A venture reset is coming, so founders should hoard runway

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 23:17

   Often it's when I'm on vacation, actually. Some of my best ideas are ones where I'm literally totally relaxed or I'm in the shower. You've done a lot of research about bubbles. I'm curious, like, how would you explain what a bubble is? A bubble is when human nature, when a lot of money is being made and people have a lot of FOMO and they want to participate and have money being made. and it leads more and more money going into the same trade, if you will, until overvaluation takes place and then, you know, ebullience and then eventually the bubble bursts. They seem to happen around these technological changes like railroads, automobiles, transistors, the internet. Sure.

2. 23:54

   Are we in one now? Well, we're certainly in a transition. You could say AI is absolutely transformational and it's the most transformational technology, I think, of all of our respective lifetimes. There are bubble-like elements. There's a lot of crazy stuff going on in the private world of venture, I think. We're starting to invest in some... Talk about a bubble where Pershing is now investing in some venture stage businesses. Met with a company, let's say, two weeks ago, and they weren't raising money. Two days later, they close around. They were preempted by some investor who put $50 million in at a $400 million valuation. Then two weeks later, they raised another $50 million at a billion dollar valuation. You know, so there's, there's a lot of people fearing missing out on, you know, the future. And so a lot of capital going into

3. 24:46

   venture, a lot of competition and a lot of preempting and, uh, leading to very high valuations. You know, I saw a company, you know, series A round at a 5 billion pre-money. How do you avoid that FOMO? It depends on where you are in life. Warren Buffett was remarkable for his discipline over a 60-year career. Actually, interestingly, in the last real bubble, the internet bubble, that's when Berkshire stock hit an all-time low because people said he's lost it. While all these other people are making money, he just didn't participate, but he just shouldered on. I think it's a question of short-term versus long-term perspective. What advice would you give founders right now who might be trying to raise it's a great time to raise capital and assuming you raise the capital don't spend it so quickly expecting money will be there forever what this is reminiscent of

4. 25:33

   is in the internet bubble there was effectively unlimited amount of capital available for kind of suspect business plans and then there was a piece in barron's uh one weekend and it listed all of the internet companies in the public markets and how much cash they had left based on kind of their burn rate, how many months to go before they went to zero. That was probably the week before the market blew up.

5. 26:00

   What happens to a private company that has no capital is a certain discipline associated with bootstrapping yourself. And then you take in 50 million or 100 million, and you completely change the way you deploy capital, betting that there will, anytime you need money, you could just tap the markets. There will come a time. There'll be some form of a blowup, a pretty high-profile one where people lose a whole bunch of money.

6. 26:20

   and that will cause a reset. And I think the companies that are disciplined in how they spend the capital so they have years of runway will be the survivors and the ones that have to raise money in three months will be gone. My advice to founders is treat every dollar as if it's your own money and spend it really carefully. And don't expect the kind of ebullient, freely available capital thing to exist forever.

7. 26:42

   So raise money now, but keep it in the bank. Don't spend it. Or spend it judiciously. How do you see the difference between investing, which is what you've typically done in the public markets versus private markets in terms of ventures?