So I, I agree with you there. The asterisk I'd say is, like, over what time period?

   27. JAJack Altman18:23

       Exactly.

   28. JKJosh Kopelman18:24

       Um, so, like, there was a period of time-... 2018 to 2021, where if I asked our founders, who are Series B and later, what funds you wanted the most in-- what, what, like, when I look at who'd they asked us to introduce them to the most? Tiger and SoftBank.

   29. JAJack Altman18:38

       Kind of a funny tidbit on that. There's, um... I have some, uh, some friends of mine said something along the lines when, like, you know, there were, there were a bunch of, um, firms leaking their returns, and, like... or they got leaked, let's say. I don't know how they got out, but, you know, these returns got leaked. Some of them look really, you know, good, some look whatever, but people are like: "Oh, man, wouldn't found- founders should just want the people who have the high returns." And I was like, you know, I'm still fresh enough off last, I'm like: Why, why would I want... Why do I want a VC with killer returns who's gonna give me a bad price and dilute me more? [laughing] I want the one with the one X, one point five X, who's happy enough to get by so that I can, you know-

   30. JKJosh Kopelman19:15

       So, but, like, so Ti- yeah, I agree, but, like, Tiger and SoftBank, twenty twenty couldn't have been more relevant. And so I think that you have a two-by-two grid of, like, relevancy and returns. So you could sit down and say, like, "If you have relevancy without returns, it's not enduring."
6. 21:03 – 26:36

   Small funds vs large funds

   1. JAJack Altman21:03

      Okay, so the dominant sort of venture theme right now, basically around these huge funds getting bigger and bigger, and I think, you know, we, we didn't talk about this right now, but I'm sure we'd probably agree that the prisoner's dilemma correct move is to just kind of keep scaling for those groups. And so that will be, like, the dominant thing. Most... You know, I saw some chart, you know, the top ten venture firms are now raising, like, a very large percentage of overall dollars, so that's the main thing. There's this separate, you know, thing of, you know, there's a bunch of small firms, small, let's say sub five hundred, sub seven, some number like that, that is like, small enough where you'd say, you know, they can still... The Venture Arrogance Score is not gonna be crazy, and they can still drive, like, old-school returns and things like that.

   2. JKJosh Kopelman21:44

      Yeah.

   3. JAJack Altman21:44

      In the face, though, of those bigger groups that have different incentives, can play the game differently, can therefore pay differently at a seed or an A, like, all these other things, what does that- where does that leave a firm like yours or mine or whatever, who is trying to basically exist in the, in the context of that? What's our dominant strategy?

   4. JKJosh Kopelman22:10

      Well, I think honestly, we're very aligned with our founders in that, like, our-- We only eat if our founders create exceptional wealth, right? Like, [chuckles] like if their founders are exceptionally successful, whereas, like, a lot of these other funds, like, they're making more in fees than, you know, than is ima- than was imaginable ten years from now. So I think, like, from an alignment perspective, it works incredibly well with founders in that, like, our whole focus is to, like, m- is to find ways to be the best potential partner to those founders, to help them create something massive, and not to settle for that three X or that four X return. You know, I think that... I remember going back to Tiger, how Tiger, there was a... 2021, they, they almost did an investment a day, every day. Um, they clearly did one every business day. I think it was three hundred and twenty investments that year. Um-

   5. JAJack Altman23:03

      That's a lot, yeah.

   6. JKJosh Kopelman23:04

      What?

   7. JAJack Altman23:04

      That's a lot.

   8. JKJosh Kopelman23:04

      That's a lot. Um, and they had a whole series of, we have all these consultancies and experts, et cetera, that- all that only scaled to the extent that they could raise their next fund. Um, and so I think that, like, to some degree, our, our, our, our approach is, like, we don't... We, we only try to be, like, just focused on what we could control. Could we be the best part- potential partner for the first two and a half years? Could we invest a meaningful amount of our fee stream into things that accrue value to our founders? Um, could we avoid the conflict that comes from sort of saying, like, from, from the founder thinking that we're gonna wanna pile tons of additional capital in, and therefore we're not truly aligned with them in trying to maximize the value for the next round, create an auction, you know, maximize the long-term, you know, either short-term value for the next round or long-term value?

   9. JAJack Altman23:54

      Yep.

   10. JKJosh Kopelman23:55

       Um, you know, but I, I'd say in general, this industry has gotten far more competitive for all funds, yours, yours, mine, any size fund.

   11. JAJack Altman24:03

       You've settled on doing something like seventy or eighty seed investments per fund cycle. Is that right?

   12. JKJosh Kopelman24:07

       That's about right, yeah.

   13. JAJack Altman24:08

       How did you get... Can you un- Can you explain a little bit about, like, why you concluded that? Was that just a preference thing? Did it just match the model? Did you have some assumption of, we're gonna hit about this many? Like, how did you think about getting to that sort of shape?

   14. JKJosh Kopelman24:20

       Yeah, I mean, it's a little bit about, like, um, we wanna have- make sure we have time diversification, so we, we, we aspire to invest over two, at least two and a half, but ideally three years. Um, we know that-... we're, we are ownership focused. Like, we, we, we are- we assume that we're going to get between twelve and a half and fifteen percent on the way in. We typically take pro rata, um, in the A. Um, and so, like, our model, if you do our math, it's like we're trying to end up with, you know-

   15. JAJack Altman24:46

       Seven or eight?

   16. JKJosh Kopelman24:47

       I, I'd say eight, eight to nine percent ownership on exit. You know, do we always end up there? No. Have there been times where we had fifteen or have there times we've had six? Sure. Um, but and so, you know, we look at our math and say, "That's one thing," and then you-- then we also just look at the mortality rate, the mortality rate of the industry, like the mortality rate from C to A, A to B, B to C, and we understand... Like, we've been doing this so long that, like, [chuckles] you know, it's like y- these, these startup founders are, like, running marathons, and there are so many that have great times at the third mile. [chuckles] There are so many that have great times at mile ten. And there are also, like, marathoners who sprain their knee at mile twenty-one and don't finish, just like we've had plenty of companies that have gone on to be worth... I think we've had more than a half dozen companies that were worth over a billion dollars that went on to be worth zero. So w- when you sit down and look at the, like, the mortality curve-

   17. JAJack Altman25:39

       It's like you need a basket that make it to a billion, and then a sub-basket's gonna make it all the way.

   18. JKJosh Kopelman25:43

       That's right. Like, you have to assume that there's going to be either founders that could have exited for ten billion, but choose to exit for one, founders that you thought were going to exit, but they hit a curveball and, like, the market shifts or changes. Um, and then it also r- matters, by the way, when you exit. Like, to some degree, when a company exits matters more. Like, I, I don't think that people understand the, the hyper-concentration of, of, of returns-

   19. JAJack Altman26:13

       Mm-hmm

   20. JKJosh Kopelman26:14

       ... in our industry. Um-

   21. JAJack Altman26:16

       Well, it, they're very unintuitive because, uh, you always forget that you can add another zero, and it's, like, very hard to believe it until... You know, it's like, um, I, I can't remember who I was talking about this with yesterday, but, um, basically, it's like, you know, an eight billion dollar outcome is, like, so outlier, but eighty is also possible.

   22. JKJosh Kopelman26:33

       Yep.

   23. JAJack Altman26:33

       And, like, eight hundred is also possible. [chuckles]

   24. JKJosh Kopelman26:35

       [chuckles]

7. 26:36 – 33:57

   Making money in disequilibrium

   1. JKJosh Kopelman26:36

      Yeah, and like, the, the har- every industry has a harvest cycle, but I think VC is, is- has a hyper harvest drive cycle. And I use "hyper" intentionally 'cause it's, like, hype-driven and hyper harvest. Some data from one of our LPs... I went back to an LP who's been in the business for a while. If you became a VC in March of 1980, and you had a twenty-year career to March of two thousand, which was the dot-com crash, and I asked, like, "What percent of your profits would have been generated in each year?" Right?

   2. JAJack Altman27:02

      Almost all in 'ninety-nine.

   3. JKJosh Kopelman27:04

      [chuckles] So 1% a year for the first seventeen years, eighty-three percent in the last three.

   4. JAJack Altman27:09

      Uh-huh.

   5. JKJosh Kopelman27:09

      And why is that important? 'Cause the last three, it was universally acknowledged we were in a bubble.

   6. JAJack Altman27:14

      Everybody knew it.

   7. JKJosh Kopelman27:14

      Oh, like the Fed Chair, irrational exuberance, Pets.com sock puppet, like, total irrationality, and if you had said, "Oh, no, we're in a bubble," and you said, "I wanna sell and exit now," you would have given up eighty-three percent of your profit. You would've made seventeen percent of the total returns you could have made. Fast-forward to First Round. We've been in business twenty years. We've generated over ninety percent of our return in a thirty-six-month period of time-

   8. JAJack Altman27:37

      Mm-hmm

   9. JKJosh Kopelman27:38

      ... and, um, during our twenty years. So and, and, and it, so we don't make our money in equilibrium. Like, you, you, you have the fear cycle, but you also, like, we don't even make our money in the greed cycle. We make our money in the extreme fucking greed cycle. We make our money when, like, Chamath is on CNBC every week, pumping a different SPAC, when there's, like, NFTs and crypto and corporate venture. Like, for the last forty years, all of those returns don't come from equilibrium. They come from, like, irrational disequilibrium, and the hardest thing that I've learned is, like, [exhales] is having the discipline to hold on and not sell.

   10. JAJack Altman28:16

       Until then.

   11. JKJosh Kopelman28:17

       Yeah, like we had a company that we partnered with the founder of Looker.

   12. JAJack Altman28:20

       Mm-hmm.

   13. JKJosh Kopelman28:20

       They had a great exit in twenty seventeen, twenty eighteen. They sold to Google, I believe, for two billion dollars, and it was, like, a good multiple. It was, like, eighteen to twenty x, like, next t- next twelve months ARR. Had that company held on for three years, same numbers, just different multiple, that c- company, Looker, would... The same exact company, just the multiple expansion, that two billion would've been eight to ten billion.

   14. JAJack Altman28:42

       Wow.

   15. JKJosh Kopelman28:43

       Just, just diff- the difference between twenty twenty-one and twenty eighteen. Um, and so, like, having the strength to hold on for a founder and a funder, like, you know those movies, like, where you see the, like, the war movies with the people in the foxhole and, like, the, with the bayonets and everything?

   16. JAJack Altman28:57

       Yeah.

   17. JKJosh Kopelman28:57

       Like, and there's some, like, the commander say, like, telling his troops as the enemy approaches, like-

   18. JAJack Altman29:01

       And it's like, "Hold on," and you're like-

   19. JKJosh Kopelman29:02

       "Hold!"

   20. JAJack Altman29:02

       ... "No, you got- "

   21. JKJosh Kopelman29:02

       "Hold!" And, like, there's someone who's gonna trigger-

   22. JAJack Altman29:04

       You know, they're so close.

   23. JKJosh Kopelman29:04

       And like-

   24. JAJack Altman29:05

       Yeah

   25. JKJosh Kopelman29:05

       ... and they're like, "Hold," and you, you wanna hold on till they get very close, that you can hit as much as you can-

   26. JAJack Altman29:10

       Yeah

   27. JKJosh Kopelman29:10

       ... but you don't wanna wait too long till you get overrun.

   28. JAJack Altman29:12

       Yeah.

   29. JKJosh Kopelman29:12

       And, like, and in venture, like-

   30. JAJack Altman29:14

       It's crazy
8. 33:57 – 43:17

   Overlooking margin superiority

   1. JAJack Altman33:57

      before we started this, we were just chatting about, uh, the Marc Andreessen "Software is Eating the World" piece, um, which you reminded me was, like, written, like, around when I graduated from college or something like that.

   2. JKJosh Kopelman34:06

      Yep, it was-

   3. JAJack Altman34:06

      Yeah.

   4. JKJosh Kopelman34:07

      Uh, like, depending on when this comes out, it was probably about five thousand... Literally, I Googled it this morning, five thousand days ago. So you had just graduated Princeton.

   5. JAJack Altman34:14

      I love that. And so what, where are we now? So tell, talk to me about, like, that. Did it play out? What do you see it as?

   6. JKJosh Kopelman34:20

      Yeah, so what's interesting is I think that was one of the canonical pieces that shamed, like, that changed almost the entire industry's framing. Like, you could almost look at what was the venture industry before it? We funded software companies. And what's the venture industry after it? And, um, and so many people, like yourself included, anyone yourself [chuckles] you know, or younger, only knows the world in which software is eating it. And to a large degree, software has eaten the world. What's in-- like, you know, like, if you, y- y- it's massively impactful. Um, and he was right in so many dimensions. What's interesting is, if you read that actual piece, um, it mentions the word software fifty-two times. And like, the basic jes- gist of the piece was like: Look, software ate advertising. Look at Google, look at Facebook. Software ate this, and it g- has, like, ninety-plus percent margins, so it got software like margins. But what's interesting is, while the word software appears in the piece fifty times, the word margins is just assumed and appears there once. So it's like, the assumption is that when software eats an industry, it has superior margins. Um, and as a result, like, the whole industry accepted that, 'cause it made sense. We saw it. Therefore, we expanded, as an industry, our aperture as to what's fundable. Like, previously, a, a clinical care company, whether it's, like, smoking cessation, weight loss, like, physical therapy, ne- with, with human practitioners, never would have been a venture business. Uh, a bank wasn't venture fundable. An insurance, m-- a health insurance company wasn't in... Uh, a sneaker company, a shoe company, a salad company, none of these companies were venture fundable before. Um, and but because the belief that software is gonna eat the world, it, it expanded the definition. What's interesting is, at least to date, there are clearly exceptions, there are clearly plenty of companies where software ate it, and they, they generated meaningful margin superiority.

   7. JAJack Altman36:06

      Mm-hmm.

   8. JKJosh Kopelman36:06

      But by and large, the, the margin test hasn't played out, which is why you saw a lot of those-

   9. JAJack Altman36:12

      You're saying most industries have the same margin they always did?

   10. JKJosh Kopelman36:14

       E- even with, uh, with the, with the higher R&D software expense, right? So, like, you saw sneaker companies building national brands. The founder did everything he expected. Like, you had a pair of Allbirds, I had a pair of Allbirds. It was worth four billion dollars, 'cause it was valued differently.... but ultimately, when you value it as a shoe company, it's like fifty million today. And the s-- and by the way, I'm not throwing stones at anyone. Like, we funded, like, tons of companies that have, like, in insurance, in all of these areas, where we believed that they would get meaningful margin superiority. Therefore, you get meaningful multiple superiority, and that's why we could justify investing in these at software prices.

   11. JAJack Altman36:51

       Yeah.

   12. JKJosh Kopelman36:51

       To date, you haven't seen the margins that justify the superior economics. I think that's a host-- that, like, we're still working through that. When you look at the twenty twenty, twenty twenty-one funding excess, you have a lot of companies that were funded at a margin expectation of margin superiority, which maybe now have like slight superiority or equivalence, but as a result, like, the multiple is gonna go back to the traditional industry that they're in. Like, is it-- are you an insurance company or are you a software company?

   13. JAJack Altman37:23

       Right.

   14. JKJosh Kopelman37:23

       And they're just-- they're, they're, th- th- they're-- it's almost like a lost six to eight years to just catch up while the company continues to grow, if they can grow, to catch up. Now, there's plenty of footnotes, like, and asterisks. Like, there are companies where they have gotten massive margin superiority. There's the AI asterisk, which is like, now finally, with all of the productivity gains of AI, you might massively see margin superiority come when software eats the world. But like, historically, like, just when software eats... Well, like, when the world eats software-

   15. JAJack Altman37:54

       Yeah.

   16. JKJosh Kopelman37:55

       -it hasn't-- I think our assumption treated it as gospel. I know my firm did, and almost every other firm, that you would get margin superiority and multiple- and valuation superiority, which hasn't translated.

   17. JAJack Altman38:05

       Was margin superiority the only thing, like, you know, 'cause as an example, Eight Sleep.

   18. JKJosh Kopelman38:13

       Yes.

   19. JAJack Altman38:13

       You know, they're... Yeah. Imagining Eight Sleep without software is a goofy experience. You could do it.

   20. JKJosh Kopelman38:19

       Yeah.

   21. JAJack Altman38:20

       It'd be all right.

   22. JKJosh Kopelman38:20

       Love my Eight Sleep.

   23. JAJack Altman38:21

       It's definitely better, and maybe the software is not helping their margin, but it's helping the product experience.

   24. JKJosh Kopelman38:26

       Totally agree.

   25. JAJack Altman38:26

       So we're getting more, we're getting more value-

   26. JKJosh Kopelman38:28

       Totally agree, but like, but go back to the examples even used in that piece, right? He, he says, like, Electronic Arts and Nintendo are stagnant and Zynga is the future.

   27. JAJack Altman38:36

       Yeah.

   28. JKJosh Kopelman38:36

       Like, Zynga had a very good exit. They raised two billion dollars in private and public markets, exit for twelve.

   29. JAJack Altman38:41

       Yeah.

   30. JKJosh Kopelman38:42

       But like, those two stagnant and stale companies, Nintendo and Electronic Arts, are, are like, are, are worth twenty times that amount, like a hundred and thirty billion dollars.
9. 43:17 – 49:02

   First Round’s strategy

   1. JAJack Altman43:17

      relative to your opportunity set. Meaning, like, most great seed firms evolve into multi-stages and growth firms and all the rest of it, and I know that, you know, you do it... You've done this because from the beginning, this is what you love, and, like, the, the early stages are what light you up.

   2. JKJosh Kopelman43:34

      And my partners as well, because they, they opted into this mission as well.

   3. JAJack Altman43:38

      First Round is on one end of the spectrum of, uh, of sort of this focus. Another firm, like First Round, that I also respect deeply, is, like, Founders Fund, and one of the things they've done incredibly well is just, like, real concentration. And you also-- And, you know, in order to concentrate in big ways into your winners, first, you gotta have big winners that can absorb that kind of capital. But you have had that, and you've also had the, you know, infinite LP demand and all the rest of it. Have you ever thought about doing that and concentrating hard into your winners? Because it's right there. f- I'm just thinking on the back of this whole conversation, you've got all these ingredients. It's sitting right there for you. You let some growth firm come take this thing that you've worked on for, you know-

   4. JKJosh Kopelman44:22

      Well, the founder worked on it, right? Like-

   5. JAJack Altman44:23

      Yeah, but, but, you know, of course.

   6. JKJosh Kopelman44:25

      Uh, so yes, have we thought about it every three years when we raise another fund? And, and have we increased our, our reserves for later stage? Sure. So like we, you know, in the beginning, the majority of our fund was initial investments. Now, the majority of the fund is some level of reserve for follow-on. I don't know if we're good at it. Um, I don't... Like, I think that I could say to a founder right now, um, that I think there are few firms as good as First Round to be your partner for the first twenty-four to thirty-six months. The hunt for, like, massive product-market fit, building culture, building team, figuring out pricing, positioning, all, like, all of that stuff, I feel like that's our power alley. I don't know if we would be the best partner for founders at the later stage, and maybe we're just, like, a dumb provider of capital. Um, but for us, like, I, I just feel that our-- and I also feel alignment with the founders.

   7. JAJack Altman45:17

      There's that.

   8. JKJosh Kopelman45:18

      Be- which is that, like-

   9. JAJack Altman45:19

      You're never on the other side of a new deal.

   10. JKJosh Kopelman45:21

       And the founder doesn't have to, like, feel like they're pitch-- they have to get-- only give me good news and bad news because they want the big cheque. I don't have the big cheque.

   11. JAJack Altman45:27

       That is a big problem, actually. This is actually a big problem with the multi-stages in general, is now that they're so big, like, they never get to their target own- There's no such thing as getting to your target ownership once your fund is big enough. [chuckles] You'd always rather have more. There's no such thing. So any great, large, multi-stage firm is always asking, "Should I just... I have thirty percent, why, why would I not want forty if I think this is gonna be huge?" They always do want it.

   12. JKJosh Kopelman45:51

       Yep.

   13. JAJack Altman45:52

       So I do think that is a tricky thing for founders to navigate.

   14. JKJosh Kopelman45:54

       Yeah, and, and I agree, but I also th-- and, and maybe our, maybe we're suboptimizing. Like, if I sit down and look at the decisions that we had to have created a lot of money, there are clearly the companies we missed on, right? Like, we missed on Airbnb, we missed on others. Um, but there are also companies, like, right up there, which are on, like, the Series B or C round [chuckles] in an Uber, Roblox, Square, and all these other companies that we were in. Um, I think there's something about the purity that speaks to our mission, that speaks to our founders, the alignment that comes from it, and like, to some degree, like, I didn't set out-- when we created First Round, we didn't set out to say: How do we build an institutional fiduciary investor? We said, like, the imagine if stage, when a founder is just, like, looking at the world, seeing something different, saying, "Imagine if..." Those are two powerful word-- in fact, the most powerful words probably ever spoken, right? Not just in business, but like, imagine if no taxation without representation. Imagine if all children... Like, social movements, government, everything starts with a founder saying those two words. And so for me, what excites us is, like, the stage where we get to, like, be partners in imagination. Um, and, and to the degree that we are leaving money on the table by not like... I'm okay with it.

   15. JAJack Altman47:10

       You started two companies before First Round, is that right?

   16. JKJosh Kopelman47:13

       Three.

   17. JAJack Altman47:14

       Three.

   18. JKJosh Kopelman47:14

       Yeah.

   19. JAJack Altman47:14

       This is your fourth, kind of, I mean-

   20. JKJosh Kopelman47:16

       Yes.

   21. JAJack Altman47:16

       Does it feel, now that you've, you know, you've really been doing it, and you've been through... I mean, I hope, hopefully, it's got many more than twenty years to go in the future, but you've definitely really done it, and, um, does it feel qualitatively similar, or is it d- does it just have a different texture than building a company?

   22. JKJosh Kopelman47:35

       So there's a lot that's similar, right? Like, I believe that we're in a very competitive industry. We [chuckles] we have customers, our founders, we have investors, our LPs. We have a product that we need to put out to win. Um, I'm in sales, [chuckles]

   23. JAJack Altman47:50

       Yeah.

   24. JKJosh Kopelman47:51

       You know, like, so a- and, and I also think, like, like, in startups, you're never done inventing. Like, the best founders are both inventing and executing, and so I think First Round today is very different than it was five years ago, and ten, and fifteen years ago, and I think First Round, five, ten, fifteen years from now will be very different. So I like the canvas and the ability to sort of still feel like the hand on the paintbrush, um, and create our own imagine if. Um, what's different, though, is, um, the way that you create value is, um, uh-... you create value in partnership with other people, um, you create value, y- y- the KPIs are really different. Like, when you were an operator, you knew weekly, monthly numbers. You felt like you did something, and you saw a result, and you could look at cause and effect in very short term. I think in venture, like, it's such a long game-

   25. JAJack Altman48:44

       Yeah

   26. JKJosh Kopelman48:44

       ... and there's so many like, interim points along the way. That's what feels different. But the, the concept of like, I'm trying to build something, I'm trying to build a culture, I'm trying to build something differentiated, uh, uh, like trying to find a hole in the market, um, uh, that I still enjoy, and I think that's like a similar feeling.

   27. JAJack Altman49:01

       Can

10. 49:02 – 56:49

    Operating like a company

    1. JAJack Altman49:02

       I ask you about Brett and his role a little bit?

    2. JKJosh Kopelman49:04

       Sure.

    3. JAJack Altman49:04

       Okay, so one of my closest friends is Brett Person, who, uh, does a role at First Round, which is pretty unique, I would say, which is that he's a, a full partner, not investing, and I think very few firms have had the courage and foresight to create that kind of role. Can you talk about why you have that? And 'cause to me, it's one of the things that creates such a lasting durability, but, I'm, I'm biased.

    4. JKJosh Kopelman49:32

       Yeah, I think, I think we stumbled into it, um, and it was pr- it's been one of the most impactful things we could have. So Brett started as an intern.

    5. JAJack Altman49:40

       Yeah, can you... And also, I want you to describe what the role is in your word, 'cause I've actually never heard you describe it.

    6. JKJosh Kopelman49:44

       Sure. So I think, like, you know, when you look at like, most venture firms just operate like investors. We're a group of investors that sit around a table, make investing decisions. Um, and as a result, most venture funds are very poorly run. Um, [chuckles] right? Like, there is no strategic planning. There is no R&D. There is no, you know, like, y- y-

    7. JAJack Altman50:05

       Yeah, like if one of your startups ran like the most venture firms-

    8. JKJosh Kopelman50:07

       It's, it's-

    9. JAJack Altman50:07

       -you'd be like, "What are you doing?"

    10. JKJosh Kopelman50:08

        Like, yes! Like, like, if you sit down and say, like: How do we create our value? We create our value, like, in many ways, like, a large part of the value, even though we have- we- I have an incredible team that is working hard every day to help our companies win. Like, so much of the value creates- gets created just by, like, the way we make decisions.

    11. JAJack Altman50:24

        Mm-hmm.

    12. JKJosh Kopelman50:24

        Yet, most venture funds, like, don't even think about decision-making as a product. They're like, if Amazon deleted every customer database once a week, it would be malpractice. Their valuation would, like, drop in half. But like, every venture firm each week gets together, has, like, a great IP, like their discussion, etc., and just walks away. And like, it's not catalogued anywhere, it's not learned from anywhere. Like, so I think, like, what we believe at the firm is that, like, we wanna operate like a company. We have products, we have experiments, we have, like, sprints and cycles, we have engineers that are building things. Um, and Brett runs all of that. And by the way, he also sits in on our investment team, 'cause being around for, I guess, eighteen-plus years, he has-

    13. JAJack Altman51:03

        I mean, you also probably have to, to do the other stuff well.

    14. JKJosh Kopelman51:05

        That's right.

    15. JAJack Altman51:06

        There's no other way.

    16. JKJosh Kopelman51:06

        That's right. So I think for us, like, the way we can operate as a company is to have, like, a CEO. Like, um, um, and, and Brett basically fills that role. It's someone... Like, and there's a difference between a maker schedule and a non-maker, like, right? Like, you know, you and I, a founder, there's a round happening, we have to jump on it. The ability to sort of sit and think, the ability to, like, experiment with, with products, whether it's first-round review, whether it's our angel track, whether it's our product-market-fit method, whether it's sitting down and saying: How could we help founders, like, raise their next round, or what product could we build to do that? And so thinking, doing customer discovery, thinking in terms of product-

    17. JAJack Altman51:44

        Bridgewater does this. There's like, you know, when you join Bridgewater, there's like, you know, there's the investment side, there's the management side, and it's like our, our only product is the way we make decisions, and so we're going to observe each meeting, we're gonna, like, give ourselves feedback on the quality of that meet. It, you know, because you're not making a piece of software, you're not making a physical product, so what else do you have?

    18. JKJosh Kopelman52:03

        And I think that in hindsight, when I look back at decisions we made X years ago, memory, memory is such a bad artifact to, to rely on.

    19. JAJack Altman52:11

        That is one of the things I wonder about, is 'cause you don't get the feedback for so long.

    20. JKJosh Kopelman52:15

        Yeah.

    21. JAJack Altman52:15

        And so if you go back, you know, like seven years ago in that meeting, we passed for this erroneous reason-

    22. JKJosh Kopelman52:20

        There's a lot of learning.

    23. JAJack Altman52:21

        There's a lot of learning, I guess.

    24. JKJosh Kopelman52:22

        There's a lot of learning. And, like, so one of the things we do, like, right, like, a, uh, we'll prepare, you know, the point partner will prepare a write-up in advance, share it with the other partners. The founder will come in, and h- we'll, we'll, we'll, we'll talk about the opportunity in themselves. And then after they leave, we actually created a thirty-six-question rubric that every partner, every investor at First Round, answers on their laptop prior to conversation. So p- prior to getting any outside bias, to understand what the senior partner says, or the junior, and they answer all thirty-six questions. So now every partner has to do their job, which is, like, state their point of view. And then we have a facilitated conversation where you're actually going, like, having a, like, trying to find not the points of agreement. We all think the market's great, we don't need to talk about it. But like, if two people, really smart people who I view, I, I chose as partners, one of them thinks the market is great, and one of them thinks the market is awful, like, that is a really juicy topic. And, and the other thing is, it's great for, like, you're doing a case study almost every time. Every partner now gets to see what every other partner thought in thirty-six attributes on the founder, on the problem, on the product, on the, on the market dynamic, on the traction to date, all of those things. Um, and it, and it just creates a, a fabric for real robust conversation, and it also creates a game tape to be able to look back on and say, "Huh, what did I not see?" Or, "What did someone see in the meeting, but they got outvoted," right?

    25. JAJack Altman53:46

        Have you ever experienced a downside of running the firm this analytically, or do you think it's purely a positive, it just takes a lot of work?

    26. JKJosh Kopelman53:54

        I don't think... We're not trying- I'm not trying to say we make decisions by algorithm. I'm just saying we capture-

    27. JAJack Altman53:59

        Yeah

    28. JKJosh Kopelman53:59

        ... the root of our decisions, right? Like, so does it take time? Sure. Maybe it, you know, maybe it slows the process down, and there are some opportunity costs there. It, it might cost us some partners who are not good at verbalizing. Like, if a founder, if, if someone says, "I just think this is an amazing founder," they're spiky.

    29. JAJack Altman54:16

        Somebody who's high intuition but can't defend what they think is-

    30. JKJosh Kopelman54:19

        Yes, like a black box AI, which, who, who says the answer is X but can't show their work-
11. 56:49 – 58:55

    Future of First Round

    1. JAJack Altman56:49

       It also feels like it's set up for the future. Maybe that's, like, a topic, uh, we can, we can wrap on is, um, when you think about what you aspire for First Round, are you at a place where you're now, like, "We found our zone, and now we just want to be... It's Jiro Dreams of Sushi now, and we just want to be perfect at this?"

    2. JKJosh Kopelman57:08

       [chuckles]

    3. JAJack Altman57:08

       "And this, 20 years from now, the success case is that First Round looks a lot like it does today, but we've just had exceptional funds," or is there, like, a, is there, like, a forever game and a direction that you're not there yet on? Like, what's-

    4. JKJosh Kopelman57:21

       Yeah, I think, I don't think in this industry you can be complacent. I don't think, I don't think in this industry you could say, "I've unlocked it."

    5. JAJack Altman57:27

       There's no Jiro?

    6. JKJosh Kopelman57:28

       There's no Jiro. Well, well, the definition of what is good sushi will be very different and what the market wants and what the market needs five, ten years from now. So First Round twenty twenty-five is very different than First Round twenty fifteen than two thousand and four, and it would be rude to say, "We figured it out now." It'd be, like, wrong, hubris to say, "We figured it out now," like, "and ten years from now it's gonna look the same." Like, AI has totally transformed the way we do our job internally, and it's going to transform it in the future, and so, so I think what we've tried to create is an iterative company that invents and creates and is, like, deferring gratification to think, to look around corners and to say, "What do we wanna build in the future?" So I hope that's the machine we built, rather than a machine that could just crank out the great- like, the old... You know, you see these, like, '80s bands?

    7. JAJack Altman58:16

       Yeah.

    8. JKJosh Kopelman58:16

       That, like, you know, they're just sing- like, came out with- they had something, a great idea years ago, and they keep singing "Eight Six Seven Five Three Oh Nine," at like, and touring the country. Like, I don't think we could be an '80s band. Like, we can't just keep cranking out, like, what worked in the past. So I think what we've tried to create is, like, a process and a machine and a team and a culture that will evolve and grow to, to create the hits ten years from now, twenty years from now, and we don't even know what type of music that's gonna be.

    9. JAJack Altman58:46

       Yeah. That's amazing. All right, well, Josh, this was phenomenal. Thank you for making the time for this.

    10. JKJosh Kopelman58:51

        No, thanks so much. This was a lot of fun. [upbeat music]

Episode duration: 58:55