Ramtin Naimi analyzes venture capital trends (Part 2)

Feel about seed, given that's where you've spent most of your career. Every few years in Silicon Valley, the goal post moves for what terminal outcomes can actually be. So like when I got started in early stage investing in 2016, people looked at every company from the lens of in a best case scenario this could be a 10 billion outcome and price deals accordingly. And then you started getting towards 2021 when you had Stripe and Databricks and Airbnb and DoorDash approaching $100 billion valuations. Then everybody started looking at companies from the lens of in a best case scenario, this company can be worth $100 billion. And then they started pricing deals accordingly. Turns out the companies that were on Track to be $100 billion companies in 2021, give or take two or three more, ended up being the only companies that were worth $100 billion. But every other company started getting prices if that was the potential outcome for them. And then now we're at a new goalpost and a best case scenario, this company could have a trillion dollar outcome then. Now between SpaceX and Anthropic and OpenAI, you have $3 trillion companies. My bet is there might be two to three more and not 40 more. But now everyone's looking at companies in the months of in the best case scenario of a trillion dollar outcome. So like what is a $1 billion entry valuation, a trillion dollar outcome scenario. So I think that's what ends up happening, that that shifts the dynamic for what these valuations happened at. But if you look at every stage in venture, there's always opportunities to get good pricing on great companies. I think generally speaking the investors that don't do great in bad vintages are the investors that deploy the majority of their capital into the most obvious thing. Venture capitalists that deployed the majority of their capital into the most obvious thing in 2021 were VCs that were doing 100x revenue multiple SaaS deals with pretty much the entire bulk of their portfolio. And they're probably in now the bottom quartile or bottom 75% of venture capital funds for that vintage. But I think generally speaking if you are at the early stages at least if you're backing great founders working on obviously good ideas, you're going to pay sky high market pricing, especially in frothy markets. But if you back great founders working on non obvious ideas, that generally tends to be the best way to generate alpha in markets like this. Because if you are truly backing the best founders, they're not working on bad markets, they're usually just early to markets. I think in venture capital there's two ways to make returns. One is by being reactive and the other is by being proactive. And I think reactive, if you pick correctly, allows you to be a top quartile manager and I think being proactive allows you to be a top 5% manager. Being proactive means trying to back great founders.