David Tisch on early-stage venture in a volatile macro: 'the accordion never reaches early stage'

guest, David Tish from Box Group. How you doing, David? Hi, guys. How are you on having a new job today? I do. Yes. Thank you. Uh yeah, I I'm I'm taking it from part-time, 50 hours a week to full-time, 100 hours a week, but uh it's only up from here. Are you hiring? We are. We are hiring.

always how do I how do I pursue this? Yeah, the the VC to full-time news anchor pipeline, you know, once you've done it all in venture, you know, like you have, the natural step is when you when you start in this industry, I feel like that's the ambition, a daily show that you can pontificate across the whole industry.

So, well, we're hoping we're hoping to recruit you to be, you know, once a week, drop in, we will be your podcast. Yes, this is this is actually like jokes aside, like the way that you like work for us is that uh when news breaks, you bring it to us.

When uh when when something happens that you have an opinion on, you come on the show and you talk to us. Uh and you are elevating the the venture capitalist way to we don't have news. We don't have things that happen. I feel like you are really uh playing the audience.

What about like the most complex and naughty geopolitical conflicts? I feel like you guys as a class are like the best in business. Over qualified to talk about it. Oh, okay. So, you you want to stay away from politics. All right. So, let's start with let's start with tariffs. Yeah. Let's start with tariffs.

Iran, China, Russia. Let's just go down the list. Good day in the market. Everything's great here. Everything's great. Everything's great. Have you heard about the accordion effect to early stage?

Because that's our famous early stage line of like whatever happens in the latest stage market, it's like an accordion all the way to early stage. So reverberates over the course of you know 3 to 5 years.

So we will not ever be impacted because the accordion basically never reaches early stage because something else will happen in the macro before then. Uh which is a really nice uh don't ask us anymore. There's no there's no liquidity so you can't panic sell even if you wanted to you.

15 years that's a that's a that's a third accordion in Ripple. Yeah liquidity. I mean I mean that like there's no better example of that than uh we have SVB crisis. Uh interest rates go up. It's the death of venture.

We're hearing about oh GPS are going to be giving back LP capital but then well well would you hear about this AI trend and all of a sudden it's time to rip checks. Saved us all. Saved us all. Who would have thought? Yeah. Wait. Yeah.

What uh wasn't there this was sort of before my time but there was a whole chatbot era right? Wasn't there like pre AAI was like it was supposed to be the thing? It was sort of right. It was just didn't have the the underlying tech trend. Is that right?

The I feel like the tech wasn't there, but also the branding of chatbot to uh chat GPT isn't that different. Um but magically different from a outcome and uh sort of adoption curve. If you look like the automated chat bots, I think is what they were called for that moment in time.

Uh they all fell on their face because they weren't interesting enough, good enough. They were like pre-programmed answers and then uh open AI releases in essence just an advanced version of that in many ways from a consumer positioning uh and here we are.

And so you are like the idea of chatbot was right in how you're interacting with the tech. the tech uh to your point just wasn't good enough. Yeah. 90% of chatbot founders quit right before they strike it back right before they saw the open AI.

I mean I I I don't know if I've actually we we should find some chatbot founder who stuck it out and hugging face. Hugging face is the one. Yeah, that's right. Hugging hugging face is the winner. They were in a boot camp for chat bots. No way. And pivoted from a chatbot into hugging face. So that's your answer.

That's amazing. Yeah, we gota have it's it's Clement on the show. Yes. Right. Yeah, we got to have him on. That'd be great. Um, so yeah, I mean uh to get a little bit more serious like uh like how are you processing this year? What are you actually excited about? What is fatiguing you in venture these days?

We have our annual meeting tomorrow. So I'm in the middle of practicing our our script on the market so I can just try it. Please audience. I love Yeah.

the uh you know the the pre-liberation day post liberation day market speech is uh is is different in some way but you really like I don't know you're you're investing at the earliest stage of a journey and trying to attach two people starting a company with big long-term 10 15 year ambition to some moment in time macro or what today feels like an incredibly volatile macro where you actually can't even understand what stability looks like or a new framework.

Like it just it's impossible. And so the daytoday job here is we meet people, we get really excited about what they're working on, we give them money and we wait 5 10 15 years to see how that all plays out.

So the the investment moment of investing in an early stage company feels totally decoupled from the macro of what's going on. The macro does impact the companies you invested in years ago as they come to market for more money, as they figure out their, you know, revenue retention.

But the sort of day-to-day volatility, uh, I don't think has an impact on our day-to-day job of funding great people, starting big ambitious visions.

Do you think that there are going to be stories from this uh tariff cycle that are like what happened in COVID where everyone was com like Airbnb was particularly hurting as a startup. I mean I they were public at the time but they were I still think of them as like a YC company, right?

Uh and it found it seemed like that the story of Airbnb was like COVID was a transformational moment for them and they emerged like a stronger company than ever.

Um do you expect that to happen to any startups uh maybe in your portfolio or just out there in the market that are getting beat up but might emerge stronger than ever? So so like if you isolate tariffs that has a sure impact on a subset of companies very outside of software in many ways.

Um, I think there's software companies that involve logistics and shipping that definitely uh are impacted, but I don't know that the like come out of the tariff uh is a predictable framework like what does that actually mean? Do we get to free trade in reality? Do we get to some equilibrium?

Is this China only that we're talking about? And I think within there lies a very hard to foresee again point of stability. Whereas at least in CO if you said we return to a normal world that was a more predictable end point.

Um if you assumed you know early in co it was wait two weeks and then the world will start again and then it was some longer period. But I think there was an appreciation for what coming out of it could look like. Whereas I think right now you're in like the creation period. Harder to to guess.

Um yeah, you know the the easy guess is like American manufacturing windfall, but that feels like a big stretch like no one's building a factory overnight. I feel like that happens in other parts of the world, not here.

It does feel like it could be a catalyst for the American dynamism companies, the re-industrialized companies that have been placing that bet and kind of hoping for just a little bit of a boost that you could see a lot of like, oh, that series A company went to series B like a little bit earlier because of this narrative and then that was enough to get them over an awkward hump, build some real infrastructure out and kind of like realize the vision.

I think I've been like cautiously optimistic from this. If you're a super early stage investor, which which Box Group is, yeah, and then you're trying to time markets by being like, "Oh, there's tariffs.

Let me make a bunch of supply chain related or manufacturing investments, but then the company's not going to mature for five to potentially 10 years. So, it could be a totally different environment.

" And and one example that thought was relevant, we had the CEO of Astronis on last week, which I imagine you invested in like over at least over five years ago. 13 years ago. 13 years ago. Overnight success. Overnight success. Um. No.

And and that's like a good example of like you couldn't have you you thought that space was going to be important at the time and you like we knew actually we're we're early stage VCs. We knew we didn't think you knew crystalall obviously. Um, no.

I mean, like if you think about AI, we're we're the earliest investor in a company called Clay. And Clay created a vision, had a product, and it was in need of AI for it to work. And and it wasn't created yet.

And so, if you watch this seven-year overnight success, it clicked when the underlying technology caught up with what the goto market product was.

And I think you see that a lot of the times that the founders who are early in a space and can see it through and wait for the world to come to them while they're sort of pushing the world to get there. That's where a lot of that magic is.

And I think Arranis or Zipline again 14 years ago we funded Zipline is a is another example. Um we are huge Zipline shills now that we talked to the founder. I mean what an incredible story. We left Yeah, we left that conversation. We were basically like would invest buy at any price. Yeah.

Because I mean he he it's not just that he's been grinding it out for so long, but I feel like if you watch the launch video like he paints the it's the opposite of the Black Mirror vision. It it's a very positive vision of the future and it's something that yeah, Job's not finished.

He's going to be doing that for 20 30 years easily. Like there's so much to do and and now it's just a matter of manufacturing scale, economics, all the basic stuff. But like he's got the drive.

He went to his office on a recent trip to San Francisco and I probably hadn't been in his office in in a decade and we walked in and it was just like this jaw-dropping Americanbuilt uh hardware software combo that you like you walked out of there and said this is the beginning of a another 15-year vision. Totally.

Totally. Uh, was there was there, you know, looking back at at these companies like Zipline, Astronis, was there ever a trend over the last whatever 15 years that you said that you were tempted to go all in on because I imagine there was a lot of investors of that era that said, "Oh, space is so cool.

I'm going all in on it. Climate tech is so cool. I'm going to do this, you know, instant delivery. " Just NFTs. Just NFTs. Yeah, that was the one. one. Yeah. No, I mean it we're generalists. We we are founder driven. We find people uh who have their own vision.

I think us as a as a firm, we should never be in charge of coming up with ideas. We're not that's not our job. Our job is to give people who have dreams uh capital and and support to help them.

Um, John, your company I think is the single uh most heavily debated internal decision uh we'd ever made at Box Group uh from a moral standpoint. We had to like decide if it was uh good or bad. Uh and so that was interesting. So we almost pivoted into drugs. Um that was an opportunity for us.

But uh no I like the world pivoted to AI, right? So I think 2 years ago we were saying like 30 to 40% of the companies we see talk about AI or are oriented around AI. Last year it was like 90 and this year it's 170%.

Um you you don't meet nonAI companies right now and if they're not AI first it's we're attacking an industry by bringing AI to it um which is slower and stale. And I think that is a forced all-in versus a sort of opted all-in.

Does does do the different business models that seem to be emerging does that change the way you're underwriting these investments?

I'm thinking about highly capex intensive businesses where you're just expecting a ton of dilution or we've seen some companies that are kind of just doing like private equity style rollups but they're raising from venture capital.

And I imagine if you're not careful with PRAA or how you're sizing your bets like it it could it could turn out to be like ah we really didn't get the full bite at the apple. But is that something that even matters to you or is it just like back the founder and we'll figure it out?

Uh private equity rollups in venture always ends well. Definitely. Always. Yeah. Yeah.

I mean we we we like to say private equities is not a mature business and so there's lots of opportunity for tech people to come in and disrupt no they don't take it serious famously not famously not cutthroat famously not cutthroat they're happy to leave all that money on the table yeah exactly just dollars on the floor for VCs to come pick up right Jordy um no no I I I was more um how was has there ever you know it feels like over the last two years call it there's been more of these sort of rollups than ever before.

Was there was there another did was there another kind of like general like marketwide crack or was it just sort of like individual areas um and opportunities? I struggle to think that the way to build companies is to replicate another company that's succeeding.

In these moments, what you tend to have is one winner and a bunch of followers that don't win. And so, can there be a single version of a roll-up? If you look at Andreal, they're great at acquisitions. That's a different phrasing of the word rollup.

Rollup is either we're going to buy a bunch of things that are the same size or we're going to buy like one big thing and then tuck in some other smaller things around it. So, I think unpacking the nuance in these words is more important than assuming a general like success across a a wide variety of companies.

I think the like moment in time where you probably saw fast followers or fast movers win was in the ondemand business, right?

When Uber trained the world that you could touch something on your phone and something in the real world would happen, it unlocked like a a behavior across the world that was very different, right? And that was this this phone tore world connection that I think opened up a ton of other businesses.

I don't think they all worked, but I do think that that was a horizontal opening versus a business model innovation uh that has been used in other industries or financial industries and then uh applied in venture. Yeah.

the idea the the classic sort of like accounting firm roll up when I look at that it's like when it's been two weeks and my like CPA is not like on it or like is not you know like clearly like you know is busy with other clients I'm like it's not like I want to switch immediately but I'm pretty quickly and so the idea that you're just going to buy like 20 accounting firms and then slap AI on it and not have like 90% churn it's just um interesting But have you tried AI?

I mean, it's pretty good. Yeah. Yeah. It's pretty, you know, it's only going to get it wrong 5% of the time and that's going to cost you millions, but uh this is a topic that Jordy and I have been debated and it's kind of related to Uber opening the mindset of like this delivery boom.

Uh chat GPT rappers, it's been derided as a term. Um we've now seen the VS Code fork wars. Uh, but it looks like there's a chance that OpenAI buys Windsurf for three billion. And I've been going back and forth with Jordy about this, like is this game on for M&A in the rapper market?

Because if OpenAI, who has, you know, great team, lots of money, can't like build it and they want to buy it, then do do we see Anthropic, do we see XAI buying stuff? Do we see Amazon, all all of the Mag 7 buy stuff?

Then maybe even, you know, you get into some of the just fortune 500 companies that want to buy startups.

And so I like I'm in this weird scenario where I've I've been somewhat accepting of the idea that a a rapper might not be a power law outcome, but everyone involved in Windsurf, if this deal goes through, will do very well. And so what is your take on on that market and and does this narrative shift?

My take was broadly that like this is highly strategic for open AAI but that doesn't mean every rapper even if they have a lot of traction revenue is like suddenly strategic to a wide range of buyers right sure I think I think in my in my 15 years doing this the thing I've underest or I overrated was the amount of M&A that would happen I think if you go back in the early growth of like this era if you look at you know anything from um you know Facebook and and before that Google, Yahoo, Twitter, um on their way up they bought tens if not hundred plus companies and a lot of that was for stock and it was stock that appreciated postacquisition incredibly valuable for both the company uh and the founders who sold and I think if you look at the next wave of startups a dramatic decrease in M&A because instead of buy you built and the aqua hire didn't prove out to the best use of equity.

A lot of the the decision of buy versus build became easier uh as you thought about where to innovate. I think in sort of getting at your question, um I hope we're entering a period of M&A.

I think the easy way to rationalize it is the valuations of some of these companies that you mentioned are so big that they can afford to buy companies for substantial amounts that might actually align with the founder of the the acquired um expectations.

And I think that's where one of the other mismatch was happening is that the the company that wanted to buy another company was just not able to hit the price and so they didn't happen.

And so I think one way to rationalize it is whether it's the the big seven or uh the scaled AI companies have big enough valuations to go out and buy things for numbers that will hit a founders's expectation which I think would unlock um you know a lot of a lot of positive things in this ecosystem.

one is liquidity, but two is like there there isn't really an answer to how do things end right now for a ton of companies and M&A is the piece that's been missing uh to me the most it gets uh less discussed and I think Fortune 500 companies need to modernize right and we saw that pressure 10 years ago when you heard like all the non- tech companies are going to become tech companies then the public markets punish you on a quarter by quarter basis and it's like forget that we're not going to do any of that but I think today AI might be such a dramatic forcing function that smart big companies need to move quickly uh to get ahead of the curve.

So is that is that buy versus you you mentioned you know these super inquisitive companies maybe 15 years ago and then that changed. Do you think that was a factor? I mean you guys basically Plaid was built out of your guys's office. There's a lot of uh there's been so much infrastructure built during the Plaid era.

Do you think that that was part of the calculus for some of these bigger, you know, companies that would have been acquirers, but they said, "Hey, like we could buy this tech and then maybe try to integrate it or we could get this team and and do it or hey, this infrastructure exists and we can just build it ourselves.

" So many factors go like the biggest one to me is that the government didn't want big tech to buy more companies. And so if they were going to buy companies, they had to be like the biggest ones, not the like they were going to fight the regulatory fights on big companies, not on small ones.

And that dried a lot of it up. And then I think the valuation expectations was the other friction. When a startup decided they were worth a half a billion dollars and the potential acquirers wanted to buy them for $und00 million, that was no longer interesting.

And so it just it decoupled uh rationality from playing out in the M&A world, right? You have to have like a buyer and seller meet on price in order for the deal to even get going. Um and I think that's where uh the biggest gap was. Plaid sold, right? Plaid sold and the government stopped it.

And I think that that was uh you know to me a interesting moment in the government getting involved in something that was debatable. And I think it also tells big companies like don't waste your time trying to get these things through and that slows down a whole wave of potential M&A. Interesting.

Um, I don't know if if the M&A market relates to what you're seeing on the LP side, but we've heard that there might be some fatigue from LPs on what's going on in venture, but at the same time, it feels like that David Gogggins meme where, you know, venture just keeps on chugging no matter what.

Uh, you're going to the AGM. Uh, what what are you seeing broadly in terms of LP appetite for ever bigger venture funds? We're a small adorable seed fund based in New York City. So I we are not we are not responsible to answer that question.

I think our like your job if you take LP Capital is to give them back a lot of money one day. And I think if you haven't um you you owe that to them and so at some point the patience should run out and I I appreciate that.

I think the challenge is the time for liquidity in early stage venture has gotten pushed significantly from where it was more predictable a decade or two decades ago. You could say 7 to 10 years on an early stage fund and mean it. today.

I think you say 7 to 10 years and you're like by that I mean like 12 to 15 y and that that's a substantial difference and I think you need to align with your investors on what that timeline is because it's in a rational timeline like the people we fund if you go back 15 years they were like pre-ele school for the most part right like if you look at the young founder that you're investing in today a 15-year timeline is twothird of a life like it's an irrational number and so these like the go in motion of making an investment to the return the fund to LPS timeline is so decoupled from I think a psychological standpoint that um your stakeholders are just dramatically uh unrelatable on that on that topic of like young founders um how has the early stage market evolved there's a it feels like there's a lot new a lot more products like YC see is bigger than ever.

But then there's also Zfellows, there's different fellowships. There's people that are just giving away money to people to like go try a startup and then maybe I'll invest later. Uh and obviously the teal fellowship is kind of like a scaled version of that, but there's a lot of other, you know, initiatives.

Uh how has that changed your strategy? Has it changed your strategy at all? Uh and kind of like what what does the early stage market look for you look like for you today? I think there like there's always been these splashes of noise.

Um, and very very little like if you go back again, I'm old and so I've been doing this through these micro waves of uh change in the early stage market. Um, very few products stay where they are. They move in different directions. They either get later.

So if you think about new entrance as as funds into the early stage market most of the ambition is to become a bigger fund and in doing so you become later by nature of scaling uh your business and I think on a product side uh you're only as good as the product you're in and so what has been amazing to me about YZ is they've just continued to compound quality of the satisfaction to their customer they are they are not free right you're giving YC equity.

And yet, if you look at like the happiness factor, the the MPS or whatever uh cheesy acronym you you call reviews, but like people go to YC because other people who went to IC loved it and they think it was entirely worth it. And so I think the products that get invented need to live up to the cost.

And if the cost is free, like nothing is really free. And so what comes with that freedom is that attaching to a brand. And if you attach your company to a brand, is that a good thing to have done or is there some negative uh externality that comes with that?

And so I think um and it's probably not the end point for the the products that are offering free capital to be free forever. Uh I would assume that's a hard thing to scale. Um, and so I think you have to just like as a company aligning yourself with a brand.

The trusted brands have proven to be trusted for a reason and the the new ones need to earn that. And I think um there are some that have been around long enough where you find good examples of uh quality coming from them and those are the ones that I would uh tend to trust more.

Uh you've been in the game for a long time. Can you tell me the story of your first investment ever? Yeah. Um our box group is named after our first investment. Uh so uh it's like a combination. So the first investment a company called Boxy. Uh it was a Roku competitor.

Um uh we were in their seed round as a adorable check. Um I didn't want to write my name as an angel investor. So I created an LLC called Box Group to invest in Boxy which made me feel bigger. Uh, the box was like a cool nightclub in the city at the time. It felt like felt like a cool word.

Uh, I've looked with Aaron Levy. Uh, he registered box. net like two months before I did Box Group. Oh, wow. Which I'm bitter about. So, at some point he'll sue me and all over. But he's been on the shows, too, so he can come on and debate for it. Yeah. Well, it's collab we're all collaborative in this world anyway.

No com no competitors. Um, so, uh, you know, Boxy gets funded. uh follow on by Fred Wilson. I'm like, "Oh my god, I'm amazing at this. " Yes. Yes. I gotta read that guy's blog. This is so cool. Uh and then General Catalyst came in and then Aer, the founder, went in front of Congress to like fight the cable companies.

Uh so it was like an amazing uh first investment to to like see the narrative of a startup. They sold to Samsung. Um and they're they were built into like the Samsung smart TV technology. Um, but the idea was right and the timing was challenging.

They had to fight every single battle on behalf of the people that came after them. And I think that that was a a really good lesson. Uh, is is do you see you have a ton of portfolio companies um too too many probably too many I'm sure to to manage.

Do you see uh and and Case text is one of them uh which is an interesting example because that was a company that no one nineyear overnight success. Yeah. Exactly. Exactly. I'll hit the uh overnight success overnight success. Um but uh uh are you seeing that across?

Can we get a soundboard for our like meet companies meetings like where we should Yeah, we should. Um handshake deal. Yeah. handshake deals. Raise your forecasts. Yeah, there's an internal bingo that we run that every time they say buzzwords, we we're preempting.

But how do how do you think of AI in the context of the portfolio broadly?

Are there are there a bunch of examples where it's kind of creating new momentum in the business or like tons of new opportunity or and you know I look at this like you know I have 50 odd uh personal investments just all of them will work all of them will work I'm sure they've all been marked up so so I'm sure that's what the employer website told me which I was like yeah that could be 98% successful is it 98% hit rate um but but uh you know how often are you seeing it sort of create momentum versus momentum just being something that once you lose it, it's really hard to kind of get it back if you're not getting, you know, sort of lucky.

I mean, Case Text is like the most amazing story. What a grinder into uh just being early in the right way.

And I think to Jake's credit, he was always like the smartest person in the room and figured out how AI could come into what they were building in a differentiated way and like split a team off, built a product, got to market first um in an industry that was ready for it.

And so I think it's this and he landed like he landed an outcome that he changed his life and changed the team's life and I think like a unique story. um we're now like three years past that you're early to the game.

And so if you haven't figured out how to take your stale product or your product that's maxed out and begin to uh re-energize it, it feels like you're a little late.

Um there are those stories and I think Clay's the other side of it where it it AI happened and Clay uh benefited from sort of the the speed of it and now is running. Um, but I think within the portfolio there are companies that benefit from pieces of it. Um, and whether that's on the cost-saving side or the growth side.

Um, I think you can find examples of of everything, but it's within the verticals that I find uh the most interesting momentum just being recreated, right? It's it's companies that are servicing customers and in some way if they can be the deliverer of AI to an industry that can't get it themselves.

That's a really big opportunity and I think Caseex sort of represents that. Yeah, that makes sense. It's awesome. Thank you so much.

This was a I came on here to promote something and let's go give us like the the Howard Stern of of tech and so when you go on Howard you have to promote or like the late night shows you have to promote.

So, we have we have a conference that we're putting on with Union Square and First Round and Lux in New York called Foundersenyc and it's foundersenyc. co. It's free, which is different than most conferences. Uh, it's for people who want to start a company.

We got the founders of Data Dog and talking to each other on stage. to me a collection of all the the big great early companies that were built and scaled in New York coming on stage to just like sort of create the community effect of of building here. Um and so if you're Yeah.

Do you want to take a do you want to take a victory lap on NYC just generally? I feel like No, no, no. I'm I'm just saying when when you started Box Group, a lot of people like maybe maybe you No one had heard of we're like the the you know pioneers of New York City. No one had heard of New York City before.

There was that error. That's true about tech, right? The amount of the amount of the capital concentration in New York City right now is incredible. Never been more. We're like the pioneers that discovered Miami in the co era. No, no. Look, I I think New York's a home for people that want to win.

And I think whatever you do in New York, it's it's like an incredibly harsh environment. And in order to stand out and win in New York, you have to fight friction. No one cares, right?

And that's what's actually fascinating to me about tech in New York is like if you went on a subway or to the restaurant nearby, nobody cares what you're doing. Like no one cares about your business, no one cares about tech. And I think that friction creates people to have to fight a bigger fight here.

Um because there's not momentum. Like there's not somebody pulling you up and saying like we're all in this together. And so I uh I think the community here uh is is just like people put their head down and grind and uh it's produced some real success and we're excited to put it all on stage. That's amazing.

Well, thank you guys very much for having me. I'll see you tomorrow. Uh we'll see you back. We'll see you back here. Talk to you soon. Bye. Cheers. Uh fantastic. Humble giant. Yeah. Overnight success himself. Yeah. Uh well, next up we got Mike Vernal coming in from Conviction. very excited to talk to him.

We'll bring him in from the waiting room now. Mike, are you there? Can you hear me? How are you doing? I'm good, thanks. How are you two? Uh we're fantastic. Great to have you. Uh it's Thanks for having me. It's