Episode #94: The Middle Ground Is Gone, Funded Teams With No Plan, Being Legible to Capital

Charles Hudson (0:00)

I think if you're a founder who's been out of the market for two years, I don't have a good analogy, but it's like you've been living in a cave. I've told my friend, it's kind of like the first episode of season two in Silo. She gets out of the Silo, and she gets past the VR field, and then she sees this wasteland, and you're like, oh, it actually was as bad out here as they said it was. And I really do think that that's the experience I see is happening for a lot of founders, whose priors on the market aren't current.

Mia Farnham (0:26)

It's the week of September 7th. Welcome to The Learning Corner, a Precursor Ventures podcast.

Welcome to The Learning Corner by Precursor. I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will be talking through the articles and good reads that caught our team's attention over the past week. Our first piece this week comes from Ethan Kurzweil, co-founder and managing partner at Chemistry titled, Go Big or Go Broke. The middle ground is gone. He opens with the pink elephant thought experiment, the idea that once you're told not to picture something, you can't help but see it, and argues that the venture industry is stuck on its own version, the trillion dollar startup that no one can unsee.

Now that we know a Trilicorn is buildable on a venture timeline, capital at every stage is concentrating into the biggest possible swings, and the most ambitious founders have learned that the more aspirational they sound, the more funding they attract. The catch is that the biggest winners of every era rarely started out looking that big. Ethan's worry is that the pedestrian double or triple has become a relic, and that progress in out-of-favor sectors like SaaS, consumer and commerce turns linear, gated on a stubborn few tinkering outside the spotlight. His advice to founders is to pick a poll. If you are out of favor, make sure your business and your psyche can survive there longer than you think. And if you're a consensus needle mover, that is not a train. You can get off to rest. Wanted to pause your finger thoughts on the piece first, Charles, since it was a good one.

Charles Hudson (1:59)

I feel like I've given various versions of this feedback to our portfolio companies. It's varied from sort of nobody cares. That's the only problem with your business to it's binary. There's, I told some of the day there are haves and have nots. And if you're not sure which one you are, you're a have not. And I think it is true. I think people are holding two things in their brain at the same time.

One, the cursor SpaceX and soon probably to be Anthropocene Open AI are outcomes that are so extraordinary that they like reset your brain. Well, if that's possible, why play for anything less? And I'm like, okay, we've seen this three times now.

Does three times mean that it's the new goal? Or does three times mean you've really seen three once in a career, once in a lifetime companies in a very short timeframe? What I do know is most people are just like, I can't unsee it. And so I've told a handful of companies that's like, yeah, you have like a very high probability of being a billion dollar company, but a 0% chance of being a $10 billion company, and nobody's going to fund that. They're like, what do you mean? I'm like, a billion dollars is a big outcome for you, for a fund of our size, for just about everybody, except for people who are managing gigantic pools of capital. For them, it's just not a needle moving outcome, and they are in the needle moving outcome business. And so I think as those funds remain large or even potentially get larger, the scale of interesting outcomes is only going to get bigger. I think we have a lot of very, very large private companies, whether that's a Base 10 or Harvey or all these companies that are worth well more than $10 billion as private companies, still with, in my opinion, probably a fair amount of work to do and no immediate plans to go public. I think if you're a founder who's been out of the market for two years, I don't have a good analogy, but it's like you've been living in a cave. You come out of the cave. I've told my friend it's kind of like the first episode of season two in Silo. She like gets out of the silo and she gets past the VR field, and then she sees this like wasteland, and you're like, oh, it actually was as bad out here as they said it was. And I really do think that that's the experience I see is happening for a lot of founders whose priors on the market aren't current.