Earnest Sweat 00:13
Welcome to another episode of swimming with allocators. You have me earnest sweat and my co host, Alexa bins, it’s your favorite episode series DDQ, which you know, stand for discuss, debate and question, where we’ll go over things that interest us, things we’ve learned over the last couple of episodes and just generally, kind of like our thoughts and everything, venture, technology, lifestyle, the world, all those things, right?

Alexa Binns 00:46
I’m definitely hoping to talk about lifestyle and the world. May I pick lifestyle and the world for 500

00:55
what is fucked

Alexa Binns 01:02
We have not shared with each other in advance what we want to discuss and what we want to debate, so this will be fun. You’re
all along the ride with us.

Earnest Sweat 01:09
Yeah, Alexa, do you want to go first in our discussion? Cool.

Alexa Binns 01:16
Okay, one of my favorite things I have heard offline lately, this is a friend in the legal profession. And she said, I think 2026 is going to be the year of founders behaving badly.

Earnest Sweat 01:29
What is the beginning or what are we talking about?

Speaker 2 01:35
We would love to discuss the topic of founders misbehaving Wow,

Earnest Sweat 01:41
What was kind of why they felt that we have tail winds for that?

Speaker 2 01:48
I have to assume it’s, it’s sort of like politics. I guess guard rails are off. So like,

Earnest Sweat 04:54
I. Think with so many like it seems like our industry is looking for more narratives than subs when it comes to even like companies to invest in these larger than life figures, larger than life kind of ideas where we’re really promoting, you know, fake it until you make it almost a fraud. Like, what? What needs to change? Is it the founders, or is it kind of like those checks and balances that are supposed to be there from board members and investors and kind of even who we invest in as venture capitalists.

Alexa Binns 05:47
Okay, the other topic I wanted to discuss with you today, well,

Earnest Sweat 05:51
we’re gonna, like, we’re gonna jump back and forth, my turn. Now you have such a much better topic in mind. Just like, All right, cool. So I found this on, I don’t go to x much, so somebody sent me to x sent this link.

06:12
But earnest. Stop tweeting.

Earnest Sweat 06:14
You’re constantly tweeting. I want to say 90% of my followers are probably bots at this point. So a friend sent me this, but Rory O’Driscoll, O’Driscoll, sorry if I’m mispronouncing your name, he posted that a really interesting kind of, like, more intellectual version of start bench cut than we have, but it was associated around like, Where the hell do we go with enterprise technology specifically, kind of like AI, and he had his question was like, you know, over the next decade, how is how our enterprise is going to adopt technology? One, are you going to buy it directly from the foundation models? Basically, like, you know, the big llms are going to destroy everybody, right, to build it for themselves on top of those models, kind of having, you know, AI for proprietary advantages. And so this kind of, you know idea of like, okay, we’ll have our specific data and build on top, and it’ll be, we’ll have our own engine. The third was just buying from new companies. Found it post 2022 so that’s like more of the kind of native AI folks who are really easy, kind of vertical eyes know how to maneuver in this new world for it to just buy from existing software vendors. Those are the SaaS folks that are already big, and hopefully they’ve been incorporating, buying AI companies, or just, you know, have better partnerships with them. And then the last is by the outcome from full stack and AI enabled providers, so fully verticalized, just AI replaces the lawyer with an AI lawyer. So I know that just throwing this on you, but my question was like, What do you think went out?

Alexa Binns 08:09
Yeah, no, this was actually a topic I wanted to discuss about the SaaS apocalypse. Because, you know, are you right to be ditching Salesforce, Adobe SAP, or, in this example, what we’re seeing on the screen, it’s like, I think that’s like number three, right? It’s like, you stay with the big existing companies, and they are going to integrate AI as appropriate.

Speaker 2 08:43
Well as a consumer investor, I would not gloat.

Alexa Binns 08:47
If this is the end of you know, pay per seat, SaaS eating the world. If that was the peak SaaS moment, and we consumer investors have a little moment in the sun. I won’t mind, but I do think about this question from a true investment perspective, like this isn’t a hypothetical. This is what we think about all day long. Like, if you’re buying public equities, if you’re buying private ones, which ones are the ones who are going to survive?

Earnest Sweat 09:25
I think it’s a and Rory in his post, really, you know, spoke to the fact that, like it’s going to depend. The answer is, it depends. And it’s going to depend on the different markets. And I, and I definitely agree with that as well. And so we’re really seeing if that’s the dynamic of the five different ways in which enterprises and markets and even mid market all the way up to enterprise, are going to adopt technology. I. Um, our whole way of pay per seat, it wasn’t just paper seats, but it was just like, so like, formulaic. It was like, I have this point solution. I will sell you these seats. That’s it. Or I’m going to be a little bit more complex, right? Because we’re computers, I’m going to sell you, if you know how much you know, units, you use, usage and everything is just going to depend on the market, your relationship, how you’re competing, the trust you have in that market. And so all that says, saying that to say, like, our job is going to get harder and harder, and so it’s going to be truly, truly important for every investor to kind of be in the weeds and understand when they’re doing diligence. You know, does this company have the ability to sell into this industry? What are the green flags that you see? And we’re already seeing, I know there’s been a lot of experimental revenue versus, like, true AR and all that stuff, but some companies have just broken the mold, right? They’ve broken the mold in things that you were like, is, you can’t sell into law firms. Well, you can’t sell into hospital systems. Well, you can’t sell into big enterprises. And it’s like, well, like, companies are able to figure it out, and so you have to be able to diligence, like, Can this company figure it out? Can they sustain it? And so it probably comes down to the founder and the team they’re able to, like, assemble.

Alexa Binns 13:25
But I think VCs have basically been patiently waiting out the past two years, sitting around saying, like, I’m not going to be selling my great positions at a huge discount, and I’m not ready to go fundraise, because I haven’t had any major liquidity events. And they’re, they’re kind of realizing, like, I got to take my life in my own hands, and what that looks like is a lot more GPU led secondaries. So I wanted to hear from you any like, first hand examples of this, or what you’re hearing, if you’re feeling this sort of uptick that like we’re not waiting around anymore. We’re losing patience, and it’s time to take action.

Earnest Sweat 14:11
That’s a good one. I have heard from a lot of friends who are maybe on fund two or fund three. They’ve been pushing for some of their biggest positions. In fund one or fund two, and pushing for liquidity events.

Earnest Sweat 14:28
And it’s interesting. With LPs, I’m hearing a little bit more anecdotes of the speed at which those can happen. But honestly, that just might be a factor of them being on the buy side, whereas the GPS that I hear they talk about how LPS say they want to have dpi. Even existing family offices and small funds say they want dpi, but when rubber hits the road it gets in, we say, Hey, here’s the price, here’s the discount. They want things to slow down, especially if it’s the biggest position. And so there’s still a disconnect there on when it comes to, you know, the feeling of, like, inertia and friction when it comes to secondaries. So that’s one point. Yeah, the second point is, I think if you’re in our circles, LPs or GPS, like you just hear that, you know, secondaries are hot. They’re hot. They’re hot. People start in secondary funds. And you know, we had on recently David Clark, and you know, we were having that discussion where he said that, you know, when it comes to disc for his best investments, like secondary investments, discount doesn’t matter. I think that makes sense, but I’m anytime everyone’s saying the same thing, I’m like, has the pendulum already swung?

Alexa Binns 17:05
Yeah, I was curious about this after hearing from our sponsor, Shane goodie over at Sidley was saying they are super busy these days. And I was asking him, what are you guys busy doing? And so I wanted to look at sort of the data to say, okay, like, what form factor are these secondaries, or GP led secondaries coming through? And this is a really interesting point you make earnestly. Is like, is it peaked, or is this sort of like the new normal? Because companies stay private longer, and most funds are outlasting their dedicated period. Jeffries has a bunch of data on this, which was pretty cool, I guess the past two years, everybody’s like net asset value pricing was more like 60, 70% of what they were getting offered, and so they were just holding but now it’s jumped to, on average, more like 78% in VC and so, and I guess even like 80% plus for the like much larger, later stage companies. So the price is looking good enough that people are starting to to shave off and sell off a piece, roughly 1/3 of secondary activity in 2025 was concentrated in those AI mega deals. So the motivation has been it seems like continuation vehicles are like the key. That’s how, like, most people are doing it. But that can take a super long time. It’s a little messy because you’re dealing with basically, like, are you still being good by your existing LPs and also your new LPs? Like, you got to balance that, versus what’s really taking off are strip sales. And the strip sales, if you’re not familiar with folks listening, you just take, like, 10% out of the entire portfolio, and you sell off that, and that can take, like, lawyers can get that done in like a week, like four weeks versus four months, and it’s just a way of offering cash back to everybody, and you still get to stay in the game with your biggest names. I guess Wellington has like 4.4 trillion of value. It is sort of like being stuck in unicorn land, and 2% of that in the past has been added to the secondary market. And they’re expecting that number to like 3x so we’re going to get to like 6x through things like strip sales, where people don’t want to have to create, like a full new entity, but they’re looking to take some cash off the table, because these mega deals have really, like, already done very well for them, so they’re just taking some chips off the table.

Alexa Binns 21:14
this Jeffrey stuff was interesting because it was saying it’s across the board, it’s emerging managers, it’s the big names. So I thought that it was interesting that even the smaller funds are finding it worth it to just be doing something like, frankly, I think these are impatient people. VCs are used to, like hustling, and so it’s like, I gotta put me to work, you know, get me in there. Yeah, yeah, cool.

Earnest Sweat 21:44
Well, I think we can move to our debate section. And I was actually going to use this for discussion, but I think it’ll be a great debate as well. I recently saw a post from one of my good friends, Brendan Baker, and let me share this. Brendan had argued that the venture is splitting into three survival tiers. We have mega funds, we have middle class firms which are kind of 300 million to 1,000,000,000.5

Earnest Sweat 22:22
in his estimate, and then small funds and his thought is, like, he has these kind of two big questions is like, will this segment exist? And existing firms default, like, if you’re already here in one of those tiers, what’s going to be your default?

Earnest Sweat 22:47
And so you can see on this, on this kind of like his little framework, he sees that

Earnest Sweat 22:56
mega funds, they’ll default be alive due to inertia. And it seems like you know capital is going to go to them because they have a lot they suck up a lot of oxygen and oxygen, and know where things are going. From LPS perspective, it feels like he thinks that middle class firms are in tradition and survival is not guaranteed, so you need to actually have something differential, differentiated. And then for small funds, he claims, is structurally unstable,

Earnest Sweat 23:33
but innovation is rich, you’re going to see a lot of change there. So my question is that we can start off, we can talk about a lot of things with this kind of framework. My question is, if you had to bet on one tier of venture firms to produce the most interesting new entrance of venture firms over the next decade, is it going to be mega, middle or small?

Alexa Binns 24:01
Oh, well, I think on the interest front, you have more desperation at the bottom. I think there’s out of out of pure just like survival mode. I I think it’s hard to innovate a lot in the middle, because you are still selecting from a known universe of opportunities, like for those friends of mine who were associates at Series B, C, D, companies, they were tracking their job was just to know who was going out to fundraise again, when? And so how do you innovate there, in the middle, like more ski trips, versus at the bottom, the number of things you could be focused on or investing in is truly infinite. And so the way you slice that, or the way you. To add value in order to, like, win those deals or participate, I think there’s, like, so many more opportunities that there’s more opportunities to win.

Earnest Sweat 25:14
I disagree with you on two fronts. One, I think there’s more desperation in the middle and but two, I think because of that desperation, I agree with your thought process, there’s going to be more innovation and opportunities. And I think because of things we spoke about on this podcast, pushed LPs, you know, in question, especially the last couple we’ve pushed them on this idea of, like, if there’s no place in the middle when that’s been such a

Earnest Sweat 25:51
fruitful position in venture, to get things to become public, get things to have kind of, like, that velocity, where does it go? The same. Players are in it and that. And so I think you’re going to see more

Alexa Binns 28:24
I think if, like, 99% of a VCs value is the cash, maybe you go with a brand name, because, like, everyone will come work for you. It’s a great idea if you are trying to fill the board with people who are going to open every door for you and make this a priority, and they are obsessed with what you’re building, then yeah, maybe, maybe they are worth more than the cash they’re putting in. So maybe, maybe the answer is those, those deck elements of the world are expected to really work for it, that it’s not just winning the deal, but then they are rolling up their sleeves and participating with you.

Earnest Sweat 29:10
Yeah, I think that’s we’re gonna have to see a lot more of that if we

Alexa Binns 29:16
got just like your platform people. I think that is helpful to a point, but like a lot of people, can hire a recruiter to be on staff.

Earnest Sweat 29:31
I wasn’t going to take it there. But like with the platform, it does seem like that it has been shrinking significantly. And what founders and even firms themselves have, they’re, they’re now expecting venture capitalists themselves to be full stack. You need to have some platform capabilities if you want to be relevant, right? Yeah, whether that’s you do a lot of great marketing, you do a lot of great BD work. Hmm, you help with hiring, whatever it might

Earnest Sweat 30:05
be, you have to be able to create your own center of gravity, and can’t depend on other people to kind of manufacture that for you. Well, said, What’s your debate? You’re next?

Alexa Binns 30:19
All right, I was invited to speak on a panel the other day where they said, brag. You know, how are people getting capital if they don’t have a track record, and I sort of have a hot take that I personally don’t want to invest in you unless you have a track record and are so earnest. Are there cases where I’m wrong, like, are there people who you should trust to experiment with their first investment deals with your own money?

Earnest Sweat 31:01
Yes, if we’re talking about the traditional track record, if you’re talking about you have invested in great founders at the same stage as you’re doing now, and you’ve had some results of like, you’ve brought in, made a lot of money, or you’re a foregoing conclusion that these investments are going to make a lot of money, if we’re just using that traditional definition of track record. Yeah, that’s, that’s it? Yeah, you shouldn’t if that’s what you’re just going to do now, I don’t think that’s the only definition of track record. We’ve had some tips on discussing kind of like due diligence, 2.0 I believe initiative. But digging into, essentially, just digging into your I think track record should be like your decision making throughout your career. That’s helped you give give you a

Earnest Sweat 32:02
you know, crazy advantage to source diligence and, more importantly, win deals. And the other thing is, I was talking to an allocator who we’re going to have on the podcast soon.

Earnest Sweat 32:19
But his view, after looking at, you know, working on a lot of different asset classes, his view that past performance more than ever doesn’t mean anything on predicting the future and and his definition of like at his core, obviously, you need to be smart, but that’s kind of like a table sake,

Earnest Sweat 32:46
but with so much access to information, right? Like in the past your age could be I know things that you just don’t know, that’s becoming smaller and smaller of a data set. So his thing was, he was like, when you think about things that have worked in all different time periods, all different asset classes, it comes down to three things. He said, You have to be extremely curious. So being willing to read something that doesn’t seem relevant but helps with lateral thinking, to something that can help you in something you’re diligencing the same diligencing. The second thing he said is you have to be willing to

Earnest Sweat 33:27
or not be willing. You need to be kind to everyone, and not fabricate, like, some kindness, or something that you can get out of someone, but like, just be kind to everyone. And then last was, like, you have to be willing to schlep. And he was like, we live in a world now where we can talk on these cameras and stuff like that, and our screens give us this kind of, you know, false comfort that is just as good as doing the work.

Earnest Sweat 34:31
But, yeah, I think, you know, those three things really stood out to me a lot of times. It’s not about being just efficient and technology presents. A lot of times it’s about really connecting with people. And so I think that’s going to come out even more than ever on what wins.

Alexa Binns 34:54
No, I can appreciate that there are skills required. Required to be successful that are sort of like softer skills or hustle the chance to just see a bunch of deals and decide whether or not you want to put your reputation on the line for them. My concern is, if you haven’t been flexing that muscle, you haven’t seen enough stuff, stupid stuff excites you. So maybe, if you haven’t been running SPVs, you haven’t been working at a fund, you haven’t been doing your own angel investing, how else can you build a track record? I don’t know. There’s probably some website where you can just, like, play a game Yaw, I like, I don’t think, I think the problem is, you think you’re gonna be good at this because you’ve seen it from the other side. Maybe you’ve been a founder, you’ve been in the board room because you’re Chief of Staff to the founder, and so you’ve been seeing the KPIs like you kind of think that you know what investors do, but a lot of the VC Job is saying, no, yeah.

Earnest Sweat 36:13
I mean, yeah, you have to, you have to kind of gain that muscle. And I mean, I don’t know how true this quote is, but one of my mentors told me that John Doerr said, you don’t get good at this job until you basically crash a 747, right? Basically, that’s how much money you lose. But, you know, I think a part of that is true. I think another part of it is just like your ability to have this idea of learning velocity that we look for in founders, like, can you quickly learn from your mistakes? And can you quickly learn from other people’s mistakes, seeing what they did wrong?

Alexa Binns 37:00
Well, that’s exactly like I had the benefit of working as a junior person in funds, of seeing portfolios of hundreds of companies further along from the day of the investment memo, right? And so you’re not just exposed to the companies you worked on that year. You’re getting historic. You’re getting pattern recognition in real time of what happens as these companies mature, too. You get that exposure as an LP too. You start to sort of see pattern recognition at that meta level. So I think I definitely have a bias, because I want the apprentice level. I was like, I’m going to start at the bottom. And the bottom and work my way up. And I feel so much richer for having done that experience that when I see people basically saying, I’m going to make my like, first check ever using your capital, I’m like, what like try to walk before you run, you know? Yeah, like, I appreciate that. Like you are part of a cool club in XYZ city or whatever, but I don’t know, there’s like hesitancy if there’s no version of a track record.

38:23
Yeah, I think it’s, I think it’s a,

Earnest Sweat 38:35
I’m with you on it, but I feel like there’s, we’ve seen examples of people who didn’t come up their apprenticeship route, and honestly, it’s probably the harder route to go up through. That has literally nothing to do with investing totally.

Alexa Binns 38:49
I think even, like an angel tracker record or a series of SPV is EIR turned venture partner, like, something where you’ve been in you’ve, like, flexed the muscle a little bit.

Earnest Sweat 39:02
I think you’re just getting at a point of, like, have you seen a lot of different things, instead of, like, even just your, let’s say you came from as an operator, from your perspective, of, like, this one seat that was really successful, and you learned a lot of different things. But how do you know? How are you not so, like, blinded by those kind of rose tinted glasses, that everything is like that. I get what you’re saying. Yeah, yeah, tough job for LPS.

Alexa Binns 45:35
There are three incredible fundraisers who are about to take their companies public. We’ve got Elon Altman and amo day, so I would love to play a quick game of start, bench cut with those three pre IPO. This is, we’re recording this March 2026, what’s, what’s your game plan?

Earnest Sweat 46:00
Ooh, so essentially, it’s SpaceX open AI and anthropic, yeah, oh, it’s probably gonna make some friends. Who Am I? Am like, I’m myself. I’m not. I’m not representing somebody else.

46:29
I would, I would probably say, Start Space X. You notice

Earnest Sweat 46:40
I’m using company names instead of the people? Start SpaceX bench anthropic and probably cut open.

Alexa Binns 46:52
Ai, yeah. Oh, interesting. Okay, and give me your reasoning for at least one of them.

Earnest Sweat 46:57
Um, well, I think that the bench and cut positions, I think, and I’m sure people feel this way as well, the changing of which model is better happens literally all the time. So I think if anybody thinks that there’s going to be a one and done winner? I don’t actually know if that’s ever going to happen. And we still haven’t even, like, really mentioned Google waking up, yeah, and, and meta, and, like all these other places that are investing, investing, investing. I think there’s just going to be so much competition within llms, and you’re honestly probably not going to go wrong with any of those investments. I think about where space exploration is going, and defense, and, you know, rockets just, they cost a lot and they spur a lot of competition, yeah, and so I think there’s something really there, there.

Alexa Binns 48:55
So, yeah, I just looked it up and Google right now it’s 3.7 trillion. And so they’re looking at like, 9x revenue, anthropic, if it goes up at 500 billion, would be 20x revenue. And open AI, they’re saying 1 trillion, it would be 40 times revenue. Interesting, some exceedingly talented fundraisers, yeah.

Earnest Sweat 49:23
Yeah. Yeah. So many people want to get in those names. I hear about them all the time. But anyway, yeah, so that’s what would be yours,

Alexa Binns 49:35
man, I actually think I would start anthropic, because it feels like the least storytelling. Like, I don’t really know what the Frankenstein version of SpaceX is like. I’m happy with just SpaceX, but they like patching on one of everything to turn it into a $1.5 trillion company. So it’s. Worth more than his adversary, I’m not really into that.

Earnest Sweat 50:06
Yeah, yeah, there’s a lot, there’s a lot, there’s a lot. I’m not interested in him.

Alexa Binns 50:12
But yeah, I think like SpaceX on its own, awesome SpaceX in its current form, I don’t think it’s worth 1.5 trillion.

so now we’re moving on to the Q, for like Q and on questions from our audience. And so the first question I have is, if you could ask only one question to a first time fund manager to decide whether to keep diligence in them or not. What would it be? This? Are you advising LPs?

51:51
I think I’m always interested in asking people what’s something that they really thought that they got right but it was wrong, or what did they learn from it?

Earnest Sweat 52:10
Or what’s something that two options, what’s something that’s extremely conventional in business or tech that you disagree with, or what’s something that a prominent person said that you disagree with?

Alexa Binns 52:29
Yeah, to see how they’re contrarian thinking, yeah, yeah. And maybe, like a little self awareness, something along the lines of, if this doesn’t, if this doesn’t 5x what went wrong, or what has to be true for this strategy, like for you To be my top performing manager, yeah, because I think then they start to think a little bit more about

Earnest Sweat 53:06
their competition. Most people talk about this, I got this from an audience. So what most people talk about, what it takes to win an LP commitment. But what does a great GP, LP relationship actually look like five, seven years in? Like, what are the signs early on that you’ll get there?

Alexa Binns 53:26
That’s cool. Well, I’ve been coaching people to get everybody’s cell phone number, so I think the people who are really in your court are the people that you are messaging, they are not the people that are getting, like, a quarterly update. So that’s probably a quick identifier of like, Have you moved this relationship from the totally formal to the to the like sharing articles or memes.

Earnest Sweat 54:05
I love that. I think. I always think a great business relationship is like, can you be vulnerable and share kind of like, it’s not just someone being on your elk pack, but you can truly say, Hey, I’m dealing with this situation. You’ve seen a lot of firms like, what advice do you have? And if they’re not, not judgy, but like, Oh no, no, we can work this out. Or here’s the advice I have, I think that that shows that you’re on the right path, and it should be bilateral.