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<ul class="summary-list"><li><keyword id="13392007" type="UNKNOWN" weightage="60" keywordseo="ben-narasin" source="Orion">Ben Narasin</keyword> is the founder and general partner at Tenacity Venture Capital.</li><li>He says lots of highs and lows — and being kept in the dark — are part of the nature of <keyword id="13392008" type="UNKNOWN" weightage="60" keywordseo="early-stage-investing" source="Orion">early stage investing</keyword>.</li></ul>What's the real story behind those acquisitions where "deal terms were not disclosed?" Deals with no announced value are the Schrödinger's cat of the early stage investing world — you don't know whether you've made or lost money.When the terms aren't disclosed, and the founder didn't bother to notify you the deal was coming — which happens more than I'd like when you were a small check in a long ago seed round — investors are just as likely to discover they lost all their money as to find they made a profit.While there are legitimate reasons not to announce deal terms, the most common one is that they aren't interesting enough to disclose.Last year, within a four-week timeframe, I had four companies in my portfolio announce transactions, and in only one case was I given a heads up that it was coming — and even then, I wasn't told the terms.<h2>So, then one goes into financial purgatory, waiting to find out whether you've made or lost money.</h2>It's safest to assume you've lost money until you're proven otherwise and gain a happy surprise, but of course I reach out to founders to ask.Last October, one deal had a 10x outcome. In another, I got my money back. Another was a modest loss. And I'm still waiting to learn about the fourth. So overall, there were more positive outcomes than negative.In one case, I had to follow up twice just to find out anything. When the first request got no response, I started to worry it was a talent acquisition with nothing for investors. I sent a note saying that (because maybe it would force a response), only to have my founder tell me to chill out. I felt bad that I pressured my founder instead of celebrating his victory, but it's hard to be in the dark and wondering. I know founders have a lot going on when they're in liquidity mode, but I also know there are a fair number of VCs that can help and sometimes even optimize outcomes.<h2>I've seen quite a few deals and I know most of the tricks the buyers will deploy.</h2>That's the other part of the equation. The investor gets a DocuSign and, sometimes, the supporting documents (the last one I got was 255 pages). There are sometimes assumptions of future liabilities and other things VCs sometimes agree to, that I know from experience private equity guys won't agree to, and this makes it hard. And when the whole outcome is pennies on the dollar or even a refund on a small check, having to spend lawyer fees to figure it out isn't palatable.If the shareholder consent level (the percentage of shareholders that need to approve the deal for it to close) isn't too high, one can often just abstain and be dragged along, in theory gaining dissenters rights or some protection to protest later in an impact scenario. (I'm not a lawyer — ask one if you want to know if this is true. It's an opinion, not a fact.)So when you see a "deal terms were not announced" deal, know it can be anywhere on the spectrum. I have lost all my money in some, and in one case made 60x on an almost $1 billion outcome — though the latter eventually got disclosed, the former never did.

I'm a VC whose investments have made my firm almost $1 billion. Here's what I look for when evaluating a startup.

Welcome to <keyword id="10911469" type="UNKNOWN" weightage="60" keywordseo="vc-view">VC View</keyword>: a column by venture capitalist Ben Narasin. <ul class="summary-list"><li>I'm often asked by founders if they should seek venture funding. So I devised the "Ben Rule."</li><li>It is: if the dream outcome isn't equal to 50% of the fund, you are pitching the wrong VC.</li><li>And dire consequences could happen if that VC says yes.</li></ul>It likely isn't obvious to the founder eager to raise capital from a VC, particularly when that journey is hard, but the founder and the VC are in the same game: the frog kissing game. A founder will kiss many VC frogs looking for their prince/princess, but a VC will do the same thing in their quest to invest. I routinely see 1,000 or more pitches in a year but when I was a seed investor I would only fund 7-10 companies while as a traditional early-stage VC working for a major firm, the number is more like one, and in some years none.There just aren't that many opportunities that meet all the criteria, particularly ones that can generate big enough returns to impact a $3.6 billion fund.To unpack that a little, let's look at this way: I am often asked by founders if they should seek venture funding and from whom, and I so frequently have to explain that I devised a rule. Let's call it the "Ben Rule."The Ben Rule is: if 20 percent of your ultimate dream outcome does not equal at least 50 percent of the size of fund you are pitching then you shouldn't be pitching them.I say 20 percent because that's pretty typical ownership for an early-stage VC and 50 percent because the outcome needs to be material to the VC. Remember, VCs work for their own investors, their limited partners (LPs). So a VC that does one deal a year and caps out at say eight board seats, meaning the number of companies an investor is hands-on working with, that VC needs to believe that every shot on goal has a chance of delivering big returns for the fund's LPs.I would even go so far to say that, for the very best VCs, they need to believe there is a chance, however small, that the deal could return the entire fund. By that I mean, that they believe the tiny startup will grow in value so much that the 20% stake will be worth as much as the whole multi-million or multi-billion fund.A 100% fund-return result is the ultimate investment for the VC. And it gets harder as the firm's funds grow larger. But it remains the goal of the best and the brightest VCs, whether their fund is a few million in size or a few billion.<div type="image" title="NEA, Ben Narasin" height="1000" width="2000" msid="81660791" hostid="261"></div><h2>Kiss the zealots. Goodbye to the naysayers.</h2>To founders in the frog game, I caution that their job is not to convert the naysayers, but to find the zealots.An investor isn't going to get talked into funding you. They need to have an intrinsic excitement about what you are telling them. Crossing a frog off the list is a very important skill, just like crossing a startup off the list is for the VC. And that's how VC and founders are the same.But in one very important way we are very different. For founders, you have one business, one shot, one life to give so to speak, but I, as an investor, have a portfolio.The harsh reality is that I have an army of founders fighting for the big win, as described above. I succeed even if not all my founders do, but if only one reaches that lofty "return the fund" goal.I only need one of my kissed-frog princes to become king. Clearly I want them all to win, but the reality is that, like a military commandeer seeking to take a hill, I know some of my soldiers won't come home, but I still have to take that hill to win my own war.So when a founder considers taking venture money, if that reality offers itself, this is something they need to understand. While I haven't seen it in my own firm I have seen more than one instance where a founder had the chance at a small but meaningful outcome, a few million, a few tens of millions or even more than $100 million but their VC board member vetoed the deal.That offer, while life changing for the founder, wasn't big enough to take the VC's hill. And even worse the very desire of those founders to take the "small" outcome may put the board in a position of needing to replace them is they believe that the business can reach the heights the VCs need but no longer believe the founder can lead to there.VC money is, and should be, a long-term marriage with a one way pre-nup. And the founder isn't the one that controls the terms of a divorce. So be very careful what you seek and be sure you know the terms under which you take it. Ben Narasin a Venture Partner at New Enterprise Associates (NEA) as well as a prolific entrepreneur. His career spans 25 years as an entrepreneur and 10 years as an early-stage investor. His knack for spotting emerging trends led him to make seed investments in companies like Dropcam, Lending Club, TellApart, Kabbage and Zenefits. He founded several consumer companies before launching his investing career, including Fashionmall.com, one of the first e-commerce companies, which he launched in 1993 and led to a successful IPO in 1999. Narasin frequently writes and speaks about technology and investing, as well as food and wine, a lifelong passion.

Picking the wrong VC can get a founder fired. The 'Ben Rule' helps founders find the right one.

<ul class="summary-list"><li>The tech industry is anticipating an upswing thanks to Trump's election this week.</li><li>VCs expect possible deregulation to boost innovation, with Musk potentially influencing government policies.</li></ul>Some venture capitalists <a target="_blank" class="" href="https://www.businessinsider.com/silicon-valley-trump-return-startups-venture-capital-2024-11">expect US President Donald Trump</a> to dial back regulation, potentially making it easier to develop new technologies and do business in Silicon Valley. Many of these hopes are pinned on Elon Musk's involvement in the new administration."The most exciting thing of all will be putting Elon in charge of government efficiency," Ben Narasin, founder and general partner of Tenacity Venture Capital, told BI of the election outcome. "He's going to take a chainsaw through calcified butter, and it's going to be awesome to attack the bloat and overreach that we've had in the government."Trump is <a target="_blank" class="" href="https://www.businessinsider.com/elon-musk-could-be-donald-trump-advisor-wsj-reports-2024-5">reportedly considering Musk</a> for White House roles, including ones that would audit various federal programs and organizations.Musk, in turn, has proposed creating a "Department of Government Efficiency" — cheekily nicknamed DOGE, <a target="_blank" class="" href="https://www.businessinsider.com/history-elon-musk-love-affair-dogecoin-2022-7">a nod to the cryptocurrency Dogecoin</a> — that he said would remove dealmaking regulations that have slowed M&amp;A in the tech sector in recent years.While many in Silicon Valley dislike Trump, many VCs and startup founders crave more freedom to pursue riskier new technologies unburdened by regulation. In short, tech is stoked about this."Trump-Vance ticket is the first unabashedly pro-tech presidency in our Nation's history," said Augustus Doricko, CEO and founder of cloud seeding startup Rainmaker. He expects an onslaught of tech innovation during the Trump administration.In conversations with more than a dozen VCs and Silicon Valley executives following the election, many have echoed this sentiment — including those who supported Kamala Harris in the election."With a major push to remove unnecessary red tape and over-regulation in key areas, we could really have a century of crazy building, innovation, and acceleration," Aaron Levie, the CEO of cloud company Box and a Harris supporter, <a target="_blank" class="" href="https://twitter.com/levie/status/1854237056287060266">posted on X Wednesday. </a>"Excited for Elon's efforts here."Mark Pincus, an early Facebook investor and the founder of Zynga, responded on X, "Effective accelerationism! E-acc," referring to the recent Silicon Valley movement that wants <a target="_blank" class="" href="https://www.businessinsider.com/effective-accelerationism-humans-replaced-by-ai-2023-12">technological advancements in AI</a> to move as fast as possible, without any guardrails.<h2 id="04af9d99-2642-43c3-875c-92cb63b01ca9">Regulation has held Silicon Valley back in recent years</h2>VCs during Biden's presidency have complained about how tough it's been to get deals done. The outgoing administration was an antitrust enforcer and put many tech mergers and acquisitions on hold that it deemed anti-competitive. This is particularly galling for VCs because they rely on selling startups in M&amp;A deals for many of their exits and returns.Limits on tech M&amp;A have "caused the rate of venture capital return of distributed proceeds to fall drastically, making new capital formation near impossible," said Louis Lehot, a top tech lawyer at law firm Foley &amp; Lardner. Silicon Valley is looking for a relaxation in the government's stance here "to enable exits and new capital formation, which is the cycle of innovation," he added.For example, regulatory pressure had <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-07-23/google-s-aborted-deals-for-wiz-hubspot-show-antitrust-s-shadow-over-tech">dampened deal-making at Google</a>, with the tech giant abandoning two potential purchases this year, including cybersecurity startup Wiz, which would have been one of the tech giant's biggest-ever acquisitions.The US also opened antitrust investigations into <a target="_blank" href="https://www.businessinsider.com/microsoft-acquihire-deal-inflection-ai-antitrust-probe-us-regulators-competition-2024-6">Microsoft</a> and <a target="_blank" href="https://www.businessinsider.com/elizabeth-warren-backs-justice-department-nvidia-antitrust-investigation-2024-9">Nvidia</a> earlier this year over their dominance in the hot AI space. The Federal Trade Commission is probing Microsoft's aqui-hire of <a target="_blank" href="https://www.businessinsider.com/microsoft-hired-inflection-team-amid-board-concerns-about-openai-2024-3">Inflection AI,</a> and the Department of Justice is investigating Nvidia's acquisition of Israeli AI startup Run:ai.While some lawmakers say that allowing a few companies to influence the majority of AI research, development, and monetization poses an economic risk, <a target="_blank" class="" href="https://www.businessinsider.com/donald-trump-vcs-in-silicon-valley-2024-7">many VCs have cried foul and accused FTC commissioner Lina Khan</a> — who has frequently sued to block mergers — of an anti-business bent and say it's tricked down to closing fewer startups deals, too.Investors were also critical of what they call <a target="_blank" href="https://www.businessinsider.com/cryptocurrency-bitcoin-influence-election-trump-harris-2024-10">unclear rules for cryptocurrency under the Biden regulation</a>. Many VCs and founders in the space donated to Trump and other Republican candidates, which they consider more favorable toward crypto technologies and markets.VCs are now hopeful that Trump <a target="_blank" href="https://www.businessinsider.com/donald-trump-presidency-affect-big-tech-2024-11">could roll back</a> some antitrust and crypto policies that a Harris administration may have continued, although nothing is certain about the new administration's approach.Trump's running mate and former VC JD Vance has <a target="_blank" rel=" nofollow" href="https://thehill.com/policy/technology/4491363-vance-biden-ftc-chief-is-doing-a-pretty-good-job/">publicly said</a> that Khan is "doing a pretty good job," referring to her antitrust enforcement for Big Tech companies. At the end of Trump's first term, regulators under his administration launched antitrust investigations into Big Tech companies, including Amazon; and filed antitrust lawsuits against Google and Meta."At a high level, we expect Trump to cut corporate taxes and regulations, helping startup M&amp;A and investment," said Mason Angel, general partner at Industrious Ventures. "We may see new acquisition efforts by big tech with a new FTC director."Musk's influence could also help slim down the government's involvement in tech deals, these VCs told BI."Elon is a positive force who's had to run multiple companies that are heavily regulated, so he has a realistic view; since he's lived it, he can be influential," Narasin said of Musk's track record of building Tesla, SpaceX, and xAI. "He's pro-startup, pro-business, pro-everything that will help the US population. A good, healthy economy is good for everybody."<h2 id="a31623cb-2e54-4906-802e-37c294e98064">VCs anticipate an innovation boom</h2>America is a country of entrepreneurs, and that's especially true in Silicon Valley. Some VCs and founders say that having an entrepreneur like Musk influencing the Trump administration and potentially wiping away regulations will bring prosperity to the industry.Indeed, <a target="_blank" href="https://markets.businessinsider.com/news/stocks/trump-trade-us-presidential-election-dollar-treasuries-stocks-crypto-djt-2024-11">the stock market responded exuberantly</a> to Trump's decisive win on Tuesday night, which could eventually be a boon to venture firms seeking investments. Limited partners such as pensions and endowments have been choosier recently thanks to high interest rates and few exit options for startups. But their return to funding venture firms would, in turn, mean that more founders are building and getting funded."I would like to see the President given the power to unilaterally remove, or at least streamline, regulations around major projects or economic areas that will make it possible to actually build new things," tech blogger Ben Thompson <a target="_blank" class="" href="https://stratechery.com/2024/president-trump-take-two-big-tech-little-tech-chips-and-hardware-elon-musks-triumph/">wrote after the election.</a> "There needs to be a way to cut through all of the red tape that has accumulated.""I think the next four years will be imbued with aspirational mega-projects and visionary initiatives without precedent," Rainmaker's Doricko said. "New cities. Lunar and Martian colonization. Free electricity. Weather control."Angel, whose VC firm invests in the space, industrial, and defense sectors, says that those industries will experience strong growth."Trump created the Space Force in 2019, and his close relationship with Elon Musk will bring renewed attention and government investment into the field," Industrious Ventures' Angel said. "Same goes for the US industrial and defense bases."As various sectors within the tech industry ebb and flow, VCs say they're optimistic about the idea of having one of their own helping to call the shots at the federal level."Elon's going to be an enormously positive monster who delivers a cleaned up, slimmed down, pro-business government, and there will be prosperity for everybody," Narasin said.

Silicon Valley is betting a Musk-inspired Trump could unleash a startup boom

<ul class="summary-list"><li>A notable portion of Silicon Valley's electorate has steadily shifted toward Donald Trump.</li><li>While the region remains solidly Democrat, the GOP candidate made gains in this election.</li></ul><a target="_blank" class="" href="https://www.businessinsider.com/trump-immigration-policy-ai-tech-worker-shortage-2024-11">Silicon Valley</a>, long considered a progressive stronghold, has begun to shift toward <a target="_blank" class="" href="https://www.businessinsider.com/big-tech-winners-losers-trump-election-win-according-to-market-2024-11">Donald Trump</a>, according to new voting data analyzed by Business Insider.Across the three <a target="_blank" class="" href="https://www.businessinsider.com/san-francisco-new-york-london-tech-where-to-live-2024-8">San Francisco</a> Bay Area counties that constitute the epicenter of America's tech industry, there was a marked bump in support for Donald Trump in the latest presidential election, and a corresponding decrease in support for Kamala Harris and the Democrats, provisional voter data shows.California can take weeks to tally all its ballots, so the final totals won't be known for some time. But with more than 76% of the votes counted in San Francisco, Santa Clara, and San Mateo counties as of Tuesday, a trend is emerging.Among the voting citizens of Santa Clara county, home of Apple, Google, and Nvidia, 28.2% cast their ballot for Donald Trump this year. That's up from four years ago, and notably higher than in 2016.Meanwhile, 68.1% voted for Harris. That was down from 72.6% who backed Joe Biden four years ago, and 73.1% who voted for Hilary Clinton in 2016, according to data compiled by the California Secretary of State.In San Mateo county, where Facebook parent company Meta is headquartered, the vote shifted from 77.9%-20.2% Republican-Democrat to 73.6%-23.5% this cycle.And San Francisco county's vote for Trump went from 9.3% in 2016 to 15.3% this year.These numbers show that Trump and Republicans are still a long way off from gaining any real majorities in Silicon Valley. However, even this relatively small shift suggests that the region, and the tech industry, is becoming less firmly Democrat — and comes as some tech leaders grow more pragmatic about politics.Meta CEO Mark Zuckerberg previously publicly supported Democratic candidates, but didn't this year. Venture capital power players Marc Andreessen and Ben Horowitz said they were supporting Trump this summer, though Horowitz also <a target="_blank" class="" href="https://www.businessinsider.com/read-ben-horowitzs-email-a16z-saying-plans-donate-kamala-harris-2024-10">provided funding</a> for the Harris campaign.While Elon Musk is based in Texas these days, many of his companies, including Tesla, are still very active in Silicon Valley. He sunk hundreds of millions of dollars into helping reelect Trump this year, is undoubtedly the president-elect's most high-profile supporter in tech.Incoming Vice President JD Vance <a target="_blank" class="" href="https://www.businessinsider.com/jd-vance-venture-capitalist-colleagues-2024-7">once worked in venture capital</a> and is seen as a protégé of PayPal cofounder and investor Peter Thiel, one of tech's most influential conservative voices.Some of this comes down to self-interest. Trump, with Musk in support, has promised to cut regulations, which could help <a target="_blank" class="" href="https://www.businessinsider.com/elon-musk-could-help-deregulate-tech-amid-a-trump-victory-2024-11">Silicon Valley startups grow more quickly</a>."The most exciting thing of all will be putting Elon in charge of government efficiency," <a target="_blank" class="" href="https://www.businessinsider.com/elon-musk-could-help-deregulate-tech-amid-a-trump-victory-2024-11">said Ben Narasin, a VC based in Atherton</a>, in San Mateo county. "He's going to take a chainsaw through calcified butter, and it's going to be awesome to attack the bloat and overreach that we've had in the government."The trend toward Trump in the Silicon Valley electorate mirrors statewide and national trends. Nationwide, <a target="_blank" class="" href="https://www.cookpolitical.com/vote-tracker/2024/electoral-college">the Democrats fell from 51.3% to 48.1%</a>, while the GOP rose from 46.9% to 50.2%.In California, Democrat voteshare dropped from 63.5% in 2020 to 58.9%, <a target="_blank" class="" href="https://electionresults.sos.ca.gov/returns/president">as of the data available on Tuesday</a>.

Silicon Valley's swing toward Trump is real. Here's the data to prove it.

<ul class="summary-list"><li>Diabetes startup Omada Health has confidentially filed its S-1 for an IPO, BI has learned.</li><li>It's among a crop of hot startups patiently waiting for the markets to reopen for healthcare IPOs.</li></ul>Rumors about diabetes startup Omada Health's public market debut have been <a target="_blank" class="" href="https://www.businessinsider.com/healthcare-startups-ipo-public-markets-reopens-2024-1">swirling</a> for years. Now, its IPO may finally be within reach.Omada Health confidentially filed its S-1 this summer to go public, according to one person with knowledge of the transaction.It's been a long time coming for Omada, which was founded in 2011 to treat diabetes and other chronic conditions with a combination of virtual coaching and remote monitoring.Omada last raised a <a target="_blank" class="" href="https://www.businessinsider.com/omada-health-pitch-deck-raise-192-million-2022-7">$192 million Series E</a> in 2022, which boosted its valuation <a target="_blank" class="" href="https://www.fiercehealthcare.com/health-tech/omada-health-hits-unicorn-status-192m-fidelity-led-series-e">over $1 billion</a>. It's raised about $450 million to date, according to PitchBook.An Omada Health spokesperson said the company "can't comment on rumors or speculation at this time."Omada CEO Sean Duffy has never spoken publicly about the startup's IPO plans. But Omada could be one of the select healthcare startups to test the IPO waters when the markets warm up, hopefully in 2025.Hinge Health has hired banks including Morgan Stanley as <a target="_blank" class="" href="https://www.businessinsider.com/hinge-health-s-1-morgan-stanley-ipo-2024-9">the physical therapy startup prepares to confidentially file its S-1</a>, BI previously reported. Hinge is aiming for an IPO in early 2025, markets willing.BI previously reported that Omada Health and Hinge Health were among <a target="_blank" class="" href="https://www.businessinsider.com/healthcare-startups-ipo-public-markets-reopens-2024-1">the top contenders to test the healthcare IPO waters</a>, alongside startups like Lyra Health and Datavant.It's been a rough couple of years for healthcare IPOs. After 20 healthcare startups went public in 2021, only one healthcare company went public the following year — Akili Interactive, which <a target="_blank" class="" href="https://finance.yahoo.com/news/virtual-therapeutics-announces-results-tender-111900807.html">sold for $34 million</a> this July. No healthcare startups went public in 2023.2024's IPO market has remained rocky. Three digital health companies have gone public this year: revenue cycle management company Waystar, remote pregnancy monitoring company Nuvo, and precision medicine company Tempus AI. Both Waystar's and Tempus's stock have surged about 30% since their public market debuts, as of October 1. Nuvo, which went public in a SPAC deal in May, <a target="_blank" class="" href="https://www.bloomberg.com/news/articles/2024-08-22/newly-public-pregnancy-care-firm-nuvo-files-for-bankruptcy">filed for bankruptcy in August</a>.Cameron Lester, global co-head of technology, media, and telecom investment banking at Jefferies, told Business Insider in August that <a target="_blank" class="" href="https://www.businessinsider.com/servicetitan-waiting-until-after-the-election-to-go-public-2024-8">many companies are now waiting until 2025</a>, after the US presidential election has concluded, to consider an IPO. He said the firm expects "a strong 2025 with lots of companies getting ready to go public."Ben Narasin, founder and general partner at Tenacity Venture Capital and an early investor in Omada Health, told BI he believes the first quarter of 2024 "will unleash the IPO beast back into the wild, and we will see a long-awaited return to liquidity, starting with the best and most compelling companies that currently clog a congested pipe of massive scale."Omada has made plenty of progress in the IPO drought, including by notching a <a target="_blank" class="" href="https://resourcecenter.omadahealth.com/blog/omada-health-joins-amazons-health-condition-programs-as-launch-partner">partnership with Amazon</a> in January. It's also sought deals to help employers <a target="_blank" rel="" href="https://www.businessinsider.com/omada-strategy-weight-loss-drugs-semaglutide-ozempic-2023-5">manage patients on weight-loss drugs like Ozempic</a>."Probably every year for the last five years, I get asked about Omada's IPO," Duffy told BI in January. "We want to make sure that Omada continues to grow, and that we're the sort of business that can thrive independently."

Exclusive: Diabetes startup Omada Health has confidentially filed its S-1 to go public

<ul class="summary-list"><li>OpenAI is said to be closing a funding round that could value the company at as much as $150 billion.</li><li>At the same time, the company saw yet another round of departures among its top leadership.</li></ul>At OpenAI, leadership shake ups are becoming something of an autumnal tradition. Less than a year after the <a target="_blank" class="" href="https://www.businessinsider.com/sam-altman-return-openai-ceo-2023-11">ousting and rapid reinstatement</a> of CEO Sam Altman, the company behind ChatGPT has seen three of its top leaders resign suddenly in the same week it moves to close what could be the largest funding round in the history of Silicon Valley.It came out this week that CTO Mira Murati, Chief Research Officer Bob McGrew, and VP of Research for Post Training Barret Zoph will <a target="_blank" href="https://www.businessinsider.com/sam-altman-openai-note-more-staff-exits-barret-bob-2024-9">leave the company</a>. It was a shocking about-face for three of the most prominent leaders of OpenAI's technical staff. Murati's resignation came the same day <a target="_blank" class="" href="https://www.reuters.com/technology/artificial-intelligence/openai-remove-non-profit-control-give-sam-altman-equity-sources-say-2024-09-25/">Reuters reported</a> that OpenAI is working to transform its corporate structure in order to become a <a target="_blank" class="" href="https://www.businessinsider.com/open-ai-sam-altman-equity-stake-valuation-private-nonprofit-9">for-profit benefit corporation</a> no longer under the control of the company's non-profit arm. Murati's departure follows cofounder <a target="_blank" class="" href="https://www.businessinsider.com/openai-brain-drain-isnt-great-for-sam-altman-competition-2024-8">John Schulman's announcement</a> in August that he would be <a target="_blank" rel="" class="" href="https://www.businessinsider.com/openai-leadership-changes-brockman-deng-schulman-anthropic-departures-2024-8">leaving OpenAI to work at rival Anthropic.</a> Meanwhile, investors including Nvidia, Apple, and UAE-backed investment fund MGX <a target="_blank" class="" href="https://www.businessinsider.com/openai-fundraising-150-billion-valuation-new-funding-round-altman-thrive-2024-9">are reported to be putting</a> the finishing touches on a $6.5 billion funding deal that could value OpenAI at as much as $150 billion.Some investors have questioned whether the near-constant power struggles and purges within OpenAI's inner circle will disrupt its ascendancy to become one of the most valuable private companies in the world."OpenAI is the hottest deal in venture capital history," said Joe Aaron, founding partner at <a target="_blank" class="" href="https://www.businessinsider.com/ai-dashboard-vc-firm-trac-deals-level-up-founders-legacy-2024-9">TRAC.</a> But, Aaron said, investors in OpenAI, such as Thrive Capital's Josh Kushner, should be wary of a company that's become so synonymous with corporate turmoil. "Kushner is betting the ranch on OpenAI and Sam Altman just as Masa Son pledged 40% of his Vision Fund on Yahoo and Jerry Yang. The difference was Jerry Yang wasn't fired, brought back as CEO, only to have his most senior people bail. Reputations are on the line. I would vote with my feet." <h2 id="5e813a4e-5a9b-4eca-830b-dafe7e30a882">Skepticism over returns</h2>Others in Silicon Valley have also expressed skepticism about whether OpenAI's rising star can survive its painful transition from a scrappy research outfit to a global corporation."The fastest way for a startup to die is because of emotional turmoil and land grab wars within the company," said one prominent venture investor, speaking on condition of anonymity. "OpenAI has a huge technological moat, but the thing is, there are companies like Anthropic that are snapping at their heels," she added, "they're ahead of everyone, but I think this kind of raises the concern that they'll squander that advantage.""In a typical financing, a potential investor would rethink their investment if so many folks from the management team left right before the financing closed. However, OpenAI is not a typical company," said Jai Das, president and a partner at Sapphire Ventures. He described the startup as "almost synonymous" with generative AI — a category that, according to a June estimate by Goldman Sachs, could <a target="_blank" class="" href="https://www.goldmansachs.com/insights/articles/will-the-1-trillion-of-generative-ai-investment-pay-off">attract $1 trillion in spending</a> from tech companies in the coming years.But Das, who's seen 14 of his investments go public, including JFrog, Square, and Block, expressed some skepticism about OpenAI's ability to provide meaningful returns for investors. Another early-stage tech investor said that beyond the palace intrigue, a bigger question is how the company can justify being worth as much as Goldman Sachs with a core business that's burning through cash. According to a recent report in <a target="_blank" href="https://affiliate.insider.com?h=1ab1819f3c738d25b9e02961aab9f0a48af704cfee0a57a4afd7bb9ab8d055b8&amp;postID=66f5dc1dd86164749852bb03&amp;postSlug=openai-implosion-investors-vcs-2024-9&amp;site=bi&amp;u=https%3A%2F%2Fwww.theinformation.com%2Farticles%2Fwhy-openai-could-lose-5-billion-this-year%3Frc%3Dvmkolf">The Information,</a> OpenAI could lose as much as $5 billion in this year alone. "They need to believe this will eventually generate enormous cash flow in one of the most capital-intensive and competitive arms races I've seen in a while," he said, asking not to be named. "You add the drama to it and yeah, makes it hard to swallow and see how one delivers that return."BI spoke to a growth-stage investor focused on software who said she cares very much about the internal goings-on of a prospective investment. OpenAI has a technological moat, sure. Sales are growing. But a company's advantage begs the question of how it might squander it, this investor said. She suspects the defections at the top may lead others to leave the company."The top management team has themselves said that people are everything at OpenAI," this investor said. In the days after the board fired Altman, employees tweeted, "OpenAI is nothing without its people," which some took as a threat that they would follow Altman out the door."The reason they have this moat is because they've had the best technical talent and an ability to recruit the best technical talent," said the investor, who spoke confidentially. "For me, the question is really how does it impact their ability to hire and retain the best people in the field?"<h2 id="e50e3119-1595-4a79-bec9-0b3ebdd29fb6">'In Sam Altman, we trust'</h2>Even still, some investors said the departures and other drama dogging the company are incidental. OpenAI is at the forefront of the generative AI business, and <a target="_blank" class="" href="https://www.businessinsider.com/openai-funding-talks-ai-race-survival-expensive-2024-9">business is booming.</a> In June, according to a <a target="_blank" href="https://affiliate.insider.com?h=c7c949fe9db7ab9c6dc88e1cd99d1ab75b68240697a8deec6103c39d29ac5133&amp;postID=66f5dc1dd86164749852bb03&amp;postSlug=openai-implosion-investors-vcs-2024-9&amp;site=bi&amp;u=https%3A%2F%2Fwww.theinformation.com%2Farticles%2Fopenais-annualized-revenue-doubles-to-3-4-billion-since-late-2023">report in The Information,</a> the company was on pace to bring in about $3.4 billion in revenue this year, roughly triple its annualized revenue last summer."First, OpenAI is on a path to becoming one of the most important tech companies of all time," said a seasoned startup executive and angel investor, who spoke on condition of anonymity, said in an email. "Second, Sam Altman has proven himself to be one of the greatest tech founders of this generation. "Everything else is secondary to 1 and 2."For those doubling down on OpenAI, the questions of dollars and cents may ultimately be secondary to a larger vision for how AI will reshape society. Sam Altman has said that AI superintelligence could be a reality within <a target="_blank" href="https://fortune.com/2024/09/24/sam-altman-ai-superintelligence/">"a few thousand days</a>." If that turns out to be true, the squabbling inside OpenAI's c-suite will likely be the last thing on any investor's mind."Turmoil is temporary. Changing the world is eternal," said Ben Narasin, founder of Tenacity Venture Capital. "The short term drama will not get in the way of folks investing in what is likely the most transformative engine of the future since the internet." For some, the departure of the more altruistic wing of OpenAI's management team may even end up being more a feature than a bug"Investors are probably happy, they're like look, we don't want a nonprofit, we don't invest in nonprofits," said one venture investor, speaking on the condition of anonymity. They said that while OpenAI's research prowess may have been a competitive advantage in the early days of the AI arms race, the future of the industry will likely be determined not by who can build the best AI model but by who can build the best operating model."It's gonna sound really messed up, but like, you don't need the most brilliant co-founders around the table right now, you need people that are gonna execute, and they're hiring those people, they're paying them a shit ton of money, so they're getting great talent," said the investor. The investor added that the departure of OpenAI's other co-founders is probably of middling importance to investors, who are currently fundamentally betting on Sam Altman and his grand vision for a brave new AI-powered world."Everybody wants Sam Altman at the helm, and they're willing to do anything to keep him as the CEO. They're like in God we trust, in Sam Altman we trust," the investor said.

OpenAI turmoil is a bad look for its huge funding round, VCs say. 'I would vote with my feet.'

<div type="image" title="NEA, Ben Narasin" height="1000" width="2000" msid="81454414" hostid="261"></div><ul class="summary-list"><li>Introducing Ben Narasin's column "<keyword id="10911469" type="UNKNOWN" weightage="60" keywordseo="vc-view">VC View</keyword>" about life as a venture capitalist. </li><li>He'll share lessons learned over his decade as an early-stage investor backing companies like Dropcam, Lending Club, Kabbage and more.</li><li>In this column he discusses the secret to picking winning companies.</li></ul>I had a thank-you coffee recently with a late stage investor, someone I had introduced to a deal where her firm led an over $100 million round. (An introduction to a hot company in venture earns you a coffee and a croissant.)While we sipped, she told me an interesting tale of two bosses. Her first boss was a generalist, a "metal detector looking for gold," and she told me that when investing at the late stage (in established <keyword id="6362513" type="UNKNOWN" weightage="60" keywordseo="startups">startups</keyword> doing well) that this approach was very hard for her. It can be hard just to get a meeting with the most interesting entrepreneurs if the investor doesn't have a lot of experience in the startup's field, she said, regardless of the significant size of her checkbook and power of her firm's brand.But her new "boss" is thesis driven and has her focussed on a small number of categories which allows her to dig deep, get cogent, and become an expert ahead of the rounds she decides to pursue. She prefers this because when investing in later stage startups it is hard to get the entrepreneurs attention if you don't have a thesis in their space. I found the conversation fascinating as the best description I've heard for the way I pursue my investing is that of the metal detector. I am a generalist, though I tend to avoid cyber security and med-tech as both require very explicit expertise I'm not willing to dedicate my life to, but even that's not a hard-and-fast rule: I have one great company in the first category and two in the second and two of the three of them are doing exceptionally well.All of this means I summarize my focus as searching for founders that make me say, "WOW!" I've always believed venture is a blend of art and science: the earlier the stage the more art, the later the stage the more science. It never goes to 100% in either direction but it probably starts at 70/30 favoring art and ends at 70/30 favoring science. This does not mean early stage investors don't study, analyze and learn. The best of them (Mike Maples comes to mind in seed) are constantly striving for new knowledge on topics they have not considered before and are diligently analyzing their own performance looking for trends and learnings. They also tend to make a study of successful investing icons - prior and present - for traits of excellence. Several of the best investors I know have admitted to me that "at the end of the day they are stock pickers." The stocks they are picking are the founding teams, ideas and opportunities - or as I have said for years about my own criteria: people, people, people, a great idea and a huge market if it works. Some of the worst investors I know spend all their time in the spreadsheets of the company looking to justify unjustifiable revenue multiples or find some magic in virtually-non-existent numbers. This may be appropriate in late stage investing but is inadequate and dangerously myopic in early-stage, particularly in the consumer segment where there's seldom adequate supporting data, but only enticing glimpses of behavior. Those tiny glimpses can turn into something huge with amazing speed (Clubhouse comes to mind recently) and gut trumps raw numbers here more than anywhere else, as one is often required to pay truly stunning prices (Clubhouse did a $100 million valuation Series A <a href="https://www.businessinsider.com/who-are-clubhouse-founders-paul-davison-rohan-seth-2021-1">and a $1 billion Series B just a few months later</a>) for nascent businesses. Paying those prices can be justified when your gut turns true. The downside of being wrong is losing the money you invested. While the upside of being right can be virtually unlimited returns, as well as the satisfaction of helping entrepreneurs build successful companies.Ben Narasin a Venture Partner at New Enterprise Associates (NEA) as well as a prolific entrepreneur. His career spans 25 years as an entrepreneur and 10 years as an early-stage investor. His knack for spotting emerging trends led him to make seed investments in companies like Dropcam, Lending Club, TellApart, Kabbage and Zenefits. He founded several consumer companies before launching his investing career, including Fashionmall.com, one of the first e-commerce companies, which he launched in 1993 and led to a successful IPO in 1999. Narasin frequently writes and speaks about technology and investing, as well as food and wine, a lifelong passion.

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