Simone Cicero 

Hello everybody and welcome back to the Boundaryless Conversations Podcast. On this podcast, we explore the future of business models, organizations, markets, and society in our rapidly changing world. Today, I am flying solo without any co-host, but I’m thrilled to have a returning guest. Back to the podcast, James Currier, for the second time with us. Hello James, it’s tremendous to have you back.

 

James Currier 

Well, thanks for having me.

 

Simone Cicero 

Thank you for your time. It’s very appreciated. Well, everybody knows James, but let me say that James is a serial entrepreneur first and a veteran venture capitalist, now co-managing the largest seed fund for seed-stage startups, more or less under the 0.6 billion investment fund. Also very well known in the industry because of NFX which has been steadily releasing great content over the years. 

 

James, you always say that this is your way to give back to the community and create relevance. NFX.com is at the moment the second most visited website for startups and investors just after A16Z, which tells a lot about how relevant your work has been in the industry so far. You have always been one who has keenly observed societal and technological trends, not just the usual typical stuff that goes into a VC. 

 

And you were with us in episode two, which was more than four years ago. It was 2020, as he remember fondly. It was in the uptake of the COVID waves. So it was a really crazy moment. But I must say that after almost five years, this is also, an interesting episode because it’s the last of this regular season, the fifth of the BCP podcast. As I was saying, after five years, things have not slowed down. So things are shifting faster than ever. So as maybe a good starting point, a good starting question for you is a little bit of overarching. 

 

So I see that in your investments, as you communicate them on your blog, you really have a far-ranging scope of investments at the moment. Some are very traditional, I would say, good old marketplaces, network effects-based businesses. On the other hand, you have science, deep science projects, B2B, healthcare, and so on. So, in a few words, what’s happening, James, to your investment thesis, where are these opportunities going?

 

James Currier 

Sure, sure. So we invest in fintech, prop tech, marketplaces, and games, which is the best working sector within the consumer sector, bio, and crypto. And of course, AI touches everything. So of course, we invest in AI companies. We’ve been investing in AI companies now for about six years. But many of these companies are actually in the other categories as well. They’re just employing AI to make them better, faster, and cheaper. 

 

We’ve also invested a few in space. We’ve got two space investments, which don’t have network effects, but they do have deep tech and IP and it’s really hard to do. So if they work, they work well, as we’ve seen with SpaceX. So look, we are a very broad seed investor. We’ve got five partners that allow us to do that because Gigi might focus on, well, Gigi does everything, but he also is an expert in games and Pete does everything, but he’s an expert in prop tech, and Morgan does everything, but she’s an expert in crypto, Omri just does bio because that’s super specific. And then I sort of do everything and then I help out across everything, including bio. And so with a big team like that, we’ve got 45 people on the team. We’ve got nine investors. So with that number, we can actually cross over a number of sectors. Now, in terms of our thesis, we have traditionally not been investing in things like GovTech, legal tech, and EdTech. But with the advent of AI, we think that those sectors become suddenly viable, where you won’t be able to the lethargy or the resistance of the bureaucracies in in EdTech and GovTech in particular will not be able to resist the incredibly powerful things that you can create with AI to really change how those businesses work. And so, you know, we’re doing that a lot.

 

We have also continued to invest in crypto. We think that this is sort of the Wild West still. We think that it’s ever-growing. It might be a floating continent where things are just all relating to themselves with DeFi and trading in tokens. And it might not even matter if it touches the real world in a sense. And so there’s still a lot of opportunity in that. That’s a little bit hampered by the US government’s insistence on various things. It’s been easier to operate outside the US with those types of things and make those investments there. But AI and everything is sort of one of the big theses now I think everybody has. And I will say that for 10 years, it’s been very hard to invest in consumers. The forces of the incumbents who got a hold in the ’90s and the 2000s made it hard to allow for new big consumer companies to be formed between 2014 and 2024. But now we’re seeing a flowering of new opportunities and applications. And so we have been doing some consumer investing outside of gaming for the first time in about six years. So those we think are opening up as well.

 

Simone Cicero 

Great. Last time we spoke, you told me that you felt that it’s a good moment for companies more or less of a billion turnover sites, or something like between the, let’s say the traditional corporate behemoths and the scale-ups. So who is the most well-suited to develop opportunities in this kind of market that we are seeing? Who are the protagonists of the market at the moment? And from your point of view.

 

James Currier 

I think if I could say something that would be directionally correct is that with the advent of AI, we actually think that the incumbents are better positioned to take advantage of it than the startups, than the raw startups. We’re of course investing in raw startups. We’re a seed-stage investor. And so we’re going to continue to do that. But if you look back at the mobile revolution and you do some back of math calculations, looking at how many mobile companies were started between 2008 and 2015 that went on to have any sort of value and you add up all that value, it comes to about $300, $325 billion of market cap that was created in mobile startups. And that $325 billion fed all of the VCs and all of the startup founders who were building companies in mobile.

But if you look at the market cap expansion of Apple, which went from $40 billion market cap to $2 trillion basically on the back of the mobile revolution, or as you look at Facebook and the percentage of revenue they get from mobile. And then you look at what happened to Microsoft’s market cap. And you basically look at the incumbents that existed in 2008 when the mobile revolution happened. It looks pretty much like the incumbents captured 94 % of the value, 93, 94 % of the value captured by incumbents. And so the question is, with AI, what percentage will the incumbents capture?

 

I think it would probably be north of that. I think it’s going to be closer to 96, 97%. So we’ll see. But I think when it’s all said and done, the incumbents are very well positioned to take advantage of AI. It’s not that hard of an extension of what they were already doing. I think the extension from computers to a networked world was a big mental jump for people in 1994. And so most of the value of the internet world was created by new startups between 94 and today.

 

But if you look at mobile, it was 97%, let’s say, in incumbents. And then it’ll probably be, excuse me, 93 % incumbents. And then it’ll probably be close to 97% in this revolution.

 

Simone Cicero

Do you feel that AI is really the platform shift that everybody is waiting for after mobile?

 

James Currier 

It’s a technology addition. I don’t think it’s necessarily a shift. It’s certainly going to be a societal shift. But in terms of SaaS vendors mobile vendors and app developers, it’s not a brand-new platform. It’s an addition to the platforms we already have. This form factor, I looked at my iPhone 3 that I found in my drawer about a year ago, from 2008 or something. It looks exactly the same.

 

I mean, the icons look the same, the size of it is nearly the same, and the thickness is nearly the same. This interface hasn’t changed in 16 years. And the laptop I’m on, that interface hasn’t changed since, you know, for 24 years. So I don’t know that we’ve got a brand new platform, but we certainly have a new capability and it’s going to open up avenues for new companies to be formed, for new great things to be done. I think the question for us and the startup founders we work with is what percentage of that’s going to go to us and what percentage is going to be captured by Microsoft Google and other incumbents.

 

Simone Cicero

What do you think are the major, I would say, impacts that you can see already in terms of how AI is going to change the landscape on the consumer side and on the business side? Is there anything that is already coming up very clearly for you or are you still figuring it out?

 

James Currier 

You know, I think that a lot of the drudgery work is starting to be replaced. So my conversations with founders when we go to the whiteboard is really where the people doing some drudgery work inside of this customer and how can AI eliminate that for them to make it more accurate and make it faster and make it cheaper. And so that I think is the low-hanging fruit. It’s like, if I’m an engineer, I’m not going to be replaced as an engineer.

 

I will be able to do two or three times more work, maybe 10 times more work using AI, but I’m not getting replaced. We’re just going to do more and better. But what’s going to happen is my drudgery work as an engineer is going to be replaced. So actually, I end up enjoying my job more. I think that’s the phase we’re in for this first 10 years, the first 10 or 12 years of AI. I think all of us will have higher output, so I call it more and better. We’re going to do more and we’re going to do better work, and I think we’re going to enjoy our jobs more. I mean, I know that with NFX itself, we are working hard to replace all the drudgery work that I do so that I can just meet with founders and we can whiteboard and do the ideation. 

 

And that, I think, will continue for another 15 years before the AI maybe starts doing that better than us too. But we’ll see when we see when we get there. But yeah, on the B2B side, that’s what I’m seeing. On the B2C side, we’re not seeing a ton. It’s very hard to figure out what that interface looks like for consumers that really lights them up. It gives them something delightful that they haven’t seen before. We’ve seen some pretty good attempts at it, but it’s still pretty raw. It’s still pretty wild. It’s like the trio phase in the 1990s with the mobile phone. It’s a little too early.

 

Simone Cicero 

Well, certainly maybe what we can see is a little bit of impact already in terms of enabling creativity. So it’s really enabling new use cases. I mean, everybody is freaking out nowadays with this audio and something like that or services that allow musicians to people to create music, which is, I think, something that really amazed me. So really impression of magic. So.

 

On the one side, productivity gains, and efficiency, and on the other side, maybe a little bit of unlocking more creativity, and more creative use cases in the consumer space.

 

James Currier 

Sure, sure. I mean, ChatGPT and others like it allow consumers to write better and some tools allow them to do music better or make videos better. But again, in my sense, that’s more and better as opposed to when we got digital photography, suddenly we had the ability to have social networks. We haven’t seen that yet.

 

We haven’t seen anything like that yet. Like the fact that I can put my face on a moving image or I can run next to a leopard in the jungle with my face. It’s like a gimmick. It’s not like a brand-new thing in my mind. And we’ve seen a few attempts on the gaming side. We’ve invested in a few AI gaming companies and they’re doing well, they’re growing quickly there. But I can’t say that we’ve got the next Fortnite yet.

 

Simone Cicero 

That’s interesting. Ethan Mollick speaks about something that he calls the weight calculation. So it speaks about these dynamics where as a startup or as a company, sometimes you want to create a new use case enabled by AI, but you kind of fear that this new model is coming up in six months, it’s going to eat your cake. So it’s not worth it for you to invest. So you just wait for the next release and then you deploy your capital into new things after that. How is this playing out in your context? Are you seeing the same dynamics sometimes?

 

James Currier 

In our context, we won’t invest in companies where it’s pretty clear that the general models are going to supplant them in the next three or four years.

 

Simone Cicero 

Wow, that’s a lot, three or four years. I cannot imagine what ChatGPT will do in four years, you know.

 

James Currier

Well, no, I kind of can because you are going to have to have very specific workflows attached to specific AIs. And so you just build a business that takes advantage of where we are now. But as GPT gets to be five six and seven, it’s not going to impact the fact that you’ve embedded your software into the workflow of a business and can therefore have ongoing revenue and ongoing contracts. And you can switch out the models – like you’ll be able to switch out for Lama and just pay less. And then you’ll be able to switch out the next models that come after Lama and it’s just going to get cheaper, faster, better all the time. And so you want to design your business with that in mind because that’s definitely coming.

 

Simone Cicero 

So you have this idea that domain-specific structures and knowledge will resist and still outperform let’s say, general models. So you still need to have a, in B2B for example, it will be still important to have structures related to certain domains and they will be still more important than the models.

 

James Currier 

Yeah, yeah. And I think so. And I think that the models are going to get cheaper and faster and better. And we have not invested in Anthropic or in OpenAI or any of those guys. We’re just obviously OpenAI. If you’ve exited, you’ve made a lot of money. But I think long term, it’s going to be a challenge. It’s going to be a challenge. I think the money will continue to be made in embedding your software into workflows, not in the model itself.

 

Simone Cicero 

Yeah, I mean, that’s a concern that surfaced in the past also when the famous articles highlighted that Google didn’t have any defensibility in AI. So it’s a concern that is also in those that are developing the models.

 

James Currier 

Yeah. Yeah, and we wrote that article and published it on NFX about nine months before they did. Like, it was pretty obvious.

 

Simone Cicero 

Yeah. So a couple of questions. How are your investment sides, and ticket sides, changing based on the impacts that AI has? I can imagine more diversity, more options, more lower costs. So how is this changing?

 

James Currier 

So our typical check size is about $3 million for a seed. And for that, we were buying sort of 18 % to 20 % of the companies we work with. And then we work with them on a weekly basis until they’re sick of us. And then they can every two weeks and then every month and that sort of thing. And there are some companies where we can put in a million and a half and get a lot more done now because they don’t need to hire 16 people. They can hire seven. And so our dollars, I think, will go further.

 

And on the other hand, with some of these AI-accelerated businesses, their revenues are growing fast enough. So then we end up having to put in, let’s say 4 million in order to buy up the percentage ownership that we want to be working with the company. And so our checks are getting both smaller and bigger simply because we’re able to, you know, a company that’s four months old has much more revenue than they would have three years, four years ago because of the factor of AI.

 

Simone Cicero 

And can you do you anticipate as well as some of the pundits around are saying that maybe the traditional avenues, you know, into a step-by-step investment, investment steps like, you know, seed and, and Series-A, Series-B or whatever, is it going to shorten or stop at some point? What is your perception? How startups going to need less money than before. What’s your perception?

 

James Currier 

Some of them will, certainly. I mean, we wrote an article called The Three-Person Unicorn that came out about a year ago. And I think Sam Altman, maybe six or eight months later, was saying The One-Person Unicorn or whatever. So yes, I think that you will have many companies that need less capital, but in that case, maybe they take no capital and they just don’t use venture capital. 

 

Simone Cicero 

So we are going to see some companies, but look, there are other companies that are going to require hundreds of millions to get going because they need to do the marketing or they need to do the integrations and they need to do the computer. And so I think you’re going to see both. Look, I think that both will happen. I think that venture capital, like so many things, is just going to get bigger. 

 

I remind people that when I first worked at a venture capital firm in 1994, there were 150 general partners in the United States. There were 40 active venture firms, 150 general partners, and about 75 associates. I was an associate. In 1994, there were 31,000 people on signal.nfx.com, which is where the founders go to find their investors. So if you go to signal.nfx.com, you’ll see 31,000 profiles of people making a living, deploying capital into high-tech startups.

 

That’s up from 150 in 1994, so that’s 30 years. So I actually believe that that number 31,000 is going to continue to grow. I actually think that more and more people are going to become venture capitalists and they’re going to be investing in startups. And I think that the number of startups will continue to increase as the knowledge about how to do them extends and as universities teach it more and more. And as it becomes sexy for communities to say they have venture capitalists and we have innovation and we have economic development, and it’s all about startups, and blah, blah, blah. So I actually think you’re going to have a continued expansion of the venture capital world, which means you’re going to have some companies that are funded with a little bit and some companies that are funded with a lot. Again, more and better or just more will happen. 

And sure, if you’re very, very good and you pick the right exact market, you should be able to build a billion-dollar company with three or four or five or 10 people, in which case you don’t need a lot of capital.

 

Simone Cicero 

I mean, of course, this opens up fascinating reflections on how this kind of society you picture will look like in 10 or 15 years, where there will be tons more startups, and tons more people. I mean, it would become some sort of normal job to be a startup or a start-upper or something like that. 

 

So, you know, sometimes I also ask myself, who is going to consume the services of the startups? So how is the other side of the market going to change? I mean, for sure, AI is going to have a major impact on this. For now, we can foresee more product diversity, more options, more startups, and more. And on the other side, we can see no code, for example, or AI-mediated programming or something like that. It ends in a future where users will be much more in charge of designing their own user experiences when they need something, they can combine pieces between maybe between products and so on. So do you feel the same? 

 

Do you feel that the power is shifting ever more into the ends of the users like it did in the last 10 or 20 years? Or at some point, the experience of the customer needs that level of curation and design that entails that even if you can combine 10 products, it will be much better to use one just because it’s better design, better integrated, whatever. 

 

What’s your feeling on the other side of the spectrum, so the consumer side? What do people expect and how can they achieve in the future as these technologies enable new interactions?

 

James Currier

I think that the power is shifting more toward the incumbents. We are at that phase. Look, we have to differentiate between a business cycle and a technology cycle or a technology window, as I call them. So a business cycle is, we just went through a downturn. Market caps went down, stocks went down, and recessions happened.

 

Now we’re coming out of it. That’s a business cycle. Those come and go. Those are based on psychology. There’s nothing we can do about that. But the technology windows open and shut. And the software window opened about in 1994 when we all got connected. And if you look at the number of unicorns created in the consumer software space, there were a lot of them between 1994 and 2013 – meaning they started, they were founded, they were funded by seed, they were funded by series A. A lot of that activity happened between 1994 and 2013. 

 

Since then in the West, there have been very, very few unicorn consumer software companies for 10 years. And nobody’s talking about it. They’re not talking about it because we’re all watching Uber increase their valuation. We’re watching Facebook increase its valuation. We’re watching all these things that we’re using on a daily basis still do better. So we think that the consumer software business is still thriving. 

 

Well, it is if you started 20 years ago. It is as if you started 15 years ago. But if you started in the last 10 years, you’re probably not thriving if you’re in the consumer space. And that’s just sort of true. The numbers just prove that. These are technology windows that close. B2B software sort of kicked off in 2000, and 2004 when we got SaaS. Obviously, there had been a wave before with SAP and IBM and all those folks before.

 

But then it was kind of fallow in the 90s. And then it really started accelerating again when we got SaaS. And so that technology window might be closing as well in terms of Okta’s got X number of salespeople that are beating up on your startup. So when your startup launches and it’s you, the CEO, and one salesperson, it’s two against 400 salespeople. It’s like you’re not going to get a lot of traction. 

 

If you look back to 2009, when people were launching SaaS software businesses, there were only 140,000 SaaS salespeople, business-to-business SaaS salespeople in the world. Now there are 1.1 million SaaS salespeople who have to put food on the table, and who have to hit their quotas, right? They are reporting back to headquarters about some new startup that sold some software to their customer and they want to include that in their next PowerPoint deck to say, this is coming in six months. Can you build that feature for me? 

 

And so the window is getting tighter and tighter for these startups. And so I think that the power is increasingly going to the incumbents in this because we are in that stage where the tech window is narrowing as opposed to expanding. And so I think I’m not going to use anything other than G Suite for my software because everyone in my company uses G Suite. And you and I both use G Suite. And so it’s just easier for calendaring and the blah, blah, blah, blah.

 

Can I use superhuman? Sure I can. But then it sends out these spam emails, and it’s a pain in the ass for everyone. And it’s just annoying. So even if G Suite isn’t the best, we’re still going to use it because everyone else is using it. These are the network effects. These are the incumbents’ advantages. And it just becomes societally normed for me to use Google when I ask you to Google something. You’re not going to use Bing if I use the word Google to say, could you Google something for me? 

 

So. The incumbents, I think, continue to have the advantage because they got big during the opening part of the tech window that we’ve been in with software. And that’s going to continue on. It’s up to us as investors and founders to try to beat back that advantage. It’s just a harder game now. If you wanted to win a medal in the Olympics in 1924, it was a lot easier than 2024.

 

Simone Cicero 

So to sort of escape this stagnation on the consumer, which is going to include the consumer side, but also coming, I guess, at some point on the B2B side, we kind of looking into the deep tech space, like the industrial side of the economy to transform. So when it comes to that side of the economy, the industrial side, what is your thesis? What are you perceiving? What are the major directions that these incumbent sectors of the economy that really need transforming now are going to change like medicine or I don’t know deep logistics or manufacturing or space or what’s happening on that side of the economy? What do you foresee? Government?

 

James Currier

Government, government, yeah. Well, look, I think that people in those industries do the things they do because they’re living in incumbent systems that have been developed over a long period of time with lots and lots of people. And so it’s going to be slower adoption of technology. It’s going to be lower returns for investors and for founders who are building for those sectors.

 

And there’s going to be greater dilution because it’s going to take longer. You have to fund all the salaries of the people for more years and more months. So you have to keep raising more money, which means that there’s more dilution. And particularly in deep tech stuff, whether it’s climate or whether it’s robotics or whether it’s manufacturing, you just need a lot more capital. And that means that if you invest and buy 20 % of the company at the beginning, you’re going to end up with three or 4%. 

 

Whereas in a software company, you might end up with eight or 12%. And that makes a huge difference in the returns to VCs going forward. So I think those industries are going to be important. That’s what we should spend our time on. That’s what we’re going to invest in. That’s what founders should start with. But we all have to recognize that the heyday of zero marginal cost software businesses with zero distribution costs and no regulation and being able to do it with small teams, those days are over. Those days are not over, but it’s certainly smaller.

 

Simone Cicero 

I mean, it’s a tremendous change, you know, because the VC industry as well was kind of, you spoke about this last 20 years and we’re actually 30. And then you spoke about this explosion of investors in the investing space. And it was largely a moment where as an investor, you could invest into a company and this company could have a kind of global reach, you know, and very easily the world was pretty stable, no major friction between cultures and states and regions. And now it looks like, you know, as we switch, and you said that, as we switch into these deep industries, I guess that there’s gonna be a major role for governments as well. 

 

And for example, let’s say nowadays everybody speaks about the – you know, you mentioned the A16Z, but everybody speaks about the American dynamism and the new wave of investments coming out of defense. Unreal is the startup of the moment. So what’s your feeling in terms of how the world is shifting in, you know, new regions are taking more importance like China? We spoke about this four years ago and now it’s even more important. India coming up, you know, we have a conflict, NATO versus Russia. So it’s really a mess. And, you know, at the same time, the investment opportunities are moving into industries where governments are more needed. 

 

So what do you feel about this? Is this changing in ways that kind of change the job of a venture capitalist as well in, you know, in looking more different partnerships, different alliances even with governments or other types of players in the space?

 

James Currier 

Yes, I think to the extent that government is more involved, unless your only customer is the government, like if you’re an android or something, in every other case, if you’re not selling weapons systems, which you’re only customers, governments, in every other case, the more the government is involved, the crappier your business is going to be from a venture perspective because it’s going to go slowly. 

 

It’s going to be by who knows whom, not who does the best product. And so what is going to make a company win is going to go from value to the customer and quality and speed to who can navigate the vagaries of the political hallways of Brussels and Washington, DC. And that, I think, is a sadness.

 

I think it’s less fun, I think it’s less good for people and it’s a mess. The government tends to be a mess. As an American, we’ve always felt that way. We designed our government 250 years ago to stay out of our way. That’s why it’s so complicated and whatnot. Yet, the government now employs about 30 % of Americans. It’s a virus. 

 

It’s an alien creature that just keeps absorbing more and more resources and more and more human power. And as an American, our sense is that it’s to be distrusted, it’s to be minimized, but it’s really hard to minimize it because they use fear to keep expanding. 

 

So yeah, I think at this, and so you’re seeing the bigger venture firms are spending more time in Washington because of this issue you’re talking about, and thus it’s going to be more time in Brussels and for the entrepreneurs in Europe. It’s a sadness. They should be focused on customers and products.

 

Simone Cicero

I mean, in the conversation, I kind of forgot about Brussels. That’s another story. That’s probably, there’s a reason for that. But I was thinking about, for example, China and India, right? They look like very dynamic digital ecosystems, right? There’s a lot of innovation. India is now kind of championing new trends.

 

I don’t know, maybe they will have an alternate fortune with digital public infrastructure. But if you look at what happened in India in the last 10 years, of course, they started from a very, not very developed situation, but it’s bubbling, right? I’m myself, I’m working with Indian customers at the moment. I have Chinese partners. So the point is these two spaces are very bubbling in terms of innovation and their governments are very present, you know, they have very big governments, of course, you know, China, India. 

 

So it kind of, can solve conflicts with the vision that you shared before, right? Where more governments seem, to mean less innovation, but, these countries are kind of doing the opposite. More governments are bringing more innovation. What’s your explanation for this? And are you dealing with opportunities in this nation as well? Are you investing in Chinese or Indian startups? What’s your experience with these cultures?

 

James Currier 

We are not investing in China. We think the government risk is too high in terms of getting our money and our returns back and having the rule of law. It’s just not what we’re seeing. India, we are very bullish on, but we are not investing there because we don’t have any partners on the ground there. We are investing in Europe, Israel, Latam, and the United States, mostly in the United States. And that just happens to be who we are as five partners.

 

Those are the markets we know. And so those areas, but we, yes, we believe in India. Now, in terms of them being dynamic, well, how many people are in China? Right? I mean, there’s over a billion and there’s over a billion. And so, yeah, they’re dynamic, but pound for pound, they’re not. I mean, if you look at Israel pound for pound, it’s much more dynamic than any, right?

 

So yeah, if you’ve got a billion people and they’re all able to just sort of copy the same sort of SaaS stuff that we did in the United States, yeah, it looks pretty dynamic, but I think you’re exaggerating the extent to which government is assisting that or that the fact that the governments are more involved there is a counter-example to what I’m talking about. I just don’t, I don’t buy it.

 

Simone Cicero 

I mean, maybe India is a bit different. I mean, China as well, actually. But, you know, the governments have been doing some active digital policy. But certainly, as you said, you know, there’s there again, there’s a lot of people there. There’s a lot of a lot to build, you know, starting from scratch.

 

James Currier 

China chopped off the heads of all of their big tech companies.

 

Simone Cicero 

Mm-hmm. Yeah, yeah, yeah. But I mean, this brings me to another step of the conversation that I wanted to touch on before we close that. 

 

It’s more about, you know – Has things shifted in this way? And you’ve been pushed into new industries, into new spaces. Again, more deep tech, more health care, more heavy industries. What are the invariant heuristics that you use? So you became famous for your heuristics on network effects, right? You tend to say, if you have a network effect, if you can build network effects, you are a good business.

 

We can invest in it because you have the network effects. You have been really teaching everybody about this. So if I look into this now and you look into new industries, you mentioned IP, for example, other types of modes. But in general, what are the invariant heuristics that you use across all these different industries to consider if a startup is worth investing in?

 

James Currier 

Yeah. So the common heuristic is defensibility. And we came to network effects because we realized it was about defensibility. And then we looked at, well, what are the methods by which you can create defensibility? And in the digital world, there are really only four. And we published that. It’s an article called Defensibility. Just type into Google NFX defensibility, and you’ll get the articles.

 

But basically, there are four basic defensibilities in digital. And then outside of digital, you add a fifth, which is IP, intellectual property, and legal threat of patents and that kind of thing. But in general, in software, IP has not really played a major role in which startups succeed or fail. So. So.

 

The two that are available to startups as we discussed are network effects and embedding, where you essentially take your product and embed it in the workflows of your consumer or your business that you’re servicing. And so we just continue to look at that. We continue to look for places where those things will be true. And whether it has AI or not, whether it’s consumer or not, whether it’s whether it’s government or not, if it’s got a network effect or a potential network effect, then we’re interested. And what we’ll do is we’ll, even if they don’t have a network effect, what we’ll do is we’ll invest, and then we will work with them over time to shift the product to a point where it develops its own network effect. And instead of being worth $400 million, it can be worth $4 billion, that kind of thing.

 

Simone Cicero 

That’s interesting because at the end of the day, if we look at what happened with AI, which looks like a very IP-specific industry, and after this last decade of research, we end up with a landscape where we are able to say, it’s going to be very hard to defend a large language model, which is something that requires so much money and research. It’s really a testament to how hard it would be to defend your startup with IP, I think in modern times. 

 

But on the other hand, NFX and embedding are pretty invariant. So of course, they require a certain digital embeddedness of your product, especially NFX, I must say. But embedding looks like a very, I can say, timeless strategy to build defensibility. 

 

So you can think of, for example, even an industrial process once you have embedded your product into a, especially if those cycles have long lives, right? In industries, you don’t change your processes every month. And maybe it takes 20 years to, I don’t know, for example, let’s say you develop a factory, you don’t change the factory very often. So embedding looks like very good advice for startups. So think about embedding yourself into more complex processes.

 

It’s a very good defensibility heuristic, right?

 

James Currier 

Yeah, and you know, this is why I think as we go into manufacturing and government and other really difficult industries, there’s a lot of companies who have already embedded their products in those processes, and they do not want to give up ground to us, our startups. And they will resist, they will fight back, and they have plenty of ways of doing that.

 

Simone Cicero

So I think it may be interesting for startups in this space to look at the renewal cycles, right, and understand where they need to kind of fit themselves into this renewal cycle and find a new position that will be defensible for maybe the next 10 years or so. So that’s…

 

James Currier 

Yeah, or you have to invent a new category. You have to say, no, no, you keep what you’ve done. What you’ve done is perfect. You’re very smart for having done what you did. We’re not saying that. We’re just saying that this is a new thing that’s even more awesome. It’s like, you know, you don’t have to replace it. Just add it.

 

Simone Cicero 

This is good because at the end of the day, what we said is also that the dynamicity of change, the pace of change is improving, is increasing, and the modularity of markets is increasing. So to some extent, making a new category, creating a new category is going to be easier than in the past, right? As you look into a modular market, maybe you just create a new model that builds its own category, and it will be easy to plug into the rest.

 

So it’s not going to require major changes to everything else. You know, you just, especially with these universal duct tape that we have with AI, it’s going to be easy, you know, to connect your piece into a bigger system. So good to also note down that, you know, embedding is going to be your major defensive strategy. Building a new category, it’s going to be easier in a modular market. So these two things together kind of, I would say, give hope in a landscape that otherwise is very, very hard, very competitive.

 

James Currier 

Yeah, yeah, yeah. Well, here’s the thing. We’re going to have a lot more startups and we’re going to have a lot more VCs over the next 20 years. It’s just the question is whether we’re going to have a lot of giant outcomes. We might have a lot of $20 million outcomes, $50 million outcomes, and $100 million outcomes, in which case the venture model is going to be under threat.

 

But it won’t be, but still, a founder can still make 6 million bucks, 12 million bucks, 20 million bucks.

 

Simone Cicero

Yes. Yeah, yeah, yeah, as we said before, it’s gonna become a job to be a startup founder, because there’s so much to do.

 

James Currier 

Well, you know, it’s the thing that I think there’s a limit on that. And the same way that, you know, being an NBA player is a job at this point. It’s just so few people could actually play in the NBA. They’re gifted in it or not. And I think being a startup founder is very, very hard. I think it’s very hard. It’s a lot of suffering. And, you know, when I went back after I left Harvard Business School, I started my first startup while I was there.

 

I sold it two weeks before my fifth reunion and I went back to my reunion and I said, you know, you guys didn’t do a great job of explaining how much suffering was involved in these startups. You had these two entrepreneurial classes, but at no point did you say, look, you have to be emotionally ready to just suffer and live in your grandmother’s basement for six years. And while your friends are making money and drinking wine and enjoying their corporate lives, you know, running around Europe or the U.S.

 

And it’s true. And so I think that when I go to these universities and I speak, a lot of people want to be VCs. They don’t know how competitive it is. A lot of people want to be startup founders. They don’t know how much suffering they’re asking for. They think it’s a job. And I think they’re going to learn that it’s very lonely. It’s very hard. You don’t sleep a lot. And most people are not suited to that job, honestly. And so it’s going to be interesting to see how it evolves.

 

Simone Cicero 

But I think we are seeing a shift also in the narrative because if I look at what’s happening, for example, on Twitter or X rather, there’s a lot of talking about multi-prenuership and small bets. So there is to some extent a different discourse around entrepreneurship that resonates with the landscape that we spoke about. So try multiple things, modularity, and smaller bets than instead of larger investments. 

 

So the music has changed a little.

 

James Currier 

Yeah, yeah, yeah, it’ll be interesting to see. It’s going to intersect with people’s personalities and their capacities.

 

Simone Cicero

Yeah, of course. Yeah, definitely requires a change in the culture that surrounds investments.

 

James Currier 

Yeah, I think the warning I want to give everyone though is that this idea of being a startup founder has a high-status lifestyle, I think that’s a mistake. A lot of people are trying to look good on social media like, I got these multiple bets and I’m here playing tennis and then I’m going to do my startup and blah. I find that to be disappointing. I just don’t think that’s how it gets done.

You should be sort of a grim determination, grim determination. And you have to be all in. You have to work 14 hours a day. You have to, otherwise, you know, because someone else will. And because of the nature of software, particularly, you’re going to be able to expand. If you’re slightly better, you’re going to be able to expand much faster than somebody who’s just slightly worse. And so the differences between people, just like in a sport like basketball, will become readily available, and obvious.

So I think this idea that I’m a venture capitalist, I have this high status and I get to judge people and I see all these new ideas and look at me, I’m in Miami and all this stuff. It’s sickening to me.

 

Simone Cicero

Yeah, certainly it will take this create to create something long-standing, you know, and stable and solid, you know, because of the dynamicity of the market that we said, you know, maybe you are going to be successful, but for just six months and then it’s up for the new kids on the block unless you don’t do the hard work.

 

James Currier 

Yeah, somebody who tried harder, somebody who is more obsessed with the problem. I don’t know. I just think that what’s happened is that entrepreneurship and VC has become high status. And so everybody wants it simply so that people will admire them or love them or like them. And I think that’s a trap. I think you have to have the right personality for both jobs. And so I think the venture capital is going to expand and startups will expand, but most of the people who come in shouldn’t be there. That’s what’s going to happen.

 

Simone Cicero 

On a final note, we always close our conversations with our guests asking them to share some breadcrumbs, as we call it, as we call them. Books, videos, movies, podcasts, whatever you encountered either early in your career or even last week that you want to share with our audience and because you believe it’s an important piece of work that people should be looking into.

 

James Currier

Well, no doubt people should be watching the movies Tucker, T -U -C -K -E -R, and they should be watching The Founder. Tucker was about a car company in the fifties and what happens when he goes up against incumbents. And so now if you’re in software, you are going up against incumbents. You need to understand what that’s like, right? In 1994, there were no incumbents you were going up against. Right? It was easy. Now it’s not. And I, and tonight, and you know, General Motors was founded in 1928.

 

They were going up against Ford and maybe Chrysler, but they didn’t have a ton of it. So it was a wide-open market still. But by the 1950s, when Tucker comes along, the technology window has closed. And you can see what happens when the technology window closes in that movie, Tucker. And then there’s another movie, which is called The Founder, which is about McDonald’s. And that demonstrates the importance of naming and branding. 

 

It demonstrates the difference between people who are aggressive and business-oriented and people who are softer or slower and how the people who are more aggressive end up winning. And then in terms of books, I love the book Scale by West and it talks a lot about networks and about scaling. We have a number of articles on NFX.com. One of them is called Network Bonding Theory which you should read. One of them is called Your Life on Network Effects, which I think is our most popular blog post. And then the three-person unicorn, I think, where we talk about altimetric scaling and the math of that. I think those are important concepts. Those three articles, I think, would really give people a lot of insight into how things actually work.

 

Simone Cicero 

Thank you so much. I also have ideas for the weekend now that I need to watch on Netflix. So, James, it’s been a great chat. I think we compressed a lot of very great insights on the future of this industry, where to look for opportunities, and what to consider as an investor and as an entrepreneur. Of course, lots of question marks because the times we live in are times, dynamic times, and things are shifting.

 

Really grateful for the insights you brought to us and to the community. I hope you also enjoyed talking about something unusual for you, maybe a little bit, at least on podcasts.

 

James Currier 

Yeah, good stuff. It’s great to see you, man. Congrats on all that you do.

 

Simone Cicero 

Thank you so much. And for our listeners, as always, thank you so much for your time. Thank you so much for your interest. Look after our blog, www.boundaryless.io. You will find James’ interview, all the links, all the transcripts, and all the fantastic things that James suggested. And until we speak again, remember to think Boundaryless.