20VC独家：Mercury创始人携手 Immad Akhund 发起首支2600万美元基金

Sequoia does not take their position lightly. They did the most work. I think it is very hard as an entrepreneur not to chase the highest valuation. We did our Series B at 120x, which was not rational. This is 2021, but we did it, and I would do it again.

I just prefer serial founders. I have such a bias towards them.

A serial founder with the chip on their shoulder?

Oh, yeah. 100%. Ready to go.

Immad, dude, I was probably very young when you were last on the show, definitely 5 or 6 years ago. I've missed you, but thank you for joining me again today.

Yeah, excited to be here. I'm always listening to the show, so it's fun to be on the other side every now and then.

1. Exclusive News: New Fund Announcement

Oh, dude, that is very, very kind. Listen, I want to start with some news that you have. I'm thrilled that you said you'd share it with us. What is the news that you have for us today?

I finally closed on my first institutional fund. We raised $26 million. I'm partnering with a friend of mine, actually. He invested in Mercury 7 years ago. His name is Yash Toshi. He was at EQT Ventures.

In the last year, I've been doing angel investing, actually, since 2016. I've done about 350 investments, and I've been working with him for the last year. I was like, "Hey, I just need to bring him on full-time and do this a little more properly."

2. Lessons from 350 Angel Investments

I've so far been investing mostly on AngelList, so I had an AngelList rolling fund. I just closed it last week or the week before, and already have invested in 5 or 6 companies.

3. Raising a First Time Fund: Challenges & Surprises

Dude, I want to take this chronologically before we dive into the fund. You mentioned the 350 angel investments you made—an unbelievable angel portfolio. What are the biggest lessons that you have from 350 angel investments?

Number 1, I think this is something that entrepreneurs—especially if you're an active entrepreneur—once you become an investor, you think you're used to running a company, used to having your ideas. What you do at the start is, you're like, "Okay, yes, you're talking about something really interesting, but here's another idea that I think is way better."

Then the other entrepreneur, especially if they're young, is like, "Yeah, I love this. Please invest. We love what your idea is." Obviously, that's not their idea, and it's not even fair to push an idea on other people. You really have to remove your ego and your ideas and listen to what they want to do. You're much more along for their journey rather than a major part of it.

When I first started investing, I sold my company in 2016 and I was like, "Hey, maybe I want to be a VC." I started investing, and that was my approach. I was like, "I'll be really hands-on. I'll be really helpful."

Then I realized that one of my first investments was likely Rappi. Rappi is like a DoorDash for LatAm. I literally invested, and they did not talk to me again. They were just so busy, and they grew that thing like crazy. It was a unicorn within a year and a half. I invested at like a $20 million cap.

I was like, "Okay, what is the point of being an investor if my best investments don't even talk to me?" As a capital returner, if someone I invest in just does their thing and returns a big return, that's great. That was one of my really early takeaways.

Can I intercept there on that first takeaway? You don't want to intrude and put your vision on them too forcefully or too actionably. I would see it as a big red flag if I put my views across and they're like, "Oh, that's a good idea. That's a better idea," and they run with it. I want someone to say, "No, no, you're wrong, and here are 3 reasons why." Do you agree that if they listen too much, it's almost a red flag?

This is actually another mistake I made. I think sometimes, if you're a second-time entrepreneur and you have experience, when you talk to an entrepreneur, you're like, "Yeah, what the fuck are you talking about? This is obviously wrong for these reasons."

But there are a lot of young entrepreneurs out there that have great ideas. I was young once, obviously, but I've actually not invested in companies because I was like, "Okay, these people are not pushing back on me, and they're not coming up with a ton of experience and ideas." Actually, they were just young entrepreneurs, and as a young entrepreneur, you're intimidated by investors.

You have to judge people by what their life situation is, how they are approaching the situation, and you do have to cut some slack to people who are new to their career, rather than saying, "They didn't push back on me, and they should have."

You said about Rappi—a brilliant, fast-growing company that reached unicorn status—and they didn't call you. It makes me think of Keith Rabois, who's like, "The best founders don't need you," and he's talking specifically about that. Do you agree with that statement?

Yeah, they definitely don't need me. I think it's very rare. At Mercury, I had 7 or 8 unicorn founders that invested in Mercury, and I didn't need them. But because they are active entrepreneurs, every now and then I have a question. I'm like, "I'm hiring a CFO. How do I hire a CFO? I've never done this before." Or when I did my Series B, I was like, "I don't know what the multiples are in Series B spaces. Tell me about it."

I did contact them, and this is how I see my role as an investor. You don't need me, but I'm an active entrepreneur. I've got a big company, and I've dealt with a lot of issues. If something comes up, send me a text, and if I have time, I'll talk to you. That's the balance to it.

When you buy venture value-add from venture platforms—the BD teams, the hiring teams, all the teams that come with them—I think they're, bluntly, an excuse for management fees.

It depends what type of company. I would say Andreessen Horowitz was our seed investor. They invested basically on a deck for Mercury, and a lot of their value-add wasn't super useful.

But at the end of the day, I think the 2 most valuable things from one of these, or any VC firm, are, number 1, who's the partner? Is this someone that, in every conversation you have, you enjoy talking to? I've been talking to Alex Rampell, who was our partner at Andreessen Horowitz, since 2017, once a month-ish.

Imagine doing that with someone who's not valuable or annoying to talk to. He's smart, and I love hearing his take on things and riffing off ideas with him. Those are the types of people you want as investors, and I think that is by far the biggest thing you're choosing as an entrepreneur.

4. How Sequoia Came to Lead the Series C for Mercury

The second thing, which I think is underappreciated by people, is that you do get a founder network with the portfolio companies of that VC firm. With Andreessen Horowitz, and I guess now Sequoia, these people have valuable networks. The best VC firms do create situations where founders can connect with each other, and I've always found that valuable.

You mentioned Sequoia. Is it a needle-moving event when Sequoia invests? Does the world see you in a different way? Do candidates see you in a different way? Is it that needle-moving event?

I've been an entrepreneur since 2006, and Sequoia has always been the top brand. I've always wanted to get Sequoia as an investor on a personal level. I pitched them many, many times and got a no from them for both this company and my previous company.

For me, it was a needle-moving event because it was something I've always wanted to get. They invested in a Series C.

How did that deal go down with them? Did you have to go into the partnership and present to everyone, with Roelof sitting there at the head of the table?

Yeah. Something I'm impressed by with the top firms is that Sequoia does not take their position lightly. They did the most work. I pitched more than 20 funds as part of the Series C, and Sequoia did the most work.

They did the most diligence with customers. They did the most work in the data room. They really put their effort into it, and I think they ask really good questions. I like that. I don't want someone to make this decision lightly. I don't want to get a term sheet just because someone's FOMOing. I want them to really believe in Mercury and feel like they've done their diligence before they make that decision.

I had a conversation later with Sonia, who is our partner at Sequoia, and she said she had conviction in that first meeting. She said she was 95% in after that initial meeting, which I thought was interesting because they did so much work after that meeting.

That was actually kind of surprising to me, that they got so much conviction just in the first meeting. Most of the time, by the time you get to the partners meeting, there’s been so much work done that Roelof is not making the decision. It’s kind of the lead partner, and a lot of the work has already been done.

Was that the highest offer?

In the end, it was, but I probably would have taken it if it was a little lower. I find that most of the time, the good firms are willing to match or beat whatever is the highest offer.

It’s not about the money for either side at that point. I want to have a fair valuation, and I want to have the best firm too, one that’s focused on the long term.

What would be your biggest advice to founders on price, having multiple startups, but also having raised through crazy times and through more difficult times with Sequoia? What would you advise them on valuation?

I have a little bit of a contrarian take on this. I think it is very hard as an entrepreneur not to chase the highest valuation. This whole thing about, “If someone gives you 100x revenue, don’t do it”—we did our Series B at 120x, which was not rational. This was 2021, but we did it, and I would do it again.

How much did you raise?

We raised $120 million.

Okay. So your thinking there, I guess, was, “Hey, I’ve raised enough money that I can grow into it over a several-year period at worst?”

This is what I was going to say: I think the mistake is not raising enough money. Every now and then, someone gets a billion-dollar valuation and raises $50 million. I think that’s a mistake. You want to raise enough money at that high valuation.

Number 2, don’t spend the money, which is really hard. When I raised $120 million, I was like, “I don’t know how I’m going to spend $120 million.” We had a 40-person company. But I thought, “We’ll raise enough that either I’ll never need to raise again, or if I’m growing really aggressively, then I can spend into it.” That was our thinking at that time.

It does take a lot of confidence not to spend the money once you raise it.

That’s where Parker Conrad and I constantly have a debate on Twitter, because he’s always saying that Harry’s selling his own book when he says, “Don’t raise the crazy rounds.”

I don’t think I am, because I see the truth: you and Parker may be wise enough and mature enough not to go and blow it, but most younger founders, especially when you give them the money, spend it. Simple.

I think that is also a mistake by the VCs. The VCs are like, “Hey, go spend the money. Make sure that this return happens.” But a lot of the returns come from the anomalies. It’s from the Immads and Parkers of the world that you’re going to get the decacorns or whatever.

That’s what VCs care about. They really want to go for the home run. I think the reality is that younger founders—most founders—will do it. We have to set up frameworks for how you can do it but still be successful, which is tricky.

5. Biggest Wins and Misses in Angel Investing

What was your biggest win as an angel investor? When you reflect on that, are there any takeaways for you?

The biggest win that returned me money was Truebill. The reason it was a win in the end is, I’d say, 2 things. Number 1, those founders are just incredible. That’s a super-hard business; we’re talking about a fintech consumer business where you have to really fight for every user acquisition.

Can I be blunt? You did the pre-seed?

I invested—I think my first investment was at a $16 million valuation. So I did it before it was a $1.25 billion exit.

And so your multiple on that was?

I don’t know if I should say the exact multiple, but more than 30x. It was a great multiple, and it was a short time period, from 2016 to 2021.

One lesson for me there was that repeat founders really do matter. That team had done Webs.com, which is also a difficult space—the website creation space—and I’ve just seen it again and again. I’ll take Rippling: I’m also invested in Rippling. When you have repeat founders who can go into these difficult, competitive spaces and somehow completely own them, that was one thing.

The second thing, which I’ve never been great at, is timing. The Truebill founders sold at just the perfect time: December 2021. Amazing timing. I wish I’d taken some more chips off the table in 2021, but as an angel investor and an active CEO, I don’t have time to necessarily go and look at every single unicorn and say, “Should I be taking some secondary?”

They obviously nailed that market timing, and lots of respect to them for doing it.

If I push you into one camp, because nuance doesn’t work on a podcast, do you prefer serial founders or first-time founders?

I just prefer serial founders. I have such a bias toward them. I think a serial founder with a chip on their shoulder—I don’t think it works if it’s a serial founder where they’ve had a unicorn exit and the other choice is, “Hey, I could just retire and have $100 million anyway.” I think that doesn’t work.

But if it’s a serial founder who has something to prove—

Did you feel you had something to prove after your first exit?

Oh yeah, 100%. Our exit was $45 million, but it was a real struggle. We pivoted 4 times. For me, I really wanted to build a big company. I’ve been an entrepreneur forever. I want to have the biggest impact possible.

But it is irrational, right? Being an entrepreneur is irrational, but being a serial entrepreneur is especially irrational, because at least the first time you can kind of blame it on naivety. If you’re a serial entrepreneur, you know how hard it’s going to be, but you’re willing to do it again.

That is so unusual by itself that you have to kind of go, “They must really want to do this.”

Do you prefer it when they’re new to a market, bringing fresh ideas and naivety in some respects, or when they’re seasoned pros coming out of the market with 10 years of experience?

I think both can work, but my preference is naivety. When I did Mercury, I didn’t know anything about fintech or banking. I knew that entrepreneurs would use this product and I would use the product, but I was like, “How does one go set up a neobank?” That’s what most of my first year of education was: going super deep on how you even do this.

I genuinely think my seed round, in which likely Andreessen Horowitz invested, was very hard. Even after Andreessen had come in with a lead check, it was so hard to get any fintech fund to invest alongside them. All the fintech funds saw were the problems. They were like, “This doesn’t work for this reason and that reason.”

I really wanted them as well, because I thought they were going to have that deep fintech expertise that I was lacking, but it was super hard to get them on board. I did get a bunch of fintech entrepreneurs on board, but I could not get a dedicated fintech seed fund on board, which in hindsight is ironic.

You really need to have that outsider perspective most of the time to be successful.

That’s a miss for many of those investors. When you reflect on your angel misses, what’s the biggest miss for you, and how did that impact how you think about investing?

Actually, I talked about it earlier: looking at young founders and saying, “Why don’t they have these things figured out?” I was a part-time partner at the time, so I saw Scale AI. I was like, “Okay, good idea, but these people are so young.” I think they were 19 and 20 at the time, or something.

I thought, “I could run this company better if I were doing it, and I don’t see how they’re going to figure it out.” I was just so wrong, because obviously they proved me wrong.

But I think there is some power to that youth that is hard to judge, to be honest. You kind of have to suspend belief yourself to say, “This person is going to figure out how to run a huge company.”

If I were to push you to give 1 piece of advice to another founder who wants to start angel investing, what would that piece of advice be? For example, I’d say, “Make sure you write the same-size check every time. Don’t have different levels of conviction; just do the same thing every time.”

This is a rich person’s game, sadly. I didn’t start investing until I had made an exit, and I think doing 1 or 2 investments isn’t going to make a difference.

I mostly say to people, “If you have enough money—I mean, we’re not talking about a ton of money, but if you have enough money to do at least 20 or 30 investments, that’s when you start entering the game,” because you learn a lot by doing subsequent ones. If you’re only doing 5, you’re not going to have this kind of iteration.

B, you just need a diversified portfolio to have any return in this space, because what we’re really doing as seed investors is unicorn hunting—or, I would say, even at these current valuations, you’re hunting for decacorns. Even if you’re great at picking and you have a great network, you’re not going to get to them with 5 bets. You need a portfolio of bets.

Is the age of chasing unicorns over? You said they’re hunting for decacorns.

You can do the math, but if your entry price is $20–25 million, after you get that dilution, a unicorn is sometimes only an 8x return from a seed-stage investment, which I’m like, “This is awful.” Obviously, you can also get 30–40x there.

If your entry price is like that, you’re mostly targeting unicorns. You need a few of those, but you really want to get to $10 billion-plus to have an outsized return. I’m not happy to get a 2x or 3x; I want to have a 10x fund. That’s not going to happen with unicorns.

Any other massive lessons from the angel investing before we move to the fund side?

It gets easier. This was not obvious to me. When I first started investing, I had to do a lot more work to get into any company. I had no deal flow; it was all hunting. It was showing up at Demo Day, bugging investors, asking them for introductions, and so on.

Obviously, Mercury has been successful, and that’s helped my deal flow as well. But in general, deal flow just gets easier if you stay an active angel. People know that you invest, and you have portfolio companies introducing you to their friends.

If you were to rate it as a percentage, what percentage would you apply to being a $5 billion founder and an icon of an industry versus just being a very active angel with a lot of founders in your portfolio sending you deals? How would you weigh it?

It’s just hard to separate these things. You can be an active angel investor; you don’t have to be an already successful founder like I am now. Even in 2019, when I’d been investing for 3 years, I had a strong reputation as an angel investor. At that point, I already had some hits behind me, and deal flow was way easier in 2019 than it was in 2016, when I first started.

Did you take cash off the table on any of them? Any thoughts on proactive secondary selling?

I won’t name the company, but there was a company where SoftBank came in with this crazy number and offered everyone a secondary. I thought, “If SoftBank’s doing it, I should probably take some money off the table.” So I did.

In hindsight, I probably should have done more, but I’m really aligned with, “Let’s go long.” I don’t need the money. I’m in it for the game.

I do think these kinds of compounders—Airtable, for example—can be incredibly valuable. There are companies I’m in where I think, “I can see this being a $50 billion company.” If I just stick with it for maybe 15 years instead of 10 years, that return will be worth it.

How is Airtable a $50 billion company? Paint the bull case for me there.

The bull case for me is that Howie is an incredible founder, and I think he’s going to figure it out. If you look at AI, I think it actually really improves their position. They have a bunch of data, people are building basically internal apps on Airtable, and they’ve done a good job of incorporating AI.

Mostly, they already have—I think the last valuation was $10 billion. So we’re only talking about 5x. I’m pretty sure they can figure it out.

There’s one rule that I go back to again and again. There are conventional rules, which are conventional for a reason, and one of them is Bill Gurley’s brilliant article on the 10x—how companies are valued at 10x revenue across cycles. Really, that’s $5 billion of revenue to be a $50 billion company. It’s a lot.

You’re seeing these companies scale to $100 million in revenue in 2 or 3 years now.

Yeah. $5 billion. Yeah, totally.

Does revenue mean less than ever before, given the transience of it and the lower quality of revenue that we apply to revenue today? Does revenue mean less than before?

I think it really matters what type of revenue it is. The revenue that I’m most skeptical of right now is this kind of labor-replacement revenue, where you take AI and say, “Hey, we’re going to be a third of your labor cost. Just install us.” Initially, people see the ROI and they’re like, “Oh, wow. I get something for a third of the price, and maybe it’s slightly worse in some situations, but I still have humans as backup.”

It’s an obvious cost saving; everyone will do it. The reason that’s particularly transient is that, especially in this environment, you’re going to have 3 or 4 competitors also selling you that same thing. Eventually, a company is going to say, “Okay, this actually worked, but this competitor is doing it for half the price,” because the cost basis of the software is way lower than a third of the cost.

The sell that VCs get from entrepreneurs is, “We’re replacing your labor costs, therefore we should charge a third of that.” But the reality is that once you have a competitive market dynamic, the actual margins are going to compress massively. We’ll end up at a tenth or maybe even a twentieth of the labor cost as actual eventual revenue.

In these spaces, everyone is using the same foundation models. We’re going to get incredible competition, the margin compression is inevitable, and there’s very little moat or network effect against it. So that’s one side of it.

On the other side, we’ve seen Cursor with, I think, $400 million in revenue or something like that. I think that’s SaaS revenue, and the value they give is relatively high for the revenue. Again, if they tried to charge for the productivity gain, they could charge a lot more, but competition will ruin that. Windsurf will come along and charge $20.

Because of these competitive markets, it’s not possible to charge for the value you generate. You end up charging for what you can charge against competitors and have people not think about it. But those things are very sustainable. Once engineers are using Cursor or Windsurf, engineers don’t like changing tools. The value is much higher than the charge.

Do you think we have no defensibility anymore? What I mean by that is, you see people very quickly moving from Cursor to Windsurf, and it seems like the moat or switching cost is almost replaced now. Do you think we’ve lost moats?

We’re still in the flashlight-apps era of AI, if you know what I mean. There’s going to be so much change and churn in the next few years, but eventually things will settle down. Then we’ll have the same defensibility that SaaS apps and other things have had forever.

What’s the strongest brand? Who do people say, “Hey, I love this thing. I’ve used it forever”? That brand is going to be able to continue investing more and more in the product because it has consolidated a market position. It can keep improving the product, and it will become multiproduct. Now you’re getting 2 or 3 things from the same place, and that’s sticky in its own way. They’ve also built up the enterprise connections.

We’re just in this place right now where no one knows anything. Everyone’s trying everything. But I don’t see why the same things that allowed people to create big companies like HubSpot and Salesforce won’t exist with modern AI products. We’re just in this moment of extreme change.

What does your team use for engineering internally? Is it Windsurf? Is it Cursor? What are they using?

I think Cursor is still by far the biggest one. I haven’t heard too many people using Windsurf internally, given the productivity gains that it provides engineers. HubSpot recently said that they’re producing more code than they can ship as features. Salesforce said 20–30% of their code is now written by AI.

Will you have more or fewer engineers in 5 years’ time?

I think we’ll have more. Maybe I’m a little contrarian about it, but to me, if my engineers get more productive, I’m going to come up with more things to do. I have infinite ambition, so I think that just unlocks more rather than creating constraints. It doesn’t mean that you don’t hire people.

Immad, what have you strategically not done with Mercury that, with the benefit of hindsight, you think you should have done?

Given the data we had at the time, I don’t know if we would have done anything differently. We launched Mercury Banking in 2019, and at that point, I thought Brex was the main player in the credit card space. I was like, “Hey, we’ll do banking, you do credit cards, and we’re all good.”

Then what happened is Brex entered the banking space. Later, Ramp came along and launched a new credit card. At that point, I was like, “Okay, that was a little silly that we didn’t just launch a credit card,” because in some ways the credit card was easier than banking—we already had debit cards. We didn’t end up launching our credit card until 2022 because I was focused on banking and wanted to go really deep there.

I think that was a mistake. We could have launched our version in 2020, but instead we worked on some other products. In hindsight, I think we waited too long to launch that second product, and we decided to focus longer on banking. It wasn’t a mistake that couldn’t be corrected: we did launch in 2022, and now Mercury credit card is bigger than all the other corporate credit cards on the platform for Mercury customers. But it was 2 years later than it should have been.

Is Mercury credit card bigger than Brex’s credit card for Mercury customers?

Because we’re the bank account, we can see what our customers are spending on. For our customers, it’s not just bigger; it’s completely dominant.

How do you think about competition? You are in the most competitive environment now, as you see with Brex, Ramp, and Mercury—all very well-funded, all doing very well. Ironically, there’s not one that’s not doing well. How do you think about competition when you go to sleep at night?

I have 2 responses. Number 1, I’ve been doing startups since 2006, and every single year there’s been some competitor that was better funded, that seemed really scary. Honestly, 99% of the time, it didn’t matter. What mattered was focusing on customers and building a great product.

Most of the time, if we failed, we all failed because it was a bad market. If we succeeded, it was because we did our own thing, listened to customers, and had that long-term vision. I think it’s really dangerous to be very competitor-focused. I don’t actually let our team speak about competitors very much.

I’m just like, “If you have something you want to do, tell me why the customer wants it. Tell me why it’s part of the long-term vision of the product.” But if anyone says, “We should do this because someone else did it,” I’m like, “I don’t care. This is not a reason we do anything at Mercury.” Most of the time, it really doesn’t matter, and if you’re copying someone, you’re copying their mistakes as well as their successes.

Let me pose an alternative: counter-positioning, one of the 7 Powers. Ramp and Eric looked at Brex, saying, “Spend more, get points,” and went, “What’s the opposite? Save more and have that as your incentive mechanism.” So they used the inverse as their value proposition.

Maybe that worked for Eric and Karim, but that just doesn’t resonate with me. I approached this market and said, “I want to be your first bank account.” No one else has actually approached it like that, saying, “We want to be there at inception with you.”

We have 200,000-plus customers. Our scale is much bigger than Brex and Ramp, but not because they’re doing something bad. They’re just in a different business: they have bigger companies and do more enterprise stuff, whereas we’re much more at the inception stage.

Go ahead.

You’re going to hate this question, so forgive me for it. If you’re valued at $5 billion and you’re the first bank account for 200,000 companies, why are they valued at double?

Each company has to prove out its own thing, so I don’t know if valuation is the thing I focus on personally. It’s a different market, right? People understand enterprise SaaS and payments a little bit more than they understand banking.

Apart from Mercury, who else is at scale in banking in the US? There aren’t that many companies—Chime and a few others. It’s a different market; it’s just valued differently.

6. Why Move From Angel to VC

My question to you, my friend, is: the angel investing is going so well—an amazing track record, 350 investments—and then we’re like, “You know what? We’re going to do a fund.” Why is that? What was the decision-making process for you in transitioning from angel to fund?

There were 2 factors that drove it for me, maybe 3. Number 1, I had a bunch of LPs recently approach me saying, “We’re not going to put money in your AngelList thing, but if you set up a fund, we will back you.”

Secondly, my deal flow went up another level. Now that 30% to 40% of all startups use Mercury, everyone knows about me, and that tends to mean that a lot of people want me to invest. I got to a level where I just couldn’t look at all of these things.

I really wanted to work with someone on the deals and on the fund. I don’t like doing things badly, and I felt like I was being a bad angel investor. If I can’t even look at all the things that are coming at me, how can I do a good job of it?

I get all those reasons, so why did we decide to raise $26 million? Can you talk to me about the thinking behind that?

What’s a little unusual about the fund is that it’s a fairly diversified fund. The idea is to invest in 60 companies. The reason that works is that we’re doing non-lead checks.

That makes sense: I’m an active CEO, and I can’t, in all fairness, lead rounds because I just won’t have that time for the company. But on the other side, I get a lot of deal flow, and the best entrepreneurs want me on their cap table.

Isn’t it better if Sequoia or Founders Fund is leading rounds and I get to invest alongside them? I’m not competing with them. The average check size is going to be $150,000.

If you’re doing non-lead checks with a smallish average check size, and we’re targeting a 60-company portfolio, it doesn’t make sense to have 100 or 200 companies in one fund.

Wow, I’m just diving in. So, 60 times $150,000 means we’re putting $9 million out the door in initial checks.

There are also going to be some other checks. The strategy involves some initial-conviction checks: if I know someone for years, I could put $1 million into their seed round.

Do we do reserves? Yes, but I want to be more selective about them. I’ve never believed in this idea that every company gets a pro rata check because that’s just what I do. I’d much rather do a spray-and-pray with as large a check as I can get into these rounds.

Can I be so rude as to advise you not to have a reserve strategy? You have access to great later-stage capital that would happily do SPVs for your personal finances. I would suggest you do a spray-and-pray with as large a check as you can get into these rounds.

I think $150,000 to $200,000 is probably there, but then just do SPVs in the best companies with deal-by-deal carry.

I find that entrepreneurs don’t like SPVs. I think entrepreneurs don’t care if it’s from someone they like and respect and it’s done in a timely manner.

Imagine you being a founder—

Yeah.

—and one of your friends is like, “Hey, dude, I want to work with you. It really means a lot to me. I’m really bought in because it’s deal by deal. Do you mind?” You’d be like, “No, sure.”

Yeah, maybe. The other issue I’ve had with SPVs is that normally they’re FOMO SPVs. Some lead check comes in, and you’re like, “Okay, let me get an allocation. Let me go do this SPV.” I don’t like that game.

I want to do these reserves when I’m like, “Hey, I invest at the seed stage. I look at their progress,” and within 6 months you know whether that company is going to kill it. At least that’s been my experience.

Do you think you do? Because I tweeted the other day the opposite. I was in Clubhouse, BeReal, and Hopin. My point is, in both directions, you have signal, right? I mean, it doesn’t mean you have a guarantee, but 6 months later, if you see that progress—

And if you— I would bet that, Harry, even in your portfolio, if 6 months later you invested in every one of the things that you think will be a hit, probably 50% are going to kill it.

No. If I look at my Fund I, I’ve got Linear, Linktree, Captions, NexHealth, and AgentSync, which are all really solid, $50 million-plus revenue companies. I would say they were all pretty slow burns, actually.

Maybe it’s because they’re enterprise.

Yeah, maybe.

I mean, if I look at mine, I definitely knew within 6 months. Truebill, I definitely knew within 6 months. Rippling was just hard to get into, but it was pretty freaking obvious. Airtable, I definitely knew very early on.

There was even a 3-year period where Airtable took a while to ramp up. Maybe 6 months is too early, but you definitely know before everyone else knows because you’re in the company and you can see.

Do you care about price for the reserve part?

No, no—just for the first check. You end up being a price taker as a non-lead.

I care about it: if it’s silly, I won’t do it. But often, the seed market as a whole is a little silly. I’ve ended up, especially recently, avoiding AI. I think AI is overhyped and overvalued.

7. AI Investments: Overhyped or Worthwhile?

And pause on that. Why is AI overhyped at seed stage?

It’s so hard to do AI. I don’t know what you’re seeing, but it’s the 4th time I’ve heard the pitch of the same idea. The founders are raising at a $40 million valuation, and they even have great investors. There’s a little bit of traction, but the math is just so hard right now in AI.

I’m still doing it—in the last 8 investments we were just looking at, 4 of them are AI. So, yeah, it’s hard to avoid AI completely, but I’m way more selective. I think there’s actually a lot of opportunity if you look at fintech. I end up doing a lot of space tech or hard tech, and there’s not that much competition there right now. As a seed investor, you can’t be doing too many investments at the top of the hype cycle, right?

The same thing happened in 2021, right? 2021 was like an everything bubble. Of all the AI companies that you’ve done, you said the bar’s higher, or the qualification process in your mind is tougher. What did they have that the others didn’t have? What did you need to see to get excited?

To me, the founder needs to be probably more of a second-time founder, where they deeply understand that space and happen to be applying AI to it. It’s not AI for the sake of it. I did one where—I guess it’s probably private, so I won’t say—but they’re really deep in property and proptech, and they have a really specific AI application there.

Either that, or they already have the traction. It already seems like a rocket ship, and I really believe that the traction is real. The valuation is a little high, but you have to jump on some of these rocket ships. So those are probably the 2 that I am still doing.

But the vast majority of AI at seed out there does not have traction. It’s someone doing the same idea for the 5th time, and they’re getting funded right now. That’s just what you see mostly happening. Great VCs are funding these things, right? Everyone is doing them.

One of the biggest changes from 5 or 6 years ago in venture is that there were always 2 or 3 competitors in everything. Five or 6 years ago, there were always 2 or 3, but now there are 15. There are 15, and they’re all raising $10 million-plus. It’s not like they’re some early, early bets.

Yeah, it’s crazy.

Totally agree with you there. You mentioned space tech. Dude, you’re literally having to go to another planet to find the deal. I mean, literally. I know nothing about space tech—no offense. Do you know much about space? I feel like—can you help me? Actually, just fuck it. Help me.

How I think about it is, when I enter a new space that I don’t know that much about, I make a couple of investments and try to learn from them. I made my first space investment, I think, in 2016 or 2017. It was likely Momentus. They ended up doing a SPAC that didn’t work out.

When you make 1 or 2 investments, you end up speaking to maybe 10 people. These people tend to be at the edge of their space. They’re people from SpaceX and Blue Origin, so you end up learning quickly about what the markets are.

The thing about space that maybe is unobvious is that it’s no longer that hard to get into space. SpaceX is very repeatable. These people are doing difficult hardware things, but they’re not doing scientifically impossible things. They’re literally saying, “Hey, I’m going to put a computer in a satellite. I’m going to put it in space.”

There are basically 3 existing markets in space tech. There are rockets—getting things up and down—which obviously SpaceX dominates. There’s taking pictures from space, and that’s actually a pretty big market, like a $40 billion market. Then there’s communication, which obviously Starlink and other people are doing.

Those are the 3 markets. There’s almost no other market in space right now. I have investments in Stoke Space, which is doing reusable rockets, and Albedo, which is taking very high-resolution pictures from space.

Are the rounds for these companies not mega? If the rounds are mega, they’re very high—not at seed stage.

At seed stage, these companies are better than these AI SaaS companies at seed stage. It’s hard for them to raise big rounds when they’re just starting out, and then they have to prove some things out. I can’t remember what the initial Stoke Space round was—probably a $20 million valuation. They had to prove out a rocket test, and then they got funding from the government. Now they’ve raised—I don’t know how much they’ve raised—more than $100 million.

You do have to take the time and be careful to understand it. I don’t personally do bio because I speak to someone and they’re like, “We’ve cured cancer,” and I speak to the next person and they’re like, “We’ve cured cancer.” I’m like, “I don’t know. You sound good.” But I really think space is not as hard, and I have spent years trying to understand it.

Sixty companies—you’re a pretty busy guy. You run an amazing company already. When a founder takes a check from you, they do expect to be able to have you return their calls. How do you think about gating Immad and preventing a free-for-all?

Honestly, I’m so surprised by how considerate people are, and I wish they would actually ask more for help. Normally, I’m like, “Hey, here’s my phone number. Just text me if anything comes up.” Most of the time, you can actually be pretty helpful in a 10-minute conversation, and I can slot that in most times.

I would say I end up speaking to an entrepreneur maybe 3 or 4 times a week. One thing that people don’t understand about time is that time is about energy, not time. There are things that drain your energy, and those are hard to do—they suck up time. Then there are things that are fun.

I love talking to entrepreneurs and helping them out. I can do that easily. I’ll literally go for a walk to get lunch and talk to an entrepreneur, and it’s so easy. It’s just like having a chat with a friend.

We’ve got 4 pillars in Bainshire. We’ve got sourcing, selecting, securing—which is winning—and then we’ve got servicing. Which do you think you’re best at, and which do you think you’re worst at, and why?

I’m very good at winning right now with the strategy we have of non-lead checks.

Yeah, there are rounds where, at $150k, you’re flexible. When you’re at $500k, it’s a pain.

Yeah, then it’s hard. I’ve done rounds recently where the round is fully done with some hotshot VC, and I still get my $150k in after the round is fully done. So winning is definitely easy right now.

I would say the most fun is the selecting side of things, in the sense that you have these entrepreneurs who are really teaching you the future. I think it’s just so fun to talk to entrepreneurs and go, “Oh, shit, I’d never thought about that. That’s super interesting.”

I did this company, Etched, which does an ASIC chip for AI transformers. It’s my only semiconductor investment ever, and I probably won’t do another one. But you learn so much in just a short conversation. You’re like, “Oh, wow. I had no idea it worked like that.”

When we think about funding this, we have $26 million. How did the fundraise process go?

Honestly, it was surprisingly easy. I have a really good track record, and obviously that made it easier.

Did you just WhatsApp a load of mates and be like, “Hey, I’m doing a fund”?

I didn’t want to have a bunch of mates with $250k each. Even to get to $26 million, that takes forever. So, yeah, we had 3 kind of anchor LPs that are more fund-of-funds investors.

Did you get what was likely Cendana?

Yes. But, yeah, the easiest ones are definitely a mate where I’m like, “Hey, do you want to invest?” Then they’re like—they don’t even look. You don’t even have to pitch them. They’re just like, “Hey, there’s a million or whatever.”

But, yeah, it was a quick process. Actually, the hard bit is getting the LPA done. It’s ridiculous. I don’t know how you all do it. It’s a multiparty negotiation for these esoteric terms. That took a month and a half to get done. There wasn’t any real sticking point, but it just took a month and a half, and I was like, “This is a silly process.”

How long did the raise take?

The actual getting of the core allocations done was probably basically 3 weeks.

Okay, 3 weeks. What's the biggest check? Not who, but just what is it?

It's $7.5 million.

$7.5 million of $26 million. That's a lot.

Yeah, it was good. I mean, it made it easier.

What was the biggest surprise of fundraising for a fund?

Maybe this is a little harsh, but it's boring. It's very boring. Obviously, when you're pitching a company, you're saying the same story again and again, but you do learn something from the questions you get asked, and you do change the story over time. I feel like pitching a fund doesn't have much to learn in the process. It's very much doing a bunch of repetitive meetings.

I don't know if that's surprising. I'm sure you know this, but it was less fulfilling than I wanted it to be. I wanted to think, "Oh, yeah, I'm going to speak to some smart people and learn something." But I was like, "Okay, it's a process." I didn't feel like I really got that much out of it beyond doing the process.

What's the composition of the LPs? Is it fund of funds? How much of it is that?

8. Is It Wrong For Founders to Also Have Funds with LP Capital?

Fund of funds is about 60%, and then a bunch of entrepreneurs and GPs make up the bulk of the rest of it.

Can I be really rude? I have a problem with founders that raise money from VCs. Your responsibility is to build a company, and then you raise money from other LPs, where you have another responsibility to optimize the value of a portfolio. I view those responsibilities as being at odds. When I raise money from someone, that person deserves my time, and then I'm being pulled away with another responsibility.

Why am I wrong to think it's wrong for founders to raise external money for funds? Do you think it's different when it's an AngelList Rolling Fund, or are you saying the same thing?

I'm kind of saying the same thing. If you're raising additional angel money, it's totally different. It's your money. Do what you want with it. But raising additional money from different LPs, yeah, I think, A, if you're very transparent about it—this has always been part of the story I've told: I'm a successful CEO, and this is what you're getting, and Mercury is my main job—then I think that's one thing.

B, who does it work for on both sides? Before I started Mercury, I was an active investor with other people's money, and I would say part of Mercury's success has been my connection with early-stage founders. From the first 30 or so alpha customers of Mercury, I think 100% of them were companies I'd invested in. So it's always been a core part of building Mercury: my investor journey alongside it.

I talked to my co-founders about it. I said, "Hey, I do this. Do you mind?" And they were like, "No, this is part of what makes Mercury successful."

So that's one side of it. On the other side, I do think Mercury's success gives me access to deal flow and gives me the ability to win. I invest in a lot of B2B companies and fintech companies where I have this unique perspective of being an active fintech entrepreneur.

As long as it works for all sides—and it probably doesn't work for all entrepreneurs—Mercury is in a unique position where we sell to startups. My investing is helpful to Mercury, Mercury is helpful to my investing, and my investing is helpful to Mercury. That's probably not true for everyone.

The other question I had was, with absolute respect, you have a lot of Mercury and you can sell secondary. Why bother raising external money? If you look at carry, 20% on $26 million is $5.2 million of your own money. I know $5.2 million is a lot of money—I'm not belittling it—but you could easily sell $5.2 million in secondary. Many people would buy it off you. Why bother?

Yeah. I think it's fun to build institutions. I'm working with Yash on this fund, and I think it can be bigger than just me and a few angel investments.

What do you want it to be?

I don't know exactly. This is the first fund, so I'm approaching it with an open mind. I'm coming at this like, "Oh, let's explore it."

I want to be helpful to entrepreneurs, and I think I can be helpful to entrepreneurs at scale. Working with someone to get the best investments and scale that portfolio approach, and doing it with more money, allows me to have a bigger impact.

Eventually, there'll be opportunities where we may be the biggest check at the seed stage. Maybe instead of doing $60 million, we do $150 million in one fund. Maybe we incubate ideas. I have a lot of ideas, so everything's on the table. But that's the first one, and I'm definitely approaching it with an open mind.

Can I ask you: I think seed is very, very hard today because the multistage fund product is so efficient. They are so good and fast, and their cost of capital is so different from a pure-play seed fund, like me and many much smaller funds. Do you agree that multistage funds have made seed very difficult with such efficient seed products?

They've made it difficult for you, but not for me necessarily, because I can just be like, "Okay, sure. RRE is leading a round. Let me join in."

There aren't that many multistage, billion-dollar funds, right? There are, what, 8 or 9 that have a brand. Seed is, by definition, full of unknowns, and those multistage funds are only going to do a certain flavor of entrepreneur. Often, it's either an executive from a big company who's doing this thing, or it's a multitime entrepreneur.

If there's a flavor that ticks the boxes for those multistage, big funds, it's very hard to try to lead a round against them. But entrepreneurs come in all flavors. I don't think those multistage funds have as much success with first-time entrepreneurs who are hungry, don't know a space, but figure stuff out.

9. The Future of Venture Capital

How do you expect venture to change in the next 5 to 10 years? It seems inevitable that a few of these multistage funds will IPO and be public companies, right? We heard some stuff about General Catalyst doing it.

Yeah, I think that's just going to happen. I actually think more and more corporate money is going to come to this space, which, ironically, we all—I think we as investors—are like, "Oh, it'd be better if there's less competition and less money." But the big changes are that these companies are huge now. We have trillion-dollar companies. When I started investing, a $100 billion company was huge.

The end results are so big that people want to put more money into the space. I know we're in a current liquidity glut, but I think that will work out through the system. So, yeah, probably bigger multistage funds, more of them, and they're public.

The part that's probably hard is this idea of the barbell, right? People like me, who are investing smaller checks, will do fine, and the multistage ones will do fine. I don't know what happens in the middle. I think the middle will have more of an issue.

I think you do suffer because you pay higher prices.

Yeah, that's true. That definitely impacts your returns with the multistage VC product.

You mentioned the liquidity glut. I'm interested to hear your thoughts on this. The Collisons have said very publicly, "Why do we need to go public? We don't need some 25-year-old at a brand-name bank to tell us that margins are important." The question is, why would anyone go public today?

I think about it as well. I would want Mercury to be a legacy, long-term company, so being public is inevitable. But why do it today and not 5 years from now, or 6 years from now, or 7 years from now? Obviously, Stripe and a few others have delayed it.

I think the biggest issue is structural issues in the public markets. The 2 things are, number 1, the costs and rules around being public are just so much right now. It's not easy being a public company, so you might as well delay it longer.

Number 2, there are so few active investors in public markets now. Between the passive index funds, if you're not going to be in the S&P 500 or one of these other index funds, it's hard to get anyone's attention as a subscale public company. Even if you're a $5 billion company in the public markets, you can hardly get an analyst to look at you.

We've created these structural things that mean you want to be as big as possible. Stripe could definitely do it, obviously, but you don't want to be a Mercury-sized company in the public market. I think most people are saying $10 billion is probably the minimum before you want to be a public company.

I don't know how to fix it. Ideally, we'd make some actual structural changes to make it easier to be public. Otherwise, we all just have to wait.

I would say there is a lot of liquidity now in private markets. Have you done secondaries for the team and for yourself?

We just did an employee tender.

Even without that, there were a lot of people selling secondaries along the way since 2021, when we became a unicorn. There have been a lot of early investors and early employees selling secondaries, and there’s a pretty liquid market for it.

Are you okay with that? Nik at Revolut is incredibly tight on secondaries, especially in between rounds. It can set prices, and it can cause some problems if you’re not careful.

My take on it is, if we were a public company, we’d be getting priced all the way in every direction, right? I think it’s better for employees to feel like they have a relatively liquid thing as compensation. I don’t want this to be a lottery ticket that you get at some point if I decide to go public. I want this to be actual valuable stock, where you feel that ownership and feel the upside, and part of that is having a viable liquidity option.

So I’m relatively open about it. So far, it hasn’t been an issue.

Immad, when they send you a deal, are you like, “Oh, this is going to be a good one because it came from them”?

For me, when Elad sends me a deal, I’m like, “Oh, fuck, I’m paying attention.” He sent me AgentSync, and he sent me Vanta. I did AgentSync. I didn’t do Vanta, and I fucking should have done Vanta pre-seed.

Elad’s great. I really like 50 Years, the 50 Years fund, because they do these real long-term-focused, often strange-seeming deals that I kind of like. I like the entrepreneurs they invest in. I think they’re high quality. Seth and Ella—I’m an LP in the fund as well.

I’m also a big fan of Sheel and Jake at Better Tomorrow Ventures. They do fintech-specific stuff, but they really know that space well.

For deals I receive, I actually think thesis-driven funds are not that great. I think it’s better to have a broad investing strategy. But for deals that I receive, I kind of like thesis-driven funds because I’m like, “Okay, they know that space really well, and they tend to be good at picking in it.”

10. Quick-Fire Questions & Reflections

I love that. Listen, dude, I want to move into a quick-fire round. I’ll say a short statement, and you give me your immediate thoughts. Does that sound okay?

Yeah.

Okay. What have you changed your mind on most in the last 12 months? You can have a second to pause. These are thoughtful ones.

I don’t know if I’ve quite changed my mind all the way on this, but 12 months ago, I was very skeptical that we were going to get to advanced superintelligence. Now I’m a lot more—I don’t know whether we’ll get there very soon, in the next 5 years, but the advancement in AI has just been relentless. It’s persuaded me more toward the idea that it’s probably going to happen sooner than we think.

What is your favorite AI tool?

I use ChatGPT for everything. I was just doing a presentation yesterday, and I basically talked to ChatGPT for 30 minutes about the presentation. I was saying, “This and that,” and at the end I was like, “Okay, can you write that all in a slide format?” It just did it for me, and I was like, “Okay, that’s pretty freaking cool.”

What do you know now that you wish you’d known when you started?

One thing that has been really powerful at Mercury, and I tell every entrepreneur to do this, is that the first thing, when there are 3 or 4 people, is to write down what your company culture is. We wrote down 6 attributes, and these things have to be things that have some trade-offs to them.

The hardest one is that we look for humble people. Often, especially with really successful people, they aren’t very humble, and you have to make that trade-off. You’re like, “Oh, this is a successful executive, and they seem great, but they just have a massive ego.” We never hire those people.

We wrote that down on day 1, and we’ve always stuck to it. We came up with these 6 attributes, developed interview questions against them, and have always encouraged them internally. It’s really helped build a strong, cohesive culture. Even at nearly 1,000 people, we have this really strong, cohesive culture, but it’s because we did it on day 0. It’s very hard to do it later.

I asked you earlier what you didn’t do that you wish you had done, and you said launching credit earlier. What did you do that you wish you hadn’t done?

Probably the most obvious thing, but anyway, it’s probably fine: we raised too much money in our seed round. We raised $6 million at a $23 million valuation. This was because I was like, “Okay, fintech is hard. I want to have so much money that I can go on for 3 years without raising again.”

But it was such a high-dilution round for us. It’s by far the highest-dilution thing we’ve done at Mercury. In hindsight, if I knew we would be instantly successful when we launched, I didn’t need to raise that much money.

So you would have preferred to raise $3 million at a $23 million valuation?

I think $3.5 million is probably the exact amount of money I would have needed to get to my Series A and have a buffer. I was a little too conservative. I was like, “Okay, we need to be really safe and have a lot of money.” I could have raised that much, but it was very high dilution.

Final one for me, Immad. Can you paint the bull case for Mercury being a $100 billion company?

We’re in these 2 huge markets, right? Banking in the US is a $2 trillion market, and financial software tools are another $500 billion market. To me, these 2 markets should be the same market. You have your bank account, that’s where you do invoicing, that’s where you do bill pay, and that’s where your credit card and employee-spend tools are.

I think the only reason these are separate markets is because banks don’t know how to build software, right? In 10 years, it’ll be obvious that your bank is really powerful and can do all of these things, and it’s all fully integrated.

That’s just a freaking huge opportunity. That’s just the US, right? There’s a global opportunity around it, with lots of different types of businesses and lots of consumer financial stuff as well. I think this opportunity is ridiculously huge.

That’s why, when you’re like, “Oh, it’s so competitive,” I’m like, “I don’t know. For how big this opportunity is, this seems very uncompetitive.” If you think about all the B2B SaaS companies out there, there are thousands, and that market is smaller than this market. I’m pretty excited about it.

Immad, listen, I’m so excited for the new fund. I hope that we can do some deals together. I’m less of a space investor, so if you do some on this planet, I might be more game. I’d love to do some together, and thank you so much for doing this with me, man.

Yeah, thanks for having me, Harry. This was fun.