This week Alexia Bonatsos of Dream Machine and Niko Bonatsos of General Catalyst swung by Extra Crunch Live to discuss where they are investing today and what the future might look like.
As expected, these seed and early-stage venture capitalists had a lot to say about their current investing cadence and what interests them in the world of edtech, Clubhouse and more. A big thanks to everyone who came out and submitted some great questions.
Going back through the chat today, a few sections jumped out. For this recap, I’ve gathered answers from the transcript regarding today’s fundraising climate, the future of AI and the possible impact of the downturn on VC-backed founder diversity.
And for everyone who couldn’t join us live, I’ve included the full video replay below. (You can get access here, if you need it.)
Today’s fundraising climate
Alexia:
It’s kind of a Rashomon; depending on whose perspective you’re getting the story, is just completely different.
Let’s see, are [VCs] being as active as they were in 2018? I’m gonna say no. I mean, look at your data, your data says no. But does that mean people [have] shut down the shop and are all in Montana? Also no, right?
We know that these kinds of “crisistunities” — and I’m not diminishing the crisis at all, it is very sad and very scary, and it’s something that I’m very privileged to be able to be experiencing from inside my apartment and not from outside within an emergency room or a food bank or any other place that it’s actually at the front lines, right?
So we know in the last recession, Airbnb, WhatsApp, Uber, Instagram [were founded], how much value was created from the last contraction? Multiple billions of dollars, $100 billion-plus. So the reason VCs aren’t saying, “oh, we’re just gonna wait until valuations drop,” is because then they’re not going to get the email from the next [Airbnb CEO] Brian Chesky. If someone’s saying, “I’m putting up a closed sign on my business,” then they’re not going to be the person that the next category-defining founder automatically reaches out to.
But are many of us pausing, or trying to see if we can get more ownership when valuations correct to the amount of demand in the market? A lot of people are. That being said, I did two deals in March [and] April. And I’m chasing after a deal right now. And I’m still taking meetings and I’m still doing my job. I have to, that’s what I owe to my LPs.
So were we in an overheated market before? Yes. Are people waiting for the market to cool down? Yes. Are they still taking meetings? Yes.
Niko:
I think that’s a pretty good read. Maybe a couple more points to add. The first one is [that] it’s been a journey the last 10, 11 weeks. At the beginning, you start with more introspection, checking out what the portfolio looks like to figure out how you want to spend your time and how much damage has occurred over there.
Then what happens is, you start seeing some new areas exploding, where the — in a good way — where the future is getting accelerated. And you guys have done a good job sharing some of these trends around like e-commerce, telehealth, enterprise security, education, remote–work acceleration. [Those] sectors are looking freaking awesome right now… the metrics are looking really good. The product-market fit is very strong. So any companies you can find in these sectors, for example, I will say it’s business as usual.
Then the other point that I would like to add to what Alexia was saying before… it takes some time and a different mindset to adjust to, “let’s make deals over videoconferencing.” And [it’s] probably easier if it’s a smaller amount of capital, or, most importantly, you’ve kind of relationship with that team from before. But it’s not for everybody to make that jump and be like, “you know what, for people we’ve never met before, we’re gonna write them a $15 million check because they’re going to get us to the promised land.”
So it takes some adjustment from the venture capital community to do that. And you’re seeing it also from our portfolio companies or companies that were not remote-first or had a distributed team. Recruiting is trickier for them, for executives.
How AI is used today
Alexia:
I don’t necessarily know if this is a better future, [but] when I think of [AI] in terms of the consumer context, it’s something like TikTok, where you don’t even have to log into TikTok and it automatically serves you a personalized feed [of] short videos that are tailored to your unique tics. Whether that’s somebody surfing a pool or doing a dance with their dad. TikTok gives you exactly what you want in your feed.
I have a portfolio company named Trash that looks through your camera roll [and] allows you to scoop up videos that are trash and uses AI and ML editing to turn those trash videos into treasure. So it’s more of a personalization aspect, than a, you know, crazy science-fiction Elon Musk neuro-link vision. It’s more subtle than what science fiction would have had you believe in consumer.
Niko:
Something to add to that is it could be also something running in the background around content moderation, for example. It’s like one of the companies that Alexa mentioned, like how do you make sure that it’s [a] more trusted environment, where safer, more positive conversations are happening? So there’s certain companies, like our portfolio company Hive, that’s working with a lot of consumer-facing companies to help them eradicate all the NSFW content.
VCs, diversity and founder capital
Alexia:
I’m also concerned that they’ll backslide on multiple levels.
So when there is a shock to the system, when there’s an earthquake, when a meteor strikes, when there’s a black swan event, we default back to more conservative modes, we default back to the patterns that we’re used to — the way of normality is a stronger force than gravity. And that normality is women doing a lot of the unpaid labor — which is childcare, cleaning, cooking — and that unpaid labor takes away from paid economic productivity. That’s one angle of it.
And then if the venture community — which is predominantly male, predominantly white — is going to default back to old pattern-matching that is also predominantly male, predominantly white. So what we have to do as a community is start building out platforms for greater access. It’s not a pipeline problem, it is an access problem. And the way that you build out a platform for greater access is something along the lines of what Ryan Hoover did with Fundraise From Home, where you could submit videos from anywhere in the world.
Ryan, Niv Dror, Harry Stebbings [and] Vedika Jain [and] myself are sitting there sifting through the videos, picking three that we’re interested in and then listening to these amazing ambitious founders every Thursday from home. And that’s not like an old boys’ club, that’s not a velvet rope, that doesn’t necessitate that you live next to the Blue Bottle on South Park. That’s that is opening up the access to everyone.
Now, hopefully the progress that we have made, the women and the people of color that are already in the industry, will hold fast. And make sure that they continue to discard the cognitive bias. But that’s hard, that’s a conscious action in a time where we’re operating from … so you have to be very, very self-aware as a VC, which is hard.
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