John Cowan — Founder-Aligned Capital in the Era of Autonomy | Future Ventures Podcast Ep. 031

John Cowan was about to do what he'd done a hundred times before — make the calls, set the meetings, walk a young founder into the venture capital fundraising process. In a split second, he backed out. He couldn't morally send another kid into a system he knew was rigged against him: four cycles of dilution, ratchets, protective provisions, career death. Six or seven months of thinking later, he came back with an essay called The Theory of Venture Reciprocity, a new investment instrument called the SAFER, and a firm — Nextwave Partners — built to do venture differently. 

This conversation is for founders who've ever felt like they were just performing instead of truly pitching when talking to a VC. John explains how the industry has shifted from focusing on funding new ideas to prioritizing the size of the fund, what founder-friendly capital really looks like in real life, and where he's placing his bets for the next ten years. If you're raising money, advising, or managing investments with $3 million to $50 million in revenue, this hour will be one of the most honest and helpful you'll have this week. 

What we covered 

1. The structural collapse of venture capital. Why the 2009 shift to fee-driven economics turned VCs into venture banks — and what that did to founders. 
2. The SAFER instrument. John's alternative to the SAFE — re-centering the founder-investor relationship around revenue instead of equity. 
3. Killing the Unicorn cult. Why power-law thinking went from observation to ideology, and how Nextwave applies long-tail economics to startup investing instead. 
4. The machine economy thesis. Why John believes we're at the start of a long arc of innovation on par with electrification, and where the real money will be made. 
5. Geographic alpha and coalition funds. How distributed talent is reshaping where capital should flow — and the fund structure John thinks replaces the traditional GP model. 

Three insights worth sitting with 

• Revenue is the clearest indicator of early progress. If a customer is willing to pay for your product, that message is stronger than any pitch deck — and it aligns the goals of founders and investors instead of creating a zero-sum battle over ownership. 
• The Titans of rail didn't get rich on rail technology. They got rich on the economies that formed around it — towns, real estate, industry. The same logic applies to the machine economy: own the infrastructure, not just the software. 
• The next generation of transformative companies will not come out of Silicon Valley. Underserved regions — Florida, the Nordics, Latin America — are producing technical talent that the traditional VC hubs are structurally incapable of touching. 

Links and resources 

• Next Wave Partners: https://nextwave.partners/ 
• John on LinkedIn: https://www.linkedin.com/in/johncowan1 
• Future Ventures Corp: https://ca.linkedin.com/company/future-ventures-corp 

About the guest 

John Cowan is the General Partner at Nextwave Partners, a venture studio and investment firm focused on the era of autonomy and the machine economy. He's a 25-year founder, CEO, and strategist who has raised millions in venture capital across his career and become one of the more vocal critics of the traditional VC model. He's the author of Venture Capital 2.0: Building, Financing and Scaling Startups in the Post Power Law Era, with a second book on financing the machine economy due out shortly. 

Transcript

SPEAKER_02 0:02

Welcome to the Future Ventures podcast on Scaling with Clarity. Today's guest is John Cowan, general partner at NextWave Partners of Venture Studio and investment firm rethinking how early stage companies are funded and scale. John has spent more than 25 years as a founder, CEO of strategist and a venture architect. He's become a vocal critic of the traditional venture capital models that prioritized power low returns over sustainable company building. Through NextWave Partners and his work on venture capital 2.0. He's building founder light capital structures focused on autonomy, infrastructure, and long cycle innovation. Welcome to the stage, John.

SPEAKER_03 0:47

Thanks, Maxim. Thanks for having me.

SPEAKER_02 0:49

It's an absolute pleasure to be speaking to a fellow Canadian, although living down south.

SPEAKER_03 0:55

Yeah. I'm still Canadian by passport, even though I it's it's quite a while since I've lived there.

SPEAKER_02 1:01

Oh really? You you haven't gotten the US passport?

SPEAKER_03 1:04

Uh no, no. I I I I you know I really like my Canadian citizenship, honestly. Sounds good.

SPEAKER_02 1:11

Sounds good. Um hey John, why don't we uh double click on who is John Cowan? Like um give us give us the origin story behind you and how did you come into venture?

SPEAKER_03 1:22

Sure, yeah, no, absolutely. Born and raised in in Canada, um, I sort of discovered discovered the fact that I'm an entrepreneur almost by accident. Um, you know, I began working in early stage businesses um in my early 20s, and um, you know, sort of I gravitated to the job descriptions of figure out what to build, go build it, and then you know, beat the competition. Um, you know, th that kind of job description sort of appealed to me. Um very competitive by nature. I grew up playing hockey in Canada as most Canadian most Canadian boys do. Um so I just you know I kind of gravitated to that. Um I made my way uh to the United States via the Caribbean. I spent 12 years building an international career between Bermuda and Grand Cayman. And um, you know, discovered there, you know, I get you know more more of the you know, the the behind the scenes or what I call below the water line venture architecture and and venture building, capital raising, all of those kinds of things that, you know, are are you know things that you don't sort of necessarily go to school to learn, but you sort of you know put those tools in your tool belt along the way. Um and they've become very, very important um, you know, assets and skills as you know, I I pivoted from uh building early stage technology companies to helping to scale and finance um early stage technology companies under Next Wave.

SPEAKER_02 2:52

And when did you start next wave? What is the investment thesis? Kind of like what is what is the focus? What what drove you to move from like scaling companies to to now you still help company skills, but you're not in the driver's yeah, not not as like the founder or the co-founder of the startup.

SPEAKER_03 3:11

Um yeah, so you know, if you I mean, my business partner James Thomason and I started NextWave um actually a number of years ago, but it was really just it was initially just a home for our research, you know, as as uh technology founders and technologists broadly speaking, you know, we do a tremendous amount of research. You know, we always saw our job as founders as um as you know, sort of timing what to build, right? Getting becoming um efficient with figuring out what to build and and and when to build it, you know, as as technology um co-founders. So we had a research organization that was really dedicated to that. You know, we we we both come from, I guess, the same school of thought um when it comes to um when it comes to um you know company building and and product building, you know, more more specifically. And um, you know, one of the research tracks that we were we were following, you know, dating back to 20, probably 2020 2017, we got very serious about you know the future of code, content, and data, and um began to began to really dig into you know the future of you know AI as we saw it. While the world was sort of you know gravitating towards what we what we all use today now very regularly in in LLMs and and um foundational models, we were more um interested in what comes next beyond that. Um and you know, it we we sort of you know the it it evolved eventually into a full-blown um investment thesis, but we were focused on this this idea of the era of autonomy. And as researchers and and uh market theorists, we were fascinated with the idea that this era of autonomy, machine to machine or machine economy elements, could actually be um the what we call the sixth wave of innovation in society. You know, we could, as as analysts and researchers, we could qualify and quantify the five previous sort of like tectonic shifts or massive long arc waves of technology dating back to the you know the origins of the industrial revolution. You know, we saw this shift of um of a machine economy being that significant. And it's you know, it's rare in the career of venture builders and and financiers to to live at the very beginning of a long arc of innovation. And when I when we when we talk about long arc, we're not talking about you know cool technologies that come along, we're talking about the foundational things that will shift society. Right? Like you know, we see the era of autonomy on par with electrification, you know, with the nuclear age, those kinds of things. Like life as we know it is changing and will and will be radically different than you know when when we were young. I'm old now, I can say when I was young. Um my kids, my teenagers will never really appreciate um you know the the era that my generation grew up in. It will be radically not not almost, it won't even be an evolution, it'll be radically different. And you know, for good or bad, you know, depending on on how you you look at it, but either way, you know, we began to really quantify what um that meant economically. And you know, like a lot of um uh of other you know changes and shifts in society, there's uh you know a significant opportunity for wealth creation um you know as as we move to this machine economy. That research track was for us was going on at the same time that we were also analyzing um the venture market and you know, you know, you know, predicting, predicting bubbles and predicting, you know, um the trough of disillusionment, if you will, in technology trends and what have you, is something that we do very regularly also. But this you know, in 2021, it felt very different. Um, you know, we felt like the the industry was about to collapse. And you know, when you take that into consideration, that you know, that venture capital, as I know it, because I've been in this market for a long time, and as my peers know it, is is failing. It's not changing, it's it's literally structurally collapsing around us. Um we when we saw that that was really for us the decision that it led to the decision that we we needed to enter the market with a completely different alternative to what we've been taught to do as founders raising capital. And um, you know, that yeah, that was that was the that was the genesis moment where for us where we pivoted from you know a research organization to what I call mechanizing next wave into a different kind of venture firm built for an era where VCs have, in our opinion, at least my opinion, have abdicated their responsibility as innovation underwriters.

SPEAKER_02 8:05

And uh I just want to double-click on this, kind of like what are those structural um uh what what were the signals that you saw in that that you or that you were observing in terms of the structural collapse and uh perhaps like the the view that you hold it differs perhaps from the rest of the industry?

SPEAKER_03 8:25

Well, you know, it I mean the the structural collapse honestly is you know the root cause of it is this this shift in venture capital from you know being underwriters of innovation. Again, when I started in this industry, venture capitalists became you know, they were partners with the startup. You know, they got their hands very dirty and trying to help the startup get from point A to point B. Um, you know, after 2009, which sort of you know the you know the um the mortgage market collapse, as well as like sort of like the birth of, or I will say the acceleration of you know, you know, uh software as a service underwriting and firms like Andrews and Horowitz showing up and saying things like, you know, software is eating the world, I know where I'm putting my money. Um that whole that whole generation of venture capitalists became you know what I would what I would call um venture banks, or what you know, Dan Gray, who's a peer of mine in the research world, calls venture banks, where you know, instead of instead of you know focusing on you know making investing in you know um novel technology that you know can help change industry and what have you, venture shifted from shifted to a becoming a business that was genuinely about just raising more money. Right? The entire economic system of venture capital, in our our opinion, is broken. You know, when I when I um can earn two percent uh a two percent fee per year for assets under management, regardless of performance, the motivations of me as a general partner shift from you know underwriting great technology to simply raising more and bigger funds. I mean, it's the year last year or the year before Andreas and Jorah was raked $500 million in non-performance related fees. That sounds like a great business. So let's do that, right? Yeah. The problem with that is of course that you know you you you you live in that world to fund only the things that can support the narrative of a of a rapidly swelling net asset value of my fund. So when I'm speaking to founders, unless you can convince me that I can spin whatever you're doing into a unicorn, which is another crazy topic, um, you know, you're not going to receive capital. And of course, you know, our peers and on the on the operator side of the industry, they know they know the game. We're like, we're like rats in the maze. Like we know, we know to tap the machine three times to get a pellet of food to fall out. Okay. So we start changing the narrative. Every everything is, you know, we're gonna be a billion-dollar company, or we're going to do this, or we're gonna, you know, I started this company six months ago. I'm gonna completely overhaul heavy industry. Like, come on now. Like, yeah, but we what we're we're conditioned, you know, to to speak that way because we know that to get the pellet out of the dispenser from venture capital, that's the narrative that they started. And for us, like, you know, again, having raised, you know, millions and millions of dollars of venture capital in our own, our own, you know, life and our own career, um, you know, when when the market was sort of collapsing, it was a bit of a it was a it was a bit of an epiphany for us. Uh, I I remember sitting on a call with you know with a with a founder that I was I was stewarding and helping, and you know, he was ready, he was ready now to raise venture capital. And I was about to do what I was not what I normally would do, which is make the phone calls and align the meetings and connect venture capital with this founder. And I I um in that in in a in a in a almost like a split second, I decided that I wasn't gonna do that. And I kind of backed out. I just I couldn't I couldn't serve this founder to the wolves. Okay. I just, you know, morally, ethically, I couldn't do it. And I told him I said, I can't do this, I you know, I can't help you. Yeah, you know, this is as far as I go. And um, you know, you know, he was he was a little bit, you know, kind of taken aback by that approach. Oops, and and what I said, but you know, in my heart and at my core, it was because I knew I knew that I was sending this kid off to his career death. Like I really knew it because he didn't, he didn't, he hasn't lived through four cycles of dilution and you know the the the ratchets and the controls and the protective provisions and the shit that is gonna get layered on top of him by the venture capitalist. But I know it because I've lived it and I've experienced it, and I really like this kid, and I just didn't want to see him suffer like that, even though I could I could probably make it happen because I've done it before.

SPEAKER_02 12:54

Of course. So so how do you how do you envision that we solve this information asymmetry? Um, one and two, you often talk about founder aligned capital. What does founder aligned capital mean in your mind?

SPEAKER_03 13:09

Well, so you know, when you know, you know, when I when I broke away, like when I felt that feeling of of of like I just I just you know, the the epiphany moment for me and not not sending that kid down the path of raising venture capital, I immediately sort of went inward, you know, in my own, I could become being became very introspective about everything in venture capital and the experience of founders. I went away for six or seven months and just thought about the problem. And I came out of that with the basis of an essay that I wrote called The Theory of Venture Reciprocity. And what I was kind of focused on is like, why did I and all of my founder peers have this experience with venture capital? It's almost like a love-hate relationship with VCs. On one hand, I wouldn't be where I am in my career without venture capital. I can say that truthfully and honestly, without speculative capital in my life, in my businesses, and what have you, would have no success. But by the same token, I wouldn't be here on this call with you today and talking about this because of venture capital. And what I mean by that is that it's a double-edged sword, it's a double-edged blade. Okay. Um, and and and you know, kind of getting to the root of that, and when you know when I wrote the theory of venture reciprocity, I came, I came away with the conclusion that our relationship is fundamentally broken from the moment we do an investment transaction. If you're the founder and I'm the investor, our relationship reciprocity is predicated on or based on equity. Equity itself is a finite thing. It's like a scarce resource. There's only so much of it, you know, that that is that is sort of in the in the mountain, if you will. And I, as the investor, want all the equity, and you as the founder have all the equity. So when I when I started to view our relationship that way, it all made sense. All of the terms and conditions and irrational actions and behaviors and craziness that I lived personally, and some of my peers have lived, you know, more severe than I did, made a ton of sense. Everything is designed to separate the founders from their equity. Wasserman's data all of a sudden made a huge amount of sense. Like how you know a very small fraction of founders survive series A, and even a smaller, minute percentage of teams and founders, you know, experience you know, greater than 10% of a liquidity event if they're if they're around to see it. All of that made a tremendous amount of sense. If I'm a founder, I have all the equity, you're an investor, you want all the equity. So all your terms and conditions are going to be designed to slowly separate me from it. Um, and that's it. That was it. I was like, what that made sense. And so if you if you get to that root and then you start thinking in first principles, it's okay, well, if it's not equity, what is it? And my business partner, James Thomason, came up with a very novel, very clever approach to solve you know the the reciprocity problem by recentering our relationship around revenue instead of equity. Revenue made a lot of sense to us because it's revenue is like a like a magical ingredient in a startup. Okay, so number one, it's theoretically infinite, right? There's no such thing as my bank account's full, Mr. Customer, stop sending me money. Right? It's theoretically infinite, but it's also the only true proxy for an early stage diligence process. If if you built a product and a customer is willing to pay you money for it, it tells the investor at the very foundation that it there's something potentially valuable there. You've you know there's something there. If something wants, if somebody wants what you built and they're willing to pay some money for it, it doesn't tell you that it's the greatest thing ever, but it it's in it's indicative of of potential. Right. So we really liked the idea of recentering the relationship on revenue. And so he wrote a clever instrument called the Safer, which is the simple agreement for future equity with repurchase. The design of the safer instrument is to is to basically program our return schedule. Like if I want, if I give you a million dollars and I want three million dollars back, that three million dollars is going to be returned to me using a small percentage, usually less than five percent of future potential revenues if and when they ever happen. Um, and and that does a couple of things for us as an investor and a couple of things for you as a founder. For you as the founder, it's dilution minimization. I'm staying off of your cap table, I'm staying out of your hair, I'm staying out of the governance, I don't need a board position, I'm not showing up to meetings, you know, as I've literally had in my career with VCs and saying, you know, Maxim, what you should do is you should have more revenue and less expenses.

SPEAKER_02 18:02

Um like none of that you prove the operating margin.

SPEAKER_03 18:07

Yeah. Thanks, genius. Captain Obvious, I appreciate the feedback. If this is what I'm paying for, okay. Um, you know, there's none of that. There's, you know, there's none of that baggage, none of that overhead. What we want to do is back founders and let founders do what they're what they're convicted to do, what they have the conviction to pursue. And so, you know, so that's a really critical value proposition to founders in the way that we started building ventures and funding them. But for the investor, it's equally important. I always viewed the idea of angel investing as a lost cause because the the you know, for you know, the the return, the the return equation or the the value of being the first money and taking the greatest risk didn't seem didn't equate for me. As an angel investor, I always felt like I'm gonna lose my money whether you whether you succeed or not. Okay, so the the the default is hey, I'm gonna give you a million dollars and this is gonna go nowhere because we know the success rates of startups, I'm gonna lose my money. I'm comfortable with that, I'm comfortable with the risk-reward equation. But it actually happens as well on the other side. So let's assume that your business is great and it is gonna be a you know a household name or whatever. Well, I'm gonna lose my money anyway because you know, those are the businesses that are going to be, you know, swamped with cash from the institutional feces who are right, not using their own capital, by the way, to do this. They're using other people's money. And if they come in with a $100 million uh investment transaction five years from now, and I don't have the balance sheet to invest alongside them to protect my pro rata rights, I'm gonna get diluted to nothing. So I'm gonna lose my money anyway. So what do I have? I have I have the I guess I have the the uh the the value of saying, well, at least I identified that this was gonna be something, like with all due respect, that's not why we invest. Um so so the idea that that um you know we can invest and you know and and and and structure returns based on the top line performance and success of the business and not not get into the dilution game or the pro rata game or the ratchet game or any of that nonsense, what we call shenanigans. James calls it the VC shenanigans. Like we just we just stay out of that completely.

SPEAKER_00 20:14

Yeah.

SPEAKER_03 20:15

And even if the even if the startup wants to raise, if they feel like I just have to have institutional venture capital later on, go do it. It doesn't affect our position at all as an investor. It's a very comfortable position and one where you know, if you've done any kind of early stage investing at any kind of scale before, you begin to really see the value through compounding. If you're telling you're telling me rather than being locked up for 10 years in a venture fund or a startup that's never going to IPO or potentially never be acquired, I can generate returns in a third of the time on revenue, revenue actuality. I I understand the importance and criticality of compounding. That money comes back into me, I can recycle it and put it into other things. As an investor, that's what I want. I want that in-out um frequency or velocity for my capital. So it's a better position for investors, it's a better position for founders.

SPEAKER_02 21:09

For sure. Um, and and I mean, I absolutely love the idea. Uh, it it creates uh better alignment in terms of where the capital is going, the venture is making money. Um uh it's also one of the current problems in in venture in terms of like your capital is locked in, or if you're private equity, you you have money, you maybe get into some of the you're getting dividends, but you don't get you know paid up capital back. So this provides that optionality, like in terms of getting back. The founder has more skin in the game in terms of like, hey, I maintain more quantity, uh more more uh equity in the business. So more incentivized to push harder and harder and harder. Um so with that framing, uh John, um kind of like can you give an example of like some of the companies in your portfolio, kind of how you invested, like what what What kind of the safer instrument looks like for you guys?

SPEAKER_03 22:02

Yeah, no, absolutely. So, you know, we started out, you know, when when we when we figured this out and we sort of solved the problem on paper and perfected an instrument legally, the next step was to begin to use it. I mean, we started using it sort of with our own our own money and making small small investments here and there and what have you. Um, and then it became it became clear that you know uh you know our our peers in the in the investment industry itself, in the finance industry, appreciated exactly what we were doing, and we began to you know syndicate investment, you know, bringing in co-investors, you know, into our projects and what have you. So companies like Surge Networks, uh if you look at Surge Networks.ai, that is a that is a venture uh you know built in conjunction with NextWave partners, completely funded internally by us on Safer. And I and which is really cool, you know, um you know um adopted through a crowdfunding platform like WeFunder. Like WeFunder is actually supported, which is if you don't know WeFunder, WeFunder is one of the one of the top uh um uh Reg C F uh crowdfunding portals. You know, they're they're now fully supporting the the Safer instrument. Um and so you know one of our own portfolio companies, Surge, was the very first company to raise capital from retail investors buying into Safer, which is a fascinating case study in terms of how that's that's kind of playing out. Um, you know, we have uh we funded you know companies like Tubular Network, Tubular.network, um, we using an SPV syndicate all based on Safer as an example. Um, you know, these kinds of projects. So for us, like, and it's not just because we're very thesis driven inside of NextWave, like, you know, you can apply Safer to any vertical or anything. What we're interested in as a venture builder and and a fund is, as I said, the machine economy, this era of autonomous systems that we we see on the long arc horizon. But when we construct a portfolio, what we're really doing is creating a cluster. These things aren't standalone startups that are just you know on the spreadsheet, if you will. There's an interrelationship, right? There's an interconnectedness. You know, we see, you know, we look for opportunities. You know, we used back in the old days, we used to call it vertically integrated investing. Like we want, you know, the like the vertical integration industry, you know, and invest in certain slots in that in that chain. Very similar strategy as we look down the architecture of autonomy, you know, we can we know where the opportunities and the problem the problems worth solving exist. And so we find we look for and find companies that kind of swat into that mosaic, if you will.

SPEAKER_02 24:41

It makes sense. Um, what has been um like you you said other venture capital firms have adopted the safer as an instrument? What could be the the general receptive receptivity of the industry around uh around the safer instrument? And the other thought, uh the other question they have that they wanted to double-click on is um uh on on one hand, you have the criticism around the venture industry that that they're not underwriting innovation. On the other hand, if I was to put their hat on and say, well, I am only putting money in in venture-backable companies that have the ability to scale to stratospheric heights. And so, kind of like, how do you square the those two notions?

SPEAKER_03 25:23

Sure. Well, uh, so let's unpack that a little bit. Um the idea, the idea that I'm I'm backing, I'm backing only companies that I can, you know, that I can see sort of going into the stratosphere or what have you, or becoming the mythical unicorn, that is that is an absolutely tiny slice of the market. And and let's let's presume for a moment that unicorns, let's say the unicorn thesis is an actual viable plan. Well, there are only a certain number of potential unicorns that can possibly exist, and the amount of capital that's chasing them, okay, it effectively means that you know a great percentage of venture firms are not going to be successful. And that's playing out in real time, right? So if you look at if you look at the returns that are being published across our industry, it's pathetic. It's absolutely pathetic. Okay. So our our perspective is more about the the businesses that are not necessarily going to be or must become unicorns. Unicorn, yeah. It's very, it's very much. I wrote a paper about this when we started, um, borrowing from uh long tail economic theory. So I'm familiar with Anderson, who wrote the theory of long tail economics kind of kind of to explain the phenomenon of Amazon. This goes, this is like 25 years ago. You know, he wrote he wrote the theory of long tail economics to explain how Amazon was harvesting the tail instead of the head. Like what made their model work was that they they found in large because of the internet that you could make more money selling, you know, selling the books that weren't the top 10 bestsellers, you know, and the New York Times bestsellers, right? The tail of a market is bigger than the head if you add it all up. We see the same phenomenon in startup land, right? So all the collective amount of businesses that are great technology businesses that are never going to serve venture capital is a much bigger market than chasing after anthropic. Okay. Okay. So while while, you know, again, so while you know all all of the you know, well, all of the VCs fight over one or two fish and kill each other doing it, we we just we don't enter that market at all. We're over here harvesting fertile ground in territory that these guys are structurally incapable of touching. And this is this is the exploitation of the innovators' dilemma. So the typical institutional VC is never likely to adopt a safer, they're never likely to adopt our thinking because it's cannibalistic to them. Yeah, it's completely cannibalistic. They'll never touch it. And that's we're we're good with that. We're okay with that. The investors that are gravitating to this model are are the investors with a DNA profile of uh I'm an individual investor that you know does my own individual, my own deals one at a time. Uh the the the family offices that are looking for alternatives to balance out their private security um spread in their in their in their investment portfolio, as well as LPs in funds that have learned the hard way that the returns are not there in venture allocation. So we're generally not, you know, I've had lots of conversations with VCs, you know, that you know, I I take a little bit of pride in taking out VCs from companies that we covet, um, because they're just they're extractive by nature. And so you know getting rid of it is kind of like I don't know what the right I don't want to be, I don't want to be over dramatic with my metaphor here or my analogy, but um, you know, yeah, it's it's like it's almost like curing the startup a little bit of uh of an issue. Um so we j, you know, we're well because we were antithetical to the whole thesis of investing itself, you know, we don't find ourselves in you know, you won't find us on Sand Hill Road, let's put it that way.

SPEAKER_02 29:15

No, you you you don't spend majority of your time in Palo Alto?

SPEAKER_03 29:18

I used to. I used to. When I had to raise money, I would I would have a tin cup and I would go up and down Sand Hill Road begging for money. Um you know, working on my pitch to you know to scrape my narrative into something that looks like the VC would back.

SPEAKER_02 29:33

Yeah. No, I uh this resonates so well. Um uh I I don't know if you're familiar with uh kind of like a thesis uh that Mael Gavet, who for a period of four or five years was the CEO of Textars, came up with. And and her thinking was very similar. Let's stop um fantasizing about unicorns, let's obsess over dragons. And the dragon definition for her is like it's not about how valuable your company is going to be, it's it's about how profitable your company is, what revenue is going to generate.

SPEAKER_03 30:11

That's by the way, by the way, that is that's a in you know in the current VC market, that's a radical idea, you know, that that we that we just focus on businesses that create profit, which is based on the fundamental premise of creating product that somebody wants, yeah, or that somebody needs. Um, and less about you know, less about um you know putting putting uh people in chairs in offices and those kinds of things, um, as far as use of funds goes. Um yeah, 100% agree with that. And but again, you know, that's radical ideology in Silicon Valley.

SPEAKER_02 30:46

So if if if I'm uh understanding your um comments correctly, large, large uh VC firms like A16Z or Sequoia or like like the big firms uh that have billions of assets um in their billions of assets under management, they're not keen on the idea. And then the smaller investors that are more agile, that have a lower risk tolerance are the ones that are adopting the safer because they see the the the alignment, the founder alignment in terms of the capital allocation um between an investor and a founder.

SPEAKER_03 31:27

Yeah, it's and I would I would say you know, there's still there's still risk takers, like early stage is still very risky no matter what. What I would say is that it's you know they're a little bit more experienced and knowledgeable, usually from firsthand experience, about you know the nature of you know venture fund returns and illiquidity and those kinds of things. And you know, they're you know, they're interested in in um you know alternatives to that. And so we you know, we spend a good amount of our time at Nextwave sort of like deprogramming the power law cult. Like the idea that I'll say, I'll say, you know, I'll you know, power, you know, okay, let's just let's just let's just talk about power law as a as a thing. Okay, so at some point, you know, in the evolution of venture capital, and I would say, I would say, you know, in the the uh the the earliest part of the century, um, the first 10 years, the first decade of the of the 2000s, you know, we went, we, we, we, we underwent this cultural shift where power law was a mathematical concept to observe statistical past. We we we shifted from from that to um you know a forward-looking thesis, right? Like the idea that that I'm going to become a casino player and uh you know, you know, venture is like roulette, where I just put as many chips on the board as possible and spin the wheel. Um you know, we we we went, we you know, the industry you know shifted from you know trying to explain returns a certain way to you know actively trying to manifest that, which to us is um dysfunctional. That's a dysfunctional way to think about innovation investing in venture capital. So, you know, the investors that that you know are gravitating to the model that we envision that we've built and now that we're operating are ones that that um you know would concur that the idea that I make 10 bets and nine will fail is an actual thesis, an actual program is uh is a mistake. And there's there's a a better way to do this where we can simply you know create, you know, let's just say uh you know normal returns more consistently. You know, I don't need the idea, I don't need a hundred X return um uh investment in order to make the good return to fund. Yeah. Um and that's that's really it's really just a deprogramming of you know a group think that's sort of permeated venture capital over the last 15 or 16 years.

SPEAKER_02 34:01

John, you it you talked about the era of autonomy, like you were heavily focused on autonomous infrastructure. What is what does the world look like over the next decade? Kind of like where you are you placing bits? What are you excited about? Kind of like if if you were to kind of like go through a moral exercise for the world like uh five, ten years, what does this look like?

SPEAKER_03 34:23

Infrastructure.

SPEAKER_02 34:24

It's infrastructure.

SPEAKER_03 34:25

Infrastructure. So um I just I recently wrote a book um which I'm gonna share with you because I want I would love your genuine feedback before it gets released. Um the book is called National National Infrastructure Notes: Financing the Machine Economy, America's a Machine Economy. And the um, you know, the the part of the you know central to the thesis of the book is that you know we are we are in the very beginning stage of a long mark of innovation that is not unlike what you know that the Titans of the rail industry saw, you know, 150 years ago. Okay. And so, you know, when we when we when we think about you know the like if you think about like Vanderbilt and Carnegie and and and you know, you know, the you know the the the titans of industry of that era of the rail industry, they didn't invest in rail because rail was a profitable technology or an innovative technology. They invested in rail because they understood that that mode of long-form transportation was going to radically overhaul the economy. And they were they they made their their fortunes by by investing in the economies that formed around rail, the industries, the cities, the towns, the real estate, the land, all of it. Right? That's the play. And we see the same thing taking shape now, revolving around intelligent and sustainable infrastructure. This country is going to require trillions of dollars of new, innovative, intelligent, sustainable infrastructure deployments. I'm not talking about roads and bridges and data centers. I'm talking about the fully decarbonized, intelligent, sustainable infrastructure that will underpin all of this machine-to-machine stuff that you know people write about and fantasize about in our industry. So we're keenly focused and interested in the strategies to underwrite uh uh you know risk in financing new and new innovative infrastructure, physical infrastructure.

SPEAKER_02 36:20

So is it fair to say that you're focused on the technology that's going to bring bring this infrastructure in in play or the physical assets, the physical infrastructure assets?

SPEAKER_03 36:30

Both. Both. Yes, 100%. Yeah. So if you look at the like the like the project that we um co-founded at Surge Networks, you know, that is all about you know proliferating the physical infrastructure at ground level in urban environments that are necessary to produce all of this intelligence, like physical things, physical infrastructure. Not, I mean, software is important, but you it it the software's irrelevant if the the sensors and the compute and the devices and what have you are not present in the environment. Right. And and what that also does, you know, when I put my sort of my portfolio builder hat on for a moment as a venture capitalist, I also pay close attention then to the software and the technologies that that are being you know built, the deep tech that's being built and and engineered to solve some of these challenges at a transaction level. So that you know, that feeds our our strategy of what to invest in, you know, whether it's if you look at a company like Crone AI, which we invested in, which has done you know amazing innovation in the field of 3D perception, or you know, companies like we've we've um backed, like uh Adaptive Swarm, which you know took you know precision um, you know, what we call micro precision navigation technology that was originally designed for the military that we're beginning to apply in urban cases, because like the future of you know, if you if you think your Amazon drone delivery is going to be pinpoint accurate in a big downtown market like Atlanta without precision navigation, you don't understand you know how this works. GPS is not gonna suffice. So, you know, we're investing in the technology at a venture level over here, but then investing in the build-out and the in the owning and operating of infrastructure at a ground level.

SPEAKER_02 38:15

Yeah. And and and we're seeing this across um kind of like our interactions with uh portfolio companies, with investors that there's a significant, uh, significantly high interest into deep tech. Before you know it was glorified, kind of the the businesses that don't have physical assets like DRB and Biz over the world, and now it's like people are looking at at companies that have defense abilities and modes. Uh and so can you uh one thing that you've you've said uh uh in in on in some of your other speaking engagement is like real estate is the new API. Can you unpack this? Sorry, you broke up there. Can you say that ask that question one more time? Um previously you've said that real estate is the new API. Can you unpack this?

SPEAKER_03 39:02

Yeah, so real estate is the new platform. So if I'm if I'm if I am if I am thinking about um I'll let's see, I'll use the example of our own portfolio company at Surge. So I can have I can own all the infrastructure I want, but if I have nowhere to put it physically, right? It's kind of pointless. So you know, we're we speak to you know private and public real estate owner operators, not in from the perspective of tenant and rent, but more from the perspective of your real estate is the platform, right? If you have and and so we you know we focus on you know rights of way partnership, both publicly and privately for physical infrastructure of all kinds, right? Um, that's what I mean by that. So so it, you know, we you know, you know, traditionally the real estate operator was a fairly um analog business. It was it was not really that tech focused. I mean, you know, they they bought technologies and they tried to automate, they do automate, you know, a lot about real estate management and real estate development and what have you. But what we're talking about is more or less viewing the real estate landscape, like you know, how much physical real estate that you have as a platform for hosting and operating the next generation infrastructure, sustainable infrastructure. And that what that does is it shifts it shifts the the mindset of real estate from, you know, again, you know, simple tenant rent extraction uh business models to you know long-term um you know appreciable revenue participation in the generation of you know data, for instance, that serves all these AI models that come from real estate. That's kind of what we're getting at with that. It's a it's it's a it's a shift in how you how we think about and view physical real estate, um, you know, or what we would call like the rights of way, public and private rights of way for physical infrastructure.

SPEAKER_02 40:51

Makes sense. Um what are most investors still missing about edge AI and intelligent infrastructure?

SPEAKER_03 41:01

Um I think, you know, again, we're you know, we're you know, we're still, I mean, I the the I'll just say the market, because that's I'm saying the majority of folks in the market um, you know, are are focused on what we see and and and observe and use today. Like, you know, that AI is is you know, it's it's uh Gemini and Claude and and uh Open AI, Chat GPT, these kinds of things. Um and you know that you know that that's not untrue. It's just that that market is already kind of, you know, it's it's being served, if you will, right? So, you know, looking looking a little bit beyond that, what happens, what happens in the AI landscape beyond um, you know, the these foundational models, that's really where, again, you know, if you're an investor in this space, I would urge you to spend your research cycles on that as opposed to you know the apps that are gonna get built on top of Claude or something.

SPEAKER_02 41:56

Yeah, I completely agree. We recently had a founder uh from a really cool company. Uh uh his name is Nicole Borisov and his company is called Deep Infra. So essentially, he's offering inference um as a service. So uh I mean I think that companies like that will scale significantly because that would be a significant need.

SPEAKER_03 42:21

Yeah, so part of our again, part of our forward-looking thesis is that these intelligence systems, the AI models, if you will, are going to require an ever-growing source of real information, right? Um in order to continue to grow. And you know, one of the places that we see the greatest amount of potential data that feeds those learning models is is you know what we would call edge, what we would call the internet of things. It's it's sensors and devices deployed in the field that are creating data that ultimately needs to make it way, make its way back to these intelligence engines. Right. So doing inference at the edge and processing um you know data that becomes part of a larger intelligence uh system is a unique and what we would describe as a compelling investment opportunity.

SPEAKER_02 43:17

It's interesting that you say this. Uh, I believe the professor was Ross Perron of the University of Adelaide. He had done study around Owen gas companies and kind of like uh comparing these super majors, like the the shells, the excellence of the world, um vis-a-vis the services companies. Um and so from a pure value accretion perspective, the services companies have accredited a lot more than the actual companies with the underlying assets. And the the the data that was pointing there is that uh they were not using their own data. They were using data that was generated by the super majors, but they had used this data to then uh drive value around it. So uh it it just it just was it was really interesting. Now AI is extremely powerful when data exists. And and yes, I agree if you have centers, you can accumulate the Internet of Things data. But what if you don't have data? Kind of like how do you go about acquiring the data?

SPEAKER_03 44:16

Well, and this is this is part of what you know we believe needs to be built, is this um the you know, the you know, we can call it an API, but let's just call it the data interchange between where inform where data is produced, where information is created, and ultimately where it is ingested and processed and made discoverable and usable by you know the the plurality of of interested parties. Um that that architecture, that infrastructure is really yet to be built, like the connection between you know the the the true machine to machine data that exists at let's let's say a street level and you know the foundational models that that help process that information and turn it into actionable or usable intelligence. So that you know that today that that that technology, that that facility does not really exist, right? It's it's something that there are a number of uh players that are working on solutions to that. Um they call it different things, um, but it's something that we are keenly interested in because we know that you know, again, that you know, quote, that API to the real estate, if you will, uh is a critical building block to feed these engines, to feed this intelligence layer.

SPEAKER_02 45:35

Just pulling on that string. Um are the next generation of transformative companies more likely to come from outside traditional V VC hubs.

SPEAKER_03 45:47

Yeah, 100%. In fact, um, you know, you know, and we track this too, you know, you know, making and we track this from the perspective of you know next wave being you know a more of a global participant in this. Um and uh I wrote I wrote a theory called um Geographic Alpha Um uh a couple of years ago, and it's it's based on the idea that that you want to structure your practice around you know, uh taking advantage of what each individual region might provide for whatever it provides for its specific value. And since um the since sort of practicing that theory, what we've what we've seen are um a number of what I would call very dramatically underserved regions, even in the United States, dramatically underserved regions that are producing amazing technology and amazing scientists, but are never going to raise venture capital out of Silicon Valley, right? Because we have of the traditional way that we used to concentrate, you know, the prototype of Silicon Valley was this, you know, you know, primordial soup of you know uh big technology companies, you know, universities and money and capital. Um, you know, everyone's trying to we think about trying to replicate these hubs, you know, and structures. And the reality is, given the way that we operate, given the way that we work as human beings, given the way that we develop as human beings, I we don't think that that's required anymore. Right? I can run a I can run a completely distributed team between you know New Delhi and San Francisco if I want to, yeah, and take advantage of different regions for their different purposes. And when we started to look at the market with that lens and that approach, you know, we began to discover pockets uh globally even that you know we would never have thought about before, right?

SPEAKER_02 47:36

From a I'm I'm curious, and where are you seeing this geographical?

SPEAKER_03 47:41

Yeah, you know, I'll tell you, so so we see um we see you know a tremendous amount of um innovation coming out of you know markets in Florida, for instance, that we never would have looked at. Um you know, we're seeing um we're seeing innovation come out of international markets as well, like you know, Switzerland as an example, um, that we never would have really considered in the past. Um, you know, we are seeing you know opportunities in Latin America that again, I would have come across my desk before and I would have said, yeah, I don't think so. That's never gonna work. Um, but now you know, because we look at this lens more from uh uh you know, again, you know, harvesting alpha geographically, um, it doesn't like we like the idea that these underserved markets exist because it's you know for investor, it's fertile, it's fertile territory. Like this, this is this is the land where no one's planted crops. Let's go plant crops there, right?

SPEAKER_02 48:38

I mean, I mean, we have an office in Buenos Aires, and we're seeing the same thing in Latin America, just right. And and not all America-based companies can be easily scaled into Latin America just because of either culture or business norms or whatever it might be or different regulations. So we're seeing that alpha there. The other place that has really surprised us, but this is based on uh uh primary evidence uh in terms of working with companies is the Scandinavians, the the the the Nordic countries. Um one thing that we learned from one of the founders is that uh uh in Norway there's nine times more startups per capita than in Israel. I'm like, really? He's like, yeah, so there's these like pockets of the world that they're very surprising.

SPEAKER_03 49:25

So we so we've spent um, you know, we what we started to do as a practice also too is is create bridges to markets. So you know, Indian companies that are trying to you know create US presence, US operations, um, US companies that are trying to export to other kinds other countries, um, you know, to open up different markets. You we spend a lot of our time you know on that level of strategy as well, because we we we just we think about the market now less by you know regional hubs and more by you know unique opportunities that exist uh you know at a global level. Um so it doesn't surprise me about the you know the Scandinavian countries, but I would just say, you know, 10 years ago, we you know we as as investors and and operators were just really powerless to really do anything about that. You know, it was it would be just an interesting stat or an interesting fact. Now, you know, and again, we've at next wave, we've structured things internationally. So, you know, we can work with investors that are outside of the United States and we can work with startups that are outside of the United States, you know, both you know, from a tactical perspective, but also from like a you know a regulatory standpoint as well.

SPEAKER_02 50:32

Yeah. What um what does the venture capital industry look like in 10 years, see if the current trends continue?

SPEAKER_03 50:40

Yeah, I think I think it's gonna, you know, over whether you know whether our individual um, you know, approach to this problem, you know, ends up being, you know, correct or the the the model or what have you, that's I don't think really that's the point. But what I do think is that we're going to see a a retreat to smaller fund sizes and more hands-on venture building. Um, and by hands-on venture building, I mean, you know, you know, being involved in the startups to fill you know critical gaps to help accelerate the success of the portfolio company more directly, as opposed to this passive allocation private equity model. I think we're gonna see a a renaissance, if you will, in venture capital that that focuses more on collective venture building than passive investment finance.

SPEAKER_02 51:32

So if if if I was to characterize the and I'm I'm actually looking for your kind of like shaping here, but is it a fund that's like 50 to 100 million, maybe one, two GPs is the combination of uh a venture capital form and a venture studio kind of like what is the ideal venture capital form of the future look like?

SPEAKER_03 51:49

Okay, so I I literally just wrote about this. I I called it um I called them I call them coalition funds.

SPEAKER_01 51:57

Okay.

SPEAKER_03 51:57

When you know a coalition fund, you know, is is a structure that um I wrote about this because I you know I've formed them and I've seen them operate now. Yeah. I think I think it's I think it's going to be a central theme as part of this, again, this renaissance in venture building. The idea of a coalition fund is uh you know, I call it a venture fund with no passive GP manager. So it's accomplishing a couple of different things. So on one level, you know, the traditional venture fund, the traditional GP raises um capital from LPs and really puts the LP in a box. And these LPs, in my experience, are usually very, very interesting, innovative, connected, and helpful people. Because if you have enough capital to be an LP in the fund, you you've had success doing something. Of course. Yeah. And that's that success could be very useful and valuable to startups.

SPEAKER_01 52:49

Okay.

SPEAKER_03 52:50

But generally, VCs put that in a box and you're only just a capital source to the venture fund. You might be on the investment committee or you might have some, you know, some passive view, you know, view into what's going on, but you're you know, you're generally powerless, okay, in that structure. Um, and you know, part of the reason why that exists is because the GP depends on a 20% carried interest in their fund economics, right? Like I'm the Oracle, and so there are I create all the value, and therefore my 20% of all your profit is justified. Um that that you know, the concept of the coalition uh vehicle gets rid of that mill. So you eliminate the carried interest model completely, and you diffuse the governance and operation of the vehicle itself across a small number of participating LPs, the coalition, who bring different intangible, different variety of different intangibles to the table. Okay. Um, and you know, we you know, at Next Wave, we know we we we recognized this trend and and set up a plumbing and architecture to help accelerate and facilitate those things.

SPEAKER_01 53:56

Right.

SPEAKER_03 53:57

You know, we operate a you know an exempt reporting advisor service explicitly for that, right? To be able to help facilitate these coalitions to form and cap and you know, and and capitalize and invest into you know whatever projects that they um companies that they've you know they've deemed um worthy of their time and capital. Uh so you know, so that the the idea of, you know, again, you know, um uh venture investing without a passive GP, I think is is going to be a fascinating trend to watch. It's it's sort of it's taking advantage of um thinking about it's it's it's really cultivating uh the trend of LPs and and allocators being tired of the traditional too much money fee structure while while again still also reverting or you know or you know moving back toward the idea of um active venture building as opposed to passive capital allocation.

SPEAKER_02 54:58

Interesting. Uh John, I know we're coming on time. Any kind of uh parting thoughts, words of wisdom, anything that you've learned over the last 25 years?

SPEAKER_03 55:08

Yeah, oh my god, we need we need a little bit more time.

SPEAKER_02 55:12

Another hour?

SPEAKER_03 55:12

Closing another hour, we could go into all kinds of um, you know, uh case studies and examples and and uh and and you know share stories and compare scars. Um, you know, we could do that for a lot more than an hour, I would say. But you know, I would I would just say, you know, look, um, if you are if you're a founder that is trying to, you know, raise capital or you are an investor that you know you know wants to have some exposure to private securities and early stage innovation, um, I would just encourage you to reach out and get involved in the dialogue. Um, you know, you know, change happens because a whole variety of people get involved in the discourse, and you know, that's really what I would invite.

SPEAKER_02 55:54

Yeah. Um out of curiosity question, have you had any conversations with IOPA, the institutional limited partners association? Uh kind of like what is their perspective on kind of some of the vision and direction that you that you're having?

SPEAKER_03 56:10

I I haven't because you know a lot of those organizations are are made up of um you know the the classic institutional LPs, you know. So like you know, the endowments and the retirement savings, uh, you know, the pension funds, those kinds, those are really aren't that the you know, that's really not the audience for what we're talking about here, right? It's it's more the individuals. Um, so you know, we find um you know, we find those conversations taking place more in smaller communities, smaller groups.

SPEAKER_02 56:39

Got it. Um if uh people want to follow your work, get in touch. Uh nextwave.partners, LinkedIn.

SPEAKER_03 56:48

Yeah, so yeah, nextwave.partners is sort of like that's our that's the nine to five, if you will. Um I publish all of my independent research on johncowan.io, um, which is you know basically revolves around uh the book I published last year called Venture Capital 2.0, um building, financing, and scaling startups in the post-power law era. And um, you know, I write and publish very frequently via that site.

SPEAKER_01 57:11

Very nice.

SPEAKER_03 57:12

Um, where I'm, you know, I I don't really have a filter on that site. So if you want if you want unfiltered take on our industry and what's happening, that's where you find it.

SPEAKER_02 57:22

John Callend.io. Um When when does the new book come out?

SPEAKER_03 57:26

Um it's gonna come out, it's gonna come out imminently. Um, like I said, I want to share a copy with you because I would really love um you know your your uh your candid feedback on it. I'm gathering sort of feedback and thoughts from you know from people that um and professionals that uh you know I know are in the industry and you know are concerned about this topic about infrastructure and what have you. Um but um I you know depending on that process, I you know, sometime in the next uh in the next couple of months, I think you know, you'll be able to find it on Amazon. But um, when we're done here, you're getting a you're getting a um I need to have you back an ePub copy of it.

SPEAKER_02 57:59

Yeah, for sure, for sure. No, that'd be amazing. Thanks, John. That was be that was a fantastic conversation. Uh very, very insightful thoughts coming from you. So I appreciate you taking the time to uh speak to our audience.

SPEAKER_03 58:13

Thank thanks for having me, Maxim. Really appreciate the opportunity to talk about these things. Um, and uh, you know, again, you know, just try to encourage the discourse in our industry. Of course, of course. Thanks. Thanks.