Should venture investors favor capital-efficient business models over capital-intensive, highly dilutive ones?

Geoff Lewis · Oct 5, 2022

Bedrock prefers to invest in companies whose preferred equity stack grows linearly or sublinearly with revenue, rather than those needing billions in preferred capital to reach a big outcome

The compound-startup approach to product and go-to-market means growth doesn't require proportionally more preferred capital; today the preferred stock is very small relative to a business at nine figures of ARR growing ~3x year over year

Scope: explicitly flagged as a thesis yet to be proven out

18:53 20VC: The Rippling Memo: Bedrock's Geoff Lewis on The Conviction Building Process to Write a $200M Check and Co-Lead Rippling's Series D | Why No Competitor Can Out Execute Rippling | Uncapped SAFE's Why You Should Never Do Them and Why Geoff Broke The Ru

Frank Rotman · Aug 11, 2023

Venture needs to relearn that companies must make money at low levels of scale; outside genuinely unlimited-TAM markets, extreme capital efficiency is the only route to a venture return.

Pouring capital in is only justifiable when the TAM is unlimited, as with some very large SaaS markets.

Scope: some SaaS TAMs genuinely are gigantic

16:57 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Sam Lessin · Aug 11, 2023

This is the best moment in history to build businesses that scale on revenue, and the industry would be healthier if seed funds focused on companies where raising capital is an option rather than a requirement.

Modern platforms make it possible to start and scale with quality on revenue; the shoot-for-Mars capital-hungry play should be the rare exception.

Scope: occasional big-capital moonshots still make sense

17:25 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Harry Stebbings · Jan 4, 2024

In the speaker's personal view, Midjourney — which raised almost no money and reached roughly $200M ARR — is more impressive than the alternative company under discussion

It has raised next to no money and still reached roughly $200M in ARR

4:31 20VC: Predictions for 2024: What Happens to Early Stage VC Funding, Do a Load of Venture Funds Die, What do LPs Do in 2024, Does Figma Kill the M&A Market, Will IPOs Comeback & What Does a Trump Administration do for Startups with Jason Lemkin @ SaaStr

Mamoon Hamid · Oct 21, 2024

Highly capital-intensive, dilutive businesses like Uber and DoorDash are not his kind of investment; he prefers capital-efficient models

Scope: says he can still get behind such businesses

51:15 20VC: Kleiner Perkins' Mamoon Hamid on Investing Lessons from Leading Rounds in Figma, Slack and Rippling | Lessons Building a Generational Defining Firm with Kleiner Perkins | AI: Where Value Accrues, Startups vs Incumbents & Scaling Laws

George Zachary · Oct 12, 2020

The further along you are in a market cycle, the more careful you should be about financing capital-intensive companies that will require many rounds of capital

Having watched the 2000 and 2008 blowouts, he saw that mania creates and then dissipates energy, and capital-hungry companies are exposed when the cycle turns

4:42 Capital intensity risk tolerance should shrink later in the market cycle