20VC: Daniel Gross and Nat Friedman: Acquired by Meta | OpenAI's...

Full Title

20VC: Daniel Gross and Nat Friedman: Acquired by Meta | OpenAI's SBC Bombshell: More Stock Comp Than Revenue | Privat Equity is Back: Olo Bought for $2BN | Microsoft Lays Off 9,000 People: Is This Just the Start | Will Sequoia Part with Shaun Maguire

Summary

This podcast episode dissects major shifts in the tech and venture capital landscape, including prominent VC departures to Meta, the implications of high stock-based compensation for AI companies, and strategic acquisitions by CoreWeave and a private equity firm. The hosts also discuss the paradoxical decline in overall VC deal volume amidst a "flight to quality" and intense competition for top AI talent.

Key Points

• Prominent VCs Daniel Gross and Nat Friedman abandoned their highly successful $1.1 billion fund, which yielded a 4x return on deployed capital in two years, to join Meta, demonstrating the compelling allure of opportunities in AI.
• Despite their fund's impressive performance, LPs may still be unhappy as the partners are stepping away from future investment opportunities, highlighting the tension between rapid gains and long-term commitment.
• OpenAI's stock-based compensation (SBC) reportedly exceeding its revenue indicates a significant dilution for investors, although the actual impact on equity value depends on the company's rising market capitalization.
• The intense talent war in AI, driven by well-funded companies like Meta and OpenAI offering lucrative packages, makes it exceptionally challenging for other companies to recruit top-tier engineers.
• CoreWeave's $9 billion acquisition of Core Scientific, following a previous $1 billion deal, is a strategic use of its highly appreciated stock to reduce fixed costs like data center leases, providing a more robust balance sheet for future market fluctuations.
• The acquisition of Olo for $2 billion by private equity firm Thoma Bravo signals a resurgence of PE interest in profitable, defensible vertical SaaS companies, though such deals alone cannot rescue the broader market of struggling unicorns.
• The paradox of high-profile tech and VC activity coinciding with an eight-year low in overall VC deals suggests a "flight to consensus" or quality, where capital and attention are heavily concentrated on a few high-potential AI ventures, leaving others struggling for funding.
• Microsoft's strategy of replacing generalist sales roles with solutions engineers, mirrored by other companies, indicates a shift towards specialized talent in sales to meet higher customer expectations, accelerated by AI.
• Canva's "AI discovery week" for all 5,000 employees highlights a proactive corporate approach to upskill its workforce in AI, addressing employee fear and busyness, though some argue true curiosity is paramount.
• The discussion on Harvard's funding gap and endowment taxes brings to light how external policy decisions can negatively impact scientific research and small grants, potentially punishing the wrong areas within institutions.
• The recent increase in QSBS (Qualified Small Business Stock) tax exemption limits incentivizes early-stage startup investing for individuals, offering significant tax benefits on gains.

Conclusion

The current tech market is characterized by extreme consolidation of talent and capital around a few high-growth AI opportunities, making it difficult for other ventures to compete for funding or attention.

Companies must proactively address the integration of AI into their operations and workforce, as employees unwilling to adapt will likely be left behind.

While periods of rapid growth may lead to aggressive financial decisions, the underlying economic stability depends on companies avoiding "dumb shit" that could trigger a downturn.

Discussion Topics

• How do companies balance the need for rapid growth and capturing market opportunity in AI with the potential risks of excessive stock-based compensation and dilution?
• What strategies can non-AI or "triple, triple, double, double" growth companies employ to attract capital and talent in a market increasingly dominated by "moonshot" AI investments?
• Should institutional investors like Vanguard continue to increase private equity exposure in mainstream funds, considering the illiquidity and complexity for average retail investors?

Key Terms

LPs

Limited Partners, the investors who provide capital to venture capital or private equity funds.

GPs

General Partners, the managers of a venture capital or private equity fund who are responsible for investment decisions.

Carry

Carried Interest, a share of the profits of an investment fund paid to the fund's managers (GPs), typically 20%.

SBC

Stock-Based Compensation, a non-cash form of employee compensation in which employees receive equity (stocks or stock options) in the company.

ARR

Annual Recurring Revenue, a metric used to predict recurring revenue components of a subscription-based business model, typically for a year.

PE

Private Equity, an alternative investment class and consists of capital not listed on a public exchange.

Vertical SaaS

Software-as-a-Service applications designed to meet the specific needs of a particular industry or niche market.

Meme Stock

A stock whose price experiences a significant surge, often disconnected from its fundamental value, primarily due to social media hype and retail investor interest.

QSBS

Qualified Small Business Stock, a tax incentive that allows investors to exclude a portion or all of the capital gains from the sale of eligible small business stock.

Target Date Fund

A mutual fund that automatically shifts its asset allocation to become more conservative as it approaches a specific "target date," typically retirement.

LLM

Large Language Model, a type of artificial intelligence program designed to understand and generate human-like text, often used for various natural language processing tasks.

RSUs

Restricted Stock Units, a form of equity compensation that gives an employee company shares at a future date, typically after vesting requirements are met.

Timeline