VC funding is not popping back. THIS is the new normal—here's how to adjust. | Peter Walker, Head of Insights at Carta

Q3 startup data just dropped. We chat with Peter Walker, Head of Insights at Carta about valuations at pre-seed, seed and Series A. Why the current fundraising environment is the new normal and not about to get much better. We also talk about trends in founder vesting, and why some founders are choosing to vest for longer.

Finally, we go through what to do if you’re stuck with some product-market fit but mediocre growth, and why more exits are happening now than anytime in the fast couple of years.

Why you should listen

• Founders should not expect a return to the fundraising conditions of 2021.
• Competition among founders has increased, raising the bar for fundraising.
• Many startups are still alive despite challenging conditions, adapting to survive.
• Why the professionalization of the startup ecosystem offers more options for founders.
• Startup ecosystems are growing in tier two and three cities.
• What the one-and-done funding model is and how to use it. 

Keywords
State of private markets, early stage funding, SAFEs, startup trends, liquidity, valuations, venture capital, market analysis, fundraising, AI, AI startups, vesting schedules, funding models, startup ecosystems, venture capital

Timestamps
(00:00:00) Intro
(00:01:33) Top Highlights from Q3 Report
(00:04:45) The market won't get any easier 
(00:06:13) Two Reasons why the SAFE Boom Could Change Things
(00:12:34) Professionalization of the Industry is a Double Edged Sword
(00:17:44) Rounds that are Leading the Market are as Competitive as Ever
(00:22:36) Vesting Schedules
(00:30:05) Best Location to Raise & the One and Done Method

Chapters

• 1:33 Top Highlights from Q3 Report
• 4:45 The market won't get any easier
• 6:13 Two Reasons why the Safes Boom Could Change Things
• 12:34 Professionalization of the Industry is a Double Edged Sword
• 17:44 Rounds that are Leading the Market are as Competitive as Ever
• 22:36 Vesting Schedules
• 30:05 Best Location to Raise & the One and Done Method

Transcript

Peter Walker (00:00)

If a co-founder walks away with 30% of your company before the seed stage, getting actual venture capital is incredibly difficult. The second thing is: that yes AI is a big deal but no it’s not the whole market. It’s probably 30, maybe 35% of the early stage on Carta which means that actually it’s not even the majority of companies on Carta raising are AI companies. if you’re a pre-seed company and you don’t have an explanation as to how you’re going to use AI, you should read your deck. This is maybe not the right term for it but the ecosystem, the space within early-stage start-ups has gotten very professionalized. And when I talk to founders they definitely feel this way as though they need to hit a bunch of checkpoints (gotta raise my pre-seed, then gotta raise my seed and it’s gonna look like this and i’m gonna have people on the team) when the reality of course is that stuff happens all the time and it’s weird and messy and it takes forever or it happens really fast like it’s almost as though those founders are now going into the venture journey with this roadmap and like not realizing that the vast majority of the time, the success doesn’t follow doesn’t follow that roadmap and it’s just gonna be a lot more eerie or weird than they expect. 

Pablo Srugo (1:14)

Welcome to the product market fit show brought to you by Mistral, a sixth stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early stage founders like you find product market fit.

 Pablo Srugo (1:30)
 All right. Well, Peter, welcome back, man.
 
 Peter Walker (1:31)
 Pablo, thanks for having me. Appreciate it.
 
 Pablo Srugo (1:33)
 Dude, it's great to have you here. always looking through the posts you make on LinkedIn. By the way, congratulations on hitting 100k. That's a big milestone.
 
 Peter Walker (1:42)
 Thanks, dude. Yeah, I appreciate it.
 
 Pablo Srugo (1:44)
 Well, listen, looking forward to kind of diving into the data. i mean, obviously, we always get questions around what's normal these days, what's going on in the markets, like where are things going? What are the trends? And again, I mean, you and Carter have, I think the best data I mentioned it last time because we did a Q2 and I think we'll keep doing this hopefully recorder. But you know, you get really granular detailed data down to the cap table from each company and then build bottoms up from there.
 
 So think you have the best lens into, because private markets are like that, it depends on who you ask.

Peter Walker (2:18)
 Yeah, it's very opaque. 

Pablo Srugo (2:20)

And so I think, you guys have at-scale and granular data, which is hard to get. So maybe let's start there. I mean, you just put out the report this week. What are kind of some of the big top highlights that you're seeing this quarter? And especially focused like always on the early stage, right? Pre-seed, seed, series A more than anything.
 
 Peter Walker (2:38)
 You got it. so I think as you look over Q3, it was a pretty good quarter, all things considered. I think that one of the things that throws people off in this, and maybe we spoke about this last time, but I think it's probably worth reiterating is just like, it's pretty natural as human beings to compare whatever we're doing right now to whatever the most recent peak or big, big moment was. And that's just not that useful for founders that are trying to fundraise. Like 2021 is not coming back. We're not going to go back to that. It was the aberration. What's happening right now is actually pretty normal. you know, like we saw last quarter, there was about $20 billion raised by CARDA companies in price round funding. It's a little lower than Q2, but it's higher than Q1. Just kind of right at that 20 to $22 billion a quarter mark. And that, if you look historically in the beginning of 2020, was pretty much, it's a little bit higher than the beginning of 2020. So if you just remove all the craziness that happened in 2021, like this is normal. So I'd expect as we look, maybe do a little projection ahead to 2025, things are probably gonna get a little bit better and especially with interest rates or who knows how this election is gonna play into this, et cetera. But my instinct is that fundraising is going to get very slightly easier, but not by much. And that any founders who are kind of holding back because they want some sort of macroeconomic change, you should stop doing that, because it's just not gonna be that way. I think this is pretty much the water that we're swimming in for right

 Pablo Srugo (4:08)
 Well, it's a funny point that you mentioned that, by the way, you had a great graphic on this. I mean, we've spoken about this before and I've spoken about it quite a bit. Like those are the outlier years and regardless of what industry you look at, you see this kind of trend line, this huge bump, this huge fall and then back on that trend line, right? So that was like the outlier years. And I think in startup funding is the same thing, but interesting you mentioned that because what I hear a lot and frankly, even like we sometimes say a lot, we're guilty as we fundraise to as VCs is like, it's a tough market, you know, it's a tough market. it's like, you know, sometimes I'm like, is it though? Like, maybe it's just this is the market. That was an easy market.
 
 Peter Walker (4:45)
 Right. Yeah. Yeah. It's definitely not an easy market, but it is also, and this is tough for founders, maybe considering it is the quality of the people they're competing with has gotten much higher. I mean, you would know this probably better than I would even, but there are companies being built today and founders that are going really, really hard right now that are just kind of setting the bar at really high standards. And what used to get you a series A, no longer gets you a Series A. it's, you know, so like the expectations have shifted. The competition has increased. There are more people, there's a lot of people who are starting to found companies or think about founding companies. And a lot of those people are very talented and they're going to move really quickly. like all of that makes it feel as though it's never been harder to fundraise. Whereas I think this is actually mostly if you had asked a founder in say 2016, this is what they would have felt as well.
 
 Pablo Srugo (05:34.318)
 Yeah, I think so. My point was just like, it's not so much now it's easy, like it was easy in 21, 22. Now it feels hard relatively. It's actually - we're kind of back to normal. Like fundraising was never supposed to be that easy or never supposed to get, you know, I had a podcast not that long ago with a founder who raised that first round right in peak hype and like he was super upfront about it. I'm like, how did you raise five million out of the gate? You know, not like a super founder yet, just like a very solid engineer, think it was at Google that he worked. And he was like, it was just the times, man. Like, it just, you know, it just happened. Things like that, right? It's just, that's not normal.
 
 

Peter Walker (6:13)
 Yeah, the it-just-happened rounds are just no longer- They're no longer happening. That's for sure. some of the other stuff that really jumped out from this past quarter?  One of the things that I'm super interested in tracking is we're kind of two to three years into the extreme boom in safes. so safes pretty much crossed 75 % of early stage funding. we're talking about like pre-seed and seed effectively in early 2022. So we're like two years on from that. Like I'm very interested in companies that have raised their pre-seed and their seed on safes, the percentage of them that are going to end up raising series A's versus the percentage of them that are not, and whether or not that's fundamentally different from if you raised price equity before and go to priced equity. On the whole, like if you think about it just as a hypothetical, it shouldn't matter, but I think it probably will matter.

Pablo Srugo (7:09)

Why do you think that?

Peter Walker (7:11)

Well, two reasons. One, because I think that people are treating valuation caps as though they're valuations and you kind of have to exceed them in order to be doing well. And that isn't historically true. Something like 30 % of the time you don't exceed it and you raise on a valuation that's less than the valuation cap of your most recent safe. That's -

Pablo Srugo (7:30) 

30%?

Peter Walker (7:32) 

30%. Yeah.
 
 Pablo Srugo (7:33)
 Wow, okay. So that's akin to like, I mean, it's not a down round at all,but it's kind of the same feeling.

Peter Walker (7:36) 

It’s not a down round but exactly, people treat it as though it is a downright. I think that, so they do kind of weird things to avoid that. And I think that's actually throwing people off. The ValCap is just, I mean, not that early stage valuations are much more than a guess, but the valuation cap is really just like a placeholder so that you can come to some other agreements about ownership. It's not a real valuation on this company. it doesn't include any or most of the time it doesn't include much due diligence at all. So I think maybe the reckoning is too strong, but I'm very interested to see how those companies graduate into traditional priced equity on the pre-seed side. And then the last point that I'll make is 2025, every one that we talk to is trying to figure out how do we get some liquidity in the market? And we're starting to see that pop back up. We saw the most acquired companies off of Carta in Q3, the most since Q1 of 2022, I think. So 170 companies acquired last quarter. My instinct is that that will continue to go up. And I don't have great data on whether or not those are fire sales and nobody makes any money or...
 
 Pablo Srugo (8:52)
 That's what I was going to ask. Yeah, are they successful or not so much?
 
 Peter Walker (8:55)
 My instinct is that a lot of them are, you know, about half of that 170 is seed or pre-seed. So at that point, you're basically just hiring the team mostly. There are probably some better acquisitions that are coming, but everything that we're hearing and when we look into M&A or secondary trends or whatever is like, people are just starved for liquidity, obviously. So when will IPOs come back? Who knows? But I think the non-IPO routes to liquidity are going to be much more in vogue next year.
 
 Pablo Srugo (9:23)
 yeah, part of me does wonder like, you know, just how much of this, these, these exits are kind of, you know, not, not positive, kind of like more something you do because you have to, then something you do because, because you want to, and part of that is just companies finding themselves. Like, I think that we talked about this last time, but like, I think that there's just such a big lag between when things got hard and when that difficulty led to an outcome, whether it's like a down round in some cases or an exit in others, think that startups are pretty malleable in general. And there's always so many things you can do to stretch runway if you're really willing to go through the pain. I think a lot of founders are that type of person. They're willing to go through that pain. that's just taking a few pieces of data that I get anecdotally. But I feel like a lot of startups that kind of just held on for dear life or only now starting to be out of options. And maybe one of those options is wanting down. Maybe one of those options is an exit, but not necessarily like a gray one.
 
 Peter Walker (10:27)
 Yeah. I agree. I've actually been, I think the time lag thing throws a lot of people off because they think it's been two or three years. Like, of course all of these companies have to like have either succeeded or failed by now. And that's just not true. know, founders do all sorts of things in order to make their businesses work. And they're willing to take on a lot of pain. they're willing to change radically their, their original business plan. So a lot of those companies are still kicking. Maybe they haven't really found that next new wonderful thing, but they're certainly still alive. And that's causing a lot of these metrics to look sort of strange for sure. I think that's well said.
 
 Pablo Srugo (11:02)
 Well, I think, what comes to mind, because at least there's actual data on this. Like if you think about public markets, and you think about something like Bird or something like Sonder, right? I don't know if you followed Sonder. I followed it quite closely. went through, it went IPO through SPAC, I guess it was probably two years or so ago at a $2 billion valuation. Today it's worth sub hundred million, anywhere between 15 million was the lowest I saw it to maybe like 50, 60 million, you know, really at peak. So it's just like 99 % down. But the true kind of point is, they're still alive. mean, there's still, you know, revenues actually, they're flattening or still growing. They burn money and that's why they're, you know, they're not worth all that much. But my point is, if that startup was private and it didn't have a stock ticker that changed every day, it would probably still be more or less at a unicorn valuation. And you just don't really know how well or how poorly it's doing because it's a public company, you can see, okay, like clearly it's priced for bankruptcy at some point. That's why it's worth 60 million. Maybe it'll turn it around, but it's in serious trouble. Bird, same thing, like they were bankrupt for so long and then they did that merger. I don't know if you looked into that, but my point is like that merger being one these potential like exits, right? Again, a company that is kind of so well known that all this stuff around it is public. It takes a long time for the bankruptcies or the winds down or the forced exit, forced mergers to actually happen. in the meantime,
 There's a lot of different pieces that you can pull together to keep going and see if tomorrow's going to be a kind of more sunny day.

 Peter Walker (12:34)
 Yeah, I mean, that's really well said. There's just this, you know, because the private market is so opaque and you don't really you can't really know what's happening within each one of these companies in between rounds until you get like this one marker. And that's all you know for the next couple of years. There's just a whole hundred things that could be happening good, bad or otherwise inside of these companies. We just don't really know. And a lot of them stick around a lot longer. There's also- I wonder what you think of this, actually. There's some part of me that thinks that the early stage startup thing, thing is maybe not the right term for it, but like the ecosystem, the space within early stage startups, it's gotten very professionalized. Like startups feel, and when I talk to founders, they definitely feel this way as though they need to hit a bunch of checkpoints. I'm going to raise my pre-seed and then I'm going to raise my seed. It's going to look like this and I'm going to have this many people on the team and all this stuff. When the reality is of course that stuff happens all the time and it's weird and it's messy and it takes forever or it happens really fast. It's almost as though those founders are now going into the venture capital journey with this roadmap and like not realizing that the vast majority of the time the success doesn't follow that roadmap. And it's just going to be a lot odd, a lot more eerie or weird than they expect.
 
 Pablo Srugo (13:50)
 Yeah, a hundred percent. For what it's worth, I don't quite like, you know, that as a, as a guy, like the professionalization of the industry, because I think it leads to more options for everybody, for both sides. Right. And so I think, you know, as a founder, it's like, one of the awkward things is where you're not quite series a, but you're not quite seed, you know, you raise this, you know, the C extension and, and if there's more professionalization, more VCs, then there's more kind of opportunities to raise a different parts of the spectrum that I actually like. What I don't love is the idea of checkpoints, the notion that you like to go into pre-seed thinking like, okay, and then in 12 to 18 months, I'll be here and I'll raise this round. it's like, you this stuff, I've seen this and we're going on tangent here, but I don't really care. I was talking to one founder I work closely with and we were talking about forecasting. And this is like a Couple million in ARR, so has some product market fit, but I would argue they don't yet have the levers, the engines proven out. So they've gotten traction. They clearly have product market fit. It tends to go up and to the right, but it's not like they've got formulas where they're like, hey, every time I spend this much in this channel, this much comes out. And yet they feel forced again, because part of it's part of this kind of professionalization theme to say, okay, like here's my budget for next year. Like here's what my revenue is going to be at the end of next year.
 
 Peter Walker (15:12)
 Mm.
 
 Pablo Srugo (15:12)
 I'm just like, what's the point? how you don't you can't just say, you know, take Uber or Facebook or take your biggest company that you love. They do this. So I should do it like they have proven out formulas in so many different parts of their business through so much time with so much data that they can go and give you estimates and be plus minus five percent almost every time you don't have that. And so what good does it do to go out, you know, 12 months and try to behave like a big company and you're just pulling numbers out of nowhere, it does more harm than good because you kind of start, and part of the reason I said that is because you start not just to believe that, but to measure yourself against that. And it's like, well, we had a really good quarter, but it was below forecast or our quarter was not good, but actually above forecast. like, I don't care about your forecast, dude. Like, who cares? You made it up.
 
 Peter Walker (16:07)
 We don't expect you to be able to tell, to predict what you're going to be in six months, right? It's like all about momentum and progress. Yeah.This is like a structural problem in some ways with the whole idea of venture capital. Like for instance, there's a weird sub segment, like side topic here, which is the way that you are found that you're talking about that founder thinking, which is I need to compare myself to Facebook or other people. That's kind of how auditors sometimes compare startups to their growth rates when they're setting four or nine A's or things like that. Like they're using data sets that include only the absolute major successes and not actually the full data set that includes all of the failures and the weirdness that happens in early-stage. I couldn't agree with you more than it messes with people's heads to feel as though there's a set path. I gotta hit this path. And if I hit this path, I'm doing great. And that's all that matters. And I think that and it's kind of what happened to a lot of founders as the market turned was they may have even struggled and then hit their numbers. And then a lot of people turned around and said, well, those numbers don't mean anything to me anymore.

Pablo Srugo (17:11)

100%

 Peter Walker (17:12)

The number now is 2X that. they go, well, I was lied to. And it's just like, that's not the way the market works, right? It's an ever changing environment.
 
 Pablo Srugo (17:19)
 100%. Yeah. And when you say that company that went bankrupt, I won't say which one it was, but they were after ARR and customer satisfaction. And they were like, our ARR was a hundred million and it tripled. And our customer satisfaction was off the roof. And six months later we were bankrupt, right? Because like those things weren't the things anymore. was, know, all your margins, like, you know, what's cashflow look like? You're too big to be growing that fast and burning this much money overnight. So you just can't do that that quick.
 
 Peter Walker (17:44)
 Yeah. There's also a part of this, when we're talking about one of the dynamics at the early stage, which I think is really interesting is there's a, know, when we look at some of the metrics around the rounds that are actually happening and like the kinds of rounds that are happening, they're really clean and they're usually for pretty decent valuations. Like if you're a founder today, things like high liquidation preference on your term sheet or participating preferred stock, like stuff that favors the investor ,they're really not showing up in basically any early stage deals. Like less than 3 % of early stage deals on Carta have a liquidation preference over 1X, which makes sense in some ways, but it also invites the question, which is if these rounds are getting done at pretty high valuations, especially here in Silicon Valley, and they're super clean, like why are seed stage valuations as high as they are? Is basically the question I've been asking myself for so long. And my instinct is that It's just because the rounds that are leading the market are as competitive right now as they've ever been. And founders actually, if you're lucky enough to be in one of those rounds, can dictate terms in some ways. Whereas at the later stages, even some of the really good rounds are happening at a 25, 30, 35 % discount to where they were a couple of years ago. Whereas the early stage doesn't feel like, yes, fewer rounds are happening, but the competition is still really fierce.
 
 Pablo Srugo (19:01)
 What are actually on that? Like what is the latest numbers on, you know, bottom quartile, top quartile, median for kind of pre-seed round, seed and series A?
 
 Peter Walker (19:10)
 Yeah. So for a pre-seed, which we define, you know, there's a lot of different definitions of pre-seed. We would define it as basically from a million to 2 million in fundraising on a safe or a convertible note before you raise any price rounds. If you're doing, if you're talking about pre-seed like that, the median right now is still pretty much right at 10 million ValCap. So about a million bucks raised. On a 10 million cap, you're talking about 10 % or so of the business being sold in a pre-seed round. That's been pretty flat. There's been a little bit of the range has increased. So the lower, the 25th percentile is lower and the 75th percentile is higher than it's been in a while. The 75th percentile is something like nearly 20 million, whereas the low end is more like five. 

Pablo Srugo (19:54)
 Wow, like raising two, like two on 20. That's like 75th.

Peter Walker (19:57)

Yeah. Yeah. Like two on 20 or one on five, like both of those kinds of things are happening. a lot of that is just due to like,who is the founder? Are they a repeat founder, et cetera, et cetera. For seed, it's a lot easier for us to judge this because it's just price. If you just look at price round seeds, those have actually gone again, the valuations on those are still very robust. It's about 14 and a half million pre-money. You add in about 3 million raise that's 17 and a half, 18 million pre-money or excuse me, post-money. That's a very healthy seed valuation. That's about as high as it's been in quite a while not accounting for inflation. So maybe there's some inflation adjustment that needs to happen there. Those are very robust. then series A is again, you're talking about a 40 to 45 million pre-money valuation on the series A company on Carta. So that makes sense in terms of the jumps, but those are expensive. 

Pablo Srugo (20:47)

10 million kind of a 10 million debt,10 million dollar round?

Peter Walker (20:49)

Yeah, about 10 million raised yourself. Now, the question that I often get beyond that is, OK, but what about AI? What happens if you just strip out AI? First point is, why would you strip out AI? It's a major part of the market. It's weird to be like, take the thing that people are talking about and take it out of the full data set, which is an odd thing that people are always on about. The second thing is that, yes, AI is a big deal, but no, it's not the whole market. It's probably 30, maybe 35 % of the early stage on Carta, which means that actually it's not even the majority of companies on Carta raising our AI companies. They do have, some of them have AI stories. They may be using AI and automating parts of their business or whatever, but they wouldn't be called.
 
 Pablo Srugo (21:34)
 Well, probably almost all. I struggle to see almost any pre-seed these days, like new, companies that aren’t leveraging AI somehow
 
 Peter Walker (21:40)
 For sure. For sure. If you're a pre-seed company and you don't have an explanation as to how you're going to use AI, you should redo your deck. For sure. Like people are going to ask. Definitely. But investors, at least as far as we can tell, are being a little bit more discerning about, hey this isn't a core AI infrastructure, dev tool, whatever company whose fundamental existence is predicated on AI existing first. And we're going to give them one valuation versus this is a company who's adopting AI as the latest technology and is using it in their business. And they're going to get a different valuation. that latter company, those valuations are a little bit more towards the median. The infrastructure valuations can be still super, super high.
 
 Pablo Srugo (22:24)
 The other thing you've talked about recently is vesting schedules. I have this conversation still quite often with founders and you were talking about changing lengths or something like that on vesting schedules. What was the story there?

 Peter Walker (22:36)
 Well, I'd love your feedback on this. I think, Sheal from Better Ventures put this out there and he was like, hey, know, founding investing schedule should be eight years at the beginning because that accounts for how long it's going to take you, how much longer it's taking companies to go public and all the back and forth about, you know, how damaging it is to a business if one of the co-founders leaves. And then I put out a chart that showed like, this is where you would be if you said it in eight years, you'd be on the median basis, like between Series C and Series D by the time you were fully vested. And obviously founders didn't love that chart. I wonder what you think like right now, all most founder vesting schedules are still four years. That's the most common that we see. We're seeing a little bit of a trend towards six, but we haven't seen very many eights. And I don't know, you know, founders, as you might imagine, push back on that pretty heavily. So what's your thought there?
 
 Pablo Srugo (22:36)
 I mean, the devil's in the details 100 % because like if I put myself in founders’ shoes and I'm starting a company with one or two other people and the only way that I can lose my unvested shares is if I voluntarily quit, then I would want something very long. Like why not make it six years, seven years, right? Why not make it in such a situation that If you quit five years in, you get less equity than I do because I estate seven, knowing that most of these businesses take minimum seven, usually like 10 to 12 from start to exit, assuming it's like a material exit. The challenge is there's all these other side pieces like what about if you die? I mean, that's another thing that's in the investing schedule literally. So like, what if you get hit by a bus? What happens to your invested shares? And there's no clean answer, you could easily say, well, it's obviously not your fault, so you should still get it all. But then the flip side is, but then you're leaving me holding the bag, what am I going to do with this company? But that's where it gets trickier. If it's a three year investing schedule, you might say, yeah, it's true. like one year in, I get hit by a bus, I keep holding all my equity, you can't really do anything anymore. But if it's six years in, should I really lose that extra year? I fought all the battles with you, a little bit more. And then the real one, the one that's really like a stickler would be, what if you get you know, if you get fired, right, which, again, you got to think through that. And do you control or do you not control that decision? Because what if you get fired because you're just like, not working hard enough and you literally legitimately shouldn't be here anymore. Okay, well, do you want to put yourself in that position for six, seven, eight years or not? What if you don't control it and there's board control and it's not just you three that are going to decide this? Like, those are the things where it gets really tricky and why there's no clean answer. But I will say like, as an investor, That's usually coming into rounds like at seed stage where we don't have control where to the extent that we have a board seat, we're always like outnumbered by the common and the founders, you know, on purpose. I always want to see vesting in there. I want to see minimum four years and I really have a hard time.
 
 Peter Walker (25:49)
 four years from when you invested.
 
 Pablo Srugo (25:51)
 Like at least four years overall, I would love to see four years from when I invest it, but it's usually not like there's usually such a big battle about this. And it's one of the things I'm willing to give up on to some extent. Like I want to see some vesting, but the amount and sometimes I'm not so sure because sometimes it is a situation where it's like, listen, I can't, I can't fire you. Like only you can quit because like we don't have board control. So like, not that I would ever do that, but even if you thought that I might, I can't.
 So why wouldn't you stretch it? And there's not really a good answer other than just in your mind, you just emotionally feel like something's better about it.
 
 Peter Walker (26:26)
 Well, the answer is like, I already worked for this, right? Like that's already mine in my head, right? Like I did it, but I can understand, you know, look, if I was a series A investor, if we just move it down one funding stage and I was considering an investment in the company and all three co-founders were fully vested, that would worry me in a bit, right? Like that would be something that I would definitely talk to them about. The pushback that the founders have made, which I think is totally reasonable is like one, you know, probably someone along the way of those two or three founders put in capital to the business already to, you know, it's, it's their business. They're the ones that actually got it to this point, et cetera, et cetera. I think- vesting schedules, why vesting schedules are so emotional is that they function like this at the beginning, they function like a prenup where you're actually just protecting yourself against the loss of one of your people that you're, you're partnering with us on this business. And as you probably know from a lot of these cap tables, like if a co-founder walks away with 30 % of your company before the seed stage, actual venture capital is incredibly difficult. Like there's just, the cap table becomes a lot less investable on that basis. Once you're actually a going concern though, then the vesting schedule becomes about aligning investor and founder interests. And there was a long conversation about revesting and everything.
 
 I don't really know if I have strong opinions there. can kind of see it from both sides and maybe it's the kind of thing where it should just be negotiated in every term sheet and every outcome is going to be a little.
 
 Pablo Srugo (27:55)
 I think, mean, that's, that's probably the, the right answer. I think part of the challenge is like, even if let's say it's series a, and let's say you've been there for four years and you're fully vested, the challenge is like the valuation you get at series a isn't because you're money-losing, $3 million ARR, business is actually worth $50 million. It's because, you know, we all believe that you're going to do six and then 12 the next year. We only believe that because we believe in you as the team and the founders that are going to be able to will that into existence. So like what's the protection for the investor that you're going to stick through and do that? And that's really the kind of give and take there. So there's definitely logic to it. But yeah, I mean, I just don't think you can come up with a blanket answer, but it is funny how we said like this business is something I always said, like there are so many standards in the world of VC. like when something is standard, can't like to try to not do that and think first principles are so hard. the four year vesting there's no magic about four, why isn't it two, three or six? But like, four is it, like it's just, it's four. I don't know what to say.
 
 Peter Walker (28:57)
 And I feel like the defaults here, the point about defaults applies to a ton of things. I mean, you know, the one that is the most obvious to me is like, why do we use post money saves and the way that we use them? It's because it's what people have on the YC website. Like literally you can go into our data and find the moment where YC changes what the default is on their website. And it's very obvious in the numbers what people are using, cause they're just downloading it from YC. The same thing applies to like, I was, you know, I don't, in that back and forth, there was a YC partner who jumped into Shield's comments and was like, hey, we're considering changing this for YC companies, that it would be an eight year vest at the beginning. And I like, if that happens, the number of companies that would just adopt the YC standard would be quite high.

Pablo Srugo (29:39)
 Guaranteed yeah guaranteed. There's a few only few that can set a trend like that and obviously YC is one of them and yeah, I guarantee you
 
 Peter Walker (29:47)
 100%. It's wild how, like, and that has material impacts to so many people, but we're just kind of, as you put it's like, well, this is the standard. So why do something different? Let's just go with that and keep building.
 
 Pablo Srugo (29:57)
 Anything else happen that's top of mind you find this quarter? mean, quarter by quarter, like the reality, you know, only so much changes. So I understand that,
 
 Peter Walker (30:05)
 for sure. I think, you know, there's some back and forth on location and where's the best place to raise early stage, et cetera. I think, to be honest, the big takeaway that I have from the location data is that it's easier to raise venture capital now across many, different places in the U.S. than it ever has been. Like there are actually growing ecosystems in places that, you know, five, 10 years ago had no VC at all. So that's awesome. That's pre-seed and seed primarily. And those are places, you know, like there's the obvious ones like Silicon Valley, New York, there's the tier two LA, Boston, Denver, Boulder, et cetera. But then there's like a really long list of what we would call like tier three or up and coming cities like Charlotte or Atlanta or like places in Florida that are not Miami, et cetera, etc I think it's pretty cool. But the other, flip side of that is Silicon Valley is still dominant. no matter, it's becoming easier. Like more places have their own little ecosystems, but no one's really touching the Bay for both the rapidity of rounds, the fundraising capital, and then especially as you move beyond about series A.
 it becomes much more concentrated into the Bay Area, New York, and maybe a couple other places.
 
 Pablo Srugo (31:28)
 I go back and forth on this depending on who I had the last conversation with, right? Because part of me is like, yeah, don't, I mean, you can build a business anywhere, you can do everything anywhere, whatever. And then part of me, then you just read the amount of dollars in the Bay Area, the amount of talent in there, just the concentration of everything. And it's like, no, who are you kidding? Just move to the Bay Area. If you can't, it's like movies, man. You wanna be a creator or whatever, just go to LA, man. Come on, just do it, right?

 Peter Walker (31:54)
 Yeah, go wait tables at Hollywood.
 
 Pablo Srugo (31:56)
 If you're in your 20s and you can, right, and you really are like, I just want to be a creator or I just want to be a founder, you know, just go, so I don't know. I also lean between the two like all the time.
 
 Peter Walker (32:04)
 I'm with you. Like, look, if I was starting a company, would I would move to the Bay. But I do think that it's cool to watch ecosystems grow up. part of it is also about the investors, not just the founders. Like a lot of capital for these tier three cities is coming from local investors. Like there's, you know, some of it is coming from the Bay, sure. New York. But a lot of it's coming from local places, which has a different sort of feel and vibe than always just reaching out to Andreessen and other people. So, I think that's good overall for startups. i also think, I mean, more this year than any year that I've been focused on startups. There's just a ton of founders who are not as enamored with venture capital overall as a pathway. They're just like, yeah, maybe down the road if I need it, but pretty much I'd like to bootstrap and I'll see where it takes me, but at least I get to control my own destiny.
 
 Pablo Srugo (32:56)
 Yeah, I think I think that's something that I've seen a lot. And I think if you're doing that or if you're doing like this one and done that we're talking a lot about, which is like raise a pre-seed or raise a seed and then just don't raise anything else, then where you are matters.
 
 Peter Walker (33:06)
 Have you seen a bunch who explicitly say “I'm one and done”? that's my game plan?
 
 Pablo Srugo (33:10)
 I don't know about explicitly say, but almost maybe after the fact, realize that, wait a second, actually maybe I won't raise another round. Like, you know, these sorts of things are just readjusting, maybe less, you know, what I've seen is the opposite is that in other words, like it used to be, I think more common to just say, okay, and here's what I need for a series A, which I always, well, always maybe a strong word, but like I've hated for a long time. Cause it's like, why is that the goal? Like, why does that need to bethe goal? like raising a series A is gonna solve all your problems, just another thing, you know? And so I've seen that less and so it becomes much more about, okay, like, how do I find product market fit? Like, how do I scale efficiently, whatever those things are? And the fallout of that might be like, I don't need another round or I won't need it for a while. Or maybe that's not like the number one thing that's stopping me from being successful. But just, you know, for on a serious note, like to my last comment, I mean, I really do think you can build a business anywhere. Obviously, we've seen that time and time again, I think for specific things like if you want a consumer startup and go big or go home, then the Bay Area continues to be the place. If you need crazy amounts of capital, the Bay Area continues to be the place. there's so many different models these days and that's 100 % positive to your point.
 
 Peter Walker (34:24)
 Yeah, it's a really good thing. And I'm interested in the founders who I was just talking to Bryce Roberts at IndieBC about the one and done model or the will be the last money you ever take. And I think a lot of founders are the interesting part is, as you mentioned, when you kind of come to that realization after you've taken some capital, because I'm not sure whether or not you as the investor care. It seems like you would care pretty deeply if a founder comes to you and says, hey, look, we're never planning on fundraising again, well, that mark is just gonna remain where it is and then at some point in the future, maybe you get paid out with an acquisition, but it doesn't really, if you have to communicate to your LPs on a quarterly or annual basis, I don't know how that makes you feel as an investor.
 
 Pablo Srugo (35:07)
 It's definitely, I mean, you know, it's yet another hurdle, but like we've also seen the flip side of that, which is you get these markups and they don't necessarily mean or lead to anything. And so like I'm pretty and we're at sea like we're in an advantageous place in the sense that we still have, you know, relatively, you know, some hundred million dollar funds like we don't need a unicorn or bust. Like we just don't need that. And if we own 10 percent of a business, 20 percent of a business that exits for 200 million dollars, like we're doing really, really well.
 And so from that vantage point, like it's not the challenge I would have is like to the extent that somebody feels like it's just not that aggressive, right? Like they don't really, you know, that they're okay with it becoming a three or $5 million top line business and they aren't growing 20%. And that's fine. Then we're just never going to be aligned. And sometimes that's the subtle message that can get communicated. If you're talking about this, like one and done model, but like once the money's in, I definitely don't care about you trying to get me that next markup. I really don't and I've said it to many companies I work with that have asked me that don't have the numbers, don't have more than numbers -the levers to deploy that capital. And they've said to me, do you think I can raise a series day with these numbers? And I'm like, you probably can't, but even if you could, just based on the numbers and the data, you're off market, but even if you could, don't do it. Why would you do that? Why would you put yourself in such a deep prep stack, us in a worst prep stack? it doesn't make your odds of success that much better. So in that case, like I'd rather you at that point, like it's kind of this third to third to third, right? Like the third that failed, they failed. The third that crushed, crushed. But that third in the middle, I'd rather you stay lean and do this kind of one and done model and make something out of it for all of us than try to just go down blindly down the path.
 
 Peter Walker (36:56)
 All well, this is completely off topic, but like, I'm sure that over the last year or two, you've had to have a lot of conversations with people about that third path, like where they are. They're not failing, but they're not crushing. they're kind of like, do I keep going? how do you know that an entrepreneur is going to keep going on that path? Or when do you have that conversation about like, Hey, you're an amazing person. you maybe should try another thing. Like this is kind of a dead end.
 
 Pablo Srugo (37:25)
 Well, I think that  dead end conversation is usually on the third that are like failing, like truly not there's, there's nothing there. There's like little to maybe no revenue. It's kind of, that's what it's really tricky, right? Like when you had this idea of like, things are going to work out this way, do especially pre-seed, right? Really early, no revenue. And you try it, you try it and you just don't get any traction. There is no revenue there. There's no IP because there's no value delivered. So nothing really matters. And then it's more about like, Hey, do you want to just keep trying multiple times at different things or do you want to return the capital that's left? Maybe, you know, take a year's worth of severance and go do something else, which is like always a tough conversation to broach. But I think something that needs to be discussed openly because it's part of the game, like it genuinely is part of the game. The middle third have a bit more options because hopefully they have half a million, a million, two million in ARR. And the problem is just that instead of growing 100 percent, it's growing like 50 percent or less.
 
 Peter Walker (38:24)
 Thank you, percent. Right. Yep.
 
 Pablo Srugo (38:25)
 And so then it's like, okay, you're not really like series a level, but less important than that, like the path to a hundred million seems really unlikely if you're adding sub a million dollars a year in revenue at that early stage, like something is not clicking. So I think the question there is, or my advice is always like, first of all, stay lean, which is almost why raising more money is actually a detriment because it's going to make you do the opposite of that. So stay lean so that you have more options. maybe take like, it depends on the energy level. Like if you have the energy level and you wanna keep taking some shots at, okay, we're gonna try this channel. We're gonna try that messaging. We're gonna try this thing. Keep doing it as long as you're kind of staying lean. And other than that, you know, try to become profitable and then try to exit for, you know, two to five to seven X top line, depending on how strategic or not that it is. And we'll all not get a zero. What else can you do, right? Versus like, because I've seen the opposite, especially in that 21, 22 timeframe where those companies were able to raise because it was too easy. And now they're doing, know, five million ARR, with like 50, 60, 70 people not growing at all. And it's like, there's just nowhere to go.
 
 Peter Walker (39:36)
 Right, yeah. And then do you ever have it with a founder and gets to that point, makes the necessary changes, gets to profitability or very close to it, and then looks up and is like, well, I don't want to sell. I want to try to just, I kind of just want to run this business for
 
 Pablo Srugo (39:48)
 Yeah, I mean, I guess it could definitely, it could happen. Like I, I think it could happen. I think, honestly, most founders and like, at least the hope is there's a high integrity component. So like, to the extent that that's what you want to do. And I have actually spoken not portfolio companies of ours, but companies that are not our portfolio companies that have done that. And then they've grown to like 10 plus million, but kind of like, I just want to do this profitably. I mean, then you got options, right? Like find ways to kind of you know, do a secondary, bring somebody else in who's willing to ride that different battle with you. So I think there's options. i think that the frustrating part is the companies where they had some growth, but then it stalled. But because of the amount of money they raised and spent, there's just nowhere to go. And it's like you look at the business on a spreadsheet and you're like, this is an OK business. Like it's a fine business. has some value and none of it will be able to be realized because it was poorly capitalized and the money was spent.
 
 Peter Walker (40:44)
 Yeah. it's tough man, All these, all these like, all these different changes.

Pablo Srugo (40:49)

just buy houses, dude Just buy houses and buy real estate.

Peter Walker (40:51)

There we go. That's easy. Yeah. I love it.
 
 

Pablo Srugo (40:54)

Cool man, well Peter, it's been great having you on the show again dude.
 
 Peter Walker (40:57)
 Absolutely, Love to be back. Appreciate it.

Pablo Srugo (41:01)

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