📶 The AI Mafia

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Good morning 👋

We’ve started going down the rabbit hole on what good advertising looks like.

The more we learn, the more we realize our old ads were terrible. We’re sorry about that.

Here’s what you missed in venture over the past week.

If you think we’re right, wrong, way wrong on any of the stories this week, let us know in the comment section at the bottom.

This Week in Venture

The AI mafia ⚫️

Llion Jones, the last remaining employee responsible for writing the “Attention is All You Need” research paper, is set to leave Google.

Why it matters: Investors, especially at the earliest stages, are evaluating people. Prior work experience is a proxy for competence, and VCs will (partially) underwrite based on credentials.

This phenomenon is not new in startup world, and it becomes more amplified when there is a new technology boom.

The Traitorous Eight formed Intel, AMD, and other semiconductor companies. The Paypal Mafia started Tesla, LinkedIn, YouTube, and Opendoor. Former employees at FAANG companies start new companies every week (and they have no struggles raising their first round of capital).

Now, the same thing is happening in AI.

If you’re investing in AI (especially at the seed stage), it will pay dividends to get closer to the action.

Find the companies that are investing the most resources into the space. Use your judgement on who you think it most-likely to leave. Figure out how to get ahold of that person and see what their next move is.

What happens next: Expect to see the same thing happening at companies like Microsoft, OpenAI, Nvidia, and others that have invested heavily into AI.

These major companies have attracted some of the smartest people at the cutting edge, but these same types of people aren’t built to be employees forever.

As this continues, we expect more companies to either offer stronger incentive packages to employees or take a more proactive approach to employee monitoring. At the end of the day, these employees hold trade secrets, and the value of those trade secrets appreciates as more companies adopt AI in their workflows.

Venture math in today’s environment 📊

The math is in:

It is a lot harder to make VC math work when interest rates reach the levels they’re at today.

This graph gives more context to why.

Why it matters: The entire venture capital industry moves based on LP interests, and when rates rise, LPs have less reasons to invest in risky, illiquid assets like venture. At ~5% (where things stand today), the risk-adjusted cost of capital favors bond markets and T-bills.

<10% of funds return 3x+ DPI over a ten-year horizon. The remaining 90% underperform what LPs can get investing in other asset classes.

Now do you understand why there is so much of a slowdown in venture funding?

What happens next: We’ve seen this firsthand, and we’ve talked about it in the past, but raising capital is HARD right now.

Big name funds are struggling. Emerging managers are struggling. Even companies with good metrics are struggling.

Nobody really knows what happens next, but what do you do when the future becomes more unclear? Conserve cash.

Shoutout Ian Rountree for putting this together on Twitter last week.

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Links We Like

🧠 10 Years of Money Wisdom: Thread by Shaan Puri on what he’s learned

🔎 Smart Things Smart People Have Said: Morgan Housel’s collection of wisdom

⭐️ How to Do Great Work: Paul Graham’s latest essay

📶 SaaS Growth Articles: Top articles from a SaaS founder that has scaled

🔑 Modern Meditations - Sam Lessin: How the GP at Slow Ventures thinks about philosophy, metrics, and AI

➡️ Reflections on 10 Years in VC: Shoutout to Harry for sharing in Slack

📊 Programmatic SEO Case Study: How Ian increased site sessions 247%

📋 Lessons from Amish Jani (Founder & Partner @ FirstMark): Focusing, prioritizing ownership, and creating constraints

📝 Lessons from Alfred Lin (Partner @ Sequoia): Identifying motivation, growth sins, and developing storytelling superpowers

🤝 VC Expert Networks: Why we expect microconsulting to play a bigger role in the future of VC

Have an article you like that we should include in this section? Let us know by responding to this email or sharing a link in this Slack channel.

Tweet of the Week

Takeaways from the best podcast of the year

Not a big podcast guy anymore, but my timeline kept saying this was one of the best podcasts of the year.

They weren’t lying.

Great list of takeaways from an elite investor and clear thinker.

Together with Sydecar

Make deals, not spreadsheets

For those of you that haven’t had to do admin work on an SPV deal, consider yourself lucky.

Banking, compliance, contracts, and reporting are all a huge distraction from what actually matters as an investor: doing deals.

Enter Sydecar.

Their software automates all of the back office SPV work so investors can focus on things that move the needle.

Schedule a demo with their team to see where they can help improve your fund ops.

Member of the Week

Vishnavi Parachuri (Investor @ NTTVC)

👋 Say what’s up and intro yourself in Slack.

Thanks for reading this far and giving us a little bit of your attention this week.

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- Clay and Tyler