SignalFire CEO Chris Farmer on why venture funds now last 20 years and the hiring boom behind the layoffs

**Auren Hoffman** (0:00)
Hello, Jaded Nerds. My guest today is Chris Farmer. Chris is the founder and CEO of SignalFire, an early stage VC firm managing over $3 billion. Chris, welcome to Summation.

**Chris Farmer** (0:10)
Thanks so much for having me. Good to see you, Auren.

**Auren Hoffman** (0:12)
I'm really excited. Now, what the heck is happening in the venture capital industry? What is going on? I can't make sense of it.

**Chris Farmer** (0:20)
Yeah, it's been a very interesting time. At the one level, you have an incredible excitement, if not euphoria, around everything going on in AI, and a handful of companies are raising unprecedented amounts of money, just unbelievable valuations.
And I think there's a lot of groundswell of real truth and functionality of these technologies that are enabling this. But at the same time, you have lots of legacy companies also that are navigating, having to reinvent themselves. So, you're sort of both at this period where the industry hasn't really fully exited some of the mature companies, whereas there's been an amazing new acceleration of technology as well, that in some cases will unlock the historical companies, and in other cases will disrupt. And so, there's just a lot of simultaneous chaos going on.

**Auren Hoffman** (1:13)
The industry itself is like, it seems like it's getting more competitive every year. Would you agree with that?

**Chris Farmer** (1:18)
Yeah, I mean, I think when I got into this industry, there was just dozens of firms, and now there's something like 5,000 firms. And so, the good news is, the bad news is there's so many more people competing for opportunities. The good news is this is not just the tech industry anymore. It's basically enthused into every industry.

**Auren Hoffman** (1:37)
Yeah, the tech industry is much bigger. So the TAM is bigger, yeah.

**Chris Farmer** (1:41)
Yeah, so relative to people managing money across all sectors, that maybe hasn't changed overall, but certainly in the venture technology world, it's grown dramatically, but the industry has probably grown much more at the same time. So, the IPOs 20 years ago looked like maybe a series B financing, and today, you've got a couple pending IPOs that would be the biggest in history. So, it's just a completely different order, or many orders of magnitude different.

**Auren Hoffman** (2:12)
As a venture capitalist, okay, B might shrink for a second. So, I have these funds, they have some good DPI, but I still haven't seen a lot of my carry checks yet. Do I have to wait 12 years for me to get my carry checks coming in? Or how does it work?

**Chris Farmer** (2:30)
I hope you get to only have to wait 12 years. In the case of SpaceX, it's what, 24 now? I think the whole period for venture funds to get to DPI 1 was more like 7 to 9 years before to return the original cost of capital. So now it's looking way beyond that. And a lot of these funds are now lasting 16 to 20 years.
I have a race from my seat check into Stripe whether my daughter will graduate high school before I get any liquidity from that investment. So it is definitely a long game.

**Auren Hoffman** (3:07)
That's a relatively liquid position. So you could sell it if you chose to, right?

**Chris Farmer** (3:11)
Yeah. Well, actually, it's my old firm, General Catalyst, that controls that decision and they have not been not been willing to sell it.

**Auren Hoffman** (3:18)
Yeah. They could choose to if they if they choose to, but like, you know, they just want to compound, right?

**Chris Farmer** (3:22)
Yeah. I mean, I think the you know, there's a relatively small number of companies that are driving these like unbelievable potential exits. And I think people are very reticent to sell their their best companies for half the potential terminal value. And there's some disincentives because there's not a time clock against like a hurdle rate that you've got to clear, right? And so as these things continue to compound, even if the growth has slown relative to its early years, it drives really large dollars. And so there's definitely some misalignment on the LPGP side. And then the founders who don't want to necessarily be having to think short term quarter to quarter and are staying private longer. And then so much capital has flown into the industry on the private side that you're now able to raise hundreds of billions of dollars as a private company if the performance is there. And so there's, I think companies are just going to stay private longer. So the nature of venture has to change because I don't think any LP wants to invest in a product that takes 18, 20 years to sort of terminate a fund.