Deal of the Week
Andreessen Horowitz (a16z) likes to do things differently, and they have genuinely transformed venture capital in many ways. Their latest effort is Horowitz Andreessen Academy (H16N?!), backed by an initial $35M investment. It is a two-year alternative to traditional college for students aged 16 to 22, led by Berkeley alum Gagan Biyani, with founding investors including Silicon Valley luminaries like Sam Altman.
The focus is on an AI-native education. It will be interesting to see if this takes off. And, somewhat conveniently, it could also create a pretty strong talent pipeline for a16z portfolio companies.
Any new take on education tends to get people up in arms, so let’s see if this one can break through. I remember when the Thiel Fellowship first launched. paying people $100K (now $250K) to not go to university. There was a huge amount of criticism. But it now objectively looks pretty successful, with a unicorn hit rate of close to 13%.
The Sequoia Premium
Interesting presentation from Pat Grady, a partner at Sequoia (and one of the best investors in the business), on the state of AI. A couple of things stood out.
First, Jev, the new decision-based LLM, apparently took about 3 days to get to $100M. Wow.
But Pat also touched on something that seems to be becoming increasingly prevalent in venture: the two-tranche round.
The basic structure is that one investor. Maybe Sequoia or another top-tier fund will invest at a relatively low valuation, or what Pat calls the “company builder partner” tranche (some enviously call this the “juice” tranche). Then another fund comes in shortly afterwards at a dramatically higher valuation in the same round, but in a different tranche. Pat charitably calls this second investor the “capital partner.” Others have been slightly less charitable and call it the “cuck tranche.”
Pat said that across the last 7 deals where this happened, the average Sequoia valuation was $110M. The average valuation for the capital partner?
$3.4B. This is wild. ~34x higher!
I imagine the investment committee goes something like this:
Investment Associate: Hi team, I have this amazing deal. Pre-revenue, but some top AI guys. Our entry price would be $3.4B, but Sequoia is leading the round. The minimum investment is $50M.
Senior Partner: Wow, that seems expensive. But those Sequoia guys definitely know what they are doing, so if we are investing alongside them it probably makes sense.
Investment Associate: Yes. Although technically we are in the second tranche (said very quietly). But we will be announced as co-leading the round with Sequoia.
Senior Partner: Any additional DD we should do?
Investment Associate: Have you heard of the power law? And Sequoia? Jevons Paradox?
Senior Partner: Good point. Let’s cut the check. Maybe see if we can increase our allocation to $100M. We don’t want to miss this one.
(As imagined by your author, but perhaps not that far from reality.)
I am sure some of these investments will work out extremely well. Some will almost certainly work out very well for Sequoia. However the pricing dynamic does feel a little out of whack. Although great marketing for Sequoia to put out as they can now go to founders and tell them, take our money at the lower valuation and then ramp it up.
There are probably a couple of huge outliers skewing the numbers, but even so, this structure seems to be appearing more and more frequently in the market.
And to be clear, I don’t blame the founders. They are responding rationally to the capital available to them. If someone wants to invest at a dramatically higher valuation a few weeks later, why wouldn’t you take it?
Still, the divergence between the price paid by the “lead” investor and the price paid by the investor being announced alongside them is pretty extraordinary.
If anyone has one of these rounds and wants to sneak me in, let me know.
Juice tranche only, please. 🧃
Databricks Cal Field Partnership
Congratulations to Databricks for announcing a deal with Berkeley to name the Football Field and they paid for this in equity. Amazing partnership for all and great to see Ali Ghodsi (one of the founders and CEOs) acknowledging the impact Berkeley had on Databricks.
Fun fact the last sponsor of the field was FTX that lasted just 450 days. Still fascinating how good on an investor Sam Bankman-Fried was and the companies keep getting better.
Hot Neo Lab (late) Summer
Also World Labs. Co-founded by Berkeley alum Ben Mildenhall, just got bought by AMD for $8.2B. World Labs is a neo lab building a type of AI model known as a world model. I would be surprised if they were at $100M in revenue (or really any meaningful revenue), so on any traditional revenue multiple this is a huge purchase price. After the Nvidia Poolside acquisition (see our post here), neo labs are having a moment.
In my head, I always thought these neo labs were a tough trade. You enter at a crazy high valuation (note: the first round of World Labs was $300M so not that crazy compared to latest deals) with limited revenue or traction. However, I don’t think I had really internalised the acquirer side of the equation. Four years ago, Nvidia was worth $320B and AMD $111B. Now they are worth $5.6T and $1T respectively. These companies have become absolutely gigantic.
That changes the exit math. For AMD to pay $8.2B for World Labs is less than 1% of its current market cap. In dilution terms, it is basically a nothing burger. These acquirers are now so large that they can spend billions on what are effectively still option/talent bets. Giving neo labs a very different exit path than I had previously appreciated.
If this maths is correct the co-founders will take home a cool $3.4B. Not bad for two years of work.
Congrats to Ben and team!
Berkeley Ecosystem Continues to Win
Congrats to Berkeley founded Higgsfield AI who just hit $1B run rate in 18 months. Alex Mashrabov.
Quick Takes:
Maybe it’s because I’m a history nerd, but Mark Zuckerberg presented at Meta Connect and his Muse agent was called Agrippa — and wore a toga. Who is Agrippa? Marcus Agrippa was a trusted aide to Caesar Augustus, the first Roman emperor and adopted son of Julius Caesar (there’s a great book recently out about Agrippa by Robert Harris). This gives you a pretty good insight into how Mark views himself and Meta’s position in the world. Meta is the new Roman Empire?!
Nice post on different eras of SF cultures.
Chancellor Rich Lyons on the Bart
Intelligence gets cheaper and cheaper and this is happening fast
Colorized photo of Telegraph Hill in San Francisco. (1900). Is that the Sather Tower in the background!? Although ground breaking was in 1912 so maybe not…
Summary by the #️⃣ & 💰:
4 Berkeley-founded companies funded
$370M of capital raised from the 21st September to 27th September
💡 Got any ideas or feedback on how to improve this weekly digest? Just hit reply.
IPOs
🧬 Iambic Therapeutics. $100M IPO filing 🇺🇸 AI-powered drug discovery. 💰IPO
🐻 Thomas Miller, Co-Founder & CEO. UC Berkeley Postdoc. Article
Closed Rounds
🧠 Precision Neuroscience. $250.0M Series D 🇺🇸 Minimally invasive brain-computer interface. 💰 Pershing Square, B Capital.
🐻 Mark Hettick, Co-Founder & VP of Engineering. PhD & BS EECS. Article
🛰️ Hubble Network. $200.0M Series C 🇺🇸 Satellite-powered Bluetooth network. 💰Smith Point Capital, Seraphim Space, Carthona Capital.
🎓 Horowitz Andreessen Academy. $42.0M Early Stage 🇺🇸 AI-native technology academy. 💰 Andreessen Horowitz, Adam D'Angelo, Tobi Lütke.
🐻 Gagan Biyani, Founder & CEO. BA Economics. Article
🔦 PicoJool. $27.5M Series A 🇺🇸 Optical connectivity for AI. 💰 Socratic Partners, Hudson River Trading
Date Built By Berkeley Started | Companies Funded | Total Raised ($M) |
7/8/24 | 868 | 236,782 |
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