Let me walk you through three crazy scenarios that happened to me in the last twelve hours..
Last night, a friend told me they’re joining a neolab that raised hundreds of millions of dollars as its seed round.
As I’m clearing my inbox, I have three pitches, all raising a fifty million dollar seed on a memo.
And while I’m having my morning chai, Miro is being acquired by Bending Spoons for what’s a really low multiple on revenue.
I’m just sitting here thinking how divergent and crazy these times are. Bending Spoons acquired Airtable, and then most recently today, Miro, for less than five x ARR. And the public markets are doing the same. Even Monday.com and other companies that have a reasonable amount of context and are in the flow, but not AI native, are not even getting to command the valuation, even though we’ve gone away from the SaaS apocalypse. To now, companies just raising entirely on a whim, and VCs giving crazy valuations hoping it’s the next Anthropic.
Venture is meant to be more abundance mindset, and you’re paying forward multiples, so you can’t compare with public. But it still feels so wacky.
I think the divorce has a couple of things going on.
The speed run from zero to a trillion in five years was for Anthropic. And now every company is being paired with the underwriting that the company they back can be an Anthropic to get the same-ish kind of IRR. I don’t think that will happen again, especially at that speed. One of the largest markets is coding, and unless you build the next transformer, that seems very, very, very hard to do. What company do we think can speed run what Anthropic is doing, even in the next eight to ten years?
I don’t want to say this is 2021. In 2021 we didn’t have the ChatGPT and reasoning moment that enabled this. And I do believe AI is this very large market, where we can even tackle labor instead of software.
But in 2021, we made a mistake in our assumptions and thought that, oh, if you get to a certain revenue stream, you can have a pretty healthy exit. Now that’s completely gone out the window. Every 2021 memo probably had the same thing: oh, these companies will go to a billion in revenue. Well, they did. And then they still didn’t get bought for much. So I think we’re repeating the same mistakes, expecting these companies to moon instead of them being a billion dollar or ten billion dollar company. Now everything just gets marked to a trillion and we call it a day.
They’re not being marked in the private markets to a trillion dollars, although we might get there. They’re being marked in the memo as they could potentially exit to a trillion dollars. That’s the divergence we’re seeing right now, whereas you’re seeing these companies not doing well. It doesn’t mean the companies that are targeting labor won’t do well. But when your entry price becomes a few hundred million dollars, or even a couple of billion dollars, you can’t just hope that every company becomes the next Anthropic. That’s just not how these things will end up working out.
And every VC is also like: well, they’re a great team, and the downside is fairly protected, because someone will acquire them. And the M&As are happening, and that’s true. We’re seeing incumbents and other companies wake up and wanting to strategically acquire great teams. But not every team in the world can command the same thing. This has happened forever, and I don’t think AI particularly changes that. And so it’s: upside is a trillion dollars, and downside is we’ll get our money back. You can’t justify that for every single company as well, because we’re seeing that in the market too, where that doesn’t happen, especially with the Series A squeeze.
This is leading to a little bit of investor anxiety, because it’s leading to them feeling a bit lost. I meet so many investors who I think are just jaded by seeing what’s happening in the market. The big AUM funds, especially with the recent acquisitions, can keep pointing to it and saying, like, hey, we can deliver IRR faster than ever before, and AI is the biggest tailwind in the world. Whereas a lot of funds are feeling like either you play the game that’s on the field by paying up, or you try to go to reality. But those companies that you might think have reality are just not consensus. And so then they can’t raise capital. Everybody claims they want to do non-consensus rounds, but they’re actually not doing it.
So, what I keep coming back to is, we live in crazy times. Fundamentals do still matter. The size of the opportunity that AI has is massive. There is inflation but I am convinced we’re not in a bubble. But the divergence is real, and it’s getting harder and harder to figure out what part of this lasts.