416. 2024 Predictions P2: Bullish/Bearish on Acquisitions, First-Time Founders, Neobanks, PLG, Gaming, Cleantech, Venture GPT, Cyber, and A&D (Ramy Adeeb)

416. 2024 Predictions P2: Bullish/Bearish on Acquisitions, First-Time Founders, Neobanks, PLG, Gaming, Cleantech, Venture GPT, Cyber, and A&D (Ramy Adeeb)


Ramy Adeeb of 1984 Ventures joins Nick to discuss 2024 Predictions P2: Bullish/Bearish on Acquisitions, First-Time Founders, Neobanks, PLG, Gaming, Cleantech, Venture GPT, Cyber, and A&D. In this episode we cover:

  • US Politics and Election Predictions in 2024
  • Economic Indicators, Credit Crisis, and Government Spending
  • Down Rounds in the Startup Industry
  • Venture Capital, Product-Led Growth, and Industry Evolution
  • Gaming, Clean Tech, and VC Investments
  • AI’s Potential Impact, Cybersecurity, and Defense Tech in the Venture Capital Industry

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Transcribed with AI:

0:18
Welcome back to TFR. My good friend Ramy Adeeb GP of 1984 is back for part two of predictions. 2024
0:27
I’m so pleased to be invited back.
0:30
How about some politics? Ramy, everyone’s favorite topic in the valley. What are you thinking on elections in 2024?
0:38
I think, again, I tried to just not predict and he’s done where the data has it right now, the most likely outcome is a rematch between two old men, both of whom the majority of voters which were not candidates true. And I think that sets us for a very wide one. And if you have one of them on trial, and you know, had this been election 2012 And said on trial on national TV, but he’s not going to be on trial on national TV, he’s going to be on trial and then clips from it is going to be on tick tock and social media like clipped and twisted, you know, and reshare the gazillion times it’s going to be poisonous, and it’s going to be probably very polarizing.
1:20
Let me ask you this. Do you think either candidates, technology and digital marketing campaigns have improved or capabilities rather, have improved significantly since the last election? Because Trump’s was quite sophisticated in digital marketing much more so I think than Biden’s, but I’m curious to see what happens this composite.
1:42
I mean, you got to just give the man credit where credit’s due. He’s a brilliant marketer. He’s really good. It’s scary. You know, everybody’s trying to be like, soundbite soundbite. But like Trump has this amazing gift of giving things one word, like he would call the you know, the president sleepy Joe, or he would call Elizabeth Warren just Pocahontas. Right? It’s one word that evokes so much I almost I almost scratch my head and be like, is he that good? Or does he have a marketing campaign behind it marketing team behind him. But I do think that is actually his gift. His gift is, is figuring out just those sound bites those words that appeal to the masses in a very scary way. I think. And so those that that capacity to dumb down messages into very, very simple one word lends itself incredibly well to social media, incredibly wrote to a video incredibly well to tweet
2:38
in incredibly well to like, at the very micro level geo specific ads that appeal to a very specific segment in a very specific area. 100%.
2:48
And so I think the social media war is going to be our battle or election battle is going to be probably won by Trump. I just hope that I hope that there are bigger forces in American politics that would ensure America deserves just something better than Trump. And it deserves someone younger than Biden. There’s there’s no reason why young voters should be voting for an 82 to be 83 or 87 year old president, we have so many exciting young voices. And so my hope is either through, you know, either party stepping up to the situation and understanding the need for younger, fresher voice that better presents our hopes and our fears, we get a younger candidate
3:35
to win. Well, let’s hope Nate Silver has bettered his polling and forecasting ability since the last election. And he assumed that Biden was going to win by like, you know, a landslide but it was quite close. Look, at
3:51
the end of the day, though, it is too close to call. We have no idea what of our advisors is Jim Messina, who was the head of the Obama campaign and now runs a Messina group which connects tech companies with with Washington and help him navigate the hill. He was our guest at our annual meeting a couple of months ago. And he and he said something fascinating he was he basically said this, this election is gonna get decided by about 77 voters in seven states. 77 voters in seven states total about 300 foreign sounding people right now. That’s where all the money is gonna go to $20 billion is going to be spent to weigh those 307 voters. You and I are not what are not two of them. Unfortunately, we’re not. And so it’s a very it’s a slimmest slimmest of margins impossible to predict. And, and there’s a lot between now and the election, but I just I really hope for a younger candidate to emerge from either party that voters are excited about that the younger excited about, that offers a message of hope not, you know, one of either fear or one of Well, I’m your best protection against this crazy guy. So you should vote for me. Yeah,
5:05
I can’t disagree. You know, it’s kind of surprising how well the economy and the stock market has done over the past four years. Considering everything that’s happened. I mean, we’ve had a Democrat in office, we’ve had crazy levels of inflation, interest rates have had increased. We’ve had multiple different crises. Now, maybe most private market crises like FTX, and whatnot. But, I mean, there’s been huge corrections. And we’ve seen that affect the venture market, quite substantively. But, you know, the general economy seems to be doing well. And the public stock market, at least as of today, is that I think an all time high.
5:45
Yeah, I it’s, it’s hard to read the economic indicators right now and get a complete to get it and get a cohesive picture. On the one hand, you know, the s&p 500 at this time is almost an all time high, as you pointed out, consumer confidence seems pretty, pretty strong, but also consumer credit is very high. It’s very high. Because very high and, and real estate is in the commercial real estate obviously is in the gutter 20 30% vacancy rate, depending on where you’re at. And residential real estate has it barely priced for the new interest rate world we live in. So transactions haven’t been happening, people are just sitting in their homes are not moving. But at one point people are going to need to move, we need to get back transactions. And if interest rate is not low enough, then there’s going to be tremendous downward pressure on real estate pricing. That bus consumer debt could my biggest concern on macro old is one of credit, a lot of folks have a lot of borrowing on their head, governments over the seas, a lot of countries are seeing their currency just devalued and devalued and devalued over over the past year. And I wouldn’t be I wouldn’t be surprised if the next crisis is a credit crisis.
7:05
So not not doing a bunch of new BNPL investments. So read 1984
7:09
BNPL. I love that, you know, I love when a sector gets so hot that we create, you know, a term for it by math for later. And then like BNPL for X BNPL for y and it just lasts for a hot second, everybody that’s BNPL this, we never did any BNPL we actually have companies to companies could be disguised as it BNPL but never quite embraced it. Yeah, probably not in our near future.
7:30
You know, before we leave sort of politics and the economy, it seems like there’s one thing that both parties agree on, and that’s spending expense,
7:40
it’s spending and shitting on tech. That is the two things both parties agree on.
7:45
Fair enough. With the current leadership, leadership, do you think the spending stops I mean, the, you know, the deficit and the total debt have have gotten to, you know, unforeseen levels? And I’m not sure you know, what that means and how that debt can be serviced.
8:03
Yeah, you know, we get to print our own currency, which was fascinating. Every other country is facing the exact same calendar Moran, but they don’t print their own currency. And their debt is dollar denominated. And that’s the currency keeps losing its value. So I think we are in a tough spot, but we’re not as bad in disarray as many pretty large countries all over the world right now that are laden with debt, and the interest payments are always skyrocketing. As their currencies get devalued.
8:32
Pretty, pretty fortunate to have basically the world reserve currency Correct. For now, for now. Okay, Rami, let’s move on. Do we face more down rounds in 2024? Yeah,
8:44
definitely. You know, I think the structure rounds were it wasn’t quite a down round. But saying we’re gonna do a war and at a lower valuation, or, you know, we’re gonna do a safe at the last round, but then some warrants kind of under the table that are like common shares, but together, effectively a little around these ran their course over the past couple of years. They will continue, but I think you will start to see that just the real downrods. Real down round. Last round was at 200 million. This is 150 or 100. recapitalization, which is a down round, plus a conversion of some of the preferred shares to common may existing cap table. Fire sales. I mean, reality is just going to set in, and a few it’s been two years to seven divisions started declining if the company hasn’t grown its revenue. You know, valuations were three, you know, let’s say the valuations were 15 times revenue, now they’re five times revenue. So that’s fine if you grew 3x, and revenue, if caught up to the valuation, if not grow at 3x in the past few years to catch up to your last name, or if your last valuation was like 100 times revenue, which is you’re never gonna catch up to it. And you’re running out of cash. Yeah, you’re you’re going to be you’re going to be facing some very hard decisions with a
9:53
vicious cycle, right, because the existing VCs on the cap table either let it go, let it fail. where they extend again, they see something they like, or they’re waiting for the market to correct they extend again. And the more that the existing investors continue to extend, the less dry powder they have for new investments. And so, you know, the new investment market becomes even more difficult, because there’s less dry powder chasing it. And valuations just continue to come down and down. Yeah,
10:25
I think I think was less dry powder available to VCs, you’re gonna see a lot of VCs give up those positions, the maybe in 2022, where the crisis started, you know, the incentives in the VC world was, let me prolong the life of this company. So I don’t have to write down on my books or to give it a second chance. But right now, sort of the writing’s on the wall convoy has gone out of business, you know, Zoom has gone a bit like we’ve been, we’ve seen the multibillion dollar businesses just evaporated overnight. And I think, and there is very little capital left. And the smarter VCs know that that capital needs to go to their winners, not on keeping someone alive, sending you know, life for someone on its death for a company on its deathbed by another six months or
11:10
so. For some of those VCs keeping them alive is keeping themselves alive to because if they only have a couple of fun returners left, and those are embattled, it’s a tricky position. And
11:22
that’s right, it’s we’re going to see a reduction in the industry. You know, funds are going to my guess a lot of funds are getting cut in size in half. And I wouldn’t be surprised if we lose a quarter of the industry over the next couple of years. Do
11:37
you think that the down rounds, the nature of down rounds will be different on a stage basis? Like C versus A versus B? Yeah,
11:44
definitely. Right. The seats the easiest, a lot of it is done on safes. And so when you’re doing a Safe App, you know, we’ve actually seen one of the companies that have raised the safe at 30 million last year, and just did a price crowned at a serious see that 20 And it was a no issue, right? The safe just converted at the 20, no recapitalisation, no paperwork, nothing, there was just a resetting of the founders expectation that, hey, you know, my 3 million seed was supposed to live with me by 10%, free on 30. Now it’s going to be three on 20, which is 15%. So my seed rounds, dilution is a little bit higher, but very smooth. It’s a little tricky if you’ve done a safe and are doing in UC for the lower cap. So if you’ve done a safer doing a price round, the same automatically converge to the new price, and it’s done. If you’re doing and you see for the lower cap, that standard save document does not have an MFN into it. And not every VC asks for it. And it becomes this dance. My advice to all founders just reprice the existing shareholders. You don’t want to have people you know, being pissed off at you and your cap table and over what over like a few percentage points of additional dilution. If you’re if you’re issuing safes at lower cap reprice the existing ones. Now you go to the series B and beyond doubts, ugly down rounds, there was a share issued at $6 at somebody set up an SPV for the vessel, and now that shares gonna be selling at $2.50. And now we’re gonna go to like the docks and see like, how are we going to do the provisions? Do we have a, you know, broad weighted average, blah, blah, blah? Or do we have a full ratchet, which is a brilliant name taken after your podcast, of course, and figuring out those provisions and then figuring out whether there was a pay to play as an existing investor will have to participate throughout the contract how
13:27
much total liquidation preference?
13:29
It’s, it’s yeah, and then and then the company basically is in you know, depending on the down round, if it’s something that’s fine, but if it’s always so much structure, typically the company’s just on its way on a spiral downwards, or that oh, yeah, yeah. Rami
13:42
why are we not in the secondaries business? Why are we not buying up? You know, a bunch of these embattled companies that are still still good companies just in tough positions, because
13:52
you’re not in love investing in zero to one we’re not we’re not you know, we’re not financial intrapreneurs looking for the hottest asset class at the moment. We’re just determined to this journey of working with first time founders and and it’s what we love you can go with either one but if you want to revise an amazing deal today, I would probably start a secondary funds your your spa? Yeah,
14:15
I think if you’re if yes, if you’re just in it for the money, there’s a lot better ways to make money at different times, and to be opportunistic, and, and to be that you know, financial opportunists. Alright, Rami, if you’re up for it, I would love to transition to our lightning round. I read an article in Business Insider, where all the smart VCs weighed in on their 2024 predictions across various sectors and phenomena, VCs Excel, Sequoia, capital G, et cetera. So I want to give you a bunch of these predictions. And just in real time, get your your feedback and whether you agree or disagree. Let’s do it. I
14:56
love Business Insider, I subscribed earlier this year. have been very they rank, they had these annual ranking of VCs and we made it to a couple of the rankings. And of course, I paid my subscription. And now, I referenced Business Insider like it’s Encyclopedia Britannica.
15:11
There you go. That’s how you make the ranking, you pay for the subscription again. All right, Robbie. So the first one is about strategic exits, they claim that large companies will go shopping. And there will be a great exit environment for strategics and tech companies. What do you think?
15:29
I think that’s helpful thinking. There are back to the points we have made on politics. You know, you have another ministration right now that is almost effectively hell bent on stopping m&a for antitrust reasons. I think that companies are a little bit cautious. And I’m not sure tech companies, despite the recent rise in market caps, I’m not sure to a lot of the tech companies that are historically acquisitive are as feeling confident, as say they were and you know, 2019 or 2020 timeframe. But we’ll see, we would love to see some m&a, we all need m&a. We all need m&a. So our LPS needed. We need we need exits. We, you know, my favorite blog on the planet where this industry is praying for exits on Instagram. And so bring on the brain. We’re praying for x,
16:16
I mean, the public company should have cash, right, because the stock market’s doing pretty well. So hopefully they have cash. And instead of just repurchasing shares, hopefully they’re, you know, investing in some private companies.
16:28
Correct. Assuming these private companies, you know, enterprise value to two to three cash flow ratio is actually accurate if to their own whole market cap. And many of these tech companies are not trading at massive multiples.
16:41
Correct. All right, number two, first time founders will flood the market.
16:45
Why? I mean, we’re not we’re seeing this is one of the toughest years to start a company. And first time founders tend to be a little bit more risk averse. And so I’m just, it doesn’t add up to me that we’re gonna see this flood of it is true, there has been a lot of folks have been recently laid off. But um, but you know, this is not 2021, where if you don’t know, what you want to do is yourself and just start a company and raise $2 million to try and figure it out. I think this is a time where only very serious founders are getting financed. So I would be surprised if this reduction comes.
17:19
Yeah, I disagree. Yeah, you know, founders have to build more, they have to bootstrap longer, it’s harder to raise money at not as good prices. And I think most tech employees are, you know, fearful of the market right now. So I don’t know, flight to big tech is my prediction. Next, number three, Rami, we’ve gotten neobanks popularity will roar back.
17:42
I see the excitement there. New banks were all the rage. And then obviously, interest rates started going up, they had gone very high in valuation if you blew out, but I do think, you know, we overestimated their impact in the short term and under are going to underestimate them long term. And we’re going to find if you have the guts right now to go on, start to back in your bank, especially internationally, that will be a very impressive and move that what
18:11
what’s different now that’s going to cause them to roar back. I don’t get it.
18:17
Consumers hate the traditional banks and traditional banks have not innovated much that has not changed. Right? Right. But these new banks that had started were being valued so highly. Again, it’s a mistake. We do a lot in the venture industry, where we trade on GMV and and we do what’s on the definitely the assets like the way the public markets value. Yeah. Bank has a billion dollar of deposits must be worth $10 billion in actually bank was a billion dollar deposits typically traded about like 25 million bucks. There’s just some frothiness but the need is still there, right? Consumers want better financial products, consumers want better underwriting of credit. And the need again is I think more more more apparent more pronounced, you know, naturally that is in the US.
19:05
Alright, so number four, we covered this a bit in part one, but number four was venture firms will face the music. Yeah,
19:13
I mean, we’re already seeing it, you know, I’ve seen one firm I think shut down. And after they’re not doing any more investments, we’re seeing a lot of flash pen sizes I think as you do major major write downs a lot of the will disappear, and many firms will be forced to downsize or probably shut down altogether,
19:33
which is healthy, right? Like evolution some will survive and in some will not
19:39
it’s it’s very it’s very healthy for the industry. For the industry. It’s sad on a personal level, our friends, it’s gonna be right I mean, it’s not a pleasant but yeah, the industry too fast. But I do rest in the comfort. You know, it’s always the tourists that leave. I moved to Silicon Valley in 2000. It was the hottest It’s time to be here. Six months later, stock market crashes. And, you know, everything gets repriced, for like $1 to a penny, and the lot of the MBAs that we’re here to make money like, Okay, let me get out of here. I’m out, I’m going back to New York, let me go back to Japan. But then some state, some state getting paid small incomes with equity that was not worth much because they love the work. And they built Google. And you know, the struggles that tell me and like that great exits have learned so much and became the nucleus for the valley. I think the same for the VC, right, folks who rushed in to make money quick, will realize, ah, I’m not making money anytime soon, I might not be at all, there’s other ways to make money, like starting a secondary fund, that are friendly, next point. And they’ll leave, but those who truly just love this job for what it is working with founders, to learn from them, for intellectual curiosity for the emotional, sort of satisfaction that you get from helping founders, avoid small mistakes, you know, see around the corner, avoid the pitfalls of the journey, they will stay, and we might make shitloads of money we might not, but we’ll stay. I
21:13
love that. Rami, I did see open view is shutting down. You know, they were like the product lead growth firm. I’ve never seen product lead growth work perfectly myself. Someone smarter than me from index said, it’s actually product assisted growth, it’s never purely product lead? Do you think product lead growth is dead? Or does it feel like
21:33
no, I’m a big fan of luck. I think plg again, is a as an acronym, that misrepresents what we’re trying to say here. I mean, you can you only grow from a combination of a great product and a great sales team. It’s that simple. When you have a sales lead growth, and you don’t invest in product, you eventually hit a plateau, where you can’t sell anymore, and you haven’t been investing in the product. And as a result, the business is stuck at 1015 25 $50 million in ARR. I’ve seen this over and over again, my biggest concern with just sales driven businesses that are not investing very proactively innovating in the product is they hit they hit a ceiling to hit a lot. The ceiling companies that have a very strong product innovation, don’t hit that ceiling, because they’re constantly innovating on product. And we have both our portfolio and the hardest thing is finding these very innovative power company with a phenomenal sales leader same time, and go and click convert these accounts. That is the magic formula. That is how you get to Microsoft. But that’s a very beautiful combination when you get that both but anyways, I don’t think open view is like I don’t believe their their trials or their their challenges are because of plg it’s more a function of what’s happening in the industry at large.
22:47
Okay, number five gaming startups will buck the funding slump.
22:52
Gaming is fascinating. It’s massive sector that, you know, it’s funny, so many PCs were like web 3.0 web 3.0. And part of me is like, Have you ever played fortnight? That is the metaverse right?
23:07
That is the metaverse the metaverse exists today, it’s
23:08
called fortnight. Gaming is this massive sector that VCs have historically, we’ve been very, I want to say hesitant to play. You know, obviously, there’s unity and other really good platform exits. But also VCs are scared of investing in a particular studio, because they view themselves as a studio. So you don’t want invest in like, another studio that spits out games hoping that one of them is itself, you know, a media type, like winter wear. So I do think gaming is evolving at rapid speeds. But it is not as necessarily a place was venture. Think about it. Like all the major consoles are the biggest gaming players today. It’s
23:51
like Microsoft, Microsoft, Nintendo, PlayStation, Sony,
23:54
thank you. They’re very big players, and they are somewhat exquisite. But I think they are where most of the innovations happen
24:01
in a year for a while there. To your point. I feel like gaming got lumped in with Metaverse and web three and ft. And AR to some degree, it was kind of all lumped into this thing called Web three and yeah,
24:13
but it was also like, yeah, my favorite of all of it was that, you know, earn to play, play to earn I’m sorry, yeah. Which made no sense. And like, you know, as a kid, I used to take my allowance, so I go to the video game store, so I pay to play the idea that I would go to a video game store and play so I make money. We were like, how, what am I missing? Where does that money coming from? Yeah,
24:34
yeah, it’s crazy. Okay, so gaming, moderately bullish. It sounds like, but tougher VC. Six clean tech will be bigger than ever. All you wait for this one Rami
24:47
luck. I mean, what
24:50
you want and what you need are two different things. You’ve
24:53
you’ve summed it up. I mean, I went like I wish I wish I could go to our LPS we’re gonna save The planet was technology. And we can hit all of your, you know, ESG goals if you give us money because we’re going to invest in the next wave of Intrapreneurs, you’re going to do hard tech. But I think the biggest Inconvenient Truth About Clean Tech or about global warming is it’s not a software problem. Yeah, it’s a problem with material science. It’s a problem of financial engineering, capital. And it’s a problem of politics. Say we’re going to make a shift from coal to electricity, political will like President Biden to say like Ford is going to double down on on the electric truck. Knowing that China I think right now, half the cars are hybrids, right? They’re really ahead of us in electric electrification on the vehicle front. So I started my career in this industry at Khosla ventures. And I learned so much from Khosla and we had one of the best strategies at the time and clean tech. Firstly, you made some software investments in the software investments created older terms. And maybe this time is different. But my concern is the power law return. The idea that small number of investments return the bulk of their returns isn’t just a function of the market cap of these exits, but also the capital efficiency, the path they took to go from zero to a $3 billion
26:22
exit, and a percent in the sizes. Right,
26:26
cleantech is so capital intensive, and you talk to everybody who’s excited about clean tech, Kenny asks, Where are you going to, like, how are you going to get this competition grows? And the answer is, oh, well, the government subsidies are gonna get us there. And I’m like, Guys, government subsidies is not creative venture returns, you know, government market pool creates venture returns, you know, some governments have you that might have the buyers of creative venture returns, rising prices of alternative fuels Congreve, in short turns, but anyways, so. So I struggle, I looked hard for software place in this industry, how many you know, how many carbon accounting enterprise software platform can we have, or how many battery, you know, reorganization or fleet management software companies going to be having these are the problem. The problem is innovation on the material science and the hard sciences, you know, storage efficiency, even if your mind battery, you know, efficiency of a solar cell, things that venture capital is not the best use of capital for
27:27
when the tans have to be so extraordinarily large. To compensate for the the capital, right needs, the capital requirements and dilution. I think of companies in deep tech that have been successful, like SpaceX, that’s like a decent example, where clean tech could be successful, but I would rather invest in a company that’s got commercial prospects like SpaceX, and then also the secondary clean tech benefits like SpaceX can help the world become more energy efficient through, you know, smarter use of technology and satellites and, and rocket deployment, etc. But But I think SpaceX
28:03
is a great example they, you know, SpaceX does have some exciting promise, no doubt, and to change space and whatnot. SpaceX has raised $10 million, billion with a B, you know, Amazon raised 10 million with an M perspective. Now, I think between don’t need to raise 10 million grades 100 150.
28:25
I think that, you know, one of the promising things that people hang their hat on with cleantech is consumer behavior has changed. And to some degree, some company behavior has changed. But something that I tried never to forget, is the majority of consumers will only do what they have to, you know, the seven deadly sins to apply. And the majority of companies will only do what they have to. And so, you know, from a regulatory standpoint, companies are going to have to be forced to do stuff to become, you know, clean tech compliant and sustainable and, you know, net negative carbon emissions, etc. You can only get so far on the folks that want to do good without a forcing function.
29:09
Well said, Very well said
29:11
number seven Rami venture GPT is coming. Or maybe it’s here. You
29:16
mean, my job is outsourced to AI? I mean, our work is just beyond Intel. It’s hard. It’s hard. Nick, what are you talking about? I think it’s a it’s inevitable. It’s inevitable. I think the the act of identifying startups, definitely. I mean, we use everybody uses some tools, we’re adding more and more and more to try and surface startups before. And picking you can argue is the art but I could see how a very quantitative algorithm for picking could do well, but then there is convincing the founder take your money, and I think it’s a little trickier. Although I could see an AI being like A, you know, instead of an attendee for responding to your email in two hours, we will respond right away. That’s actually interesting. That’s pretty interesting, pretty interesting for whatever needs you have how many interested 94 make for your subsequent VCs? 20? Well, the 200 actually 2000 Actually, we will email every VC on the planet with a custom targeted message.
30:21
I mean, ultimately, relationships are still going to be a differentiator to your point, right?
30:26
Look, of course, you know, VCs are gonna go out of business, because they did not realize return well, before they go out of business because of right? Well, one of my favorite lines of all times was, I was in college, and we invited the the Saudi oil minister to give a talk, because he was a brilliant guy, brilliant guy. And one kid asked him, when do you think we’ll run out of oil? And you know what his answer was? He said, the Bronze Age did not end because we ran out of bronze. And I was like, Damn, that’s so smooth. So
30:57
that is a great answer.
30:59
Great answer. It was a brilliant answer. We will never run out where we no longer require it. Exactly. Exactly. Love it.
31:09
Yeah, I mean, quantifying the qualitative, super interesting. And I saw one of our startups was raising a Series A, and they pitched tribe, capital. And this isn’t a plug for them. But they produced this pretty nifty report, the product market fit report, where they plot you on, you know, all these different graphs against, you know, the greater venture market, every company, they’ve looked at it, it’s pretty compelling and intriguing for the founder, the founder looks at it and says, Wow, I understand my business even better quantitatively than I did going into this. And it’s, it’s a hook, I think that can help, it can help win a deal for sure. It can help you vet a deal, first of all, and then potentially help you win a deal. So the more and more that venture firms automate, I think the more clever advantages they have, either in sourcing selection or or winning these deals. Absolutely. Absolutely. All right. But with the rise of AI Rami, we have number eight on our list. As cyber threats grow, businesses will beef up their security, you know, the cat and mouse game game of cyber it. To me, it feels like it’s at an all time high. But I don’t know what your take No, I
32:18
think I think it will continue like that cyber spirit. Like I would love to be meeting 10 times more cybersecurity companies at the seed stage than we are today. They’re very hard to come by with a lot of the repeat founders start straight at VA or but yeah, cybersecurity is a packet loss. Fastest exit was a cybersecurity company we invested in like basically like three months later to Cloudflare.
32:42
I’ll return like, yeah, yeah,
32:45
there are meaningful, definitely meaningful. Okay, I was I was very surprised hybrid. I wish they continued. Yeah, but as a CSO, your job is just to make sure you try to protect your data and enterprise are getting more and more complex, more and more of their data is wrestling with their vendors who are themselves susceptible to hacks or who are then using products that are themselves susceptible to hack, you have like three or four layers of where I could be getting hacked tomorrow. You know, it could be like some Apache module that will be integrated for 10 years it is used by Salesforce are one of my vendors that has my you know, one of my enterprise SAS products, it is getting tougher for a CISO to get visibility into even where the threats are at that alone protect themselves and a lot of startups are trying to innovate there. And a lot of the very large enterprise grade companies are very happy acquires in this space so it is very exciting for venture has always been it will continue to be love it.
33:42
And then finally here number nine Rami eat defense tech hype cycle will emerge. I
33:47
don’t I never predict what the next hype is. I don’t see signals of a hype cycle right now around defense defense, you’d had Palantir for a generation now. You’ve had small spin outs after pennants here. But I yeah, I don’t see signs of hype cycle on defense there. But there are people who might be more actively paying attention to the sectors are seeing it.
34:09
Yeah, hype cycle might be a little aggressive. But there’s a lot there’s a lot more focus from a variety firms have noticed, like Leo over at Sisa just started a defense focus fund and there’s a number of folks that are zeroing in on on end for the next few
34:25
years. There’s three major global conference taking place right now was a lot of spending and a mix of cybersecurity and war. So it’s not unreasonable to arms companies stocks are an all time high. This end and that’s something we should be celebrating. That’s something we should be lamenting, but
34:45
the spending in that sector is not going to decline. Fair to say. Very good. Okay. And then just to wrap up here Rami. Yesterday, I asked you what’s personally been a big change in focus for you today. I’m gonna ask What has been the biggest thing that has changed with 1984? thesis or strategy since inception? And how will that manifest in 2024?
35:11
I think the biggest change in thesis is to maybe focus less on thesis. And more on teams and early signs of product market fit. You know, we started the fund with a simple thesis and software is disrupting all of these antiquated industries, that Software is eating the world pretty much similar to Marc Andreessen. And the challenge has been, I think, if he says given investor at the seed stage, you often meet company, you tell the ceases to LPS love it, and then they give you money. And then you keep telling the story. And the story makes a lot of sense. And then me the company that fits with that thesis, and it fits with a piece and you just give it money. But you kind of have considerations about the founder, you’re not sure if it’s the best team. And you know, fast forward six months later realize this thesis might have been correct. But really, this company is not doing well, because it wasn’t a world class team. I think I find myself the longer we have done this as a group and we talk a lot myself and my partner’s you know, same at Aaron Farzad and Mark, we’re constantly talking about how can we get better, and we’re finding ourselves gravitating more to being less about specific feces, and more about asking stupid questions. Is their crazy hair on fire problem being solved here for somebody? And is this a great team that can ship software at warp speed? And that grow this business? And if the answer is yes, we just invest.
36:34
I think you’ve said it. Well, sir. Well, thank you, as always, for joining me on this year’s edition of 2024 predictions. Always a pleasure Rami to catch up, and we’ll find out next year how you did.
36:44
Thank you, Nick.
36:45
All right. Thank you, Sarah.
36:46
Remember, a broken clock is right twice a day. Have a great party party for many times throughout the year was many, many times. All right. Thanks, sir.
37:01
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that. Some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening