At TechCrunch's StrictlyVC event in Athens this week (part of the city's ongoing Panatenia festival), I spoke with Verdict Capital's Niko Bonatsos, Threshold Ventures' Andreas Stavropoulos, and Aomico's Ben Blume to learn about the current state of venture investing, the wave of mega-IPOs SpaceX is about to embark on, and where they see a sea of opportunity still out there. The following conversation has been edited for length and clarity. You can see the entire discussion at the bottom of the page.
SpaceX is reportedly aiming for a $1.75 trillion valuation in its IPO, and OpenAI and Anthropic may not be far behind, but what impact will that have on the broader market?
Andreas Stavropoulos: I remember how exciting Google's IPO was, and how it ushered in the re-opening of a market that had been very pessimistic about technology in the early 2000s, an event that had the potential to bring in a whole new generation of entrepreneurs. The same thing is happening now. Each subsequent wave of paradigm shift changes in magnitude by orders of magnitude, and that's not surprising. In today's information age, what business is not a technology business?
Ben Bloom: These are incredible companies, and each of these large liquidity events creates wealth and profits that are passed back into the next generation of companies.
Niko Bonatsos: My co-founder of Verdict was the first investor in what is now known as Cursor. So if Elon feels that way. [having] Good moment, maybe the cursor [which Musk revealed recently that he has the option to acquire for $60 billion] There may also be good news. But more broadly, as Andreas said, the next generation of companies have the potential to target a much larger market, and immigrant founders, as you know, are people who dream very big, have nothing to lose, and are willing to go all the way, and Elon Musk himself is an immigrant founder. For those of us who come from Greece and other small markets, this is a great example.
Some say SpaceX could absorb a lot of public market capital at its valuation, harming companies that then exit. Is that really a concern?
Stavropoulos: You can choose to look at most things optimistically or pessimistically, and you can make very good arguments for both. On a macro level, something like SpaceX will ultimately end up bringing more people into the market than the short-term impact of absorbing liquidity. Over the past 30 years, consumer involvement in the market has changed from something that is practically nothing to something that people transact on their mobile phones every day. These numbers are added together.
Blume: SpaceX is a very unique company. For a long time, space was the domain of governments and the public sector. I think providing investors with real financial access will capture a wide range of imaginations. Mentally, you might pull from a long-tail allocation that might otherwise be invested in the next 20 or 30 software businesses, but I think the interest it generates more than makes up for that.
Will the current influx of capital into AI be justified by future returns, or is this a case of extreme FOMO?
Bonatsos: If you're an AI-native founder or a company in the American dynamism space, you can live your life in the fast lane right now. If you don't fall into either of these two buckets, it's very difficult. I've lived in Silicon Valley for 17 years, and I've never seen more groupthink than this. Three-quarters of all venture capital raised last year was invested in five companies. Today, if you're a 40-year-old tenured professor at Stanford University and you're not building something with AI, no one wants to meet you.
That being said, something in reality is changing. Two founders using today's AI tools can make more progress in two months with one round of funding than 10 people did in two rounds and a full year of work a year ago. This is changing the way companies start and utilize their capital, potentially moving directly from pre-seed to Series B.
Stavropoulos: There will be a correction that will push some capital back out of the market. Its promise and optimism go far beyond its ability to show results in the short to medium term. However, on a long-term macro scale, I don't think we are too optimistic. The thing is, don't make the mistake of thinking that every 19-year-old with an idea thinks it's going to be the next big thing.
How do you actually price a trade when things are moving so fast?
Blume: Great founders have no shortage of capital options. You need to think about what meaningful ownership is for your fund and exit if you can't get there. The interesting dynamic is that we're a $500 million fund and we're looking at the same opportunities as people who are investing from $10 billion or $15 billion funds. The value of a dollar to us and to them is very different. This skews the size of the round and makes it difficult to stack comparable offers.
Bonassos: We make first money investments. Basically instead of friends and family, instead of angels. We invest in so-called “freaks”, individuals like in professional sports, where a few break all records. As the day goes by, they learn and grow, making progress that would take the average smart founder an entire week. Most of the founders we've supported so far are working on markets that don't yet have a name, which is exactly why valuations are low. Large asset managers can't tell their teams to look for companies in markets that don't yet exist.
There are many stories of very young founders receiving term sheets almost on arrival. Does age really mean anything these days?
Stavropoulos: In times of turmoil, especially when the world appears to be fundamentally changing, a lack of experience can be an advantage. Experience can actually lead you in the wrong direction. That doesn't mean things will change forever. We are passing through a phase where things are still settling down, which creates fertile ground for new ideas, usually young entrepreneurs. But I don't want to overgeneralize.
Bonatsos: When I arrived at Stanford as a graduate student in 2009, the exact same thing was happening. The iPhone was two years old, the App Store was a year old, and there were days when there were more VCs than students on campus. Today is another one of those unique moments. If you're a 22-year-old living in San Francisco and building something with AI, you might have a seed term sheet in your inbox. But if you're 19 years old, lo and behold, this means you're really good. [laughs];You may already have a Series A [offer]. And at this point, age is all relative. I was talking with the 24-year-old founder here in Athens this week. When he said he wasn't that young, he really meant it. I met the Children of Melkor when I was 19 years old. And look where they are now.
Image credit: TechCrunch/StrictlyVC /
Blume: I think if you try to generalize just by age, you're missing out on what you're really looking for: a very high level of enthusiasm, the ability to move ahead of the pace at which the market moves, and the mental dexterity to adapt to ever-changing circumstances. Having something like that is more important than the age listed on your passport.
What do you think about the suspicious activity happening around metrics, especially the way companies report ARR? [annualized recurring revenue]?
Blume: People are relatively free in how they define A and R and R. The new pricing model (token-based billing, free tokens counted as revenue) creates many ways to express these numbers. Our job as investors is to cut through that and make decisions based on actual truth. Is it okay from a marketing perspective? probably. Are you having trouble deciding which companies get capital? No, but sophisticated investors can usually break through it.
Bonatsos: Sometimes we receive emails with very high ARR numbers from portfolio companies that we don't remember doing very well. Therefore, contact the founder. What's the answer? Because the campaign won, it was 365 times the profit from the previous day. I asked him if he could at least do it quarterly. Every time big bucks chase a particular theme, some people get fed up with the pursuit of short-term gains.
In venture, you only lose money once on a bad investment, but you can make a 100x return on a good investment, so you write off the bad investor and move on.
For all you aspiring founders in the audience, where do you think the white space actually lies right now?
Bonatsos: It used to be that every VC firm had at least half of its partners making consumer Internet investments. Now, probably half the people are off the field completely. But OpenAI, one of the best AI companies in recent years, became huge thanks to ChatGPT. Consumers are coming back, which is almost a crazy statement. Right now, these founders probably have about five investors who can offer them a first or second round. I also think there's a new movement emerging to help restore the American dream through new consumer-facing fintech ideas.
Blume: The opportunities for AI to interact with the physical world are orders of magnitude greater than what we've seen to date with workflow automation and digital processes. The physical world still forms a large part of the economy. Betting on all forms of robotics, not just backflip-doing humanoids, remains one of the widest open fields in the next decade.
To learn more about what the three think, including whether Stanford has become too friendly with the venture capital industry, check out the full conversation below.
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