What VCs Won’t Tell You About Getting Funded

Transcript generated automatically from the episode audio and lightly cleaned up (filler words removed, misheard names corrected where clear). Speaker labels were added afterward and may contain errors.

Rob May: Hi everyone. I'm Rob May the co-founder and CEO at Neurometric.

Anna Kirk: I'm Anna Kirk. I'm sales lead at Thread AI.

Ryan Eppley: And I'm Ryan Eppley, co-founder CEO of RootAccess. Access.

Rob May: Welcome everybody. Today we have our our original guest on the show, Charlie O'Donnell is back. Hopefully we've got a much better setup this time, so you'll be looking at the camera and everything else.

Charlie O’Donnell: This is already a vast improvement.

Rob May: Yeah. A couple of quick housekeeping items before we get started. First of all, our sponsor BePresent. You should check them out. This is an app that you download to your phone and it uses the same techniques that the social media apps use to keep you engaged.

Charlie O’Donnell: Oh, I know these guys.

Rob May: Yeah, BePresent uses those to keep you off your phone. I'll tell you some stuff about them after the how they're doing. They're doing really really well as a company after the show. So definitely go check them out. It's a blockbuster. I think it's the number one app in that category in the app store. In other news, we've been asked to help a lot with teaching people AI in the New York community. So, we are running on April 15th at 5:30 p.m. Our first in-person Claude Code class. So, this is not for engineers who want to learn to transition to Claude Code. This is for non-technical people that want to learn what this tool is about and how to use it. So, there'll be some details flashed up on the screen hopefully and in the show notes. So, check it out, sign up. That'll be April 15th and, yeah. So, let's so let's get to So, you're coming in today. Let's let's start talking about the fact that you are publishing a book.

Charlie O’Donnell: Yeah, I am super excited about it. So the book is called Founder Unfriendly and it's what investors won't tell you about getting funded. And the reason why I wrote the book is so when you're a VC, your job in any room full of 100 people is to find the one or maybe two people that you're supposed to spend 100% of your time with. I never actually really like that. I would rather help as many people as possible. That mildly align with the VC life. Like you're supposed to be somewhat helpful, but you kind of really got to target it. And particularly growing up in the New York ecosystem, which wasn't always this mature thing that it is now, I would always try and reach out and help founders who even today I had a founder ask for some feedback and they were asking about how they raised their series A and it turns out they're like really going for a preede round and they didn't know the nomenclature and all of that sort of stuff, right? I spoke to another founder today that got all sorts of feedback from VCs and I'm like this feedback does not align. They're not telling you the real reason why they're not investing.

And so for 99% of the founders who struggle to raise and struggle to get real feedback, I wanted to put something out them for them as opposed to the you know what you the deck that the Figma team used to raise their round which is like completely not replicable and leaves out the fact that Dylan was a teal fellow who worked at a prior index portfolio company and all of that. Like this is this is the book for anybody who tries it, is not an insider, who didn't previously sell a company. This is for Rob pre-backified.

Rob May: Yeah. I mean, it's still like for people like it's still hard. Like we're we're raising now Neurometric. It's like my 18th round of venture funding in my career. I hate it every time. Like sometimes it's easier than others. Like there's some rounds that you come together with a handful of conversations, but you always always get it. Even the hot rounds that I've had where we were a hot company, it's that was a hot round. You still always get a lot of people that don't believe and I don't think founders understand that.

Charlie O’Donnell: Yeah. And it's incredibly hard to understand what pattern, what angle of attack, right? You see these templates, you hear this advice that's like, oh, never raise this way, never raise this way. Well, I don't know, maybe in your company's case, I would say that, right? To understand what pattern is going to work for you is actually really hard. And that's where investors have an information advantage, right? Like I've seen a company like you raise before and this is how I would go about it and that's what I'm trying to get out there in the book.

Anna Kirk: I also imagine that you know thinking about like the venture investor seat it is so easy to kind of have the sense of FOMO where like oh like I've seen this cool company but what else is out there like what haven't I seen what other kind of companies are out there that I haven't spoken to yet that can help kind of like it ultimately like stalls their decision-making process. So even if you have the right company, you're doing it at the right time, you have the right idea, it could just kind of pre preclude you from like getting an investment.

Ryan Eppley: I've been on the other side of that where an investor reached out to me saying, "Hey, we were doing diligence on this other company and I found you. I really like what you're doing." I like, "That's an interesting way to be found from an investor." When they're doing diligence on other companies.

Charlie O’Donnell: Yeah. And VC firms themselves are are kind of a black box, right? You have no idea. You try and create some FOMO. You try and make yourself findable. Maybe that inbound is from all due respect like a senior associate who's just saying that to everybody like or maybe you actually do have traction, right? And how do you even assess everybody thinks it's interesting. Well, what do they mean? Well, it's interesting enough to invite two partners to the next meeting. Oh, okay. That's a real signal. Like it's a three partner firm. You could literally get a majority vote right here in this meeting. Sometimes you get a junior person who genuinely wants to do this deal and no one else in the firm does and they'll keep meeting with you and they will get questions from the senior folks of the questions are really meant to get them to stop working on it but you don't know that that's actually what's going on. You just think like, "Oh, these guys are really excited to talk to me." And it's like, "No, no, they're the junior person trying to push their their first deal over the line." And sometimes that happens, too.

Anna Kirk: So, how did you format the book?

Charlie O’Donnell: With the help of AI, actually, that is the best layup there. So, I've been writing for a long time. It's actually how I met Rob.

Rob May: Yes. 2005.

Charlie O’Donnell: 2005. You're writing business pundit. And I've been writing a blog slash newswsletter since February of '04. And I'm used to kind of long form essay or shorter pieces at a time. And so actually it was like fairly hard to manage a 250 odd page amount of work to keep track of like where did I say this before? So what I actually did was I took my book proposal and I wrote a random list of titles that only I would get inside jokes, things that I wanted to touch upon that like would not make sense to somebody else. And I threw it into AI and I said, "Okay, this is my proposal. Here's my list of titles. What's your best guess as to what this chapter is about?" And like sometimes it would get it and sometimes it would be, you know, way off. And I was like, actually, it's more this than that, or this is what I want to focus on. We do two or three turns before I got a really good sort of one or two paragraph description of like what I wanted to get accomplished in a chapter.

And then I did that for every single chapter. And then I was able to get this like consumable, okay, like this is the book, this is the subject matter of the book. Threw that back in, sent it to a couple of actual humans. And I said, "If this is the book, is there anything missing?" Like, if you were an early stage founder who hadn't raised before, what question

Ryan Eppley: is it all about raising or is it about other parts of being a first-time founder?

Charlie O’Donnell: It's so the raise is more than about just the raise. So for example, it's about like how you build trust. We have this sort of Shark Tank impression of what fundraising is like where it's the one meeting, it's the big, you know, your one opportunity, right? And go big or go home kind of thing. And the reality is, you know, your fundraising, actually Ali Hamemed told me this like a couple years ago I was interviewing him. Your fundraising kind of started in high school actually. You just don't realize it. The people who know you the longest are going to be your biggest champions. And if you stay in touch with folks, your networks will grow with theirs. And so, people don't realize how long some of the relationships are. And reputation building is just incredibly important to winning over a round. So, a lot of it is about that. A lot of it is about how you decide that like this really is the idea that's worth your time because I think this is a big ask of yourself.

Forget about what you're asking somebody across the table like you're taking your prime earning years possibly committing you know listen if it's a complete failure maybe you waste a year but it could be but most of them are the reverse right I don't think people realize how many are like they go on for two or three years and then you ek out and you're like I would have made more money in a job during those three years right like it's like yeah so you got to have a really high bar for this for yourself and so we talk a little bit about the process of like really vetting this idea on on on your own, understanding and being honest with yourself about like am I the most well positioned person to be doing this particular thing? I'll give you this example. So I think the three best days you'll ever have as a founder is like the day you commit to the idea, you get super excited. Everything's in front of you. You have this wideeyed view of like this is going to be amazing. I'm super psyched romance of the idea.

Yeah. Exactly. Exactly. Then there's the day you announce it, right? You get all sorts of support from your network. And then there's the day you exit for a bunch of money. Those are probably the three best days. That second day is where people are way off because assuming you're not a jerk, you get a lot of support. People say, "Congratulations. That sounds awesome. That's really great for you." Like, "Good luck. This sounds great." Right? And you think everyone's really excited about this. But did you actually get any introductions from your network to customers? People who committed some kind of social capital to say, you know what, I will put you in front of my boss and I know that that's a risk for my reputation at work, but I'm going to do that. I'm going to offer you capital or introductions to capital, right? That's a resource that I was saving for myself, but I'm going to put you in front of them.

If you got none of that, you have to ask like, am I really that well positioned to do this, right? Like I announced to my network I was building this thing and not a single customer lead came out of this. I got to imagine there's somebody else building this thing, a version of this that would have gotten lots of customer leads from it. Maybe that person should be my co-founder, right? So, a lot about what goes into having a good pitch, not so much the being a CEO part. A little bit about that and your interactions with the

Anna Kirk: I actually really like the quote of the raise is more than the raise. I think you said that right before we dove in like it's a great way to kind of start there of like if if you know you're going to have the leverage to raise. It's not because you put together the pitch deck. Right. Right. And I actually really appreciate how simple that is. The raise is more than the raise.

Charlie O’Donnell: Right. And you can move the pitch deck around in any which way, but your underlying story is all your homework that went into it, your how you organically came up with the idea, your firsthand experience being in this market, you know, all of that sort of stuff is really, really important.

Ryan Eppley: I'd say one of the best moments for a founder that you didn't mention is getting your first paycheck or revenue, right? Like when you're like, "Oh yeah, wow, like I'm this is real." You know, I got a an invoice. Oh, wait. What's QuickBooks? How do I how do I do this invoice now? You know, that's always like a very very magic moment.

Anna Kirk: Yeah. I'm curious, Charlie, from your perspective especially, but everyone at the table, I maybe this is just anecdotal, but I've been having many conversations lately with founders who say, "Screw it. I don't want to go the venture route. I don't want to dilute myself 60% and ultimately like exit values are not kind of where they were in a past environment." What would you say to founders who are maybe kind of at the fork in the road of I don't even like do I want to take this VC money that someone is offering me? Like what are the terms of that? What do they mean versus like what would it look like if I took an alternative form of capital? Like what would you say to them and how would you advise them to move forward?

Charlie O’Donnell: So I could write a whole book on reasons to hate VCs, right? And there's part of it. I hate VCs, but it's everything from these folks are going to come in and kick me out and replace me for their own people, right? VCs are lazy. We don't want to do that. We hope that you grow into the CEO that you need to be to IPO this company. We want to do as little work as possible. So, trust us on that. Some of it is the dilution argument. And listen, for certain types of companies that makes sense. I know there's a company that pitched me in the continuing education space and I said to the founder, you're disrupting this publisher who owns this space.

They're going to need to buy you for like 20 or $30 million. That's going to be the outcome here, and that's going to be an awesome return for your angels, right? They're going to make four or five on this thing in three years. And this is money good. You already have you know customers and I would agree that that founder should raise in such a way that they are have less del as least as as little dilution as possible. So that they can own 60 70 80% of that company when they sell. There are some companies where that's not reasonable, right? You're doing some kind of hard tech, you need a certain size engineering staff, there's a land grab to be the first one to go do something and you just need certain amounts of capital to get that going. Now, thank you to AI, there are many companies where that is not the case anymore. Where you can do more with less and that's fine.

I would be very careful about the idea of thinking that alternative types of capital if you need outside capital is easier. There might be instances well you know I raised from my buddies and you know I know a couple of people and why should I go through this fuss of institutional investors and like yeah that might be easier on day one but if they don't have the experience of how to sell a company or how to deal with a co-founder breakup and all of that or their new angel investors just get excited about the idea of angel investing they've ever lost money on this thing like some of the worst worst deals and investor conflicts I've ever seen were from people's families from people that they considered like really close connections just because they're unsophisticated investors who by the way really needed that money as it turns out understand what's normal

Rob May: you know I think I saw a study somewhere it's probably about 10 years old and I actually I want to say it it either either Roman Stanek from good data it was about his company or he published or something but it looked at the analytics market and it looked at bootstrap companies versus venture companies. And I basically came to the conclusion that it's roughly the same outcome for you as a founder. The question is, do you own 60% of a $20 million company when you exit or 6% of a $200 million company when you exit? You make about the same, right? And there's just, you know, there's different sort of trade-offs in there. And I'll I'll see if I can find it. We'll send it to Madi.

Charlie O’Donnell: But maybe I wouldn't be surprised about that. And plus, you have to kind of know yourself as a founder, right? Like are you the type of person who says you know what I would benefit from having more experience around the table? It would be less stressful for me if I felt like I had sort of a board and structure or all of this sort of stuff or could that be more stressful.

Rob May: So okay so let so let's pause and tell the story now because this is a good lead into the story. I'll tell my version you tell your version of we didn't tell this on the first time Charlie was on. Charlie was my first investor at my first company. He was a newly minted VC at first backup even before that the idea from the company well the idea came from Charlie so the idea so my first company backup if I did backup for cloud computing applications and what happened was I was working for a startup that was going under and Charlie and I and Rob didn't quite realize I was going under Charlie and I met cuz we I was here with the CEO raising money in New York and Charlie and I just connected because we've been friends for a couple years and Charlie's like you know what you should do he's like you should he's like I think you said Yahoo just bought Flickr and they're going to screw this up and you should build a backup for that. And I was like, "No, that's stupid."

And I went back to Louisville, Kentucky where I was living and I started talking to people about it and everybody paused and everybody went, "Huh, well, not Flickr, but I have and I realized everybody had some data in the cloud they wanted back up." And so then you so I started working on it and then you tweeted it and I texted you and I said, "I'm working on that." And you called me. So it was actually

Charlie O’Donnell: It might have been actually before I joined first round and then I joined like right after between like when we talked about the original idea, then I joined.

Rob May: Yeah. Cuz it was about a year before we raised any money. We like we took a little bit of angel money. Dharmesh Shah was an investor, some guys from Louisville and stuff like that. So anyway, we go into first round capital. Charlie sits on the board.

Charlie O’Donnell: And so I'm like literally less than a 100 days into being a first round trying to make a really good first impression that like, you know, Josh took a big risk. He kind of threw me on a team that like didn't really need people. And so I was supposed to be like the New York guy. And I

Rob May: Yeah. And you and you were you were backing a company that did backup for cloud computing applications at a time when a lot of VCs still didn't even believe cloud was going to take off. They thought it was too unsafe and we heard that a lot. So we announced the round of financing. Of course, first round capital's in. Everybody's happy. We had Jason Calacanis, Chris Sacca. We had a blockbuster team into that.

Charlie O’Donnell: We skipped over the $6 billion. Six. We have to tell that story, too. Yeah. No, no, this is this is really this is my version of the story. So we offer him the term sheet, right? And no no sorry pre-term sheet I got to get this the quirky thing about first round at the time is as a principal I could lead deals but I needed to get partner approval on it. I need to get three out of four partner votes to say yes. So it was my deal but I didn't have the ability to just write the check myself. So, MU is going pretty well, right? And at some point, I think Josh says, Rob, you know, this seems like the kind of thing, this is a very inquisitive market. Google comes along and offers you money for this. What kind of money would they offer you after taking this round that would make you say yes?

Rob May: Okay. So, and so to set the table here, so this is this is 2009, so valuations were much different than already. So we were we were talking about $2 million post money valuation. I think it was like three might have been and also I was 30 years old. Okay. So long time ago very stupid and I actually doing the math in his head. Yeah. And I wanted to do so I'm sitting there and I'm thinking 3x is a good return and I wanted to have a purchase. So I actually hit the table and I was like and I was like $6 million Josh and Josh big return. Charlie the look on Charlie's face was like what are you doing? And Josh actually said to Josh Kopelman actually said to me, "Rob, do you know how intra capital works?"

Charlie O’Donnell: And he gave me a little thing and I so says, "I see six coming out, right?" And I'm thinking, you know, it's got to the next word's got to be hundred at least, right? And when I see the M forming, I'm like, "No." Right? And then so and that's literally the final Q&A exchange in the meeting, right? So, so Rob walks out and we're all just looking at each other and I'm like, "Guys, he's from Kentucky." Yeah. And that's an answer for a Kentucky Angel Group. Like I He thinks like I can save this. And that to some extent actually kind of became my specialty at first round is pulling dead deals from with the jaws of life like back in resuscitating them.

Rob May: So yeah. So then, so then we do the deal. We actually get the deal done and it gets announced on TechCrunch and the day it gets announced on TechCrunch or maybe the next day it's like I'm you first- time CEO never done this before. I'm getting all these emails, right? And you're surrounded by all these like smart successful people now, right? You know, you know, you and Josh and the people that were in the general catalyst guys, David Orfo who had been a CEO of a publicly traded company and all these and so I'm

Charlie O’Donnell: and by the way, I had to fight to keep this board seat because I it was my deal and David was like, "Who the is this Charlie guy?" And fine, they're totally legit, right? Like, well, why can't it be Josh? And that happens a lot in VC, by the way.

Rob May: That like jocking for the board infighting.

Charlie O’Donnell: Exactly. With other investors saying at your firm who should be on the board, right? Like it's Yeah. And I'm like I don't want to lose this. I don't like to lose. And so I doubled down like I am like like Rob, I am going to be the most helpful investor. I'm going to like work my butt off. So that was my mo because I felt a lot of pressure to just be there in a big way for a solo founder.

Rob May: Yeah. So we so I'm getting in all the you know we're getting the day the day you launch you always get a bunch of random inbounded people they're like oh we want to partner with you or like maybe we should whatever. So we're getting all these things and I don't know what doing. So I'm sending them to all my investors and I'm like hey these guys want to partner with us. What do you think about this? What do you think about that? And after like the third or fourth one that I send out I guess the investors were thinking like what is this guy doing? Why is he sending us this? So Charlie sends me an email back and he's like I don't know Rob. What do you capital think? You're the CEO. And I was like oh. Oh, and then he called me like an hour later.

Charlie O’Donnell: And because I had called Josh. Yeah. I was like, literally this is this one deal is taking up all of my time. Like Rob's calling me up asking for everything. I was like, what? And Josh is like, Charlie, you know what your problem is? Whenever Rob asks for help, you help him. And then so he asks again and then it just keeps going. And Josh advised me to say something probably more polite than I wound up doing.

Rob May: And you said, you know, hey, you're the CEO. And you keep adding the CEO in this.

Charlie O’Donnell: I don't remember what you said. I remember I think I think you said that.

Rob May: I probably have that email somewhere, but I but I understood it, right? I understood like Oh, yeah. And I phone call volume came down. Yeah. And I and I and I learned this too, right, when I like obviously as as a CEO and learning to be a CEO, but then also when I was on the VC side, like I learned like you do have to have like it's like raising children or anything else. Like you can't do everything for them, but you do want to be helpful, but you need to help them when they're struggling or when there's something they don't know. It's like, oh, I get it. You've never signed a licensing deal with a big company. Great. Let me walk you through that. Or I don't know it either. Let me introduce you to somebody who does, but like don't ask me, you know, or you've never hired a CFO. Great. Let me give you like a cheat sheet. But like, don't ask me if you should hire this guy. I don't know.

Charlie O’Donnell: By the way, just to go back to the book and found her unfriendly, I literally said this to a guy today and he asked me, will VCs consider this a big enough market? And I was like, do you consider this big enough market? Screw with the VCs think, right? Like you should be coming in and saying I know this is a big enough market to build a huge company and I you know listen if you need some help with the how big is big for venture okay cool like not everybody knows that intuitively 6 million but you know if if you're approaching an investor asking them what they think you're going to lose right you should be telling them what to think Yeah. And how and from a position of confidence like you know what they should be thinking.

Anna Kirk: There is a little bit of like just to play a little bit of devil's advocate here. There is this concept of like okay to some extent you need to match not like actually match your growth plans like ideally they should be mirrored but I know a lot of founders who are under pressure to say okay like if I'm going to be accepting venturebacked capital then like I need to scale to their expectations. And there's a sense of like well I ideally Yeah. And there's a sense of like well like if I as a founder am actually happy with a hund00 million outcome but I can never say that to my advant to my investors because that's considered a bad or mediocre outcome even though they would all be happy with $100 million valuation.

Charlie O’Donnell: All your seedstage people would consider that a great outcome.

Anna Kirk: Exactly.

Charlie O’Donnell: Yeah. I have a portfolio company where I got bought off the cap table by somebody at at a $160 million valuation. I most of my capital is in at six and a little more at 13. Yeah. And then they never raised again. I made 14x. I distributed like 45% of the fund off that one deal. I was thrilled. Right.

Anna Kirk: But that's for a 30 billion outcome.

Charlie O’Donnell: So, I'll answer that a couple of different ways because it's not clear to me that there is a way that you would run a company in the first couple of years that specifically targets a $3 billion but not hundred million outcome. Yeah. Yeah. Right. Like you're you're just trying to like get to product market fit, right?

The choice between hundred million and $3 billion is largely a discussion about like later stage routes, right? And many people solve that through the secondary market. They said, you know what, I will take some money off the table at $100 million or $200 million because this company is 99.9% of my net worth and I can't afford it going to zero and I have built up some real value, but I have more to do. I had a conversation with Anthony Casalena probably like 15 years ago now, founder of Squarespace, bootstrapped up until his first big round of funding, and he got an acquisition offer for the company. I think it was like Getty or somebody and he said, you know, it was never about the money until somebody offered me a number and I was doing the math on 95% on that number and it was distracting and it became about the money and I felt like I had more left to do with this company. So, I went out and sought a transaction and he raised at the time like a $38 million deal was like a big deal.

My guess is he probably wound up taking half of that off the table and putting half of it for growth. And he said, "I bought a bigger apartment closer to the office and it went back to work and I never thought about the money again." And that became an IPO company. And so I think both things can be true, but I don't think there's anything that he or anybody else would do that specifically would preclude a certain sized outcome but still be able to get the hundred million dollar thing.

Ryan Eppley: So, going back to the book, do you have a favorite chapter as an author? Are you allowed to have a favorite chapter?

Charlie O’Donnell: Like, I have a favorite page in the book.

Ryan Eppley: What What is the page? What's it about?

Charlie O’Donnell: My favorite page in the book is drawn by my daughter. Who she asked me what I was doing and I was writing and she said, "Can I see?" And she looked and it's just all text. And she's like, "There are no pictures in this book." And I said, "Yeah, it's, you know, it's kind of a book for adults to read." And she goes, "There should be pictures." I said, "Well, I'll tell you what." I said, "If you draw me a picture, I will put it in the book." I said, "But it's got to be a black and white picture because they these books, you know, adult books, they don't put colors in."

Ryan Eppley: So, they should maybe they should, right?

Charlie O’Donnell: Yeah. It's very expensive for a first- time author. They don't put colors in the book. And so, she drew a bunch of ghosts and, there is a page full of ghosts and it's in a chapter about investors ghosting. And so, it is a picture of ghost investors ghosting you on your startup and you failing to understand why.

Anna Kirk: Did you write the chapter to adapt the picture or was it already in there and you were like, I have the perfect spot for this?

Charlie O’Donnell: Well, I explained to me in the presence the subject of the book and I talked about venture capital or whatever and then she's like, you know, ghosting must be a big thing and then she decided to go with ghost after that, but it was after a long discussion.

Anna Kirk: Love it. That's cool.

Rob May: So, so you've been New York City based your whole life. Never had a non- New York City address. I know. And you've been very New York focused in your investing almost exclusively, but not quite.

Charlie O’Donnell: Yeah, it came with a little exceptions.

Rob May: And so how much do you feel like the book, you know, fits with sort of like a New York style of venture versus do you think it's equally applicable on the West Coast or do you think there's differences there that that you talk about or that you think about that founders need to know?

Charlie O’Donnell: Well, I'll tell you it's definitely from the perspective of a New Yorker and it's got that kind of tone. I mean, hustle and edge and Yeah. I mean, the title is founder unfriendly, and people think that New Yorkers are unfriendly, but we're just busy here. We don't have time. But, New Yorkers are actually extremely helpful.

And that's kind of the thing is that many of the things that I write, which I think some people would find hard to hear, I think, are some of the most helpful things that anybody has heard in their startup. It's just sometimes it's a little difficult. I do think it is written for people who would not consider themselves insiders. I still think there's there's lessons learned, but you know, if you grow up in a multigenerational startup community and you're, you know, in the insiders, right? Like then I don't think like I don't know how much Garry Tan's going to get out of this book. But you know people also forget that even in the Bay Area. There are a lot of people who are you know ambitiously trying to go after their their startup and maybe a little bit aspirational, right? Like they're not in the insiders club, but they've heard that big companies get built in the Bay Area. So they, you know, pack up their stuff and they go out there and they're trying to feel their way outside the wall and kind of figure it out. So, it's really the 99% of any community that it, you know, kind of struggles a little bit to raise.

In terms of the style of investing, I do address and maybe it's a little less New York in the sense of like putting a perspective on what revenues mean and traction. And there's a lot of instances where people are backwardlooking about their pitch and they say, "Well, I've got customers. I've I've gotten to break even, right? And this person over here who used to work for whatever venture fund raises $30 million for their seed round. Like what's going on? That's not fair, right? And what I try and do is explain the context of like, well, let's be honest. Like is your three pilot customers for a bespoke thing that you built just for them really proof that you can get to $100 million in ARR? And by the way, your whole entire pitch is, you know, about getting to break even and what you've accomplished up until this point. Like there's there's nothing about the future.

Today I got a inbound I'm I'm on intro and I've actually been getting inbound from it. And at first I felt a little guilty like I'm like what am I charging for a 20 minute call is kind of I'm not charging what Alexis Ohanian is charging but and then I realized for some of these folks you had a guy who was working on something for four months and his nearest he did not realized that he had a competitor that was the founder had sold a business for $500 million in that general space had already raised six and he had never seen So whatever he paid me for that 20 minutes was more than worth it because he shouldn't work a single minute more without understanding what's you know sort of going on there.

But I brought up today that you know a lot of times people don't realize like what has been derisked by people on the insiders club, right? Like does being in YC mean you're a better company? No. But you automatically have 70 other companies that or however many they're doing now, 200 other companies that you can sell to. You're less likely to make first timer rookie mistakes when you're in certain networks. You know, you're going to get exposure at demo day, which you can't guarantee with other companies, right? Like Yeah. And I think that's actually a thing that a lot of people make a mistake even if they're not fundraising or founders.

It's a mistake that I made when after I was at First Round Capital and I went and go pitched my fund. Many of the questions of LPs are like, "Well, you know, obviously you had all the benefits of being at First Round. Now you're not in there." And I was super dismissive of it because I felt this pressure to be like, "No, I didn't get much value out of, you know, being at at first round, right? I can do all of this stuff on my own." Whereas actually I would have been better off saying like, "Yeah, you're right. Like that is a good ecosystem to be in. There's real stuff there that I need to take the time to replace, right?" Instead of being all like, "I don't I don't need those guys." admitting that like yeah that is a perfectly fair criticism and I should build up something equivalent and similar that I think I would have benefited from as opposed to you know just trying to win the deal and dismiss the criticism which I think we all do to some extent.

Rob May: Well let's let's shift gears and talk a little bit about some news of the week before we wrap up. Actually, cuz I think this will be the most interesting thing to get your take on. As we were talking about this before we started shooting, but Bloomberg is talking about the fact that in the secondary markets, OpenAI, they're having trouble offloading OpenAI shares, which as you can imagine with thousands of employees who've been there for a long time, there's lots of people that want to sell at some price.

Charlie O’Donnell: At some price, we should clarify. I would buy OpenAI shares at a certain price.

Rob May: Yeah. At a dollar, you know. But this news came out sort of like the same day that although today is April Fool's Day, so we should make sure this is not real. The same day that OpenAI announced that you know they had closed finished out the round 1228 billion whatever crazy amount they raised.

Charlie O’Donnell: Which like you could fund three weeks of a war for that money.

Rob May: Yeah. Exactly. Exactly. But I but it's so you know do you find that interesting that like on the one hand they're like we just closed this massive round but then like no secondary market or like what might be some reasons that investors

Charlie O’Donnell: Yeah for sure right so there's some I don't know you know they say it's injuries and whatever but they're they're raising from other folks right there's no main fund of reason that is putting in a lead check of $50 billion or whatever right so that's all underlying LPS it's sovereign wealth that was Kathy It's ARC is doing some of it too. So like groups like that. So you got public crossover people now. Yeah. All sorts of folks.

Ryan Eppley: I mean I want to know like on a $150 billion round. Are they getting two and 20 on that?

Charlie O’Donnell: I mean that is Yeah, that's a good that's a nice gig if you can get it. Regardless of what whatever the outcome is.

Anna Kirk: Have we talking about like maybe they have some restrictions? Maybe the companies put some restrictions on the sale.

Charlie O’Donnell: You think?

Anna Kirk: Yeah. I have to imagine that there are certain prices that they have just been telegraph.

Charlie O’Donnell: You know, it's actually interesting because technically in the secondary market, the company has to be at arms length from secondary transactions. I mean, from an accounting perspective, you can't you can't know or indicate to somebody that that X is a good price and then go out and sell shares for 2X. It makes you liable for fraud and whatever SEC stuff.

Ryan Eppley: You got to know there's whispering happening in the in the background. And I'm sure they're probably like, "Listen, we're not approving any shares that are sold for less than whatever."

Charlie O’Donnell: It's also different sets of investors. And actually, this is something that a lot of founders don't realize. It's like this happens to VCs where it's actually quite hard to raise a 10 million. So that's too big a check to go into a $25 million fund. A $25 million fund, you're stuck with a bunch of high net worths and you need a lot of high net worth individuals to write checks to get to $25 million. So the same thing could be happening is that there are just limited places for chunks of a billion dollars at a time to go and that's why they're going into, you know, certain companies.

Rob May: And maybe they figure, you know, okay, the public market's going to get me eight and this is getting me 13%. Maybe, and that's what they're underwriting, too, right?

Charlie O’Donnell: On the secondary side, yeah, I wouldn't be surprised if there aren't individuals or smaller family offices that that want to buy in at quarter million dollars at a time for at this price. It just doesn't make sense for them. Yeah. I think it's I think it's the who is playing and what are their return expectations. And not only that, like a lot of the secondary stuff is like who's going to wind up being on your cap table and there's company approvals there and all of that sort of stuff. I think the really unfortunate thing is if it doesn't come with a tender offer, you've got employees that are seeing, you know, this this valuation go out and they can't get out from, you know, they're in theory in the black, but they can't exit. Yeah.

Ryan Eppley: And do you guys think any of it has to do with maybe their perception of the market is waning? I mean, they were they've been the golden child of AI with maybe with the exception of Nvidia, but I don't know. Are they still?

Rob May: I think so. I mean, what is it? 900 million subscribers users. Yeah, it's, you know, they're a dominant player.

Ryan Eppley: I also think there's a lot of interesting pressure put on them because of Anthropic already murmuring about an IPO. So, we really don't know too much of the financials because they're both private, but like they're both burning cash. They're not making money, right? They're definitely not close to break even.

Rob May: Yeah. So somebody leaked a somebody leaked a later stage deck recently for Anthropic and I think the estimate for 2026 was 18 billion in revenue $14 billion EBID a loss.

Charlie O’Donnell: That's a lot of money. That's pretty steep.

Anna Kirk: Yeah. Yeah. I know that OpenAI has gotten a lot of criticism around the unit economics. It's like oh like you have too many free subscribers and it's like sinking your margins. I don't like I think they can capture different markets and I think this like conceptual like pitting of Anthropic against OpenAI doesn't really make sense in like a multimodel future. I think there is room for both and it does feel kind of reminiscent of like the Uber versus Lyft kind of dynamic. Well like you can you can have both in this type of market.

Rob May: Yeah. I mean really they should specialize. I think like if I was OpenAI I would not be chasing Anthropic. I would I would be looking for something different right. Different type of customer. You know, I think people think about that. Almost every non-technical person I know uses ChatGPT. Most technical people I know use Anthropic.

Anna Kirk: Yeah. And you're starting to see that like most enterprises that we speak to are like, "Yeah, we use Anthropic. I'm not a paid sponsor, by the way."

Rob May: But yeah, maybe it should be.

Charlie O’Donnell: I think the Sora shutdown was really interesting.

Rob May: Well, it's going to be a big I mean, one of the things like I talk about in my pitches for my own company, right, is this idea that like these both these guys are going to go public and Wall Street's going to put pressure on them to fix their unit economics by raising their inference prices which are already getting really high for heavy use cases. And so I think you're going to see I mean $14 billion loss like that is a lot of money.

Anna Kirk: I mean, I watch very closely what's going on with the open- source community because there is just a lot of really exciting ones that, you know, their whole pitch is in the next couple years like they're going to be able to amass enough data and enough money to, you know, you don't need 4,000 employees. You can probably get away with like a 100 to 500 org and start competing with these frontier labs. I'm I'm excited about that for a handful of reasons. Biggest one being you can deploy in airgapped environments which is not something and working with mission critical industries like you think Lockheed Martin wants all their schematic IP leaked to a frontier model definitely not they are still going to have their IT compliance very strict

Rob May: well Nvidia just launched a series of models I think 120 billion parameter is the sort of key middle one that they announced at GTC which is open source and it has so they have a name for this now right intelligence density which is given the parame parameter size of the model. So the billions or now trillions of parameters that it has which you can think of as the neurons is a measure of model size. How many things does it know and how can it can it do in there, right? And I think this model actually set the record. Nemotron something Nemotron 33 or something. I don't know. I have to look it up. We'll have Madi look it up and put the put the thing on there.

Charlie O’Donnell: But yeah, at what point too is some of the weighing on these companies become things like energy costs too? I mean, if you look at the current environment and what like energy, at least in this country, is like not getting cheaper anytime soon. And the most promising ways that we have for making energy cheaper, at least in this administration, are not being pursued. And somebody had posted a chart of like the cost of solar over, you know, the last whatever it is, 10 years is just kind of falling off the table. And you know, we're we're taking down these alternative use use energy generation tools. So, I think that's going to be a part of it as well.

Ryan Eppley: Well, it's a shout out to a headline yesterday. It might have actually been today. Valar Atomics raised at a $2 billion valuation and they're one of the leading, you know, energy companies right now doing nuclear reactors, right? SMRs. So, they just raised $450 million. They're a two and a half year old company just speed running right now and they're building out their, you know, flagship, you know, factory. And so I think you're you're right. I think energy is going to really become the bottleneck for a lot of these companies. I think there's a lot of money to be made on who's going to figure that out. Base power is obviously another big one. Raise a billion dollars, right?

Rob May: Not at a billion dollar valuation. They raised a billion dollars. It's incredible.

Anna Kirk: Back in kind of one of my old lives, we talked a lot about like the popularity of like resorting back to kind of like natural gas as the bridge power for a lot of these hyperscalers. And that's all of what they're doing right now. And it feels like they're willing to compromise a lot of their what like 2030 climate goals in order to get there. And so although like I think there's a lot of promise for renewables long term, I think it's going to be a really long time before like the supply actually catches up with what we're seeing and like we're all going to press the easy button and say, "Okay, you know what? Like I'm just going to partner with this natural gas company even if it's not the best look."

Rob May: Well, the US doesn't have any climate goals anymore, right?

Charlie O’Donnell: Of course not. Yes. Yeah. Going back to 1950, baby.

Rob May: All right. Talk to us about what's going on in Anthropics Corner. What happened?

Ryan Eppley: Yeah. So yeah. So, last story and then we'll we'll do our New York question, but Anthropic but their internal source code was leaked on Claude and I don't sure I actually didn't follow the whole like why of it. I mean, sounds like it was a mistake obviously and not like a rogue employee or whatever, but I think part of the analysis of it that shocked people was like, wow, you can tell a lot of this was written by AI. But yeah, I'm curious if you guys had anything to take about that.

Rob May: It's causing some interesting challenges. One being that somebody apparently rewrote it using an LLM in another language. So now it's a derivative work. So maybe it can stay up, you know, legally. So there's a bunch of interesting things that have have come from this.

Charlie O’Donnell: The four types of employees that work at startups. Did you see this meme? There's only Yeah, there's like product builder slash AI slobc cannon people adult security people and hot people and that's like the every everybody is one of those things and it just feels like they were maybe short a few security was this Yanni reman yeah sounds like exactly I was thinking it was but yeah it sounds like they were a few short a few security people yeah yeah it's interesting it's gonna

Ryan Eppley: It's going to be interesting to see if it changes people's because they've been the secure business focused option. Be interesting to see you know if this if there are legal lawsuits about this derivative work it's going to set this new new standards for a bunch of pieces of AI.

Anna Kirk: I mean there was a ton of security stuff going on in the last couple days like MPM packaging was like a big security supply chain risk. I think Mercor got all of its data extracted and now it's like being put up on the black market to buy all their training data for reinforcement learning. Like this week has what is it? It's Wednesday already. Like this week has felt like it's been a month worth of security vulnerabilities like leaked. I don't know why it's all timed like that though. AI slop. I don't know.

Charlie O’Donnell: AI slop. Yeah. Well, and I think at some point there's a human in the chain that is the weakness, right? That's the sort of, you know, always comes down to somebody, you know, failed to update a setting or or all of that.

Rob May: Well, and the scams are getting better. The scams are getting better and more. Actually, speaking of, we should have Silver Shield back on. We should have Alec come on and talk about this. So, reach out to him. But, okay. So, let's end with a question about New York. And, I don't even know if we did this the first time you were on, but we do this now at the end of the show. So, let's So, today I think our our question

Charlie O’Donnell: is it New York trivia? Cuz I'm really

Rob May: No, it's not it's not trivia. It's like what's your favorite or least favorite something? So, like like what is your favorite numbered cross street in Manhattan and why?

Charlie O’Donnell: My favorite numbered cross street in Manhattan. So, like fourth through I what does it go to 168th or something? Do you have it goes into the 200s? Does it? Okay. Yeah, there's a place called Inwood. It's sort of the part that like curves around the Bronx and so oh good lord my favorite cross I mean first of all not an avenue just for for context we're up on 46th Street and like this is not your favorite how much I love Rob is I'm willing to come to Times Square to record a podcast so that's

Rob May: But you're not a huge Manhattan fan.

Charlie O’Donnell: It's fine. And I don't spend a lot of time, you know, post pandemic. I mean, I first of all, I used to be in the city like every single day. And I used to live in Bay Ridge, which was like, you know, off the edge of the flat earth kind of thing. And so I spent all my time sort of, you know, cycling around the city and all of that. And now I don't necessarily have much of a need to be in Manhattan and I mostly hang around Brooklyn. I still I'm going to say 14th Street mostly because I am like a bike and traffic planning geek. And the fact that they have like cleared all the cars off of 14th Street and you basically can only go one block and then you have to turn off.

I think it's really fascinating the whole concept of like induced demand and all this sort of stuff where people say like hey now you can't drive on 14th Street and everybody who protests it is like where's all that traffic going to go and it just disappears actually because people are like oh if there's yet another barrier to me driving around I'll just take the subway right my brother who's there's a big age gap between me and my and my brother who is about 16 years older than me who normally drives around everywhere, had to come into the city for something and at some point he was looking at the Uber price and the cost, the time and he hopped on the subway for the first time in like maybe 40 years. He has not been on the subway. I love the subway. And he was like, "This is I don't know why I haven't done this before." And he was just like blown away. And he's a native New Yorker, but he's like an outer burrow guy who like normally drives around. So yeah, I would say 14th Street. What do you guys got?

Rob May: What? Dude, 8th Street down by NYU. I love that street. Lots of great restaurants and little bars and live music and stuff. And I always walk down through there. I love it.

Anna Kirk: I'm going to go in the polar opposite direction and say 87th Street. Number one, maybe I shouldn't be giving away my address, but number one, I live on that block. No. And Billie Holiday, not to double down on your point, but Billie Holiday, her brownstone is actually on my block.

Charlie O’Donnell: Okay. And I think I don't know. Just Are you a plaque reader?

Anna Kirk: Yeah, I am a plaque reader. I love all the plaques. Give me give me all the plaques. Yeah.

Rob May: Actually, that's another good I mean I don't know if we can do a bonus round, too, but like what's your favorite plaque?

Ryan Eppley: Yeah. Well, there's Theo Roosevelt. I think it's on like 23rd and like sixth, right? His like childhood home where he was born. That's always super cool walking by. I don't know. It's like a specific block. It's like It's actually not too far from here. West side, though. It's like 46 and like 9th. They have a ton of great bars and restaurants all there. Like you just walk. I went walking with my girlfriend through there. We're like, "Oh my god." Like we could spend an entire year in New York and not hit the same bar, pub, ery there.

Anna Kirk: That is like News thing New York has to like what is it? East 6th in Austin. It's like that one street that just has a bunch of stuff. Yep.

Rob May: Yeah. I'm trying to hit all the piano bars and I keep finding new ones. Yeah. Right. Like I love piano bars and I'm like, "Oh, I heard about Bry's Piano Bar the other day and I was like, I've never even heard of this."

Charlie O’Donnell: And Matt Harbin's the one you need to ask from Factorial Capital because he's played at many of them and he's sort of a regular.

Rob May: Yeah, yeah, that's what I'm going to do when I retire. Well, thanks for coming back on.

Charlie O’Donnell: Thanks for having me.

Rob May: Yeah. And if people So tell us a little bit about where's the book for sale? I assume Amazon. Where else?

Charlie O’Donnell: Yeah, sure. So, it is on Amazon, of course. It's on bookshop.org where you can buy from your individual local bookstore. Pre-sales run until April 28th. And the reason why it's important to buy now is because pre-sales end the first week, all count towards the first week. So any chance I have of making any kind of lists and whatever, we're trying to drum up the numbers now.

Rob May: Support Charlie support New York.

Charlie O’Donnell: And if you buy the book and email founderunfriendly next.nyc.com, no, sorry, at next.nyc NYC we have an AMA series which is really cool that is for book buyers and we have eight founders who like co-founder of data dog co-founder of zero hash like just these like insider live AMA sessions Audrey Gellman from the wing who has a new company and so some of them are roller coaster stories and so it's going to be a really good series so founder unfriendly at nextyc send me your receipt and we'll send you an invite.

Rob May: Cool. So, founder, unfriendly by Charlie O'Donnell. Well, thank you guys for watching. Subscribe, like us, do all the things. Check out the new website that is in beta that we're launching soon, new yorkgpt.com. All your, it's like ChatGPT for the city. Sign up for April 15th training and then send us ideas for guests and anybody we should have on, questions you want us to ask. Thank you guys for watching. Thank you.