What does it take to be a mega fund in the world of venture
capital? Today, we're talking about a
mega fund. You may never have heard of
Lightspeed Venture Partners, who have done a terrific job of
flying under the radar despite raising $9 billion alongside
some strong exits this year. In this episode, we're going to
dive into what makes a mega fund using the example of Lightspeed.
We'll look at their business model, the startups they're
invested in, the IPOs that they're leading, and how they're
seeing significant growth while seemingly spitting in the face
of the AI bubble. But first, we're going to
discuss the new developments in the relationship between Amazon
and open AI and the shifting allegiances in AI.
This is the newcomer podcast. There, there, there was a time
where you one of the most exciting things that could have
happened but didn't happen in Silicon Valley would be that
Amazon would buy Anthropic. Amazon, you know, a big cloud
service provider invested in Anthropic doesn't seem to have
figured out foundation models. But we've really put a nail in
the coffin, I think this week of that idea.
Amazon just turned around and struck a huge deal with open AI.
Tom, you cover these cloud companies, the foundation models
and the deals. They're striking, Yeah.
What do you what do you make of Amazon's decision to strike an
enormous deal with Open AI? Yeah.
Well, we should have some caution here that it's just sort
of in discussions right now. So I don't know if it's.
In talks, it hasn't closed yet. Yeah.
But I mean, the origins of this basically was a couple of months
ago, Amazon and Open AI announced that they had signed a
multi billion dollar cloud computing deal with AWS where it
was going to be hosting some of Open AI models on AWS.
And it was sort of the first big non Microsoft deal that Open AI
struck once it got out of it it's exclusivity agreement.
And, you know, in case you were worried after Amazon and Open AI
struck a deal that it wasn't circular enough, fear not, fear
not. And, you know, people always
wonder with Open AI, how are you going to pay for it?
The answer is more money from the cloud computing companies
that they work with. So it looks like Open AI is in
talks to get around $10 billion, maybe more from AWS.
And, you know, just to, like, take some pride in the way this
is all progressed. We did a story, I think it was a
newsletter item a couple of weeks ago, where I talked about
how Amazon had really started to shift away from its anthropic
relationship, that for a time anthropic models were the Amazon
bet, and that was the way it was discussed internally.
I was told Jeff Bezos was going around talking about anthropic
as the Amazon bet, and it's clear that they have shifted
allegiances a little bit behind the scenes.
When I wrote that, AWS was very upset with me and they said that
to say that Anthropic is no longer, you know, our big bet
and one we're committed to was absolutely wrong.
And they pointed to all these press releases that Anthropic
would make claiming that, you know, you know, Anthropic is
still our primary provider. Sorry, AWS is still our primary
provider and we use their chips. Yeah, that's clearly changed.
That's that's no longer the case.
There's been a. Shift there.
Yeah. And, and I think as you wrote at
the time, that newsletter item, like I think there's been
shifting allegiances across the tech world where once Microsoft
was the exclusive provider for open AI and then they've
invested or planned to invest billions of dollars into
Anthropic. Amazon obviously made their big
play with Anthropic. Now they seem a lot more
attached to open AI. Google is kind of relatively
neutral, but more focused on their own models.
And I think it just goes to show that there is just such an
insane need for compute right now and an overall belief in AI
that there's no reason to pick a horse.
You really kind of just need to bet on the industry at large and
just take as much money and give as much money to keep it going.
Amazon's also trying to get Open AI to use its chips here, right?
Yeah, that's part of the deal. Amazon is building chips that
they want open AI to be using to diversify off of NVIDIA GPUs.
Also in Anthropic deals of AI world too, they announced a
couple months ago a deal with Google to use Google's chips.
So Google is has a partnership with Anthropic as well in this
even beyond, you know, focusing mostly on and their internal
products they do have some ties to.
Anthropic, maybe Anthropic somewhat jilted Amazon first by
doing stuff. With Google, a Google deal.
So then we have to circle back around here, yeah.
Yeah. Well, but also keep in mind that
Google had already invested money in Anthropic before that.
They're they're they're a significant investor.
And I actually, my understanding is that most Anthropic training
and inferencing, at least training I know is done on TP us
on Google's chips. So there was already like a deep
relationship there. I mean, the fact with Amazon is
that they're kind of like the rich kid that has to buy their
friends. No one likes their chips.
They just aren't very good. I'm sorry.
I'll, I'll, I'll, I'll say this strongly on the podcast.
I'll have anyone come in here and disagree with me, But every
conversation that I've had with people in the space says that
like the Tranium and Inferencia chips that that Amazon makes are
like a huge tier below certainly Nvidia's chips, but also
Google's Tpus. And so they got to, they got to
get people to use them somehow. And $10 billion is not a
terrible way to do it. And if there's a core financial
engineering risk with AI, it's that I invest in you and then
you use that investment to do me a partial favor by pretending
like there's enthusiasm for my product, even though there isn't
really enthusiasm, right? So in the case of chips I Amazon
invest in, you open AI and then you turn around and use my
chips, show a little enthusiasm, and then maybe I get a market
premium on my stock. My stock goes up.
That's great for everybody, you know, everybody involved and,
and who cares, right? And similarly this, you know,
this is the cynical case. The cloud companies benefit from
open AI, anthropic, etcetera, spending on these enormous
training runs, right? So they want to keep this
foundation model game going and so keep the money going there
also so it can turn around and spend, spend money on on us.
So there's definitely, you know, this cynical argument that
foundation models like Open AI and Anthropic are so valuable in
part because the people investing them want them to be,
you know, because they're, they're big, they're big
customers and they're validating a lot of the products they're
creating. And This is why to me, this is
the bull case for Google, because Google's on both sides
of it. If you think foundation models
are going to be revolutionary and not only revolutionary but
capture a lot of the economic value of what happens in AI,
Google has Gemini. If you don't and you think all
these models are sort of ludicrously spending on training
runs that are just like lining the pockets of cloud providers,
well, Google has one of those too.
So I I think, yeah, good to be in both camps.
Yeah, they have the chips, they have the models, they have the
customers and they can force these AI models down the throats
of these customers by putting it in all the different, you know,
crevices of their products. Sorry as a gross image but I
think like you know, this all leads to what I thought was a
fucking hilarious video that Greg Brockman the Co founder of
Open AI just made where he, I don't even know what it was for.
But it's basically this video where he talks about the
importance of compute and is like as time goes on we just
need more and more compute. The funnier part of this video
to me was him saying at first we tried other ways to build our
models. Open AI did not set out with a
thesis. The compute was the path to
progress. It's that we tried everything
else and the thing that worked was compute.
We really wanted to find another way to grow our company without
just demanding multi $100 billion of compute deals, but we
can't. This is what it is.
So please, it's like a, it's like APSA.
It was like for only a dollar a day he was getting.
Quirky with it, you know, he was doing like a oh, how do we do it
kind of tone. I don't know.
Yeah. It was for only for only a
dollar a day. You too can keep Open AI afloat
and give us the compute that we need.
Please reach deep if you have GPUs, if you have GB 2 hundreds,
if you have anything that you or your friends might have, please
donate them to Open AI because that's what we need to keep
going. I don't know what the fuck this
video was. I don't know who it was for.
I honestly, if you start to look back at this era from 10-15
years from now, if it does happen to go sideways or doesn't
turn out the way people expected, this video is going to
be one of them. To me, that's just like, what
were we thinking? How do we not understand that
there was like something slightly concerning at the core
of the way these companies run? To be clear, my point of view
remains that we are imbuing everything with the capacity to
be intelligent and there's going to be a huge market for that.
And as they get more and more intelligent, they're going to
get even more valuable. But what that what that means
for the near term value of open AI, I've no idea, you know, glad
that's not my job to figure out. But I do think these things all
come back to the actual your belief on the value that AI is
creating or not, right. If it's creating a lot of value,
then makes sense to build chips and spend money on chips.
It makes sense to to these huge training runs.
But yeah, and I'll be fair to Brockman in his argument was
that like, our products are so successful, they're in such
demand that we need compute to be able to provide power to it,
that, you know, we can build more of them because people want
them so much. It's not that speculative.
It's like we need this now. It's for our products to work.
My only counter to that would be like what products outside of
Chachi PT, you know, like you? Know you do these training runs
and then everybody catches up with you tomorrow.
Right. Well, I think that's also
that's, that's the that's the business question that is
completely separate from the value that AI, this technology
creates and is transformational technology.
I think we're all in agreement here that it is very useful and
is very impressive and there is a ton of utility for it.
But where the business Moat lands and how these deals as
they are structured financially work out, that remains a little
bit still murky. And and as you'll see in the
segment coming up, that's why they need all the money.
That's what the money is for, is to make the compute pay for the
compute that open AI so desperately needs, and so
everything has to be mega sized from that.
Up next, we talked about Lightspeeds $9 billion
fundraising as a venture capital firm, so we'll dig into that.
Stay tuned. Hey folks, I'm Omar, product and
design lead at Google DeepMind. Have you ever wanted to build an
app for yourself, your friends, or finally launched that side
project you've been dreaming about?
Now you can bring any idea to life, no coding background
required, with Gemini 3 and Google AI Studio.
It's called Vibe Coding and we're making it dead simple.
Just describe your app and Gemini will wire up the right
models for you so you can focus on your creative vision.
Head to AI dot studio slash build to create your first app.
We're about to talk about the biggest, most important venture
capital firm that maybe you've never heard of.
Depends how much of an insider you are.
Lightspeed Venture Partners just raised $9 billion, which even in
the world of venture, where we get numb to big pools of money,
this is a venture firm with a lot of money to invest in
startups. Here at Newcomer, we have
published some of Lightspeed old performance numbers, so we have
a good sense of what companies they're investing in.
That gives the limited partners that back venture capital firms
the confidence to re up with Lightspeed.
And Madeline has been doing some reporting on Lightspeed to
understand this latest fundraising can help breakdown
all the numbers. And Tom will weigh in with his
spicy quips as. Tom can weigh in with his
hottest takes. I can I can really dig in on
Lightspeed circa 2016. Yeah, exactly.
You cared a lot. I mean, so if you if you are not
in the venture business, you might have heard of Lightspeed
because they were a big investor in Snapchat.
Jeremy Liu, who we all know invested in Snapchat then I
think as Tom helped brake had a falling out with lightspeed
right? Did you break that story?
I. Actually didn't break that
story. It was it was our departed
former Co host on Dead Cat, Katie Benner, which is a real
blast. Really.
Oh my God, I forgot. Yeah, it was a very different
era where the New York Times would have written a story about
like a fallout between a founder and the whole.
I mean, we can we should get to your story, Madeline.
But if you really want to a trip down memory lane, the whole
history between Lightspeed and Snapchat is a very interesting
one. Not even just the falling out,
but the, the way that they made that investment.
So we can we can talk about that then, but it's like a very.
Different circle back to that. Yeah, it's a very different
light speed was and is mostly a firm that invests in
enterprises, businesses selling to other businesses.
There are exceptions. They're a big investor in a
firm. Max Levchin's payment advance
company, but a lot of the big investments are firms like
Grafana and Navon and fair, you know, it's sort of are, are the
backbone of or not consumer facing companies.
Right. Well, Lightspeed, I think you
know, wants to be known for their enterprise deals more
their their ties to Snapchat, cover the press.
And so people think of them as a consumer first fund and they're
quick to tell you no, we do enterprise deals.
And to their credit, they had significant IPOs in the last two
years. They had, they were big backers
of Rubric, Netscope and Navon, which all went public in this
time of IPO drought recently. So they've had big exits in the
last couple years, which is impressive.
You know, if you say they're the firm that flies under the radar,
they're returning money back to their LP's, which is great when
you're fundraising. Madeline, you want to break down
this $9 billion fundraise and give us a sense of where all the
money's gonna go? So this $9 billion fundraise is
broken up across six different vehicles.
It's all kind of multiple funds under this one umbrella to hit
the $9 billion total. But the two, the early stage
fund is kind of split into Lightspeed 15-A and 15-B.
And the way you can think about that is 15 A.
What marketing geniuses? They've got a number and they've
got a naming scheme like Sony headphones here.
Yeah. Well, 15-A is 980 million and
like the title says, it is for seed up to Series A, maybe a
smaller B deal. Lightspeed B is for is $1.2
billion and that is going to go to things that are more entering
product market. 5th growth Series B onward side.
However, it's not the growth fund.
It's just like in the age of AI, these series BS and Series A's
and billion dollar seed rounds, they wanted a lot of capital to
be able to properly allocate in these rounds and double down on
concentrated bets. And when that moves earlier and
earlier with these AI rounds that everyone wants in, they
wanted capital for those two, wanted capital back those.
So that's how those are structured, the select those.
Are two earlier stages. So those are the 2 early funds.
There's also Lightspeed Select four and Lightspeed Opportunity
Fund three select four, A $1.8 billion fund that is for
doubling down on bets that they want to get a higher ownership
share in that are more growth stage.
So think of it as a kind of medium growth fund.
And then opportunity funds have been actually the past
opportunity funds was where they first backed Anthropic because
they did not get into Anthropic until the Series D, but then
they ended up Co leading and then leading later Anthropic
rounds as they kept raising. So they did get a larger
ownership share later on, but that's what the opportunity fund
would be for to double. Right now seem like great
investments. I know they've been marked up a
lot. There's been, you know, this
chatter in the zeitgeist right now about like, if you're not in
these key AI deals, you're failing behind, but they're
mostly mentioning, you know, Cursor Mercor, Open AI,
Lightspeed is not necessarily in those companies, but they are a
pretty significant shareholder in Anthropic, which for as you
can tell by now on this podcast, we're kind of fans of anthropics
style at this point, you could say in how they they do things.
And it's a it's a strong growing business with top models.
So the two new funds they raised with this fundraise are the
Lightspeed Co investment fund, which is about $600 million and
a single investor vehicle that was $1.25 billion.
Those exist for existing LP's to tack on more money to double
down on specific bets so in and those basically exist because of
how big AI rounds are getting. There are certain LP's who want
to have even more exposure to top AI deals and those funds
exist so they can opt in to give Lightspeed even more money on
ones that they think Lightspeed has an advantage of getting into
further rounds on and getting additional ownership.
So those are what those two additional structures are, which
total it up to $9 billion, which is pretty hefty fundraising.
What was one of them? So sorry, One of them is a
sidecar. There are two kind of sidecars.
Like are these real funds? These are real funds, but they
basically exist because certain LP's wanted to double down more
on later stage deals and it's a way of balancing the pro rata
rights in those deals to where the LP's wanted to participate
more. So all the.
Different terms across some of the, you know, some of the more
favorable. To but you have to be an LP in
the early and growth funds if you want to get into these
special two additional funds. So it's the same LP base.
What's interesting to me with this and like I don't have the
perspective, but like do other funds portion out their funds or
do other firms portion out their funds in such a regimented
segmented way? Or is this like basically a new
marketing scheme for LP's where you're just like you can have
access to the select fund, but if you want further exposure to
later stage rounds, you can be select plus, you know, the
sidecar, whatever they call it. Like, is this all just kind of a
different way of divvying things up so you can essentially get
more from an LP? Well, there's a lot going on
that we don't know, but one reason you'd want separate funds
is venture. How are venture capitalists
compensated? I think that's that's worth a
discussion here, right. So venture capitalists are
compensated based on management fees and carry management fees.
That's the two of the famous expression 2 and 20 means that
they get 2% a year of the assets that they've raised.
So you have bigger and bigger funds, you get larger and larger
management fees. And so part of what's appealing
about mega funds is that you have so much money that the
management fees alone become very valuable.
And who cares how well your investments do because you can
make, you know, if you do the, we should do the math off 9
billion. I mean, it depend not all these
funds are the same fee structure and we don't they don't like
announce the fee structure, but they're making hundreds of
millions certainly in management fees alone.
Now you have to run a bigger firm.
You pay employees right The. Overhead goes up among you know,
the number of partners that sort of thing.
So it does get diluted out, but it's it's a pretty good market
if you can make sums like this off your management fees.
So if you're thinking about management fees, you want to
have a big, you just want to raise a bunch of money, right,
That's great for management fees on the carry side, you like
having different funds, right. So if my venture fund does
really well and I only get paid as a venture capitalist, if I,
you know, double the value of my holdings or if there's some
hurdle that I have to reach, I don't want that to be dragged
down by the fact that then we double down later at bad
valuations. And so we're not going to make,
you know, we, we have a bigger and bigger pool of money we have
to pay out until we reach our hurdle.
So there to hit carry, it can be advantageous to split out funds
so that. Meaning like having early,
having late. Having right early could be in
the money, but opportunity might not, you know.
And so then it's like, oh, we make money off.
Whereas if early and opportunity were the same fund, it's
possible we don't make out and LP's know this.
And this also could be in Lightspeed's case, they have,
you know, 15-A and 15-B, which even splits the early.
Level. Farther so there's like seed A
and BC. So before you even get into
growth, they're tearing it out that.
Way it's possible they have some overall promise to LP's.
I don't know like how much these things are operating stand alone
versus they're saying overall we will make the money back.
But but yeah, I don't, I don't think it's mostly about
marketing and they're probably let you know some LP's
concentrate in areas they like better and you know there
there's, there's a lot of negotiating.
But you don't think there's a way that you can, you know, get
L like more money from an LP by offering them exposure to
multiple funds within the firm? Like it just feels like it's
like one. Yeah.
It's just like 1 chunk of money going to 1 fun versus like, you
know, it's just like a psychological thing of little
bits will add up to a greater number, but it doesn't feel as
psychologically, you know, like a huge chunk that's coming out
of your fund like you're, you're I don't know you're.
Doing different strategies, yeah.
Yeah, yeah. It just feels like there's an
appeal there. It also if you wanted to get a
larger ownership share of one specific winning bet, which
seems to be what everyone wants to do in the.
AI. Race right, like everyone wants
to be an open AI, everyone wants to be an anthropic with these
kind of winner companies, you could have exposure as an LP
from the growth fund, but you could also be in the Co
investment fund and get more that way.
So you could say, you know, they could sell it like, hey, if you
want to get even more in Anthropic, you could opt into
this additional fund. And it's doing so well.
Why wouldn't you do that? You know, I think this new fund
was broken in the New York Times and the way that the Times frame
the story was like AI investment is going crazy right now.
You need to be able to raise huge amounts of money in order
to participate in these mega round seeds or you know,
hundreds of millions of dollars and billion dollar valuations
right off the bat. And this is just a response to
the size of rounds that AI companies are are demanding.
Is that basically what's going on here?
When you see Lightspeed doing this, you know, astronomically
large round comparatively to the other things just like this is
AI, this is the bubble. This is just like the table
stakes for participating. I I think, you know, there are
two things going on in terms of why Lightspeed is able to raise
this amount of money. 1 Limited partners, the the people and
firms and institutions that invest in venture capital firms
or sort of fleeing to the the best of the best related to the
second phenomenon, which is companies are staying private
forever and so there are these clear winners or apparent
winners companies like open AI, Anthropic cursor clean data
bricks didn't. Data bricks just raise like a
series L. Recently, yeah.
It's like a. 160. Billion or something?
I'd never heard of a series L before that.
Right. So they're staying private,
which means that only sort of connected investors can really
get access. And so firms like Lightspeed are
well positioned to do those deals.
And so they need way more than traditional venture capital
money to invest. But what about AI specifically?
Like is it just, I mean, is it, are we seeing rounds that are
fewer and larger, like they're not really passing the hat
around that widely? And so you just are entirely
reliant on like you're saying these big name firms to give you
allocation. You just don't have that much
auction as an LP. Yeah, that's basically part of
this too. There.
He's hardly ever been, at least in my time reporting VC, just a
clear kind of consensus view of what to invest in from all these
firms, right? Like people have collectively
decided that there are the winners in AI not for
applications, the jury's still out there, but on the foundation
model level, a lot of people think there's still a ton of
value in these companies. There's not that many of them.
They're very expensive operating companies, so the money they
need to raise and keep growing is more.
And so then the big players need more money to fund them because
there's a sort of consensus view that these are the companies
that we need to be backing right now.
So it's kind of reinforcing. Yeah, I mean, you know, there's
been some, it's almost like a meme at this point, but I've
just seen it enough on on X to decide.
This is like, I think people are discussing that.
They're like only so many firms or or sorry, there are only so
many start-ups that really matter right now in AI.
And the ones that typically get names are like Anthropic cursor,
open AI, Mercor for whatever reason gets gets Yeah, people.
Love Mercor? Well, OK, I get it.
I mean, you know, there's value in sort of, we basically do like
reinforcement learning in human, like kind of they're basically
like replaced scale as like kind of scale.
Yeah, that's like the go to service.
So sure, whatever. I don't really see those as tech
companies, but they certainly have venture backing.
But you basically if you're an LP, you want exposure to those
companies and you're going to get pissed off if you don't get
it. And so like the value that all
of these firms basically have is say like, oh, we can get you in
it, don't worry, don't worry, we'll get you in there and we'll
get you in there in a big way. And it is incredibly
concentrated. I mean, I don't know, Eric, like
you were, you know, covering late stage venture in like the
Uber era when there really weren't, you know, it was Uber
and Lyft. I mean, was it the similar sort
of competitiveness where there was just like a small number of
firms that had access to these crazy Uber rounds?
You know, in in the hedge fund world, people, you know, think
it's sometimes crazy that it's like, you can raise this money
with great fees and then you turn around and you invest in
Meta, in Alphabet, you know, it's like anybody could do that.
It's like what you're a genius. You like pick which one of the
seven most important companies and go bigot it.
And then you collect fees off of that.
And I think there's a degree to which a only marginally more
sophisticated version of that is now happening in venture
capital, which is, oh, you're going to invest in open AI.
Now VCs have the advantage of saying, well, you schlub can't
get in open AI only I can. I, I don't totally, even though,
you know, I follow this stuff very closely.
I it's hard to come up with a non cynical reason why these
companies, you know, gatekeep their investor base and
therefore allow their investors to basically collect fees on
what are, you know, you know, opening eyes desperate for any
money can get right. So why does it restrict the
investor base? I think the answer is just you
create FOMO, you create this like sense that I need to get in
by making it a little bit difficult by having prestigious
people invest. And the people investing are,
you know, bullish optimists who have an incentive to run around
and say this is a great company. And so instead of just doing a
fair market price, you sort of restrict the investor base and
you create FOMO. And, you know, if you wanted to
to to do it the normal way, you'd go public.
So yeah, it's been this weird situation where, you know,
insiders are getting a pretty good deal.
Now, sometimes they get it wrong, right.
If you dump all the money into the wrong one of these winners
like, sometimes it doesn't work as well.
There are, there are. Certainly concentration risk,
right? And the traditional venture
model was that you had a bunch of different bets that you've
based on your research that could grow.
But if a bunch of them didn't work, you had, you know,
diversified and likelihood was that one or two definitely would
go to the moon and become unicorns and exit for you and
return your fund and make you rich and then some.
And what's different now is you have really capital intensive
businesses that also everyone wants to get in and it's
mutually reinforcing to where there's this hype cycle and it's
really exclusive to get in these deals.
So you want to get on the cap table because it's going to be
once in a lifetime company. And also if you're true
believer, it's like, yeah, this is going to be maybe
generational company and the highest technology and my LP's
want to get it too. To bring it back to a earlier
question of Tom's and to Lightspeed, This is why you have
different funds. You know, you have traditional
venture funds with diversified strategies, with premium fees
that, you know, are looking for unexpected winners.
And then you have these opportunity funds and sidecar
funds that are basically like, yeah, we're gonna, you know,
dump a bunch of money into the names that you know, and if
you're a savvy LP, you already understand them pretty well.
And the fees are gonna be lower, but still like you're, you're
getting to make money by by getting your limited partners
into pretty well known companies.
It's almost like like a cable package or something, right?
It's like if you're gonna get cable these days, it's like,
yeah, it's like, I know I need ESPN.
So like, that's a base level thing.
If I'm gonna get a cable package, you gotta give me ESPN.
Everything else on top of that is like, do I want the TBS
package? Do I want like the Food Network
package? All that stuff is just like
spice on top of it that provides mild differentiation.
But it's like you can't sell cable right now without ESPN.
You can't get, you know, a VC fund without open AI.
Anthropic. But you you also need to put
your head more in that in the mind of the ultra rich, right?
Their problem isn't, oh man, I just want ESPN and they're
making me buy all this other stuff.
Sometimes it's the opposite. It's like, I don't want to think
about all this piddling little stuff.
Like I want to write one huge check, you know, I don't know
who the LP's are, but it's like, I'm Saudi Arabia.
I don't want to see her worrying about like, oh, your venture
strategy or I just want to be like, here's a bunch of money,
like make me some money, you know?
And like, part of the challenge, sincerely, of having huge pools
of capital, even for professional investors like
pension funds or sovereign wealth funds, is you, you want
to put all your money in one place and get a substantial,
reliable return. And firms like Lightspeed NEA,
you know, is the sort of historical example of this where
it's not necessarily aiming for classic venture capital
performance, but saying we can do the market or better.
And it's a huge amount of money, you know, don't worry, leave it
with us. We'll we'll consistently return
and. That's kind of what the mega
funds are replicating. We talked a lot on this show
before about the kind of maturation of venture as an
asset class. And as it becomes more serious,
these mega funds are functioning more like this mature asset
class that these huge LP's, like you said, want a reliable return
and put their money in. And traditional venture was of
course, you know, moon shot ideas that make you really rich
when they work. And when you're dealing with
sums of money this big with institutional LP's with billions
to park, they don't really want to risk losing all of it on the
chance of like a 20X return. You know they would like
reliable 3X4 X 5X which is not venture returns that
historically people would be like.
These are good but not like the crazy amazing returns, but it
would be a great deal for your money.
Well, the other evolution to that also seems to be Thrive,
which, you know, I don't know how much they define this era of
mega funds and acting as quasi private equity firms, but their
involvement like fun to portfolio company is such a
weird change from the way things were in the past.
I mean, this, we weren't planning on talking about this
in the episode, but just interesting to me that like I
think it was this week or last week, you saw Open AI
effectively taking some sort of a stake in Thrive.
So like, you know, where one succeeds, the other one does
too. The whole thing is hand in hand.
I've been reporting on this a bit.
It's through Thrive Holdings, their holding company vehicle,
which Josh Joshua Kushner is also the CEO of, but is not the
main Thrive fund, although it's under the Thrive umbrella.
But it's like in a billion dollar holding company to double
down on these AI bets. That's separate from the venture
model. And this deal is structured to
where engineers from Thrive Holdings and engineers and
researchers from Open AI can be embedded with each other to
learn how best to use the models to grow their other startups,
like in their roll ups business for example.
What? I'm sorry, engineers that
thrive? What are their engineers that
thrive? They have engineers at Thrive if
that's what they say, and they're getting to learn from
the best and brightest models from up in AI.
And I guess the engineers of the company, yeah, I don't know.
And the engineers? Go in and then work on these,
you know, roll up companies where they're like figuring out
how to use AI services to roll up, you know it.
Makes sense for everybody involved.
First of all, self dealing is the name of the game these days.
Josh Kushner is running a great well respected firm with Thrive.
He stood by Sam Altman when the board tried to go after Altman.
He keeps betting on open AI successfully.
Now. What does open AI want?
They want fucking customers. And Thrive is like, oh, we're
going to invest in a roll up vehicle of companies that could
embrace foundation models and use them to revolutionize
plumbing or whatever vertical it is.
And so then Open AI wants those customers and wants to reward
Josh Kushner for being a loyal ally.
So they they share brands and partner.
Yeah, I mean, this is this is how business gets done.
Not even, not even necessarily cynically.
I mean, it's just it, it makes sense for both parties.
But yeah. All this sort of deliver on that
end is I guess TBD, but it sounds.
I know. Well, I'm interested to see this
roll up story there. I mean, there's so much energy
around rollups, but it feels like everybody's interested in
the strategy. You know, we have to see it, you
know, play it out in the the companies.
Yeah, it's too early for a lot of these companies that were
really formed in some cases by the venture with the venture
firms as basically the creators who then bring in a CEO who are
workshop this concept and then acquire an existing service
business or ones where the they meet a founder that wants to
expand their services and say here's some capital, why not do
a roll up and buy this other business.
So they, we will see how these do.
It's only been really in the last year or two that these
companies have started. So the jury's still out on how
successful this will be. Although of course, investors
I've talked to, granted ones who've made these kind of bets,
say that they're doing quite well, but of course they'd like
to. Say that I want to make three
quick points on the mega funds and Lightspeed before we wrap up
this this portion. One, the mega funds, certainly
Andreessen Horowitz and Lightspeed did really well in
the beginning like we published in February Lightspeed's
performance and you know, their first couple funds are first
quartile venture funds. You know, they 3X TVPI, their
first fund, you know they're outperforming other venture
capital firms. And so it is the firm's
obviously you know what you'd expect that did well in the
beginning that said, oh, give us a lot of money and we'll do it
at scale. And then you know, they've had
successful funds, but some of them are second quartile.
But, but what's really important here is that these venture firms
got really big and it takes a while to prove that the really
big strategy works as well as the venture strategy.
So I think we're still in a period we're waiting to see
whether they can do as well with a lot of money as they did with
a little bit of money. The one thing that's happened
since February when it was like, oh wow, they're, they're raising
on an old strategy, while their strategy is much bigger is they,
they've dumped a lot of money into anthropic.
Even at the time, I think it was like their second largest
holding or sign. They're really escalating their
anthropic position. And that's only gotten marked
up. So the AI bubble in some ways
has only supported he's mega fun.
So that's that's one. I think 2:00 we're just going to
be very interested in like, you know, general catalysts, like
will it go public? Andreessen, you know, I think
Ben and Ben and Mark Ben Horowitz and Mark Andreessen are
very savvy marketers. I think they had an LP meeting
where they they opened it up. We're not thinking about going
public, which of course, you know, raises the like, right.
Oh, was it you bring? Up.
Right. You know, it's like we're not,
we're not doing it, but oh, was it on people's minds, you know?
Questions about my Not Going Public shirt are answered by my
Yeah, I've answered. By not public shirt so so you
know, they're all professionalizing, they're
hiring, you know, people from, you know, Blackstone and big
private equity. They're getting wealth managers,
they're pursuing multiple strategies.
And so it's just going to be interesting to watch this asset
class grow up. I do think, you know, small
venture capital firms are so important for the VC ethos that
that the sort of power struggle between mega funds and and small
firms will be interesting to watch.
And then the final point is just if you're in Silicon Valley, you
got to sort of breathe a sigh of relief that firms like
Lightspeed have all this money because their job is to deploy
it. And so even if we're in a
bubble, if the public market bursts tomorrow, Lightspeed
still has all this money pretty locked up now.
You know, they can slow down for six months, but they're probably
going to deploy it at a fairly steady pace.
So the fact that all this money has been put into a venture
capital firm is a sign that as much as people yelled out, yell
about a bubble, at least on the private markets, there's plenty
of money to keep investing in startups and keep keep some of
the activity level. If you know Anthropic, Open AI
or NVIDIA, you know, correct, Maybe that means, you know,
Lightspeed and others shift more money to new companies or, you
know, the big companies stay private and they gobble up a lot
of the money and then not as much for startups.
But it's it's a large pool of money available to the startup
ecosystem, which gives some confidence that, you know,
Silicon Valley's not going away anytime soon.
At the very least, it kind of papers over this narrative that
we keep coming across, which is that we're actually in a down
cycle for startups. And you know, a lot of people
are are like companies are struggling to raise funds.
And we had Kate Clark on here a couple of months ago talking
about, you know, the plight of a lot of these early stage, you
know, a round funds, which is a real thing, but no one really
pays attention to it. When you can see the light
speeds of the world raising multi $1,000,000 funds and
startups reaching these half trillion dollar valuations, it's
like that's the recession right now.
It's like companies worth hundreds of billions of dollars
is a recession, which, you know, there's a very strong case to
make that it is one, but it just doesn't compute with, you know,
money still flooding into a small number of megaphones.
Well, before we wrap up on Lightspeed, Tom, what's your
Snapchat story? Sure.
So famously Snapchat their first investor was was Lightspeed and
the story actually goes that. It's the Barry Eggers see like
one of the early kind of Cove Cove cofounding partners of of
Lightspeed. His daughter was in high school
and she was using Snapchat and she would come home and be like
dad, dad, dad. There's this funny app that
everyone's using where he message and it disappears and
it's like he's like, isn't that for sexting?
She's like, dad, there's this really cool app that everyone's
using. And so they were begging Evan,
who didn't he, he didn't like the Evan Spiegel.
He hated VC firms. And so he never wanted to
provide any sort of access to, to, to a lot of funds.
But eventually they broke him down.
And Jeremy Liu, who is now kind of somewhat associated with
Lightspeed, but fairly not. He's he's mostly retired.
Yeah, he was able to convince him to invest, but Evan hated
the terms and he kind of felt that they had him like bent over
a barrel and got too much control, which, you know, that
whole mindset from Evan ended up being like kind of a horrible
aspect of Snapchat. I mean, he maintains.
The company public performance has been terrible, right?
Because. He has total control over it and
so basically. No one can do anything.
Yeah, no. Shareholders, you can't fire the
guy and he's running the company in the way that he's running.
I'm not going to make a judgment, but but anyway, it's
kind of like a seed of destruction anyway.
It's worth it was once like, you know, one of the sexiest social
media companies in the world. He could have sold it.
It's worth $13 billion. He probably could have sold it
for 13 billion. In like 2016 or 2017, yeah.
I mean, Facebook was going to buy it for like a single digit
billions at one point. But at the top, at, you know, at
the top of the market during the, the, the pandemic, I think
it was close to 100 billion. So it's it's a disaster.
But anyway, you know, Lightspeed ends up having a huge falling
out with Evan because he hated the terms.
It was kind of like a Motown artist who, you know, felt that
he was being taken advantage of by, you know, Berry Gordy.
Good reference to anyone who cares that.
Was a. Great reference.
All the best references you know are good only to you, but yeah.
Sure. But anyway, and so, but the
funniest part of this whole story to me is that as a way of
like saying thank you because this is 1 of Lightspeed's
biggest early successes. Like it kind of puts them on the
map and to a point that I think they're annoyed because they're
not really a consumer tech company is they end up.
So this is a high school Barry. Barry Edgar's daughter goes to
this high school in Silicon Valley and they happen to have
like some sort of an endowment or or some sort of fun
associated with the high school. And so they actually give the
endowment some equity into Snapchat from like an A stage
round. And when the company goes
public, that stake ends up being worth like 10s of millions of
dollars. And so there's like random high
school, relatively random high school at the.
Time Snapchat. Yeah, it was 1,000,000 on
Snapchat. Hopefully they sold at the IPO,
but. Yeah, anyway, they made so some
high school made a a shit ton of money off of Snapchat because of
Lightspeed, which is a firm that Evan Spiegel hated.
And it's, it was one of my favorite stories that I wrote
covering Snapchat back in the day.
So anyway, there's my Lightspeed Snapchat story.
Cool. Well, that's our episode.
Thanks so much. Thank you for tuning into this
week's episode of the podcast. If you're new here, please like
and subscribe. It really helps out the channel.
Listen in for new episodes every week, wherever you get your
podcasts.