Silicon Valley Clones and Jersey Drones: Decoding the Signals with Nicole Wischoff | E2061

Jason and Alex kick off the show (0s)

• Drones are emerging as a topic again, particularly due to numerous drone sightings in New Jersey over the past month, sparking various theories (0s).
• The situation has become a complex information space, involving conspiracy theories, distrust in the media, citizen journalism, and politics (18s).
• The hosts, Jason Calacanis and Alex Wilhelm, are discussing the topic as part of their show "This Week in Startups" (1m25s).
• Jason Calacanis invests in 100 startups a year and hosts two podcasts, "This Week in Startups" and "All In" (1m27s).
• Alex Wilhelm is Jason's co-host on "This Week in Startups" and is known for his work at TechCrunch and X.com (1m43s).
• The show will continue to be recorded through the holidays, with two live shows scheduled, and may include a "Twisty Awards" segment (2m14s).
• Drones were previously a major investment category and startup space, but interest declined after DJI took over the market (2m33s).
• The recent drone sightings in New Jersey have captured people's imagination and are the starting point for the discussion (2m29s).

Government reactions to drone sightings (3m3s)

• Drone sightings in New Jersey and surrounding areas have been reported for about a month, but the issue has gained more attention recently (3m4s).
• The Department of Defense (DoD) has stated that the drone sightings are not related to the government, to their knowledge, and do not pose a threat (3m25s).
• The FBI has suggested that many of the reported drone sightings can be attributed to people misidentifying aircraft (3m31s).
• Available footage of the alleged drones, including grainy cell phone footage, is not compelling evidence of anything highly nefarious (3m40s).
• The possibility of the drones being UFOs (Unidentified Flying Objects) related to aliens can likely be ruled out (3m58s).

Theories and politicians' reactions to the drones (4m2s)

• Theories about the drones over New Jersey include misidentification, military or government phenomenon, commercial or research activities, hobbyist and copycat, conspiracy theories, and adversaries from other countries (4m47s).
• Some conspiracy theories suggest that the drones are part of a Project Blue Beam, a plot to facilitate a totalitarian world government by destroying Arabic religions and replacing them with a new age belief system involving fake alien invasions or extraterrestrial encounters (5m39s).
• The idea of Project Blue Beam originated from a conspiracy theorist named Serge Monast, who promoted the theory from 1945 to 1996 (5m47s).
• Despite the various theories, it is likely that there is a boring explanation for the drone sightings, and it is possible that someone is doing something with drones over the skies in New Jersey, but the exact purpose is unknown (6m43s).
• The number of drone sightings implies that there is some involvement, but it is unclear what is happening, and it is possible that people are doing copycat drone flyings and misidentifying airplanes, star clusters, or satellites (6m34s).
• Politicians are getting involved in the discussion, and the information landscape is complex due to the presence of conspiracy theories, distrust in the media, citizen journalism, and politics (8m21s).
• The situation is a test of what people believe about reality, and various mental models can be applied to understand what is happening, including the possibility of cloud seeding drones or surveillance drones (8m50s).
• The Department of Defense (DoD) has stated that the drones are occasionally getting closer to military installations than they would like, but this is not a new or shocking concern (9m3s).

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Official statements on drone sightings (10m48s)

• Senator Chuck Schumer is pushing for answers amidst the recent drone sightings, implying that even at his high level in government, there is a lack of knowledge about the situation (10m55s).
• The FBI and the Department of Homeland Security (DHS) have held briefings with government officials, but according to US Representative Josh Gottheimer, a Democrat from New Jersey and a member of the House Intelligence Committee, the FBI and DHS are not providing enough information to the public (11m14s).
• Donald Trump stated that the government knows what is happening with the drones, where they came from, and where they went, but for some reason, they do not want to comment on it (11m38s).
• Trump also mentioned that the drones were spotted near his golf course in Bedminster, and he decided to cancel his trip there (11m58s).
• Trump declined to answer whether he had received intelligence briefings on the drones, saying "I don't want to comment" (12m7s).
• Trump's statement suggests that the government and the military may know more about the drones than they are sharing with the public, but he did not provide any concrete evidence to support his claims (12m29s).
• Trump's comments were seen as typical of his self-promotional style, and his decision not to comment on the intelligence briefings raised questions about what he might know about the situation (12m41s).

Speculation on drones' radiation detection capabilities (13m34s)

• The possibility of drones being used for radiation detection has sparked curiosity and led to research on the topic, with the idea that drones flying at low altitudes with certain sensors could potentially sense radiation (13m55s).
• There is a fear of a rogue missing nuclear device, possibly from Ukraine, Russia, Pakistan, or other countries that have sold their nuclear technology to nations like Iran and North Korea (14m8s).
• The idea of a rogue nuclear device being loose in the United States for the past 50 years is considered plausible, and it is also possible that a nuclear bomb could have been implanted and hidden in a basement somewhere in Russia or China (14m24s).
• The size of tactical nukes makes it seem feasible that someone could hide a nuclear device, giving rise to conspiracy theories about the possibility of a hidden nuclear threat (14m48s).
• A drone expert, John Ferguson, CEO of Saxon Aerospace, has shared his assessment of the situation in a TikTok video, sparking speculation and interest in the topic (15m12s).

TikTok insights and Swiss startup Arctis Radiation Detectors (15m20s)

• In the 1980s, Ronald Reagan dismantled the nuclear program, resulting in over 80 nuclear warheads going missing in Ukraine (15m21s).
• A gentleman claimed to have physically touched a nuclear warhead from Ukraine that was headed towards the United States, but his warnings to the government were ignored (15m33s).
• Nuclear warheads can sometimes go missing, especially when a major government collapses, and there have been instances of lost or missing nuclear weapons, materials, or batteries (16m4s).
• The possibility of radioactive material entering the US from the Eastern Seaboard is plausible, and drones could be used to detect such material (16m27s).
• Drones are a more practical and quieter alternative to helicopters or planes for detecting radiation, especially at lower altitudes (16m43s).
• A Swiss startup called Arctis Radiation Detectors uses drones to detect radiation and has raised $15 million in capital (17m52s).
• Arctis' radiation detection drone can map an area in a single 20-minute flight and is 50 times more sensitive than typical drone-based detectors (18m13s).
• The system is used for gamma radiation detection in ports and security settings, and the drones can fly over containers to detect radiation (18m34s).
• The theory is that the drones in New Jersey could be searching for loose radioactive material, possibly from a Ukrainian nuclear warhead (19m15s).
• If there is a 1% chance of a Ukrainian nuclear warhead being in New Jersey, the government should be more open about it, and citizens should take precautions (19m36s).
• If the government suspects a small chance of a nuclear threat, they should inform the public, and citizens should consider taking a precautionary vacation or leaving the area (20m1s).

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Personal reactions and media aspects of drone sightings (21m52s)

• When people have drones flying over their houses, it becomes a personal concern, making them think about the risks and what they would do to protect their families, especially if they have young children (21m53s).
• A 1% chance of death is unacceptable for some people, especially when it comes to their children, which is why they might avoid certain activities or situations that could put them at risk (22m23s).
• Some people might be more cautious than others due to their personal circumstances, such as having children, and would avoid activities like flying in small planes, hiking, scuba diving, or riding motorcycles (22m35s).
• The assumption that "it won't happen to me" is a common element in how people think about risk, but when drones are flying over their houses, it makes the risk more personal and closer to home (23m25s).
• Social media algorithms play a significant role in amplifying stories like drone sightings, making them more widely known and discussed (23m52s).
• Without social media, it's unlikely that the story of drone sightings would get as much attention as it does, and in the past, it was easier to control the narrative and contain situations like this (24m9s).
• With the widespread use of social media, people need to become more media-savvy and learn to handicap situations, think probabilistically, and stitch together facts to understand what's happening (24m50s).
• There are tools and companies that monitor drones, including satellite companies, radar companies, and camera companies, which can help local police, military bases, and airports track and identify drones (25m4s).
• Recreational and commercial drones can pose a significant risk, especially near airports, and there have been instances of drones being used for malicious purposes, such as dropping grenades on soldiers (25m29s).

Startups in drone detection and geopolitical implications (26m12s)

• Drone detection is a growing category, with multiple startups working on the technology, including PR Dynamics, which uses sound waves to detect drones, and Skydio, which was sanctioned by China for providing drones to Taiwan's fire department (26m14s).
• Robin Radar Systems is another company in the space, offering mobile drone detection systems that can be mounted on trucks to track rogue drones and unauthorized drones surveilling mobile forces (27m2s).
• Apollo Shield, a Y Combinator company from 2016, is also working on anti-drone technology, highlighting the growing need for countermeasures against drones (28m1s).
• The development of drone detection and countermeasures is driven by the increasing use of drones for malicious purposes, such as terrorism and assassination attempts, and the need for air traffic control-like systems to track and manage drone activity (28m46s).
• The lack of widespread adoption of drone detection technology is surprising, given the potential risks and the existence of air traffic control systems for manned aircraft (28m57s).
• The growth of the drone industry has created opportunities for startups to develop countermeasures and detection systems, but also raises concerns about geopolitics and the potential for gamesmanship in the development and deployment of these technologies (30m23s).
• The use of drones for malicious purposes, such as dropping grenades on civilians, is a growing concern, and the development of effective countermeasures is critical to preventing such attacks (29m24s).
• The drone industry has many legitimate use cases, including construction inspections, photography, and entertainment, but the growth of the industry also creates opportunities for malicious actors to exploit drones for their own purposes (30m5s).

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American Security Drone Act of 2023 and government coordination (32m23s)

• A bill signed into law by President Biden prohibits government employees from buying DJI drones, which are made in China, due to concerns that they could be sending information back to China and potentially be controlled or taken over, posing a threat to national security (32m24s).
• The same concerns apply to self-driving technology and TikTok, with the possibility of the Chinese government using these technologies to create chaos or harm people in the US (32m55s).
• The American Security Drone Act of 2023 was incorporated into the National Defense Authorization Act of 2024, which prohibits federal agencies from buying or using drones made in countries deemed a threat to the US, including China and DJI drones (33m21s).
• DJI has a 73% market share in the US, making this bill a significant development for the drone industry, and potentially opening up opportunities for startups to develop and sell drones to the government (33m56s).
• The bill may lead to an increase in startups working on drones, which could be beneficial for national security and the development of the industry (34m18s).
• One theory is that the bill is part of a military exercise, which could be a plausible explanation, and the possibility of copycats or other malicious actors using drones for nefarious purposes is a concern (34m37s).
• The US government's system of shared power at the federal level and distributed power at the state level can create a less unified government, but it has worked reasonably well over the years (35m27s).
• The criticism of the US government's "patchwork of authorities" from people coming into power is surprising, as this system is seen as a feature rather than a bug, allowing for different branches of government to have different priorities and areas of focus (35m46s).
• The current approach to tracking military bases involves individual areas of policy or protection, with a more centralized approach requiring a stronger federal government, which seems contradictory to the trend of moving away from a strong federal government (35m58s).
• The effectiveness of government agency responses to situations is often subjective, with successes being attributed to the federal government and failures being blamed on the government, while issues like education and healthcare are often left to the states (36m14s).
• Having two options and switching between them can be beneficial in management, as it prevents stasis and calcification, and allows for adaptation and change (36m59s).
• The structure of companies like Facebook and Google can become too complex, with too many middle managers, and sometimes it's necessary to flatten the structure and have more decision-makers (37m10s).
• Companies like Uber have changed their structure over time, from having individual city teams to a more centralized decision-making process, and then back to giving more autonomy to country heads (37m42s).
• Management theories and approaches can change over time, and what is considered good or bad can vary depending on the context, with companies like Google going through cycles of growth and contraction (38m29s).
• The key to successful management is not to find a permanent solution, but to be willing to change and adapt, recognizing that it's an oscillation rather than a destination (38m57s).

Nicole Wischoff joins Alex and Jason. (39m1s)

• Nicole Wischoff is the founder and GP at Wischoff Ventures and previously helped found One Finance, a Neo bank that was acquired by Walmart, before becoming a venture capitalist (39m4s).
• Wischoff's first fund was worth $5 million in 2021, followed by a $20 million fund, and her third fund, worth $50 million, has closed (39m22s).
• Nicole Wischoff was invited to the show to discuss her insights on the startup market, particularly after raising new funds, and to elaborate on a viral comment she made about the startup market (39m34s).
• Wischoff focuses on pre-seed and seed investing and has observed that many pitches from startups, even at the earliest stages, are often the same, making her job less glamorous than it seems (39m52s).
• She finds herself hearing the same fintech or supply chain ideas repeatedly, such as building a digital freight brokerage, and is open to sharing her thoughts and hot takes on the topic (40m10s).

Startup pitches and trend discussions (40m28s)

• Many startup pitches are nearly identical, with similar products and go-to-market strategies, and the number of companies building something unique is less than 1% (40m31s).
• The current state of startups is different from three years ago, when almost anything was getting funded, and the bar is now much higher, especially for series A funding (40m56s).
• There are two phenomena contributing to the proliferation of similar startup ideas: the application of new technologies to existing problem sets, and the tendency for people to follow funding trends and try to fit into established categories (41m44s).
• The application of new technologies to existing problem sets leads to a rush of startups trying to capitalize on the new technology, but ultimately, there are only a limited number of things people do in the world, and startups can only fit into a certain number of buckets (42m4s).
• The second phenomenon is driven by people seeing funding for a particular category, such as SAS, and trying to learn the playbook and speak the language of investors who have expressed interest in that category (42m30s).
• This phenomenon can make it easier for startups to raise their first round of capital, but it ultimately leads to a large number of companies with limited traction and metrics, making it harder for venture capitalists to sort through and leading to a fallout (43m11s).
• The concept of "venture catering" refers to the tendency for founders to check the boxes of what venture capitalists say they are looking for, rather than pursuing a unique idea or solution (43m17s).
• There is a trend of building exclusive credit cards with access to events, hotels, and perks, with a recent example being the Atlas card, which raised $27 million, and this trend is seen as a never-ending thing, with new companies emerging every two years (44m1s).
• The focus on these types of companies is questioned, as there are more pressing problems in the world, such as climate change and war, and it is wondered why founders and venture capitalists are prioritizing these types of companies (44m18s).
• Some founders responded to criticism by blaming venture capitalists for not looking for new and unique ideas, but it is argued that this blame is misplaced (44m25s).
• As a pre-seed and seed manager, it is challenging to lead rounds and put companies on the map, as it requires finding investors who will mark up the deal and continue to support the companies (44m34s).
• There is a lack of metrics in the first two years of a company's life that would justify investing large amounts of money, making it difficult for early-stage funds to take risks on new and unique ideas (44m54s).
• An example of a company that is trying to do something new and unique is Front Lands, which is building a platform for lending against mineral rights, but this type of company is struggling to get support from multi-stage funds (45m5s).
• The challenge for early-stage funds is to take risks on new and unique ideas, even if they may not be supported by larger funds for two to four years, and to have the patience and resources to see these companies through to escape velocity (46m6s).

Investment strategies and AI's impact on startups (46m14s)

• Investment strategies involve taking calculated risks, and the goal is to have a portfolio with a mix of safe and audacious investments, with the hope of hitting a home run, such as with companies like Uber and Robinhood, rather than playing it safe with multiple smaller companies (47m45s).
• Portfolio management is crucial, and venture capitalists (VCs) need to show that they can get a certain percentage of their companies to the next round of funding in order to raise subsequent funds (48m10s).
• Limited partners (LPs) judge VCs' performance based on the "pull through" rate, which is the percentage of companies that make it to the next round of funding, as they often don't have outcomes like IPOs or distributions to evaluate (48m44s).
• The ease of starting a company, thanks to cloud computing and AI, has led to an increase in the number of startups, making it seem like there are more similar companies than before (49m7s).
• Despite the increase in startups, there is a massive falloff in companies being promoted, and many deals are similar applications, with founders often cherry-picking ideas from VC spreadsheets and market maps (49m38s).
• The abundance of market maps and flashy AI fund fundraises has made it easier for founders to find ideas, leading to a surge in companies focusing on trendy areas like AI, fintech, and on-demand services (50m8s).
• Entrepreneurs often look for areas with energy and action, following the success of companies like Uber, DoorDash, and Airbnb, and trying to create the "Airbnb of everything" or the "Uber for X" (50m34s).
• The copycat effect has led to consolidation in industries like food delivery, with only a few players remaining, such as Uber Eats and DoorDash (51m4s).

Market dynamics in various industries (51m10s)

• Companies like Toast, which was once private and is now public, have consolidated and become successful, making early investors in companies like Lift happy despite not being the top player, as being the number two or three can be a massive success for a fund (51m12s).
• Even if a company is not the top player, it can still be worth billions, and investors can still achieve a significant return on investment, as seen in the case of Postmates being bought by Uber for a couple of billion dollars (51m42s).
• The state of Venture Capital fundraising is challenging, with many new Venture Capital funds struggling to raise a second fund, highlighting the difficulties in this space (52m0s).

Fundraising strategies and venture capital insights (52m9s)

• A venture capital (VC) fund was successfully raised within five months, with all commitments secured in three months, and the remaining time spent on legal proceedings (52m50s).
• The fund's limited partnership agreement (LPA) was updated to reflect an 18-month closing period, rather than the traditional 12 months, as advised by the legal team from Wilson Sonsini (52m30s).
• The VC had previously raised a $2 million fund, which took seven months to complete, involving over 120 pitches to various firms (53m2s).
• Having notable initial limited partners (LPs) and successful deals is crucial in raising a fund, as LPs want to see a track record and notable deals marked up by Blue Chip funds (53m28s).
• There is currently a high demand for super early-stage true venture exposure, rather than series A+ exposure, as LPs seek real alpha and returns (53m46s).
• A disciplined fund size, such as $50 million, can provide opportunities for high ownership and returns, especially when targeting precedency (54m18s).
• The strategy for raising the fund involved taking 78 first meetings in three weeks, creating a sense of urgency, and expressing confidence that the fund would be closed by a specific deadline (54m41s).
• A fund was started in March of this year and closed in August, with the process being really tight due to the implosion of Silicon Valley Bank, which happened in 2023 (55m26s).
• The fund's founder had to pause everything for 6 months after already getting $10 or $20 million from accredited investors and early LPs, as every single person thought it was the end of days and didn't want to invest (55m56s).
• Many investors were not doing any funds in 2023 and were pairing their names, cutting the number of funds they already had, and lowering the number of LPs due to a lack of DPI (56m12s).
• The lack of DPI was caused by the absence of successful exits, such as service nows and reddits, and the wrath of Lena KH affecting M&A (56m31s).
• When funds return 50% of their investment early, such as in year four or five, investors get frisky and are more likely to support the next fund (56m48s).
• Funds that haven't returned money to investors, especially those from the 2019 to 2022 vintage, will find it hard to raise again (57m1s).
• Nicole's first fund was in 2021, her second fund was in 2022, and she skipped Silicon Valley Bank before raising her third fund in 2024 (57m12s).
• Timing is everything for founders and VCs, as raising funds during different times can result in vastly different outcomes, such as raising three times as much in half the time or only half the target (57m27s).

Closing thoughts with Nicole Wischoff (57m56s)

• The conversation is concluded with a farewell and appreciation expressed to the audience (57m57s).
• A comment is made about Nicole Wischoff being awesome (57m59s).
• A question was initially intended to be asked about the internal rate of return (IRR) from the 2022 fund (58m3s).

Venture capital performance metrics (58m5s)

• Venture capital performance is often measured by the J curve, but this can be misleading as it only shows paper gains, not actual distributed returns (58m6s).
• The actual performance of a fund can be affected by startups that go out of business or unexpectedly succeed, causing paper gains to fluctuate (58m44s).
• The goal of a venture capitalist is to close the gap between paper gains and actual distributed returns, and to achieve a high DPI (Distributed to Paid-In Capital) (58m35s).
• Smaller funds have a greater chance of achieving high multiples, as the power law can have a greater impact on a smaller fund (59m51s).
• Funds with $50 million or less can have a higher chance of achieving 4-10x returns, whereas larger funds may only achieve 2-3x returns, similar to the stock market (59m28s).
• The current challenge for venture capitalists is to beat the returns of the stock market, which provides liquidity and has been performing well (1h0m25s).
• Venture capitalists are having a hard time due to the need to beat the stock market's returns, and the difficulty of achieving high multiples with large funds (1h0m30s).
• The unique strategy of Found University, which provides $25,000 checks to early-stage companies, can increase the chances of hitting an outlier and achieving high returns (59m42s).
• The size of the fund can impact the ability to achieve high multiples, with smaller funds having a greater chance of success (59m55s).

Challenges for large venture funds (1h0m39s)

• The venture capital market has been performing well, but larger funds require larger returns to be financially viable (1h0m40s).
• Jason Lyin's tweet highlights that venture capitalists need around $2 billion in exits for every $50 million they raise, which demonstrates the significant liquidity required to make a venture capital fund financially sustainable (1h0m44s).
• To achieve this, a seed investor would need to own a substantial portion of a company that eventually becomes worth $2 billion, which is a rare occurrence (1h1m9s).
• The math behind this is that if a seed investor owns 5% of a company for $500,000 at a $10 million valuation, their ownership would be diluted to 2.5% at a $2 billion valuation, resulting in a $50 million return (1h1m12s).
• This means that for every $50 million raised, a venture capital fund needs to have one investment become worth $2 billion and have the opportunity to exit, which is a challenging requirement (1h1m27s).
• As a result, seed funds are often encouraged to consider selling a portion of their position in a successful company through secondary sales to lock in returns and keep their fund in business (1h1m45s).