Most founders believe that if they just build a great product, customers will come.
But as Gabriel Jarrosson, General Partner at Lobster Capital, puts it — “Build it and they will come is the biggest myth in startups.”
A seven-time founder with three exits and now an investor in over $25 million of early-stage deals, Gabriel has lived both sides of the startup grind. From coding alone as a computer science engineer to backing YC’s top performers, his journey reveals what truly separates startups that survive from those that don’t.
From Founder to Investor
Gabriel’s story begins where many do — building products that nobody wanted. After several failed ventures (and a few modest wins), he realized the hard truth: success isn’t about product perfection but about early traction.
This realization led him to angel investing. But with limited capital, he started small — writing checks as low as $2,000. That grew into an angel syndicate and, later, into Lobster Capital, a fund that invests exclusively in the top 2% of each Y Combinator batch.
His syndicate’s early wins and a viral YouTube channel in France helped him scale both his visibility and access. By 2023, Lobster Capital was born — a professionalized VC fund known for its traction-first approach.
The Philosophy Behind “Traction-Driven” Investing
Gabriel’s investment thesis is deceptively simple:
“If you don’t have traction, what are we even talking about?”
Having built seven startups, he learned that momentum and customer validation are the only real signals of product-market fit. He avoids “build it and they will come” fallacies and looks for founders who’ve proven demand — not just coded features.
For Lobster Capital, this means focusing on startups with strong early revenue growth. In YC terms, that’s:
Good: Around $100K ARR
Better: $100K–$500K ARR
Best: $500K+ ARR (often growing 10–15% week over week)
Those numbers may sound high for early-stage founders, but they’re exactly what separates the exceptional from the average.
The Discipline of Saying No
One of Gabriel’s biggest challenges as a former syndicate leader turned fund manager was learning to say no.
As he puts it, “In a syndicate, you can say yes to everything. With a fund, you can’t.”
He now filters ruthlessly — even rejecting deals he personally likes if they don’t meet the traction bar.
Still, he leaves room for exceptions — especially in deep tech or moonshot bets where traction takes longer. About 10% of his portfolio is reserved for these high-risk, high-upside plays.
The Meaning Behind “Lobster Capital”
Ever wondered why “Lobster”? It’s not just a quirky brand.
Gabriel chose the name for its symbolism:
Lobsters never stop growing, just like great startups.
Blue lobsters — ultra-rare — represent unicorns.
Their reddish-orange color mirrors YC’s branding.
And, as Jordan Peterson famously noted, lobsters have existed longer than trees — a reminder that power laws are as old as nature itself.
It’s a memorable identity that ties humor, philosophy, and brand storytelling together — and it’s one reason founders remember his fund long after the pitch.
Inside YC’s Top 2%
Lobster Capital invests in only 3–5 companies per YC batch — a level of selectivity that forces precision.
While other funds chase volume, Gabriel’s approach is concentrated conviction.
He relies on YC’s internal data, founder networks, and pattern recognition from hundreds of past calls to identify which startups are breaking through. Over time, Lobster Capital has become so well-known inside YC that founders now pitch him first, reversing the traditional investor–founder dynamic.
How AI Is Transforming Venture and Founding
Gabriel is optimistic but grounded about AI’s role in both venture and entrepreneurship.
He sees AI not as a threat but as a tool that lowers the barrier to entry — the latest in a long line of democratizing technologies:
“First you needed a factory to start a company, then just a laptop, then cloud servers. Now, you can have AI build your app and write your code.”
AI, he believes, will accelerate every part of the startup cycle — from ideation to exits — and even shorten fund lifecycles by speeding up liquidity events.
Still, he’s skeptical that AI can replace human investors anytime soon. Venture capital, at its core, is a trust-based craft — part art, part intuition, and part psychology.
Founders Who Win
When it comes to evaluating founders, Gabriel looks for what he calls “relentless resourcefulness.”
He’s less concerned with Ivy League pedigrees or fancy backgrounds and more focused on resilience, grit, and adaptability — the founders who find a way through the wall, not around it.
“The best founders never stop. Close the door, they come in through the window. Close the window, they come through the chimney.”
Key Takeaways
Early traction is everything. Ideas are easy; execution and revenue prove reality.
Saying no is a superpower. Discipline defines good investors.
AI won’t replace VCs — it will empower them.
The best founders are relentlessly resourceful.
Growth without traction is a mirage.
Final Thought
Gabriel’s story is a rare look at someone who’s seen the startup world from every angle — founder, failure, builder, angel, and VC. His philosophy distills a decade of lessons into one principle: traction is truth.
Whether you’re raising your first round, launching a startup, or evaluating deals, this episode offers a blueprint for thinking like a founder—and investing like one, too.
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Chapters:
00:02 Early life in Vilnius and family influence in finance
03:00 Starting career as a trader in Amsterdam
04:10 Transition from public markets to family office investing
05:30 Discovering venture capital and building early networks
06:25 Joining Willgrow and professionalizing the venture journey
07:45 Lessons from angel investing and early portfolio wins
09:45 Evolution of Willgrow from transport and real estate to investments
11:50 Growth into a diversified global investment platform
13:00 Five core investment areas at Willgrow
14:10 Why Willgrow focuses on funds over direct deals
16:30 Building a “bulletproof” fund portfolio strategy
18:10 Strategic asset allocation and balancing risk across classes
20:40 How Willgrow sets portfolio weights and long-term targets
22:40 Shifts in venture returns and performance assumptions
23:50 Managing liquidity and duration through secondaries
25:55 Currency exposure between U.S. and European investments
28:20 Sourcing fund managers and building LP networks
30:40 Partnering with fund-of-funds and global advisors
31:00 GP–strategy fit as a key selection criterion
32:30 Evaluating track records and past success indicators
33:00 Investing in first-time GPs and assessing credibility
34:20 Soft referencing and network-based validation
35:00 From concentrated bets to diversified fund portfolios
37:20 Navigating a more competitive venture landscape
38:20 Specialist vs. generalist fund approaches
40:40 How Willgrow evaluates sector focus and adaptability
44:30 Benchmarking and monitoring fund performance
46:50 Lessons learned after four years of venture investing
48:50 Ticket sizing, pacing, and realistic growth assumptions
49:30 Risks of first-time teams in emerging managers
51:00 Case study: when a first-time GP team collapses
52:00 Evaluating fund valuations and markup practices
53:00 Due diligence and data room best practices
54:20 What LPs look for in deal memos and documentation
54:37 End of main discussion
Transcript
Brian Bell (00:01:11–00:01:36): Hey, everyone. Welcome back to the Ignite podcast. Today, we’re thrilled to have Gabriel Gerson on the mic. He’s a seven-time founder of Three Exits, now crafting early stage magic as GP at Lobster Capital, where he’s backed more than 25 million, plowed 25 million into YC startups. That’s amazing. He’s bootstrapped to 1 million ARR solo, survived four failed ventures, and now writes in podcasts about the bleeding edge of investing in AI-powered high-traction startups. Thanks for coming on. Well, thank you so much for having me.
Gabriel Jarrosson (00:01:37): We’ve been close in the ecosystem for a long time, so I’m very excited about this conversation.
Brian Bell (00:01:42–00:02:01): Yeah, no, we’ve been kind of collaborating kind of at a distance for years. And then we finally connected on a panel at the Decile event a month ago. So it’s cool. It was just kind of serendipitous that you were going to come on the pod a month later. So I’m excited to finally like sit down and get to know a little bit about you. Would love to know kind of like, you know, what’s your origin story? Where did it all start?
Gabriel Jarrosson (00:02:02–00:04:50): Well, I mean, you touched on it briefly. originally a computer science engineer and turned founder. So my origin story is really with building startups on my own. That’s how I came to investing after building so many startups and failing so many, succeeding a few, not massive successes, but some stuff did work. And I was seeing myself in other founders. I was saying, oh, many times I was saying to myself, oh, they’re doing exactly the same mistakes that I did. The beginner’s mistake. I can recognize that now. And sometimes I was saying to myself, oh, they’re not doing those mistakes. They’re much better than me, which I guess the bar is not very high. And so I thought, how can I profit from that? I just understood probably before anyone else that those people are somehow on the right track. And that’s how I became an angel investor in 2013. been some years now. And I just try to convince them, be like, hey, you know, I’m a founder like you. I can also probably help you. Please take my money because I believe in you. I think you’re going to do that. So that was a very, very first step, first leg of the journey. The problem was because my entrepreneurial ventures were not that successful. I didn’t have a lot of money to give them. It’s obviously much easier to have a conversation saying, hey, can you take my 100K? But I was saying, can you take my 10K? Can you take my 5K? Sometimes I was saying, can you take my 2K? And obviously I got laughed off. I laughed off. People are like, well, I’m raising 2 million and what am I going to do with 2 grand? I It’s not moving the deal at all. That’s when the second leg of my journey started was the angel syndicate. People around me, obviously a few of my early angel investments did very well. And so obviously I bragged about it everywhere, on LinkedIn, at social events, people. And so people were starting to say, hey, could we give you a little bit of money as well? And you’d invest it for us in the startups because you seem to have the knowledge and the experience and the network. And so I started doing it for a few friends, acquaintances, family members. And then the sort of the first unlock was I started a YouTube channel. That’s sort of the story of my life. YouTube and I are very, our destinies are very linked. And so it was a YouTube channel in French at the time. I’m French originally, no one’s perfect. And I started talking about my investing journey. And the channel blew up in France. And so people that I actually didn’t know started to reach out and be like, hey, we’d want to invest as well. You’re doing this with your friends and your acquaintances. I’ll invest with you. I’ll give you the money. And so this blew up, started investing and becoming bigger and bigger and bigger. That’s when I started coming here in San Francisco, looking for better deal flow. That’s how I got interested in YC. Long story short, the syndicate did extremely well and at some point ended up specializing in YC startups because I just loved it and had access there. And then in 2023, I built Lobster Capital, VC fund, you know, sort of making it more professional, more, I don’t know if I should say higher end or higher tier, whatever it is, but more professional for sure. And yeah, we’re at the end of fund one, raising fund two, and that’s the entire life story. Amazing.
Brian Bell (00:04:56–00:05:41): a very similar journey to us right you know for myself and team ignite you know we started you know we couple failed entrepreneurial journeys You know, started talking to other people, investing in their syndicates, trying to invest direct on the cap table with $5,000 and $10,000 checks. That’s not going to work. Form a syndicate, run that. You know, I think that’s when we first ran across each other. It was probably on AngelList running syndicates, you know.
Gabriel Jarrosson (00:05:19–00:05:36): Like 10 years ago. It’s funny.
Brian Bell (00:05:21–00:05:37): Yeah. Well, I was only on there back in 2020. 2019 was maybe. I said 2017, the syndicates. 2018 with my own money and then 2020 with Team Ignite.
Gabriel Jarrosson (00:05:28–00:05:45): And then... I remember it like it’s decades ago because it goes so fast. Yeah, it does.
Brian Bell (00:05:36–00:06:02): It does not feel like five years. It feels like I’ve been doing this for a year, you know, and I’m constantly learning. You know, how do you think your entrepreneurial journey kind of informs investment decision making, right? Like you’re kind of looking at a founder and backing them and kind of maybe walk us through how that has informed like your framework for investing.
Gabriel Jarrosson (00:05:52–00:07:35): Yeah, it has informed us a lot, actually, I think in a sense. I mean, I’m not the only entrepreneur turned investor, obviously. But I do sort of see myself going back to those days and those learnings a lot. And so probably the biggest thing is something that you’ve heard me repeat time and time over, which is I’m looking to invest in companies that demonstrate strong early traction. And that is really informed by my experience. entrepreneurship or entrepreneurial journey because I built, like you said, seven startups, which is probably too many. That’s another conversation. Some of them at the same time, which is a recipe for disaster. And so you basically know after doing this seven times that if you don’t have traction, what are we even talking about, right? And that’s sort of the problem that I had every single time. There’s this mythology that cycle, build it and they will come. And so many entrepreneurs fall into that fallacy like, oh, you know, it’s going to be a great product and that’s it, it’s going to work. And that’s what I believed as well. So it was very tough for me to realize build it, and no one cares at all. That’s the truth of it. And so I would build stuff, launch it, and it’s crickets. There’s nothing. And you realize, okay, well, I thought this was building a business. That’s not. So what actually, what is it to build a business? Well, building a business is actually going out, finding people to pay for it, and literally manufacturing early traction. And of course, that’s the first step. There’s lots of other things involved after. That’s the first. So it was very tough learning for me. But every time I started again, I became better at starting this business. And I was like, okay, how can I manufacture and get stronger early traction? And only then do I have a business. Otherwise, it’s just a play toy. That’s my strong belief from my experience. And that’s what I’m looking for now. So I believe still today, still in Silicon Valley, even in YC, which is very difficult to get into, very talented people, still some people don’t realize that. They have that fallacy. And by the way, sometimes, very rarely, sometimes it is true when you build something so good. But again, even in YC, I think it’s very rare. So that’s my investment approach and that’s where it comes from.
Brian Bell (00:08:01–00:08:18): Yeah. And I’ve looked back at a lot of my failures and I can echo the same sentiment now. Most of the time when one of my investments fails, I invested too early. But how do you balance, you know, wanting to get into like a really amazing company, even though maybe they don’t have the traction you’re looking for, but everything else is going right. Like it’s the right time. It’s the right team.
Brian Bell (00:08:21–00:08:35): You know, the market’s ripe for this. The technology is amazing. Maybe it’s an enterprise kind of sales cycle. So they got a big pipeline and stuff. How do you kind of balance the need to see traction with sometimes like it takes longer to get traction in some business models, some businesses.
Gabriel Jarrosson (00:08:36–00:08:41): Including deep tech as well.
Brian Bell (00:08:37–00:08:38): Deep tech, yeah.
Brian Bell (00:08:38–00:08:35): That’s where I’m kind of digging towards.
Gabriel Jarrosson (00:08:39–00:09:37): Very difficult. Yeah, very difficult. I mean, there’s two sides of this answer. One is you’ve got to learn how to say no. And this is very difficult when you’re an investor. I actually think it’s harder for us, for you, for me, because we come from the syndicate world. And in the syndicate, everything’s additive. You can just do every single deal and you sort of don’t care. I mean, you should care.
Brian Bell (00:09:00–00:09:05): Because the LPA is choosing in this case, like you’re just putting together the memo and saying, hey,
Brian Bell (00:09:04–00:09:05): hey,
Brian Bell (00:09:05–00:09:09): this is really risky. It’s your money.
Gabriel Jarrosson (00:09:06–00:09:26): And I’m not, and you’re building, you’re selling to the LPs, hey, you do your own portfolio construction. I’m just going to invest in everything, you know. So it’s very different when you’re, when you’re with a fund, you have to think in fund dynamics, you’re the one making the decisions. And you have a very limited shots, number of shots, where with the syndicate, you can run 100 SPVs per year. And No one cared. So it is very different. And so it’s harder for us. We come from the mentality of, hey, let’s just take a flyer. But now it’s like, well, do I want to take a flyer with the funds money? So that’s one thing. And so you have to learn how to say no. I mean, you learn it pretty quickly as an investor because you’re not going to be able to invest in everything. But the bar, I think, is much higher now. And you have to say no to stuff that you love.
Brian Bell (00:09:46–00:10:13): That’s something that I sort of... So much stuff fails from zero to one too, right? Like, you know, so I typically, my bar is usually, you know, and YC is different, but let’s just take it like a general bar because half of what I do is non-YC, as you know. But typically, I like to see about 20 to 30K a monthly recurring revenue growing pretty fast before I invest. Because I figure at that point, you’re kind of default alive, right?
Brian Bell (00:10:08–00:10:15): Even if this ends up not being the thing that you scale, you have enough runway now with that, with two or three co-founders to find product market fit.
Gabriel Jarrosson (00:10:18–00:11:53): That’s exactly, I mean, that’s a great bar to have. And yes, so much stuff fails that early on. So you have to learn how to say no. I say no to deals that I like. I say no to tools that I use. And it’s difficult. It sucks. And I’ve been sort of struggling with this. At some point, I was thinking, oh, could I just write an angel check in them, you know, give them 5K? Now, I mean, you know, it’s easier now for me to get in because people know me in the community compared to when I was getting started. But even this is sort of a distraction. Like most of my personal cash is in my own fund anyway. And if it’s not good enough for my LPs, why would it be good enough for me? Now, there’s a second part of that answer is, Also, sometimes you make exceptions. So when it’s deep tech, when it’s longer sales cycles, which you really, so for me, the bar is, how can I justify it to my LPs? Because I sell it to my LPs all the time. Hey, I’ll only invest in their strong traction. And of course, I will make exceptions.
Brian Bell (00:11:10–00:11:15): Especially if that’s part of your thesis. Like if that’s in your pitch materials, like you have to stick to it, right? Yeah.
Gabriel Jarrosson (00:11:15–00:11:49): Well, I mean, I stick to it, but I also make exceptions rarely, but I’m very happy to defend that. I’m very happy to say, hey, listen, Yes, they don’t have, you know, whatever numbers we usually go for in terms of revenue, but there is this and this. And so far it’s been going really well because it’s sort of the, maybe the crazier investments. We know that if they work, they can return the fund a hundred times, a thousand times like those, you know, very, very big debts. And the LPs actually love that. But I think it’s good to, have a few of them. I probably wouldn’t want to run a fund only with those kinds of bets. So most of my bets are very rational, which allows me maybe 10% of the fund. That’s kind of more moonshot kind of thing, which is good. I mean, you want to have those.
Brian Bell (00:11:58–00:12:40): You want to have some of those, right? I think Sam Altman said it best. He goes, a lot of investing, especially angel investing, early stage investing is thinking about what can go right, not what can go wrong. And I love this quote, right? Because a lot of times what you’re looking at is like, hey, yeah, this like space elevator, microwave, you know, carbon fiber, blah, blah, blah, blah, blah, blah, blah, blah, blah. Like, I don’t know if this is going to work, but if it works, it’s this trillion dollar company.
Gabriel Jarrosson (00:12:20–00:12:21): So a lot of times- I agree with that a lot. Yeah, yeah.
Brian Bell (00:12:22–00:12:40): Yeah, you’re kind of playing these, it’s like playing poker, right? Like, I don’t know if I’m going to hit this hand, but if I hit this hand, the pot is huge, right? And so I have like a decent chance of hitting my hand here. I’m going to play the hand because if I hit that huge pot, everybody’s like, there’s so many people all in here. I don’t know what they have. I guess I’m beating that analogy to death, but yeah.
Gabriel Jarrosson (00:12:43–00:13:41): I love that a lot. Where I’m coming from is the problem with that. Again, I agree with that completely, but there’s a small problem with that is many funds will only do those kinds of bets. And if you have to accept that most of them don’t work out, So when that happens, if none of them work out in your fund, your fund is a zero, like it’s not a good fund. Yeah,
Brian Bell (00:13:04–00:13:14): you took 30, 40,
(00:13:21): 50 big shots on goal,
Brian Bell (00:13:08–00:13:19): but they were so big, big swings towards the grand slam fences of baseball that you didn’t hit any of them versus like you got to have some to have some traction to get those single triples and doubles in your portfolio as well.
Gabriel Jarrosson (00:13:21–00:13:45): Exactly. And so that’s where I’m coming from. I’m saying, hey, you know, 90% of the portfolio, again, it’s not 90% precise, I’m just making this up, but basically is companies with very strong early traction, whatever the sector, could be a moonshot as well. I mean, you know, if you have strong early traction right now, probably you’re doing something right that people like and people want and people pay for. But I’m trying to reduce the uncertainty and it’s very hard.
Gabriel Jarrosson (00:13:45–00:13:52): In venture, it’s kind of a game of playing darts with your eyes closed and we really don’t know anything, all of us, if we’re honest.
Brian Bell (00:13:54–00:13:55): We’re fooled by randomness, right?
Brian Bell (00:13:55–00:14:08): To borrow the phrase of a book.
Gabriel Jarrosson (00:13:58–00:14:48): Exactly, we are. And it’s crazy. I mean, maybe I shouldn’t say this on the podcast, but we keep all of us in the industry, myself included, explaining our strategies and what we’re doing and why we’re the best. And we believe it. I mean, I believe my strategy is good. But if we’re really sort of honest, again, most of us don’t know what we’re doing and we’re full by randomness of thinking. I see this with so many big, big, big funds where they, if you look at even Sequoia’s investment, I mean, they’ve hit so many great investments.
Brian Bell (00:14:25–00:14:36): but they’ve made hundreds of more that failed for every single like stripe or whatever that they’ve hit. They’ve hit a hundred zeros that you don’t hear about.
Brian Bell (00:14:34–00:14:57): So that’s the secret adventure that people don’t get. And I think you and I get it because we’re both pretty high volume investors is that you have to take enough shots on goal to hit the outliers. And you know, 50, 60, 80% of your portfolio, it’s going to return less than invested capital.
Brian Bell (00:14:49–00:15:03): So you’re playing, you’re playing the odds, right? Except you’re playing with house money. instead of like you know how casinos they make you know five or ten percent of all the gambling we’re making you know two and twenty and if we if we invest in enough we will we will hit a lot of that twenty percent carry right statistically and
Gabriel Jarrosson (00:15:08–00:15:28): where it’s really weird for me is i’m actually not a very high volume investor well
Brian Bell (00:15:13–00:15:19): yeah let’s talk about that let’s let’s talk about lobster where does that name come from um
Brian Bell (00:15:19–00:15:22): Tell us about your YC thesis.
Gabriel Jarrosson (00:15:22–00:17:39): Yeah, so the name is really funny. I wanted an animal... That was not taken. And that had an emoji. And the emoji is really cool because, you know, in the internal Slack and all of our comms, like we have the lobster emoji all the time. We’re having fun with it. The first LP dinner was lobster dinner, which was really cool. So, but there’s so many things funny with lobsters. There’s some very rare breeds of lobster called the blue lobsters, but there’s, they’re extremely rare, less than 1%. So those are our unicorns. We call them the blue lobsters. But also it was, Lobsters are sort of red-ish orange, which is close to the YC color. Like, this is the actual YC color. So when it’s something close, that works. But lobsters actually grow forever. They never stop growing their entire life. They’re not immortal because they have predators and whatever, you know. They don’t live forever, but they never stop growing.
Brian Bell (00:16:07–00:16:20): Do they die of natural causes, though? Or can they live forever?
Gabriel Jarrosson (00:16:11–00:16:28): Yes. No, no, they can die from natural causes. They’re not immortal.
Brian Bell (00:16:16–00:16:23): Like old age? Are they long-lived indefinitely or fascinating?
Gabriel Jarrosson (00:16:20–00:16:45): I think they can live very long.
Brian Bell (00:16:22): Yeah, yeah.
Gabriel Jarrosson (00:16:23–00:16:28): But also, however long their lifespan, do they die of actual old age?
Gabriel Jarrosson (00:16:27–00:16:36): I actually don’t know.
Gabriel Jarrosson (00:16:28–00:16:37): Yeah, that’s interesting.
Brian Bell (00:16:30–00:16:40): Somebody comment in the comments below on this.
Gabriel Jarrosson (00:16:33–00:16:45): Someone’s going to ask that GPT while we’re talking and put it in the comments.
Gabriel Jarrosson (00:16:36–00:16:44): But so that was really cool. And also in order to grow, they need to break out of their shells, which is really sort of, you know, get out of your comfort zone if you want to grow, et cetera. So that was really cool. Then there’s the blue lobster. Also, lobster is made for life. That’s the famous friend’s quote, you’re my lobster. So, you know, we’re, investing in you, we’re going to be in your company forever and we want to be your made for life. We want to do good for you. And then the last thing is, I think it’s Jordan Peterson quote that lobsters have been around for a very long time.
Gabriel Jarrosson (00:17:01–00:17:37): I think he said lobsters are older than trees. So there were lobsters in the sea before there were trees and it’s just kind of crazy. Okay. And the lobsters follow a very strong power law behavior. There’s a very few number of lobsters that are very dominant towards all the others. And they sort of get all the underground that belongs to them for hunting for food, whatever. So I think the point that Jordan Peterson made was power law is older than trees. Power law has been part of the world forever. And of course, as a VC fund, the power law is everything to us.
Gabriel Jarrosson (00:17:31–00:17:49): There’s a very few number of starters that are going to dominate all of the others in terms of returns. So that was also kind of a funny idea there. So there’s many, many things with lobsters. To be fair, I had no idea the name would resonate so much, but just people seem to love the name.
Gabriel Jarrosson (00:17:43–00:17:50): I’m very happy with that. It’s memorable.
Gabriel Jarrosson (00:17:45–00:18:52): And so to answer your other question, we only do YC. We do the top 2% of every batch. And that’s our definition of 2%. So that’s interesting.
Brian Bell (00:17:54–00:17:56): So that’s 2% on 150 is three or four startups, basically. Yeah.
Gabriel Jarrosson (00:17:59–00:18:28): Three to five per batch. So that’s why I’m telling you we’re not high volume. I’m thinking of- That is not very high volume, no.
Brian Bell (00:18:05–00:18:08): No, I misunderstood. Yeah, I thought it was a little higher volume than that.
Gabriel Jarrosson (00:18:08–00:19:03): Yeah, but it’s weird because I agree with everything we said before. Like you’ve got to invest enough to catch an outlier. Overall, in a fund, we roughly have 40 to 50 companies, which is a good number. But again, it’s not super high. It’s not considered a concentrated portfolio. Some funds do like 10 companies in the fund. That’s not what we do. It’s something in between. Many others do 100 plus companies per fund as well. So we’re in the 40, 50 range. Again, because we only select the top 2% of teams and top 2% in terms of Strong early traction, my favorite thing. There’s not that many companies in the YC batch anyway. Maybe there’s 10 per batch that fit our criteria. And then we do another selection on the 10. We have other things, some industries we don’t want or some this or that or the team or whatever it is. So yeah, that’s what we do. And I’m sort of able to reduce the number because we have this very strong initial filter. If I was doing regular seed, I would probably need 100, 150, I’m sorry, portfolio companies to sort of make it work. Because we only go for companies that are already growing fast, I reduce that number and hope for better outcomes.
Brian Bell (00:19:08–00:19:11): I like it. And then are you reserving any capital?
Gabriel Jarrosson (00:19:11–00:19:50): Our first fund, we do have Prorata. So our first fund is almost done towards the very end of the playing and raising the second already, but we didn’t. So we got Prorata, but do them on SPVs on the side or will do them on SPVs on the side. Second fund will reserve 30% for
Brian Bell (00:19:22–00:19:28): And so walk us through that decision on now reserving versus doing SPVs.
Gabriel Jarrosson (00:19:28–00:21:10): Honestly, yeah, exactly. I think the first one was kind of small. And so people told me, don’t bother. It’s just, you know, do a small thing. The first one was more of POC first step to go towards the second fund because we deployed quite a lot, honestly, with SPVs before with the syndicate. So the first one was not very significant in terms of size. We raised 12.1 or 12.3 million in the first one. That’s a pretty good first-time fund, by the way. Yeah, thank you. But, you know, before that, I had deployed with the SPVs 35 million in three years, which is sort of same-ish. No, it’s more, actually, because it’s 12 million per year. Yeah, it’s way more. So that’s equivalent to a 35 million fund deployed over three years. So again, initially it was like, okay, now I’m going to raise 150 million fund one. But of course it’s unrealistic. So like, let me do a small POC and quickly go. And that’s why, by the way, we’re already raising for our second fund, which is because usually you wait three, four years. And we just, again, it was sort of the POC is the right word. So people told me, you know, do something simple. You don’t need to keep reserves. Again, in a small fund, like even 30% would be, we keep what? 3 million for Parada, which is, There’s not like you can do two paradas with three million or something. So it wasn’t great. On the second one, honestly, it’s just, I believe what’s expected. And that’s pretty much why I did it. That’s what LPs want. It makes a lot of sense. I mean, you sort of buy 50 smaller tickets to the show and then five of them are probably going to do amazing. And that’s where you want to pile on and double down. So it makes sense. There’s been some literature actually that sometimes you’d potentially do better to just put all of your money in your first check because people sort of mess up the prorata. They don’t know which ones they should take prorata in and which ones they shouldn’t.
Brian Bell (00:21:14–00:21:25): I think Jason Calacanis have talked about this because he’s on fund four. And I think he looked back with his team on the proratas that they’ve taken out of the first three funds and they ran statistically.
Brian Bell (00:21:25–00:21:30): They’re like, yeah, we’re better off just taking first shots and not doing any reserves.
Gabriel Jarrosson (00:21:30–00:22:12): Yeah, I’ve heard that before. I like that a lot. I’m a sort of seed investor. I’m not a Series A, Series B investor. But again, it’s mostly what LPs expect. So, you know, in some cases, it can work out really well as well if you really hit it. But it’s interesting. I had a chat with Barry Eggers from Lightspeed, and he said, Your job as a fund manager is to know who your stars are and who the other one, to differentiate between the big, big stars and the ones that are doing well, but they’re not going to be the big star. And so I told him, I was like, Barry, how do you know? And he was like, it’s up to you, my friend, figure it out. But that’s your job. And it’s very interesting. You should know which companies to do your priority and which one not to. Yeah, that’s a challenge.
Gabriel Jarrosson (00:22:14–00:22:34): What about recycling? We do recycle. Oh, wow, it’s been so long. I haven’t thought about that. Yeah, yeah. Same thing. Fun one, we didn’t, I believe, because it was just more complex. Exactly, exactly. But again, it is expected because it reduces the fees for the LPs. Fun two, we’re like, okay, sure. You know, again, it’s a bigger fund. It’s going to be around for a longer time, et cetera, et cetera. So sure, let’s do recycling. I mean, there’s not really a good reason not to do it, so.
Brian Bell (00:22:38–00:22:46): let’s talk about traction and momentum for yc startups in particular we both do a
Brian Bell (00:22:42–00:22:50): lot of yc i think you’ve done even more than me and i’m pretty active what is good
Brian Bell (00:22:46–00:22:50): better best look like in terms of traction coming right at demo day let’s call it i
Gabriel Jarrosson (00:22:50–00:24:19): mean it’s been changing recently it’s it’s going up which is a good thing yc I think has amazing days ahead of it. Again, that’s my conviction. We’ll see in 10 years, but new leadership, new leadership came in, that’s Gary Tan and many new things, four batches, et cetera. And so it is attracting very talented people. I think a very big misconception that people have, and that’s exactly what you’re asking me, what we’re talking about is, people think YC is YC. There’s only like YC startups are all the same. And what you know very well, but very few people do is like inside YC, there’s actually a big discrepancy between the best and the worst. So that’s where we sort of specialize and dig deeper and dive in. And so those numbers have been really going up recently. I think in the last four batches, three of them beat the revenue, the overall revenue of the YC batch of all time. YC started 20 years ago now.
Brian Bell (00:23:42–00:23:50): And so there’s always been a... I think a company we invested at 10 million of ARR.
Brian Bell (00:23:47–00:23:49): Exactly.
Brian Bell (00:23:48–00:23:51): That’s pretty impressive.
Brian Bell (00:23:49–00:23:50): That’s just crazy.
Brian Bell (00:23:50): I’ve never seen that.
Gabriel Jarrosson (00:23:50–00:24:19): Yeah. And there’s Axiom who I think three months after YC did 100 million in net revenue. 100 million. Not at Demo Day, but only three months later. I mean, it’s mind-boggling. It’s two 25-year-olds who started literally six months ago and did 100 million of net revenue. It’s completely insane. But yeah, even, I mean, 10 million seems much smaller right now, but as well, very, very, very. impressive and quite incredible.
Gabriel Jarrosson (00:24:19–00:24:20): So that’s the first thing is going up.
Gabriel Jarrosson (00:24:20–00:26:07): Now, I mean, you ask me what’s the average, good, better, best.
Brian Bell (00:24:24–00:24:26): I’m trying to characterize it for the audience.
Gabriel Jarrosson (00:24:26–00:26:07): Yeah. I mean, good, good is probably somewhere around what you said. Like you said, 20, 30 K of MR. Growing 20, 30,
(00:24:33): 40% a month,
Gabriel Jarrosson (00:24:31–00:24:33): maybe,
Gabriel Jarrosson (00:24:31–00:24:32): or 10% week over week,
Brian Bell (00:24:32–00:24:33): 10 to 15% week over week.
Brian Bell (00:24:33): Yeah.
Gabriel Jarrosson (00:24:39–00:24:40): Exactly.
Gabriel Jarrosson (00:24:40–00:24:48): Something like that.
Gabriel Jarrosson (00:24:41–00:24:44): I mean, that’s actually even, that’s probably not even good.
Gabriel Jarrosson (00:24:44–00:24:46): That’s already probably better.
Gabriel Jarrosson (00:24:46–00:26:07): That’s probably, like, good is even, like, people who, you know, I talk, I reason mostly in AR, not MR, so annualized.
Gabriel Jarrosson (00:24:53–00:24:56): Let’s talk annualized, yeah.
Gabriel Jarrosson (00:24:55–00:26:07): Good is probably 100K. At demo day, you got 100K.
Brian Bell (00:24:58): At demo day.
Brian Bell (00:24:58): Yep.
Gabriel Jarrosson (00:25:01–00:26:07): AR. Again, AR is very sort of tricky because many times it’s been three months and you don’t really, but it’s just to, you know, get an idea.
Brian Bell (00:25:09–00:25:15): And when you say AR, we’re talking about forward AR. So they have about 8,000 of monthly revenue.
Gabriel Jarrosson (00:25:14–00:25:56): 8, 10, 12, something like this. Yeah, somewhere in there. Also, again, we’re talking generally, but if it’s like two customers, it’s not as good as if it is 30 customers because it’s sort of easy to get the first two, three, four people on board, but if you want sort of volume, density.
Gabriel Jarrosson (00:25:29–00:26:07): But yeah, let’s say 100K is good. That’s nowadays, it used to be, even this used to be rare. Nowadays, it’s probably... at least half of the batch, maybe even more. Maybe you know this better than me because you talk to more people. We’re very selective in who we target, but it’s at least half of the batch.
Gabriel Jarrosson (00:25:46–00:26:07): That’s probably good. Better is, for me, between 100 and 500. So you still have companies doing 200K, 300K. It’s much, much less, by the way, but you have some. This is probably 10 to 20% of the batch, maybe 10, maybe 15%, call it. This is solid. Now you’re really talking. Again, in three months, maybe four or five, they started before, but like getting to 300K LR, pretty cool.
Gabriel Jarrosson (00:26:14–00:27:37): And then best for me is 500 and above. And so you have the 500, but every batch have companies over a million. You talked about the 10 million. Every batch have companies in doing, you know, one, two, three, four, five million. This is incredible. probably the top 5%. And this is where we play. Like I said, there’s maybe 10 per batch, 10, 15 per batch. And so this is where we go and We don’t invest blindly. We do a selection on top. But if they’re doing a million plus, or even 500 plus, clearly they’re doing something right. It is working. And I characterize my investment style. I’m almost a pre-Series A fund disguised as a seed fund. We invest at the seed stage. It’s usually their first raise right out of YC. But it’s usually a higher valuation with a higher revenue. And by the way, this also solves the classic YC is too expensive. Sometimes it is, but I would rather pay, you know, 40 million valuation, which is really on the high end. But for a company doing 4 million in ALR, which is 10 times revenue, then paying 20 million, which is on the lower end of YC right now, for a company doing 10K, which is 100K, 200 times revenue. So you go from a 10X multiple to a 200X multiple. So even if it’s more expensive per se in absolute terms, it’s less if you look at the revenue multiple. So this would be the good, better, best. It’s 100, 100 to 500, 500. Curious, what do you think? Is that what you’ve seen?
Brian Bell (00:27:45–00:28:29): That pretty much aligns. I also think about kind of momentum, right? Not just the overall ARR. So like how fast are you growing? Yeah.
Gabriel Jarrosson (00:27:51–00:28:18): This is, by the way, thank you. I wanted to mention that like this is just numbers, but they don’t tell you the entire story. There’s momentum. And for me, very importantly, there’s sort of how did you get there and how do you keep, you know, scaling it?
Gabriel Jarrosson (00:28:04–00:28:18): So sometimes it’s a very, very, very manual, cumbersome, time-consuming process. It doesn’t really scale. And so I’m like, okay, you did this, but how can you 10x in the next six months? And sometimes they don’t know at all. So yeah, numbers are one thing, but there’s the story behind them as well.
Brian Bell (00:28:21–00:28:33): I like that. Yeah. Like how did you get to this 250, 500K of ARR and how will you now take that to 5 million of ARR? That’s another question.
Brian Bell (00:28:29–00:28:50): This is a big problem, right? You know, YC companies won’t send you their deck. They won’t send you their revenue. You know, there’s 175 companies per batch, maybe 125, depending. I think the fall batch will probably have less than the summer. I think the summer and the winter tend to be the bigger batches right now.
Brian Bell (00:28:42–00:28:46): And then the fall spring are a little smaller.
Brian Bell (00:28:43–00:28:50): How do you go through and get all this information? I mean, this is like, you know, 175 phone calls.
Gabriel Jarrosson (00:28:50–00:29:32): It’s tough. It’s tough. That’s what we used to do. So we used to speak to the entire back. Now, as you know, we’ve talked about it, but I’ll repeat it to the audience. PC introduced a conversion rate tracker. And so if you take 175 calls, we write five checks. That’s a very low conversion rate. And so founders then know that and they don’t prioritize your call. They’ll say, hey, you know, he mostly wastes. I mean, it’s not it’s not wasting time. Yeah, it’s just like, yeah, the odds of getting a check are very low. So I’m not going to put it.
Brian Bell (00:29:00–00:29:05): Well, it’s like kind of check per call. Like you have, let’s say a 5% conversion rate and you write 100K check.
Brian Bell (00:29:04–00:29:11): You’re probably and you invest in 5% of the batch. It’s like it’s a 5K call versus this other person invests in 50% who they meet and
Brian Bell (00:29:11–00:29:41): they write a 500K check. That’s a 2K call. So that’s what the founders are thinking about. And Bookface is keeping track of all this, by the way.
Gabriel Jarrosson (00:29:43–00:33:06): It makes sense for the founders. I don’t like that too much, but it makes sense. I mean, YC wants what’s best for the founders. Of course. It is what it is. Anyway, so we don’t meet with... So we used to talk to everyone. We don’t talk to everyone anymore. So we’re trying to get signals ahead of time. And some of them, some of the signals that we see are very good that I won’t share. Some are not very good. Can share if we want, but... So this is something I’ve struggled with as an investor in YC, and you’ve been doing it longer than me, but over the five years, I keep going back and forth, like between meeting the whole batch, going to demo day, waiting for demo day, which is a bad idea, trying to meet the whole batch before demo day because some of the hottest rounds are closing. And then you always get this pushback from founders where they’re like, well, YC told us we can’t send you our deck or tell you anything about us without meeting. But then on the flip side, YC is like, well, we’re going to keep track of everybody you meet and like kind of judge you by that. So like, how do you get around that? You know? You can. It sucks. Yeah, it is a problem. One thing is to keep my ear very close to the ground, you know, because I’ve been doing this for a while. And I mean, you as well, I’m sure you get sent signals as well. People are like, hey, you know, Brian, did you check this out? It’s doing well, etc. So this does happen and help. I’m trying to talk to a lot of people.
Brian Bell (00:30:59–00:31:03): But kind of using the founders in your network and some of that network to try to like hear about what’s hot in the batch,
Gabriel Jarrosson (00:31:05–00:33:12): right? Exactly. By the way, I mean, I also wanted to mention something. You said we can also wait for demo day and you immediately said it’s a bad idea. I not that you should do nothing at all before demo day, but even the biggest companies now, I think they keep some allocation for demo day. That’s what YC advises anyway, to say, you know, fine, raise before.
Brian Bell (00:31:27–00:31:30): I heard 10%, you know, of the round.
Gabriel Jarrosson (00:31:30–00:31:55): Yeah, that’s not a lot. That’s not a lot. And also, sometimes in the very best, the validation goes up as well. So if that’s the case, You could have invested cheaper early on. Being a YC investor, I’m sure you feel the same way. You can’t be super price sensitive. And I mean, for me, there are some limits. There are some people, some founders who are completely delirious. But I’m like, okay, it’s 100 million valuation. you know, go find another investor to do that. I’m not playing the game.
Brian Bell (00:31:57–00:31:58): You’ve actually said no on valuation. You’re like, your valuation versus your traction here is just not lining up.
Gabriel Jarrosson (00:32:03–00:32:42): And again, I’m not very valuation sensitive because I believe if you think this business can be a billion dollar business or even a $10 billion business, Getting in at 30 or 35 or 40, like, of course, it’s better at 30. It’s also better at 10 or at five. But the only chance you have is at this valuation that’s here in front of you. So if you don’t take it, it’s better to do a 50x, even if it could have been 100x, but then to do nothing. That happens a lot to us because, again, we play in the league of the very sort of high revenue stuff. But I have said no on valuation. All of that being said, you know, so you can’t wait for a time of day. Even if you have a slightly higher price, maybe it’s not that terrible. And just for before demo day, either you sort of sacrifice your score rating, your conversion rate rating that we talked about. Yes, I will be a low conversion investor and that’s it. The risk, of course, is some of the very hot deals will not get on a call with you. I guess that’s the risk probably. Or, and that’s what I’ve done is, You talk to some very targeted people. You try to get some signals from other people, but mostly from what you can see online, what you can gather, what you can pick up. Just talk to those. But yeah, it’s not perfect.
Gabriel Jarrosson (00:33:12–00:34:07): The risk there. So the first risk is, you know, you’re a low conversion and maybe you don’t get some calls. The risk here is sort of the same as while you don’t talk to everyone and you miss some of them. What we do as well is now we’re so prominent in the YC community. We talk to so many founders. We know so many people. We do so much content, et cetera. We also have founders coming to us. And so because we advertise, we only invest in the top 2% of the batch. And so we have founders coming to us and say, hey, you know, we think we’re in the top 2%. We have this much revenue. Would you consider an investment? So we’ve been now pursued by some YC startups, which is, it feels really good because it usually really is the other way around. The investors are pursuing the YC startups. Some YC startups have come to us and say, hey, you know, we have great traction. We’d love to have lobster capital, which gives us the option as well.
Gabriel Jarrosson (00:34:07–00:34:16): That’s amazing. If you’re a YC founder that has great traction, come to me.
Brian Bell (00:34:11–00:34:15): Yeah, exactly. If you’re listening out there in your top 2%, reach out to Gabriel first and then Team Ignite.
Gabriel Jarrosson (00:34:15–00:34:17): And then Chubohan, of course. Yeah.
Gabriel Jarrosson (00:34:16–00:34:17): Yeah, absolutely.
Brian Bell (00:34:19–00:34:24): What are some other signals that you look for? You talk about team. How do you evaluate teams?
Brian Bell (00:34:21–00:34:26): I mean, these are all really amazing teams. They got into YC, right?
Brian Bell (00:34:24–00:34:29): How do you kind of, what’s a good, better, best team as well?
Gabriel Jarrosson (00:34:29–00:36:07): I mean, you know, there’s been some, it’s very interesting. There’s been a lot of studies around team. It’s actually the number one criteria for a lot of people, including some very prominent other YC funds that we know we won’t name here, but I’m sure you know who I’m talking about.
Brian Bell (00:34:45–00:34:47): Probably been on this podcast, actually.
Gabriel Jarrosson (00:34:47–00:35:30): Yeah. Oh, really? Interesting. Okay. A lot of them have, yeah. Yeah, yeah, yeah. So very interestingly, I mean, I like repeat founders, and I think everyone does. But if you look at the YC data, actually, most YC unicorns have been started by first-time founders.
Brian Bell (00:35:02–00:35:12): Interesting.
Gabriel Jarrosson (00:35:03–00:35:31): In terms of number. Some have been started by repeat founders as well, but the biggest numbers have been started by first-time founders.
Brian Bell (00:35:09–00:35:18): Is that just because there’s mostly first time founders going through YC or is it
Brian Bell (00:35:12–00:35:18): like statistically more likely if you’re a first time founder?
Gabriel Jarrosson (00:35:18–00:35:39): I don’t know. And you have a lot of founders who do YC for a second time. Not only do they repeat founders, they repeat YC founders.
Brian Bell (00:35:24–00:35:31): That is really interesting. I see a lot of YC founders go back and do it again.
Brian Bell (00:35:27–00:35:30): Me too.
Gabriel Jarrosson (00:35:29–00:36:23): Me too. And people are like, oh, you know, once you’ve done YC once, sorry, you don’t need to do it again. And then the people, I mean, some don’t do it again. So many do it again. It’s interesting. Just a guy in the next batch did it in 2012. I like that as well a lot. not because maybe you did it like three years ago it didn’t pan out you’re close with the partner you do it again that’s that’s one thing you did it in 2012 and you you like had all this time to build this career and to learn so much stuff but 12 years, 13 years later, you’re back. You’re just doing it again. That’s very, very interesting for me. I had a good friend who did YC three times already. Instead of twice YC, three times.
Brian Bell (00:36:09–00:36:15): So anyway, we have this. I wonder what the record is. Like who’s gone through YC the most times?
Brian Bell (00:36:11–00:36:14): Somebody in the chat comment that.
Brian Bell (00:36:14–00:36:15): I’d love to know.
Gabriel Jarrosson (00:36:16–00:37:07): Yeah, that’s interesting. I mean, I know three times for sure, but there’s maybe four, five. I don’t know. Maybe three. Well, yeah, that’s someone in the comments. Anyway, we know outside of YC, like just if you take the entire world, there’s one school that produced the biggest amount of unicorns and that’s Stanford. And so when you have a founder from Stanford, Same thing. You should pay attention. When you have founders who have amazing pedigrees, who’ve done amazing things, even if it’s not building a startup, but who’ve been to top universities, there’s so many founders from top Ivy League universities, including Stanford and others.
Gabriel Jarrosson (00:36:54–00:37:03): Some are very elitist and difficult to get into. You should pay attention. Just the fact to get into this place...
Gabriel Jarrosson (00:37:00–00:37:08): It’s already an achievement.
Gabriel Jarrosson (00:37:01–00:37:07): It’s another filter.
Gabriel Jarrosson (00:37:02–00:37:41): Yeah, exactly. So we have a lot of Stanford founders or MIT or all of those other places.
Brian Bell (00:37:08–00:37:12): Waterloo, Oxford, all of them. Berkeley, where I went to school. I just got up to Berkeley there.
Gabriel Jarrosson (00:37:13–00:37:49): Exactly. I agree. Berkeley is a signal as well. And it’s close to home, right? And then same thing with big tech. If you’ve been hired at Google... Again, it’s like, it used to be, I don’t know if it’s still the case, but I think it was 15 interviews to get into Google.
Brian Bell (00:37:29–00:37:36): They only also take like one fraction of some percent of the applicants actually end up working at Google.
Gabriel Jarrosson (00:37:35–00:38:25): It’s pretty much like the YC thing itself. So when you have, you know, but that being said, like I just interested in a bunch of job ads from a university like, never heard of before and they haven’t worked anywhere and so they don’t check all of those filters but they have amazing traction and just talking to them like you know it’s the same for you we talk to hundreds if not thousands of founders every year and so sometimes you notice some things when you talk to them and talking to them like, wow, they’re just, they’ve figured so much stuff out. They have such a vision for where they’re going, even though they’re, I don’t know, 21 or something, but they, it’s just so impressive. So it’s not an absolute thing, but all those things kind of help. And it’s the same thing. You make exceptions.
Brian Bell (00:38:21–00:38:44): This is the hard no thing that you’re talking about. And I experienced this all the time is you meet a founder and you just know it’s an easy yes. Like right away, there’s like, they have it all figured out. They’re so smart. They’re A-level talent. They’re going to attract other A players. It’s just like you’re just leaning in.
Brian Bell (00:38:34–00:38:44): And then there’s these other founders where it’s like, oh man, great time. The demo’s pretty good, but I’m just not sure about the founder, right? It’s just, those are the hard notes for me.
Gabriel Jarrosson (00:38:48–00:39:11): I mean, again, I think we sort of play a different game. For me, it would be a no, probably because I have lower volume. It depends. For you, probably, whatever you’re trying to... I don’t know if you have a set amount of investments you want to make, but if you only have eight founders, you just go with those. But if you have remaining room in your allocation, you could potentially do those. You could also do great founders, bad idea, bad timing, like the other way around. Have you seen that as well?
Brian Bell (00:39:16–00:39:40): Yeah, this is interesting. And if you talk to a lot of VCs, they tend to go in a cycle. They talk about in their career, like over 10, 15,
(00:39:27): 20 years,
Brian Bell (00:39:24–00:39:35): they’ll go through cycles in their career where they think it’s all about the founders. And then they’re like, you know what? I think it’s all about the market and the timing. No, no, it’s all about the tech.
Brian Bell (00:39:31–00:39:40): And they actually kind of go through this cycle, which is really fascinating. kind of the life cycle of the career stage of a VC.
Brian Bell (00:39:40–00:39:44): I’m trying to figure out where I’m at right now. I feel like I’m kind of more bullish in founders right now.
Brian Bell (00:39:44–00:39:47): But there was a period of time where I was like very much about the tech and the timing and the market.
Gabriel Jarrosson (00:39:49–00:40:23): I’ll tell you two things. One, this sentence, I believe it’s from Eleanor Roosevelt, has always resonated with me. And I almost think about it almost daily, probably weekly, which is a person’s success in life is directly correlated with the amount of uncomfortable conversation he or she is willing to have. And so, you know, I was thinking of this of the hard note.
Brian Bell (00:40:12–00:40:15): I know that quote, but I didn’t know it was from Eleanor Roosevelt. Yeah.
Gabriel Jarrosson (00:40:15–00:41:53): I’m not sure. Someone in the comment, please confirm. I think that’s where it is. Yeah, I love that quote. I hope so because I’ve, again, said it so many times and thought about it so many times. And so, you know, yeah, that’s, again, I’ve been struggling with this as well. But for me, it’s almost like when I love the founder, love the idea, but they don’t have the traction that I want. And that’s the hardest for me because I believe in it, but there’s no proof. And so the other thing I wanted to mention to your point on, do I believe in the team, in the market, in the momentum or the timing? For me, the traction that I swear by, it’s all about the traction with me, is really a proof point on the team. It is so hard to underwrite how good a team is, but if you’ve done a million in revenue in a couple months, you have to be exceptional. It doesn’t happen randomly or by chance. It’s so hard. And I know firsthand because I tried as an entrepreneur to do this so many times.
Brian Bell (00:41:09–00:41:11): Yeah, you can’t have the traction unless you’re great,
Brian Bell (00:41:11–00:41:13): but you can be great without the traction.
Gabriel Jarrosson (00:41:13–00:42:35): Exactly. That’s really well said. Yeah. I’m wondering all the time, like if they’re so good, because remember, we’re all human beings. So, so many VCs, they fall in love with the tech, with the idea or with the team. And that’s where we go back to the fooled by randomness thing is we think we’re so smart, but actually it’s probably all random. And so, again, I think most VCs do it wrong when they fall in love with the idea or with the person. I think the proof is in the market. And I don’t have it here. It’s somewhere in my stuff. But usually I get my credit card. I’m like, this is the thing. This is the proof. So if I love an idea, but they have no traction, either the founder is not as good as I think or the market doesn’t care. But whatever it is, my ego shouldn’t let me to invest because I think I know better than the market. I’m smarter than everyone else. On the opposite side, sometimes I don’t get it. I don’t really like it. I’m like, people pay for this, but it’s exploding. And I’m like, that’s fine. I don’t have to like it. The market likes it. It’s Mr. Market. Mr. Market knows. And so it’s a reflection on the make something people want and the traction on the market, but also on the team. If you’re not able to navigate the ID maze and find product market fit, then you haven’t, I mean, you can be good, but you’re not good as a founder right now. This is what your company needs. Like the first thing your company needs is to find PMF. And so if, again, traction shows me that this is exactly what you’ve done and you’ve succeeded at it.
Brian Bell (00:42:39–00:42:44): Really well said. Let’s talk about, you know, AI and how it’s impacting what you do on a day to day basis.
Brian Bell (00:42:44–00:42:49): Like, are you using AI?
Brian Bell (00:42:46–00:42:49): Do you even feel like you need to if you’re only doing the top 2% of YC?
Brian Bell (00:42:49–00:42:53): So what degree are you kind of integrating AI into your workflows?
Gabriel Jarrosson (00:42:53–00:43:48): No, we are. I think everyone needs to. I think it would be probably reckless, especially, I mean, we have a front row seat AI and innovation. I think YC is pretty tip of the spear with all that stuff. It is pretty transformative. So yeah, I think it would be probably very dangerous to be like, no, I’m fine. I’m just going to. So yes, we are using AI. It’s frustrating because we’re doing such sort of high touch. It’s like, you know, Swiss watch making handmade, very high touch, very precise, investing large sums of money. I mean, we write now 250K checks and soon 500K with a second fund. It’s not like I would be able to write, you know, a couple million dollars in YC myself. It’s other people’s money that they’ve trusted me. I have to earn that trust and then be worthy of it. So it is fine, fine, high touch.
Brian Bell (00:43:52–00:44:25): This is what I struggle with too, with the use of AI in venture capital, right? Because, you know, I do use it, especially with due diligence and deal screening for cold deals. Warm intros, I’ll just look at the deck and then, you know, just make a decision. Because it’s not a human intractable problem to just glance through a deck and decide if you want to meet with somebody or not. And I think it’s good to have AI reviewing your due diligence. But I think your analogy of like, You know, constructing a venture capital portfolio is very much like making a very high end custom watch. You don’t use AI. This is a handcrafted product. This is like, this is a craft.
Gabriel Jarrosson (00:44:27–00:45:48): And the other side of it is fundraising, which we both do a lot of. I mean, that’s, again, the part of the job that people don’t see. But again, it’s very high touch. you talk to people and you have to trust base. Yeah. And, and, and like people tell you some very important stuff and it’s, you know, a lot of, again, for them when they’re writing a chat, It’s a lot of money. They put thought and responsibility into that. So it’s kind of hard to have a sort of automated email sequence or email AI to reach out. People can see through that.
Brian Bell (00:44:59–00:45:00): It doesn’t work.
Brian Bell (00:45:00): It doesn’t work.
Gabriel Jarrosson (00:45:00–00:45:11): I tried it. It doesn’t work. Yeah, exactly. I think at some point it becomes better. I think there’s a world where we’re able to do high-end luxury watches with... robots and factories and ai in a few years and there’s a point where ai for us works as well but so we’re using it uh but it’s a lot of internal stuff and not not decision making not lp facing all of that stuff still remain for now and and i again was talking with the gp of a yc fund who’s um
Gabriel Jarrosson (00:45:34–00:45:46): using a lot of AI and stuff like that, then he always says, oh, by the way, at the very end, there’s always a human taking the decision. I was like, oh, that’s very interesting. You’re branding yourself as sort of this AI thing, but there’s a human.
Gabriel Jarrosson (00:45:38–00:45:50): But maybe at some point it becomes more.
Brian Bell (00:45:49–00:45:53): Yeah. Do you feel like AI systems replace us someday as VCs?
Brian Bell (00:45:53–00:45:59): Or do you think there’s always this like human element of I’m always going to need that human touch to construct the portfolio, meet the founder? I mean, I’m torn.
Gabriel Jarrosson (00:46:01–00:46:41): To be fair, I’m torn. I think. A lot of VC funds could be AI and could actually do a decent job at some point. Maybe not today, but probably we’re close. But AI is becoming so much better. So I think there’s going to be one part of the industry that might do that. It’s like those quant trading, right? You build a program, but you’re not trading yourself. The program is trading. Yeah, I think this can work and probably yield some results.
Gabriel Jarrosson (00:46:29–00:46:41): But how do you get allocations? Like you just send an email to the founder. It’s faceless.
Gabriel Jarrosson (00:46:33–00:46:49): VC is more than just money, especially a YC. Like which YC company would accept money from an email that’s completely faceless that, you know, people want you to bring value to open your network and intro and what they value with me, for example, and many others is, oh, you’ve been an entrepreneur.
Gabriel Jarrosson (00:46:47–00:47:10): Like you’ve been in the trenches like we are right now. And so sometimes I’m like, oh, you’re doing this one. I was doing this with my second or third startup. Let’s jump on a call and I can help. So yeah, I think it could work. I don’t think it replaces everything. I think it could be additive or replace some, but I don’t think it replaces everything. I feel there’s still room for people like us, for some at least, some of us, if you run a good enough fund.
Brian Bell (00:47:14–00:47:18): Yeah, I love that. You’ve been an entrepreneur and an investor a long time as well.
Brian Bell (00:47:18–00:47:24): How do you feel AI is impacting entrepreneurship right now, particularly YC entrepreneurs?
Gabriel Jarrosson (00:47:24–00:49:55): I think people make it more complicated than it is. People ask me as well, hey, how do you invest in AI compared to before? Because people say, oh, you can vibe code and there’s no technical mode anymore. And it’s a side tangent, but it’s relevant to what we’re saying. I always answer, hey, you know, There’s been tutorials on YouTube way before AI of like how to code the Twitter website or the Instagram app in three hours. And you could replicate the Instagram app. The code has actually never been the mode. So it’s even less so the mode today, but it’s also giving tools to people to vibe code, people who were not technical before. So I think it’s very similar to what we’ve seen before. My grandfather tried to start a company online. when he was 50 years old. And so that’s probably in the 70s, something like this. And so basically, he bought a factory floor, hired 10 people, and went bust in a few months because there was so much cost. And so that’s his only foray in entrepreneurship. And so, of course, then you could start a company with just your laptop and you could just go online and buy a domain name. And so it made it possible and so much easier for everyone to start a company. And then something very interesting was you needed to have your own servers. And then Aduble came in and you could just literally have a laptop and everything would run in the cloud. You didn’t need to run your own server at your office. And so then you need, before you had to hire people to do the work or you had to go on platforms like Upwork or whatever to have other people do the work for you. And now AI can do some of that work for you. Or you had to hire a developer to build a very complex system to automate some of your tasks. And now you can just have AI create that code for you. So it’s just sort of Giving you more tools, lowering the barrier to entry. Anyone today already can create a phone app. It used to be quite difficult to create a phone app. And now you can Vibe code a phone app. And again, those things are not perfect, but they’re getting better and better and better.
Brian Bell (00:49:20–00:49:22): You’re going to YC company, A0, that does that.
Brian Bell (00:49:22): Yeah, A0.com.
Gabriel Jarrosson (00:49:23–00:49:40): Exactly. Exactly. We’re an investor. We love the capital action. Nice. You’re an investor as well? No? Yep. We’re probably on dozens of cap tables. We don’t even know.
Gabriel Jarrosson (00:49:32–00:49:40): So we’re co-investors. Exactly. A0 is doing that. There’s a bunch of others actually in YC, but this one is one of the most interesting, in my opinion, in yours as well.
Gabriel Jarrosson (00:49:39–00:50:12): So it’s just giving you more tools. What that means is you can just go faster. It’s accelerating everything. I have this big theory that, you know, we’re in the peak. My theory is that we’re at peak illiquidity with farts. Everyone hates that. It’s, you know, there’s no exits. There’s no IPO. I believe the AI is going to accelerate everything. including the exits. So I think VC funds used to return money after 10, 15 years. I think this is going to go down drastically. So hopefully we’re going to benefit from that because if we can distribute liquidity faster, so much better for everyone, including for us, but mostly for our RPs. So it’s just, yeah, just bringing you more tools.
Gabriel Jarrosson (00:50:12–00:50:27): Lowering the barrier to entry. And you can just build stuff faster. Like before you needed to actually have a factory and then you can just have a laptop. And then before you need to have your own servers and you can just go to AWS. Then you need to have your own employees. They can just have AI agents doing it for you.
Gabriel Jarrosson (00:50:24–00:50:27): So, and, you know, think about something as trivial as maybe building a list of prospects.
Gabriel Jarrosson (00:50:27–00:50:57): You had to hire someone, whether internally or externally, to actually build the list. And now you can just have a few prompts and like, hey, give me, or there’s so many companies and tools or whatever. Give me a list of 100 people. that I could try to sell my stuff to. And then, again, writing personalized emails. Oh, just AI is going to write personalized emails, check their LinkedIn profile, company, whatever, bring something relevant. And again, it’s not perfect, but it’s getting better. It’s the worst it’s going to be right now. It’s only going to be better. Things just go so much faster. And I think that’s why YC batches beat the revenue record. It’s just you can build stuff much more quickly now.
Brian Bell (00:51:01–00:51:11): Yeah, that’s amazing. Well, let’s wrap up with a rapid fire. Beyond ARR, what’s a metric that you like to look at?
Gabriel Jarrosson (00:51:15–00:51:22): Churn, pace of growth, and what percentage of new customers are inbound slash automated?
Brian Bell (00:51:22–00:51:31): Let’s imagine...
Brian Bell (00:51:25–00:51:31): You know, a founder has, you know, in the best tier of revenue that you described, a million, and they just tripled it in the last three months. What would make you still say no?
Gabriel Jarrosson (00:51:33–00:52:31): So many red flags can exist. Founder is not, I mean, there’s, yeah, there’s many things. Well, crazy valuation, uncapped, would make me say no.
Brian Bell (00:51:42–00:51:44): Uncapped only? So you basically get the Series A valuation?
Brian Bell (00:51:43–00:51:44): Yeah.
Gabriel Jarrosson (00:51:45–00:52:31): Yeah, uncapped. I don’t do that. But yeah, some, you know, poor margin or negative margin that happens a lot. You know, we’re a million dollars, but we’re losing money. You know, you can just buy iPhones, go in the street, give them away. You’re also making a million AR, but you’re just losing money. It’s not very interesting as a business. Yeah, you know, team issues. Like, I don’t know, there’s bad blood or there’s something. Or sometimes the founder is trying to, And many times founders, because they’re trained by YC to be very good pitching and storytellers. So you feel like there’s something they’re hiding you or something that happens a lot. I dig, try to dig a lot. And so sometimes it doesn’t add up and I’m like, I don’t know what’s going on, but it doesn’t smell good. I’m not going to touch it. That happens as well. So yeah. And many more that I forgot.
Brian Bell (00:52:33–00:52:37): If you weren’t investing, what space would you dive into today, maybe as a founder?
Gabriel Jarrosson (00:52:37–00:53:41): I’m very passionate with space. So the space I would dive into would be space. Yeah, I would love, if I was not investing, I’d probably be a founder. It might be my future at some point to actually be a founder again. I don’t know. We’ll see. I’m having fun there for now. Yeah, I like space tech or the space run itself. I’m very interested in how AI is helping material sciences, biology, even drug discovery, all of those things.
Brian Bell (00:53:00–00:53:06): Man, I wish I knew more about biology. That’s like one area.
Brian Bell (00:53:02–00:53:13): I’m just so excited about that area right now. I heard a stat about the FDA approvals because AI is getting so good at simulating human biology, right?
Brian Bell (00:53:13–00:53:23): And simulating how the molecule is going to interact with our biology. that FDA phase one trial approvals have gone, they’ve basically doubled to stage two.
Brian Bell (00:53:17–00:53:26): So that’s really exciting for humanity. Like if we can get more drugs through the pipeline faster, we’re going to start curing disease faster.
Gabriel Jarrosson (00:53:30–00:53:41): And anti-aging as well. I’m very bullish on that. I’m very optimistic. I think both of us will probably live 200, 300 years old in good shape.
Gabriel Jarrosson (00:53:33–00:53:41): I believe with AI and all of this, it’s happening. So again, I don’t know much about it, but I’d be such a cool place to build.
Brian Bell (00:53:46–00:54:40): Are you doing any of the blood draw, optimizing your biomarkers and things like that yet? I did one, but it was more for me sort of a, you know, yearly checkup, making sure everything’s fine. You know, they did give me a lot of optimizations. Apparently I eat too much red meat. Yes, that’s an obvious thing, like sort of easy thing to make better. But I work out two or three times a week and I try to do more. And I’m a lot into intermittent fasting as well. So yeah, I did my biological age. So I’m 35, but my bio age was 20. So I thought that was pretty cool. Yeah, we’ll see.
Brian Bell (00:54:21–00:54:40): But I want to do more. I’m doing Lifeforce, mylifeforce.com. They send a phlebotomist to your house every three months. They take your blood. see where all your biomarkers are, prescribe you different supplements and prescriptions. Yeah, it’s pretty cool. It’s pretty fun.
Gabriel Jarrosson (00:54:35–00:54:36): What’s it called?
Gabriel Jarrosson (00:54:36–00:54:38): MyLifeForce?
Brian Bell (00:54:36–00:54:39): MyLifeForce.com. Okay, cool.
Brian Bell (00:54:39–00:54:50): Yeah, kind of neat. I take a huge, I mean, I’m 45, right? So I took a huge handful of pills every day, trying to stay young and stay healthy. And yeah, it’s a fun journey.
Brian Bell (00:54:50–00:55:13): How would you coach a founder to stay lean, but also invest in growth, momentum fuel? What’s that look like? I love this one.
Gabriel Jarrosson (00:54:56–00:55:33): I would outsource before I hire. So it’s usually cheaper and you can course correct. You can fire very easily, very quickly, et cetera. So outsource until it becomes such a cost center and so important that you can actually bring someone full-time. Many people just hire because I guess it looks cool to hire or something. I don’t know. So outsource. I would also learn by doing yourself. You can and you should do everything at the beginning. You can really hire if you haven’t done it, if you don’t really know what’s needed and what it takes, et cetera. So those are the things I would say.
Gabriel Jarrosson (00:55:25–00:55:33): Don’t hire 10 people. just do the job with maybe the help of external freelancers. Yeah.
Gabriel Jarrosson (00:55:34–00:55:45): And I mean, you know, I have this, there’s this fallacy like, oh, we, again, in sort of the build it and they will come, it’s like, oh, we have this product. As soon as we raise, we’ll sell it.
Gabriel Jarrosson (00:55:36–00:56:07): And that’s something that I hate. You should be selling it right now without money. So it shouldn’t require money to grow your company and to sell. So on some level, you don’t even need to spend the money you raise. I mean, you do spend it to grow faster, but not to start growing.
Brian Bell (00:55:58–00:56:03): What’s your favorite founder archetype, like visionary, grinder, bridge builder, et cetera? And which one do you think is getting overlooked right now?
Gabriel Jarrosson (00:56:05–00:57:20): I don’t think in founder archetype. I think it’s the YC, might be Michael Seibel, I’m not sure who says, relentlessly resourceful. The founder should be relentlessly resourceful. The founder journey is so hard. I’ve been on it several times over. And that’s why, I mean, that’s why, again, you have to have a lot of respect for people who get to a million AR in a few months. It’s like, So impressive because it’s just so difficult and so hard. So yeah, relentless resourcefulness, optimism. Most founders are, otherwise you’re going to be a founder. And grit. I mean, it takes grit. It’s a very long journey and you’re going to get punched in the face many, many times. That’s the archetype I look for. I don’t know which one, maybe it’s the grinder. You have to be some sort of a visionary as well, I guess. Who’s getting overlooked? I mean, I think some types of founders being overlooked are the ones who just won’t take no for an answer. That’s again, the relentless resourcefulness is this, you know, close the door, they come in through the window, close the window, they come into the chimney. There’s some people out there that just, they’ll never stop. They’re machines. They’re built differently. And I love that. And that’s what I’m trying to be as a founder myself. It’s not easy. It takes a lot of energy and conviction in what you’re building. But those people are, I think being overlooked, people be like, oh, they’re pesky. They’re annoying. Like those people are going to make it because they’ll never quit. They’ll be there at midnight on a Sunday at your door. For them, it’s everything. I love that kind of founder.
Brian Bell (00:57:26–00:57:32): I love that. What’s a book or idea that keeps guiding your founder mind and investor lens?
Gabriel Jarrosson (00:57:32–00:59:43): I’m an avid reader. I read a lot. So there’s always so many books that, you know, have impacts on my life. I read mostly nonfiction business books to try to become better, etc. I can tell you one that I read very recently, like last week. that completely, I don’t know, revolutionized how I think about building my fund is Buy Back Your Time. Yeah, Buy Back Your Time by Dan Martel, I think is the author. Yeah, I just, and I sent it to already 10 people. So it’s good that I should mention it here. It’s probably, it’s the flavor du jour in a sense. Like I just read it last week and so it’s very present in my mind. Many other books have had significant bigger impacts, probably talent. We mentioned it like Black Swan, Anti-Fragile, Monuments for me of of literature, value, pretty interesting principles. Actually, the book that had the most impact on me 20 years ago is, or almost 20 years, 17 years probably is Tim Ferriss, 4-Hour Workweek. I mean, today it’s not relevant at all to what I’m doing, but just, it was sort of the first book sort of like this that I read. And so obviously big, big impact on my entrepreneurship journey, et cetera.
Brian Bell (00:58:37–00:58:38): What’s the thesis in buy back your time?
Gabriel Jarrosson (00:58:38–01:00:29): So the thesis is you should not hire to grow your company. You should hire to buy back your time. And the thesis is to constantly extract yourself of whatever you’re doing to give it to someone else. So you can constantly... go to higher levels of higher levels of higher levels of your company, of your life or whatever you want to do. And so it’s the example of Oprah Winfrey, who is a billionaire and who works two hours a day and that’s it. Like she has so many companies, so many people handling stuff for her. Like in the morning she works out and she walks her dog and then she has lunch with a friend and blah, blah, blah. And then from like three to five, She works and goes through everything. And then that’s it. She goes back to enjoying her life. And so, but that’s just like, the idea is not to do this and just work two hours a day. It’s just, again, if all the works get done, what can you work on next? What can you grow? What can you do? And so, I mean, I’ve always sort of thought about giving tasks away, but this is for me almost another level of, I’ve never envisioned lobster capital to even work without me. And again, that’s not the goal. Not to say like I will put people in place and go on vacation. It’s just like when everything that I’m doing today works without me, What else will I be able to do? And so that’s, yeah, that’s what I’m thinking of a lot in the next few weeks.
Brian Bell (00:59:57–01:00:11): It reminds me of the book E-Myth. I read that probably 20 years ago. And it’s basically about thinking about, yeah, the tasks you can take off your plate and how to work on your business, not in your business.
Brian Bell (01:00:07–01:00:13): Because if you’re working in your business, you have a job. But if you’re working on your business, you’re a business owner.
Gabriel Jarrosson (01:00:13–01:01:07): And, you know, it’s very, yeah, I agree. I’ve read, you’ve read before, I’ve read in many books, but that’s why I keep reading new stuff. It’s almost basic, same principles we all know. And then I read it again. It’s also presented by the author, maybe with a new lens. And I’m like, and also that’s what I did right now. Maybe I read it 10 years, five years ago in another book. And I was like, okay. But then right now in my fund, and by the way, because we’re raising Fund 2 and growing, Fund 2 is going to be much bigger than Fund 1. And I’m also right now building a team. So that’s why it came at exactly the right moment. But yeah, you know, again, it’s probably more, and the biggest impact have probably been Talib, Tim Ferriss, 15, 17 years ago. Yeah, yeah. Stuff like that. There’s a lot. Again, I read, I don’t know, 40 nonfiction books a year. So you can catch up with me on Goodreads if you want to see what I’m reading. Amazing.
Gabriel Jarrosson (01:01:04–01:01:38): So I wouldn’t be there without reading. Reading is just a superpower. What I realized, you can, you know, so few people actually read. And now I’m not talking Audible, audiobooks. I’m not even talking Kindle. I’m talking like paperback. I mean, I have both Audible and a Kindle, but paperback is really the best thing. You can literally plug your brain for $20 on someone else’s brain that’s probably very much smarter than you, smarter than me for sure.
Brian Bell (01:01:28–01:01:36): Or at least on that topic that you’re reading about.
Gabriel Jarrosson (01:01:30–01:01:38): Exactly, exactly. And they just,
Brian Bell (01:01:32–01:01:40): it’s $20 and it’s better than- You get the benefit of thousands of hours of their time, maybe hundreds.
Gabriel Jarrosson (01:01:37–01:01:51): Exactly, exactly. So it’s insane.
Brian Bell (01:01:39–01:01:46): Totally, I totally agree. Well, I’m so glad you came on and every time I have somebody like you on, I learn something new and I’m sure the audience will learn a lot too.
Brian Bell (01:01:43–01:01:46): Thanks, I really enjoyed the conversation.
Gabriel Jarrosson (01:01:48–01:01:59): Thank you for having me. And yeah, I enjoyed it as well. It was great. And subscribe to the channel. Don’t leave subscribers. Stay here, please. Go ahead. Subscribe to Ignite, please. All right. Thanks.
