Chapter One's Jeff Morris Jr. promotes Jameson Sadel to GP and bets on London AI talent and IP-backed incubations

from Chapter One Ventures. He's got some big news today. We'll let him back. Are you ready? I'm gonna press this button. Okay. Welcome, Jeff. Jeff, how you doing? Welcome to the studio. Welcome. Come on in, guys. There he is. Our technology brother. Welcome to the show. a uh a life life goal achieved.

I feel like I'm like let's go. Let's go. No, I've seen I've seen this progress and I'm just such a big fan of of you both and um I won't flatter you for 20 minutes, but but really you guys are are killing it. It's awesome.

Well, I remember I think we got breakfast burritos in Santa Monica like right around the time that we were starting the show and uh you probably thought I was a little bit crazy for going full-time on a podcast, but uh but you you never you you always had faith. I think you saw the the potential from the beginning.

So, it's great great to have have you on and um maybe give a quick intro and then uh I'll let you talk about the um the the news today and then we'll get into a bunch of other stuff. Yeah. So um I've been an investor I guess for the past five years full-time started a firm called Chapter 1.

Um, we call ourselves the product fund mainly because all of our backgrounds are in product engineering, design, data science, um, and kind of take a product centric view towards what we invest in. But prior to that, grew up in the area.

Um, probably most famously as an operator, was the VP of product at Tinder for a bunch of years. Um, ran revenue over there kind of during like the hyperrowth period of 2015 to 2019 when the company was growing. Uh and then now um now run the veter firm full-time and and yeah, we've uh evolved quite a bit.

Today we're sharing some of that news. Amazing. Uh what's what's the news? And uh we're we're not quite set up to have multiple guests on, but we'll have to have uh your new partner, well, new GP. So why don't why don't you break down the news and and kind of talk about the evolution of the firm?

Yeah, so the big news today is Jameson Sadel is being promoted to a general partner. Uh we started the firm in 2019 when there we go. Uh you know I think it it kind of marks a a moment in time for us as a venture fund but also maybe more broadly in venture.

We started chapter one as a solo GP firm when being a solo GP I think was pretty uh new but also I'd call it trendy in 2019 and um the it's been just really interesting to see the peer group go in different directions. of people who were still the GPS at the time. Some have continued on that path.

Other people have gone back to operating and then I think there's another cohort of people who want to build partnerships and firms.

And so I think you know there's all these right ways to do venture whether it's um building a firm equal partnerships so GPS and there's this constant debate but I think we've um really been clear on what we want to become and today building a partnership is is obviously um what what we're announcing today.

That's amazing. Uh had this been your plan from the beginning? uh like did you realize quickly that that you wanted investing at the firm to be a team sport versus something that you know was was more of this again solo endeavor at least like it was in the beginning.

I think a lot of us in 2019 like really like we had a plan but it wasn't um concept of a plan what we become and so I think I I realized in like 20 20 probably a year and a half two years in that I didn't want to just do it on my own and I think there's a lot of people who are who are really happy with that lifestyle and um frankly it's probably a better financial decision just to do uh raise funds do it on your own but but I think to be competitive and to build a great product for founders, you likely can do a better job of that if you bring on partners and build a firm.

And so that was the goal in 2021. It took a while to figure out who that person would be and also the right way to do it. So a lot of people will tell you to kind of like promote people from within build, you know, you kind of like people buy into the culture.

know what what what what what you're doing and and you you kind of um uh elevate internally. And other people say go like go find a superstar externally.

Um which which at times we also thought about doing so is you know like do you want to go bring bring in like a fancy GP spinning out or or maybe a a former CEO type and um those things are just really hard to to get right.

And so I think we um were really lucky where Jameson was doing an outstanding job internally, bought into what we were doing. And um it's kind of like a head coaching search, right?

you guys uh uh kind of in the TVPN model like it's really I think alluring to go hire like the big fancy um head coaching name but often times like promoting the person from within um is the best move because they know they know your players your players trust them um and they know the system and I think I maybe like the Boston Celtics did that really well right and so I think it's really um uh I think that's kind of the decision most most firms have to make as as they're growing their teams.

She's focused on I mean in her bio she says AI MLN infra how you guys making money Stargate there's 500 billion floating around it's the angle we were talking about just go set up a Chipotle there become a become a don't just set set up like a the the basically recreate the 2007 Chipotle in Abalene in Abalene massive opportunity there's 350 57 workers there.

Uh but I mean seriously like like obviously there's this AI boom. A lot of the a lot of the trains have left the station. I don't imagine you're participating in the next open AI round. Um but but but how do you make money in the in the current AI boom or or is it uh or are we under like the next next trend?

Yeah, I think there's a couple angles like one is um location. So there's Jameson lives in London.

I think this is a popular narrative right now that all the like all the value is happening value creation is happening in the Bay Area and so obviously um I grew up in the Bay Area and I live in Los Angeles and we've made a decision to to focus kind of on the other most important areas in the in in tech and so um her view and it's my view being spending more time in London is that there's actually a lot of talent um in the in the universities so Cambridge um Oxford etc and also So we we had a conference in London maybe two months ago and we had the founder of Granola, we had you know Anthropic, we had um all a lot of people from Jeep Mine and you plan to help those founders like escape the backwater that is the UK and the Europe because I can't imagine that they're going to try and build businesses there, right?

That's crazy. Insane. So like, but it makes sense because you go there, you give them money, and you tell them, "Here, go to San Francisco because then you have an actual shot. " Is that the plan?

I think I think it's a it's a bit um like there's the there's like the the Project Europe movement, which obviously like love Harry and think that's important, but there's another view is like meeting founders where they are today.

And often that that is hey we want to raise a seed round and and go you know I mean that's the story of anthropic and and granola right like like international founders who eventually came to the US there's always this question I have about like capital flows right Sweden's pretty goated pretty good if you Nordics the Nordics there's something special there's always the capital flow like there are a lot of great LPs there that want to invest in American companies a lot of founders that want to come invest in America obviously there are some great companies in Europe where joking around.

Um, but but but getting that capital flow right so you don't just expatriate US dollars to underperforming countries is probably a risk you want to avoid. But at the same time, it's probably really underpriced assets that are going to go find niche markets uh all over the world. And you know, who knows?

Maybe the next power law company comes from some bizarre country like do you have strong beliefs around the intersection of AI and crypto? There's been a lot of different attempts and people attacking it from different angles. You obviously have backed a bunch of crypto companies historically.

Uh yeah, how do we make money off of stable coins? Ben Thompson was writing about this today. How stable coins are going to web and I want to get on the action. I'm super long stable coins, but they haven't moved at all. My portfolio is flat.

No, it is it is a tough thing where everyone's just so bullish on stables and yet and yet it's kind of unclear.

Like a meme coin about stable coin USD on pumpf fun just USD coins potential potentially just one trillion there might be something there should be a dollar eventually no but but more seriously zero zero fiat backing it's just a completely completely it's just complete meat yeah unstable coins I think people have tried I think people have tried everything's been tried but but seriously like stable coins uh what is exciting or again like uh with the bridge acquisition is that the end of the story or the I think you're seeing a lot of um at the application layer payments use applications are using stable coins um to enable their payments uh but there's not there hasn't been a lot of value acrruel to like net new um circle competitors are trying to compete with a tether or USDC.

Yeah. And so stable coins are like the easiest thing to talk about at a AGM or LP conference because it's like okay like um I can kind of see that use case. And so I think there's there's a shift to to emphasizing stable coins. Yeah.

Yeah, today I think the combination of like stable coins and agents starts to get like it does make sense, but it's it's it's gets pretty pretty blurry in like the current use cases of of of agents and and what's possible today.

Um I don't for what it's worth we don't um I have a strong belief on the intersection between crypto and AI today being um there's there aren't a lot of the the primary use case we like is giving open source developers a way to actually make money like I think that's a pretty clear thing that's been missing if you look at any open source ecos ecosystem so you look at um I don't know like now research or different um like Tensor is trying to do this a little bit too, but the you know I I I I think the the worlds are are very separate today if you go spend time in the Bay Area and actually talk to the best AI researchers.

Like there's nobody cares about crypto in the Bay Area for the most part. Um and that's totally okay. Like I kind of like that crypto's um still very weird and unliked by by most people. Let's get Linus Torvalds a mega yacht. Let's get Guido Van Rossom a private jet. This guy created Linux. Leguido created Python.

Open source software. He didn't get comped. Let's get him some stables. Immense immense value. Let's get some greenbacks on chain. Exactly. Uh I I want to talk about the uh the the the venture dynamics for uh these mega platform funds and smaller funds.

There was this uh there was this trend during the ZERP era where it seemed like the mega funds were just preempting everything.

You had the crossover investors and that made it pretty hard for early stage investors to kind of make the decision on whether or not to write proata checks into the into their earlier portfolio because they just wrote the seed check.

Maybe they did find the great company early, but then there was this pressure to say, "Hey, these companies are graduating to series A immediately. " You want to defend your ownership. Exactly. Exactly.

And so uh has has that dynamic changed or has the early stage market adjusted to spinning up growth vehicles so that they can uh ride that wave as the overall market gets hotter. I mean, some of these some of these rounds for these AI companies, they get up uh series A and 100 million like happens pretty frequently now.

And how do you set yourself up for that as a manager? I think that's probably the the hardest part of the 2019 or 2021 vintage, right? Yeah.

Um and you look back at at your follow on decisions and um at least speaking for ourselves, I think that was probably the the part of our investment we wish we could get back the most. Yeah.

Uh, and so like today the markups are are just as crazy except there's there's obviously more revenue that you can you can kind of lean on to to underwrite the companies and um so it's actually it might be harder today because you have like before it's like okay like Excel or index is marking up the company we did the seed you know we should maybe do the series A um out of principle now it's now it's like okay one of those firms is doing it plus they of, you know, 10 or $20 million in revenue.

And so it's it's equally hard. And I think for seed managers, um the growth fund thing for seed managers is pretty much done from what I've seen. Like people aren't going and raising growth funds. And if they do, um they have to have a very special reason why they're the seed fund who can do both.

So I think there's a lot more like we've seen SPD volume pick up again. That's become a bigger part of the ecosystem. And then I think a lot of a lot of LPs are looking for co-invest like that's always been the case but especially so today.

I think you see a lot of LPS coming to funds so they can co-invest and that's um I think a bigger trend today than when I started in 2019. What's the sophistication level when they're looking at co-invest opportunities?

Are they saying, "Okay, I'm going to back an emerging manager, let's say a $30 million fund, and then I'm planning to do one or two co, you know, take one or two co-invest opportunities per fund and really just try to get into those winners, or is there more of a, you know, we just want broad direct exposure?

" And, you know, I'm curious what what you've seen or or what you're seeing broadly. Yeah, I think it's both. Our preference is that you do broad exposure mainly because the odds of of doing one co-invest and having that be yeah the right company are just extremely low.

And so, um, we, you know, we don't, we don't do a ton of SPVS, but the messaging is always like, please don't overshoot on any single deal because, um, if you're doing a series B SPV, we all know the amount of risk event, the series B that and especially today, like that's even more pronounced.

And so, um, yeah, I think series B risk is more pronounced now.

I think if you look at the the amount of competition, the amount of change happening on a daily basis in in just technology advancements and then the pricing and size of these rounds, I would think if we look back two or three years from now, we'll we'll say the series B risk in 2025 was probably on par with the 2021 vintage would be my would be my guess.

call it a bubble. It's crazy. I mean, I I just see this having probably 60 plus different angel investments. Now, I'll I'll get an update and see that a company's getting a markup and I'm like, I don't really think like they're there yet. They've made progress. Yeah.

Are they any closer to being a a business that truly has the used to be like preipo?

It used to be like this is an extremely solid business like within you know within sightelines of like true profitability and like I think we need I think we need a new stock exchange probably in Texas just called dogs which is like venture back ventureback companies that like have a little bit of revenue still got a lot of work to do.

Let's just get them out in the public market. Let's let them trade at like two three million bucks. Clear the prep stack and then maybe they 100x, right? Maybe they figure it out, right?

Uh so anyways, the well what was that what was that spa uh that that holds there's that one there's that one destiny right now I don't know I don't know if you've seen this yeah the inverse destiny of the dogs the companies that are underperforming private markets you wrap all those into a spack yeah investors can kind of sell to dogs take a little bit of a loss and you're like maybe there's one banger in here it's actually there's something there there's already businesses that do that that buy underperforming But yeah, this this this uh index Destiny, I don't know if you've seen it.

They hold a bunch of basically SP like they have like some exposure to SpaceX, but they traded like 10 times the underlying asset value. Yeah, it's like I mean people want access to this to this stock, so they're going for it. Destiny Tech 100. Anyway, um last question I have.

What's your updated thinking on incubations? I know uh there's some stuff in the works that you probably can't announce, but um is that uh is part of bringing on a GP to to free you up to to kind of be able to spend a bit more time on on internal stuff? That's been a a part of our stretch we want to expand on.

I think we're doing one incubation which I'd love to come on the show in like three months to announce and it's um partnering with a really big piece of IP like a a globally known piece of IP to build an application for that property.

And so I'm I'm I'm really excited about this because obviously building payroll software. It's Mickey Mouse payroll software for sure. It's honestly good execution and payroll you're at least a hundred million dollar company. And so you slap some Mickey Mouse IP on that. That's actually kind of genius.

It's Mickey Mouse. Just hyper commod like you go after these markets that are just hyper commoditized and just say like, "Yeah, we're partnering with with Disney. It's just going to be Disney themed. " Oh, you don't want the BatmanVPN? Why don't you want the Batman VPN?

You don't want the Dark Knight protecting you while you're browsing online. Uh, you're going to go with what? Nord. What's Nord? Honestly, why not Jeff? This is your new This is your new playbook. You live in LA. Let's let's go on a road show. Let's build some enterprise SAS meets legacy IP.

Buying it for pennies on the dollar. You give him like 5% of the company. Yeah. Good to go. I do know. I do know what Jeff What if Tony Stark built your ERP? Iron Man ERP. Stark ERP. Stark Enterprise ERP. This is the future. Jeff could actually run this playbook. Uh, right.

Anyways, yeah, definitely definitely come back on. Uh I I I think it's gonna really break the internet when you launch it. So, I'm excited to see it. All right. Thanks, guys. Congrats again to the whole team. Cheers. Next up, we got Cliff Whitesman coming in from Speechify.

Uh great entrepreneur, great founder, good friend of mine. Are we talking about business or lifting? We're talking about lifting mostly. So, he he's been on an absolute tear in the gym. He's super jacked. Uh