Jon:
Peter: which means that would be a flood of apps. And now the big challenge will be discoverability. And that's where V.C. money will still play a tremendous role is creating, you know, helping companies with marketing and sales. That whole discovery.
Jon: Function, which startup has the best charisma and let's enable it.
Peter: Yeah. Well, I mean, to a certain extent, which product is the best, right? And let's help them get their story out there.
Jon: Is that the best or which one can tell the story the best? Because I feel like a lot of the products that win. So amateurs talk about ometer. Okay. A lot of the developers inside of Ometer friends have now gone to like Facebook and Airbnb and other places like that. And they said Ometer was never the best product, they just had the best sales team and that those founders chose to spend more money on sales and product like, you know, marketing sales than they did on the product.
Peter: Well, yeah, I mean, Josh is like an amazing salesperson, right? So I think, yeah, look, some businesses are sales businesses and some businesses are product businesses. So both can be successful, right? But both require a lot of money.
Jon: So what about niches? There's been this phrase that the riches in the niches and I in in the last episode we talked about, you know, it used to be someone had a CRM, but now they're creating a CRM specifically for lawn care or a CRM specifically for plumbers. And at that point are these guys. So niched. So like, I mean, I would be a Sierra for plumbers, it might be a CRM for plumbers, specifically in Brazil.
Peter: But at that point, it gets so, like small. Yeah.
Jon: Is it because I see that?
Peter: But that's also like a product led growth type thing, right? Because if your product is so much better, because it is so tied into your niche right there and you start selling and then everyone starts using it because everyone else is using it and you have to use it in order to compete. Right? Becomes table stakes.
Peter: Then then it really like is product ladder growth. You don't need a bunch of venture money, but it's.
Jon: So small then. Yeah, So what? Well, the.
Peter: Market is not big enough to drive like, a big outcome and venture out of.
Jon: These markets becoming so small.
Peter: But then. But that's the case all the time, right? So what, like 97% of companies don't raise venture money, and probably 98 and a half shouldn't raise venture money. And so I don't know that that changes anything. I think we just shift from, you know, lifestyle businesses being something a little more physical to lifestyle businesses being a little more digital.
Peter: Across the board. And that's fine. Like VC money should not go to lifestyle business. It should not go to small niches, Right? I mean, you could you can make the argument that like the corner store, down the street is like a super niche business. It should never raise venture money and wouldn't attract venture money. Right? But that doesn't mean it can't be like a nice little lifestyle business if one run correctly.
Peter: I think you just end up doing that same thing, but more on a digital, digital basis.
Jon: Okay, so you're not afraid of it and.
Peter: The VCs should be focusing on the big stuff.
Peter: Right. The next Google and the next Ciara and like Salesforce, right? Like, whatever the that next huge business is the next Canva. The next.
Jon: Slack. So catchy. But did did it or did it not send waves to the VC community like it did through the developer start community?
Peter: I mean, I think it has right a lot of people have been debating it back and forth, even have a lot of ideas.
Jon: They're like, Am I going to have a job tomorrow?
Peter: Yeah, but you know, most VCs are going to be like, No, no, we're totally confirmation bias. No, no, totally confirmation bias. and look, like I want to say that it's not going to affect us that much, But I mean, I have the same bias, right? But I think it's the same thing of like discoverability will still be an issue.
Peter: You still will have to convince people to first know that you even exist and then convince you that by Yeah, right. And that the reality is the more stuff that's out there, the more costly it becomes to communicate that message.
Jon: Okay, So you think that in a world of chat and I see continues to be relatively unaffected by the number of positions or the amount of cash deployed?
Peter: Yeah, I mean, to a certain extent. Here's the thing. I'm hanging out of the other side of my mouth. Over the last couple of years, VCs have raised an insane amount of money and there have been an insane number of venture funds that have popped up. So if you extrapolate outside of that.
Jon: You think it'll be roughly the same?
Peter: Yeah. If we go back to where like Venture was probably like in the, you know, 2015 through 2019 range, right. in terms of number of funds, number of or amount of capital that's deployable, right. I think that's closer to like a healthy, steady state than where we are today. So I would anticipate that there will be a big drop off in terms of for sure, number of funds and a, from where we are today going forward.
Peter: But I don't know that that's going to be directly that that's going to be due to I guess it's going to be due to like just capital was essentially free for a long time and so everybody had great returns, especially in venture and a lot of people shifted like reallocated assets to venture because everything else was performing really poorly because, you know.
Peter: Capital was basically free and Venture was actually performing better on a relative basis. And so you had a lot of money flow there. And now returns are going to look terrible because everything was VCs invested in overpriced companies. Valuations will come down. A bunch of those VCs will shut shop. And shrink. But none of that will be due to AI.
Jon: Yeah. So I agree very little. One of the biggest things that people are asking me right now is when I'm starting a VC fund, I'm like, We didn't create the podcast to start a VC fund. At least I didn't.
Peter: I think that way Everybody starts a podcast so they can be a VC someday.
Jon: A VC podcast? Yeah, I mean, right now I think it's the worst time I would not want to be raising a fund right now. And if I could, I think you'd want prices to drop because there's going to be as interest rates increase, the rates that startups like, the valuations have to drop for the IRR for VCs to win like to occur.
Jon: And I think it's going to take another 12 months for startups to finally give up and drop to those valuations.
Peter: Yeah, I mean, you're already the problem is, is that it's already happening. It's just happening with the companies that have to raise right now. And there's a bunch of companies that don't have to raise right now and even if they're in market, once they find out that they're not getting the valuation they want because they don't have to raise immediately, they're kicking the can down the road and hoping.
Peter: so but the flip side is, no, none of the companies that are raising right now at like really low valuations are tooting their horn about it and so you don't hear about it, but it is happening. So I agree. I think over the next 6 to 12 months, there's going to be a lot more companies coming to the table for venture capitalist, and they're going to be in tight spots.
Peter: The flip side, though, is that a lot of these guys will have a lot of money to play. They've raised a lot and a lot of them are sitting on their hands. But there are a lot of incentives and pressures for them to be investing. And so I think, yeah, six months we're going to see a big uptick in number of deals, largely because companies will need cash and VCs will need to deploy cash.
Peter: And when that happens, my my best prediction is probably there will be a bifurcation along the lines of quality. So the very, very good companies will raise at crazy, well, theoretically crazy valuations, maybe not quite 2021, but still very high. And everybody else will raise at very, very, very low valuations.
Jon: Yeah. Yeah, I think I would not want to be a founder. Raising right now is the ultimate and I feel bad for the founders who are like, I got six months of capital left and I'm like.
Peter: I feel like you kind of should be fundraising right now, but they're probably like, I don't want to fundraise right now because valuations suck and it's so hard.
Jon: They are fundraising.
Peter: I'm going to wait three months, right?
Jon: They are wait five months.
Peter: They can't go out of business.
Jon: They are fundraising right now. I think a lot of them fundraising in December is usually slow. They're usually waiting for January. But I'm just like, man, I would not want to be running out knowing I'm running out of cash in 3 to 6 months in this compressed market.
Peter: Yeah, no, it's a tough spot. Yeah. And frankly, if you didn't if you didn't start cutting costs six months ago, you, you know.
Jon: Think you're too late. Yeah, I met with the wiki back company this, this, this past week, and that was like they're asking for advice and I don't know, you're kind of in trouble.
Jon: But I don't know I mean, they had the crypto winter, they had the VC, you know crash and I think it just gets really hard for them to raise. Yeah. Especially as they're finally coming into public beta. It's like a private public beta, right?
Jon: There, but people don't know what's out.
Peter: There. Yeah, I know what you're talking about. Okay. No, I agree. I think it's. I think they're in a tough spot, right?
Peter: Flight, but that's like a confluence of a lot of things. Outside of that.
Jon: There are a lot of things out of their control. So, yeah, I feel like love the team and like, this is just a tough market. Everything like lining.
Peter: Up. Yeah, like a year ago, the sort of been totally fundable.
Jon: Especially when they watch. There's another local company came into their team, bleep this out. But so Peter knows it's giddy and they launched a token at the perfect time. So they were just printing cash for their token. Yeah. And I don't know how much they pulled out of their token, but their market crashed. But like, they all have, like nice toys now, like BMW motorcycles and stuff that they didn't own, like, and they didn't have a product yet, but like, their timing was like, it's just because.
Peter: Every crypto company is a Ponzi scheme at the end of the day, right?
Peter: We're going to like, take our token, we're going to push it out there and we'll buy our token. It's like free money and then we'll sell our tokens and use the money to go buy toys. But our tokens are actually not worth anything because it's all speculation.
Jon: I believe this, you know, the editing team. But, you know, like supposedly that same thing happened with McKagan at Mainframe. We bleep that, too. What? To watch these episodes very carefully. And so yeah, so they raised in the market crash for them and they didn't cash out.
Peter: In in cash out in time.
Jon: In cash out. So their, their fund, their fundraise was pointless and it crushed the company.
Peter: Well, that was a missed opportunity for them then, right?
Jon: Yeah. All these these war stories we should just do podcast on war stories that Peter and I have heard. Just bleep out the names.
Peter: We should that and also like, you know, give it about, you know, we should get more problems from entrepreneurs and get my $0.02.
Jon: Which is also what I want 2023 to be. We've done the last year like building an audience and now it's time to start leveraging that audience and like bring on other stuff. Do you think Peter will do a podcast every day with me?
Peter: Do you think anybody would listen to me and you every day?
Jon: I think you what I do is when you have someone you really like, you can start cherry picking. Hey, this one really relates to me. This is someone who's raising in a similar space.
Jon: I think one thing, just so you guys know where we're going, when we first started this and I was trying to, like, say, Hey, Peter, let's do this podcast, he's like, I want to do a podcast, but I want to create a podcast specifically for VCs and target that audience.
Peter: Specifically for VCs. Yeah. Now there's a million podcast specifically for voices.
Jon: Who who like, like VCs for VCs.
Peter: See, I think what's more interesting about what we do is that we tackle like the hard stuff that VCs most VCs won't talk about. Okay, right. Maybe.
Jon: I don't know. I think a lot of these things VCs talk about.
Jon: All right. Well, things we're watching guys go to venture capital. A lot of em you can subscribe to us. All of our links are there. YouTube, Spotify, Apple and the rest. This name theory we talk about because that's where 95% of all of our our plays come from for our analytics dashboard.
Jon: All right. See for the next episode. So you guys.
