The end of entrepreneurship by autopilot.
Gil Dibner

Sam Lessin, a partner at Slow Ventures and former VP Product at Facebook, put out an 84-page slide deck recently. It’s available as a docsend link via his linkedin page and he spoke about it at length in a podcast he recorded with Erik Torenberg.

I’ve been thinking about this piece since I read it, and I encourage you to read it as well. The ideas he’s expressing are things that we’ve been thinking about at Angular Ventures for about two years now. I wrote about some of them back in October 2021 in my Back to Basics Manifesto, but Sam has captured the current moment in a crisp and coherent worldview. What I wrote back in 2021 was, essentially, “the world has gone crazy, but we are going to stay sane by staying focused on the basics of backing fundamentally sound entrepreneurship.” At the time, I was writing to express my approach in a venture world that seemed to have accelerated beyond any sustainable level. What Sam is saying now, however, is even more significant — because he’s attempting to describe how the world of entrepreneurship and venture will look going forward. And he argues it’s very different from what has come before.

Specifically, Sam describes the startup-venture complex of the past decade as a unicorn factory — one that knew how to efficiently package up seed-stage ideas into series A companies into Series B, C, D companies that eventually get packaged up into IPOs. That factory kept running until it stopped. And it stopped not just because of high interest rates but because of the maturity of technology itself. There are — Sam writes — still many opportunities for large successful disruptive companies. But there will be fewer of them because there are no large mega-waves right now to ride.(He is skeptical that AI is a disruptive innovation and — for the most part — we agree.) As a result, he argues, VCs and founders need to really focus on low-level core entrepreneurship. Forget the next venture round, he says, focus on the next profitable customer.

When the downturn hit, David and I began to think explicitly about our portfolio in a new way. We have always prided ourselves on our close relationship with leading US-based VC firms and our long track record of writing first checks into companies that go one to raise from one of them. We continue to be proud of this. But we no longer underwrite to it. Over the past two years, we have been more focused than ever on path to profitability, breakeven, and sustainable growth. We don’t underwrite anymore to an imaginary Series A round. Like Sam, we worry that the venture factory system — the production line that made it pretty easy to raise your next round — is sputtering if not broken. We don’t see Series A firms underwriting risk in a consistent way. Maybe they are right.

That said, we have been more active than ever over the past year. So what are we doing and how are we investing? As always, we are investing in companies that are truly unique and totally awesome. So unique and awesome that they are succeeding with customers even as venture investors fail to understand them. So unique and awesome that they just might not need to raise again.

Instead of underwriting to the idea that some other investor will understand these companies and mark them up, we find ourselves underwriting increasingly to at least one of two other things: (1) breakeven and/or (2) our own convictions. Either a company has a path to get to sustainable growth on its own or it has the ability to achieve milestones such that we ourselves will be able to continue to support them in their growth path — with or without other investors. Unlike Sam, however, we are not completely convinced that the venture factory is completely shut down. We do continue to occasionally find a company where we think the next step is likely a traditional Series A. It’s just that we increasingly find ourselves backing companies that are building optionality around other pathways to success.

I want to be crystal clear: we remain convinced that now is the best time in recent memory to build a large multi-billion dollar business from the seed stage. That is why we are here — and we continue to see companies that meet that bar. What has changed is not the scale of potential outcomes. What has changed is the way the pathway from seed to huge exit might look.The whole entrepreneurial journey will be far more artisanal and less factory-like.

I am planning to read and reread Sam’s deck a few times…and I’ll probably comment on it again. I’m not sure I agree with everything he’s written there, but I am sure that he has captured the spirit of this moment. I’d argue that every VC and founder that wants to succeed over the net 5–10 years needs to internalize what Sam is saying. The lessons of the past ten years are, for the most part, no longer applicable.

At Angular, we’ve been back to basics for quite some time in our approach. What Sam has contributed to the debate, however, is the possibility that this might be the only way forward.

Whatever you are building — however weird it is — we want to hear about it.

FROM THE BLOG

No Words
The heartbreaking situation in Israel.

2023: The Crucible Year
What is in store for the next 18 months?

Kafka Survivors of the World, Unite!
Why we backed Memphis.dev.

EUROPE & ISRAEL FUNDING NEWS

UK / Manufacturing. Ai Build raised $8.5M to accelerate the product roadmap of their AI-enhanced additive manufacturing company.

Spain / Fintech. Flanks raised $8M to further build out its API for aggregated wealth data across custodians.

Iceland / Gaming. Quest Portal raised $7.6M to help them continue democratizing the creation of tabletop role-playing games online.

Sweden / ClimateTech. Cloover raised about $7.4M to develop its platform that enables renewable energy technology vendors to offer their services as subscriptions.

WORTH READING

ENTERPRISE/TECH NEWS

Speaking up. Amir Orad, the Chairman and former CEO of Sisense, shared a beautifully written post about the decision leaders must face during world events and crises to speak up for what is right. “The conundrum for business leaders is stark: Speak your mind or protect your bottom line?”. His post was in response to Microsoft CEO Satya Nadella speaking out against the Hamas terrorist attacks on Israel and anti-Israel demonstrations at American universities. “We live in the real world, right?” Nadella said. “We are an American company, but a multinational company. We have a certain set of responsibilities both to the values of the country in which we were born and to the countries we serve and we have to be able to navigate that and also stand up for it.” On the contrary, when Web Summit’s CEO Paddy Cosgrave compared Israel’s actions in response to attacks by Hamas as “war crimes”, the tech community came together to boycott Web Summit with investors, including Angular’s Gil Dibner, canceling their appearances and sponsors, including Meta, Stripe, Google, Intel and Siemens, pulling their support.

OpenAI’s valuation soars. Thrive Capital will be buying OpenAI shares from employees at an $80B valuation, more than 3x its valuation six months ago. OpenAI’s ARR is currently $1.3B, a drastic increase from their 2022 revenue of $28M. This round of secondaries will value OpenAI at roughly 60x ARR. There are also rumors that Sam Altman “wants to raise $100 billion to develop advanced AI.”

Loom’s exit. It was recently announced that Loom is being acquired for $975M by Atlassian. Some postulated on whether or not this was actually a “good” exit. As the exit was below a billion, when Loom was valued at $1.5B in 2021, and the later stage investors’ investment multiple was relatively low (Series B was 4.5x, Series B+ was 2.3x and Series C was 1x). However, Boldstart’s Ed Sim argues that even “the Series C also wins with a return of capital.” He explains. “First, I strongly believe that many unicorns will never return all of the capital invested so a 1x return is huge. Second, venture firms have a “recycling” clause which allows them to reinvest distributions received up to 15–20% of the fund size which allows these funds to be fully invested to account for management fees paid over the life of the fund. By returning capital quickly after only 2.5 years, these growth investors can reinvest this into another company that may be more appropriately priced to seek a better return. If the best you will ever get is 1x from an overpriced growth investment, it’s better to get the capital back sooner to have a chance to get a return somewhere else.” Techcrunch ultimately sums up if this was a good outcome: “what we do know is that Loom last raised when its market was hot and sold when it had cooled. The company was not self-sufficient (profitable) and had probably not reached IPO-scale in revenue terms. Thus, a sale price of $975 million is starting to sound pretty good.”

Scaling nuclear. a16z’s Ryan McEntush wrote a great piece on how to scale nuclear. While fears about potential health effects, nuclear disasters, and nuclear waste buildup, have led to a “state of affairs where new nuclear reactors are exceedingly rare in the United States and, thanks largely to onerous regulations, typically take many years and cost billions of dollars to complete.” However, Ryan argues that we should be mass manufacturing nuclear plants largely because it is just so much more efficient and cleaner than alternative energy sources. “A single reactor can power over 1 million homes with over 90% uptime. In fact, our existing, and largely paid off, nuclear fleet also produces the cheapest baseload electrical power at around $30/MWh. And because nuclear energy doesn’t involve hydrocarbon combustion, it generates power without producing carbon dioxide emissions.”

HOW TO STARTUP

More with less. Datadog’s CMO, Alex Rosemblat, shares insights on how marketing teams can get more deals done with less budget. The entire post is worth reading, but the section on low-cost and no-cost solutions which could help get more deals done with less budget is particularly helpful:

• “If you’ve identified leaks within a conversion step, plenty of marketing employees can roll out solutions to plug holes.

• When sales teams don’t want to change processes, and you’ve got a limited budget, you might want to limit or remove marketing budget or attention from that particular team.

• You can sift through raw data to get a baseline of whether your solutions are actually working or worth your time.”

IPO checklist. As signs of life begin to return to the IPO market, Mike Whitmire, co-founder and CEO of FloQast, wrote up an unofficial IPO checklist. While the IPO process may be many years away, thinking through these recommendations may be helpful early on for founders to ensure they are building their startup with the right foundation for potentially going public one day. One aspect Mike mentioned which is easy to screw up early on is the cap table. “Build the right capitalization table. Prior to going public, it’s important to ensure that the capitalization (cap) table — the breakdown of a startup’s ownership structure — isn’t too heavy with one investor. Especially as we’ve seen some investors dump the stock after the company goes public, it’s critical to get the right investors around the cap table who will be long-term supporters and stockholders.”

HOW TO VENTURE

European VC superior returns. A new report shared some data which surprised many in the VC world: European VCs have outperformed US counterparts over the last two decades. In fact, “over the past 20 years, 10 years and 5 years, Europe led in net annual returns by 0.31%, 1.92% and 6.24%, respectively.” Among other reasons, this is partially explained by European VCs often being more risk averse and having far less dry powder than American VCs ($271B vs $44B). “Despite the impressive status and reputation, U.S. venture capital hasn’t led on returns since the dotcom boom.”

PORTFOLIO NEWS

Steadybit launched “Landscape Explorer”, a new feature which is revolutionizing chaos engineering with enhanced visibility.

Vault Platform has been named one of Fast Company’s Brands That Matter in 2023.

Datos Health is one of the Israeli med-tech companies that is adapting to wartime.

Aquant was awarded the “2023 Technology Innovation Award” by Frost & Sullivan.

The Problem with Startup Advice
The best founders and investors know the rules, but also know when to break them.