The Rise of the Solo Capitalist: How One-Person Funds Are Winning Big w/ Itamar Novick, Recursive Ventures

SCS (Intro): 

With 25 years on all sides of the startup table, from engineer to operator, from Sandhill VC to solo GP. It is no wonder founders call him their first call when shit hits the fan. Today on Billion Dollar Moves, we're joined by Itamar Novick, founding partner of Recursive Ventures, one of the most quietly powerful forces at the pre-seed stage with investments from Deel to Armory. Before recursive, Itamar made a bold contrarian bed pouring his life savings and more into Live360, where he served for over a decade helping grow it, from Seed to IPO, now a $4.5 billion public company. 

Today he's building his fund with a thesis grounded in capital efficiency, AI native products, and founder first alignment. He's redefining indeed what early stage ventures should look like in a world of inflated valuations, noisy AI wrappers and mega funds going multi-asset. Itamar is staying small, focused, and radically helpful. Let's get into it.

Itamar Novick: 

The thing that I focus on most is making the most impact for my customers. And my customers are founders, and I believe that folks like me, solo capitalists who invested in the Pre-Seed and Seed stage, provide the best service for founders at that stage, right at the Pre-Seed. And that's exactly why I'm doing what I'm doing.

So I can help these guys, I can help those founders as they're getting going. Help them to get from zero to one, help get them off the ground to building a great company. I've been in the startup sort of scene for 25 years. I'm originally from Israel. I moved to the Bay Area, San Francisco Bay area about 15 years ago.

But I've been coming in and out of Silicon Valley for roughly 20 years at this time. And obviously I've gone through a lot of learnings. You know, we always grow and learn, especially in startups and there's new waves of innovation and technology. You know, we're in the. First inning of AI now, which is obviously very exciting.

I'm not a great CEO. I'm great at supporting CEOs. That's sort of what I've learned. Supporting people, you know, folks like Chris Hulls, who's the CEO founder of Life360 and took it all the way from inception to IPO and beyond. That's sort of where I shine and that's what gets me excited. The thing that I enjoy most is when I'm the first call, when you know, S hits the fan, right?

There's some issue in a company that they need to overcome it, maybe with a board member, maybe it's a VC, maybe it's fundraising related, maybe it's related to an employee, or friction between different founders. Those are kind of things that I love solving and I love being there on the founder's side to help them out.

I feel like the job I have today, you know, running ING Ventures best positions me to do that thing that I'm so passionate about. 

SCS: 

Just for those that are in the rough right now, I guess as a CEO and realizing they might not be good at it. What was the telltale sign that you're more suited to be an investor versus an operator?

Itamar Novick: 

It grew on me over time. Look, I've done both very, very extensively, right? I have more than 20 years of operating experience. Over 10 of that are in very senior executive positions. I've also started my career as an engineer, so I was also an individual contributor and a mid-level manager. 

So I've kind of seen this play out from a lot of different seats around the startup theater, if you will. And then I've also been an institutional vc, right? Because I started my career on Sandhill Road being a senior associate at a firm called Morgenthaler Venture. Then I helped start an accelerator actually, and I've been angel investing and advising companies before I set up this fun.

So. Most of where I'm today is just really trying all those different things, experimentation and trial and error as well. Obviously made a bunch of mistakes along the way that brought me to understand that this is what I think I'm good at, and also getting feedback. My superpower for the companies in my portfolio is getting them funded in their next funding round.

That's my superpower, right? I've helped over 50 of my companies raise their Series A and beyond, so I have a full program around, this is how you build a deck, the narrative. Here are the KPIs that you need to hit. We back channel with different VCs. I make the intros and we keep back channeling until we get it done.

So before I set out to really construct recursive ventures to be the best. Firm for Pre-Seed founders who were starting off. I did a survey. I asked my founders, I have over 170 founders in my portfolio. What's the number one thing that you want from your VC? And guess what? You'll be surprised it wasn't necessarily mentorship or help with hiring.

You know, we've got a lot of full service firms out there like Andreessen. It was “We want our VCs to help us raise money”. That's what they're here for. They invest and they help us raise the next chunk of money. So I built my firm that way to best serve my customer. I help my founders raise their next round.

So instead of kind of trying to figure out. What I think folks need, what I think founders need. I just went out and asked them, and that's the answer I got. And that's how I constructed my VC firm. 

SCS: 

And let's take a step back here. You know, Life360. You spent something like 12, 12 and a half years with this company building and supporting Chris as you said, but it did start with a partner not believing the vision that you and Chris saw.

Bring us back to that moment where you decided to bet all your life savings, so much so that your Israeli mother-in-law came up to you and said, boy, what are you doing? 

Itamar Novick: 

Yeah. It's one of those crazy moments. You know, in life there's some of these like intersections where you can take a right turn or a left turn and then you just don't know what's on the other side.

I was a junior VC on Sandhill and one of the partners at my firm, Morgenthaler Venture, sourced Life360 at the Seed stage. I did all the diligence work and I was like, Hmm, there's something here. I see it, right? I see that in the numbers also I see that consumers love this.

So Life360, the family network. It's all about safety and peace of mind for families. And always-free feature is always on location. So you know, mom and dad can see where the kids are at, where everybody's at. So that's kind of the core, basic piece. But then on top of that, the company built multiple subscription products such as crash detection and response.

So today, for example, Life360 sends over a hundred ambulances a day to car crash sites saving lives on a weekly basis. So I was a VC. I saw the company very, very early on and literally. Everybody passed. Like all my friends on Sandhill were like, yeah, we don't know about this company. It doesn't make sense.

And I'll never forget, one of the partners in my firm said, yeah, this Life360 thing doesn't make any sense because kids are never gonna have smartphones. And I was like, whoa, wait, I think all kids are gonna have smartphones one day. And obviously we agreed to disagree and my firm passed and then I stayed in touch with the company.

I helped the founders a little bit. I was a little bit of an advisor and they came to me and said, Itamar, you're like the only VC that really understood what we're up to. Do you wanna just join us? Maybe? And I had a long track record of being a product manager and a product executive helping building products.

I joined the company and the founders told me. Look, like there's a third co-founder that has a bunch of equity and he wants to leave that third co-founder so we can arrange for you to buy out that co-founder. And I was like, okay, if I'm doing this, if I'm leaving venture, you know, my cushy venture job to go work at a company, I might as well go all in.

That's my opportunity. So I took every cent that I had to my name, I borrowed money on top of that, and I bought out that co-founder very, very early in the journey and sort of joined Life360 as a late co-founder, and then helped build the company from seed stage all the way to IPO and beyond. The obvious thing I'll say about this is it was just a huge bet, you know, it's like taking all my life savings, all the money I had, the time borrowing more money, so taking on liabilities to do this crazy, you know.

Big move. Obviously I don't regret it today. Today, Life360 is a publicly traded around $4.5 billion market cap on the Nasdaq, but back then it was very contrarian. 

SCS: 

How old were you at that point in time? 

Itamar Novick: 

I was 33, 34. 

SCS: 

So still very early taking all this risk. Yeah. 

Itamar Novick: 

And my mother-in-law was in town and she was like, what the hell are you doing with my daughter's money?

Like, you're crazy. What happens if you lose all this money, all your life savings? I was like, you know what? I'll bounce back. I'm a VC in Silicon Valley. I'm in tech. I'll find another job if it doesn't work out, but. Once in your lifetime. I think it's worthwhile making a big bet, especially if you're in a strong position.

Go in, make that big bet. You could be rewarded big time for that. 

SCS: 

Yeah. As you did. I guess just walk us through that process here in, in thinking about it, because a lot of big risks, especially this year, right? A lot of folks are thinking about a lot of pivots. The market has forced pivots in many different ways when you faced with these hard decisions, what's the framework that you use? 

Itamar Novick: 

I'll give you one that's kind of obvious, but people don't talk about enough. Time is money, and money is time. So for me, if I'm gonna spend all my time building something, I might as well wanna maximize my exposure to the potential success of the time that I'm spending.

So it kind of adds up to this big bets narrative when I'm making an investment decision, or I'm making a decision to join a company, or I'm advising somebody to join a company or build something, right? I always think about it with more of a VC kind of framework in mind of like, okay, are you joining the right people and are you gonna learn in this journey?

Is your learning curve going to flatten quickly, or are you gonna keep learning a lot? Because if you're learning a lot, you're learning from the right people. That's a worthwhile endeavor. One. Two is, is the thing that you're pursuing, right? This company, this business, is it big enough, right? Let's say if this thing theoretically works out the way you want to work out five to 10 years from now.

Is this big? Is this gonna make a huge impact on people and potentially create a multi-billion dollar company? So that's like another criteria that again, I have in my investments, but also in how I spend my time. I'd rather prioritize things that would make a bigger impact. And then obviously all the other stuff that VCs think about.

So like when I give advice or when I think about joining a company as an employee, senior or junior, I put on my VC hat and I'm like. Okay. Does this endeavor meet the VC criteria? If it does, then yes, I should be investing my time in it. 

SCS: 

Yeah. And 12 years is a very long time. Tell us a little bit about your chapter there.

Why did you stay for that long? Were there times where you were ready to give up or switch the channel a different way? 

Itamar Novick: 

You know, these type of companies, I mean, when I started there was, there were just a few employees at best. The company has gone through so many different iterations. You know, you can't compare a seed stage company to a Series B company, to a public company.

And I had the privilege to somehow to go through all of these, right? The opportunity. So I actually started as VP of product and I ran product and design and growth and help bring the company from a few. Tens of thousands of monthly active users to tens of millions of monthly active users. As a product guy, I was kind of leaning more and more toward the business side, so I essentially became COO, ran finance and operations and customer support, and a bunch of other functions within Life 360 through every iteration of the company.

I was thinking long and hard, and so was my boss and partner Chris, like, where is Itamar’s best position? Like where can he help the company the most? My last role in the company was essentially CFO and head of Corp Dev and BizDev, so finance, fundraising, corp dev, acquiring companies. I had the opportunity to acquire eight companies into Live360.

Some of there are products and other talent acquisitions and business development, so opening up new uncharted territories for the company, opening up new business lines. And significantly expanding our footprint. The rationale was always, where can I make the most impact? Okay. That, that's kind of where I'd be going.

Then at some point the company got too big for me. I'm an early stage guy. I think there's better people than me in being a C-level at a 500 plus public company. So I transitioned back to do what I love doing most, which is supporting founders at the inception, at the earlier stages, getting from zero to one.

SCS: 

So getting the zero to one, talk to us a little bit about how you decided to shape Recursive Ventures and why recursive in the name. 

Itamar Novick: 

So first of all, recursion is an algorithmic technique in computer science. Uh, yes. It's a very geeky name. I'm a computer science undergrad, so Recursion is the first time that I felt like, wow. Algorithms can be so powerful, right? 

So it was a personal experience for me and that why it would be a great brand for the fund. I've been running Recursive all along while I was building Life360. Actually, fund one, Recursive I is 2014 vintage, is one of the most successful funds of its vintage.

It's got, you know, amazing companies in it, like HoneyBook, like Placer, like Ripple, and a few others. It's sort of a continuation of that. I did Recursive Ventures II in 2018. This is all moonlighting while I was working at Life360. So I was working hard back then, still do, and that 2018 fund Recursive Ventures was also bigger.

It also had like more of the LPs that you would expect to have in a venture fund, like a family office that kind of went even better. Recursive Ventures II 2018 vintage is even better fund. You know, very deep into DPI. 

So when I looked at all that around 2022, 2023, when I started Recursive Ventures three and moved to venture full time, I was like, why is this thing working so well?

And that's when I put my head around like, okay, here, here's like solo capitalist focus, all those different pieces, put them together and realize that. I'm providing the best service for Pre-Seed founders, and that's the value here, and I should pursue that. 

SCS: 

The rise of the solo venture capitalist has been in the making for years.

Some have taken your path where they moonlight, right? Because then that's less pressure off because if we all remember, we should remember the VCs aren't always rich at the get go. The management fee, 2% doesn't pay much if you're a very, very small fund. Remind me what was the size of 2014? 

Itamar Novick: 

Yeah, that was a million dollar fund.

SCS: 

Exactly. So you couldn't have paid yourself as well, right. And survived. So you needed that job in some way? 

Itamar Novick: 

My focus was Live360, a hundred percent. I was basically mostly investing in friends and people that I knew that were opening up new companies. I wasn't actively out in the market sourcing deals as much as I do today.

It was a much smaller firm back then. 

SCS: 

How has your thinking evolved in running the firm? And, you know, we see a lot of going back to the rise of solo VCs here. We see a lot more coming up, but it is actually pretty hard to be doing this all on your own, right from back office to sourcing the best deals to ensure you don't have, you know, negative selection.

You might be in a good group of friends, but not everybody is. How do you think about your evolution as a solo gp and what would people need to know to be successful as a solo gp? 

Itamar Novick: 

So having been a solo GP now for, gosh, 11 years, so many things have changed for the better. It is so much easier than to run a fund these days than it was when I got going.

First of all, you've got, you know, on the back office side, you've got great platforms like Carta and AngelList. I've been using them. It's simple, it's easy, it's cheap, right? Previously you had to pay. Up to hundreds of thousands of dollars just to be able to manage the operations and back office of a venture fund.

Now you can do it with AngelList for, you know, if you get a good deal $25K a year. It's been commoditized in a way, and that's very good for emerging managers. That's one. The second thing is I think the LP community these days is much, much more receptive to. Smaller funds, emerging managers, diverse managers, and solo capitalists.

I remember when I started my ker in 2010 on Sandhill, it was really an old school, college industry. I don't think there were a lot of solo capitalists back then. I mean, I know, or Aurangzeb from these days. There were people deploying capital, but it wasn't really an institutional grade product, at that point, investment product.

Now it is, and then I think this sort of last wave of innovation around AI is a huge opportunity for solo capitalist because I think, I believe, and I'm exemplifying that myself, 80 plus percent of what I used to do as a senior associate in more entire ventures and AI can do today. 

And that is a huge opportunity for solo capitalists to scale up with AI. And still maintain that authenticity that solo capitalists bring to the table. 

SCS: 

What is the value now? I mean, I guess this is where it starts to heat up, right? A lot of LPs are now questioning the future of investing in gps where human selection is, uh, frankly questionable, right? If I can get a bunch of data ingested into a model to come up with the best selection for you, what is the value of vc?

Where do we see venture moving forward? 

Itamar Novick: 

So I'm skeptical about AI replacing general partners. I'm super positive about AI replacing a lot of the functions of junior investors, and I'll explain why. So at the end of the day, VC is a relationship business, right? It's about connecting to people. It's about evaluating people based on intuition, pattern recognition.

Just a lot of experience building these companies and working with various folks. I think there are limitations for AI in doing that. And I think also we're far from a point where investors, LPs would say, okay, I'm willing to bet a big chunk of my money in AI, right? 

I think there's always gonna be humans sort of managing the AI on the investment side, at least. In a private asset like venture capital where you don't have all the data, you don't know, like there's, there's, you need to fill in the blanks with a bunch of intuition and skills. So I don't subscribe to GPs are gonna be completely replaced by AI. What I do subscribe to is a few things. First of all, venture capital is changing at a pace that is unprecedented.

Every day we've got massive changes coming our way in the venture capital community, I'll just name a few. One is the rise of the mega funds and the rise of the solo capitalist and the pre-seed funds, and then sort of all the folks that are stuck in the middle, you know, all the series A funds. They're kind of stuck and we can talk about how increasingly challenging that position is and how those, the bread and butter of Sandhill is now being challenged on both sides, right? 

It's an interesting time to be at two is with the rise of AI, you've got more and more founders talking about bootstrapping and seeding, and do we actually need all this capital? The venture capital as a class to build these companies. We don't need to hire hundreds of engineers as much as we used to need to in the past. And we're probably getting to a world where we don't need to hire 200 salespeople because we've got AI, SDRs, and all those other amazing tools, right? So that's a second shift that's happening.

A third shift that's happening is what I call the transformation of the VC asset class from one asset class into three asset classes. So we now have Pre-Seed and Seed, which is more like what venture used to be back in the day. Then we have early stage investing Series A, Series B, that's kind of increasingly becoming more of the scale up, early scale up funding.

And then obviously we've got pre IPO and Growth, and each one of these requires. Different types of GPs, different portfolio construction and different operational cadence. So as the VC ecosystem matures, you get more specialists. That means smaller funds, less partners per fund, and so on and so forth. So all those things are happening at the same time and at an increased pace.

And I think it’s reshaping the world of venture capital. 

SCS: 

I wanna go down all those rabbit holes, but let's start with how this has shaped your thinking in pre-seed and seed. I mean, seed strapping is very real, right? So how do you then ensure that you're getting into those companies that eventually give you the DPI that you need for your LPs now that you're a $30 million fund?

Itamar Novick: 

A few guiding principles and things that I believe in, this is now for everybody, so bear with me. Most VCs are playing the AUM game essence under management. I'm not. What happens when you play the AUM game is you are always pushing yourself to grow, grow bigger fund, bigger fund, bigger fund. The bigger your fund gets, the worse your performance typically gets.

I think the fundamental reason why that happens is because you're forced to get outside of your comfort zone and doing deals that you're not really good at doing. I'm great at doing precedent deals. If you throw me into the series A GP. I can do that job, but if I try to do that at the same time I'm doing Pre-seed, I'm inherently gonna lose.

It's a different asset class. It works differently. It moves at a different pace. The flexibility that you need, the mindset that you need is inherently different. So if you are a Seed fund, and let's say you run a $50 or $100 million dollars seed fund, you're really positioned to win. But if your next fund is a $200 million fund and you still call yourself a seed fund.

Guess what? You're not a Seed fund anymore, you're a Series A fund as well. So that playing that AUM game, which unfortunately both GPs and LPs push this kinda unnatural growth is a huge mistake. I'm not doing that. I'm not playing AUM game. I'm staying small, staying focused, staying lean. In order to stand out, you need to be both vertically and stage focused.

So for me, I mostly invest in data and AI projects. Sure, it's fair to say that AI is now what everybody's investing in, but I've been investing in AI and data for 10 years and my track record is very closely tied to the rise of this kind of new technology. So I'm gonna keep doing what I'm good at.

I'm not gonna do clean tech or energy or bio, or it's like. I don't know that stuff, so why would I, oh, because I wanna manage more money. I'd go and build, you know, a hire a partner to do healthcare. No, it's not. It's not what we do, right? It's not what I know how to do. So focus on stage precedent and focused on space data and ai.

That's the second thing. The third thing. Which I think is not controversial, but not a lot of VCs do, is I think as we move to support younger and younger generations of entrepreneurs, right? Gen Zs, for example, I think Gen Zs, they don't care as much about those big brands. Like obviously they want to get checked from Sequoia, great, but like Gen Zs care about individuals.

They want to get funded by people that they like that are in front of them and that speak to them. So for me. One of my main pillars is becoming an influencer Vc, and that's why you see me write, you know, on LinkedIn, on x showing on pods. I'm, I'm eventually gonna launch my own pod. And the thing that I try to speak to is, is helping those founders early in their journey and by consistently doing that.

You stand out and you've got the best and brightest, you know, founders coming to you saying, Itamar, we want you to fund our company. And that's what I hear increasingly in my work. 

SCS: 

I wanna sort of double click on the rise of the mega funds here and also the shape shifting actually of the mega funds.

Light speed has become an RIA. This follows Sequoia's like evergreen structure. Many of these mega funds are now becoming investment advisors, essentially. And what are your thoughts here on the shapeshifting of the big guys in venture? 

Itamar Novick: 

Yeah, I think it's a natural evolution. We've seen it, it's a consolidating move where you're seeing those big, so-called because they're no longer venture funds in my mind, transitioning into being a much broader financial services firm because they are playing the AUM game and they are competing over who raises $7 billion next and $10 billion and $20 billion. 

That's really the game that they're playing, and I think that's excellent for them and it's excellent for entrepreneurs. They really are doing the best that they can to cater to Growth stage, even early stage. They are increasingly finding ways to support their companies if the IPO window is not open, which is sort of the case even though eToro made it through yesterday, which is exciting. Most companies are blocked, essentially from going public these days.

Obviously we've had a lot of scrutiny on bigger M&A from the government. Maybe that's gonna change, maybe not, I don't have a crystal ball, but what some of those bigger funds, you know, becoming investment advisors are doing is they're really setting them up to support companies through whatever life cycle they end up going through, right?

And I think that's great. I think it's a positive thing. What I think it does do as well, is it clearly delineates between what's a venture fund and actually a financial services firm. I don't think these guys are venture funds anymore. They're not, I mean, in early, that's what they said when they, they, they're no longer playing the game that I play, which is a very, very high risk gain and at the same time necessarily having a true commitment.

To support those funders at the very early stages. Look, let's be honest about this, and I have amazing friends in Andreesen Horowitz in Sequoia, and those bigger funds, Lightspeed, whatnot, they're not set up to support entrepreneur, a budding entrepreneur who, you know, just like opened the company, is trying to figure out how to take your first steps as an entrepreneur.

They're not positioned to support that person, right? Because it's too small. They're distracted by bigger deals and bigger opportunities. They have billions of dollars to manage, right? So I think in a way, by transforming into those big financial services firms, their commitment to super early stage founders has actually diminished a little bit.

Well, their commitment to support their winners in later stage companies has actually increased and. That's a great thing. That's exactly what their strategy stands for. Increasing a UM supporting bigger and bigger companies. It works well for them. It works well for founders. It's just, let's call it out.

This is no longer early stage venture. 

SCS: 

And of course it opens up a big window for you then to really do your scrappy seed stall investing and doing what you're good at to help the founders get to the next stage. But are we getting to the next stage, is the question that we have now? I mean, you just uh, touched on it, of course, eToro is an exception.

We do have Mor Assia in our partner funds consortium here with Beyond The Billion, so very happy for her and her husband, but for others we've had markdowns, what, you know, those that were valued $20 billion now marked down to $600 million. A lot of companies that were hitting the ARR were not durable.

The exit window for IPOs, has it really opened for others? What's the end game looking like for you, as you enter now and seed which is super early, right? So you're looking at what, 10 years at least. For an exit opportunity in the long horizon, unless you go into the next fund and sell secondaries. How are you thinking about your sort of liquidity here for your LPs?

Itamar Novick: 

From my perspective, and this is coming from a person that slowed down deployment in 2021, 2022, we were absolutely in the bubble. There's no doubt I going through the motions of 2020, 2021, 2022, we had ridiculous stuff out there. And look, it worked very well for me as well. It's just, you, you have to know when to stop when the music stopped.

And we should have had a massive bubble burst in 2020 through 2024. And we didn't, because AI came around the corner. And what AI really represents is likely what I believe and. Obviously take it with a grain of salt because I'm an AI investor is probably the biggest disruptive, innovative wave we've seen since probably invention of the personal computing.

I actually think this is bigger than the internet and tech works in cycles. I'm sort of almost a veteran, I guess, being doing this for 25 years, it really works in cycles and when you see a new cycle that's big, that's gonna change the world, that's the time to jump in and will be a part of it and kinda ride that wave all the way through.

So I think there isn't actually a better time than now to invest in super early AI companies. This is the time to do that. Are we gonna reach a GI in the next five years or not? Yeah, I don't know. I don't have a crystal ball. I'm more of a skeptic on that. I think, you know, there's limitations to the care and transformer architecture that we're all using.

Are we gonna see, you know, humans being replaced or upskilled in a lot of different areas? I think to a certain degree, yes, but you know, it might take longer to play out than we think. So I don't know if this thing is gonna take five years, 10 years or 15 years, but just like Webvan didn't arrive back in 1999, right?

But Instacart is arriving at your door today. This thing is gonna happen, so there's no better time to be investing at the earliest stage AI deals than now. And that's why I'm doing what I'm doing. That's why I'm in precedent seed investing now in companies that are gonna be big 10 years from now, just commenting on liquidity.

The market has evolved so well, you know, I've done probably what, like six, seven secondary transactions over the last five years, and I'm proud of that. I think it's great to bring liquidity to your LPs. I think if you're a Pre-seed investor, you need to have a secondary strategy, right? You need to be ready, you need to have the right framework to be able to pull the trigger on secondary transactions and.

I don't think I should be a fiduciary of my LPs money at a pre IPO stage because I'm not on the board. I'm not a banker. I don't know when this thing is gonna go public. So if I have a great opportunity to return money to my investors so they can funnel it back to whatever they think is right early stage venture late stage.

Then that's my job, then I should do that. I should offer them that liquidity. I should offer it early. I should focus on IRR and I should wire the money to my LPs so they can circle it back into the industry. And that's part of the role that we have to take as super early stage pre-seed investors.

SCS: 

Yeah, so I have a question there. I mean, this is a tricky one because part of being the Pre-Seed and Seed investor that you are, we're betting that you are taking the right bet for us to have the right amount of ownership, and you hold it for a strategic amount of time so that I get the maximum exit, right?

It almost conflicts with what you say and that you don't wanna be the fiduciary all the way to the IPO stage. What is then the role of a precede and seed investor, if not to tell us when to hold and when to let go because we've built now the ownership. 

Itamar Novick: 

I think folks like me who manage Pre-Seed and Seed funds should absolutely be a fiduciary of all the early, you know, first few years of a company's lifecycle, right? Obviously I track, I touch base, I figure out what's going on through Series A. Series B, series C as the company, let's say, up to a hundred million dollars of ARR, if ARR is even gonna be what matters a few years from now. It has moved to consumption based models, which is a whole different conversation, but I should be on top of it and I should know what's going on.

But then there is a stage, and this is coming from a person who took a company public as a CFO, right. So I've been through that journey myself. There comes a stage where it really is becoming increasingly less dependent on the company. Of course, how the company performs is really important and more dependent on the market.

So is Trump gonna throw out a new tariff tomorrow? Is the overall Nasdaq trending down in the next year? I don't know. I don't manage a public equity portfolio. When you are at these stages where you are at the whims of the macro of the market, that's not where VCs should play. According to my philosophy at least.

And if we get a great opportunity to sell, and I don't sell everything, sell parts, there's a rationale behind it. Obviously there's a framework in place to how we sell secondaries at Recursive, then I think that's the right thing to do. Also, because we should not be focused on MOIC and TVPI, we should be focused on IRR.

So if I can get you a 50X today. I might as well do that versus wait another unknown, maybe five years to give you 80X. That's not a good deal. So that's really part of the framework that we use to make those decisions. And sometimes you miss, but you put the best foot forward for your LPs. Unlike Series A, Series B, board member of VCs, we do have the opportunity to sell without having a negative signaling effect.

SCS: 

Yeah. So then let's talk a little bit about AI here. I mean, you are of course bias as a AI investor and arguably, you know, it's been around for a long time. It just had a massive rebrand when ChatGPT was launched to the public. Right. But you've been doing the work behind the scenes. Where are we today? I mean, there's a big flush of capital into AI.

It's really dominating most of vc. It started with everything's an AI wrapper, and then now the market cap of the AI app itself is big enough, so we wanna invest in it. How are you thinking about AI and how do you drown out the noise to remain focused on what you think will work? 

Itamar Novick: 

Absolutely. So let's start with the very sort of high level thinking about what's out there in ai. So from my perspective, there are AI driven, AI based applications. 

There is AI infrastructure, the AI stack, what you know, people often refer to as picks and shops, right? I think US investors, gps, LPs, public equity investors. We have over invested in the infrastructure and the stack part of AI from NVIDIA to open ai, to tropic all those things that are basically picks and shovels to build AI applications.

So in a way. The Gardner Hype Cycle we're kinda where things were at in 1998 and '99. Where Cisco selling boxes that deliver internet routing. Were just like over investing in the infrastructure, and that does two things. First of all, I think some of those investments are gonna turn out as bad investments, which is unfortunate.

We have a hard mentality here among investors. Invest in the next LLM, next LLM, more money into the LLM. I think that's gonna prove to be a mistake from some folks. So that's the negative. The opportunity is this massive investment in the infrastructure actually makes it much easier for us to win at the application layer because we have better lms.

They're becoming a commodity. It's easier to build on top of them, and inference costs and training costs, post-training, fine tuning, which a lot of my companies are doing, are decreasing exponentially. Year over year, which is amazing. Locating capital on one hand, huge opportunity. On the other hand, where I believe most of the value creation is gonna happen and I'm not the only person that thinks that way, is obviously the application there.

I think what I just said for a lot of your listeners is kind of obvious, but I wanted to start with that because it's a good delineation of like what's actually going on now. When you look at the application layer, actually until like 2024, we had very small amount of investments at the application level.

The big ones were always like open AI and like, but only when we started having the curses of the world and sort of other application layer companies getting significantly bigger injections of capital, which sort of happened a year ago. Did we start to actually go into the application layer, which is again, where most of the money is gonna be made is at the application layer.

The second thing is. Yes, we should be concerned about fin wrappers on top of LMS because it structurally changes value creation and venture capital. If you are building a company that doesn't have a moat, a differentiation, I believe it's very likely that at some point the music would stop. When is it gonna stop?

Is it gonna stop at a Seed? Is it gonna stop Pre-IPO? Is it gonna stop when you go public? I don't know. But if you don't have a Moat, the music is gonna stop. So one of the first questions I ask my founders before I invest is, please tell me five years from now, how are you gonna be one to two years ahead of the competition?

Is it gonna be your technical expertise, proprietary data, proprietary ways of using data, the best user experience to build this agent? I don't know, you tell me, but if you don't have a plan, I think your space is gonna be commoditized and there's gonna be 20 copycats and it's gonna do exactly what you do and it's gonna be a race to the bottom.

And that's not how you make money in startups. You don't make money by undercutting the cost, the price of your biggest competitor. That's the way that spiral into basically losing and becoming a big company. I think it's an inherent problem that we have. And at Recursive Ventures, I built a thesis that's all about AI Moat, and those are the companies that we invest in.

So we have a clear vision and thesis on how you can create a differentiated company. 

SCS: 

And give us an example here. It's hard to choose among your favorite babies, but something innovative, which gives us some conviction that it's not just Figma AI, right? Or another service side in AI or something else, which is a plug on that you are seeing actually in the seed stage that's making you inspired to do more and invest more in the space.

Itamar Novick: 

Last week I invested a relatively small amount in a company called Harmony. It's like a loom mixed, like AI agents. So you can video record yourself doing whatever process you're doing online. Oh, I'm going on LinkedIn. I'm checking out them, copying this, this spreadsheet. I'm updating the CRM, whatever workflow you have, mostly for go to market teams, but whatever workflow you have, you basically record and the thing breaks it down into a multi-step agent.

You can design all those different steps and you can figure out, oh, when do I want a human in the loop? Or how do I want this agent to operate and how do I want it to correspond with me? That's what Harmony does, but that's not the interesting part. The interesting part is that the founder that built this company actually built a significant Philippines based virtual assistant business. 

So he has the rights to hundreds of thousands of recordings of our virtual assistants. Executive assistants are doing all these processes for their customers. It's like, oh, go figure that out. Put in the CRM like, and they know what, based on all this data, what is the best way to accomplish X?

So the next level is, when you record the student workflow that you're doing this thing can tell you, you know what? If your goal is to do this thing, there's actually a better way of doing that because we have hundreds of thousands of recordings of assistance doing this job, and this is shorter, easier, cheaper.

So not only can an agent reproduce what you need done, that agent is actually going to help you get better doing that thing. That's exciting to me, because obviously this company has proprietary data that other companies don't have, and they're going to use it to significantly improve an important piece of digital work.

SCS: 

Well, I wanna pivot a little bit. A lot of what you share is how founders often make wrong decisions about ownership. They, you know, end up on the short end of the stick after working for 12 years in a company. I wanna ask you this question for the founders that are, you know, in the later stage, but they're navigating an environment where a lot of it, based on what we just talked about in this last hour, the fact that a lot of the valuations were mispriced, bad deals were done.

Ars were put at a, you know, target that was not really durable in this environment, right? We're almost like, I, I think I've seen deals where they were matching the trajectory of 2120, where it's no longer even possible given what's happening in today's market environment. What is your advice to these founders to ensure that they get out in the best way possible? 

Itamar Novick: 

What I write about for the benefit of founders is a combination of what I call VC horror stories. This is all the cases where VCs. Are doing things that are potentially in favor of the VC and are not necessarily very helpful to founders anyway, from firing the CEO founder to having draconic terms on term sheets and, and investments in preferred chairs, and so on and so forth.

So those are more things that founders should be, be aware of. They're not necessarily super common, but. It's things that founders should know and avoid, right? Because they end up hurting your company. The other thing that I spend a lot of time on is what I call startup anti-patterns. I have this whole kind of byline, this whole narrative of writing about anti-patterns.

Anti-patterns is really a concept from computer science and engineering that talks to something that makes a lot of sense. Like as a founder, you're like, oh, of course we should do X. But actually doing that thing, anti-pattern, it actually makes things worse in the longer term. So like a bandaid or a Kool-Aid, right?

Writing more and more content that's gonna help founders, again, avoiding those pitfalls, avoiding mistakes. But kind of going back to what you were talking about, which is the sort of valuation terms, I, I'd say, you know, you should really. Pace your funding according to the growth of the business, right?

Like if you overshoot, if you raise too much money, it's gonna cause issues, right? Too much money. Not having scarcity of resources is a problem. Scarcity leads to innovation. It leads to breakthroughs, it leads to disruption. The second thing is if your valuation is outta whack, then you're basically taking what is already a very risky business.

Startups, and you're making it even riskier, right? It's like leverage. It's like this thing is already risky, and then you're leveraging up. So if you go raise an evaluation that's way above where you should be, and you don't perfectly hit all your goals and milestones in the next 18 to 24 months, you might be facing a down road.

And that's a destructive thing for a startup. You'll have everybody lose motivation. You're gonna lose motivation. Morale is gonna be hurt, people are gonna leave, you're gonna lose, you know, the momentum that you so much appreciate in a startup. So I think you have to be really balanced to set stuff up for success.

And that means don't take. Much more money than you need. Don't go overboard on valuations. Those things actually increase your risk. What I tell my CEO founders very often is, look, this startup thing is super risky. A big part of your job is to de-risk. De-risk this thing for your investors, for your partners, for your employees, for all your stakeholders, right?

You are in the business of de-risking. This is already inherently risky. You don't have to make it worse. You just need to make it. Actually easier for people to win versus create hurdles that could make it harder for them to win. 

SCS: 

Love it. And we're under the wire here, so I'm gonna end with a game because we're not doing this in person, but usually you get to pick billion dollar questions.

The question is, let's redesign venture for a second. If you could kill one practice in VC today and double down on another, what would it be? 

Itamar Novick: 

Oh, this is controversial. You're gonna love this. Preferred shares at the Seed stage. 

SCS: 

Okay, kill that one and double down on?

Itamar Novick: 

More alignment between VCs and founders at the seed stage.

Lower valuations to correspond to not having preferred chairs. Let us be partners all the way, all the way through from the beginning, founders and early stage VCs, and leave the preferred shares games for the late stage guys. 

SCS: 

What's one advice you wish you had received before making a major financial decision?

Itamar Novick: 

Well, easy one. I subscribe to the portfolio theory. That's how I manage my money, so I wish I knew enough about diversification and best practices around that. When I started my career, I was an engineer. I didn't know enough about that. Obviously I taught myself over time and I got my MBA, so I think that was very helpful.

SCS: 

All right, Itamar. Well, I am letting you go. Thank you so much for your time and for dropping those gems. Where can we find you? 

Itamar Novick: 

You can obviously find me on LinkedIn. You can obviously find me on Twitter and uh, you can find me in the San Francisco Bay area. If you are a founder and you want to connect with me.

Please, please, please, I have a one single ask. Get a warm intro from somebody that knows you and knows me, and I'd love to review the deck. I'd love to give you feedback. If you talk to me, I'm gonna try to deliver at least one valuable thing to you that’s helpful, whether it's feedback or an intro or something. That's my promise. 

SCS: 

Love it, and everyone can always write to me, and then I'll get you to Itamar. That is my value add for you as a listener. Thank you, Itamar, and congratulations on everything that you've built, and we're looking towards the next decade of Recursive Ventures. 

Itamar Novick: 

Thank you so much for having me, Sarah.