VC 3.0: Capital in the Age of AI — VC Roundtable

Julia Nimchinski:
We now turn our gaze to VC3.0. Welcome to the show, Dave Boyce, Director of Mercado Partners, and CEO of Formative Ventures, and author of a bestseller, Freemium. How are you doing? I just saw Dave, and he’s got…

Dave Boyce:
Yeah, I’m here, sorry, had to come off mute and put my camera on. Thank you so much, Julia.

Julia Nimchinski:
Awesome, what’s in your agenda class, Dave?

Dave Boyce:
What’s in my what?

Julia Nimchinski:
Agentico asks, what tools are you using? What’s your favorite? Cloud code? Light coding?

Dave Boyce:
I’m using Claude Co-work, I just put it to work in the background, And, but I use it. I use everything. I think… I think I’m toggling between… I use… Notebook LM, I use, regular old ChatGPT, but I’m really liking Cloud Code and Cloud Code work right now.

Julia Nimchinski:
Awesome. The stage is yours, Dave. Take it away.

Dave Boyce:
Rock on, amazing. Well, guys, we’re, we’ve got a, Cool panel here. It… I want to set the stage a little bit. In 1994, 30 years ago. There were approximately 150 full-time tech investors. It was a cottage industry, and 30 years later, there were 32,000, so from 150 to 32,000. Controlling about $200 billion in capital. Oh, that’s a lot of money.
No, not really. It’s actually not that much money. $200 billion compared to… You know, if you combine all the sovereign wealth funds, pensions, insurance companies, family offices, endowments, there’s $150 trillion out there, so $200 billion compared to $150 trillion. Not all that much.
So… Alright, so what… so, if we have been through, kind of, the cottage industry phase… and the professionalization stage, we’re now into a 3.0 of VC. What’s gonna happen now? It’s gonna get bigger. up to a trillion dollars within 10 years. $200 billion, up to a trillion dollars within 10 years, if AI does what we think it will.
It’s gonna go global. It’s not just, the, America, North America, and Europe anymore. It will get democratized, we’re already seeing this, but we’ll see more solo GPs, more part-time VCs, more micro VCs, VCs in all industries. And then what we want to talk about today, it’s going to get streamlined, using AI.
So everybody on the call here, is experiencing that. At Mercado, we invest $400 million with 16 employees total. Most of our traditional analyst and legal work is done by AI. And I would like to have that conversation about the world of VC and what, It’s not as easy as just saying AI will do it. Jeremy, I’d love to start with you.
ScaleVenture is… has always been known as being on the intellectual cutting edge. It basically defined SaaS metrics as we know them. I’m sure you’re on the… Intellectual cutting edge again. You know, DocuSign, HubSpot, BoxBill.com, those… that was then. What’s now? What, like, how is AI changing the way you do your business?

Jeremy Kaufmann:
Totally. I mean, having a… I think for all of us, I’m sure it’s the same. We’re all… you know, two years ago, the role of the associate changed from we outsourced the market sizing to the associate, and now, you know, Cloud Code or, you know, co-work does the market size for us.
Up until maybe a month or two months ago, we used to ask the associate to build the model in Excel, and now, you know, a partner or a principal can have the model built you know, I built a template of the scale SaaS model in Claude Co-work back in early January, so it’s stunning what it’s done on the diligence side.
But I also think… maybe I’ll… maybe I’ll offer another opinion just on the framing here. I also think… I mean, there’s a lot to talk about on the AI side, but I also think when you look at what’s happened in venture in the last two years, I don’t know if democratization is really the trend here.
I mean, you’ve had the larger platform funds raising a bigger chunk of the dollars.
In fact, no other year have 8 funds ever raised 42% of the dollars, so… You know, I’m… I also… I’ve done a lot of investments in legal tech, and one industry that I’m watching very closely is what’s happening in the legal world, and how the big law firms are getting bigger than ever before, the middle-sized law firms are getting taken out.
So when I think about venture, honestly, I don’t know if I agree with democratization. The number of emerging managers being funded this year at an all-time low, emerging managers’ percentage of new dollars raised at an all-time low.
So, I agree with the framing that the venture industry as a whole has gotten bigger, because overall dollars allocated to technology has gone up, venture has gone outside of technology, that’s gone up, but democratization? I don’t know. I’m pretty afraid of those big platform funds with their $12 billion funds.

Dave Boyce:
Oh, interesting. So you put yourself… you’re not in the… in the big, kind of, mega-fund world, and you’re… you’re worried that this… that… that all… that all the alpha is going to accrue to, and LP money is gonna accrue to the big ones?

Jeremy Kaufmann:
One of my partners, Rory, was on a podcast the other week, and he said something I thought was quite funny. He said, I worry I’m a small behemoth, and not a big behemoth. And what he meant by that is, you know, we’re almost a billion-dollar fund, but in the current world, there’s funds that are $10 billion, or $20 billion.

Mandy Cole:
Sweet.

Jeremy Kaufmann:
Yeah.

Mandy Cole:
Oh, Jeremy, I was gonna say, but do you feel like… Do you think that maybe opens the door for you guys, some, because some of the deals you may have competed, before with those funds, they won’t touch now, because the bogey they have to hit is so big that… I mean, that’s kind of how we feel, you know, we’re a smaller fund, we just raised our fourth fund, $100 million, and so the deals that we need to do within our… are not… a lot of those funds won’t touch them now, because they just aren’t going to hit the threshold sold for them.

Jeremy Kaufmann:
That’s fair. I mean, I think… I find it so interesting that in our world, it used to be everyone thought a $10 billion exit was great.
I mean, when I started a venture 10 years ago, the assumption was there’d be $10 billion exits a year, and one of them would be a $10 billion exit, and 10 years later, we’ve got our friends at the big platform fund saying even a $10 billion exit isn’t good enough. So I agree with you, Dan.

Mandy Cole:
Yeah.

Jeremy Kaufmann:
I’d actually love to hear more about how you guys are approaching it.

Mandy Cole:
Yeah, I mean, I think, to your point, very similar.
We… we have 5 partners, and we have one associate, and our plan is not to, you know, hire, unlike other firms, because… and what’s interesting is the partners, our associate, did some of the work, but we still did a lot of it, and now we use Claude Code and Co-Work as well, so we’ve automated a lot of that, which has made it a lot faster for us.
We’re able to… see more deals, I think, you know, I was thinking about it earlier on the… as I was… thinking about, you know, the four areas, I know that… Dave, you wanted to talk to on this call, and I think for us, like, actually being able to analyze is a lot faster.
and, you know, things about sourcing, because we do have automated things we want to track, so it’s not going back through Affinity and looking to see who we’re supposed to follow up on, and, you know, all of that can now be automated.
But there are some pieces of that that I think, especially on the sourcing side, as you guys know, that are also relationship-driven, because you can see different deals that are interesting, and… then potentially it’s… have I… am I building a relationship with that founder early enough, or with the earlier investor?
And continuing to build those relationships, I think, is still important, too, and that’s outside of AI.

Dave Boyce:
Patrick, you guys at Mayfield are known for spotting, you know, partnering early with the founder, finding them early, and some… and many times that’s not gonna be an affinity, there’s not gonna be a prior round to key off of. You can’t go get your signal out of pitch book. It’s gonna be some… you know, it may not even be visible.
through any of those traditional tools. What’s your thought on this?

Patrick Salyer:
Yeah, no, thanks, Dave. Yeah, just for context for everyone, so, partner at Mayfield, Mayfield’s a 57-year-old early-stage venture capital firm. I’d say 70% of our investments are at inception stage, so pen and paper, no product, you know, two, three founders, where we write typically $5 to $15 million checks.
We do invest at Series A, Series B, that’s the other 30%, but majority is inception stage. And we’ve been using a lot of AI tools, so it’s kind of interesting to think about Where… where does, sort of.
technology, AI, help, and where is that actually, like, it just… it’s institutional knowledge, it’s, you know, just something that won’t scale very well, frankly. And I think both exist. So, for example, just, like, on the sourcing bit.
we’ve used AI quite a bit, and I know a lot of other firms are, in terms of, like, there are signals that show up, of course, on the places you’d expect them to show up, LinkedIn, Twitter, etc. That you can then surface that an entrepreneur is likely to be starting a company, and everyone’s in a race to do it earlier and earlier.
And then there are ways to use AI to look at historical data, to look at the likelihood That founder is to build an outlier company, just on, like, their history and their social signals, and actually rank those founders, which helps you certainly see more, curate more.
But what it doesn’t replace is, like, what you wouldn’t catch there is obviously, like, the first-time founder, and you’re just in a room, and you see something that, like. Maybe… maybe their… their resume just wouldn’t show you, right, for example?
Or… seeing how commercially-minded a very technical founder is, and you wouldn’t see that anywhere in their CV, but you get it in person. Or just seeing the ability for someone to be able to attract additional capital and recruit people based on… you know, how they engage and interact, and the list goes on, right?
These sort of, like, people-focused evaluation, some of it can be picked up, I think, by looking at historical data and AI, but much of it can’t. And the earlier you go. the more, at least our perspective is, you have to rely on, people. So we call ourselves, like, people-first investment… investors.
So, I think a little bit, like, what… to connect it to the earlier point that Jeremy was making around, like. or what we’re talking about is, like, what happens to venture? Is it becoming more democratized? Is it becoming more institutionalized?
I think all those things are happening, so what I try to be… what I’m thinking about right now is, like, what’s protected, what’s differentiated in this world, right? And then what are the table stakes?

Dave Boyce:
Tell us. We all want to know.

Patrick Salyer:
I want to know too, but I think… I tend to believe this, like. inception stage, people-focused, Mandy made this appointment of network focus, like, things that won’t, like… everyone’s eventually going to be on even playing field, so how do you create alpha?
I think it’s going to be some of those things, is my hunch, and there’s others, but, like, that’s the first thing that comes to mind, at least for us.

Dave Boyce:
Yeah, for sure. Just to round it out, and then we’re gonna go into, kind of, free-for-all mode, Kyle, you’ve been, we haven’t met, but I saw you post about this yesterday on LinkedIn, and then it blew up. I’m like, oh, geez. Am I, like, invited to get a peek into the Cool Kids Club?
you’ve been investing, I think, from the beginning, Gradient’s been AI-focused, and… and yet there’s probably still a people dimension to… and maybe even primarily a people dimension, to what you do. How do you… how do you strike that balance?

Kyle Duffy:
Yeah, we like to consider ourselves the OG AI investors, so we’ve been around since about 2017, and we invest pre-seed and seed and AI companies, and, you know, what an AI company is has certainly evolved over time, but we also like to consider ourselves you know, experts in AI, and to that, you know, we’ve tested a lot of AI technology over time, and of course, I mean, the explosion of, you know, AI tools over the past few years has changed a lot in terms of, you know, how we do source companies and analyze companies.
I mean, you know, to much of Patrick’s points, like, we use a lot of AI in sourcing, and I guess I see that as, like, almost like go-to-market engineering for for VC, in terms of how we get really strategic about using data, and then using AI tools to make sense of that data and do outreach.
You know, to the earlier point I think Jeremy was making around maybe more consolidation in the VC world. I mean, we are seeing some of that, too. Being that we’re early-stage investors, now we’re seeing, like, later multi-stage funds come into, kind of, our territory that they weren’t in before.
And with that, we find… we have to find founders all that much earlier, before they’re founders. So then, you know, we can use AI, and if we get really creative with the data, to find those people before their founders.
And I feel like that’s where some of the Alpha comes in, the secret sauce, and there’s not… you know, it evolves constantly, so I don’t even know if I can… Kind of point any examples, because it’s constantly evolving, but we need to find those people And then the people part is really interesting.
I mean, again, early-stage investing, you’re investing in the founder. Likely, they’re gonna pivot. So, whatever the technology they’re developing now. you know, might be different 6 months from now.
So we’re really investing in the founders, so even though we might use AI from a sourcing perspective to see more companies and kind of get quick signal on, hey, should we be diving deeper or not?
It really does come down to us meeting that founder in person and getting, you know, some of that personal input, as well as that human input, which I think still will remain crucial, especially in early-stage investing.

Dave Boyce:

Dave Boyce:
So if I’m a… if I’m a founder listening, I just want to set… set a framework. I think most of the people listening right now are not VCs.
But what you’re getting right now is a peek behind the curtain into kind of how the venture world works, and I think you’re hearing a lot about We need to find the right companies, we need to analyze those companies, we need to make our decisions, then we need to win that. That founder over.
that we’re the right partner, make the investment, and then from there, we’re gonna work together to grow that company, and then we’re gonna work on a harvest event. That’s how we think about our business, but for you, as a founder, you’re hearing that you are actually the hot commodity.
Like, we’re looking for special founders and special… and… who are working on special ideas that can become… industry defining. The two earliest stage investors on this call are Kyle and Patrick. I’d love to come back to you, Patrick.
If you’re… if you’re speaking to a founder in this world, given that we’ve redefined a lot of, kind of, what good looks like because of what’s available through AI, What is it about a founder that gets your attention in that initial meeting?

Patrick Salyer:
Yeah, yeah. You know, in no particular order. One thing I’m looking for is unique insight. Like, I love to be taught something about whatever market or industry that someone’s focused on, because I think in this moment in time.
every industry is so… every… every space is so well funded that you really have to have some… something that others don’t see. And so, that’s… that’s one thing I think’s really critical and important, and… And we know that, like, we’re trying to align to the vision of the founder, we don’t want to, like, paint the vision.
We want to actually, like, we want to kind of back them and come along the ride, and I agree with what Kyle said, you’re probably investing in one pivot, so you need to know that, like. you can rely on that founder and where they’re gonna head. I mentioned one before, which is, like, we often back very technical founders.
Obviously, you know, we’re backing technology companies, so we do look for, like, a well-rounded team, and hopefully. a founder that’s aware of the things that they know and they don’t know, and look, and how… what’s their mental model for… sorry, Dave, do you have… do you have a question?

Dave Boyce:
Can you say a little more, but I just… for the people on the call, what does that mean? I’m backing one pivot? Like, how does that factor into how you interact with that founder?

Patrick Salyer:
Yeah, I mean, we hope we don’t, by the way, but often it does, and so what does that mean?
I mean, I think it means that, like, I have this framework of, like, whether… you know, I’m just in… once we’re in, we’re all in, we’re behind you, and so we want to know that that founder is someone who One is, we’re just proud to be in business with, but two, we’re relying on them to be able to find PMF. We can’t find it for them, right?
So it’s like, it’s gonna be their, their qualities, their initiative, their insight that’s gonna lead to that, and, we’re coming alongside.

Dave Boyce:
just knowing when you don’t have it, right? So that, that would initiate a pivot.

Patrick Salyer:
and aligning with ambitions, right? Because there’s some local maxims that aren’t very high, right?
And so, like, we’re trying to build these iconic, lasting, crazy large companies, and so… One is you want to make sure that you’re aligned with that with the founder, because then if you, you know, you’re knowing that, yeah, there’s a lot of things you can get to a million, 2 million, 5 million, 10 million ARR, but aren’t going to produce, like, hundreds of millions of ARRs.
So, sort of. being… knowing what their ambitions are, what their values are, how they’re trying to go about that, and then you can kind of come alongside the process. So that’s a big… that’s a big piece of the pivot piece. Look, and I think… I think we’re looking for founders that… that, again, like, how do they learn?
Because the idea is that we have this concept of, like. The… the rate of the company’s growth only grows as fast as the founder’s, in particular the CEO. And most CEOs are first time, they’ve never done their job before. And so it’s like, what is that… what is that founder’s mental model for learning?
Are they aware of the things that they don’t know? When they don’t know something, how do they go about learning it? Do they seek help? Do they seek counsel? All these things are kind of… you know, so those are a few that come to mind, but there’s lots of others, right?
Of course, we’re looking for someone who has excellence, intensity, can recruit people, create a movement, all these sorts of things, but those are a few.

Dave Boyce:
That is super… that is super helpful, I think, to founders. I think we all understand excellent and… Excellent intensity, ability to recruit, but a lot of us, kind of. I’m just saying us, generally. I’m on this side of the table now, but I was on the operator side and founder side.
A lot of us over-rotate into that, and we think we’ve got a channel bravado, and I, you know, I know what’s up, but you also said, Patrick. What’s your learning model, and how do you update? Your, worldview when you get new information. That’s very critical, too, so there’s an… and do I listen to other people? There’s an amount of humility.
You want the intensity, you want the ability to recruit, but you don’t want dogged, kind of. My way or the highway, you want someone who can update. As they go, or else that pivot… they may just go down with the ship and not pivot when they could have pivoted within the industry to go do the amazing thing.

Patrick Salyer:
Sure, yeah. And company building is very different than finding PMF, right? So I think that’s the trick of, like, you want a team that can help find PMF, build a product, but then the question is, can they build a company?
Building a company is a lot about… leadership and some other capabilities that… that you don’t really know up front, but you can hopefully see the qualities in someone that can lead to… because bringing an outside CEO, that sort of thing, typically doesn’t work, and so you really want to try to invest in someone that you really believe can kind of come along that journey with you.

Dave Boyce:
Speaking of which, and speaking of… Pivots and company building. Jeremy, we’re, like… Scale typically invests a little bit later, right? When I have evidence of product-market fit.

Jeremy Kaufmann:
Yeah, kind of, you know, 50% Series A, 50% Series B, exactly.

Dave Boyce:
And a lot of… the way we used to think about SaaS metrics. like, the laws of physics are being redefined right now. How do you think about… Kind of performance metrics and metrics-based investing and company building. When the rules are.

Jeremy Kaufmann:
Yeah. Yeah, and I mean, I think the honest note to say to the founders are that the metric requirement at the Series A and Series B are the most vague they’ve ever been, probably, in recorded history, as evidenced by the fact that the seed to Series A conversion rate is the lowest it’s been in 15 years.
If you rewind back to 2021, 40-45% of seeds were converting to Series A’s within a 2-year period. And I saw a PitchBook report, you know, the other day that’s saying, actually, right now it’s 12%. So why is it 12% versus 40%? Because I think the Series A and Series B metrics-driven investors are confused by what matters.
You know, where our threshold for growth is higher than before. Four years ago, you’d raise a Series A at a million, and now you can get to $5 million in… you know, a couple months if your product, lead growth product, takes off. But then we’re also asking what’s durable. How about the future retention?
So the honest answer is I think there’s the biggest bifurcation ever before at what it takes to raise a Series A or Series B, and then, you know, to Mandy’s point, the impact of the mega funds are changing the game, which is this kingmaking phenomenon, which is one of your… if one of your peers raises from a very big fund at the Series A, suddenly the rest of the Series A and Series B funds are deciding, do they want to go up against a competitor that’s raised such a large amount?
So the honest answer is, I think it’s the hardest it’s ever been to raise a Series A right now.

Dave Boyce:
Yeah, but it could also be… My hypothesis, that it’s the easiest it’s ever been to raise a seed amount, so maybe the denominator’s getting bigger.

Jeremy Kaufmann:
That I don’t know. I feel like the, Kyle and Patrick have better thoughts on that.

Dave Boyce:
Got it. Yeah. You know, it wasn’t that different, Mandy and Jeremy, and the first company I raised money on was in 1999, and if one of… the then mega funds, which weren’t really mega funds, but the big-name brands, was backing one of your competitors in, like, the dot-com boom. You almost… kind of needed to move on.
Maybe there was room for 2 or 3 in that space, but you were going to go look for another space, because the world was moving fast. You’re kind of describing that dynamic here in terms… but here’s the thing. I don’t know that it was true.
Like, if you’re just a smart founder, and you’re working on a fundamental business that’s fundamentally delivering, who cares? that Andreessen is backing your competitor, I mean, maybe I.

Jeremy Kaufmann:
Yeah.

Dave Boyce:
But.

Jeremy Kaufmann:
I think it varies by market. I think in a prestige-driven market, I’m thinking about the finance industry, where the buyers follow one another. I think reputational dominoes have domino effects, and those domino effects are valid.
And I think there’s other markets, like healthcare, which aren’t one market, they’re 20 markets, and just because a dentist in Iowa buys a voice bot doesn’t necessarily mean that translates to a chiropractor in Chicago buying the same product.
So I think… I honestly think much of the game right now, at least in my world, at the Series A and Series B, is having a framework around when do you buy the kingmaking? When do you buy that a single company gets the whole market? And when do you say, actually, it’s not one market, it’s 10 markets?
And to your point, just because Andreessen funded a company in that market means… doesn’t mean much to you.

Dave Boyce:
Hmm. Kyle, you, you trade on expertise, I’m not taking anything away from your brand, but you’ve got deep expertise, you’ve got a real point of view. in AI? How do you… how do you channel that to make sure you’re backing the right companies and working with them? in an AI-forward way that’s gonna redefine an industry.

Kyle Duffy:
We’re investing in technical founders, and I think that technical founders appreciate that we can come to the table and understand either the research that they’ve done, or what they built, and oftentimes we’ll come in and play with the product in advance of even having a partner meeting, so I think that’s appreciated, especially by technical founders, and especially in AI, you know, I mean, it’s a little different now, but go back 3 or 4 years, where not everybody had this expertise.
But, you know, we have a PhD in machine learning from Stanford on our investment team. You know, I think… I think investor… or I think founders appreciate that.

Dave Boyce:
They definitely do. It’s like, game recognizes game, where you’re in the part of the industry where. Love it.
Let’s say that we succeed… We succeed at either passing your sniff test, Kyle, or your sniff test Patrick, and then we get through that kind of gauntlet, Jeremy, that you described to get to that elusive Series A that’s, you know, where the metrics have never been more opaque than they are right now. And now we’re on to scaling.
I’m going to come to you, Mandy, because, because Stage 2 is really built for that stage, like, you know, how do I take a company From post-mark… product market fit, Onwards, and in fact, to the point where the investors in Stage 2 are all go-to-market operators, but many of us of a certain age, who won’t point any fingers, you know, grew up in a different era.
Like, when it was linear… when go-to-market was linear math. Like, add one quota carrier, get one, you know, one amount of quota, add two quota carriers, get two amounts of quota delivery. It’s not that way anymore. So… Right. How are you thinking about, kind of, helping your companies through that growth stage when… when the math has changed?

Mandy Cole:
Yes, it’s, I mean, I think the nice thing, so, right, and I didn’t say this either earlier, David, you mentioned we also invest, seed… late seed A, and so we do look at companies once there is product and market. I think, similar to Jeremy, we still… there’s a lot of fundamentals that we still think about.
We look at retention first, and the ability, and leading indicators of retention, and also unit economics, but also, you know, recently been, I think it’s such an interesting time for early companies, because there is the ability to think about not just doing that math in a spreadsheet.
I mean, we do bottoms-up models with our folks, and I’ve been pushing back on, do you really need to think about hiring 10 people this year, or could we think about what we’re doing to increase the productivity of our folks by using AI and some other tools, and how can we get more opportunities at the top of the funnel so that we could actually and give your AEs more face time, so that you’re not having to look at the standard at a person that’s this much revenue, add a person that’s this much revenue.
So we’re starting to push the boundaries on that, and trying some different things. There are portfolio companies, in how we support them, which I think is coming up, both of our LPs and some of the go-to-market, AI plays that we’re now rolling out to them, to help them with that efficiency.

Dave Boyce:
Do you have any, rules of thumb these days, and Jeremy, maybe for you too, like, I know the metrics have never been more opaque, but…

Mandy Cole:
You know.

Dave Boyce:
We had a rule of 40 at one point. We had a triple, triple, double, double at one point. Is there anything like that emerging right now?

Jeremy Kaufmann:
I feel like, right now, it’s understanding the differential kind of growth path in a given market. So, for example, in the medical scribing market, when every doctor, you know, in the United States is suddenly adopting a medical scribe at the same time.
and the competitor is growing 10X year over year, and you’re growing 2X year over year, in that case, you say, well, 2X isn’t good enough. But let’s contrast that to maybe a slower-moving market, I don’t know, the CFO stack.
You know, that tends to be a market where you know, we were investors in Bill.com, and I think Bill.com is an example of a company where the growth rate, interestingly, on a given year, was never greater, I think, than 70% or 75% throughout the entire company’s journey.
And that was just the natural state of the world, but that was a business that was able to grow at that rate for 15 years. So I think, in my own head. I know there’s a lot of debate on the, you know, do you do triple, triple, double, double anymore? And I think, at least as a firm, I’m sure everyone has their own opinion on that.
I think our opinion is. You don’t do triple, triple, double-double in a category that should be growing 10X, but if you believe it’s a category where that’s the proper growth rate, you do it.

Dave Boyce:
Okay, that’s super, opaque, thank you so much.

Mandy Cole:
It’s true, though, it is totally true. No, no, I get it.

Dave Boyce:
Julie, I know I gotta… Now I gotta hand that.

Jeremy Kaufmann:
That’s a good answer, it’s super opaque, and not very…

Dave Boyce:
Well, I mean, look, when there’s chaos in the market, that’s when opportunity arises. So for the really focused entrepreneur who’s got a thesis and an understanding of the space, like you were saying, Patrick, like, there is opportunity right now to go redefine pretty much every corner of the market.
And as everyone on the call is learning, that’s our job, is to go find you if you’re doing that. Like, we want to identify that, we want to partner with you, we want to get capital into your hands.
And it’s been said that it’s easier than ever to build a company, easier than ever to get capital and spool up, you know, servers and deploy AI and agents. But it’s not easier than ever to build a successful company. It’s the same easy as ever to build a successful company.
You gotta be just as far ahead of everybody else, like you were saying, Jeremy. Just as innovative, just as cutting edge, have just as much of an opinion as you ever had to. You just have more tools, and you can do it faster. And it’s the same for us. Like. maybe there’s democratization, but kind of full circle to your point, Jeremy, maybe not.
Maybe the alpha is going to be in the hands of A very few who have a strong opinion on the market. Alpha, by the way, for non-insiders, is performance above The mean in the public markets. So, can we go get… More returns for our investors by finding those niches where additional performance is going to outgrow the market.
Julie, I’ll hand it back to you. I do think we are in for some very interesting times, and chaos creates opportunity.

Julia Nimchinski:
Thank you so much, Dave. We do have 30 minutes.

Dave Boyce:
We do? Oh, I thought I only had 30 minutes. Oh, wow. I’m like, I’m like trying to wrap it right at the bottom of the hour.

Julia Nimchinski:
It’s okay, and we do… we can address a question from the audience. Okay. And here’s the question. So, specifically for Kyle, but also for everyone, would you say it’s easier for founders to find seed capital now, given the explosion in AI? Or is saturation of AI startups having the opposite effect?

Kyle Duffy:
It’s a good question. I think there is a bit of a case of a tale of two startups going on, where if you come from a really strong background, like.
did AI research at DeepMind, or you’ve got really, like, unique perspective, or you wrote some amazing research paper that got picked up, and I’ll say you’re a high-demand founder, especially in the AI space. If anything, the market is frothy.
you know, there’s a whole lot of money, and I’m sure everyone on this call has seen the huge rounds that we’re getting done, even at the seed stage. On the other side of that, and, you know, I mentor companies outside of Gradient that are, I would say, a little bit more in kind of, like. Old school SaaS?
I hate to say that, but, you know, more maybe applied application layer AI, and they’re having a much harder time raising, especially if they don’t have the background, or they don’t have some unique perspective, or a lot… a lot of what was mentioned in the past in terms of, you know, not showing the ambition to build a big company.
They’re having a difficult time fundraising. So, there’s a little bit of both going on right now.

Dave Boyce:
Kyle, I want, you’ve got a very unique. perspective, and it ties to, a little bit of what you were talking about, Patrick. I’m gonna back a technical founder who’s got… Who’s got a point of view on a space and some credibility in a very… in a technical niche that is needed in the world. Sometimes it’s easy to, pick that up, game recognizes game.
I’m working with a company right now where the founder is that person. And got it to a very… Big level, but he never wanted to be a manager of people. He never really wanted To run a company. He’s the innovator. How do you manage through that transition, Kyle? Any… anything that, Founders should think about when they’re faced with that decision.
Because it can feel kind of emotional, like, wait a second, I am the founder, I’m the CEO. yes, you are the founder, maybe you’re not the CEO. Like, maybe this thing gets to where it needs to go with you being… With you letting someone else manage the company, how do you manage How do you work with someone through that transition?

Kyle Duffy:
You know, I talked about that sourcing phase. We are looking for… we are looking for founders who are very strong, not only in their discipline, which is usually technology, but also have a willingness to learn, and Patrick hit on this, too.
Like, we really want founders who are curious and listen, and okay, technical… you know, engineering product might be their background, but they’re willing to learn the customer side, and we want to see that early on, because I think, you know, at the end of the day, the founder is really valuable. to stay at the company.
And in the most successful companies that we have, the founder has found You know, and they’ve learned what they maybe weren’t comfortable with to begin with, and they have kind of threaded that needle to build the big business.
On the other side of it, if there is a founder who hits a certain point, and they… they… you know, they’re self-aware enough, and they recognize, like, hey, I’ve done what I can here.
We… we will actually… we’ll absolutely support that, and we will help them find, you know, whatever it is, like the late-stage kind of co-founder, or the operational person that we can… we can pull in. So I don’t think… I don’t think that’s anything to be embarrassed by as a founder, and be able to recognize that.
But, you know, we are looking for founders who ideally can kind of take the business from zero to huge. You know, have really great ambitions.

Dave Boyce:
I mean, Patrick, you had a point of view, too. I think you said, mercenary CEOs rarely work out. Can you share a little bit more about that?

Patrick Salyer:
Yeah, look, I think, one thing we do believe is great people evolve, and so, like. one of the things I really like to recommend is getting a coach early on for founders. And, by the way, it’s a little bit of a… it’s not a test per se, but it does show, like, a willingness to learn and grow and learn from others.
And I find, by the way, it’s very hard to get the founders to do this, because it’s like, it costs money and it costs time. You don’t have a lot of both when you’re just starting a company. But, I was a first-time CEO, and it was incredibly important and effective for me. So one is just, like.
how do we… when we back a company, we think, who can we surround this founder with to just help them grow? And it’s either an advisor, a great team member, or a coach, and usually all three. So that’s kind of one piece.
The second is, for us, again, we see ourselves as supporting and aligning with the founder, so if there is… if the founder is in a position, where they believe bringing in a president or someone else to help grow the company, it’s usually… it’s best done in, like, conjunction with them.
In other words, they’re the ones driving it, because that’s… that’s really what I’ve found is the only way to really make it work. Effectively.
And, sometimes we have that conversation up front when we’re… when we’re actually just starting to, evaluate and do diligence and spend time with the founders, just try to understand how do they see that over time, how would they think about it? How would they make that decision, to see how self-aware they may… they might be.
But I think the point is that it just… for us, we see it as, like, a very deep, important relationship that’s done in collaboration, and the models where it’s not done that way, I think, typically, or not… not great outcomes, but more… the most important thing is, like.
And, like, people grow so much in the time that they’re building a company, right? Like, you have to imagine, like, how can someone grow in the decade long they’re going to be on this journey? And then how do you just accelerate that growth?
And I think people might surprise… you know, often you see just CEOs and first-time founders just surprise themselves with how far they can come.

Dave Boyce:
So, one… One thing that we all… It’s a world we all live in, the playbooks… that got us, as investors, to hear, are not the playbooks that are gonna get us, as an industry there. And… In that way, you know, we’re all kind of beginner’s mindset.
You know, you mentioned that most founders are a CEO for the very first time, and they’ve never done this before. But in a very real way, we haven’t done this before either. There’s industry segments and technologies and capabilities that we’re steering into. that, where the rules are going to be different.
We started down that path a little bit, Jeremy, on metrics, but forget about metrics, we’ve already established that’s pretty tough. But partnering with a founder who’s going into that 10X space. wait a minute, 10x doesn’t happen, doesn’t happen at scale.
Oh, yes, it does happen at scale, like, hang on a second, like, that’s new for me, that’s new for you. How do you partner With a, with a founder to figure out what’s possible. And, you know, channel ambition in a responsible and scalable way.

Jeremy Kaufmann:
In the context of, like, how to trade off, growth versus profitability, or, just, yeah.

Dave Boyce:
Yeah, I’m thinking about.

Jeremy Kaufmann:
I mean, I thought you had a good question on, you know, how is… how we VCs have to change over the next 5 or 10 years.

Dave Boyce:
Yeah, like, I want to show up… I want to show up for my founder in a way that’s gonna be helpful to her.

Jeremy Kaufmann:
Yeah. Yeah, I thought that was…

Dave Boyce:
Stick with that.

Jeremy Kaufmann:
That was a good question. Yeah, I mean, I know we’ve all talked a lot about the diligence side of how our world will change, maybe just thinking about how the sourcing side will change, or the way we support our founders will change.
I mean, I’d imagine the founder experience as you start a company, and now we’re all algorithmically scoring founders and noticing when they start businesses. you know, I was chatting with a friend who’s like, I started my company on Tuesday, and by Thursday, I had 30 venture firms reaching out to me. Which is… which is absolutely fascinating.
So just the… The gap between company formation and first reach-out goes down, and then, you know, Scale invested in one of these AI SDR companies, where you automatically draft the email, and I know all of us VCs are building skills to draft these emails, so you say to yourself, if every VC has AI to draft an email to every founder in the world, what do you think’s gonna happen?
The founder’s gonna start ignoring all those emails. So, I think in my own head, when we think about our hiring for associates, suddenly you start to say, if the old job of an associate was to send emails, but founders are definitionally no longer going to respond to emails if everyone sends them an email.
then suddenly you start to say, so what should the associate of 2026 look like if it’s different than, you know, 10 years ago? And I feel like Yeah, so we’re very much trying to think through that as a firm, because if the old job of an associate was to write emails and build models. And writing emails and building models no longer suffices.
what should you be hiring for? Should you be hiring for… you know, somebody who had exposure to the start ecosystem when they were much younger? Should you be hiring for somebody that can better support the founder on an operational basis? You know, we just hired our first associate who’s a college dropout out of YC.
So I think we’re very much thinking about what does this all… what does this all mean for us?

Dave Boyce:
If we click one… let’s, let’s, let’s click one… Click further down the track, so we’re… We’re sourcing, we’re analyzing, we’re investing, and now we’re trying to help grow in a space But probably in a way that… you know, growth… the growth didn’t happen before. You mentioned, you know, we can get to a PLG outcome of $5 or $10 million.
I can’t remember if that was you, Jeremy, but it might cap out. in AI-led, kind of, you know, Go-to-market motions. I might be able to… get a lot of empty calorie growth, but then not have the retention I want. I think that’s kind of what you were talking about, Mandy.
So… so yes, there might be a 10X out there for year 1 and year 2, but as soon as I get to critical mass, I’m going to be weighed down by… by the gravity of attrition. All of this just has to be figured out. Like, if I’ve got robots working for me and go to market, I have to figure this out.
Like, I have to figure out how to optimize my growth, and it’s not a known thing, like the linear math version was. So, how do we step into that?
I don’t know, for Mandy and Jeremy, who, I just love… For you to help… Us think about how do we step into that space with our… Founders, and help them take advantage of what’s there, but not overplay their hand.

Mandy Cole:
Yeah, I think, I mean, I feel like, or we feel like, more than ever, it is important to have some kind of leading indicator of retention that is a data-driven product metric, where you’re really just keeping an eye on how people are using your product, and are they using it the way that you thought they would, and are they getting value of it, out of it?
Because it’s… I feel like with the explosion of AI, and I mean, you mentioned, Jeremy, seeing no shortage of AI SDRs, right, and every other AI go-to-market, you know, that’s one place where, I mean, AI can make it such a low barrier to entry, and moat, it becomes execution, and less about, you know, having… in some of these use cases.
So, you know. I think that these founders having the ability to, really think about, and really, while you’re growing, keep looking at, are people using my product? And are they using it the way that it’s intended to be used? And if not, why are they leaving? And what are they using, and being aware of that.
Because, I think we will see in this situation, like we did, you know. In situations before, when the internet first came out, when, cloud came out, there’s gonna be some fast followers that end up being the winners, because they are going to capitalize on that, figure out the piece to the product that wasn’t quite working, and solve that.

Dave Boyce:
So, Mandy, I think, just in a real talk conversation with the founder, I think this… This concept of a leading indicator of retention, or product usage, or usage retention.
is really important, because, you know, in the SaaS 1.0 world, I know Kyle was even using… you were even using that to refer to, kind of, vertical AI companies, but, you know, in that world. We… we can get high on our own supply. Meaning, like, hey, I signed a contract, okay, cool, move on, I’m stacking contracts.
But contracts that… that don’t have usage are just future attrition. I think what you’re encouraging the founder to do is pay attention to what’s underneath, like the usage itself, and I can maybe even see that before my one-year renewal, and I can do something about it. Before finding out whether that account is gonna, renew or not.

Mandy Cole:
Yes, and it has to be at a company level, not this, you know, I… any board deck I see where it’s like, this is our user growth over the pa… like, of course you have more users growing.
You added more people, or you added more companies, but what I want to see it is by company, and I want to define, you know, you know, one of my portfolio companies is, a user-based, CRM, and theirs is how many How many studies we do for… how many studies does a company kick off every month?
And based on the size of the company, they’ve got, you know, a small, medium, large, and they measure that by company every single month. to see if somebody is going down, or if they’re not hitting that metric, why?
And overall, they want to see that 80% of their… their customer base is actually hitting their metric, and that tells them that people are using that product. And that is a very data-driven way to understand, even at an early stage, they were doing this when they had 10 customers. If your product’s working.

Dave Boyce:
Yeah, when you have 10 customers, you can do it in a spreadsheet. Have you seen any, exactly. Have you seen any tools that you would recommend, or AI approaches to this that you would recommend?

Mandy Cole:
Ironically, I am building the spreadsheet in Claw now, and we’re gonna be releasing it as a skill in the next month.

Dave Boyce:
Fantastic. And that skill would be, I’m just… Checking my understanding. tracking… customer by customer usage so that I can get out ahead of Attrition, and also lean into… Segments that have high expansion potential.

Mandy Cole:
Exactly.

Dave Boyce:
I can’t wait to see that.

Mandy Cole:
Coming soon.

Dave Boyce:
Coming soon. I… I feel a little bit… Like, we are trying to learn how to run our business, and we’re also trying to advise our portfolio companies. on how to run their businesses. But because we’re both stepping in to what’s new, it almost becomes… more of a human endeavor.
Coming back to you, Patrick, like, what are our learning models, and how do we, How do we stay… Curious and remain students. What are you doing, Patrick? To stay in that mode, and then how do you… how do you interface with your founders in that… in that mode?

Patrick Salyer:
Well, I was thinking about this topic of, like, supporting founders, and… I… I sort of was categorizing, like, maybe 3 different areas, right? Like, there’s probably more, but, like, one is just, like, being a thought partner to the CEO along their journey.
The second is, like, how do you… how do you help them think through, like, business model kind of construction, and and sort of strategy, and the third is, like, operations, right? And of those three, like, the first is certainly, it’s never been harder. I think it’s never been harder to be a founder, because the pace of change is insane.
And the expectations are so high. And I know it’s glamorized, but it’s hard. And, you know, I did that for 11 years, and it was just, like, it’s only harder than when I was doing. So it’s just having empathy and sort of being loyal to a fault and coming along. I think that’s number one. That’s clear. Second is the business model side.
I think, that’s where I do think a lot of it, like, stands the test of time. Like, some of the stuff Mandy was talking about, like the importance of churn and retention, right? The importance of high gross margin, the importance of recurring revenue.
Some of these things that I think it’s easy to sort of go, like, the playbook’s different, but maybe it’s not, right?
Because at the end of the day, you’re really trying to create equity value, and a lot of these things are just fundamental, and so I do think having perspective and years and decades of experience bringing that to bear is super helpful for founders, even in this moment of time of change.
The third one, I think, is the hardest, which is, like, the playbook that at least I had running a company from 2008 to 2018, if I subscribe that to my founders, they are… they’re in… they’re in a world of trouble, okay? So, it’s like… recognizing that the way that you operate does shift and evolve in many areas, right?
Like, for example, if you’re not doing agentic coding right now, like, I don’t know what you’re doing. Like, your competition is going to destroy you, just as, like, a simple example, right? And the list goes on and on. So, sort of, Realizing that, like.
some of these things I think you can support, and others, you have to evolve your own mental models, and just ensure that your founders are, you know, just keeping up with that rate of change, and that’s probably the best thing you can do, and know who you can intro them to, to find best practices and those sorts of things.
So, I just think having the humility, even in our seats, to know, like, where our advice actually really, like, can have an impact, and where it’s maybe, like, the rate of change is so much that you can’t rely on your past history and mental And you’re… those are evolving as well.

Dave Boyce:
Oh, I so relate to that. Oh! here’s Boyce, he’s got his 2020 playbook, like, thanks a lot, like, that ain’t gonna help me in 2026.

Patrick Salyer:
Yep.

Dave Boyce:
But, here’s Boyce, he’s got his, He’s got his listening ears on, and he’s channeling curiosity, and he’s experimenting on his own, and he’s willing to put himself into chief figure it out officer mode alongside of a founder, that actually might be helpful.

Patrick Salyer:
And,

Dave Boyce:
And one of the things I’ve found, Patrick, is, is just… you know, Courage. is, is a, is a… Tapping into your own inner courage and helping somebody, you know. Helping somebody make the moves that they know they should make, or that they can see.

Patrick Salyer:
making it.

Dave Boyce:
to it and giving them a little bit of courage.
If we’ve picked the right entrepreneur, she sees the world clearly, and she’s got a thesis on this, and… And we’ve seen… maybe we’ve seen it a few times, it might have been in another era, but it still took courage back then, and it still takes courage now, so helping her step into the darkness, make sense of it.

Patrick Salyer:
Hmm.

Dave Boyce:
Using her own intuition as the fuel, is also a gift that we can give.

Patrick Salyer:
Yep.

Dave Boyce:
Jeremy, What’s your advice on, on how we can add value to entrepreneurs who are seeing things for the first time?

Jeremy Kaufmann:
honestly, I don’t have… I think Patrick said it well, which is just, you have the humility to know what you know, and know what you don’t know, and… I actually think Vinode is probably right on this one, that, you know, 60… I don’t know, what does he say? 70% of VCs or 75% of VCs add negative value?
So, honestly, I think… I think just recognizing what your own background and skill set is, recognizing where a given founder is strong and weak, and finding one or two points where you can actually be helpful, and making sure you speak from a point of view, and always calibrate your certainty on something. Like, are you sure on something?
Do you have the background to actually give a valid opinion? Or are you just BSing? So, yeah, I thought, I thought Patrick said it well.

Dave Boyce:
And let’s say I… let’s say, if I were to say something, it would be BS, and therefore I don’t say it. What do I do instead?

Patrick Salyer:
I think that’s a great question. One is, I like what Germ said, which is, it’s okay to have a gut reaction. Hey, I think pattern matching, I think it’s this, but like, you know, but that’s just a gut. You should probably go, hey, I know someone, actually, though, that’s going through this. Can I connect you?
Or who… or just ask the question, who knows this? Who do we think knows this? Let’s go seek that person out, right?

Dave Boyce:
Love that.

Patrick Salyer:
Because the key is, like, I think as a… as a board member, knowing what questions to ask is more important than knowing the answers. And then it’s the CEO’s job to help figure out who… and we can help them too, like, who knows the answers, right?
Like, it’s… and they don’t even have to know all the answers, it’s just really, like, what are the key questions, I think, is the most important thing.

Dave Boyce:
And in that way, you would be channeling what you were advocating earlier, Patrick, a willingness to go ask when you don’t know.

Patrick Salyer:
Yeah, hopefully all of us, yeah.

Dave Boyce:
Maybe we’ll all come to you, Kyle, when we don’t know.

Kyle Duffy:
I don’t know either. Yeah, I think that’s a big part of it now, is admitting that we don’t know everything.
And, you know, when we all sit in boardrooms, and you know, for the people who do come across as they know everything, you know, you start to question, because we’re in a new world, and I don’t think the playbook has been written in a lot of these areas yet.

Mandy Cole:
I do think… though, that us sitting, listening to so many founders in our portfolio, and then obviously outside of that, too, at one time, we probably start to see patterns sometimes faster than in other places, and so being able to share that back to a founder, to your point, Patrick, of saying, hey, you know what, I just talked to somebody who was solving the same problem, and they’re doing something really interesting.
Let me connect you guys.
I’m trying to do a lot more of that in our portfolio, or even we’re having bi-monthly founder just… discussion, where we put 2 or 3 topics that they’re self-generating, and throw… and they’re all joining these calls now, because things are changing so quickly, and these are very relevant topics to what they want to talk to, where they’re getting a lot out of that.
You know, that’s… I think that’s something we… we’re all, I’m sure, trying to figure out, too.

Dave Boyce:
It’s a luxury. I mean, I would… I would freely admit that is a luxury, that we get to be in more boardrooms and see more situations, more rapid fire, and the pattern recognition. is a gift.
And we… and I… I love your perspective that we can be generous with that, and we can help make connections based on that, rather than showing up and pretending like we know it, because we heard it from some other founder in a prior board meeting.
How about saying, hey, I heard it from a I became aware of something someone else is doing, let me connect you with her.

Mandy Cole:
Absolutely.

Dave Boyce:
It’s an amazing gift. All right, any last words, from the panel before we hand it off to Julia? I think… I think… We are in an interesting age, you said it well, Kyle. It’s new for this side of the table, it’s new for the founder side of the table.
we’ve got… crazy, growth metrics that we saw… that we’ve seen that are kind of defying all odds, and we don’t know if that’s, if those are empty calories or not, because we haven’t hit first birthdays. So we’re figuring out what can we do with Agenta go-to-market, what can we do with Agenta capabilities within our products.
What can Venture do to stay out in front and identify the amazing opportunities? I do believe there’s more alpha in a frothy, crazy, reconfiguring market available. It’s just a matter of who’s gonna get after it. And if I were betting, I don’t think it’s all gonna accrue to the mega funds.
I think some of us are smart enough to go find Alpha 2 and partner with courageous founders to go redefine markets. And I’ll hand it back to you, Julia.

Julia Nimchinski:
Thank you so much, Dave. Phenomenal panel. Thank you, everyone. And I have to just throw a curveball question to you. What are your thoughts, on AI actually replacing VCs? You’re gonna hate this one, but there are a lot of predictions.
We’re talking about every function dying, and you know, AI replacing sales, products, founders, so… What are your thoughts? Early stage, later stage? What’s the timeline, and do you think it will happen at all?

Dave Boyce:
I’m happy to start, Julia. I mentioned at the top of the… of the segment, That we’re investing $400 million. With 16 humans? All in. That’s… that’s a way lower… Human-to-capital ratio than… than we’ve had in the past. And some of that is because of what some of the panelists have said, like. traditional analyst jobs can indeed be done by AI.
Traditional associate jobs can indeed be done by AI. But what can’t be done by AI is judgment. And I know the popular word right now on… X’s taste. But it’s really, it’s, it’s really, like, It’s judgment about… the humans, and about the opportunity, and about the pattern recognition, and whenever… and I don’t think AI has that.
I think there… I think we have to channel that, so I… there… the whole VC stack will never go away. Some of the, some of the… Tests at the bottom, in my opinion. we’ll get outsourced to AI, but just like the rest of the world, we’re just gonna have to figure out how to play a higher game. That’s my opinion.