Fireside Chat, Interview
Mike Maples: Three Frameworks to Evaluate Startups and Founders | E1242
- Gary Tan anticipates that seed funds under $100 million remain viable as long as they are significantly smaller than $100 billion, though he acknowledges that managing 22 boards previously reduced the sharpness of his team's mind, making his next two funds at approximately $75 million less effective; he projects a fund of $150 million would yield better execution than $75 million despite increased difficulty, and notes that in 2021 his team made only one investment because no companies met his specific criteria.
- Gary Tan sets strict return targets to achieve a 10x fund, requiring 5% of first checks to return 100x cash on cash and 10-15% to return 20x, while measuring team performance on the fraction of first checks becoming 20 or 100 baggers and the fraction of follow-on dollars invested in top-ranked companies.
- Gary Tan expects that companies priced at a $40 million post-money valuation must scale to $5 billion businesses to justify the entry price given anticipated dilution of roughly 50% in many cases, and warns that founders raising $4 million rounds without a clear path to proving insight often resort to seed extensions and premature hiring, whereas firms like Klaviyo, UiPath, and ServiceTitan would have been worse entities if they had raised large sums before achieving product-market fit.
- Harry argues that for funds offering investments under $100,000, an appropriate scale is roughly $10 million rather than $100 million, and plans to continue exercising pro rata rights in companies where top-tier firms like Sequoia and Benchmark aggressively invest as a quality signal.
- Harry predicts that Bitcoin will become more valuable than gold by 2025 with a developed financial ecosystem, forecasts a price of $130 by the end of the year (noting Reid Hoffman's $200 prediction), and expects the DOGE initiative to succeed by altering cultural norms regarding governmental accountability.
- Harry anticipates that multistage funds will face pressure to rationalize fund sizes due to exit windows occurring in 18-month to two-year cycles every 15 years that generate close to half of exit profits, and expects that follow-on checks in the best companies will likely yield 20x returns if the initial investment returns 100x.
- Gary Tan expects that most firms could achieve massively better follow-on returns by simply indexing their investments against where the best firms participate, while Harry predicts that if the market is systematically overpriced, funds will execute fewer deals because fewer opportunities will meet their conditions.