A Product Market Fit Show | Startup Podcast for Founders
00:16:40 · Peter Walker, Pablo Srugo
[00:16:40] S0: It's not where we were back in 2021. So the frenzy isn't quite there, And that's because the other half of your question, there's just a concentration where higher valuations, more capital, but fewer companies. And that's happening at stage after stage after stage. So it takes a lot to get to series a. It takes way more than it used to. The growth rates are higher. The competition is higher. The expectations from investors are higher, and that will definitely push people out along the way. We can talk about what those, like, stranded seed companies do. But in general, I think the bar for series a is something like two x what it was a couple years ago. [00:17:17] S1: It's what, like, the median, I think, from from SVB is, like, 3 and a half million ARRs. Is about right? Yep. It used to be. Again, like, you know, you go back. The 7,000,000 a's I'm talking about, you needed a [00:17:25] S0: million ARR for. So A million dollars. Right. Exactly. That was always the benchmark. [00:17:29] S1: So it really is like the tripling. I mean, now you get more a bit more than twice the money and you need, you know, more than twice ARR. [00:17:35] S0: Then there's this toward, you know, those AI infrastructure companies might be earning $0. They're raising hundreds of millions because they're they haven't, you know, come out with their new world model yet or whatever it is. It's it's very weird. It's a weird time.
00:17:47 · Pablo Srugo
[00:17:47] S1: Ugh. You're such a selfish person. I actually can't believe how selfish you are because, like, you've been listening to the show. You listened to this episode. You loved it. You've listened to a bunch of other episodes, and you haven't told anyone about it, you haven't told any of the many founder friends that you have about it, think about how many founders have helped you out when you're building your startup. So don't be selfish. Tell your friends about this episode, tell them about the show, and help me help them. Those are I mean, yeah, those are almost have to, like you said, like, have to be treated completely differently because I and I they just don't apply, I think, for for most like, unless you're in that world, most founders are not building those sorts sorts of businesses. And and so they suffer from you one of the things that I'm seeing mainly even growth is not the same as it used to be in the sense that, like, growth alone isn't even enough now, like, terms of that bar for series a. Not only do you need, like, three and half million of ARR, not only do you need to have gone there very fast, you also need to have a reason for why you can compete for why, like, not everybody else is gonna do this because now everybody can build product, everybody's moving super fast. Like, what do you have that others don't? And in a sense, the AI infra ones, they don't suffer from that in the same way. There's something about the DNA that from the get go is supposed to make them differentiated. So it's part of that origin story. Whereas a lot of these AI apps, it's like, yeah, I'm gonna solve this problem for this. Oh my god, it's working. Oh my god, I'm growing so fast. And And now I gotta figure out how come, you know, 10 other founders aren't gonna eat my lunch and, like, you know, tell this story so I can raise a series a.
00:19:11 · Peter Walker
[00:19:11] S0: What's the story that you hear from founders that how bad they can do that? Because I don't I'm with you. Think the defensibility has never been lower.
00:19:18 · Pablo Srugo
[00:19:18] S1: It's totally case by case. A lot of this I do think is just straight up story in the sense that part of how you're going to outcompete is gonna be around capital and execution. So you gotta get the capital to get the Let's say you're selling something that people truly want, people are really buying it. Go to market is a matter of execution, doing it right and putting in the energy, and capital. The fact is if your competitor can go to 10 events and you can go to one, that's going to have an impact, even if you do much better at that one event. Same with search spend or whatever other channel that you're gonna drive at. So capital becomes part of that thing, then that creates a brand. And we're simplifying here because obviously you can be underfunded and still win, but I'm just kind of as a rule. So you almost have to find a way to be compelling enough as a storyteller, sell a vision that captivates the minds of VCs enough that by the way, they know is a story. They're not stupid, but they also think, well, if they can captivate my mind, then maybe they can captivate talent in the same way, and customers in the same way. So fine, I'll give you a bunch of money to go do that, which if you can kind of use that wisely, gets you to the next step. And if you're just like a couple of steps faster than the next person behind you, maybe that's enough. Right? And maybe it isn't, but like for many AI apps, you're not building your own model. Why would you? And the product we all know can be copied relatively easy in most cases. So what else do you really have?
00:20:49 · Peter Walker
[00:20:49] S0: I think it's a really deep question. And I think it's very hard for many founders to paint the right picture of expanded defensibility. The other thing that's happening very clearly is that a lot of these startups are expanding into use cases quicker than they used to. So like the product suites in a world where product is less than or you know, I wouldn't say trivial, but less difficult to build than it used to be. They just kind of overlap with each other again and again and again. And so it's more competitive, and the defensibility is lower. And like you said, maybe the premium to capital is higher. But you could also get to a point where it looked like you were on a hockey stick growth. You have one bad six month period, and you just kinda get wiped. Yeah. I am impressed with people building AI application companies and then choosing to take venture capital.
00:21:36 · Pablo Srugo
[00:21:36] S1: Well, yeah. But the thing is if you don't, then the risk is, like, if you're not the winner in that category, then you're kind of fighting for scraps. If you're fully bootstrapped, you can make a lot of money doing this too. So maybe it's fine and who cares? Yeah. They're a billion or 2,000,000,000 or 3, and I'm a $50,000,000 exit, but I own a 100% of it. I don't care. That's totally fine. But to the extent that you're trying to compete for that number one or two position, at some point, it's like, it's all relative. And you you might show up and be like, dude, I grew like one to four last year. Obviously, I'm raising. And then they're like, yeah, but your competitor's at 30. Right? And they grew 10 to 30. So actually, like, you're number two or maybe you're worse than number three. Why do you deserve to get funded? Like and and you just get caught in this vicious I guess that for me, that's the big thing is on that side, the competitive front, how do you get yourself into that virtuous cycle where you start winning, you leverage that to get more capital, get more talent, so you win more. At some point, it's this self fulfilling prophecy where you're just like the winner, versus you aren't able to kind of get that capital, which makes it harder to get the talent, which then puts you in a place where you're like, oh my product's so good, my customers love me, but I'm not signing the biggest enterprise, they're signing it. I'm not signing 10, I'm signing one for every nine that they sign, and then it just gets harder and harder. Not to say this is like the clown live the holy grail, but there's something to that mindset, I think, that can get you to be that category leader, and all of a sudden, you're out competing because you're out executing.