# 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

20VC · Jan 4, 2024 · 72 min · 15,869 words
Speakers: Jason Lemkin, Harry Stebbings
Source: https://www.996.fm/episodes/20vc--ep-131af1a1/

## Cold open

**Jason Lemkin** [0:00]:

I've been doing SaaS since 2005, and this is the first year I'm worried. I am worried the deceleration that we saw last year, that public SaaS companies growing at their slowest pace ever. I'm worried some of it may be permanent. I think 2024 is the year of you might as well go public.

**Harry Stebbings** [0:16]:

Welcome back. This is the first 20 VC of 2024. Happy New Year. And I wanted to kick off our first episode with a look back on the winners, losers, highs, lows, surprises of 2023 for half of the show. Then I wanted to spend the other half predicting, predicting funding markets for startups, for funds, the LP landscape, m and a, IPO windows. What does 2024 bring us? Joining me is a dear friend Jason Lemkin, founder at SaaStr and one of the OG SaaS investors. But before we dive into the show today, I love any innovative approach to venture and startups, and that's why I love Arising Ventures. They're a holding company that acquires tech startups facing difficulties, and they help them reach their true potential. The Arising Ventures team are tech founders. They're not bankers, so they know what other founders really care about. They've given many great businesses a second chance at success. Like Jive, a business arising ventures relaunched after it shut down in 2021. Arising ventures bought them out of liquidation, brought back key team members, and took them from naught to 1,000,000 ARR in just five months. Thanks to Arising Ventures, Jive now serves some of the largest brands in the world. So if your tech startup is facing hard times, Arising Ventures could be just what it needs to find new life. And you can learn more and connect with the team at arisingventures.com/20vc. After submitting your information, you'll hear directly from the founding team within twenty four hours. Go to arisingventures.com/20vc. And speaking of innovations in venture, Carter is a standout. Fund admin in venture capital is a nightmare. It's boring. It's tedious. And to be quite blunt, it's just a pain in the ass most of the time. But Carter provide a better way to run your fund, trusted by over 5,000 firms with over 126,000,000,000 in assets. They provide one click capital calls, access to over 300 fund accountants and tax experts, and they provide live interactive LP reports for your LPs. It's a total game changer of product for any emerging manager raising a fund or any established manager with many funds under their belt but wanting the best product for their LPs. Head over to carter.com to check it out and find out more. And speaking of game changing products, Intercom is a complete AI powered customer service platform and the only platform to combine a help desk, AI chatbot, and proactive support tools. It also comes with a fully featured inbox, ticketing, help center, and messenger, making it not only complete, but also the most powerful support platform out there. Intercom, every single tool you need, all in one place, enhanced with AI, so you can give every single customer the fastest, most personalized experience imaginable. Learn more at intercom.com. You have now arrived at your destination. Jason, I am so excited for this. This is our first show of 2024, so thank you so much for

**Jason Lemkin** [3:06]:

joining me today. Happy New Year, especially after just a banner year for unicorns and startups That was 2023. Right? It's good to be back. Thank you, Harry. How many unicorns did we add last year? A thousand? 800 in 2023? How many new unicorns were there?

**Harry Stebbings** [3:19]:

Listen, I wanna start briefly. For anyone that doesn't know or hasn't listened before, Jason, can you just explain who you are and what SaaStr is? And then we're gonna dive in.

**Jason Lemkin** [3:26]:

I was an early SaaS founder with the generations of Aaron Levy at Box and Renee Lacerd and Drew Houston, and then I accidentally sold my company, EchoSign, too early to Adobe in 2011. And since then, I've been investing. Harry and I have co invested in a number of folks and built this community called SaaStr, the largest community in the world for SaaS founders.

**Harry Stebbings** [3:45]:

Now I wanna dive in and we're gonna set the scene with two different parts of the show. We're gonna do one, which is a review, and then we're gonna do predictions for 2024. So if we start on the review of 2023, I wanna start with a view of optimism. What do you think was the standout slash best company? Well, look,

**Jason Lemkin** [4:03]:

I mean, there's only so much we can talk about OpenAI. Right? The funny thing about OpenAI is, you know, if they ended the year at 1,400,000,000 run rate, which the information said, and let's assume it was a 100, you know, a 100,000,000 at the start of the year, then, you know, we thought it was crazy when it raised to 20,000,000,000, and then it raised at 80, and then it fell apart, the tender offer. Now they're raising it a 100. But if you can grow at those rates, it's epic. Right? It's generational growth of revenue, even if the gross margins may not be great.

**Harry Stebbings** [4:31]:

I'm gonna give you an alternative. Midjourney, company that's raised next to no money or no money at all, and now does, I think, 200,000,000 in ARR. That's more impressive to me.

**Jason Lemkin** [4:41]:

Of course. I mean, OpenAI is the weirdest I mean, we we still don't even understand how weird it is. Right? With a nonprofit running a weird profitable sort of thing with 100 x return caps with unpaid CEOs and engineers making millions a year that can do tender offers on a seemingly monthly basis. Here's the thing, VC is a tool, but, you know, it's great if you never need it. Jamin Ball did a little workshop with us from Altimeter. He's like, listen, we don't we really wanna fund companies that don't need our money. The problem is we'd be out of business. So it's a fine line. Like, we don't really wanna

**Harry Stebbings** [5:14]:

fund the companies that need us. If you were to go to traditional company land and say a best company, I don't think enough is spoken about about HubSpot. I think the continuing dominance of HubSpot is just phenomenally impressive.

**Jason Lemkin** [5:27]:

It really is. I think it's impressive also because people today don't even remember the old HubSpot. The HubSpot that got going the same time I got going, you know, this was probably two generations ago as a founder. This was a blogging company. This was a website creator and blogging company. Most of us use HubSpot. If nothing else, we use it for marketing automation. Right? For sending our customer community. That was even even part of the original product. And then the fact that now they're doing 700,000,000, their CRM product. Their CRM, which is the first real threat to the low end of Salesforce we've ever seen. It's it's soup it's super impressive. And my big learning, the takeaway, this is what I learned talking with when I got to interview Brian and Darmesh, the co founders together. What I real the one thing I really learned was really, really, really, really going long. And the fact that Darmesh had already had an okay exit. Right? A 100,000,000 or $80,000,000 exit. And that they both, from day one are like, listen, we're going to build something big or that's it. Right? We're not going to we're going to go long. And so I met Ramesh in 2013 or 2014 when they were thinking about CRM. Right? And they'd met with PipeDrive, which was my first venture investment. Right? Which eventually sold for 1,000,000,000.5, but lost to HubSpot. Interesting story. Lost PipeDrive, lost to HubSpot. That's how I met them. And the fact that they were willing to go so long, spend years with the free CRM, even though it was gonna detract resources from the marketing side. Right? It has to detract resources and wait and wait and wait. And now that they're coming up on 700,000,000, one of the greatest second acts of all times because there's almost no synergy to the first act.

**Harry Stebbings** [6:58]:

I remember and Hunter at homebrews saying actually one of the joys of their partnerships was neither really needed the money, honestly, coming into it. And it actually meant they had a lot of mental and creative freedom around decision making and purity around decision making, which one wouldn't have if it was really about the money in a lot of cases.

**Jason Lemkin** [7:15]:

Yeah, money's complicated. Brian, actually did sell a bunch of his stock pre IPO, I think, to Sequoia, and he said it was the most expensive decision he'd ever made. So we need a little bit of money. It's never quite that simple. I actually think that I'm not sure if in venture, if not caring about money is a positive. I'm I'm not convinced. I think it has some positives at the pre seed stage. I really think to go long in this business, you've just got to bleed money. You've gotta wanna put the zeros and ones in your bank account or what's the point? What's the point of venture after a certain phase? If you're a pre seed investor, the founders forget about you when they get big. You you get dropped off the investor updates. I think there is a category of lifer VC with no other opportunity that are mediocre invest investors that are can be inadvertently toxic. They they can be so focused on the downside. They need their million dollar salary. There's nothing they have no other possible career path and they have no savings. Right? Those folks I think are are the most dangerous. Are there many of them? I've worked with many. I and they're especially frustrating in exit scenarios for the reasons you say. Right? But I think the problem the folks that I know of founders that are too rich that got into venture, it's a problem. Let's say Harry, you were lucky enough, you you sold your company for a billion dollars. You made $200,000,000. Okay? And you put it away. And and actually last year was pretty good on Nasdaq. So last year, you made $40,000,000 in the stock market and you raised an $80,000,000 fund with four of your friends. So five of you are splitting an $80,000,000 fund. What's that? 16 each. Right? And after a decade, you do three x gross, which is still pretty good. Like it was terrible in 2020, but it's pretty good. So let's do the math. The 80,000,000, three x growth, two forty. What's the gain on that one sixty, but let's take out all the fees and all that. So the gain's what? A 100,000,000 over ten years divided by five partners, that's 20,000,000 each. Over ten years, that's an extra 2,000,000. Now 2 million's a lot of money a year, but it took you ten years to get there. You had to and he made 2 she she or he made 200,000,000 on their exit. Right? Now if you're a too rich inventor, you just have to raise billions and billions and billions. That's the only way. It's like and I do I David Sachs, who I I I have a ton of respect for, you know, I I I you know, he's raised almost 4,000,000,000 for craft since I started investing. You've got to to be impactful at that level. Right? Or or Andreessen Horowitz. It's not as silly as it sounds.

**Harry Stebbings** [9:31]:

Right? Shooting from the hip hip, but I had an LP email me this morning and said, of the multi billion dollar funds Yeah. Which one are you most confident will do a three x net?

**Jason Lemkin** [9:42]:

Yeah. I wish I had the data. I think it's I think it's I I I get intimidated by the raw math of what it takes to turn billions dollars fund into three x. It's just so many decacorns you need.

**Harry Stebbings** [9:52]:

I I said I said one answer. I said founders fund, and I said it because of something that Brian Singerman told me, which is like we are unparalleled in the willingness to have extreme capital concentration on a per company basis, which means we could lose a lot, but if we're right, we do get the same upside that a smaller fund would get because of the concentration we have. And so I would have found as fun as mine. Who would you have of yours? That's a good answer. The returns from some of their bigger funds were epic. Right? Were were jaw droppingly good. So that I think that's a good bet. Okay. We're gonna move on in our award ceremony from best company to best founder. Whose standout year was it in 2023?

**Jason Lemkin** [10:32]:

I mean, how could it not be the CEO of NVIDIA? After all these years gotten to a trillion dollar market cap and recognize that there's nothing harder on planet earth than being a founder. Recognize the two. The no bullshit. No this is why Harry you've done oh, how many are these 20 BCs again?

**Harry Stebbings** [10:49]:

2,936.

**Jason Lemkin** [10:51]:

This is why I won't even talk or interview a founder below twenty or thirty million in revenue because they're not honest enough. They don't have enough life experience. Right? To hear from NVIDIA, which has been in a ruthlessly competitive market with non recurring revenue. Right? Live or die on these margins, finally become one of the breakout top five tech companies of all time and say, I wish I wasn't a founder. Not literally, but conceptually. I mean, I don't know.

**Harry Stebbings** [11:14]:

It's got to be founder of the year. Talk about going long. You said that you wouldn't speak to founder beneath twenty thirty just because of the lack of wisdom or experience. Yes. What do you mean by that, Jason?

**Jason Lemkin** [11:22]:

They're always just selling themselves. You don't want to hear what's great about NVIDIA. You want hear about the mistakes. The mistakes are what's compelling in any journey. Some folks talked about whether that Bezos interview the other day was compelling or not. Right? I thought I actually thought it was pretty good, but the problem with it is there weren't enough mistakes discussed. That's what's interesting. And I find that founders below 20 or 30,000,000, all they can do is do a commercial. I used to think 20 to 30,000,000 was a lot of revenue until I remember talking to Todd McKinnon, who's CEO of Okta, and he said it wasn't until 30,000,000 that he thought they couldn't be killed, that they weren't an early stage startup anymore. And I used to think that was later in the journey. Right? It's also about the same time where you can start being honest and say, here's what I screwed up building the 20 VC fund. Here's what I screwed up earlier in my career. Here's what I screwed up at NVIDIA versus I'm the world's best compliance software HR manager company in the world. No

**Harry Stebbings** [12:10]:

one

**Jason Lemkin** [12:11]:

wants to hear that.

**Harry Stebbings** [12:12]:

No. Listen, I agree with you on Jensen. I'm gonna throw one hat in the ring also for Brian Armstrong at Coinbase. I just think given the volatility of crypto, the man is just an unwavering force of strength in the community with CZ, with SBF, with everything that he faces. Regulatory, he's standout. He's a standout leader. There's so many things also that he's said. He was killed for the no politics in Coinbase. Everyone now is saying, yeah, we agree. No politics in Coinbase. I'm not with you on this one, Eric. Why? Hit

**Jason Lemkin** [12:43]:

me. I believe every crypto company that has an earn program is a fraud. How can you pay these interest rates? And if Coinbase is the good one, but I'm looking at their website today, I can get 10% a p APY on my crypto. 10%. How is this possible? It's called fraud to me. When I hear someone's a good one, and I remember someone was I remember I didn't know anything about Binance, and people back then were saying it was the good one. I looked up on their earned program when interest rates were zero. It was like 18%. How could I get 18% interest when the Fed was at zero? I know Coinbase is the good one, but where are they getting this 10%? It's a pyramid scheme. It's fraud. I think the marketing positioning is genius. Right? And I gotta tell you as an investor, Harry, I I now I reflect a lot over eleven years of ten, eleven years of investing when I even and yes, Coinbase is wildly successful. When I even smell these little wafts of fraud, it never never for me has played out well. Dude, it's always there eventually. This earned stuff, it just it can't it it's too good to be well, if it's

**Harry Stebbings** [13:37]:

too good to be true, it's too good to be true. Jason, a total aside, but you said sales and marketing efficiency fell through the floor in 2023. Can you just talk to me about that and how you analyze that and the complete destruction of sales and marketing efficiency in the SaaS world?

**Jason Lemkin** [13:53]:

The average public SaaS company was up 41% last year even though growth plummeted. Growth was at all time lows in SaaS, all time lows in 2023. The average public SaaS company only grew 16% last year. It's terrible. But the stock was up 41%. And not only did growth plummet, but stock prices went up. And and and the reason is likely efficiency. Right? Everyone got so efficient. They got so fit, and they cut all marketing spend, and they froze hiring. Right? So weird world where just being in public cloud stocks was great. Growth was terrible. But what happened was all that growth came from the base. It all came from price increases. It all came from pushing customers to sign long term contracts they didn't want to sign. New logo growth was very low. And so what happened was this weird world where sales and marketing efficiency, CAC, were at the lowest. CACs were at the highest they've been in my lifetime as a founder that we know of. It cost the most to acquire a new customer last year because we sort of hid in our existing base. So we're we're in a tough world in 2024 which is we all got fit. We all got efficient. We all we all made those venture rounds stretch. Every unicorn that can't raise again, if they're not going under, they they figure out how to at least grow a little bit with half the head count. But how are we all gonna get back to growth? That's the story for 2024. How are we gonna get back? And everyone's hoping that's AI, like I'm gonna put some bots on my website, that's gonna create growth. I I think AI can create some efficiency, but growth? I'm

**Harry Stebbings** [15:17]:

skeptical of great growth. Right? Has the time come of get back to growth or still in survival mode? I speak to a lot of founders who think that we're still in survival mode of just batten down the hatches, survive, and wait until the good times come again.

**Jason Lemkin** [15:30]:

I think we're absolutely there and I think I've invested in six companies at the pre seed stage that are now north of 200,000,000. And so they're IPO candidates. Okay? And I would say a bunch of them are on the bubble. And what I mean is they're all cash flow positive now, all of them. Everyone got cash flow positive. Okay? Because you had to because the next round wasn't gonna come. It actually wasn't that hard. You just paused hiring. Most of them didn't do layoffs. You just paused hiring and you get cash flow positive in SaaS at that scale at 200,000,000. But the question for these folks is they they are back to growth because they have marginal growth now. They have marginal growth. And no one wants to IPO at four x revenue or five x revenue. And so, yeah, they got their fit and efficient. But instead of growing 40% and and losing 20%, maybe they're at twenty and zero. Right? Or twenty and five. Here's the stressful part, people don't have the answers in 2024 about how to get back to growth, but the good ones are there. You went on the diet and we hit our target weight, Harry. Now we gotta pump up. We we we cut, and then after you cut, you

**Harry Stebbings** [16:27]:

gotta pack on the muscle, don't you? Do you not just wonder if this is a good business? And I don't mean to be depressing in that way, but like, know, entry prices are as high as ever, I think. If you have great quality SaaS founders or repeat founders or coming out of any blue chip, they're as high as they've ever been. They haven't been depressed pricing really at seed. Maybe in some case 10 or 20% down, but not in No the no decline really. Okay. No decline. But then we've seen this compression in terms of exit scenarios, in terms of sizing and pipe, dramatically to four or five x. Yes. Does venture even make sense as a business

**Jason Lemkin** [16:59]:

in that world? Well, it's funny. If one of the questions you'd ask me was what was what was the most impactful tweet you saw last year on venture? Right? Bill Guril had the one about how the the way venture works is you just wait for the for these little periods when you can actually make money and get exits. And you gotta sell all your winners or take them public in these little windows where there's bubbles, where there's 20 x, 40 x, 50 x ARR, like twenty twenty one, and you really can't make money in venture outside of these windows. That's what he said. Right? There are these windows where you make money and venture that really it hit me kind of hard. Right? To your point, I'm like, you know, it doesn't feel like in beginning of twenty four that venture is a particularly easy industry, does it? It feels hard. Right? I mean, but it it was never meant to be easy. No. But at least when I started in 2013, at least when I started in 2013, the exits were terrible, but the entry prices were lower. Right? I didn't actually when I started investing, I didn't think I would be any good and I didn't think I'd have any great returns. But I thought everything I did would make money because the entry prices were were acceptable. When I invested in PipeDrive in 2013, my first investment, it was 16 pre at 1,200,000 ARR, growing 9% a month. And we argued over the price. Now, pros and cons, but it did exit for a billion and 0.5. So if you got in at 1,500,000 tripling at 16 pre, you were going to make money. Right? You were going to make money. Now it's stressful because I feel like most investments I make, I'm not sure they're gonna make money. I do wonder going to Bill Guril, if we're all just waiting for these windows. We're all just waiting for these windows to swing back twelve to twenty four month periods of hyper liquidity and hyper multiples. And because of that, honestly, I was reflecting on this deeply, I've changed my mind to founders. I think some of the worst advice I've given to founders is when to sell their company. When I look back on on ten ten ten years of investing, eleven years, I've given bad advice on when to sell their company. What what advice have you given that you would like to have changed? The advice I've given them is I made the same mistake so many founders turn investors to, is I give them the advice I learned, which is if you have something good, if growth is high, if burn is low, and NRR is high, never sell because you keep adding value. Right? If you're at 10,000,000 ARR growing a 100% with a 110% NRR, then next year you'll be at 20, and then you'll be at 40 or 38 or 72. And that's how you build that's how you build a Decacorn. And so what tends to happen is just as it gets good, you get a couple m and a offers. And so my advice to founders has always been don't take don't take it, but you might as well go long because that value keeps compounding. And that's what I saw in my space. But now I see so many founders that said no to offers in the twenty twenty to twenty twenty one period that will never get back there, and we'll have to work a decade to get to lower exit values. And now I the Bill Gurley thing resonates. Like, if you get a good offer and it's in bullish times, take it. It may be a decade. I think we're gonna see 2021 again, and and maybe AI will bring it back faster, but it it could be a decade until we see the

**Harry Stebbings** [19:51]:

another boom of that level. Right? Okay. We're gonna move on in our Oscar ceremony. What's the best early stage fund, 2023? Look, it

**Jason Lemkin** [19:59]:

has to be Y Combinator. Gary Tan coming back to Y Combinator. Was that the beginning of twenty twenty three when Gary came back? Yeah. Talk about right person, right time, energy, rebuilding the entire city of San Francisco. The energy that Gary has the weird thing when I first met Gary, which was probably 2013 too, maybe 2014, the weird thing back then was every founder loved him. They just felt like Gary was the one that had their back. Not one, but every founder I met that Gary was an investor and thought Gary had their back. I don't know how you do that. That's not me. However he reboots Y Combinator will add an order of magnitude of value to this organization. But a plus plus plus getting Gary to run Y Combinator. And leave initialize. And leave initialize. Leave a what did you raise? A billion dollars and had a top 10 fund, right, on many levels? Yeah. Initialize one's like 50 x tiny fund, maybe a 100 x. And initialize two, I bet is 10 x net for a big fund. To leave that if you ask most VCs, they would think it's crazy. Why would you leave that cushy job of managing billions with top decile returns to go be CEO of something that you didn't even start? Because he's probably not the boss. But he didn't start it. So to go from something like initialize, which you start. Right? You are the managing partner. You are the director that he built to then run something you didn't start. Like, that's that's pretty epic for everybody. So that's gotta be the the the Quiet Venture story. Right? Another incredible decade for y c, and this was a genius move.

**Harry Stebbings** [21:23]:

I I agree with that. I would throw one other hat in the ring. Yeah. I don't know which if that early or late, you could put them in either one bluntly, but I don't think enough has talked about Kleiner. When you look at what Mamoon has built with the renewed Kleiner, the team is stellar. It's stellar from him and him, but also, you know, you've got Bucky, you've got Annie. Generational transition wise, they really tick the box, I think. When you look at the portfolio, they have absolutely smashed it in terms of building a phenomenally exciting early stage portfolio with great ownership positions. And I don't think that's given enough credit, actually.

**Jason Lemkin** [21:58]:

I view Mamoon as and then this may not be it may be the wrong term. When I think about a traditional fund and a traditional investor, I think top point 1%. Mamoun goes in and it's like, it's gonna be Slack. It's gonna be Figma. It's gonna be whatever. It's gonna be rippling. And he knows the playbook. And he doesn't bend the rules. He doesn't lower the standard because he didn't get a deal done last quarter. He doesn't do it for the fees. And if it's just a smidge below the bar, he don't do it. And he's a heat seeking missile. And if that means and I remember when I started investing, I would do a deal and Mamoon would be like, oh, can I meet them next week? And he would mark the deal up if needed be. He didn't care. He's like, okay. If there's a 100 x opportunity in Slack, it's fine. It's fine. And most folks don't have the ability to understand which one's a Slack or Figma, and they don't have the confidence to do that deal. The the only thing I would say is I think he wants to perfect the art of a traditional venture capital. Right? A small number just every year being in a couple of the best. Right? Has he 10 x the amount of capital that Kleiner manages? Probably not. Right? Has he 100 x ed it? I don't know that he wants to build an Andreessen or a Bessemer or something like that. Right? So the odd thing in venture is if you stay in your lane, it's the best way to achieve returns for your LPs and everything. But there are a lot of pressures to not stay in your lane.

**Harry Stebbings** [23:12]:

I think Maritek would be another example of an under discussed but hugely franchise, which have stayed in their lane and delivered incredible returns. Incredible returns. Yeah. But,

**Jason Lemkin** [23:24]:

you know, where is your where is your ego? What's your id? What's what's the point of all of this? It's hard to stay in your lane.

**Harry Stebbings** [23:28]:

We mentioned scaling. We mentioned later stage funds. Jason, what was the later stage fund of 2023?

**Jason Lemkin** [23:35]:

I I think in 2023, very few deals got done north of 200,000,000 valuations. Very, very few deals. With the average public SaaS company trading at 2,000,000,000, I just didn't see a lot of outside growth investors rushing to do deals north of 200 unless it was a bargain. So I saw a lot of tire kicking in 2023 post 200,000,000, but I only saw aggressive investing up to about 200,000,000 valuations. Just because I think people got intimidated that how they're get their 10 x. If my comp's trading at 2.1 with several rounds of dilution in IPO, how am I gonna get my 10 x? Who would you give best late stage fund to, Jason? I know everyone said they did more deals. I know Iconic said they were way up, and Excel said they were back, and Salesforce. I didn't see enough greed in the markets in 2023. I didn't see greed return. What would you say is the biggest surprise that you saw in '23? The biggest surprise I was very surprised that huge funds were not supporting their companies in up rounds, good rounds, that were very, very good companies, but not necessarily decacorns. I was surprised. I grew up in a world where big funds if you doubled since the last round tripled your revenue, right, and there was an outside lead or whatever lead, every big fund did their pro rata or they came close. Right? I've got 3,000,000,000 under management. I did $1,010,000,000 in the a. I'll do 2,000,000 in the b or 3,000,000 in the c or four. Like, I never saw a big fund not do this. And then I watched a deal, a very good deal, where a multi billion dollar fund said they're going to do zero. And I didn't call the partner up, but I I asked him what happened. He's like, we're just very particular. I've only we're we're generally not doing our pro rata's now. I've only done two or three recently. That is a level of conservatism that doesn't make sense to me, right, on a bunch of levels. It doesn't make sense to me as an efficient way to deploy a large fund, and it doesn't make sense to me as a good long term play, and it doesn't make sense to me as something that will improve returns. Anyone in the top quartile should get another check from a big fund. And so the fact that that wasn't happening, I think it was fear they couldn't raise another fund. I think maybe it's fear that they'd written too many bridge bridge around checks. I don't know, but that was my shocker. Was these automatic pro radas appear to have gone on pause.

**Harry Stebbings** [25:48]:

In the timeframe where reserves will be deployed, do you think your winners and your losers will be apparent? Often it's traction investing in the world of consumer where it's like, oh, we hit x number of DAU or MAU. That's not sustainable. And then if it's SaaS, often it just, as you said, going long. It takes just a long freaking time. Yeah. They scaled and grew double, but it's not five x growth. It's not obvious.

**Jason Lemkin** [26:09]:

The sheer number of unicorns that were born in the work from home boom broke reserve models. So I think you have a thousand unicorns, fine, 200 of them are gonna die. Right? A 100 of them are gonna break out. But what about the ones, Harry, that, hey, they're at 16,000,000 ARR, but they're growing 80%? Now they're not worth 3,000,000,003,200,000,000 like they were in the last round. But they're growing 80% at 16,000,000. I've I'm already in. I own 18%. I gotta do some reserves for that one, don't I? And the sheer number of them and the fact that they're not gonna get another round when the last round was at 2,000,000,000, the reserves for the overvalued broke a lot of reserve models. And so everyone was like, I just don't wanna like, I'm gonna run out of reserves, Harry. It was not how I planned. I'm gonna run out. So I'm gonna say no to even winners if I get away with it. Right? Because I may need that $2,000,000. Even in my big multi billion fund, I may need that $2,000,000 for that unicorn that's struggling.

**Harry Stebbings** [26:58]:

For founders listening, what happens then? No one takes pro rata. No one does their reserves. Yes. What happens in that world then? Founders come out into a new environment and have to reprice? Because it's very difficult saying, hey. Very few existing investors are coming back at all. Yes. It's a very difficult message. Well, look,

**Jason Lemkin** [27:14]:

a couple things. First one, be honest. Forget about what your existing investors wanna do. First of all, you have to be honest. Are you fundable, right, at the margin? And you've got to ask honestly. Ask at the end of each board meeting, am I fundable? And then ask afterwards, would you fund me? Don't don't you don't have to put everyone on the spot. Just go around the table, am I fundable? You won't get a completely honest answer, but you get a pretty honest answer. So if no one thinks you're fundable, then whatever you got in the bank's just just gotta last. Right? But what I have seen then assume you're at the margin. Assume you're fundable ish. Okay? You're not OpenAI, but you're fundable ish. What I have seen in my especially the last twenty four months, but across my old career of investing for eleven years, is there's usually only one investor that will stand up for you. There's usually only one. I've had to do three of these in the last fourteen months. I have had and often I'm the smallest fund on the cap table. I've had to be the catalyst. The one that stands up and say, look, you're at 30,000,000 growing 90%. That's not bad. I will put the money in. If one person is a catalyst, generally folks that are that are humming and hawing and then are waiting, the catalyst can force them to shit or get off the can or s or get off the can, and that's how you coalesce the round. So as founders, you've got to know who's the one, not the backslapper, not the one that always says, great job Harry at the end of each meeting, but who's the one that's really engaged and believes in you and that will burn their social capital and their time to catalyze around? Someone's gotta catalyze it. It doesn't happen on its own

**Harry Stebbings** [28:35]:

unless you're crushing it. Do do you think VCs have shown up and made us proud in the harder times? Or do you think they've just reinforced the bad image of venture, if you're honest? I think

**Jason Lemkin** [28:47]:

founders have shown the bad side of founders. I think founders became too entitled, and I think founders expected the next round would always come. Founders became very arrogant toward VCs, used them as fungible, put them on irresponsible schedules, didn't share proper diligence, abused the system, and and they took advantage of the time. So that sounds very critical. I mean, it is critical, but both sides react poorly when the pendulum's on either side. When there's no money out there, VCs are pretty crappy. My first startup, it was terrible. I had a five x participating preferred and a 2,000,000 pre, and, like, I can't even tell you how bad the terms were in my story. And all the VCs and all the VCs would collude and they'd all talk and they'd negotiate the deals down together. That's a low point. Okay? And a low point for founder behavior was 2021. It was abusive toward VCs. It was abusive. The Hoppin story is abusive. I'll take a 140,000,000 out for myself. F you, VCs. I know a lot of folks think that's a hero story. I think it's abusive. I think it's unethical and I would not have done it as a founder. I think it's unethical. You have a choice to take that deal. No. It is If you are a founder, Harry, if you're a real founder, you have constituencies, you have your employees, you have your customers, and you have your investors. And you know where real founders put themselves on that list of three? Last. And that's why what happened did was unethical. It damaged the company. That company needs that 120,000,000. It was ripping people off. You ripped off your investors. You probably ripped off your employees. I don't know how a tender offer happened. Right? And it wasn't good for the customers. Anytime I see an employee, a founder put themselves above, like, by all means, oversubscribed around whatever. Take, you know, take care of yourself. But when you're above above those, it 0% chance it's gonna be a success.

**Harry Stebbings** [30:26]:

Okay. Let's roll with this. You have incredible revenue scaling. The brand of the company is insane. Fastest growing company in Europe, the darling of European tech on the front page of everything, and it's his sole founder. He's got whatever 49, 50% of the company. Yes. And investors are battering down your door, begging you to take their money. Begging you. Not you forcing it on them. Are begging you. Then they say, hey, sell 10% and take a 150 or 200,000,000 off. Buy yourself that cushion so you can think bigger than ever, so you can dream for the rest of your life in upside for hobbies. Yes. Putting everyone else first. Yes. If you're a founder, you're going, I'm going from 50 to 40%. So actually not a huge difference. I've still got a huge amount in this company. Very logical. And they're begging me to do it. Okay. Sure. I don't think it's unethical.

**Jason Lemkin** [31:15]:

Even if it's not unethical, I think it's telling. Because a tactical rule, I'll say that if you're putting everyone else first, if you're putting the rest first, I think taking out more than 10,000,000 is a bad sign, even in the hottest round. Because 10,000,000 is a first of all, most founders I know do are not do not have a Bezos yacht yet. They are not buying $40,000,000 homes in Miami. They're not they're building their freaking companies. You have to be a little bit humble for a long time or people won't work for you. I mean, I gotta find a better word, but if you're a a douchey CEO, people don't wanna work for you outside of pockets of Hollywood. So I find most CEOs, especially B2B, live relatively humble lives. So $10,000,000, that is enough to put a down payment on a decent home. That is enough to get a Model three Performance. You don't even have to get the base one. And it is even enough, although it will be stressful, to put your kids in pretty good school. All for it, the 10, the fifth, and maybe it's a bit more in the hottest rounds. But then there's a point where you're saying, look. I don't actually my stock may is probably company's probably not worth this much, so I'm gonna monetize it now. That is logical. If I'm in that situation again, I will sell my shares as a seed investor. I would sell all of my shares. All of them. A 100% of my shares in that situation. A 100%. I'm I'm glad. Because I know he's I know he's not going really, really going for it.

**Harry Stebbings** [32:28]:

But often at that stage of, like, investment, I'm not necessarily talking about hoping, but just generally at that stage of, like, company trajectory, 10,000,000 isn't really what the investors are going for, because they need to move more money. That's why they need to move a 150 to get three or 4% at least.

**Jason Lemkin** [32:43]:

I understand their goals, and they may be regretting some of those secondary deals because of the incentives they created. Incentives matter. The VCs are now living with the fact that, yes, the founders pushed things too hard, but the VCs were the enablers. They were the drug dealers. They gave out the the heroin or the whatever drugs people use today. They gave it out. They gave out these drugs. And and I'm a founder, and my growth has slowed, and I have a $10.50, $102,100,000,000 dollars in the bank. I'm not gonna kill myself, Harry. Listen, we learned a lot. Right? Even the okay. There's the founders that took out $50,100, 150,000,000 from companies that the real issue is they didn't leave the planet. Right? Listen, maybe I'll be criticized for hopping, but one thing that is clear is it didn't leave the planet. Okay? It's one thing if you're incredibly profitable and you take a dividend. Okay? Like, we all know folks that that quiet like we talked we started this conversation, we talked about bootstrapped companies. There's a there's a super there's a super set of folks that are not only bootstrapped, but are generating lots of cash. And you know what they do, Harry? They dividend they quietly dividend themselves out 10,000,000, 20,000,000, 100,000,000 a year. That's what they do with their their surplus cash. Right? The micro version of that was when instead of giving seed companies a million or 2,000,000, we gave them 10. And now they have ten years of runway and they're just paying themselves salaries. That's the mini version of this. Right? And so we see these big stories, but we've all got we've there's probably 2,000 startups that are run for salary right now. That was a combination of founder greed. And these ones that are run for salary, you know where the founders sit in that stack of customers, investors, employees? The founders are are definitely number one. What happens to those companies? Because they do have long runways. Yeah. I think I think some give the cash back. I think some will remain a study in bubble economics that we are studying for years to come. Some will just keep running their companies. We briefly touched on that when we did the roundtable with Founder Collective. I remember he said, look, if that frustrates you, you gotta remember it's not your money. You gave it to them. It's not your money. And some of it will be wrongly used, and some of it will be under deployed and misdeployed, but it's not your you can't get them. It's not your money to get back. That was a quote that top 10 quote for me for the year too is it's not your money. You think it's your money as a VC? This is a VC

## Intro

**Jason Lemkin** [34:43]:

conceit. It's not. It's not your money. But the lesson from 2021 is not your money.

**Harry Stebbings** [34:47]:

I wanna translate this to a forward looking, projective eye when we look forward to 2024. If we think about your home base first, SaaS early stage markets in 2024, what do you think? I've been doing

**Jason Lemkin** [34:59]:

SaaS since 2005, and this is the first year I'm worried. And I'm not worried the fact that we're trading at six x, but I'm kind of worried about that because we're in the third year of crummy public multiples. Like, I am worried about public multiples. It's tough for investing. I am worried the deceleration that we saw last year, that public SaaS companies growing at their slowest pace ever. I'm worried some of it may be permanent. Gartner says there'll be a trillion in enterprise SaaS spending next year. Okay. A trillion. Right? You could only spend so much of The US GDP or the global GDP on software. At some point, we are saturated with SaaS and software. At some point, it's not just that we want compound products or fewer vendors or it's just at some point, literally, software cannot keep growing faster than GDP forever. We've had a run for eighteen years in this, where software spend exceeded everything else. It just absorbed more and more of corporate budgets in a quest for efficiency and in a quest to not fall behind. If that doesn't come back, and we are we have finally

**Harry Stebbings** [35:57]:

reached maturity in SaaS. Doesn't the definition of software spend change, so? When you think about the instruction of AI into so many of our workflows, into what it does for productivity, and what that does for GDP, like software spend as a category itself.

**Jason Lemkin** [36:11]:

But for that to be true, for me in my little bit of world, the contact center is where it's the most true. For to be truly true, you have to unlock budgets outside of IT. Because IT is only going to get so much budget. I mean, I asked Aaron Levy when I talked to him, when you talk with your biggest customers, what's their AI budget? He's like, their AI budget is zero. There's no AI line. Now, it may come out of a different area. It may come out of like and functional groups may have budget. Right? But the CIO's budget in the enterprise, the IT budget, it it inflated so much the last couple of years and then it deflated last year. Right? Where is this extra money gonna come from? And I'm not saying the party's over. Gartner says it's not over, but I'm worried. I know why some growth slowed this in 2023, but I feel like it slowed a lot with a really, really, really strong US economy. Yeah. We have some interest rates, blah blah blah, zirp, derp, warp, clurp, but it's a good economy with good companies making lots of money. We hit a train wreck in SaaS growth. So I'm worried. That's my worry for 2024 is that we've bounced we've always bounced back these these these downturns. A part of me worries we may have seen some saturation in spend for the first time. Bringing that back to the SaaS early stage market. What does that mean? This is why I struggled to give you the great growth investor answer. I don't think it's gonna impact early stage much. I think there will always be wedges. There will always be new tools, new things that take advantage of technology. People will figure out new ways to build neat things at seed, and there will always be 100 x opportunities for the next one that comes out of left field. Those will still exist. Whether there will be enough folks that can achieve a billion in revenue growing 20 or 30% or more, that's the bigger issue. Will will be enough. Because the the real math in venture, like, oh, we can talk about all these exits and stuff, but they're predicated on hitting a billion in revenue with real growth. That's sort of the terminal state of SaaS. When I started doing all this, we didn't think it was possible. Now it's kind of commonplace. Growth has slowed, but there so many that have crossed a billion, but a, you know, a billion can't cross a billion. So I think the vibrancy of seed is here to stay. There's too many folks that made money. There's too many folks that enjoy investing. There are too many LPs that are still gonna search for that alpha. Every year, there's gonna be thousand x outcomes and multiple 100 x outcomes. And so that's the the, you know, the fountain of youth. We're always gonna be searching for the fountain of youth at seed.

**Harry Stebbings** [38:28]:

If we if we then move forward, SaaS late stage marketing. Yes. How do you think about SaaS late stage market in

**Jason Lemkin** [38:34]:

2024? Tough. I think it's very, very tough. Here's what I think has really happened, Harry, and this is and I I think people think that, like, there's an AI bubble in venture. Right? And clearly, to some extent there is. Right? But then we just talked about the OpenAI numbers and your jaw drops. People sort of just a few weeks ago made fun of of memo and putting, you know, whatever, a billion into Anthropic. But if they're doing 200 and something million in one year, it doesn't seem like such a bad deal, does it? My point is that what I think has changed permanently since 2021 is venture post seed is perpetually going to be sourcing searching for decacorns. When I started even when you started in this industry, when you started, we were searching for unicorns. We were all searching for unicorns. Box IPO ed at 800,000,000. HubSpot IPO ed at 800,000,000 valuation. Shopify IPO ed at a $750,000,000 valuation. We were searching for unicorns. And then when things got good, every unicorn was a decacorn, right, in the public markets and in the private markets. Right? And I think we have now been wired that way. And as long as there are a steady stream of Stripes and Databricks and OpenAPIs, there there will be enough Decacorns that venture is permanently Decacorn hunters.

**Harry Stebbings** [39:43]:

Do you think there are enough Decacorns, though? You

**Jason Lemkin** [39:45]:

mentioned I think there's enough to take the bets. There will be enough Stripes and Databricks and OpenAI's that some growth funds can do three x net or more, and that will get the LPs to re up, and that will rearm the decacorn hunters. I don't think there's going to be unicorn hunters anymore. I think they're decacorn hunters. And you'll see some folks on 20 VC and say, oh, we're very conservative, and we're we're optimized around $818,000,000 outcomes. But I don't think it's true. I think everyone is hunting for decacorns permanently. That has changed in venture. We're more realistic about how many there will be. Right? And and frankly, it's harder to believe that many will be decacorns, which makes it hard. But I think we are decacorn hunters forever, Series A and beyond. I think the industry has permanently changed, and it may be under discussed that we're decacorn hunters. Do

**Harry Stebbings** [40:29]:

you think Stripe goes public in '24?

**Jason Lemkin** [40:32]:

I think so. I think 2024 is the year of you might as well go public. Here's the thing, Harry. We will be in the third year of a multiple downturn. You you you could be like 2022. Oh my god. You know, multiples fell 75% in 2022. That's not a good year to go public, is it? Multiples plummeted 25%. Okay? 2023, weird year. But, you know, Nasdaq, rocking year. Average public company up 40%. Top public companies up HubSpot up a 104%. Right? Mongo up a 112%. Shopify up a 128% last year. These are, it's like feeling good, except the IPOs were were mediocre. Not they were great companies. Klaviyo, ARM, Instacart, a a plus companies, like, but not but but just good IPOs because the markets were tough. Right? But 2024 is the third year. If you're a if you're a Stripe and there's nothing wrong with you, right, other than the multiple, you call you call it a day. If we're going public and we're going public at three x ARR because of our margins or whatever, you just call it a day and you just get it done. And and people stop carrying it. It's time to it's time to grow up. It's time to move out of the house. It's time to get out of get out of the basement and you just do it. So I think people will give up on waiting for the markets to change and just do it. Do you think Databricks will grow out too? The only question I have is that the losses are still significant. No matter what everybody says about how exciting the top line growth is, it would make sense logically to wait a year so that you could gradually taper your losses and not be pressured. Because you have every public company is is so efficient today. If I were Databricks is one based on what I know, I would wait. Everyone's saying they're they're going to go actually, I hear it from x employees and other people are going to go public and people are excited. And maybe they will and they can pull it off. But logically, I might burn burn more cash for a year. I'd wait a year if I were Databricks so I can continue to capture share and grow like a weed.

**Harry Stebbings** [42:18]:

Who else is in the just do it? It's time to grow up. Who else is in the category of just do it? It's time to grow up?

**Jason Lemkin** [42:25]:

Service Titan may be the first one to go IPO of this group. Service Titan's jaw droppingly good company. Dominates a market. Service Titan's at over 500,000,000 in revenue. It's cash flow positive as I understand it. It's got 12,000 customers, and it does something which is magical, which is that it has very high NRR at a low ACV in a tough vertical market. It is SaaS for plumbers and air condition maintenance and other things and it has triple digit NRR in that market. It is very hard to have triple digit NRRs in SMB with small deal sizes. Right? And it ended last year at 460,000,000 in revenue, probably. So today today, it's at 600,000,000 in ARR, selling HVAC software and plumber software growing 40 to 50% cash flow neutral. I would be shocked. I think it'll be the next one to IPO, and some people think it'll be it could be in q one, but that's one where it's just time. Right? And if it's whatever the valuations are, it doesn't matter. Whether it's worth at 600,000,000 ARR growth rate, if it's worth 5,000,000,000 or 6,000,000,000 instead of 10 that they'd hoped, so what? It's time. It's time. This is a very mature, very well run company. Right? According to data, $9,500,000,000. Yeah. So I think that's a great example. Let's assume they're at 600,000,000 ARR, and valuations suck, and they go public, and they're worth 5,000,000,000. It's $5,000,000,000, guys. It's time to go public. It's time maybe to do a little m and a with our stock. It's time to provide some liquidity with employees. Right? It's just time, you know, this company is eleven years old. It's time to IPO. If the last round was at close to 10,000,000,000, do I think they're worth 10,000,000,000? It's possible they might get a Samsara like multiple. But just if if we're gonna be a little bit tough on them and just say you're an average, the average multiple would say, hey. This is an a plus company that will price less than the last round. And I think everyone's ever I think everyone's over that. I had a conversation with one of my LPs about a round that was at a great deal but was below the last last round, and that no one cared. Everyone's already internalized this. Everyone's already internalized that there may be price adjustments to these

**Harry Stebbings** [44:22]:

ultra late stage rounds in in 2021. Right? Okay. So moving up from the company specific, do you stand by your position that this h two twenty twenty four is when everyone goes, fuck it. We're going out.

**Jason Lemkin** [44:34]:

If if I had to give an honest answer today, I think it I say I think it's gonna happen, but it's gonna be shifted six months. So I think it's gonna happen in 2025 because it's getting late. It's already January. Right? So if you're gonna go public this year, you you've already kicked it off. Right? It doesn't mean you filed like a service titan allegedly has, but you've got the CFO in place, you've managed the numbers, and you've got to be looking sixteen, eighteen quarters ahead to go public. And so I don't know that folks have come back from the New Year's Eve parties and are and are and are all ready to go public in the second half. I may have been optimistic. The kind of dud IPOs, dud the great duds, like the the Instacart, ARM, Klaviyo, which which in 2021 would have been your jaw would have dropped. Because these are a plus company. The fact that they didn't rock it sucks some energy out of everybody. Logically, it has to happen, but it may be it may be shifted six months.

**Harry Stebbings** [45:26]:

I wanna talk about M and A quickly. Obviously, Figma didn't happen in the end. How do you see m and a in 2024? There's a

**Jason Lemkin** [45:33]:

huge appetite for m and a, and I see it across my portfolio. And it is natural, because as we talked about before, growth slowed for everyone in 2023. And what do you do? People when growth slowed, people played the first card, which was get more efficient. Pause hiring, focus on the base, raise prices, raise prices, raise prices, raise prices. What's the next thing you can do Harry? You got two choices. You can build another product and try to get it to market like HubSpot did and wait ten years to build HubSpot CRM into 700,000,000 if you're great founders. But what's the easier thing to do? You gotta buy something. I have seen lots of tire kicking across my portfolio in the last six months. A lot of it. Not just from public companies, but a lot of it from ex public companies that are acquired by PE. They're all looking to bolt stuff on. They're all looking to bolt stuff on north of 20,000,000 in ARR that they can afford, which is the tough part of the conversation, that they can afford that can move the needle at some level. What will that translate into? I think there will be lots of good m and a opportunities to bolt on in, like, the 100 to $400,000,000 range next year. People are trying to do those deals. The Wall Street Journal said this week that 2023 was a low point for PE investing for, like, seven years or eight years. It's gotta come back next year. Right? If interest rates come down even a little bit, PE gets much more attractive. And if the IPO markets open even a little bit, it gets much more attractive. PE gets compressed when you can't see exits in three to four years. Right? You got to at least sell to each other. At least insight's got to sell to Vista or someone's got to sell to somebody. But I see it picking up. On the Figma thing, and I know a lot of folks like Brian Halligan, talked about said that Figma thing will be like it will create a chill on large m and a. It's not what I see happening. What I just think happening is there'll be huge appetite for m and a anyone can afford, but people will buy adjacent plays rather than directly competitive plays at scale. Maybe Adobe can't buy Figma, but maybe Google can. I mean, maybe Google is the wrong example. Right? But you will buy maybe Twilio can still buy a segment. Right? Whether that was the best deal for them or not, it was not directly competitive. They tried to get into the CDP phase. Right? These adjacent investments will happen, but folks will not be able to buy things. Well, Trump could change this too. But if we stay if we stay in our current administration, it may be hard for Adobe to buy Figma, but somebody else can.

**Harry Stebbings** [47:42]:

Microsoft probably can buy Figma. Someone else can buy them. Would Trump be better for M and A than the current environment?

**Jason Lemkin** [47:48]:

You know what you know what I learned from the SVB and the Figma is VCs try to claim they're these big macro folks, but they really care about their own pocketbooks. Would Trump be better for VCs for m and a? Probably. Every VC wants a Figma deal to go through. Right? You know, the Microsoft, Activision deal barely went through. Right? That was a huge headache. Other people would have quit and given up. Everybody wants this. It's hard to imagine that this is a top priority for the Trump administration. So I I guess it's a positive. But be careful, and again, I try to say out of politics, be careful what you ask for. There's a lot of unintended consequences. Will Trump be better for carried interest? Will Trump be better for a qualified small business stock? Like, this is something that's under discussed. Who will revoke qualified small business stock in The US? That could be disastrous on many levels. Like, I don't know. I don't know. All I know is Trump is not a friend of California because he can't get our votes. And so I I that part worries me. Trump dramatically raised our taxes in California. Talks about how Trump cut taxes. Sure didn't in California or New York. All our taxes went up because we could no longer deduct our state taxes against our federal taxes. My taxes went up, whatever, 15% under Trump.

**Harry Stebbings** [48:48]:

Venture funding. Everyone says about the absolute cratering of venture funding. I think in a lot of cases, slightly skewed in terms of the data they present. Will venture funding return in some respects? Will it continue to be reduced? How do you predict venture funding in 2024? Will it be easier or harder for founders to raise? At the end of

**Jason Lemkin** [49:07]:

the day, here's the thing. VCs will deploy as much capital as the LPs will give them. They will deploy it. If they can go back to market every eighteen months and find a reasonable number of deals, that's what we learned in 2021. They'll go back to market every twelve months, every eighteen months. What they learned the last year, sometimes you gotta go back to market every three years or even four years for some funds. Right? But VCs will find a way. If allowed, they will deploy an as much capital as the markets will absorb. So the real question is the segment of and you're you're the closest one. I should interview you. I'll ask you the question because there are there are segments of LPs that are actually not that impacted by the lack of liquidity the last 18 Okay? A lot of university endowments have sufficient liquidity. Some don't, but some don't care. A lot of family offices don't care. A lot of sovereign wealth funds don't care at all. What are they gonna do with the liquidity? They gotta reinvest it anyway. Right? But there is a subset that that needs that that that got paralyzed. Especially the folks that are deep into traditional PE, where they're used to getting that cash back and recycling it, and they're under and it's almost two worlds in the LPs. Folks under stress for capital commitments, and under stress for liquidities, and folks that just don't care today.

**Harry Stebbings** [50:10]:

And then and then I would add one final constituent, which is just net new LPs to the venture. And net new LPs. Yeah. Which is incredibly significant when I look at, like it or not, in terms of China, but Asian LPs, more broadly speaking, you've never invested in venture, actually dramatically want to. The amount of family office Asian money is exorbitant and extraordinary. UAE is coming in on force. Europe has thousands of family offices with the most incredible liquidity reserves. Yes. They want tech and they want venture. They're a curtain business. They're a machinery business. There is a universe of new LPs that is entering that I see every single day.

**Jason Lemkin** [50:47]:

Yeah. No. It's it's hard. They may be fatiguing a subset of VCs by go having gone back to market too often. It's almost a very quantitative question. I think if there's just enough pool, VCs will raise the fund and they'll deploy it. And I don't think 2024, it's not gonna be worse, but we're not gonna see the massive liquidity events maybe we'd hope for for another year. And don't forget, even IPOs, the liquidity is very delayed. If Figma had closed, they could have distributed the next day. Right? An IPO could be thirty six months from six months after the like, it could be four years until LPs get their their cash back. So I don't know that it's gonna be dramatically better in 2024, but I don't I don't think it's gonna be worse. Right? And the other thing that folks don't realize here, you know, you probably have better data than I do. A lot of these huge pools of capital you're talking about, especially international, their annual returns are terrible.

**Harry Stebbings** [51:33]:

Yeah.

**Jason Lemkin** [51:34]:

Yeah. They're not at the Harvard or Yale or Stanford level. They're not buying, like, swaths of of forests in Scandinavia and weird assets and only investing in the top venture funds. They're returning, like, four to 5% a year, a lot of these things, less. And sure, you could put it all in NASDAQ, right, which which has its issues, like, and maybe that's what they should. But venture is a great alpha to very, very, very mediocre returns. And that capital will always want to to grease it a little bit. Right? They're never gonna put all of it into venture, but if they can get some of it ahead of three to 4% a year, it's a it it it can move the needle a little bit.

**Harry Stebbings** [52:09]:

That's also why your multi billion dollar funds sustain, which is like you're comparing them to 7% net,

**Jason Lemkin** [52:14]:

which

**Harry Stebbings** [52:15]:

is net traditionally, and you're offering them 12% net, which is a 4% bump. Okay. Great. Yeah. Too

**Jason Lemkin** [52:21]:

many people at Twitter criticize these large fund models and say, hey, how can you do eight x on a large fund? That's not the point. The point is to beat the crummy returns a lot of these massive pools of capital

**Harry Stebbings** [52:29]:

in the real world. Two things that needed to raise funds successfully for venture managers is DPI, like cash back to your investors. That always works. And then differentiation. If you have a truly differentiated model that you can prove tangibly, I think there is still LPs that will allocate to you with enthusiasm and gusto.

**Jason Lemkin** [52:48]:

If you're earlier stage, it may be as simple as, do you have one Databrick? DPI is great, but at the end of the day, DPI is in the past. I mean, LP is a weird industry. I can't tell my LPs I talk and you you talk to literally a 100 x more than I do, but they Jason used to be good or Harry Harry's last one looked good or whatever, founders fund this or what about that future? So even DPI, if you were the the lead in Datadog or Stripe or whatever, if you had one true epic outcome, it was just true when I started to say that carries you. Because then people believe they believe you can do it again. Right? That you have the secret sauce.

**Harry Stebbings** [53:22]:

Right. We're gonna do a quick fire, and I'm gonna pepper you with a couple of statements. Number one, what have you changed your mind on in 2023?

**Jason Lemkin** [53:29]:

I have changed my mind that there is any chance on planet earth, any chance that a pretty good founder can produce good venture returns. I will never again invest. I will only invest in founders that are much better than me. I will never invest in pretty good founders no matter what the traction is, no matter what the growth, no matter what it is. Maybe it works in consumer, but this was the title of my last LP report. So much great progress in the portfolio in our core positions, but the lemons have ripened. But the lemons have ripened. I took every write off in my last LP report there was. I just wrote wrote it off to the max. Anything that wasn't good, for my first time, I just wrote it. I just I aggressively put the the red pen or whatever to it. Because I had enough of good but not great founders, and all the ones that that I had to take the red pencil to were good but not great.

**Harry Stebbings** [54:13]:

Do you think enough GPs have taken the red band to their portfolios and been open with their LPs?

**Jason Lemkin** [54:17]:

No. But here's the thing. And again, everyone talks at big game. We're not allowed to mark up between rounds. See, if we're allowed to mark up between rounds, which a lot of PE firms can and late stage folks do. Right? They they can mark up traditionally. It's a weird world. So, like, everyone's like, take your markdowns, and you should take your markdowns. But what about the markups? What about the ones that never raise again that are worth billions or whatever? We're not allowed to value up, are we? So I think it's all a weird world. At some level, LPs have gotten over the Sony baloney valuations and it's just show me the business. And if l and if a GP doesn't mark down a given deal, they just don't. I don't know that it's as high drama issue as it was. I don't know that it matters, but I asked my own LPs and they

**Harry Stebbings** [55:00]:

didn't carry their way that much. What's the best investment advice you've received? I'm sure you've been given advice by many people.

**Jason Lemkin** [55:06]:

There's no shortcuts. Just say no if you're not sure. If you're not sure, just put more money into your winners. Just put more money into your winners. If you don't know in twenty minutes, don't do it. If you don't know. If you're investing for other reasons, you're investing because Harry's in the deal or Mamoon's in the deal. If you don't know in twenty minutes that this is one of the best founders you've ever met with, don't do the investment. It's too hard. We forgot in 2021 how hard this was. Now we remembered how hard it was, Harry. That's the only one thing we learned the last year. Even in 2022, it was so crazy, the knife the falling off the cliff. We didn't even remember how hard it was because we we were adapting. Slack was worth 27,000,000,000 when Salesforce bought it, and probably worth 2,000,000,000 today. Like, what what happened? Or 4,000,000,000? Like, we couldn't even comprehend the rate of change in 2022. Right? So now in 2024, it's like, listen, if you don't invest in Dylan at Figma, you're not gonna make any money. And so those are the regrets. All the good but not greats. Honestly, I just wrote my LP report on the ones that I that I took the that was the same answer to the the three that I marked down to almost zero. Good but not great. Good, but not great. And then one was great, but tired. That's a different learning. What's the learning on great, but got tired? You gotta smell the urgency out of their pores. It's gotta be like that Darmesh, Brian Stebbings from HubSpot where they're like, we had a decent outcome. I'm going for it. If you don't smell that urgency out of the pores, I think some repeat founders, especially if they weren't the CEO, like if they were the CTO or someone else, it was hard, but they they kind of forget how hard it was or they forget what happened. And you need the first time founder crazy level of urgency in a repeat founder. And when you have that, it's magical. You just have to smell it across the zoom or the riverside, that urgency. It just has to reek. And I think this one deal I did with a founder I love, he's been I've known him for a long time. There was a desire and an insight, but the urgency, it wasn't there.

**Harry Stebbings** [56:49]:

Right? Oh, I totally agree. My biggest my biggest meh deals are five on 25 with an exec out of a large company who's made a lot of money, but very comfortable in life that has no urgency. They've raised 5,000,000 and they have a million in cost. They've probably got five years of runway. And they just move slowly, and they're very diligent and they, you know, work work reasonably hard. Yeah. Never You

**Jason Lemkin** [57:13]:

need maniacal in this world, you need, like, a maniacal sense of of urgency.

**Harry Stebbings** [57:18]:

Dude, you you said you said at the beginning the best of lessons learned from mistakes. What is the biggest mistake you made?

**Jason Lemkin** [57:24]:

Okay. My biggest mistake I don't know how to be actionable on. I think about it constantly, right, is I'm not a good nudge. The best investors are nudges. The classic Sequoia playbook, which literally happened to one of my portfolio companies a couple months ago, where they sit in the lobby and just wait, you know, with the term sheet. Sequoia still does it. They did it twenty years ago. They did it with TalkDesk with me back in the day. They did it again two months ago. This classic playbook. Byron Dieter did it with me back in the day at Bessemer of just sitting on your steps with the term sheet. How does that work?

**Harry Stebbings** [57:53]:

Because the founders that I meet are like that's like forcing me into a marriage. I don't want I I don't do that either because I'm like, it's your free will. I don't wanna impose myself unfairly. I think about a couple

**Jason Lemkin** [58:05]:

really good deals where I didn't nudge into my way into the deal like people do. You CVCs that are fucking nudges. Maybe I love him. Maybe Mamoon's a nudge. I think he might be a nudge, and I think it might be part of his skills. Now, a nudge that you want on your team. Right? I think he's a good nudge. I remember meeting Parker Conrad early at the Zenefits day, and I bumped into Mamoun, like, the next week. He's like, yeah, they just raced around, but I'm gonna go over there and hang out with Parker and see if maybe there's some room in the round in the Zenefits. Right? And then he did it in rippling. Right? He waited. He did the thing. And so I don't mean that they're all nudgy, like sitting in your lobby with the term sheet. There's good ways to do nudgies and dinners and but I'm not a nudge. Like, I'm like, I'll meet with the founder. I will try to help them for free. I will give them some advice. And I will say, if you want me, let me know. If if you don't, let it go. And I think if I were to nudge, I would be much much better investor.

**Harry Stebbings** [58:54]:

What's the biggest deal you've lost because of not nudging?

**Jason Lemkin** [58:56]:

I don't know. It's like a long it's so long list. I don't wanna even go in go into it. But like most of these things, they're better than the ones you did. I'm not critical of the ones that I didn't see. Those ones don't bother me at all. Like if I didn't see it, I didn't see it. I tried a little nudge experiment the other day just to learn if I'm a nudge and it never works. This founder who has a a really great company, they tripled last year. Right? And he keeps me on his investor updates. And so I asked him last week, hey, can I put in an extra million into the last deal? He's like, no, I would love you to be your my advisor. I'll give you options. I'll do all this. I did want to invest, but I was also trying to be a nudge again. I'm like, I can't be an invite I'm overloaded, but I can if I can do a a minimum of a million, I can still help you. And I couldn't nudge my way into the deal. He wanted me, but I couldn't nudge as a VC, couldn't nudge my way into the deal. This was just the other day. And so I keep trying that nudge experiment. I'm no good at it. I

**Harry Stebbings** [59:43]:

I just I gotta you gotta know yourself. Right? Jason, are you a better investor today than you were when you started SaaStr as a fund?

**Jason Lemkin** [59:50]:

No. I'm I'm worse because I because I'm slower, and I'm worse because I take some things personally. I do love you, dude.

**Harry Stebbings** [59:57]:

Like, everyone's like, no, I'm so much better. Like, I've learned this, this, and this, and like, you know, it's just very aware that people listen, and you're like, no, I'm worse. Worse,

**Jason Lemkin** [60:07]:

slower. Now I like, I care too much, and I think it's a negative. Why do you take things personally? I thought you wouldn't give a shit as much. You're like, oh, fuck it. I'm old enough. There's only so many trips around the sun. I should just invest. When I if I invest a lot and I'm on the board and I've dedicated years of my life, for either the founder doesn't give it a 100% or something is slightly off or does the wrong thing, I've given too much of my trips around the planet, and I should just be a financier. That should be the just whatever. You move on. Right? Your job's to hunt another deal, and I think it's a failing. I I think you can you shouldn't be too involved with portfolio companies. It's you have a portfolio. And to be blunt, every single investment I've ever made, I've been the most truly helpful and knowledgeable person on the board. There are sometimes I've had great operators, but I'm always the best. That that can backfire.

**Harry Stebbings** [60:52]:

The only thing I would say is the ability to concentrate capital across rounds is less obvious when you are a financier at arm's length. With the companies where I am, like, in it, involved Yeah. Onboard, I can shape rounds with founders. I can put a lot more money in. When I'm just told of around by email, shit. Though I

**Jason Lemkin** [61:11]:

I think I've learned over the years that the big funds are pretty good at doing that even when they're not on the board. They're pretty good at tracking these deals. I've seen several times over the last fourteen months when when times have been tougher. I've had two investments that crossed from very good to breakout, and big funds that were not at the board meetings were flies on honey or toast. Like, and both of them raised 8 figures from big funds in like one week. And in fact, I think those deals are the easiest deals to get done these days when you have that visibility. People are still a little bit risk averse and I'd rather put 20,000,000 of my fund into something where I have some visibility, right, that's top 2% growth than top 1% growth where I'm not sure. And I think founders should take inside like, good inside rounds very seriously now because of the reason you said. This is different than a bridge, but if one of your investors really wants to step up at a at a higher price, six times out of 10 just it's a good it's it's a good thing in this market. Jason,

**Harry Stebbings** [62:08]:

will we see a generation of VCs leave venture?

**Jason Lemkin** [62:10]:

I don't think so. I think most junior folks have got little to no carry. The carry they've gotten vests so long that they never make any money from it. And I think a lot of the best up and coming investors that are that have something special, are differentiated, that could do a deal, they got good deals done the last eighteen months. People think that, like, there's bad vintages. There's only bad vintages because you overpaid, but every month, there's a great startup born. Of every year of my life, there's a great startup born, and the best up and coming VCs found them. And the mediocre ones complained about the markets or this or that, and the best ones just were heat seeking missiles and found them, and they're gonna get promoted, and they're not gonna lose their jobs. And the other folks may lose their jobs when funds either literally contract in size or in essence contract by having longer fundraising cycles. That's still a contraction, isn't it? And it's okay. I think there's more jobs in venture than there ever would. And if and if you thought it was easy, you're delusional. There definitely is a generation that thought it was easy and it it it stemmed to solo GPs and new emerging managers too. Emerging managers for the last four years thought it was so much easier. Every emerging manager promised their LPs eight x net. I remember talking to one who I loved. I loved this this this emerging manager, but all his initial investments were at one x. And he's going out promising eight x. And I'm like, you have a lot of charisma, but maybe tone it down just a little bit. But he was a 100% sure he was gonna do eight x in 2020, 2021. Right?

**Harry Stebbings** [63:25]:

So I definitely think a lot of people forget just how difficult it is to do depending on fund size, but just generally at the early stage, three x net is still a fucking good fund.

**Jason Lemkin** [63:34]:

It it is. It we mocked it, and people didn't understand the physics, and they didn't understand all of it. So if 50% of the non GPs lose their jobs because it's hard or whatever, that's probably the way it should be in venture. You know what? You know what I learned in the beginning of venture? Harry, I I remember I went to when I worked at this third party venture firm, I went to a huge LP meeting in New York to raise the new fund and we handed them a 100 page spiral bound notebook about the fund, and they just flipped to the last page. And they just looked at the returns, which is what happens to us. And they and all they asked was, you know, are you tech or biotech? Like, or or that's all they want to know, they all looked at the number. And your number is a fund, and you're a number as a GP, and you're a number as a partner and an associate. Right? And you're a number. And if you're a venture and you didn't put points on the board the last couple of years, you don't deserve to be a venture. This is not a charity. This is not a best efforts kind of job. This is not senior marketing manager creating infographics. Venture is both rewarding and brutal. You gotta put up the numbers. And that's why markups matter and interim numbers matter because you gotta put up the numbers. Right? We can talk about DPI forever, but you can't wait your whole career until the DPI comes. You gotta put up the numbers. And if folks if half the non GPs lose their job and 25% of the GPs cause they didn't put up the numbers, that's good. Move on. There's a veneer of kindness on top of a ruthlessness in in venture, which is you gotta you you have to deliver slowly, but you do have to deliver. So so let them go. What founders don't get about venture when they fundraise is they really don't understand what it means that venture is a business of outliers. I'm sure you get these emails every day. They're like, Harry, like, my company is great. Last year was tough, but if we could just get a little more money, or like, our growth is pretty good but not great, or whatever. These endless things they don't get that it's outliers. You gotta get into these outliers. Pretty good founders, they don't get you there. It's so hard. Outliers are bust.

**Harry Stebbings** [65:12]:

Final one, SaaStr in 2024. Where do you wanna be at the end of 2024? When you look across the funds and the media and the events business, where do you want the events business to be? Why do you want the media business to be? Where do you want the funds business to be? How do you think about your goals for 2024 on those components?

**Jason Lemkin** [65:30]:

For investing, if if I could, 2024 would be my fastest investment pace since 2014. That would be my goal. I think now is the time. I have the mental bandwidth and the clarity and the schedule, so I I would like it to be the most prolific time. In terms of like community, it's a constant learning. Some of this is pretty niche y. It would be great if marketing budgets reflated in later twenty twenty four. Right now for SaaStr, as a media business, it's kind of interesting. All of our revenue is from big tech. Though the unicorns have no money, or they have money but they're not deploying it, big tech had a really good year. So it's great to have added sponsors and partners like Cisco and IBM and others that we did not have before, which is great. But we lost a lot of unicorns. Right? So it would be great for marketing budgets to reflate a bit. That would just help us invest more in the community. How much does how much does SaaStr do revenue wise, if you're able to say? Like 27,000,000 the year before? What would it take to do a 100,000,000? To do a 100,000,000 would be pretty easy in quotes, pretty hard in practice. To do a 100,000,000, you just need to do a little bit more of what Gartner and a few other people do, which is build on SaaStr as a marketplace where where buyers of software can connect with more CEOs. There's two reasons people sponsor a partner with folks. Right? But for what we do, especially at the events level, you're creating a market if you think about it, you're creating a marketplace. At SaaStr annual, we'll bring 12,000 people together. Right? And about 40% will be CEOs, right, which are a very difficult group to access. And so events are are are a headache and and there are lot of work and people get grouchy and marketers complain about the expense. But what you're really doing is creating an IRL marketplace where buyers and sellers come together. Right? And you're facilitating these conversations and this marketplace. So at SaaStr today, we do it just by dint of having a community. We just bring people together. But if we aggressively did it the way Gartner's and others do it and we blew it up, the number of connections would instead of being good, they would go up not just a little bit, would go up like 10 x. So I I lament that I'm not completely executing that plan today because the things that are like SaaStr on the events media side, the couple things that are most like us are at a 100,000,000. So I consider myself in some ways a failure for having invested a lot in community and founders, but not as much monetizing it because the two things that are closest to SaaStr are Money 2020 and Shop Talk and e commerce, and they're both over 100,000,000. One of the classic SaaStr posts, and I'd say this to founders at the end of the year is like, you gotta judge your growth not on an app just on an absolute basis, but compared to your competitors. So like, if let's say you're a startup and you grew 80% a 100% last year, you're like, hooray, Harry. We we doubled last year. But your biggest competitor grew a 120. You're losing share, aren't you? Think you're great. But if you don't compare yourself to competitors, you're not being honest. So SaaStr isn't really losing share. Our business keeps growing. But when I look at folks that started I mean, money Shop Talk started the same time. 2020 is much older but got rebooted the same time. And they're a 100,000,000, and they don't have community, and they don't have a blog, and they don't have all these other social aspects or a million followers, and they're a 100,000,000, you feel a little bit you feel like you've underperformed. Right? But on the other hand, the interesting thing is, you know, we did it with eight and they have hundreds and hundreds of people. The other interesting thing on this media community thing is you don't want to be a BuzzFeed. Don't want to have need massive human capital to fuel these things. Right? And you have a team at 20, but you don't ultimately need a 100 journalists to do what you're doing. That's what's so epic about a lot of the social media. Right? So there's a trade off. Like, would you rather be doing 27,000,000 with eight people or a 100,000,000 with 200 people? Actually, it's a complicated question.

**Harry Stebbings** [69:05]:

Right? Jason, I love our chats. Thank you so much for doing this, and you've been such a star for the first guest of 2024. Happy New Year to everybody. Happy New Year to you. I mean, what a start to 2024 with that episode. I wanna say huge thank you to Jason for being such a fantastic guest as always. If you wanna see more from us behind the scenes, of course, you can on YouTube by searching for 20 VC. That's two zero VC. But before we leave you today,

## Sponsor read

**Harry Stebbings** [69:29]:

I love any innovative approach to venture and startups, and that's why I love Arising Ventures. They're a holding company that acquires tech startups facing difficulties, and they help them reach their true potential. The Arising Ventures team are tech founders. They're not bankers, so they know what other founders really care about. They've given many great businesses a second chance at success. Like Jive, a business arising ventures relaunched after it shut down in 2021. Arising ventures bought them out of liquidation, brought back key team members, and took them from naught to 1,000,000 ARR in just five months. Thanks to Arising Ventures, Jive now serves some of the largest brands in the world. So if your tech startup is facing hard times, Arising Ventures could be just what it needs to find new life. And you can learn more and connect with the team at arisingventures.com/20vc. After submitting your information, you'll hear directly from the founding team within twenty four hours. Go to arisingventures.com/20vc. And speaking of innovations in venture, Carter is a standout. Fund admin in venture capital is a nightmare. It's boring. It's tedious. And to be quite blunt, it's just a pain in the ass most of the time. But Carter provide a better way to run your fund, trusted by over 5,000 firms with over 126,000,000,000 in assets. They provide one click capital calls, access to over 300 fund accountants, and tax experts, and they provide live interactive LP reports for your LPs. It's a total game changer of a product for any emerging manager raising a fund or any established manager with many funds under their belt but wanting the best product for their LPs. Head over to carter.com to check it out and find out more. And speaking of game changing products, Intercom is a complete AI powered customer service platform and the only platform to combine a help desk, AI chatbot, and proactive support tools. It also comes with a fully featured inbox, ticketing, help center, and messenger, making it not only complete, but also the most powerful support platform out there. Intercom, every single tool you need all in one place, enhanced with AI so you can give every single customer the fastest, most personalized experience imaginable. Learn more at intercom.com. As always, I so appreciate all your support, stay tuned for an incredible episode this coming Monday. God, it's such a great debate. It's between Nick and then Carl at Multi Coin. Such a good episode to come this coming Monday.