VCs have never had so much capital socked away — with $100 billion more in so-called dry powder than the end of last year, according to Preqin — but with a tightening exit market, many are ‘slowing their roll’ and asserting more control over deals after years of feverish dealmaking. What new terms are they introducing into deals? Where are they forging ahead — and pulling back — and why? What do founders need to know for their startups to survive and thrive in 2023 and beyond? For a clearer understanding of what’s happening on the ground right now, this will be a must-see conversation.
Right now we're going to get into the World of venture capital who here's Looking to raise money right now as we Speak Okay labia Well that's good news because there's a Lot of capital out there to be had our Next guests are going to talk about it a Little bit please welcome to the stage From General Catalyst Nico benazus and From CO2 Ventures Karen Maroney as well As your moderator Connie loizos warm Welcome Thank you for coming today and this week Um a lot to talk about we do this sort Of state of VC every year and it's very Fun for me because there's always new Trends that are reshaping the industry One that I wanted to start off with Today is A sort of this very big years-long Trend Which is kind of this blurring of what a Venture firm even really means anymore I Think it's so interesting so Karen your Firm kotu started as this hedge fund Investing in publicly traded companies Yes that's got a growth arm it's got a Venture arm and Nico on the opposite end Of the spectrum you work for General Catalyst which started as this very Small Venture firm in Boston and Expanded into you know what is now a Registered investment advisor managing Many billions of dollars so
Um Nico maybe I can ask you first what Is the outcome when everyone is doing Everything Well you know not everyone has earned The right to do everything uh it's like We're talking about like very few firms It's like 10 maybe 12 firms that have Been capable of doing Um everything in our case we started From being a early stage firm early Stage continues to be or core and we Learned from serving our customers the Founders that they want to build Enduring companies and they want to stay Private for longer and as a result we Felt like raising growth funds was Something that could meet their demands And we did that And over time we decided to become a Registered investment advisor as well Because it made sense you know for our Business because companies said Private for longer The ones you know who went public Could grow Very well in the public market And we could continue to be with them For the journey with a journey for a Longer period of time instead of just You know exiting early on as we're doing In previous times so we're all products Of the times we operate in and this has Been the story of the last decade we're Ambitious as the founders that we back
In and we do care about building our own Business and I guess is this I mean is This a Transit as you mentioned it's Like 10 or 12 of your Sequoia Andreessen Insight partners So you think there's sort of a limit to How many firms are going to be doing This I mean I guess is the model Sustainable is this is this in the new New so okay I'm going to date myself I've been in this industry for a long Time not in the Venture industry but in The tech industry so just to like Literally date this I started working With Mark benioff when he was starting Salesforce from his apartment in Coit Tower like it was small he was wearing Sweats all the time it was like he had His uh he had his co-founder in the Apartment next door coding he also had a Beautiful view but they covered it Because it was like messing with screens But like this was a long time ago and at The time Mark benioff could not get Funding because it was a new model and The traditional VCS were like I don't Understand the Tam the market size is it He was like it's all app it's like no It's only this it's like I don't Understand what the metrics are and so One very famous VC said to him if you go On Prem we will fund you And even like okay you totally don't get I do so that was a very traditional
Model it was like we do this then you Fast forward I worked for Facebook for Many years and I think people forget That Facebook had a Down Round they Stayed private for a re I would say we But they now meta stayed private for a Really long time and people didn't know What to do with a growth company at that Size so they did a Down Round which at The time like it doesn't matter now but It's an interesting like moment time People didn't know what to do with them With a company that stayed private so For years and years and years we had no Change in the Venture world it was like These very status quo Ways of operating and I feel like we're Now in this place of like pretty Interesting change you talked about Micro VCS and really Niche we have like We're all sort of moving to meet the Needs of the founders and the limit the LPS who who trust us with their with Their money that we need to like be more Creative I think the thing and we all go To like where the needs are and the Environment is and I think the thing That stayed the same is maybe the VC Vest you know the pattern can do best I Feel like that has been pretty standard But everything else is changing well I Wanted to ask Um just because they're true I was happy You weren't wearing one I mean I've
Never wore one I read I think that Patagonia you know is no longer Producing this device right really I Think that happened maybe you know does Anyone can use them as a grief sorry This is no no I'm just gonna say there's So much fluidity in the industry but I I Do wonder if it doesn't create overlap Like your LPS your LPS want a bigger Stake in your company these I was Reading the information yesterday and There was a story there was an interview With the CEO of the Stanford Stanford Management company it's endowment and he Was saying basically he can't put enough Money into top firms like it's Frustrating because they can't scale Fast enough but at the same time you Know they benefited hugely from being a Part of these companies but now their Returns are sort of abysmal and I wonder If it's in part because they've got Stakes from all of you in the same Companies you know when you're sort of All converging on the same I mean is That something that LP should be Concerned about going forward because You are kind of all in each other's Lanes so to speak I I personally don't See how this is different than how it Used to be right like if you're NLP at a Top endowment uh today you want to have Like a piece of the top 20 portfolio of Top 20 tech companies that get started
Every year that could become you know The next uh big thing Um so this was the same you know back Then now Um the outcomes uh that in more recent Years have been much larger than ever Before also some of these companies are No longer getting started in Silicon Valley some of them are getting started In Europe they move to New York open up An office there Europe on its own now Has a pretty awesome Tech scene in China There were over the previous decade Decade terrific outcomes for limited Partners we'll see what happens you know Moving forward so yeah but LPS that's What they want they want to invest in Some top firms and get as much of A stake in the companies that are Enduring and could create 100 billion Dollar market cap outcomes right what LPS have to do as it's been the case Over the last decade is to invest In different pools of capital that the VC firms give them allocation to Historically because this invest in the Early stage fund now you have options to Invest in many different Vehicles you Know we were talking a little bit Backstage about some of the pain that Could potentially be coming down Pike For startups but I also wonder for Venture firms I mean obviously firms Have smartly been raising lots of
Funding again LPS want to put as much Money into work as they can do you think We're going to see a right sizing of the Industry you know going into next year So when I think so If I think about it I believe that People are fundamentally Rational and intelligent so if we like Take it from that basis and if you are a Founder You need to figure out okay where am I Given this global economic environment And what do I need to do to make sure That I ensure the best outcome for my Company so it's like okay we're going to See some ups and downs in the public Market we're going to see some ups and Downs in IPOs we're going to see some Possible changes in the landscape but What does that mean to you as a founder And I think of it I like to do quadrants For everything I think of it as like There's four quadrants that a company Fits into and that sort of can help Dictate like what you can do and the Access are how much money have you Raised or Runway do you have and do you Have product Market fit so if you have Raised and you have a lot of Runway and You have found product Market fit then I Consider you like you're a healthy Company upper right hand quadrant that Means like you can ask yourself like Should I hire in this environment I
Would say yes if you're in this right Hand quadrant I would say this is a Great opportunity to hire and scale and Grow and take advantage if you are Very little money but product Market fit I would call this company survivors Because you do really have a product That you know works but you found Yourself in a really tricky point in Time like take heart Amazon was one of Those companies but it does mean getting Creative with either cost cutting or how You're going to fund this and that Becomes very interesting and very Important but you have to do everything You can to and like you know this Product works to make sure that your Product and your company survives let's Say you have a lot of money and you Don't yet have product Market fit I call Them explorers Bottom right these people are like a Typical series a company The important thing is to keep in mind That you don't have product Market fit Yet like don't scale because to Connie's Point we don't quite know where the Markets are going to go and how much Liquidity and capital is now more Expensive it used to be somewhat free Now it's kind of expensive so I would say like stay lean and Understand where you are in the product Market fit journey and then lastly it's
Like the danger zone are the ones that Like don't have product Market fit and Don't have capital and those are like You might need to Pivot or rethink so I Think those all come together that's Great I just mean also though in terms Of venture capital firms themselves are We going to see them sort of shrinking Or breaking up or looking different Going forward I think they look Different now I mean you were talking About the niche ones you're getting like Really specific you're getting actually At that point I was just going to say Civilian says what we were talking about Is there's a I don't know how big a Trend it is and I think it's interesting Where uh you know we've seen funds now Focusing on like Oral Care and while Fighting firefighters yeah can you be But when you have these giants that are Covering everything maybe that's the Only space to grow up in and I was Wondering is that going to become a Thing Well it's always like a very Dynamic Ecosystem and like you know what's Happening with other species VC firms Will have to go through the natural Selection cycle it's going to be the Survival of the fetus historically VC Firms had to go through generation Tradition which is like a very painful Activity for anyone that has gone
Through that stuff we've seen over the Last few years as you were both saying How much the ecosystem changed like we Have now hundreds in San Francisco alone Of very small firms solo DPS micro VCS Some of them will decide to merge with Each other and build like a more Enduring franchise some of them will Decide that you know what I tried it During the good times VC as a career Option is not one for me we'll have to Do something else afterwards a number of Them more well-known platforms that Didn't decide to go multi-stage will Either stay small or when the senior Partners there decide to retire they Will have to figure out what the next Day is going to look like World products Of the markets and the times we operate In right and that's really great and you Have to earn the right to survive I Think it was like oh okay you know there Was some path and then you did Investments and you made money it's like No you have to you've gotta you've got To earn the right and not everybody is Going to earn that right and I think That that's healthy I think so too well Also I think a lot of people I mean Not having been in the industry long Enough had only seen good times and I Think that probably led in some part to What I want to talk to you next which is What happened with
Um founder terms I mean the the industry As we've talked about is very cyclical I Mean every you know I don't know five Years typically things swing very much In the favor of either Founders or Investors Um and it's been very founder-friendly For so long but I mean to an astonishing Degree uh you know I was thinking about Hoppin specifically which is this Virtual events company that was founded In 2019 Um and according to the financial times The founder was able to cash out 200 Million dollars worth of shares and Still owns 40 of the company which I Find mind-blowing I'm just wondering Like what happened What happened that we got to this point Well we're one of the investors in Helping so for you both are actually Yeah Yeah so it for a period of time this was The fastest growing uh company of all Time it's a very profitable business Also because it happened and they had The perfect product at the perfect time For the entire world right back then Zoom was doing really really well uh as A company Um and it was the beginning of like the Crazy VC funding acceleration period That got started in the second half of 2020. so a lot of us got intrigued
Because the product looked perfect the Market opportunities seemed pretty Sizable and the company was not Consuming uh any cash and when you have Very competitive market situation where You have like a Founder who receives Like 10 different offers Some offers need to sweeten the deal a Little bit to make it more convincing Which you know that's how I think it Happened I don't know what car well Nothing against Founders but I mean I Just feel then the people who left that Firm reading that story must have been Or we were laid off must have been Seething like you know it doesn't seem Just I guess I'm wondering you know what Happens forward were there any Lessons Learned or will the same thing happen Again because that's just the way it Works when there's demand you meet the Demand you you know meet the terms that Are demanded I think you have A lot of different plays and it was Interesting because Everyone at a certain point in time was Like if I leave a company and I start a Company I am going to get funding and I'm going to be successful and it just Felt like and that is the path and we All know that can't be the path and I Think the people who start companies now Are no longer under that like Haze of
Everything goes up into the right and I Think the generation of people that Start now on both sides are going to be Far more Wide what is it is it Eyes Wide Open is There there's I'm sure right clear-eyed That's it Um and I also think there was this sense Of like People were saying oh I just I want Money with no strings attached and we You know like to be involved in Companies I sit on boards I you know we We really when the companies that we Work with we get very involved and I Think that that is there was a period of Time where every founder was like I Actually don't think I need any help and That has dramatically changed with like Have you seen any of this before because I I could use some help sure so in that Sense too I think on both sides this Idea of like Let's let's help and be involved and That's something we've always like I've Always wanted to do I know you do so Yeah absolutely like the market Conditions have changed so if you're Raising a growth round today and you're Not one of one company or exceeding uh Your plan dramatically or ideally both It's probably harder because a lot of The crossover funds or late investors That go open up their troll swap records
Account and they can see what the terms Are there and they're better they can Buy today they can sell next week in a Private company you can't do that at the Very early stage it's also a little bit Of a function of how many funds are out There that are eager to write checks how Much Capital they've raised so at the Seed stage we haven't seen you know much Of a difference yet Um especially for first checks if you're A seed company that raised last year the Year before and you haven't made enough Progress we're in the right to raise the Series a now it's a little bit harder in The previous years you could raise a c Two three four round from all the firms That get started to invest in seed stage Companies now that's not happening right Series a I would say it's a little bit Like return to the basics so invest in Technical teams that have high margins So if you're doing something Tech Enabled it's harder if you're a founder Of starting a company raising capital For a very uh Capital intensive business It's going to be much harder are you Building a business out of Geo Um it's going to be trickier like this Is the kind of stuff that Zoom investing Made really easy the rounds were Happening like this that's not happening As quickly you know at the auto Geo Point is really interesting because I
Did think that Zoom was sort of the Great equalizer and everyone was like oh We're investing everywhere in the world Now it's great Um and I've subsequently talked to Investors who say you know I have one in Mine in the midwest who said actually Everybody's kind of retrenched the Silicon Valley investors are back Investing in Silicon Valley because Their LPS will be frustrated with them If they miss something in their own Backyard what are you seeing are you Kind of you know what percentage I guess If your prospective firms are you Focused on like the big hubs versus Everywhere else in the world in the Country Um we just opened a office in Europe so That's new for us Sarah Canada joined in We have a new office there and we are um It's like I did a c deal from a group in Singapore recently so super bass if you Know them and there so I found link and Partly I don't know if I could have done That before covid so I'm very hopeful to Have like yes and because there was a Great ability to meet More companies in a more efficient way But I think then you know you're not Just gonna have one Zoom you know it's Going to be far more and I think there Is more travel and there is more but I Am hopeful that that it stays uh broader
Than just Silicon Valley is my hope but I don't I don't know what do you think Yeah I mean Talent Universal opportunity Is not Um firms like ours want to be investing In category leaders we don't check Founders passports wherever they come From we'll be thrilled to have a quick 30-minute Zoom conversation and see Where the journey takes us about 70 of The capital that we raise from our Awesome limited partners who invested in The US we also have an office in London We're getting more and more excited About India and we're investing uh Overseas I don't think Zoom investing is Going to go away like it's very Efficient specifically you don't I don't Think so especially for like the very First you know meeting on both sides Like it's great you know you want to Have like a quick conversation see if The investor get gets it see if it makes Sense enough for the investor to spend Time with that particular team and then Concentrate on the three four five firms That you really want to raise capital From yeah so there's a very efficient You know Um activity right now so it's not going To go away Um this is also maybe a little bit too Esoteric but I'd also done a story Recently on board meetings not happening
As much and I think Founders were Feeling I don't know I think Founders Like the board meetings aren't happening They're not happening they're not not to The school board meetings I think Founders were perfectly happy to Sort of be like oh it's fine if you Don't want you want to skip it that's Okay with me don't skip the board Meeting Um yeah oh seriously don't skip it Because no don't skip the board meeting It's a great way for Founders to use Their investors yeah as the bad cops to Organize and rally everybody of the Company to get done yeah that's a Seriously great way like a deadline is a B it's like do not miss the opportunity To have a deadline for your team it's Like such a way of helping your board Can help you hold your teams accountable And it's a it's a wonderful opportunity And it gives the team useful time in Front of the investors yeah which is Absolutely look it's a lot of work it's A lot of work like this goes without Question and often you know People in companies would be like oh my God you know we have to do this and we Have the job Exactly so like it is you know painful But that whole idea of like holding Yourself accountable in front of a group Of uh individuals and firms that
Invested in your company it's a very Useful idea Again and again it's great yeah um I Also just wanted to ask for the founders And also for the your fellow investors In the audience just about what um terms Look like right now so you've kind of Touched on this a little bit Nico but at The later stages we've been hearing About more and more structure Um you know to sort of replace the Down Round if you want to maintain your Valuation that's fine but we're going to Take a bigger piece when you come out of This Um are you seeing that yet in the Earlier stage companies I assume that That's got to happen eventually or You'll just let them live there I mean right now it's a little bit of a Game of chicken going on so we are Seeing meeting activity at an all-time High pretty much Um since like late August and we'll know By the end of October how many of these Terrific conversations will result in Transactions the best of my knowledge I Haven't seen companies uh decide to Raise the series a with like really Nasty terms but of course we've seen This processes take longer than before We've seen also you know some companies Decide to raise like a bridge round if They can't like get to the series a in
The short period of time that they would Have liked the bulk of the pain on that Topic is to come next year or the year After if the market conditions do not Improve thanks to the media and all of Us getting prepared a ton of Founders Made the right call in q1 and Q2 to Downsize so everybody bought themselves More time most of the companies raised a Lot of capital in the previous this year So historically you would raise for 18 To 24 months most companies raised for Like 36 or 48 months before so that the Bulk of the pain unless there is a crazy Strong recovery is to come up so at the Early stage I haven't seen any bad terms And I think I mean we all as people want to control Our own destiny and this idea is like How how do I how do I do that how do I Have as much control in outside of Whatever is going to happen in the Market and it used to be you needed 12 Months of Runway and then it was like no You you probably need 24 and now it's Actually you know you you like Two is the new one three is the new two So more Runway is good a lot of we're Seeing a lot of extensions so same terms Just sort of like a extension rounds and It's like okay I'm gonna understand how Do I maintain my flexibility and the Whole goal is to have that ability to Have flexibility so you can experiment
And understand like what does this need To exist in the world so this is not Everybody needs to go and get profitable I think that's really going to make a Bunch of companies do the wrong thing But it's understanding what does Traction and how are you going to be Able to really know if you're providing Value like what is that what is that Measurement to you and that's not one Size fits all it's got to be so hard to Innovate when you're constantly focused On not yeah and I think it can make to Some weird decisions that you want to be Careful of it's also not fun like if You're like a member of a team that you Have to cause budget at all times and You're not the founder or seed level Executive and you're technical you're Thinking about what am I passionate About what kind of Moonlight on to get Liberated by a Visionary VC firm and get Going right yeah like this is happening But it used to be the answer when Capital was cheap was like grow and do It all and now this ability to like Sequence the steps is incredibly Important because the resources and the The need to like sequence the resources Versus do all the things has probably Become one of the founders greatest Skills it used to be how can you hire Attract and build and now it's how can You sustain sequence and continue the
Momentum so I think that's a big shift In the founders job and then guys I Guess you know the question too is what Are we going to do with all these Companies these many many companies that Have gotten funded and have nowhere to Go right now I mean the exit Market is Cooked I don't think it's backs I don't Know if spax I'm curious to know if you Guys think specs will come back because Obviously a lot of companies went public That way last year only something like 14 companies I've ever chosen direct Listings which I also think is really Interesting that that wasn't more widely Adopted but what do we do here we have a Big problem well we're very fortunate Posted in San Francisco that there's so Many tech companies that are doing Really really well they have a lot of Cash on their balance it and hopefully At some point especially now that Valuation seems to be more rationalized They will need to innovate through some M A so this likely you know will happen In our industry especially for the large Firms like ours yeah we want to see some Smaller exits but it's about the Enduring companies that really Can Go The Distance and produce a 100x return And pay for the whole vintage right or The whole portfolio so it's an Interesting time what's uh going on Right now in the exit landscape with the
Terms of rationalizing I would assume to See more m a It's going to come up yeah it seems Inevitable also guys before we go just Quickly so Karen you worked for Mark Zuckerberg for 10 15 years yes he's very Focused on the metaverse obviously Um just wondering if web3 I know that Kotu's done some crypto I'm just Wondering how you're thinking about that If that's sort of a bigger area Focus That was sort of something that was very Much uh you know in the headlines from I'd say like February through June I Feel like I'm hearing that term less and Less Um Um so I did work for Mark Zuckerberg for Many many years I am the best boss I Ever had I know there's a lot he's a Tremendous leader and uh I learned a ton Um I think when you so I work at CO2 my Focus is on AI open source I do a lot of Enterprise Um we do climate as well that's like one Of our main focuses and so when we think About crypto in The Firm it's more Focused on what we see it in terms of Payments Okay so so that's how we think About it and that's like it's it's when We're like our Focus areas though we're Like Ai and climate and health and Enterprise okay yeah I feel like I'm Hearing again I mean always about AI but
I had this moment when I was backstage I Remember when Mark spoke here and I was Saying do you remember that So we were I mean we had many Interesting were we at the ferry Building Is that where we were where it was like It was It was very cold and it was it was Really cold yeah okay Um there are many stories I don't know We could go but but like when I started It was a website like not even uh an app So you can so like a pro tip is like Maybe we went public and we had it's Very easy to remember when Facebook went Public it had zero in Mobile Revenue And that's not a that was that was a Problem Um so it's good to also understand like Even though we stayed private for a Really long time uh when we did go Public it was this whole thing and then We had no mobile revenue and then we had To in front of the whole world rewrite Our mobile apps and get that right and Then figure out our business model so I Remember that it was certainly so I Guess the moral for that is like as a Founder even like super successful Companies they look like they go up and To the right and from being inside it Always feels like this even when you're Hopefully going up and to the right it's
Like a journey right right absolutely Um well guys thank you so much right of Time which stinks I'd love to talk to You further but I'm really thank you for Joining us today thank you all of you For joining us as well appreciate it Thank you The world is rapidly
