Gradient Ventures GP Darian Shirazi: 'I'm bullish on Salesforce puts' — why SaaS is in jeopardy and where AI-era seed investing is heading

lawyers hadn't fire sold, he's up 165x on Enthropic, 72x 27x on Salana, 8x on Robin Hood, Genesis Digital. Anyway, uh he's taking a victory lap. We have our next guest, Darien from Gradient Ventures in the waiting room. Welcome to the show. How are you doing?

What's going on?

Hey, how's it going? Good to see you, Jordy. It's been a while.

Good to see you. It's been a long time.

Good to see you, too. Uh,

where are you calling in from?

Yeah,

I'm in our office in Jackson Square. Um, we just, uh, moved in here about 8 months ago and we're right next to Thrive and Obvious and IVP. It's like a, you know, a VC community now. We can almost live in and we could live here even. There's apartments upstairs, you know. So,

it's amazing. Uh I since it's the first time on the show, I'd love to get some of your backstory, some of your journey to venture. Uh just a little bit of like how you wound up in this particular seat in Jackson.

Sure. Yeah. I mean I I I grew up in Silicon Valley. Um my father came here in the 70s. He worked in tech as well.

Wait, what was he doing in the 70s? Like what was tech like in the 70s?

Semiconductors.

Semiconductor.

The true Silicon Valley. Yeah. True Silicon Valley where we actually made Yeah, we actually made stuff. He was industrializing. Now we're reindustrializing. But so he was working in semis. Okay.

Yeah. And then he sort of fasttracked and like coached me through everything on you know what startups were, venture financings, all those kinds of things. He had he was actually fortunate because in business school his his closest friends were Venode Kosla and Bob Kaggel. Um probably everybody knows Venode but Bob was one of the founders of Benchmark. And so he had been steeped in you know all these different kinds of communities that were very very venture focused and startup focused and the industry has evolved a lot. Um then I was fortunate because I actually got an introduction to Sean Parker when I was 17 uh through my cousin Hadi Partvi um who I think you've had his brother on the show and he introduced me and and I I visited the Facebook office and met Mark and Mark was like oh you should come work here. I think they were struggling to hire people at the time because I wasn't exactly the best engineer. But, you know, it was uh it was a fun time. No, we built a lot of stuff. We launched newsfeed photos, etc. And then um I really is the story is the is the apocryphal potentially apocryphal story of like everything was a single file and you would yell, "Hey, I'm I'm changing the code." Is that Do you think that story is real at all? Oh, I mean like we when we wanted to push to the web tier, we would just arsync the latest folder on Dustin's laptop. Wow.

Like that was the push process. And um and then we we introduced subversion. Actually, there was a guy that I worked with, Aaron Sig, who was brilliant, who who we we um we put together like subversion, checked in files in and out. We created templating. I worked on that project, too. But when we got there, there was like tons of SQL interspersed with HTML. It was it was hilarious. But you know that that is what startups are about is it's super messy like and that's what I learned there. Although I also learned that you know uh only one in a billion are are as anomalistic as Facebook. You know not every startup can go that way. But also hilariously

did that warp your your kind of like where I don't I don't I don't know the

Did you come out and you were like everything I turn everything I touch is turns into gold and then it's like okay normal VC world like there's going to be failures.

I don't know. I feel like I feel like I'll talk with with founders sometime and it's their first company and it's going so well and they have they don't even know that that like how anomalous it is and sometimes I'll just be like you you have something really really special here and like and and stay locked in because the odds of this happening

you know another time in this way are very low.

Oh totally. I mean I I ended up starting an enterprise software company which was much more difficult. Um I remember meeting Aaron Levy when he was starting Box. He was in a bunk bed with Dylan in a house in Berkeley and they asked me if I'd invest and I thought they were crazy and I didn't and that was a huge mistake. So, you know, but then there there there are positive stories like I met most of the founders of Palunteer and invested personally early in Palunteer and that was ended up being an incredible company or you know uh you know when Luke Nosk was talking about SpaceX like almost a decade ago and I was like you're crazy we're going to launch rockets to the moon like we're not going to do that. And ultimately, you you uh you really just have to surround yourself with really smart people. Fortunately, I've always been surrounded by people much smarter than myself. And so, I think that's why I'm in this chair. Um ended up being a founder, invested in a lot of great companies like first investor in Caseex, which got bought by Lexus Nexus, one of the first investors in Lora, which is now on a tear. And then at Gradient, we've, you know, seated Lambda Labs. My partner did that deal. Um, you know, I joined here about 8 years ago with the goal of investing in AI mainly because I didn't get crypto and I was like, I don't understand why crypto's interesting. And so I joined the nerds at the AI fund that was

Yeah. during the 2021 era like you guys, you know, you were the the Google's early stage AI fund, but you were still like as a fund overall. Some of the partners were like branching out and would do different stuff obviously, but but you guys now get the benefit of like we were doing all these companies like you know almost a decade ago or a decade ago and now they're they're

what was the enterprise software company that you built and and like coming out of consumer social, why enterprise?

Yeah, I mean I was always obsessed with data. Okay. Like I I actually thought that the edge that Facebook had was how clean the data was on everyone's profiles. Like you people would just give us their birthday like what classes they were in like all this information and it was very well organized and this is before LLMs where you know you couldn't organize and massage that data very easily. Now you can things can be amorphous and it's easy to process but before you couldn't. And so you know I was very interested in you know small business data. I thought that we could compete with Dun in Bradstreet. It was a company called Radius that we scaled to pretty significant ARR and we sold it. Um it was a huge it was a long journey. It was full of crisis, full of learning and actually that kind of helped me with a with becoming a VC mainly because I I really empathize with like how founders are going through a terrible time. I mean running a company is not fun regardless of whether it's going well or not. like the best companies in the world. It may look like everything's going well, but the mess is just masked by growth. It's like that's the difference between a good company and like not a good company. And and in general, like founders I really have a lot of respect for because I decided not to sign up to found another company after my own. I decided to go go to the dark side and be a VC, which sometimes I say is a copout. But, you know, being a founder is really what it's is really the most difficult job. And if you can sign up for it multiple times, I mean, that's incredible. That's a sign of like just incredible resilience

or a masochist.

What are you I'm so curious.

I'm so curious what you're excited about investing today. And I know it's probably like comes down to like just backing great teams cuz that that typically works well. But we're in such an interesting time right now where uh it feels like all software all enterprise software is like converging on the same kinds of simple use you know use cases. this collapse interface to

get agents to do things like everything is everything is converging

just the text

and you know you guys were you know you did Neo you did Lambda you did a Neo cloud eight years ago that was like the best time to be investing in a Neo cloud

uh and then now that it just feels like you know that you have the SAS apocalypse in the public market and then a lot of early stage companies that are getting investment are still SAS like so I'm curious curious like do you still believe do you still believe in SAS? Like what kinds of opportunities are you most excited? Um

I I believe in shorting SAS if I can like that's that's probably what I believe in right now. Uh like I I generally think that software is bullish on that's a good that's a good laugh. You're

bullish on puts. Yeah.

Yeah. I'm bullish on Salesforce puts is what I'm saying. Um but you know I think I think that the reality is that we are doing a lot of soul searching like a lot of seed funds. You know, there are a lot of things that are still very interesting and investable. Like, we just invested in a robotics company that I'm super excited about that has a hardware component. I wouldn't touch hardware with a 10 foot pole 5 years ago. Now, I'm very interested in it. Um, you know, we've invested in, you know, tools that help you manage multiple coding agents. Uh, we've invested in, you know, video editing solutions. We're investing in an AI hedge fund. Like, we are investing in a lot of really interesting things that are outside of the software as a service scope. Yeah. And the real reason is just that, you know, if you want to build anything, you can in a few hours. Like it's just so easy to and I think that is a major change, not just for software companies, but generally for like the bottom 40% of work that you don't that you sit behind a desk for, maybe the bottom 60%. And so, um, you know, we're spending a lot of time thinking about ways in which we can, you know, think about new areas. Now we have the benefit of having done this before cuz when we launched in 2017 right after the transformer paper came out there were no AI companies like there were none and like open AI was a nonprofit entropic didn't exist you know like deep mind had you know was still like an a small division within Google like you know now you know so we had we had to go and hunt and find companies like lambda like radi like streamlit like writer you know like a lot of these businesses and and so we're we're getting back on to what we had done before which is scouring and doing a lot of outbound going and meeting founders getting to know founders and and really slowing our deployment pace until it's very clear where the value is going to acrew at the seed stage and that I think is the smart thing to do right now. I think that software in general is really in jeopardy and we've made some software investments but we believe they have strong moes because they have network effects or they have data network effects but in general like 80% of software companies are really in trouble.

Yeah. Uh talk about the pipeline for founders and how it might be changing. Uh I'm sure you've been tracking like there's this crazy falloff in the number of computer science grads and that used to be just fertile ground for it used to be general casting right central uh you know central casting for you know VC backfounder was like Stanford CS and I don't know about Stanford specifically but it seems like we're getting a lot less uh or or fewer uh computer science grads and I'm wondering if you envision a future where you'll be pulling more physicists and mathematicians or theologians or philosophers into entrepreneurial stuff. I mean, Mark Zuckerberg did not study computer science as his primary major, right? Wasn't he a philosophy major, I think, or something?

Psych major.

Yeah. Psych major. So, like like there's plenty of examples that

honestly makes a lot of sense for social media.

Brilliant. Brilliant. Um, but but I mean, do do you see there being like a pipeline crisis? Is the contrarian move now to study computer science at a time when coding jobs are going away? like walk me through how you're processing this idea that you know our best and brightest aren't going to you know just learn to code and become computer scientists you know at the same rate. I mean absolutely you talk to any scaleup or you know tech company today the mid-level engineers are managing coding agents in English they're not even coding they're managing like hundreds or many dozens of coding agents at once um I think this at the senior level the engineers are probably okay because we do need more code reviews and evaluations because a lot of these coding coding agents are spitting out bad code at at volume and that will that'll get improved over time but I think it is a challenge challenge. Um, but I do think for entry level positions, we've told a whole generation, including my generation that you should go to college when like I don't think that that's necessary, right? Like college was originally formed, especially liberal arts, was formed for the process of being creative or thinking or philosophy or things like that or writing. You know, we we've told people that they can go to college and get a good job at a tech company, all those kinds of things. I think that that's kind of in jeopardy currently. My hope is that we focus more on like real trades, right? Like welding and plumbing and a lot of the or you know ceramics and pottery like these are going to be like more respected work lines of work in the future as knowledge work just gets completely replaced by AI. Um I don't have a great answer for you but I generally do worry about this because I don't know if colleges should be teaching computer science to everybody. That being said, I think everyone should take a course to understand how AI works, how these LMS actually work. Um, I think that everyone should do their best to read the transformer paper, you know, everyone in the world because it is kind of the Magna Carta of this generation. Um, but you know, I do worry about this. I worry about, you know, workforce displacement and how that transition works and if our government is even capable of helping help helping people transition from one phase to another or one era to another.

Yeah. I'm just wondering like is the next great like pottery entrepreneur going to go through pottery trade school or like be a business major and be able to like marshall a billion dollars of capital to like build the pottery empire of the future like like do you do you go deals guy route and then tack on the trade or do you pull from the trade school? Maybe it's a moot point because you'll know it when you see it and you meet the person. But it's a fascinating world to imagine because for the longest time it was like oh you want to do something in pottery? Well, it's gonna be a SAS company and you're gonna have to know computer science. And now it's a little bit different, right? I'm like somewhat right here.

Do you think

I think actually Oh, go ahead. Go ahead, Jordy.

No, I was gonna take the conversation another way. So, finish finish your

Oh, I was just going to say that like imagine being someone that's incredibly good at like some form of ceramics. You would create your product and then AI would market it,

take photos of it, would, you know, design it, buy ads for it, do the back office, and do the finance for it. That's actually the future that I think we're going to end up in. Now, ceramics is kind of a weird example, but you know what I mean? Like a car mechanic, like an antique car mechanic or or a welder. Those are examples of like how AI would help those people. So, I think we'll have many many more entrepreneurs that are not building unicorns. They're going to be building, you know, smaller lifestyle businesses.

Yeah, I completely agree. It feels a lot like uh what happened when everyone got an iPhone and a YouTube account. There were a lot more creators. There's like this flur or Shopify, same thing. like you're democratizing these like longtail businesses that like previously it would be like oh you want to like during the com boom there was like oh you want to you want to sell t-shirts online here's a $10 million check so you can buy some servers and rack them and and just have a website

yeah well yeah Teespring was like sort of a meta platform a little bit but yeah I mean it's a good example of like a lot of a lot of expensive infrastructure for doing something pretty basic sorry uh what's next

uh I I was curious do you think you'll write more checks this year than last year or vice versa.

Um I think

like have you gotten to have you reached a point of frustration around valuations?

You like you've been through you've been you've been through you know

cycles enough to to kind of know when things are getting probably overheated.

Yeah. I mean we don't feel as though the valuations are out of control at the pre and seed stage. uh the where they are out of control are probably in the later stage you know like series A's series B's even really late stage are trading at incredible multiples I mean you know I think that we did this robotics company at like sub50 we've done you know this other uh multi-coding agent company at sub50 as well like we're pretty focused on keeping valuations below 50 um and I think that capital constrained companies are the ones that end up being very successful because they sort of figure out how to build better products and become more efficient. It's when you overfund companies like some of these new neolabs that are raising billions of dollars, people like start making bad decisions when they have when they're overfunded. And so, um, I think that where we play, which is not funding the next contender to Anthropic or OpenAI, um, the valuations are pretty favorable.

Yeah. Uh, Jordy, anything else?

Uh, thoughts on solo GPS today? Is it overrated to be a solo GP?

Yeah. And should there be a trade school for becoming a GP? Should we should we take millions of displacement? We need to create millions to millions of venture capitalist.

Everyone who's doing you know we keep coming back to the pottery example. If you are a top level ceramicist which is the actual term it is incredibly lucrative, incredibly prestigious. Like it is it is

I didn't know you had this pottery

ceramicists are real like it is an art form and it is incredibly high skill ceiling. uh similar to

not as high of a skill ceiling as venture capital.

Yeah.

Not as high as an art form.

Yes. Yes, it is an art form, but yes. Uh thoughts on solo GPS.

Yeah. I mean, I've I met one this morning. I've invested in a bunch of them. I I think that the sub $50 million solo GP is a great business. If you can raise the money, you can get allocation in rounds. You don't have to compete. It's when you get above 50 million that it's really challenging because you're going to be ownership constrained. You're competing against someone like us. and you know we have we have we write a larger check. Um I think also another thing is that the solar GPS are really effective at feeding companies to the multi-stages and to you know pure play seed funds like us. Um and so I think it's actually a fantastic place to be. Um but it's just going to be really rare for the solo GPS to break out fund size well beyond that. So you have to be com comfortable with being you know a company a fund of one with no help and you have to be because your fee structure is not going to be able to support much more than that. and I am bullish on it and especially with these diligence companies without you back office without um and so I'm in in general like pretty pretty excited about them they have struggled to raise more recently right like LPs are not deploying capital at the pace that they were when solo GPS were breaking out in 2021 2022 um and so I think that you're going to see a lot of them probably go join funds and a lot of the really good ones with good returns, be able to raise their next fund. Um, and

do you think do you think more of them should be thinking like, okay, I'm going to do a $30 million fund, a $30 million fund, and then a $30 million fund because it feels like a lot tend to be like, okay, I'm going to do the $25 million fund and then I instantly want to ramp up as much as possible and then suddenly have a different strategy. Suddenly you're actually competing headto head where it feels like if you do want to break out and become a a brand and a platform over time if you have like three really high quality funds back to back but in deploying them on a shorter time horizon maybe could be a better route. Yes, faster deployment cycles, smaller fund um because there there just sort of are liquidity constraints across LPS, but a lot of the fund to funds I've noticed are now focused on sub $75 million funds. And so there is a a market for that. Excuse me. And so I I would generally focus on keeping your fund size consistently small at 30 million, maybe deploy over a shorter time horizon. And then you can also get LPs to, you know, pre-commit to multiple funds, which is something I've seen people do is that, hey, I'm going to do this every 18 months. Do you want to commit, you know, some amount every 18 months? And and that actually ends up being a better story for people than raising one bigger fund. Um, and and so I I I generally do think that the faster that the the smaller fund on a faster cycle will yield better results. Um, because you also have to put a lot of companies in the portfolio. Like if you run portfolio modeling, which we do quite often here at our fund size, it's usually 40 to 50 companies per fund in our Monte Carlo simulation that yields a 4 to 5x fund. In the smaller funds, it's really like 80 to 120. And so you have to be writing a lot of checks and get to conviction quickly and be willing to own less. And then you can run SPVS into the into the follow on rounds, which I think has been really successful for a lot of people. But the smaller the fund, the more work in my mind because you have to constantly be looking at deals every week. You have to be putting capital out every week into different companies in order to make the, you know, math work out.

Yeah. Uh well, tell us about the latest fund at Gradient. What's the structure? How much did you raise? I want to hit the gong.

Yeah, we hit we raised 220 million. Um,

I think we already talked about deployment and how and and

we it's also possible we already hit the Gong for you.

Well, just you know, whenever whenever it got announced, but um uh great great to see you. Thanks for coming on. Uh