The State of Venture

Hello everyone, how's it going? So thank you three for being here with me. I want to start with one question about a question, which is what is the top question you are being asked the most right now? Mina from your clients, Terry and Layla from the CEOs and founders that you back and let's start with you Mina. Are we in a bubble right now? Are we in an investing bubble whether that's the markets more broadly or whether that's AI specifically? Yep, makes sense. Terry? I often get, do you invest in traditional seed rounds or the 2026 version of a seed round? And what is the 2026 version of a seed round? Much, much larger. You know, we're seeing $100 million seeds and pre-seeds. And so founders are wondering, as they are trying to assess investors, which type of seed do you do? Okay. And Layla? I'd say the most common question I get from CEOs is how can we move faster? I think the thing that's changed the most in the growth tech landscape over the past year or two is the speed at which companies are moving. So the top decile companies, we have many that have scaled to 100 million in ARR in under a year, whereas in the SaaS generation, that would take five or six years for the very best companies. So everyone is focused on speed and how they can build the technology faster, how they can hire faster, how they can get to market faster. Excellent. And I'm going to stick with Mina's bubble question because I'm sure you all get asked it every day, as Mina said. But I do have to ask because so many people right now are warning that this first wave of overfunded AI companies is going to disappoint. They're scared about this bubble. Leila, you sit in the seat. You're writing some of the biggest checks in AI. What is your take on this supposed AI bubble we're in? Is it real? Is it not? Well, I think I'll start with the numbers because I think the numbers are astonishing. The last data point I saw was that expectations for CapEx buildout in 2028 top $1.5 trillion. And so when you look at that as a percentage of GDP, I think it's around 2.8%, which is higher two times what it was during the telecom buildout and higher than the average during the railroads. So good reason to be asking questions. I think when you talk to the builders of the technology, and again, the companies themselves that are fueled by AI, the business results are quite compelling. So this revenue growth that we're seeing, early signs of ROI, both in enterprise use cases as well as further afield, things like robotics, life sciences. The efficacy of the products and the excitement around adoption is unlike anything we've seen. So we see really great reasons to invest, and the companies that we've backed are making real business traction. But the scope of the investment is very considerable. And I want to come back to some of those investments in a bit. But, you know, for the client side, when clients come to you being very scared about an AI crash, what are you saying to talk to them about this? Yeah, so I would say the first thing is when you look at the public markets, there is a lot of support from the valuation perspective when you actually look at the underlying earnings, especially in large cap. And so when you look at, you know, the top 10 names in the S&P, the revenue and earnings generation is spectacular. To Layla's point, like to the extent, I mean, CapEx is significant and it's now almost more than 100% of cash flow, but to the And so, I actually don't think in large cap public markets that we're in a bubble. I think it's actually, you know, these valuations are attractive relative to the amount of revenues and earnings. I think the one, you know, the thing that's important as we work through this market cycle, this economic cycle, whether it's in public markets or in private markets, is really to think about not trying to time any one market environment or vintage or cycle market environment or vintage or cycle and so to put a finer point on that actually for our clients for their private portfolios we actually take five years to invest their money to get to a strategic asset allocation and that's across venture growth buyout private credit etc but when you really think about being really disciplined from that perspective it gives you more confidence that you're going to be able to withstand any one economic or vintage cycle volatility. And Layla, one more for you before I come to you, Terry, which is I want to talk about one of those investments that you've been making. One of your big bets is in Isomorphic Labs, which for those that don't know, it's a Google DeepMind spinoff that uses AI to design new drugs. Just raised $2.1 billion, but the drugs are not yet in human trials. So I'm wondering if you talk to us a bit about, you know, when will someone in this room take a medicine that AI designed and what makes you willing to bet on something before there's an actual product involved? Yeah, I'm glad you asked that question because I think many of the most exciting applications of AI, in my opinion, are in these industries outside of just enterprise workflows and certainly outside of asking a chatbot questions. And health, life sciences, health are probably the application most of us as humans are most excited about. So there are many steps on the path to getting a drug, as many of you in the room know that work in biotech and pharma. And it's quite easy to actually see the efficacy of models that are purposely built for drug discovery, which is what the Isomorphic team has been working on for many, many years. The founding team got a Nobel Prize for the science they did around protein folding models. So this is many, many years in the making. And I don't know the exact timeline of when the reality of AI is there is discovery and there is the technology milestones that we meet with the technology itself. And then there are many human milestones like clinical trials and regulatory work that needs to be done. But I believe that we'll continue to see promising releases in terms of the progress that the models are making in areas like life sciences, also other areas in the real world like robotics, autonomy. You know, Waymo is another big investment of ours. I think we'll see the impact of this technology in cities, in urban design, in health. And that's where some of the most exciting applications lie. I would just agree with that 100% in terms of our perspective is the intersection of health care and AI, especially with life sciences in terms of new drug discovery, as well as more use cases for existing drugs, really sets up for a healthier economic environment as well as a global population. But also, it's one area, actually, health care in general, where we see that there's going to be more labor force needed versus other sectors and so a lot of people also are worried about what's going to happen from the jobs perspective and just given the amount of innovation and the amount of opportunity it's also an area just from a jobs perspective as well as from an investment perspective where we think AI could have a significant benefit and we could do a whole other panel on that and i want to later but terry i first do want to come to you because this is a stat that i think has been thrown out today already but studies are showing that female founded startups generate more revenue per dollar raised yet teams made up of only women get you know around one percent of U.S. venture dollars last year so why is no one taking the easy money and talk to us about what what the problem is and what you're kind of doing to fix it yeah I think that you know when you look at at the broader market we are seeing a lot of concentrated dollars and that means a lot of dollars are going into very few companies a lot of dollars are going into very few sectors And we're seeing this across a number of different asset classes, but of course we think a lot about venture and we're seeing this in venture in particular. When you look at the way that companies are ultimately underwritten, particularly in private markets, there's always this bias towards repeat founders, folks who have done this before, folks who have pre-existing networks. And frankly, I think that that's a fairly logical way of underwriting. There's actually been a number of statistics that have shown outcomes from repeat founders versus first-time founders, but we all know what history looks like, right? And so if we continue to double down on the way things have been done, even though there are some opportunities for some great economic outcomes, we obviously will see these downstream impacts for female founders and other demographics. That makes sense. I want to talk to you about that too, Mina, because I think, you know, women are projected to control $34 trillion in U.S. assets by 2030. Does that close the gap or do women investors end up backing the same founders that men do? And what are you seeing? I would say that there's a lot of talk about women, our female clients wanting to back female investors, call it five, 10 years ago. I don't think there was a number of managers out there as there are now. And I think that there wasn't the conviction level, but I would say there's really in the last year, two years, been a little bit of a change that we've started to witness and I think is going to continue to propel going forward as it relates to investing in, I would say, areas that are specific to females. And so, like, for example, health care, female health care, women's health care is an area where there is a lot of women that are passionate about that and are looking for ways and are investing with female VC managers because they tend to understand it better. Now, Leila, one question for you, and then I'm going to turn to the room. So if you have a question over here, just raise your hand and someone will bring a microphone over to you. but companies are taking longer than ever to go public right now it's for example lately you led Stripe series D back in 2016 10 years later it's still not public but now it's worth 159 billion dollars what does this mean for the venture ecosystem why are we in this place yeah um it's one of the you know most profound changes i think in the capital markets between public and private investments just how long these uh particularly blue chip private companies have stayed private And look, I think the reality is every single CEO, Stripe is a great example, will face the choice of whether building his or her company in the private markets or the public markets is more beneficial to executing the strategy. And I think Stripe is a good example of a company that has repeatedly said, hey, we are getting access to everything we need, huge capital in the private markets to the tune of billions of dollars that no one expected they would be able to raise. You look maybe 10, 12 years ago, that amount of capital just wasn't available for private companies. And the benefits of being able to do that, arguably for a lot of CEOs, is that they can be much more innovative in the private markets. They can take longer-term bets. They're not answering to quarterly earnings calls on shareholders asking about their capital allocation. They've been able to make massive acquisitions. So, Stripe just bought another one of our companies, OpenRouter a couple weeks ago so you see the things that traditionally were associated with being the benefits of being a public company like deep capital markets for to build out your investor base and to do acquisitions are now available in the private markets so you're seeing a lot of founders making that choice we will see if that continues i think there are also a lot of benefits of going public we have a lot of amazing you know public companies in our capital portfolio there's a lot of advantages particularly if you sell into the enterprise but there's also some real limitations in terms of ability to execute your strategy especially in rapidly changing markets and platform shifts like we're in right now so it's a trend that has been building steadily over the last couple of years and if the capital keeps showing up in the private markets i don't really see it going away i i will add though and i don't know if this is um the case in your example, Layla, but I do think that this is an increasing challenge and maybe divergence of incentives for both founders and for investors. Throughout venture capital history, the vast majority of dollars that were returned to LPs were through IPOs. And so having public exits was something that was really, really helpful for private industry. Now what we're seeing, I can't remember the stat off the top of my head, but in the last two years, the number of secondaries and the total amount that has been traded in secondaries is something like way beyond what it's been throughout all of secondary history. And that's really challenging for founders and for CEOs, right? Because now you have markets that are trading on a company that you have no say or control over. And so I think it's really interesting to see how this is going to play out over time because there are both benefits and downsides for both investors and CEOs. I think the other thing just to add to the alternative investment landscape, whether it's, you know, how long it takes to go public is one point. But what you're seeing is that we actually recommend our clients have 30% of their assets roughly into alternative investments. And the reason why is what Layla was saying about is that there's so much value creation, there's so much access to capital. The average company staying private 11 years now, that's like almost double what it was, you know, a decade ago. And so you want to be able to take place in that value creation there's also so many more private companies outstanding than there are public companies so your investable universe is more substantial and then the other the other point is that there is on the emotional side of investing when you see a portfolio that goes like this every day and when you have an alternatives portfolio that doesn't mark to market on a daily basis it puts that emotional side to the side and encourages clients to stay invested and so it's one of the things where, you know, to the extent that you have access to alternatives, you size it right in your portfolio, I think there's a tremendous amount of value creation that can happen there. And maybe one thing I would just add to bridge that, because I completely agree, and I think we talk about some of the biggest and the best private companies that have generated a substantial amount of returns over the past decade. There's also the hundreds, maybe thousands of companies that have raised a lot of capital, and the public markets aren't really open to them. They're either too small, they're not growing fast enough, their financial profile is not attractive enough. And in the landscape that we're in right now, both public and private investors are very focused on scaled assets. They're trying to understand a lot of complexity. So you have public analysts that used to cover software names that are deep covering semis and hard tech. And so to get the attention of investors, you really need to be growing at much higher rates than you used to. So, some people say you have to be growing at 30 percent plus, for example, to be a software company going public. And so, the window is open for a few, but not necessarily open for many, which is another dynamic that we see as to, you know, why there are so many private companies that have to access the secondary markets and other things. Now, because we are sadly winding down to our last few minutes, Terry, I'm going to come back to you because one of the things I find most fascinating about, especially because you talk to a lot of Gen Z founders, a lot of first-time founders, a lot are bragging, you know, with AI, I don't need the amount of people in my company. I can build a company with one person. I don't need 30 people. If that's true, do the best young founders even need to raise capital anymore? And what's your pitch to the ones who are deciding not to raise and saying, you know, AI can do it all for me? It's a really good question. We hear this a lot, and it's our job as investors to try and determine what is marketing versus what is really true, to Layla's point, not only are so many scale-ups doing so at a much faster rate than ever in history, they are doing it with much smaller teams than before in history. And so I do think that there is truth to this claim. The challenge, though, is if you are building a fundamental app layer or dev tool AI company, you need compute. And so that is a huge cost for a lot of these early stage companies. So even Even though there are smaller teams, they still need just as much, if not more, capital. What happens over time as we see costs go down I think will be really interesting to sort of see what it looks like for really small teams to build big businesses, and in particular the cost basis that's going to be needed for that over time. Thank you three so much. Thank you all for listening. I appreciate it.