14:15
So, I think do you guys want to introduce yourselves? I think a lot of people here probably know each of you, but if you want to Uh Chong Is it on? Chong, um partner at Basis Set Ventures. We started in 2017 as the first um early-stage fund focused on investing in AI. Now, we're investing out of our fourth fund uh shy of a billion AUM, and we tend to lead uh seed rounds. And we've been in the very beginning, we invested in um the generation of AI was natural language processing, computer vision, robotics, and over time that has evolved a lot with the technology.
Uh Carter, uh founder M13. We got about 2.5 billion of AUM. We've been the seed or series A investor in 17 unicorns. So, sometimes better to be lucky than good. Uh we do Thank you. Uh sorry, who is that? Thank you. Um and uh yeah, we operate out of a $400 million early-stage fund, and uh we just obsess in this market about thinking about the right value layer, thinking about the second and the third ripples, uh and the implications of technology. Great. Um well, guys, I guess to start with the most obvious question, is there an AI infrastructure bubble? I mean, I don't know. I can't tell anymore what's happening.
I don't know if this is like just another cycle or if things have fundamentally changed. So, Chong, what do you what do you think? I think that there is both a bubble and not a bubble, and there's not a bubble because we've never seen this type of growth curve before. Uh you have Anthropic, which everyone knows goes from 1 to 40 billion in 6 months in terms of revenue, and that's just unprecedented growth at that scale. Uh in our portfolio company, uh we have companies like OpenArt that went from 1 to 10 in 1 year in year 1 and 10 to 70 million ARR in the second year and being cash flow positive most of that time
with just 20 people, and also just level of growth we've seen that before. I think the bar for what is good growth has totally changed. And when you have that, when you have this possibility of um compounding accelerating growth, then the valuations don't seem so crazy because evaluation you price that into the terminal value, into how quickly can you hit your growth. Um on the other hand, if you price every single deal uh to that math, there's no way that a that will work out well for portfolio. So it is a uh paradoxical time. Yeah, I think you hit the nail on the head. I mean, I always laugh cuz we pretend like this is the first time in venture capital land, but we've seen this before, right? We saw this with
cloud, we saw it with the invention of the iPhone, we saw it with, you know, if you think back to the 1920s people were worried that people were going to lose their jobs to the car, and they did, and life went on, right? And so uh like you said, I think there are a lot of similarities, except this is steeper and faster. That's why I said, you know, our obsession is right now we're still talking about the technology, right? We get really interested in what are the implications of the technology, right? The reason we have social networks and consumer software was it was the implication of the fact that we all had a supercomputer in our pocket. And so everyone knows that AI is going to
change the world. Doesn't take a rocket science sitting in this building to know that. Um but the key is where's the value layer, right? And I think what's different in this cycle than every other cycle is past cycles it was innovators competing with innovators, right? Zuck versus Evan, Travis versus John Zimmer. In this cycle you have innovators competing with the largest, most well-funded innovators the planet has ever seen, also competing with the 10 largest tech companies on the planet, and I would argue that in the first time in history they actually do have the advantage, right? They have the tech, the capital, the data, the talent. And so, you know, I'm of the opinion there's a lot of companies as quickly as they
rise, they may potentially fall. So, um I actually find it harder to invest in a market like this, but as she said, if you get it right, you look like a genius, but you will have a lot of swings and misses. Well, I remember uh seeing Brian Singerman, the VC formerly of Founders Fund, at Upfront Summit maybe two or three years ago, and he said, "Unlike other cycles, I really do think that a lot of the benefits are going to accrue to the incumbents because they're just so much smarter than they've ever been and so much more agile." And I do wonder what that means for VC. But first, I do want to talk to you guys again. I mean, so I don't know if any or all of you
read the Strictly VC newsletter. If you do, you see there are lots of fundings every single day. Many of them sound very much the same. All of them have some AI component. And I just think what must it be like to be a VC right now? Um you know, first of all, like how many meetings are you taking? And also, how are you figuring out how to price these deals? Because to your point, we've never seen startups generate revenues as quickly as they are right now. Whether that's sustainable, I don't know, but can you It's a two-part question. Both of you. Yeah, I think, you know, VCs love to believe in Santa Claus and the Easter Bunny and unicorns, right? That's you know, when someone said,
"Hey, I got this great idea. You could rent your couch out to someone." Right? Most of us would have been like, "That's insane." But there were people that actually believed that to be true and obviously they were right with Airbnb. So, you know, I always tell the team, you got to do the cocktail napkin math. Right? They go, "But this is going to be bigger this cycle." So, we're looking at a business the other day. It's a AI software for brands, right? And I said, "Okay, how big were the winners last cycle?" They said, "Two or three billion dollars." I'm like, "Okay, cool. So, let's play that cocktail napkin forward uh math." I said, "Are there going to be more brands in the world? Do
we have as a point of view as a firm, there's going to be double or triple the size of brands?" They're like, "No, we think the same number of brands." I said, "Cool. Okay, how much are they're to pay for that software in this cycle. Is it are they willing to pay double or triple? And we ended up not making the investment cuz we couldn't make the math check out thinking about portfolio construction. Conversely, you know, we led the series A in a stablecoin company, not AI. We should talk about some non-AI cuz we did talk about fish earlier. And you know, this founder created a $10 billion company previously. In his second year,
he's going to do $250 billion of transaction volume on his way to a trillion next year. And you go, "Okay, that math checks out rewrite even in modest success." So, I think it really comes down to the nuances and the thoughtfulness and I think we'll chuckle 2 years from now because right now the VC brag is like, "We had 3,000 deals. Look at how smart we are." Like 3,000 pitches and things like that. And M13, we obsess about building our technology stack and our AI and our generative AI internally. We want to be bragging on the stage, "We only looked at 33 deals last year. We did 12 of them after we met 18 of them."
Right? Because we are living in a world where you think about I've been the first investor in 13 unicorns. I just see the patterns faster, right? I've done it so long. I see the signals. Uh, a generative AI can bubble up a lot of data very fast. I'll go, "Yep, that's the one." Right? It's Malcolm Gladwell Blink. That's kind of what you're doing at the early stages. So, I think it is changing because like you said, there are so many opportunities so you actually have to sift through them faster. Are you licensing what you made? Sorry, go ahead. I take the view that VC The only thing constant about VC is the fact that it's constantly a story of bad ideas are good again.
I'll give examples. Um, a few uh 4 or 5 years ago you would have said, "It's a bad idea to invest in Hollywood or any businesses outside of Hollywood." But then we did a bunch of deals in creative AI space, generative AI, which then led to the current slew of companies that are doing incredibly well selling generative images first, then generative videos, now it's generative world models. And that world has just been way bigger than we could have ever estimated the market size looking at the prior generation of software that sold to Hollywood. Um and then to give you another example, uh we uh you have Cursor, which everyone said, "Oh, it's just an AI wrapper. Like how is that ever going to be a big outcome?"
And then you have what a great $60 exit. And then you also have researchers. My husband was a PhD from MIT, and when he was doing his PhD, his pay um as a researcher was like barely above poverty line, but now researchers are what everyone follows on Twitter. They're they're making bank. It's doing so well. It's like research um you know, getting a PhD from MIT was bad idea a few years ago, but now it's probably really great idea. I think that's the story with VC, which is um it's exciting to see and we're constantly surprised by market size as early stage VC on how does that market size change from the point you make the investment and that market and the and how that transforms with what technology unlocks.
Is your husband working now for a neo lab or leading one? Unfortunately, he's at Apple. Oh, man. Well, maybe that'll change. And by the way, I think you hit the nail on the head cuz you said it about a lot of the value accruing to the largest tech companies. I think you like Cursor's an interesting example, right? Because the terminal value of Cursor other than for who acquired it is not $60, right? It could not IPO tomorrow, I don't believe for $60. But I think you'll see a lot more. We think about it a lot. I think that the value is accruing to the big guys, and so they will be very acquisitive. Again, this always goes in cycles, so it's kind of interesting, but I think you will see
you seen a lot of it, right? You see OpenAI buying stuff. They go, "Man, my cost of capital is so cheap. I'll buy it and it has so much value in my platform, right?" Because if you think about AI, just the horizontal layers, the data, they become so valuable. It's kind of like I laugh people said, "Oh, when is Amazon going to be worth something, right? When is that going to start being profitable?" It takes a while, but man, when these big flywheels in tech spin, they really spin. I mean, obviously, I wonder about that. I'm sure other people are wondering about that. I mean, OpenAI and Anthropic specifically, their businesses are going to get commoditized over time. And you're not even talking about the
traditional big tech companies. So, they're going into more and more verticals. Um, you know, uh law, you know, etc., etc. But, I think even eventually, world models as well. I mean, OpenAI I think is trying to find its way back into robotics. So, how do you invest right now in companies that are not going to get blown apart by these guys? How do you think about that? We are very technology-focused investors. So, we stay very close to uh what is the defensible technical differentiation, which that frontier changes every quarter, maybe even every month, sometimes every week, depends on the new things that comes out. But, we stay very, very close to see there on um I call it we invest in below the AI and above the AI, where below the AI you
have all this infrastructure that's uh are getting rethought because um all this infrastructure from like databases to even GitHub, because they were built for humans. Now, you have agents using all this infrastructure. Um agents spinning up databases, agents writing code, agents checking in code. That actually require lots of different things. Last year, I would have never thought that you would need a new GitHub. GitHub is such an entrenched part of software development. This year, I can count on two hands how many really awesome teams are going after being the next the GitHub for agents. It's it So, I think there'll be a lot of winners in the below the AI um space. That's that's
what the models run on. That's what the infrastructure. Um and then above the AI, we've seen such a proliferation of things. Um but, we're not When there's super, super crowded, we always go back to what is defensible and what is not, and what we think has a long-term um differentiation. Yeah, I think you mean they're going to go after so much and it's been unprecedented what they go after. I think we always try to think about where are they going first and where are they going last. So, it was obvious to me they would go after marketing and some of the obvious places they've gone. So, for example, we have a thesis on we love friction as a moat. We love regulated industries. We had a just shy
of a billion-dollar exit in a company that was disrupting 911 call centers um with AI and technology. They might go there, but it's, you know, it's a few billion-dollar outcome. Like, they're not going there anytime soon, right? Uh healthcare, they will go there, but there is a lot of regulation. They're going to go there last. And so, but I think that is the thing that keeps all of us up at night is that it can change on a dime, right? You used to see them coming in the rearview mirror. I always say that founders need to have a microscope in one eye and a telescope in the other. The microscope is to look at the day-to-day. What do we have to do this week? Execute. But, you better have
your telescope out because the world is shifting so fast. And so, I tell every founder you have to be a domino player and a chess player cuz your board is changing constantly. You can't go this was my idea and I'm just going for it cuz it will change and zigzag a hundred times between now and then. Well, you know, I was just talking to my friend Paul uh of Amplify AI or LX, excuse me, who I think is here somewhere still, but he was saying, you know, a reason that El Segundo has taken off as it has is because everybody is looking for something that's a little bit defensible and funny enough, like hardware is one of those things um because software is moving so quickly.
Is that something that either of you is interested in? Have you made any hardware-related bets? Uh we don't do much hardware. We were the seed investor in Ring. Better to be lucky than good, but we don't have the expertise, but I think the concept is the same. Like, we have a agentic AI payroll system called Neural. And rather than just go into market, they spent two and a half years kind of building a moat around technology and regulatory and stuff. So, in general, we love that idea. I think again, being a fast mover in this market does nothing unless it does something for you, right? So, there's fast movers that can, you know, get a data advantage because they got off to a fast start, but I think everybody has someone coming
for them pretty quickly. And so, just being first to me in this market does nothing because it takes so little time to make up that time. And so, we're always thinking what is it that is going to propel you forward if you get off to an early lead? We have some investments in robotics. We've invested in past robotics, which is autonomous welding robots since the very beginning of the funds from fund one. And that is a great foundation for just building autonomous physical AI in factories. We've also invested in Ike, which is autonomous trucking, which got acquired by Nuro. We've made some recent bets that has been announced here in Dexterous Robotics in the robotics data space. We also do stuff outside of robotics that we think is just these
are just still hard. Like we invest in transgenic chickens as an alternative to manufacturing drugs cuz it's very expensive to manufacture a lot of complex proteins as drugs. It's cheaper apparently if you wish to make them in transgenic chickens. Chickens? Wow. We have new chickens. We're just the middle for the chicken and the fish people. It's interesting, you know, we've done a bunch of robotics, but I'm not even sure there's a moat there. Right? Like I you know, I always laugh these people come in and sometimes they truly have technical differentiation, but if I had a dollar for every robotics or this I go Google couldn't do this, couldn't do this. I go trust me.
Unless you are Edison, if you have $5 million and you're building something, somebody can come for you. So, it is interesting to think about, you know, some of these more places you think like the way I think about it is I'm not sure there's much of a moat in robotics. There might be. She's smarter than I am, so you're probably doing more complex robotics, but in certain use cases you go, "Man, again, I'm I'm just not sure that's actually much of a moat these days." Right. The framework that we The framework that we think about is in the spaces where it's quickly commoditizing or where it's fast followers faster than ever, it's execution, execution, execution. It's all about speed. Those
are markets about speed. On the other hand, you have markets about just depth, where these are hard things are still hard to do today. Uh like chickens still take this long to hatch an egg to hatch your protein. For today? For today. Uh fish, you know, you still have to have the robots Anyway, uh we just I learned so much from the prior panel. So, we think about markets at Is this a depth market or is this a velocity market? And we make bets accordingly. Well, again, that sounds so fascinating, and I do wonder sometimes about white space, and it sometimes feels like there's none. And then, to your point
about Airbnb, you know, Airbnb, Uber, companies we couldn't have conceived of before were suddenly, you know, huge companies. Are you seeing really novel ideas right now, or are they sort of like the new version of the old company, um circa 2026? I think we're seeing a lot of new ideas right now, but I still think we're at the early innings, right? Like the first wave of any technological cycle, even though this one is steeper and faster, is usually relatively obvious, more competition, right? If you can get the third second or the third ripple. Think about when you were a little kid, if you have a heavy rock and you throw it as hard as possible and you get it to skip across the water, the heavier the rock, the faster you throw
it, the longer the ripples, right? That's what we're going to have here, right? And so, I get excited about 2 years, 3 years, 4 years because there are going to be business models and companies and things that could be done that we can't imagine today. To me, when you these ripples, the first ripple like Anthropic and OpenAI, holy excuse my language, mind-blowing. Then they get a little commoditized, and then you get that next ripple. And so, again, we're trying to be really patient cuz we're in the second inning of a long game. And so, um there will be a lot of value accrued, but you got to get those second and third right. And as a VC, those are the hardest ones to get right. But if you do, less people are thinking about it,
right? You pay more reasonable valuations, and therefore you have much better, you know, ROIs. Um We see both. I think the agents applied to finance, agents applied to healthcare, those more consensus categories, consensus bets, uh you see a lot of really strong founders going after them, and a lot of them are going to win and really do really well. I'll back some of those. Um I think it's the categories where or the ideas where it's like, "Huh, I don't know if that can be a business." Like, our business OpenArt. When we first backed them, and then shortly after, um I think uh DALL-E came out, Stable Diffusion came out. They started discovery page of, "Here are the prompts you can type
in order to get this type of uh generative image." How is that a business? Absolutely no idea. Um they raised They went from 1 to 70 in 2 years, and they've been accelerating ever since. So, that has There's so much depth in that market that we just couldn't tell. But from the very beginning, these are young founders um that were just experimenting at the cusp of something that they found exciting, and they kept iterating until they found a business. If they started a year later, they wouldn't have really have had that spot. Because they were so early, they won SEO, they were super they had a leading position on that as an acquisition channel, and that has really helped them. But they started like a year later, 2 years
later, they would have missed that window when the opportunity became more obvious. Um this is a little bit strange, but you mentioned young founders, and it just brings to mind the fact that everybody in Silicon Valley now is chasing like exceedingly young founders. You've heard about this. You probably heard about that book uh by the Stanford graduate uh who focused on how kind of predatory VCs have become or is it really it's to that institution. I'm just wondering uh I had another Strictly VC in Athens a couple of weeks ago and one of the uh VCs there of Threshold Ventures was saying they almost prefer people who are coming at something with a completely blank slate. Um and I'm wondering if
you've got, you know, you talked about sort of like pattern recognition, if that's changed over time or if you're if there's a sort of like a somebody who's better suited in this new era of startup development than in the past or if it's exactly the same. Yeah, I think you know, I me personally, I remind people that any of us in this room have better odds to be an NBA basketball player than a unicorn founder. Think about that. Right? Think about how hard it is, right? And so I think there's different stuff. I we have gravitated towards repeat unicorn founders. I think we backed 11 previous unicorn founders in the last 2 and 1/2 years. And the reason for that
is we're in an arms race. And I think the one skill that a repeat founder has is the ability to inspire, right? They can inspire people like us to give them capital. They can inspire people like you to write an article. They can inspire some employee upstairs to come join them. And that is kind of, you know, inspiration as a and um you know, this is this cycle is just challenging. And so will there be 22-year-old kids that build great companies? Of course, there always is. But just because Kobe Bryant went from the NBA or high school to the NBA, does that mean probability adjusted it will happen repeatedly?
I don't believe so. Some people do. Um and so I think there's two schools of thought. And so when we think about a portfolio, it's just the mix of the two. On the flip side of it with a 22-year-old, you have fresh thinking. They're thinking about things totally differently, right? And so, I think you just got to find outlier people who have a shot to build outlier companies. We always say if you got a 10% chance at a 100X, you got to go for it. If you look at the average age of YC, this is anecdotal. This I've not looked at their data, but it feels like it's getting younger and younger. They're accepting more and more students that are younger. It also dovetails with the
changing value of education today with AI and how much they value their college education versus what they can do or teach themselves and the and if they have a lot of agency what they can do. Um talking with uh a friend who does a launch parties um and launches uh for early stage startups in the Bay Area. He says the number of founders that he cannot even have an open bar event because they're not old enough to go into a bar. That has been a problem he's never seen before. He's got the second ripple, a fake ID business for the business to take advantage of the young founders. See, this is classic second ripple behavior.
It is so interesting. Well, another thing I don't know that this is I don't think this is comes from age. I think this is a product of the arms race, but all this talk about ARR um I mean, we see it at TechCrunch every day. People using it as leverage. Uh you know, I think founders have gotten sort of very loose with their numbers. Uh That was a nice way of saying it. But it does feel a little bit like the VCs are complicit, I have to say. How are you two thinking about it? Oh, jeez. I thought we were going to have a nice talk on a Thursday night. Hey, at least I love the Swedish meatballs outside. Those were to die for, so I appreciate that. Um yeah, I mean, I laugh, right? You We have a company in
our portfolio that will remain nameless that will do about 1.4 billion of trailing revenue this year. Um 150 billion dollars in EBITDA, and they've only raised a series A. And when you think about that, when you I always tell the team they go, "Oh my god, we got to do this hot deal. It's so hot. They're good at They're They're doing 6 million of ARR." I'm like, "Okay, let's chill for 1 second. What are they year-over-year?" She's like, "They're up four x year-over-year." I'm like, "Okay, that means they actually did 500,000 this month. So, it's not nothing, but it's a signal." I so I think at least early in this cycle, we realized that ARR, right? Everybody had the logos on the page, Apple, and everyone was trying cuz we're all going,
"Yeah, we'll try that for 100,000 bucks." My wife runs a billion-dollar media company. She'll try every software, right? Cuz you just don't know what will do. And so, we at least just deprioritized it in the signals and said, "Hey, it's one signal, but it's not the end-all be-all. Um and you know, I always remind founders, we wrote a book years ago that hit the bestseller list that we have a chapter talking about how building a successful company doesn't equate to a successful exit. But I tell founders all the time, everyone has a day of reckoning. And sometimes there's outlier events like I would argue Cursor at 60 billion is an outlier event. But for every Cursor at 60 billion, there will be others that, right, go reversion to
the mean. And so, you know, I just like as these companies stick scale, it is not about just getting excited about the next funding round and telling your buddies about your ARR. Like, are you building a business that has value to somebody? And so, in the early stage, there's just clearly a lot of noise because I will admit VCs are relatively complicit in the ARR and annualized math fudge. Yeah, exactly. Um you know, I also wanted to talk So, I really I didn't realize you must spend much more time in San Francisco. Carter, you've got an office here in San Francisco and New York. We talked a little bit about the fact that LA's
been, at least outside of this area is a little bit sleepy. You also a siesta. We didn't say asleep. We said a siesta and we'll explain what that means, but go ahead. Well, I was going to say you too were an investor in SpaceX when it was valued at $15 billion 10 years ago. But I wouldn't have said that normally, but when you follow the Founders Fund guys, you can't it's like tough it's a tough brag. It's a tough brag, yeah. It really is. But you know, there are so many people making bank from SpaceX, but a lot of them are individual investors because they invested through SPVs. I heard you talking about that a little bit. So, I'm wondering what you think the impacts
of this event are going to be on this area specifically. I mean, obviously like escalating real estate prices are going to be one of them. I was going to go jets, you know, country clubs. Yeah, I mean, I think so to your point on LA other than aerospace and defense, it's clearly on a bit of a siesta. But again, if you think about the few hundred billion dollars of enterprise value created in the last cycle, it was the second wave, right? It was things like Riot Games and Tinder and Snap. And so, I think it's I laugh because everyone said San Francisco was dead 3 years ago. Turns out it's a
little less dead than people expected. I think the same would be true if anyone writes off LA. There are too many smart people both technical, but also too many people understand brand and content and creators and influence in LA. But again, this is the first wave and it's a technical wave. What comes next? New business models, creative thinking, understanding influence. That will be the next wave and I think high likelihood in LA. And then yeah, it's kind of interesting. I mean, you didn't see quite as much come out of something like Snap or Riot, but the amount of money that's coming straight back from SpaceX is clearly unprecedented. If anyone has a house to sell or a boat or a plane, definitely take advantage of that ride. But
I think you will see a very positive impact. It's just so much money because even when Anthropic and OpenAI IPO, it will be a bunch of VCs with a bunch of institutional investors. So never has this much money come back and been so widely spread out. Yeah, it's really special. And the other thing is to think about the talent in San Francisco, a lot of technical talent, but that's also what the models are really good at automating and also accelerating. I think the next frontier is taste. It's uh You're saying San Francisco doesn't have taste? She said it. It's creativity. It's making films, making videos, is making stuff that really resonates emotionally, is making really unique things, making
things that resonate with the culture of like us. Not that San Francisco doesn't have it, but LA has it more, yeah. in spades. Yeah, exactly. Yeah, I agree. Okay, guys, this was such a pleasure. I you know, I wanted to make time for the crowd to ask you some questions, but I think we've kept our next guest here a little bit longer than I meant to. So if you want to talk to these guys, just feel free to chase after them as soon as they get up. at the Swedish meatballs. They were delicious on the way out.
Thank you so much. Really fun talking to you. Thank you so much for coming. Really pleasure. Thank you guys. Thank you. Thank you all.
