20VC: Max Altman on The New Seed War: Can Anyone Compete with...
The Twenty Minute VC (20VC)Full Title
20VC: Max Altman on The New Seed War: Can Anyone Compete with Sequoia and a16z | Leaving $2BN on the Table with Reddit | Lessons from Backing Rippling at $25M Post | Why Climate Tech is a Mirage and Disaster
Summary
Max Altman of Saga Ventures discusses his journey in venture capital, from early experiences with influential figures like Parker Conrad to building his own fund.
The conversation covers investment philosophies, the evolution of the VC landscape, the importance of founder relationships, and advice for emerging managers.
Key Points
- Midwest upbringing instilled humility and communal values, contrasting with the aggression of San Francisco's tech scene, leading to a focus on genuine relationships in venture.
- Early tech experiences, including working at Zenefits, highlighted the need for founders to have strong intuition beyond customer requests and the power of sales and growth.
- The influence of family in venture, like his brothers Sam and Jack Altman, motivated Max to establish his own firm for personal achievement and brand building, drawing lessons from their early successes and the "Founders Fund" model.
- The importance of partnering with strong founders, even at higher valuations, is emphasized, with a belief that backing the right people is more critical than precise price sensitivity.
- The transition from earlier funds like Hydrazine and Apollo to Saga Ventures reflects a focus on thesis-driven investing, moving away from less successful sectors like climate tech towards areas with clearer VC return potential.
- The competitive landscape at the Series A and later stages is intense, dominated by established firms like Sequoia and Andreessen Horowitz, suggesting that early-stage seed investing is a more viable entry point for emerging managers.
- The fundraising process for Saga Ventures involved targeting institutional LPs, facing initial skepticism due to the new partnership structure but ultimately securing sticky capital by demonstrating past performance and a strategic fit with LP portfolios.
- The commoditization of venture capital means firms must differentiate themselves, either through scale, a niche focus, or a strong brand, making the "boutique seed firm" model increasingly challenging.
- The importance of a founder's motivation beyond financial gain, such as title, recognition, or the ability to work on specific projects, is a key insight for effective partnership and hiring.
- The necessity of PR and brand building for VC firms in a crowded market is acknowledged, shifting from a purely relationship-driven approach to a more visible and public strategy.
- The concept of "staying in your lane" and focusing on core strengths, particularly in seed investing, is crucial for emerging managers to build a successful track record.
- The market dynamics have shifted towards lower dilution rounds and a greater emphasis on capital efficiency, forcing founders to be more strategic about fundraising and investors to be mindful of ownership percentages.
- The "fear of missing out" (FOMO) can lead to poor investment decisions, and a disciplined approach, even if it means missing some deals, is vital for long-term success.
- The debate on whether to advise founders to take large, early-stage funding rounds, even if it risks distorting the company, highlights the tension between securing competitive advantages and maintaining focus.
- The value of "brand halo effects" from investing alongside top-tier firms and the importance of building strong relationships with founders and other investors are key to long-term success in venture.
- The definition of a "clean Series A" involves a structured fundraising process with a clear lead investor, which signals strength and attracts further capital, avoiding messy, uncoordinated approaches.
- The belief that a few high-conviction investments can drive fund returns, rather than spreading capital across many deals, guides Saga Ventures' more concentrated approach.
- The difficulty of identifying winners early and the importance of having a strong network to access deal flow and insights are critical for seed-stage investors.
- The changing nature of venture capital, moving closer to hedge fund and private equity models, necessitates a more analytical and less purely relationship-driven approach.
- The biggest personal lesson learned from Sam Altman is the importance of understanding a person's core motivations beyond just financial compensation.
- The lesson from Steve Anderson emphasizes the value of focus, staying in one's lane, and not trying to cover the entire market.
- The critical role of duration and time in generating returns means that holding investments longer, even for moderate multiples, can be more impactful than quick, smaller exits.
- The optimism and belief in the future are essential for venture capitalists, as a negative outlook can hinder the ability to identify and support innovative companies.
- The market size for certain industries, like customer service or insurance, is vast, and underestimating this potential can lead to missed opportunities.
- The biggest fear for founders is a competitor receiving significant funding from a top-tier firm, creating a moat that is difficult to overcome.
- The "ladder to nowhere" signifies the danger of constantly seeking more wealth and status, which can detract from genuine happiness and success.
- The acquisition of outdoor speakers for a backyard has brought the most happiness, highlighting the value of simple pleasures over material accumulation.
- The concept of a "sphere of influence of AI labs" suggests focusing on companies adjacent to major AI players that are less likely to be directly encroached upon by them.
Conclusion
The venture capital landscape is highly competitive and commoditized, requiring investors to be focused, build strong brands, and leverage relationships effectively.
Understanding founder motivations beyond financial gain and focusing on core strengths, particularly in seed investing, are critical for success.
The importance of optimism and a deep understanding of market potential, even when counterintuitive, is essential for navigating the evolving venture capital industry.
Discussion Topics
- How has the shift towards a more commoditized venture capital market impacted the strategies of both emerging and established firms?
- What are the key indicators of a founder's true motivation, and how can investors effectively uncover these motivations beyond financial compensation?
- In an increasingly crowded venture capital landscape, what are the most effective strategies for emerging managers to build a strong brand and attract top-tier deal flow?
Key Terms
- AUM
- Assets Under Management - the total market value of investments that a person or entity manages on behalf of clients.
- Series A
- The first significant round of venture capital financing for a startup.
- Pro Rata
- The right of an existing investor to maintain their ownership percentage in a company by investing in subsequent funding rounds.
- LP
- Limited Partner - an investor who commits capital to a fund but does not actively manage it.
- GP
- General Partner - the manager of a venture capital fund who makes investment decisions and manages the fund's operations.
- KYC
- Know Your Customer - a process used by businesses to verify the identity of their clients.
- Tech Guy
- A colloquial term for someone deeply involved in or knowledgeable about technology, often implying a focus on technical aspects over other business functions.
- BS
- Bullshit - something that is false or meaningless.
- CTA
- Call to Action - a prompt that tells the audience what action to take next.
- IPO
- Initial Public Offering - the process by which a private company first sells shares of stock to the public.
- VC
- Venture Capital - financing that is provided by investors to startups and small businesses that are believed to have long-term growth potential.
Timeline
The impact of growing up in the Midwest on an investor's perspective and relationship building in VC.
Early career experience at Zenefits, learning about founder intuition and the impact of sales and growth on company success.
The belief that focusing on winning is the most important determinant of human happiness, as stated by Nick from Revolut.
Max's loyalty to Parker Conrad and his perspective on the Zenefits/Sacks situation.
The early investment in Rippling at a $25M post-money valuation.
The difference in investment approach and the impact of family connections in VC, specifically regarding the Altman brothers.
Max's motivation for leaving previous funds to build his own firm, driven by ego and pride.
The decision to make the venture capital process more challenging and the educational background from early seed funds.
The origin of the fund name "Hydrazine" and the challenges of branding.
The size of the Hydrazine fund ($200 million) and how it was managed.
The involvement of Sam and Jack Altman in the Hydrazine fund and Jack's work at Lattice.
The investment strategy for Hydrazine, which was primarily to invest in the best people, including Reddit at a higher valuation and Rippling at $25M.
The valuation at which Reddit was invested in.
The ownership percentage of the Reddit investment and its eventual return.
Reflections on the Hydrazine fund experience and the lessons learned from working with family.
The impact of incentivizing partnerships and the potential "fucked up cultures" in venture capital due to hierarchical structures.
The best deal from Hydrazine and the lesson learned from it.
Keith Rabois's regret about passing on the Rippling deal.
The post-Zenefits conversation between Max and Parker Conrad about building a new company.
The philosophy of backing great founders regardless of price.
The biggest mistake made with the Hydrazine fund, which was not following on to winners.
The proactive approach to reserves in the current Saga fund compared to past funds.
The ability to predict winners and losers within six to nine months of investment.
The quicker identification of company quality within two to three months.
The importance of not telling founders when faith has been lost in them.
The distinction between losing faith in a founder as a person versus in their business venture.
The reflection on the zeros in the prior fund and the common themes of failed investments.
The market relevance of ideas and the need for a broader market perspective beyond specific regions.
The challenges of hard tech and hardware investments due to capital intensity and longer payback periods.
The success of Rippling attributed to its focus on a specific HR demographic.
The valuation and sale of Reddit after the IPO.
Reflections on the Reddit IPO and the potential gains left on the table.
The change in thinking regarding holding investments after the lock-up period, considering LP liquidity needs.
The size of the Apollo fund ($200 million) and its strategy to include more hard tech.
The rationale behind the transition into hard tech and the potential pitfalls of investing in climate tech.
The focus on staying in one's lane and the strength in seed investing.
The difficulty of competing in Series A rounds against established firms like Sequoia and Andreessen Horowitz.
The competitive advantage of being in less saturated markets, such as Europe, for seed investments.
The investment model for Saga Ventures, focusing on a few key companies rather than broad market coverage.
The breakout company for Saga Ventures, Profound, and its location in New York.
The effectiveness of multi-stage players in seed investing and the data on their investment activity.
The importance of price alignment and founder incentives in optimizing for the next round.
The significance of signaling in venture capital and how it reflects company quality.
The rarity of receiving deal flow from other VCs and the primary source of good deals being founder referrals.
The decision not to pursue a broad, index-like investment strategy for Saga Ventures, opting for a more concentrated approach.
The fund construction of Saga Ventures, including the number of positions and investment thesis.
The founding team of Saga Ventures and the rationale behind the $125 million fund size.
The changing landscape of seed rounds and the increase in valuations.
The concern about high seed valuations and the impact on investment returns.
The biggest mistake made in a prior fund was being too tied to ownership percentage.
The shift in mindset towards valuing brand halo effects and network benefits over strict ownership percentages.
The framework for evaluating deals that are slightly off-strategy, focusing on financial return, brand halo, and network benefits.
The importance of brand checks and building relationships with other investors and founders.
The fundraise process for Saga Ventures and its challenges.
Reasons for the fundraise being harder than expected, including the new partnership and lack of a shared track record.
Advice for managers raising subsequent funds, emphasizing securing anchor LPs first.
Differences in LP communication requirements and incentives.
The largest check size in the Saga fund and the strategy regarding LP concentration.
The biggest surprise during the fundraise was the focus on strategic fit over purely financial projections.
The importance of setting realistic return expectations for LPs, focusing on 4-5x rather than overly ambitious targets.
The investment strategy of Saga Ventures, including the number of positions and reserve allocation.
The concept of pro rata rights as a moral obligation earned through good performance.
The importance of earning the right to participate in pro rata rounds at each stage of investment.
The reality that founders often don't get their full pro rata due to leading investors.
Identifying the most collaborative and least collaborative large VC firms.
The issue of companies raising too much money too quickly and its potential to distort growth.
The role of VCs in building a company's brand and the advice to secure strong lead investors for Series A rounds.
The definition of a "clean Series A" process and the metaphor of a horse race for fundraising.
The mistake founders make by not coordinating their fundraising efforts effectively.
The benefit of direct relationships with GPs at top-tier firms for founders.
The perceived value of introductions from VCs and the reality of direct access to top partners.
The trend of more low-dilution rounds in venture capital.
The economic factors driving lower dilution, with more capital chasing fewer deals.
Enjoyment of the current market environment due to founders building innovative companies.
The impact of Trump's administration on US tech, with a focus on deregulation and M&A.
The negative impact of H-1B visa restrictions on US tech companies, particularly smaller ones.
The concept of a "sphere of influence of AI labs" and how it shapes investment theses.
The strategy of avoiding direct competition with major AI players like OpenAI.
The effectiveness of companies like 11 Labs as exceptions to the rule of AI encroachment.
The difficulty of determining whether an AI company is "further away" from OpenAI's offerings.
The investment in Fleetworks, an AI voice company focused on supply chain logistics.
The ability to leverage personal connections to gain insights into company roadmaps.
The impact of Sam Altman's fame on Max's life and career, both positively and negatively.
The motivation to prove oneself as an investor and build a strong brand for Saga Ventures.
The realization of the need for PR and brand building in the current venture capital landscape.
The vision for Saga Ventures: to become a quiet luxury brand in early-stage investing.
The challenges faced by mid-sized venture capital firms in the current market.
The idea that new generations of seed funds are replacing older models.
The lessons learned from Steve Anderson about focus and staying in one's lane.
The importance of duration and time in generating venture capital returns.
The shift towards active trading and secondaries in venture capital.
The mistake of holding onto investments like Gusto too long, potentially missing optimal exit opportunities.
The difficulty of letting go of investments and the potential for the last double or triple to significantly impact fund returns.
The impact of valuation increases on investor psychology and the decision to hold versus sell.
The difference in mindset between early-career investors needing capital and established firms with a "let it ride" mentality.
The personal financial gain from investments like Rippling and Reddit and its impact on mindset.
The danger of the "economic treadmill" and the pursuit of constant wealth accumulation.
The single purchase that brought the most happiness: outdoor speakers for the backyard.
Favorite underrated founder: Lux Srini, CTO at Zenefits and builder of Zero Down and architect at Rippling.
Biggest BS about venture capital today: the perceived collaboration versus the reality of a competitive market.
Deal most regretted passing on: Hadrian, due to a lack of aggression in offering a term sheet.
Biggest lesson learned from Sam Altman about analyzing people: understanding their motivations beyond money.
Advice to emerging managers: be humble, stay in your lane, and know your strengths.
Beliefs about venture capital that have changed: the idea that one can remain a "tech guy" and build relationships passively.
The expansion of exit opportunities and the increasing scale of potential company valuations.
The importance of optimism and a positive outlook on the future in venture capital.
The vast market sizes for certain industries, like customer service and insurance, that are often underestimated.
If not scared, the desire to be more of a thought leader and invest in personal brand building.
Episode Details
- Podcast
- The Twenty Minute VC (20VC)
- Episode
- 20VC: Max Altman on The New Seed War: Can Anyone Compete with Sequoia and a16z | Leaving $2BN on the Table with Reddit | Lessons from Backing Rippling at $25M Post | Why Climate Tech is a Mirage and Disaster
- Official Link
- https://www.thetwentyminutevc.com/
- Published
- November 21, 2025