Fundraising while watching the Elizabeth Holmes movie (You Can See Everything).

My friend Danny, the founder of Punchup.live (Social Leverage fund 4) started his company a few years back after 12 years at Facebook and he shared his thoughts and experience right now which I wanted to share below. The piece was motivated after seeing the Elizabeth Holmes documentary. His piece is in bold below my thoughts right below.

Ellen and I saw the Nathan Fielder’s documentary ‘You Can See Everything’ this weekend and it was excellent. The characters obviously not so much. Elizabeth and her husband Billy are so damn dark and twisted. It was really fun to see my friend Ravi - who greenlit the film at A24 - show up in the movie (played by an actor) in a key scene where the documentary took a huge turn.

It got me thinking about the last 20 years of entrepreneuring, investing and fundraising.

I started seed investing full time in 2007. Life, technology, and investing was simpler and friendlier most likely because a long technology bear market was coming to an end which meant most people were skeptical. Social networks were a toy. The best investors were skeptical of ‘the cloud’. There was no smartphone. Interest rates were on a long road down to ZIRP! Most of the world was in ‘globalization’ mode. By 2015 you were supposed to have a Chinese operation by year three! Despite this backdrop, the highest price I invested in a seed round in 2008 was $6 million post money (Henry Blodget’s Business Insider). Even in 2013, I thought Robinhood’s seed pricing was expensive at $8 million pre-money. Thank goodness I did not screw that up.

By 2015, it seemed like everyone was the next Steve Jobs or Zuckerberg. Elizabeth Holmes parlayed her Steve Jobs ‘vibes’ into Theranos. Today, founders model themselves after Elon, seed deals get done at $250 million and everyone seems ok with backing an Elizabeth Holmes like character that says AI and or space with conviction. This is all happening in a less friendly world, a disappearing internet, a ‘DEglobalizing’ world, insanely high customer acquisition costs and rising interest rates. Furthermore, it seems nobody is skeptical and everyone is an expert and a bully.

I am focused on keeping it simple and not chasing.

……..

Last night I finally saw “You Can See Everything”. It is a masterpiece. I am so jealous of the relief that I hope Nathan Fielder now feels about having created a generational work of art. My favorite person in the world, Ravi Nandan, makes a brief appearance in it, and as a testament to the attention paid to detail, the outfit he is wearing in the movie exactly matches his signature dark sweater with a collared shirt peering out.

The movie is essentially a 3-hour-long puzzle to try to figure out what is happening (who is the bad person, who is lying, is this a comedy?) without any actual answer. We all know Elizabeth Holmes put people's lives in danger in completely inexcusable ways. There is no defense of her actions. However, as someone currently fundraising, I couldn't help but have more sympathy for her than I did reading the book about her or watching the Hulu series.

Here is Elizabeth Holmes's fundraising history for Theranos relative to her age:

Investors trusted a 26-year-old with almost $90 million in venture funding! I started a company when I was 37, and we've raised ~$6 million. The pressure I feel daily to provide a good outcome for the people who have trusted me with their money, and for my employees who have worked so hard to make this successful, has changed me as a person. I cannot imagine how I would have handled that kind of responsibility at 26, let alone with 15x the amount of money.

For one of our prior fundraising rounds, there was a time when I was getting feedback that our revenue wasn't high enough. I was providing investors with honest representations of our revenue, high-margin money that was legitimately coming into the business. I wasn't including what I'll term "grey revenue", revenue where you're selling the dream of the future rather than what's happening today.

Examples to me include passing off GMV as "revenue" in pitch decks, or reporting pass-through revenue in a way that obscures how much money the business actually keeps. This feels particularly relevant right now, as there are tons of AI businesses that are essentially wrappers on frontier models, so revenue gets paid to the startup, which then just turns around and passes much of that revenue to Anthropic, who actually has the technology behind it.

Now, this can be perfectly legitimate revenue according to GAAP, and I'm not suggesting that every AI company doing this is misleading investors. But there's a difference between what you're technically allowed to call revenue and what you're trying to get investors to believe about your business.

I'm calling it "grey" revenue because you can say that eventually token costs will come down, or you'll move to an open-source model, or your own technology will improve enough that the economics will look completely different. All of those things are reasonable to believe. But they haven't happened yet, and I think deep down every founder knows when they're presenting a future version of their business as though it's already the reality.

I think this is why the scene where Elizabeth is debating whether the Theranos box works resonated differently with me than with others I've talked to.

Much like saying "the box works"....well, per Elizabeth in the movie...the box did work. It just needed the yet-to-be-invented chemistry tests to actually work.

It sounds very reminiscent of, "Our (fill in the blank) AI startup does make revenue...we just need the mechanism of decreased token costs to be invented."

Obviously, there is a difference between a business with bad margins and a medical device that doesn't do what you claim it does. But I do think there's something similar in the way a founder can convince themselves that because something will work in the future, it works today.

And venture capital almost encourages this kind of thinking! The entire industry is built around funding people who believe they can do things that haven't been done before. We celebrate founders who are irrationally convinced that they're right when everyone else is telling them they're wrong. At what point does that conviction become self-delusion?

For me personally, I decided that it's too hard to figure out where the grey line is. To simplify things for myself, I created two rules for myself running this company: I am going to work my ass off and I am not going to violate my integrity. If I know something isn't accurate, I'm not gonna say it. Even if I could come up with some technically defensible way to frame it. This may be disadvantageous to me and the company, but honestly, it's what allows me to sleep at night.

I also understand the temptation more than I used to. When you're fundraising and investors keep telling you your numbers aren't good enough, while you're looking at other companies raising enormous sums of money with metrics that seem to require a generous interpretation, it's hard not to wonder whether you're putting yourself at a disadvantage by being so literal about what's actually happening in your business.

Like I said earlier, there is no excusing putting someone else's life at risk. That's exactly what Elizabeth Holmes did by claiming her machines did things that they didn't. She deserves to be condemned for that. But I have more sympathy now for how someone could convince themselves of a twisted version of whether their technology or business actually worked, particularly when they've raised so much money that admitting it doesn't work might mean letting down everyone who believed in them.

And if we're going to condemn her for convincing herself that something worked because she believed it eventually would, then A24 is gonna be busy making a lot of AI startup documentaries!