Kevin Hartz's 2025 Outlook: We won’t see more IPOs & Implications of Trumps Presidency on Founders

00:00:00: Now there's just still really no incentive or very little incentives to be out in the public markets.

00:00:05: Founders are kind of looking at that and saying, well let's keep private And lets do these insider stock sales To get some liquidity into employees and investors too.

00:00:16: But it is a conundrum for venture.

00:00:19: Welcome to new episode of The Unicorn Bay Cree.

00:00:21: Todays guest is Kevin Hartz For the second time on this show And Kevin & I spent sometime In San Francisco talking through many of his life's work and thesis on how he is investing but also building companies.

00:00:36: Therefore, if you want more context like the quick rundown found at Zoom with an ex sold to PayPal founded Eventbrite and then invested in companies like Uber, DoorDash, Paypal

00:00:51: etc.,

00:00:51: so amazing investor!

00:00:53: amazing builder now building sauron and therefore end A star.

00:00:58: Always, always something to mention and not forget And I asked Kevin for a spontaneous recording on.

00:01:05: hey how do you as a builder and investors think about twenty-twenty five?

00:01:09: What are the thesis and bets that your making?

00:01:12: because they're bringing together two perspectives.

00:01:18: It seems like it worked out for the last decades, how you make seizes for yourself.

00:01:23: And I would love to share them with the rest of the founders out there.

00:01:26: so Kevin thanks for joining

00:01:29: baby and thanks for having me back here.

00:01:31: i mean i will just say at a high level.

00:01:34: really what's important here is that You can only Really count on things changing dramatically.

00:01:40: we certainly have some segments That are going to continue to expand at a breaking pace you know, generative AI being the kind of poster child for this but other areas as well and defense tech in crypto.

00:01:55: And others... But when I put my investor hat on i'm looking at the earliest stages.

00:02:02: we're looking at those are companies that or In many cases not even formed yet You're speaking interacting with founders.

00:02:10: That's telling me how they see the future And so, I won't venture to make certain conjectures in certain areas of what direction AI goes or so on.

00:02:24: But certainly my own area of SOARON which is a home security business know that we have this privatization effect happening in law enforcement and technology that's been used in other areas being applied at what were doing the case with SOARon.

00:02:43: But we're looking for these fresh new founders, you know last year.

00:02:47: We started working with Ethan Thornton at Mach Industries which is a defense tech company and he's building A supersonic drone that can travel by something kilometers in hit.

00:02:59: a target would high-high precision and nineteen year old dropouts.

00:03:03: And you know He really has of view.

00:03:05: four this propulsion systems for weapons and rockets and so on.

00:03:11: that is like no other.

00:03:12: And so we really look for inspiration from this next generation of founders, I'll name one or the other, Abhi from General Biological.

00:03:21: he's taking fermentation processes to usurp or to trade out the old way of making his industrial chemicals petroleum based chemicals with fermentation base and a manner that can be done economically.

00:03:39: and it's quite exciting.

00:03:40: And as you hear from them, those are two companies that aren't AI centric at the core.

00:03:45: they of course in many ways use generative AI or have systems employed.

00:03:52: but The exciting thing about today About Europe about United States in tech is there so many different platforms That are emerging whether its industrial biotech like general biological defense like mock industries.

00:04:07: Do you have a thesis on the industry that might lose the most in twenty-twenty five?

00:04:12: Just because you mentioned some of my drys, but are not as specific AI

00:04:17: well The You know it's pretty clear that a lot of DPO work is going to be going away and for those who haven't May or may not be aware this there's something called business process outsourcing And its kind of sunny acronym four just people doing a lot of busy work behind the scenes, checking documents and affirming notes and transcriptions.

00:04:40: There's an asset industry in different parts of the world that certainly is like little hanging fruit from AI boom.

00:04:50: but then you switch to where something like Eventbrite today with our customer service chat That's all done via a company that they start back called Decagon.

00:05:02: And DecaGon is AI customer service, and so all of the sudden you see this thinning of the number of seats.

00:05:09: in a world where old stalwarts like Zendesk would really thrive getting so many licensed seats for CRM software You now have one seat effectively.

00:05:24: So it just radically changes business model radically changes the need to have, you know these call centers full of people.

00:05:32: Before we go into the tactical things that I could use while thinking about the exact strategy let's zoom out as far as possible and look at the biggest changes happening in twenty-twenty five which one of them is definitely Donald Trump taking over The White House again?

00:05:48: And then

00:05:49: taking it was right expression for that.

00:05:51: It has got a hostile acquisition But I'm excited for it.

00:05:55: I'll tell you that, iIll say that publicly.

00:05:58: It's a really exciting sea change to see and so interrupted you.

00:06:02: So let me finish

00:06:03: all good.

00:06:04: the question That I had is like from A us perspective what do You think are The biggest or ardor changes happening due To changing government And then also in the long tail?

00:06:15: We have to talk about how does this affect For example companies that start In Europe want to expand to the US and All the implications.

00:06:22: but first of all What are the biggest changes that founders have to think about when we think of a change in government?

00:06:53: revolution in a sense, and the United States.

00:06:55: So people saying we're sick of that?

00:06:57: We want to see the government move

00:06:58: quickly.".

00:06:59: And thus you see The New Government coming into Trump White House really full of entrepreneurs who think like us and will act like us... ...and drive forward with great change.

00:07:14: so we should welcome that kind of change because what we expect is things would be a lot smoother.

00:07:21: for example You know, the regulatory regimes around crypto is kind of the obvious area.

00:07:27: But if you can just allow people to build unencumbered with out all the friction that they had before... That's really going even in absence our zero-interest rate environments.

00:07:40: now.. ...that's really the best thing we could do to help grow the economy.

00:07:45: Do think there are immediate effects I will see as a founder and be like

00:07:51: oh yeah

00:07:52: politics is changing something for me because there are so many founders and investors also in Silicon Valley that are like, hey our work here works.

00:08:03: Because we're so far away from Washington We can just do whatever we want in quotation.

00:08:09: That's a great question.

00:08:11: It used to be.

00:08:13: you know that...we were too small And into quiet.

00:08:17: When I started seeing the money for business You know, it was in the wake of nine eleven way back.

00:08:23: We were helping immigrants send money back to their families and we were hyper aggressive on how we interpreted the regulations.

00:08:31: And you know as time progressed and we grew bigger The regulatory bodies did step in and had a comply.

00:08:40: but I don't think A lot companies Don't get off the ground today because the regulatory regime is so overbearing.

00:08:48: Yeah, you know I guess what i would say on the yeah.

00:08:54: The relation side is just that.

00:08:56: now it's so visible social media Mark Zuckerberg You know coinbase and so on.

00:09:04: It's so visable That it's the first thing on In the minds and hearts in mind.

00:09:09: So with legislature of Congress?

00:09:12: You know White House its tech has become so mainstreamed that that you immediately want to like step in and try to make things better, but we need to kind of pause from that.

00:09:24: Step back and rethink about how we curtail entrepreneurism.

00:09:29: it's what really driven the economy over the last few decades outside of oil gas and things

00:09:35: with changing government.

00:09:37: also look at economics.

00:09:41: I would say let's put and use a scale from very efficient growth to hyper-growth.

00:09:47: Money is everywhere, it pretty much free, we just invest in that.

00:09:53: Why do you think or might end up with more of the efficient route?

00:10:00: More money will become out there being like in quotation marks thrown at companies.

00:10:10: It's good in many ways.

00:10:13: We've never been at a period where there is so much available capital to create new businesses and drive innovation, that's very exciting.

00:10:20: we just have to be careful of the downside of that as the founder must maintain their own like.

00:10:27: if they're taking a lot of money it's high valuations.

00:10:31: you are not having give up board seats.

00:10:34: You don't have this much accountability because the investors aren't going on to make changes, one just has to rely on themselves to build the business.

00:10:45: So that's the trade-off with the abundance of capital in the markets.

00:10:49: today is like... I've unfortunately seen a lot of companies have lots potential.

00:10:55: not having checks and balances or mentorship being off the path happens more often than not.

00:11:02: we certainly hear about winning cases.

00:11:07: not, you know the park and hiring perfectly.

00:11:09: And has gone through all these different challenges.

00:11:12: but The double-edged sword of abundance of capital is just making sure that as a founder one can find great folks around That are incented to help if one feels they need it.

00:11:28: There's small select group founders who make decisions from day on their own even at very right young age.

00:11:36: In my experiences of bringing two companies from zero and into the public markets, it was a lot easier.

00:11:43: A lot more helpful to me to bring in other voices and have people helping there.

00:11:49: so that's That's the trade-off with lots of capital versus scarcity of capital.

00:11:55: What do you say?

00:11:55: It becomes cheaper To build a venture due too for example all the AI Tools I can use right now early on already.

00:12:06: Absolutely, that's a great question.

00:12:08: A number of years back friend of mine Max Lebschen posted today piece on when will we have the first one-person billion dollar company?

00:12:17: And it must've happened.

00:12:19: but you know... We had so much infrastructure now and all these different ways to obfuscate things in the nineties used to carry servers into a co-location facility.

00:12:29: set them up yourself.

00:12:31: everything's being obfuscated, all these different services allow you to really focus on the core part of your business and they can be done insanely capital efficiently.

00:12:42: That's one way to approach a business.

00:12:44: I would say that was more in kind of like Zoom and Eventbrite we were trying create like a perpetual motion machine.

00:12:51: In essence it could just run its own...in case of Eventbrites You as an event creator go to Eventbrights Create events listed, promoted sell tickets and the whole thing.

00:13:04: And you know nobody really needs to be involved.

00:13:07: it's all engineered in install self service an automated in a case of The business I'm building today.

00:13:15: so on home security that's a combination hardware software services people.

00:13:20: It's complex businesses that in that case You know then?

00:13:24: The challenges at complexity of the business also makes it hard to replicate.

00:13:29: But that's a business, it will require more capital than say some of the AI businesses building atop Anthropic or OpenAI.

00:13:38: Does this also mean when we look like let us say they are more typical software company?

00:13:45: Do you as an investor think hey I can give them less money and expect same outcome from what i did five years ago?

00:13:58: the founder that should decide, or maybe in your consultation and so on of how much capital to take on.

00:14:07: You don't want overcapitalize a company.

00:14:09: but you don't wanna end up at a tough spot where the capital is low and you're forced to raise because that puts you into position on your heels, on your defense.

00:14:18: And so managing the capitalization for businesses it's very important and can be done with less capital.

00:14:26: I just see out there when rounds are being done that founders, especially since the valuations are higher or adding some amount on and thus experiencing this same dilution is where you may be seeing it happen most.

00:14:44: The other side could be to give them the same amount of money in linearity to how much money I gave them compared to what it was and the buying power of like five years ago, for example.

00:15:01: Yes we always have to remember that.

00:15:03: you know in startups its very hard.

00:15:06: so then majority will not make it.

00:15:10: but i had mentioned a company called Decagon that we backed.

00:15:13: Ashwin Srinivas the co-founder he is at Palantir didn't make it, supported him with his next company.

00:15:27: Didn't Make It.

00:15:28: started Decagon how really took off.

00:15:31: so I think like one you just have to remember that most of these companies don't go on but in the case of the companies they do endure or sustain growth and break out They are able To Do With Relatively Less Capital.

00:15:48: How do you think the M&A and IPO market will develop in twenty-twenty five?

00:15:53: It was quite dry during last years.

00:15:56: We saw a small uptick again, had the first IPOs that were significant.

00:16:05: What are your thoughts on how does it turn out?

00:16:09: Unfortunately we can't rely on that.

00:16:11: on IPO and M& A markets There's not much incentive.

00:16:16: to go Public, I used to always point out with this quote of John Doors from the nineties is six quarters of increasing revenue growth and companies should go public like so.

00:16:26: there's a period in time where you just get pushed outta the nest.

00:16:31: And companies were going public on more frequent an earlier basis.

00:16:39: It has gotten later now that it was still really no incentive or very little incentives.

00:16:45: you know, I'm obviously tainted with.

00:16:49: it's been a rough.

00:16:51: A little bit of a rough ride was with Eventbrite which is cash on positive.

00:16:56: three hundred fifty net revenue did something like five billion in tickets and as the public company an end stocks down quite a bit.

00:17:04: And so i think founders are kind of looking at that saying well let's keep private Let's do these insider stock sales Like a SpaceX or Or like a sonos, if you remember that company used to do it.

00:17:20: Just how'd he do regular kind of stock sales?

00:17:22: To get some liquidity into Employees and investors too.

00:17:27: but its the conundrum for venture investors there's.

00:17:31: they're.

00:17:31: the exits are all kind of locked up.

00:17:34: And on the acquisition side oh my god Like.

00:17:38: it's terrible like Google meta like all the companies that should be swallowing out doing the tuck-unders and so on, just started doing them.

00:17:48: They're not

00:17:48: happening.".

00:17:50: And that's a lot of... The regulatory regime.

00:17:53: is this concern looking like a monopoly in which most these companies are monopolies?

00:18:01: Let's not get it wrong.

00:18:02: but there has been very little on the M&A side as well.

00:18:07: So let's bleak.

00:18:07: But you build great company.

00:18:09: You'll have lots options.

00:18:14: You have to look at your own individual use cases.

00:18:17: Just you'll have many options as time progresses.

00:18:20: from your perspective What would have to change for the IPO markets?

00:18:24: To become more attractive

00:18:26: one?

00:18:26: is it that The market shifted in a way That don't favor small caps?

00:18:32: so, you know because we had this magnificent seven, you Know Nvidia and Meta and Microsoft and so on.

00:18:40: Yeah these like just astounding size, billions and hundreds of billions in dollars of ownership by the institutional investors in public markets.

00:18:55: They're not interested in a twenty-five million dollar allocation or new company with fifty million dollar allocations but they want to put more money into work.

00:19:05: so you know the facilities they've just seemingly grown so largely, don't seem to care as much about the new allocations.

00:19:19: The new IPOs and it feels like there needs be a set of investors for that stage wants take on I think is very attractive side but it doesn't work well right now in public markets going public and maintaining the public company with Sarbanes-Oxley, regulations.

00:19:42: I hope those things all reset because it's expensive to operate as a public company.

00:19:47: That is another side of things that are pretty important

00:19:51: there.".

00:19:52: Can you share a bold park number?

00:20:01: knowing it changes but like from an event brighter perspective or zoom and I compare that.

00:20:06: Yeah, i don't want to misquote it uh...I wanna be precise And I-i Don't recall exactly those numbers.

00:20:12: just that It's-it impacts earnings You know?

00:20:17: It has some impact there in its significant versus staying private.

00:20:24: There are all the other sides of being public and maintaining relationships the various investors and aspects that pull at one's time in resources besides just dollars.

00:20:38: How do you think the venture industry, especially the VC side of things less M&A and continued decrease in M&a activity, end IPO activity given that not much liquidity is going back into the funds.

00:20:57: And then to distribute it to limited partners therefore also meaning they have to think about where am I over invested in VC?

00:21:05: Can I redeploy at next fund

00:21:08: etc.,

00:21:08: etc.?

00:21:09: You'll need to think of ASTAR as well.

00:21:11: The good news highest echelon, the top decile of funds will always have such quality companies that it's a bummer.

00:21:23: The liquidity is painful but with the best firms producing the vast majority and power law winners overcomes it.

00:21:34: there are just so many companies stuck in private purgatory you know?

00:21:41: There needs to be something done a way to better facilitate some type of trading out as stock investors over certain time periods, because most funds are established on a ten-year basis.

00:21:57: And the fact that it's going... That they have to be extended past.

00:22:00: that is unfortunate and needs to be fixed.

00:22:05: We need find ways for them more vibrant with these companies so we can turn their shareholders to that next level of shareholder when the time is right and not just be part in their original investors from ten years prior.

00:22:21: Okay, I'm interested how this will change over time if it's solved?

00:22:25: How it's solve like... It'll be solved!

00:22:27: If its a problem then we won't know yet

00:22:30: but somebody very creative will come up with a new type secondary market And I haven't been creative enough to figure out what it is.

00:22:43: But, um...I hope some listener out there goes at it as its a really big problem.

00:22:50: Let's use the last five minutes and also talk about bit more in-depth on the AI topic that always in the room right now.

00:22:58: So how do you think about

00:23:01: A.I.,

00:23:02: At The Moment What are you observing?

00:23:04: Hey!

00:23:04: I'm bullish on this, I'm bearish of this.

00:23:07: How Do You Currently Observe It?

00:23:09: I mean, I always go back to platforms is that in markets like the current one there's a new platform.

00:23:20: There was this revolution of The Transformer, innovation at The Transformers published by Google team and chat GBTU was born from And we see open AI, we see Anthropic.

00:23:36: We see Mithril in Europe.

00:23:38: We say a number of now foundational model platforms for developers to build on top of and that is what drives really great venture cycle as like are very great platform.

00:23:53: you know it's just disguised the limit.

00:23:57: if think about different ways consumer enterprise and SaaS security AI can be used, as we know it's mind bogglingly broad.

00:24:09: It is so exciting to see new companies come to us every day with the new and thoughtful ways that we would never thought

00:24:16: of."

00:24:17: That just such a healthy sign!

00:24:21: This comes out.

00:24:24: in tech you have innovation like the Netscape browser and Mark Andreessen launched on the web Internet first one dot-o revolution was launched.

00:24:35: or you have the iPhone came out and when you had apps like Uber in Airbnb And all of a sudden, you know massive growth on that.

00:24:44: This is just like another granddaddy.

00:24:46: Like it's this like The Granddaddy of all platforms to open AI platform anthropic platform.

00:24:51: It's very exciting.

00:24:53: There's a lot of competition On the foundational model side which we liked because we want to see innovation price checking things not get too expensive for those that are building on top of it and so we just have all the right ingredients for a very exciting five years.

00:25:09: We're going to end up in a bubble, um...we always do!

00:25:12: It's uh mentor-of mine.

00:25:14: Dick Kremlich explained capitalism is like a pendulum its..it's always swinging back and forth.

00:25:19: Its never....just right in the middle at you know kind of metered pace ,its' always either boom or bust.

00:25:27: And so we're swinging towards that boom stage and at some point it'll be overdone.

00:25:34: But like the internet, there was a period where in the two thousands Amazon thought to be a fraud and fake and Internet was dead.

00:25:45: all this sort of stuff We know how big is.

00:25:47: now AI will live upto everything In its hype more appear in a different way at a different time period than we all thought.

00:25:56: Do you observe, does the time between boom and bust get faster over time?

00:26:03: So it's like more... Does the pendulum swing faster or slower or the same pace throughout the years and decades?

00:26:10: It is a great question!

00:26:12: I think that it does accelerate And The Reasoning Is Just Things Moving At The Speed Of Light.

00:26:18: You Have A More Global Audience like tightened communication.

00:26:25: So if you think about some of the building blocks to the internet, Cisco created The Router and it took years for that all go into place but built the underlying pipes for the Internet's so on... And then these phenomenon have come by in a taken time.

00:26:46: But now as we build on top I see it accelerating, and that is exciting.

00:26:55: We might find some new area we hadn't even thought of in twenty-twenty.

00:27:01: five emerge very quickly much faster than what you've seen with platforms from the past.

00:27:07: I built on top a PayPal platform which was first really got my companies into orbit.

00:27:15: soon then Eventbrite.

00:27:17: That's an important phenomenon.

00:27:19: What

00:27:19: would be your advice for founders going into twenty, twenty-five as some famous last words?

00:27:27: Founders out there should really have a thesis of their business and how the world will work over the coming years.

00:27:38: And then just stay firm to that.

00:27:43: if you don't run out keep driving forward with persistence.

00:27:49: It's hard, there are a lot of ups and downs but being persistent in going through the times where it feels like everyone else is growing at hyperspeech except you...it just takes time to set things up usually for fast growth.

00:28:03: But the persistence is key part.

00:28:06: Thank You Kevin.

00:28:07: Thanks for sharing all your

00:28:10: perspectives.