Venture returns, recovering startups, and VC conflicts | E1995

ChatGPT and Productivity

• Jason Calacanis believes that chatGPT40 will transform the way people work and increase productivity. (3m30s)
• Calacanis found that his employees were not using chatGPT40 as their default search engine, despite the company paying for 21 seats. (3m18s)
• Calacanis believes in the importance of default settings and wants to encourage his employees to use chatGPT40 by making it their default homepage. (3m48s)
• A speaker has been using Command + T to open a new tab and paste a URL, but wants to start using ChatGPT instead. (5m55s)
• The speaker is going to try using ChatGPT for a week to see if it improves productivity. (6m20s)
• Jason K. wants to know if ChatGPT can be set to always add citations to its responses. (8m49s)

Venture Capital and Market Trends

• Jason explains that IRR, or internal rate of return, is the average percentage return per year for every dollar invested. (15m14s)
• A vintage year in venture capital refers to a specific period of time, typically four years, during which a venture capital fund deploys its capital. (16m29s)
• Factors that can determine a good vintage year in venture capital include the technology wave present during that time, similar to how climate, soil, and weather can affect a vintage year in winemaking. (17m38s)
• Entry price of investments is an important factor in venture capital returns. For example, seed rounds for unicorn companies today are typically much higher than they were in the past. (18m38s)
• The timing of both the investment (entry price) and exit, as well as the overall market conditions, significantly influence returns in venture capital. (20m5s)
• DPI (Distributions to Paid-In Capital) is a crucial metric in venture capital that reflects the actual cash returned to investors. It is calculated by dividing the distributions by the paid-in capital. (21m27s)
• David Clark is the CIO of Vin Camp International, a fund of funds that invests in a small number of venture funds. (24m52s)
• Clark argues that the lower median internal rates of return for the 2021-2022 vintages are due to market normalization and the end of easy money. (26m20s)
• He believes early Distributed Capital Invested (DPI) numbers are irrelevant because it takes 10-12 years for a company to go public. (26m40s)
• Endowments like those associated with Yale and Harvard are increasingly allocating a significant portion of their portfolios, sometimes up to 35%, to private markets, including venture capital and private equity, due to their long-term investment horizons and desire for higher returns. (29m30s)
• Venture capital firms, particularly newer ones, that experienced high valuations during boom periods like 2022 may face challenges raising subsequent funds if their investments significantly decline in value, potentially leading some firms to cease operations. (31m40s)
• Data indicates a significant percentage, potentially as high as 80%, of first and second-time venture capital funds historically struggled to raise follow-on funds, often raising only half of their target amount, highlighting the challenges faced by newer firms in the industry. (34m21s)
• Some Venture Capitalists retire after a few successful investments because they have earned enough money and do not want to go through the challenging process again. (34m32s)
• Venture capital funds can fail due to two main reasons: not achieving distributed profits to investors and receiving excessive distributed profits, both of which can lead to retirement or career changes for Venture Capitalists. (35m7s)
• Secondary shares from companies like Stripe, Uber, SpaceX, and others are the primary source of early distributed profits, not initial public offerings from companies like Uber, Airbnb, or Coinbase. (37m39s)
• Individual investors have historically been unable to invest in pre-IPO companies. (40m8s)
• Venture capitalists are experiencing stress due to a lack of exits and profits in the market, leading to public disputes and conflicts within the industry. (46m49s)

Antitrust and Competition

• Breaking up large companies like Alphabet (Google) into smaller companies could increase competition and unlock value for shareholders. (41m32s)
• A potential outcome of the antitrust case against Google could be the spin-off of YouTube, which would then compete with Google for advertisers. (43m29s)
• Apple giving a portion of its search traffic to Bing and other smaller search engines, while also making Bing and Google pay a minimum amount, would be damaging to Google's monopoly. (45m57s)
• Jason Calacanis believes that there needs to be more competition amongst American defense contractors. (1h19m52s)

Controversy Surrounding Michael Moritz and Ben Horowitz

• The article published by Michael Moritz in the San Francisco Standard, focusing on Ben Horowitz and his family's political donations, has caused controversy due to its focus on Horowitz's wife, who is not involved in the venture capital firm, and the sensitive nature of race and political affiliations. (50m21s)
• The rivalry between venture capital firms Andreessen Horowitz and Sequoia played a role in the controversy surrounding a publication backed by Sequoia. (52m13s)
• The article in question included potentially inflammatory content related to political affiliations, particularly those associated with Donald Trump and the Make America Great Again (MAGA) movement. (52m19s)
• The article's use of a photoshopped image depicting individuals wearing MAGA hats, while labeled as an illustration, was considered by some to be in poor taste and potentially misleading. (54m5s)
• Felicia Horowitz and Ben Horowitz likely found it challenging to switch their political affiliation from Democrat to Republican. (57m7s)
• Michael Moritz is no longer actively making new investments and is believed to be largely retired. (59m37s)

US Economic Outlook and Challenges

• The United States national debt has doubled under the Trump and Biden administrations, with each adding approximately 8 trillion dollars. (1h1m58s)
• The United States will likely experience economic challenges similar to those faced by other countries due to rising budgets and political obstacles to reducing deficits. (1h2m37s)
• The most significant challenge facing the US is the rising deficit, which is fueled by political unwillingness to cut spending on defense by Republicans and other programs by Democrats. (1h3m25s)
• The upcoming election is significant from a business perspective due to its focus on economic issues such as dynamism, geopolitics, trade flows, protectionism, and tariffs. (1h4m38s)

Startup Performance and Trends

• J.D. Vance attended Yale University and was a venture capitalist. (1h8m16s)
• In the first quarter of the year, 254 venture-backed companies failed. (1h11m20s)
• Between 2020-2022 the quarterly startup failure rate was under 100% but spiked to 250% between 2022 and 2023. (1h12m7s)
• The percentage of down rounds in the second quarter fell to its lowest point in six quarters, dropping from 24.2% to 1.4%. (1h13m49s)
• The lowest point for down rounds occurred in the first quarter of 2022, which coincided with a market flip. (1h14m16s)
• Companies that survived and grew following down rounds were less likely to experience further down rounds, with their revenue growth potentially aligning with their valuations. (1h15m1s)

AI and its Impact

• Michael Moritz believes that the best way to measure a fund's performance is by how much money was invested and how much was earned. (1h20m19s)
• The usefulness of AI tools for coding depends on the skill level of the developer, with junior developers benefiting more than elite developers. (1h21m40s)

Podcast AI Investment

• GitHub has approximately 1.5 million paying users, with individual plans costing $10 per month and business plans costing $20 per month. (1h24m29s)
• A Syndicate investment in Podcast AI raised $750,000, with $500,000 coming from the Syndicate and $250,000 from a personal fund. (1h25m6s)
• Podcast AI builds websites for podcasters for a monthly fee of $500 and has experienced steady revenue growth. (1h26m8s)