Where Did All the VC Money Go?

0:00 The Funding Table: GoldCapital Consulting podcast

[Cold open - highlights from the episode.]

Max: What's going on everybody, and welcome back to The Funding Table, episode number nine. For those of you that are new here, this is the show devoted to all things venture capital, startups, and raising money, with the hope that you avoid some of the costliest mistakes we made on our own journeys. If you're returning - thank you so much for the consistent engagement. We're just about hitting our tenth episode, it's been a lot of fun, and we're excited to keep going week over week. About 80% of you are still not subscribing, though, and the vast majority of you are not liking - so please, if you've gotten any value from this podcast, hit that subscribe button and shoot us over a like as well. Now, if you've watched the previous two episodes, you'll know we took a little bit of a different approach: we had two clients on the podcast - one currently mid-raise, and another looking back on all the success we've had working together. If you haven't seen those, go watch them. But I feel a little sentimental today looking at the guys. No guests, no special agenda - just the four of us, back to what we do best, catching up on a bunch of the news we've wanted to talk about but haven't been able to over the past two or three weeks. First, we'll cover a pretty big headline - a company that raised a lot of money and is not worth a lot of money anymore - and Michael will be peeling back the clementine of that story. Then we'll go into Sam's mind, our former VC: the venture investor mindset, fund metrics, liquidity, exits - or the lack of them - and what that means for you as a founder. And finally, questions we've been getting from so many of you inquiring to work with GoldCapital Consulting and FTFC. We'll save that for the end, as always.

3:14 Max Goldberg, Mike Spidaliere, Sam Poon, Cam Owen

Max: Before we get into the meat of the conversation, it wouldn't be a Funding Table episode if we didn't go around the funding table and do introductions, so you know who you're speaking with. As the host of your show, I'll go first. My name is Max Goldberg. I'm a two-time exited startup founder, Techstars alum, and former investment banker, and I'm currently the founder and managing partner of GoldCapital Consulting, where we help startups raise capital. As always - Mike, welcome back. Good to see you.

Mike: Good to see you as well, brother. Mike Spidaliere, multi-time founder. I started First Time Founder Capital about three years ago, where we work with early-stage founders to help them get to the point where they're both investable and investor ready.

Max: And they get to see you wear beautiful autumn attire. Mike is easily the best dressed on the team - not even a question. We'll throw it over to you, Sam. It looks like you two are coordinating colors today.

Sam: We didn't coordinate - but you should have seen us yesterday. It was 70-something degrees in Boston; today it's high 50s, so Mike's got the fall fit on and I love it. Again - Sam Poon, I sat on the venture capital side. That was sourcing companies, diligencing them, and taking them all the way to the investment committee where the decisions are actually made, before we decide whether to invest in a startup or not. And those were long, drawn-out processes - with general partners that have over 40 years of experience, having been among the earliest and biggest investors in the tech names you've heard of, and the tech names you're hearing of right now.

Max: Probably worth calling out that Mike has also created one of the first female-only startup accelerators, AccelerateHer - so we welcome all people from all walks of life at this table. And going over to the man who takes all the meetings - Cam Owen. Welcome back to The Funding Table. How are you doing?

Cam: I'm doing all right. I'm Cam Owen - glad to be back. One-time exited startup founder, bootstrapped, partner at GoldCapital Consulting, and I'm the one that takes all the meetings and talks with the founders every day, then brings their questions to the funding table.

Max: Do you even sleep?

Cam: I don't sleep a whole lot. It takes a lot to keep me looking this beautiful, if you will - although I'm 26 going on about 85 at heart.

Max: Sometimes I think you don't even step away to eat. Are you eating?

Cam: I'm 6'4", 230. I'm eating great, brother. We're good.

8:04 Is venture capital healthier than in 2021?

Max: Gentlemen - getting back to our first topic. There's been a lot going on in venture capital lately, a lot of raising activity. And one of the things I still vividly remember from one of our first episodes is something Sam brought up: you don't hear much about down rounds lately. You very rarely read headlines about companies from not so long ago that raised significant sums of money - sums that rival today's, although I think it's a little frothier now - and then... what happens to these companies? There's no press release. Maybe you have to go dig through the Chapter 11 and Chapter 7 bankruptcy filings on the Secretary of State's website. A lot of companies just sort of go away. Now, if there are folks listening that weren't in the startup game in 2021 - it was the wild west, just like it is now. Crypto, web3 - and I'd say that was the start of AI becoming front and center in the startup world. It's been five years since the 2021 peak. Is venture capital itself healthier now than it was back then? Is it the same? Is it sicker?

Mike: Is the venture capital industry healthier or sicker now than in 2021 - it's an incredibly good question, and honestly, it depends on the perspective. My perspective: founders now actually have to be building a business that has longevity - a legitimate business with metrics and growth - versus 2021, where you could slap web3 on a blank pitch deck and get a blank check. And then you had to live up to that ridiculous valuation. Now it's a bit more underwritten, a bit more understandable when it comes to valuations and the health of the company. So from my perspective, the companies are healthier, and they have the opportunity to actually make it in the long run - versus a lot of those web3 companies you simply don't hear about today.

Max: I respect that answer, and I think I agree. Sam - you were the one most recently receiving deal flow as a VC, about a quarter ago. A lot of people would say: can't you just slap AI on it? Isn't that the new web3, the new crypto, the same blank-check stuff from a couple years ago? Have we learned our lesson?

Sam: My answer would be sicker - but I agree with Mike that the companies themselves are healthier on paper. There's real discipline looking at ARR, and with the AI companies, time to market is way quicker. I'm not going to speak for Anthropic, but they're going to exit soon, right? So the discipline is real in terms of what VCs look for. But it's sicker as an industry, because the 2021 vintages are coming up on time - the five-to-seven-year life cycle. These portfolios, I would say, are bloated. It's kind of a powder keg: where are the returns? But it's healthier in the sense that there's still a lot of dry powder to go around.

11:38 My competitor just raised millions - am I done?

Max: Cam - that's the perspective of someone who was on the inside. You're on the front lines, speaking with folks who in many cases are completely new to this industry. Do you feel like the average person you speak with has immersed themselves in the not-so-recent history? Or is it just AI, AI, AI - here and now, that's all that matters?

Cam: The thing I see the most is people complaining to me about their competitors that have raised a whole bunch of money "just because they're AI whatever" - that's how they frame it. And I usually tell them: honestly, it's distribution channels - that's what the competitor has and what this person does not have. It's hard to tell somebody that, but look, we're not here to be yes-men and say everything you have is fantastic. Sure, your idea is great - but if you don't have distribution, in this day and age where you can build anything quite quickly, it's the distribution that matters.

Max: So someone with a really good pedigree and an amazing team sees somebody else who's 22 years old raising $100 million in the last six months, and says "our product is fundamentally better than theirs" -

Cam: Ultimately, that company just has distribution channels - and frankly, now they're probably going to catch up on product as well. So to that person it probably looks sicker. But to the person that's a go-getter - go out and go build - they're more than likely seeing this as a more fruitful time in the industry. We experience that with every founder. We take on the go-getters; that's who we love to work with. The complainers will tell you it's not a good time to raise capital whatsoever.

Max: The complainers are the ones that comment on my Instagram posts. Trust me, I know the complainers from the non-complainers.

Sam: I feel like a therapist sometimes. And - I don't want to get into the educational courses we teach, but VCs don't really bet on who has the best tech all the time. I'm going to leave it at that. That's a whole can of worms.

Max: A lot of foreshadowing from you today, Sam. But Cam - through the average person's eyes, is there an implied concession that those competitors are going to win just because they raised the money? Do people talk about them like they've already won, or like they now actually have to go build the thing?

Cam: There are a couple of people that see it as: they've already won, they're off in the distance, I'm never going to catch them. And it's honestly sad to see. And there are some people with the right mindset, which is: well, they've raised - that means the door is now open. The window of opportunity is there for me, because it's not always the first one that gets it done. Most times it's actually the second or third person that does it the best, because they're learning from the mistakes the first person is making. Some see it as a good challenge - it's almost like getting FDA approval. Once it's gone through once, now I can come through and do it again.

Max: That last-mover advantage is super important. There are immense benefits to seeing what the first player does, especially if they don't end up winning. You learn all the mistakes - all the lessons - for free.

16:20 Why did Character.AI go bankrupt?

Max: Mike, a couple of episodes ago you talked about Instinct - an AI companion chatbot taking a fresh approach, maybe focusing more on commerce. Well, this week, a company we heard about quite a while ago - Character.AI, also an AI companion chatbot - has gone under a fire sale. They're in a bankruptcy situation. Mike, with your notes and your knowledge - tell us about this story.

Mike: It's a hell of an onion - or clementine, as you said. Before I get into it, I want to touch on what Cam said: even though a competitor has raised, it doesn't mean that you pack up your things and go home. It's a great way for other investors to see validity in the market. There are thousands of investors - just because a16z, which I'll talk about in a second, invested in the main competitor doesn't mean Sequoia isn't looking to make a bet in that market too. Don't see that as "this company's done, I've got to go find a real-person job." So - team, let me ask you. Have you ever thought to yourself: I would love to just have a conversation with Mario? Or with Einstein? Or - I don't have the money or the health insurance to pay for a therapist, so I'm going to use AI? Or, let me ask some questions to Elon?

Max: Sure.

Mike: This is what the ex-Googler founders of Character.AI thought, and brought to market. You could go on and speak with a bunch of characters that are AI - hence the name. Beautifully named, by the way. Not so beautiful an end to the story. They raised $193 million. Their last peak valuation before Google - and I'll talk about that in a moment - was a billion dollars, led by a16z. But the compute is really what started to eat them up. They had a premium model and a ton of users - they peaked at 20 million users back in October of 2024, and were down to about 12 million monthly. Obviously not too shabby. But per user, they were spending 58 cents on compute versus 44 cents on revenue. So: free users aren't free is really what this comes down to.

Max: The good old "the VCs will subsidize our grow-or-die play" - turned sour. We've seen this happen before. What's interesting is they did really well. They grew very quickly, they raised a ton of money - but then there was this moment where Google licensed the technology. How did that unfold, and where did it leave them?

Mike: So - as I mentioned, the founders were ex-Googlers, and a lot of the people they brought on were from Google. Google came in in 2024 and gave the company $2.7 billion, effectively to license the technology out. And they took the founders and most of the researchers.

Max: They left the company after that.

Mike: They left them founderless - with all of the users, certainly, but with all the bills and all the compute. They effectively stopped building their big models after that; they didn't have the brainpower to keep that going. So they focused on the consumer side and it turned into an ad revenue play - and the ads just couldn't keep up with the compute costs. Last reported, they were spending about $10 million a month on compute alone, and a significant portion of their users were free - but they still had to pay for those GPUs. Every conversation was costing the company money. That's just unsustainable.

Max: It's a very new, bizarre thing - maybe I'm just too young, but I don't recall a time when these weird deal structures existed. We're seeing it all the time now. It happened with Scale AI, right? The big tech company comes in, quasi acqui-hires the CEO or co-founder and some of the top talent, there's an exclusive or non-exclusive licensing deal - and employees and investors in a lot of these cases get shafted. Sam, did you ever see this from the receiving end with a portfolio company?

Sam: No, I don't have any experience with this - I think it's so strange. But I did read - and I could be off the mark, because this is what other VCs were saying - that it's a way to skirt the M&A process, the regulatory process. It checks out, right? You don't have to go through it. "We're not acquiring the company" - it's really the people, and perhaps some of the assets. It's the brain trust.

Mike: Part of that Google deal was paying back the investors, though. a16z got about a two-and-a-half-x multiple. Nothing to write home about, but still solid. So they paid out the investors - and took the best talent. I'm sure there are still brilliant people there, but taking the founders home to Google, taking a bunch of the AI researchers that were building the model - that's tough to come back from. They had to pivot, and the pivot just didn't work out.

Max: But this was a unicorn. The users were spending two hours a day on the platform. Users loved the platform. Isn't that what everyone tells me in Silicon Valley - just build a product people want, build something people love? You can do that and still lose.

23:19 Should my startup have a paywall from day one?

Max: Cam, I know you've been asked this - we actually had a conversation this morning about someone asking: do I optimize for revenue right at the top? Do I hard-paywall this app, or do I remove the paywall to get people to love the thing, iterate, make the product better, and focus on revenue later? What do you tell them?

Cam: Let me talk you through exactly what's going through their mind. I am a founder who is using either the salary from my job or - if I quit my job - I'm usually going through savings, if I haven't raised venture yet. I have an app I want to scale to a whole bunch of users. But I'm very quickly incentivized to turn on a paywall, and I hide that under "oh, I'm trying to get my metrics, my unit economics, to show investors." The reality is: if I can get even just a couple thousand dollars coming in every month, I can at least take care of my life and not chew through my savings. That's a very, very common story I hear from founders every single day. They see stories like this one, where the company kept it free and let Silicon Valley subsidize the growth - and it didn't work out - and they go back to the safe space: I need to start monetizing, because investors want to see dollars. And I will say this: I see it nine times out of ten from people that don't live in America, or at least aren't from the West Coast. Everybody on earth believes that revenue is what an investor wants to see, so they immediately turn on paywalls. It's a hard decision, because investors do want to see growth - but founders are thinking: how can I make some money for myself and my team and subsidize this on my own?

Mike: There have been many instances of this growth-at-all-costs mindset - we don't need to care about revenue, we don't need to do anything but build. But as you saw when Dara came into Uber: they were trying to grow at all costs, get as many users as possible - and eventually you reach an inflection point where that stops working. You already raised $193 million; there has to be some semblance of profitability at least in sight. Growth at all costs only works for so long. But I do understand that early-stage founders running off their savings aren't in a prime position to run a growth-at-all-costs playbook. Max - talk to me about seedstrapping. Is that an answer to this?

25:54 Should I bootstrap or raise VC money?

Max: There are a couple of different things being discussed here that all mesh under this umbrella, and I want to hit them, because I have personal experience with all of them. First, on Cam's point - if you don't know already: California and West Coast investors, and by West Coast we mean Silicon Valley and LA, these people historically despise revenue. They want data. They want users. Of course this is a stereotype to an extent - although I once met with a very successful, tier-A celebrity investor at his crazy house in Beverly Hills, and when I brought up revenue, he back-channeled to my investors that he wasn't comfortable putting money in the business, because if we were focusing on revenue, we were thinking way too short term. Whether that was good or bad advice is a separate conversation - but that is the archetype. East Coast: "Where's the pro forma? Show me the three-year revenue build." Way more focused on fundamentals, a lot more risk-averse generally. Again - outliers to all of these rules. But West Coast investors in the United States are probably the only investors in the world who would say forget revenue, just grow. I don't think there's any other city where you'd hear that. And they've backed some of the biggest companies - Snap, Meta. Zuckerberg went west because he couldn't raise after he dropped out of Harvard - that's what a lot of people point to as the moment Boston, which used to be the VC powerhouse, lost it all.

Max: That said - I think we're starting to see more value in what I'd call private-equity-style people. I actually think it's more valuable to have suits in the room now - people that actually get business models. Because this Character.AI example is the classic case: if you have an unsustainable business model - negative unit economics - it doesn't matter how much people love it. In fact, the more people love it, the more usage, the worse your business performs in the short term. So the real question is how you finance the company. The bet of any AI company is that compute costs will go down, memory costs will go down, inference costs will go down over time - every VC has said it: ride the wave until costs are manageable and there's a healthy gross margin. And Character.AI's VCs clearly didn't have the stomach to keep re-upping. Although - there were lawsuits, including truly terrible cases involving kids' safety, and serious legal expenses. There's more to this story, and that's part of why nobody touched it.

Max: But Mike, you mentioned seedstrapping. The point I'm trying to make is: you've got to decide and commit to one track. Are you going to do the venture thing? Are you going to bootstrap? Or are you going to raise one round - seedstrap - and plan never to raise again, truly not raise again, but raise enough to really grow and see this thing out? That's the question. I know from experience with my last company, HotDrop, that there were times where the folks I started the company with and I would laugh: imagine we hadn't raised at all, and we just charged 99 cents for this thing. Nobody does paid apps. We could have had a multi-million-dollar-a-year cash-flow business, bootstrapped, no outside capital. We just didn't choose that path - and once you're on it, there's no getting off. You definitely don't need to raise money for a lot of things. But if you know you want to raise - if you're that ambitious person that wants to be the Snap, the Salesforce of your category - you're probably not doing that on a bootstrap budget.

Mike: There's a lot to think about here - something we could cover for an entire episode.

Cam: I keep thinking about that Silicon Valley episode where the investor goes, "No, no, no - no revenue."

Max: Russ Hanneman. "Do you know what ROI stands for? Radio on the internet." "No revenue - the expectations will grow." And if anyone wants to send the four of us a great gift: bottles of Tres Comas. If you don't know what Tres Comas is - go watch Silicon Valley, and then get back to work.

33:49 What is a liquidity event in venture capital?

Max: Moving on - we've been talking about companies that raised a bunch of money and went sideways. Some of that is investing in fads that have passed; some of it is lawsuits or negative unit economics. But there's something else, Sam, that has plagued venture capital - and therefore startups - really since 2021: exits. There are not a lot of exit opportunities. It's starting to change a little now, and I really hope more liquidity comes for tech companies. Talk to us about this exit winter, as a lot of people have deemed it.

Sam: A lot of the companies raising in 2021 were at frothy valuations. Even then, I probably met a handful of web3 and crypto companies, and a lot of the time people were throwing money at these companies out of FOMO and momentum. And a lot of the GPs, even a year ago, when I'd ask "what's your latest focus?" - they'd pause and say "AI, but we're kind of in a wait-and-hold period, because it just moves so quickly."

Max: Before you go deeper - just: how do investors make money? I think a lot of people don't even understand what a liquidity event is. What are the liquidity events in venture capital? Because it's not the same as private equity.

Sam: Sure. The way an investor makes money is when their portfolio companies either get bought out, or go the public route - they IPO. And the fund's own investors have to make money: the LPs, the investors in the fund, get about 80% of the returns, and the fund keeps about 20%. So funds are incentivized to see markups on the companies they invest in. And the number that matters is DPI - distributions to paid-in -

Max: Hold on, Sam - this is good, but you're going a little too quickly. These are not obvious concepts. Mike - we talked about going public and selling the business. Is there anything else a company that raises money can treat as an exit, or is it just those two?

Mike: Those are the two most popular. There are unique other things - SPACs and the like - but I'll stay away from that for now. Also mergers that aren't technically acquisitions. Anything that can pay the investor back is a liquidation event. Think about it like this: if one of a fund's portfolio companies sells for a bunch of money and the fund gets $100 million back, they distribute 80% of that to their investors - the LPs, the limited partners - and keep 20%. When there aren't a lot of liquidity events - not a lot of companies going public or getting acquired at heavy multiples - these investors are sitting on portfolios that have not returned any capital. And that puts them in a really dicey position.

Max: And I'm intentionally dumbing this down. When I watched Shark Tank as a kid, whenever they used a new term they'd put a banner up on the bottom of the screen explaining it. I want to make the jargon clear, because some people keep coming back to these episodes precisely because nobody ever explained this to them. So - as a startup that raises money from VCs: Cam, can I just pay the profits out to a bunch of us once a year, like a special bonus?

Cam: No, I don't believe that's how that works. You don't just get to send it off.

Max: Right - so we're not fully in control of our own destiny here. Once you raise money, there's a way things are done. Investors put $10 million into my company; they want to make at least $10 million - hopefully a lot more - back. And we're not going to be paying dividends or sending profits out in red envelopes every year. There are no red envelopes in this business. There's no dividend recap, Sam - is there?

Sam: No. Although I will say - and I'll keep it short, I feel like a professor - it's hard out there for emerging managers, and even established funds, because there are no liquidity events and no money being returned to their LPs. I have seen funds - shout out to my friend - with a very interesting structure, where they invest in startups but run an infrastructure fund alongside that does pay out dividends, de-risking it for their investors. But 99% of the time: no dividends.

Max: Which is super cool - there's probably a lot of innovation to be done at the fund level if things keep not working. But going back to it: you can sell your business to a bigger business - they pay you cash, or give you stock. That's an exit; that's M&A. The other path is the granddaddy: going all the way to an IPO, an initial public offering. Your company trades publicly, any one of us can buy the stock on an exchange, and those can be enormous outcomes - usually bigger than M&A, if you can get there. But the theme we're getting to, Sam, is: those sales, those mergers, those IPOs - they are not happening at nearly the rate they were even five, six, seven, ten years ago. What caused that, and what does it mean for everyone in this industry?

Sam: A lot of it is the startup environment, but also the macro environment - wars, inflation, yields. To bring it back to a startup example - and I might be wrong on the exact numbers - Wiz turned down an acquisition offer, their last private round was around a $16 billion valuation, and they eventually got acquired for about double that, around $32, $33 billion. That's when it made sense for them and their investors.

41:49 What is DPI and why should founders care?

Sam: Let me try to really simplify this. You'll hear a lot of funds say "our fund returned a 2x" - but there are so many different numbers that go into that. Say you're a $100 million fund, and two of your portfolio companies exited for $15 million total. That $15 million out of $100 million is 0.15x DPI - distributions to paid-in. On paper that isn't great, so you probably won't report that number. But if most of your companies are still private and they're valued at $185 million - well, $185 million plus the $15 million that actually exited is $200 million, out of $100 million. That's a 2x. Sometimes you're looking at very different metrics that get reported the same way.

Max: That is financial engineering in real time, everyone. The finance corner.

Sam: And LPs are concerned with DPI - what's actually being distributed. That has been tough: not nearly enough M&A activity, and a lot of startups that said "we're going to IPO this quarter" have delayed. It's just a tough environment.

Max: To put a bow on it - think about yourself. You put a hundred million of your own hard-earned dollars into a fund five years ago, and you have seen zero dollars returned to you, because none of the companies are returning the fund. But on paper, there are a lot of markups. You invested in a company at a $10 million post-money, they raised the next round at $50 million - fantastic, your equity gets the 5x bump, and the fund can go raise from LPs again, showing that liquidity may come soon. Like a promise. And this isn't hypothetical. The stat I have here, per Carta: only about one in four funds raised in 2021 has returned any cash to its investors. And even a top 10% fund - a top-decile 2021 fund - has returned about 12 cents on the dollar. Think about that for a second. The people that provide the VCs with money aren't making money - they're losing huge amounts of money. The VCs aren't making money. The startups are dying. You have this negative feedback loop that doesn't make things better for founders. The things that have historically made it better: lowering interest rates - that's stimulus - and the IPO market opening up. Big companies IPO, everyone else wants to IPO, VCs go "this is now possible," and it goes back upstream: the money says, let's gamble again.

45:51 Will the Anthropic IPO unfreeze VC funding?

Max: And Sam - there's a big IPO coming up here. At least, it's rumored to be coming - it's not confirmed yet with their S-1 filing. Who has finally, allegedly, decided to go public?

Sam: Anthropic.

Max: And OpenAI too, right? They're talking about it.

Sam: They kind of kicked the can down the road to early next year, I think. But still.

Max: What is that going to look like? It's an ungodly number. Or maybe - godly? It's a huge number.

Sam: It's massive. AI companies were being valued at 80 to 100x revenue multiples at one point. We don't know the public financials yet, but based on my calculations I think it's more like a 30 to 40x - which is still high, but more reasonable - and that's on projected revenue. The markets are excited. They want to see something.

Max: Do you think the Collison brothers are ever going to take Stripe public, Sam?

Sam: At this rate - no, I'm joking. I think they will. I feel like that's been the topic at every investor party for the last ten years.

Max: Do you think the founders of these companies feel the same pressure their investors do when they push the IPO down the road?

Sam: Initially, no. But because they need a ton of funding, I think the pressure is finally getting to them. It's speed to market. And when you look at the float at those valuations and do the math, it's kind of crazy - is there going to be appetite for this? So I think they're saying: okay, maybe we should be the first ones.

Max: You've got to take this news seriously as a founder. Companies, one way or another, at some point get priced as some measure of their free cash flow - the actual cash the company creates. That is what makes a company valuable. A company that doesn't make money and just loses money is borrowing time with someone else's money. And with these IPOs - they are great businesses, and they're probably going to get a lot better. If you can turn around Uber, you can squeeze a lot more profitability out of these. What do we pay - $100 a month for a Claude Max subscription? Cam, you're on the $200 one. Do you get more or less than $200 a month of value?

Cam: In time savings? Easily over $200 a month. Easily. If I had to go put that much time into doing all the stuff I have Claude do for me - yeah, it saves me more than $200 in time. I can easily say that.

Max: They could jack the price up to thousands. Not everyone could afford it - but a lot of people would have to pay it. And that's going to change quickly if they IPO; they'll be increasing prices very frequently, I imagine. But the point: cash flow is important, profitability is important - and then you have these other companies where you just grow the value of the equity, and investors and founders and early team members can get extremely wealthy despite it being an actual bad business. And if it goes public - you, the retail investor, were their liquidity event. You were their exit liquidity. That's genuinely how a lot of funds think about retail. So I feel like it's more important now than ever to determine, even within the venture route, which of the two companies you're going to be: the highly profitable venture business that still rides the journey - or the one that hopes it gets bought or IPOs one day. And there's a lot of nuance in how you'd make product and monetization decisions off that. Character.AI, right? They probably should have charged for the product, been willing to churn some users, and at least gotten to say they have a business - because now they have nothing. Max - sorry, Mike, what were you going to ask?

Mike: If you're a pre-seed, pre-funding founder - is this a decision you have to make today, or something that shows itself over time? Which route you take.

Max: Personally, from my experience: you need to decide this at the onset. In most cases it's a one-way door. Your entire roadmap, your strategy, who you'd want on board investment-wise, how you think about iterating on your product - a lot of things stem from it. If I knew I needed margin immediately, of course I'm focusing on my paywall, my onboarding experience, the initial unscalable things that make early users feel like we're people. Whereas if I knew I probably wasn't going to charge, I'd think less about initial customer support and more about getting my user-acquisition cost down as fast as possible. The point is: being pre-seed or early doesn't mean you should be punting the big decisions. The really good founders - and this is the thing I wish I knew - are thinking about everything before anything even starts. Before they have a product, they're thinking about recruitment: who are the absolute best people to build this version of this company? When the odds are this against you - I used to just go gung-ho and figure things out as I went. There are way too many smart people and way too much leverage out there now. I don't think you can afford to stumble into success anymore.

Cam: I want to clip that and use everything that was just said. This is the point I try to make to a lot of founders: it is a one-way door, and the decisions you make at this stage - raising that pre-seed round, raising that seed round - follow you very far into the future. When someone asks me what value our team brings - I'm not here to sell our services; if you want to work with us, reach out and we'll see what we can do - but this layer of thinking is what a lot of founders don't realize exists before they engage us. It's nice to have people around you saying: I know you want to talk to a16z right now, because you read the headlines - maybe they're not the right person for you, and here's why. That goes a lot further than the shortsighted "I just need to get this round done." No - you need to get this round done right, with the right investors, who can go do the next round with you - or help you decide this is the only round you'll ever do. Have a game plan, or at least have people around you who can help you make one. What you do right now is everything for you as you go into the future.

Sam: It's not "show me the money" - it's show me the pathway. Show me your way of thinking first. Things change, you're going to have pivots, you'll have to adapt - that's what a startup is. But show me the pathway.

Max: Exactly. And this is one of the things I've always respected most about Mike and FTFC - you've never seen someone nerd out like Mike about who the optimal investor fit would be. There's nothing that disappoints me more than meeting a founder who's put zero thought into the targeting piece. Targeting is way more important these days. And beyond the capital - historically, what support does a founder get when things hit the fan? Good investors are the ones that help you in bad times. I had very few really good investors - ones that knew venture, or at least were willing to admit that things are hard, that nothing is certain, that most companies fail. Some investors were thrilled when things were going great, and then when we had issues with user growth and costs - terrible. Good investors are there for you when things are bad. And if you can use someone with an unbiased perspective - like Mike, whose business model means his outcome doesn't change whether you sign with the investor he thinks is best or worst - when that bias is removed, it's okay if your round takes a couple of weeks longer. A couple weeks longer to save years of your life with the wrong person on your cap table. And if you're thinking on a couple-week timeline, you're just not really an entrepreneur - evaluate success on a decade. A lot of great founders took a year-plus to raise from investors whose logos you don't hear every day. There are sleeper picks - investors that people who really know this industry deeply respect, because they don't go on podcasts and talk their book all day. Some of the greatest investors don't even need to invest anymore - shout out Chris Sacca in his Texas ranch outfit; he's not on the front lines, but Lowercarbon is among the elite. And Sam - maybe next week or the week after, I'd love your take on NFX effectively going private: not taking LP dollars anymore, investing off their own balance sheet. Announced last week. I wonder how many funds follow suit.

Mike: Like Max said - it's all about targeting. It's all about bringing in the investor that's going to help you build this into what you believe it can be over the next five to ten years, versus breathing down your neck telling you, "Hey, change the color of this button. Do this, do that."

Max: A classic example, if you're a client. It's so annoying - and it's always the smaller investors that do it, too. They feel entitled.

1:00:37 Why do VCs really pass on good startups?

Max: To put a bow on this before we throw it to Cam: founders go into a pitch with a great deck and a great story and get passed on by VCs all the time. That's the default outcome - the statistics show it. Very few will invest; most will say no. And a lot of people chase hidden truths: "they didn't like me because of this," always some personal characteristic. Sometimes it's just how their fund is already performing - and what they need to keep their jobs and stay being VCs. VCs love being VCs. Imagine a fund that already has a bunch of liquidity generated - positive DPI, a couple of years left in the fund's life, doing well. If that fund still has dry powder, maybe they're willing to back more of a grow-or-die in the later half of their deployments, because balance-sheet markups could further inflate the results and help them raise another fund. The opposite might also be true: there are funds with incredibly rich balance sheets right now - but it's illiquid, it's paper, it's meaningless until those liquidity events we talked about. Maybe they'd rather back something that generates liquidity, even a smaller outcome, to smooth out the curve. I've never been a VC, so maybe I'm wrong - but at the end of the day, you can have any metric imaginable for a VC, and all that matters truly is DPI. For every $100 my investors gave me, how much am I paying back to them? If I'm above one, I'm already doing better than the vast majority of funds. So your deck can get passed on for a lot of reasons that are completely out of your control. It has nothing to do with you - and that also happens all the time. That's why you've got to educate yourself on this.

Sam: Well said. Go down the rabbit hole on this stuff - because if you can mention these concepts on a call with a VC, not to be cheeky, but as someone who actually gets it, they're going to respect that you know what you're doing. That always gives you a leg up.

1:04:22 Is a $2M pre-seed raise too much?

Max: Before we go super long - Cam, one to two questions you've gotten from folks evaluating whether to work with us. Quick answers.

Cam: One of the funniest ones I got this week: "So you're telling me I can get on a meeting with an investor, and in 30 minutes I could potentially have a check at the end of that call?" Which is wild to think about, especially when your company isn't driving revenue yet - millions of dollars after a couple of meetings. But the big question this week - and I see it every single time - is around how much to raise. Let me give you the synopsis, keeping with today's grow-or-die theme. Very early company: launched about two months ago, a couple hundred users on the platform, pre-revenue. Founder has a solid background - didn't go to Stanford, hasn't built 17 businesses, nothing ridiculous. They're thinking about going for about $2 million. Too high? Too low? Sam - you're smiling, you go first.

Sam: That was more of a smirk. But - $2 million. I feel like the ask is kind of doing some damage here. When you say you need $2 million, it shows me that you don't really know what that $2 million is going to get you - what it's going to buy. As Mike and Max love to say: what are your milestones? And that's visible before I even hear anything else about the business. At that stage you might have to go a little earlier - angel investors, former founders - because raising $2 million kind of puts you at the institutional level. And at that ask, you're probably going to hear "you're too early" a lot. What "too early" means is: perhaps you need to generate more traction - we don't know if this is a fad or if there's something durable here. You haven't even gone through customer discovery.

Max: I'd want to know the valuation gap, because there's a second number here that matters. $2 million on what cap? If it's on an $8 million cap - okay, now I own a bunch of the business; it could be a different story. If you had the chance to invest in Zuckerberg spinning out with a new consumer social app, or Daniel Ek and his health thing - if he had 100 users, you might still write the check. Obviously this founder doesn't have that glitz, like most of us mere mortals. So there are a lot of questions to ask: what industry? Is there 90% retention among those 100 users? Then it's "take my money." The problem is the question is rooted in a desire for a quick answer, and you need a long answer.

Cam: And I have a 30-minute call with these people - I have to do that digging fast. You're now seeing what my world is.

Mike: A very common founder pitfall: "I'm going to go raise a million dollars" - because it's sexy, it's a round number, you can tell your friends you raised a million in VC. But they're not thinking about what that provides over the next 12 to 18 months. Where are you allocating the capital, and does it put you in a position to succeed in raising the next round? You have to look at what the market currently requires for that next raise and work backwards from there. The worst case is you raise a million and it turns out you needed 1.25 to hit those metrics - now you're out for a bridge round, or you're cutting costs and scraping. You don't want to be in that situation. It's less about placing a sticker on it because it sounds exciting, and a lot more about forward thinking and working back from there.

Max: Totally. That's why - book a call with our team. It's free to speak with Cam, as much as I feel like we should be charging at least a dollar to filter people. You might get an initial read from Cam in 15 or 20 minutes, but it's over multiple calls, as we learn more about the business and do a little digging, that we arrive at a better answer.

1:09:07 What does GoldCapital Consulting cost?

Cam: Last question - this one's straightforward. What is GoldCapital and FTFC's fee structure? How does it work? I get asked this all the time.

Max: We do it for free. We're a nonprofit. I'm kidding - a very simple fee structure. GoldCapital charges an upfront payment. It's in the funnel - you book a call, you fill out our forms, it's all on the website. That fee depends on how much you're raising, the company, and what we think it'll take on our end. Mike - FTFC's compensation structure?

Mike: Deferred. We defer it until the company is in a financial position to pay for services rendered.

Max: Milestones. We love that word here. The point is: we have a unique relationship with every client, there's a balance of investment that has to be made up front, and there are plenty of ways we can align - and further align - after the raise. We've done advisory arrangements in the past. If the structure is important to you: book a call and ask straight up, and you'll get a straight answer. Did we answer that clearly enough, Cam?

Cam: I think so, because the fee ultimately varies. Once I have a founder's information on a call, I share the price and everything there. But no - we're not going to put it on YouTube for everybody.

Max: All right - we can put a pin in it there. Next week - I've been saying it for two or three weeks - a startup attorney is coming onto the pod. A guest episode, no talking our book: straight answers to common questions founders, including international ones, have about legal setup, infrastructure, incorporation. Do I need to convert my entity? How much does it cost? Who do I talk to? We're not lawyers - but you'll get to hear from one directly. We're all excited to bring him on. If you've made it to this point in the pod, you are a saint, a true believer, a renaissance person - that has to get back to work. So we'll wrap it here. Gentlemen, thank you as always - really cool conversation today. I like going deep.

Mike: Technical Sam - I love to see him come out.

Max: Got to at least like and subscribe, or you're never going to make it. Thanks, team. Bye.