The Memo: The State of the VC Market: Why Seed Funds Can't Invest in "Hot Startups"…

It’s an interesting question. The first one I tell everyone that’s a new manager, especially anyone above the analyst level. And what I was told when I went into venture, I think you might have been told the same thing, was don’t worry about doing a deal your first year. This is what the traditional GPs tell you, because the last thing they want you to do is to meet with 28 pretty good companies and burn the fund. Right? They know how rare the outliers are. And so this is advice I got, don’t invest your first year.

And I did five real unicorns in my first thirteen months. I did Pipedrive, which exited for, like, 1,250,000,000, then Algolia was my second. That’s worth 2,500,000,000, and we’ll IPO next year. I did TalkDesk, worth 10,000,000,000. I did Parkland Greenhouse, which will IPO next year. They’re at 200,000,000. I did Salesloft, which sold for 2,500,000,000 of cash. Those are my first five deals. And I tell everyone, if you have something, if you have a hot hand, if you have a brand like like a 20 VC or anything behind you, or a great network, if you came out of Datadog, or Stripe, or wherever, MongoDB, and you have a network, go do those deals.

Like, you may not know venture, but that’s what the other guys are for. Right? They will teach you ownership. Leverage it. It’s interesting how many great VCs had a great investment their first six or twelve months. Right? I remember talking with the first friend I had that became a VC was David Hornick. Right? Who’s now at lobby. Was it August? And he tells the story how this first deal he blew 10,000,000, back in the day was like a career ender, right, as a kid going into venture.

But his second was Splunk. Then he did Bill, right, which was Renee’s second one. So the first one exited for 100. The second one’s worth 20,000,000,000. I think Splunk was his third. And he did those all the first year in a downturn, in a massive downturn. I mean, you talked a lot more VCs than I can, but I I wouldn’t be surprised if a lot of the best VCs had at least one big winner their first twelve months. And so that canonical advice is great for the fund.

Trust me. It’s great for the fund. Don’t blow it all, kid. Right? And I say to them, also because even if it’s not perfect for the fund, it’s great for you to get into a winner your first year. That winner lasts forever. The great thing about venture is your winners last you can talk about them for a decade. You can literally and so the earlier you get a winner, and a winner really being like the the person on the board, the first investor, like an iconic winner where the founders will back you, the earlier you get in your career, you could probably raise three funds on the back of that, even if they all the rest of your investments are dogs.

Right? So you only live once. So that’s the main advice. That’s the number one. And the second one is the opposite, which is I tell folks, unless you’re starting your own fund really from scratch. Right? If you’re joining someone else’s on, the other advice I give folks is be zen, because it’s not yours. This is the biggest mistake I made. The biggest good thing I did was ignore the advice, and I did all those deals immediately. Right? All of them. Right? Now I’m a 10 x investor for life.

Like, that was worth it. Right? But I wasn’t zen enough about joining someone else’s fund and all the friction. It’s not yours. Right? It’s not yours. Whether you join someone else’s fund at 15 or 50, you’re an apprentice, you’re not running the management company, you probably don’t know what the management company is, you don’t know how the economics work. They used to say, it’s your second startup, you make money, and maybe your second stint in venture, you make money.

I mean, like, I I I I don’t think I don’t think I’m any Keith Raboy or Vinod Khoso, but it can’t be luck if it’s five for five, can it? Exactly. So what would you put it down to? First of all, one thing, which is only a small amount of it, but is having time. Right? And I remember I bumped into Byron Dieter at the airport when I just started investing. Know Byron because he gave me a term sheet as a founder, right, at running Bessemer’s Cloud Practice.

And he’s like, I’m jealous of you. I mean, what do you mean you’re jealous of me, Byron? He’s like, you actually have time. All you have to do is work on new investments. Not only do you not have boards, or down rounds, or workouts to deal with, you just don’t have the emotional baggage going into venture as in a venture fund. Right? All you have to do is hunt and meet founders. Right? I think that’s underestimated in the industry. Right? Ultimately, I mean, you have large teams working under you in many ways, Harry.

You need that adventure to scale. You can’t be this this rogue artist going out and hunting deals your whole career. A few people do that. Right? But it’s rare, for a variety of reasons. If not only do we get tired and age out of our networks, but we have too much to manage. We have too many investments under them. Right? And then I I think just really sticking to your sweet spot is core. Right? And I knew I only wanted to do a certain type of founder at a certain stage doing products.

I intuitively understood search. I intuitively understood contact center. I intuitively understood I thought how to build a better version of Salesforce, and so I only did this narrow overlap of things I already understood before the meeting, and were exactly in my sweet spot. Right? And if I did that with founders that were better than me, with good

Yeah. And if you don’t, you you also can get into trouble in terms of how much you deploy into what. Right? If you know your type of deal, you’re probably gonna almost inherently get your risk profile right. Right? I know my I know my valuation ceiling, and I know the different types of valuations I’ll do for different companies, and so I can only lose so much. It it just distresses things a little bit.

One is No, I don’t do outcome planning. I remember when I invested in TalkDesk, the best comp was Five9, which is public today. They were worth a stunning $150,000,000 as a public company. So the comp was horrific. Right? It was terrible. I I we can look at I think Five9’s worth 6,000,000,000 today, and on paper, TalkDesk is worth 10,000,000,000. So you have to be careful with comps as, you know, as as markets change. Right? And no, it’s more just some of it, you have to back into your fund size.

Right? What’s 2% of the fund per check? And so for me, I learned there were two types of investments I wanted to make, like traditional seed, where you had at least a little bit of revenue, at least 10 customers, 15 customers, 20 customers. And then I wanna do what used to be called late seed, which is hard for me because it’s been obliterated, but late seed was sort of approaching a million in revenue. Right? With real traction. No management team, but but getting to a million in revenue.

And I wanted to do one of each, so I did, you know, TalkDesk at a million, but Algolia at tenth you know, a 100,000, right, in terms of annualized revenue. Right? And I did Pipedrive at a million, but I kind of ping ponged back and forth between the two, and I was able to write smaller checks to try to get at least 10% ownership in the others. And then the late seed ones, I would write up to a 4 to $5,000,000 check to get double digit ownerships.

And that, if you’re able to invest at a million and the founders are great, you’ll never lose money. If the founders are great at 1,000,000 in revenue, the problem is that’s become a Series A, B deal even in even today. So that part of my my model has partially been obliterated, which is the hardest part for me, but it still happens with outsiders. It’s just impossible with insiders.

Yeah. So that’s tough from from my fund size. That’s hard. Because let oh, let’s do the math. How much would I have to invest to get 10? I’d have to invest 70,000,000 to fund 68. Let’s see. It’s it’s tough. That’s why, honestly, Harry, within a range, I simply don’t care about valuation. I want to have a fair valuation where I can hit the ownership target, and I don’t care. All these people on Twitter grouching that their deals are at 8.4 pre instead of 6.2. I mean, who cares, man?

In any segment of the market, folks that are doing better will command a higher valuation typically. Right? So you have to the last thing you want to do is, wow, this company I mean, 700 pre is tough. Right? But I think the last thing you want to do is pass on a $30,000,000 post deal where everything’s great. Right? It’s the last thing you want to do.

do it all by email, I don’t take the meetings, so I hear you. I just I just If you go to sasterfund.com, you will never see a more descriptive website. Here are the exact ranges I do. If you scroll through, you’ll see the valuation ranges. You’ll see the owners. It’s like just, and I literally got an email from a great CMO starting a company yesterday. He’s like, look, there’s no chance. Right? I’m like, no. There’s no I love you, but no. I read your website, and there’s no.

I still caught up with them. And don’t wanna do small checks. I don’t wanna do the other tough thing in today’s world, right, and it probably segues into the topic you wanna talk about is, you know, there’s no downturn in seed whatsoever, no matter what. Twitter’s wrong. Twitter seed is more vibrant than ever, and we could talk about why. And seed is also split up more than ever. More and more folks are taking tiny more and more tiny checks. Right? That’s not that genie’s not going back in the bottle.

But it’s bad for seed investors. Right? The last thing you know, people like you, Harry, and they may not like me, but they they want my help. And so I do get a lot of offers to buy one or 2% of a startup or a $100. It’s and the fatters don’t understand. They don’t understand. I’m like, it’s great, and I will do one or two of these a year, typically for outsiders or others for specific reasons, but not to make money. Well, I know. I Why

for the future? It’s completely wrong, because there are so many founders and executives that have made tens of millions, hundreds of millions, or more money that enjoy seed investing. And many have their own funds now. I mean, even the founder of Freshworks just announced his second fund. Right? Jack Altman, who I love from Lattice, has multiple funds. And and those are institutional funds. Those are real venture funds. Forget about that. There’s just so much liquidity that happened, especially in 2020 and 2021. And what do you wanna do?

I mean, you know, San Francisco Peninsula is so boring. What are you gonna do? How many hikes can you go on the dish? Eventually, the only thing to do is angel investing in the Bay Area. I mean, yeah, if you’re in the city, you you can, you know, throw rocks at it, whatever. You can make fun of San Francisco. But if you’re on the Peninsula, it is the most boring place I’ve ever lived. The only fun thing to do is angel investing.

And let’s say you’ve made a 100,000,000, Harry, and I know and and this was would have been crazy to say when we first met, but there’s so many so many founders made a 100,000,000, so many executives made 20,000,000 or 30,000,000 and have good lives, and they wanna put 10 or 20% of that into angel investing. If you’re connected and and and there’s a huge difference today between insiders and outsiders. It’s more visceral than ever. But if you’re an insider in Palo Alto with these bored and rich tech people, you can put together a $3,000,000 seed round with 30 people.

And I was just I was literally on a Zoom yesterday with the founder, and he’s like, I’ve I I’m struggling. He’s like, why are you struggling? He’s like, well, I have no customers, no product yet, and no traction. But he’s very good like, very charismatic, connected. He’s like and he’s like, and all my friends told me I need a lead investor for my seed round. I’m like, well, if I were you, I would take 30 checks from tech people. He’s, oh, I already have that. I already have 3,000,000 for that.

I’m like, close it. He’s like, you’re the first person that told me this. Like, I’ve been waiting two months to get 20 VC or Coastal Ventures on my cap table. I’m like, you already have 3,000,000 from tech rich tech people? Close it this week, you fool. Pick a fair price and do it. Why would you not get going with your life as a founder? Right? The other thing is the a investor. He’s like, well, the a investors are gonna be sensitive if it’s only angels. The a investors don’t care.

They just want a rocket ship. The investors don’t care if it was Stebbings Lemkin Ventures that funded you. They don’t care. They don’t care. So you would advise founders to take those splintered rounds if they’re on the table and ready to go? Rather than struggle? Yes. Of course, rather than struggle. If I have an option, if I’ve got 20 VC, we’ll give me a $2,000,000 check Yeah. And I get a million from friends, or I get 3,000,000 from friends, of course, I’d probably take the institutional money plus a million.

Right? That’s a great then that’s the best of both worlds. But would I struggle to find the institutional money when I can get 3,000,000? Like, that’s a fool that’s a Twitter mistake. That’s a rookie error. Every week, there’s more liquid tech folks that wanna invest in seed, either directly or creating funds. Right? And and emerging manager boom of 2021 may be over. Right? Folks without a track record may be over. But the folks with an that can assemble their own fund or their own resources is just getting going.

It’s just getting going.

Why do you think that’ll fade? Because you can’t return a $2,000,000,000 fund writing tiny checks into pre seed companies. You can’t return a $2,000,000,000 fund.

Listen, it’s it’s a thing. You gotta stay in market. Right? If you’re if you’re a late stage growth fund, and that market was dead last year, it’s definitely better to stay in market for a variety of reasons. It’s not silly. It it is good to stay fresh, and it’s good to meet entrepreneurs, it is good to deploy capital. But if you’ve got to deploy 2,000,000,000 over two years and triple it, you’ve got to be in, like, four or five big winners a year, right, and significant ownership positions in all of them.

Right? The math is just awesome. You need double digit ownerships of four to five massive $5,000,000,000 plus outcomes per year. And it’s great if you can start in seed, but if it distracts you from putting a 100,000,000 into the winner, it’s not worth the distraction. We were talking about distractions before we got on, and this stuff is distracting for these big funds.

For insiders. Those VPs and principals, that that even me as a founder back in the old EchoSign days, one of my favorite VCs that I love, Josh Stein, who runs Threshold today, was more junior back then. The first time we met, he gave and I love him, he gave me a term sheet, and he said, well, listen, we can do it two ways. But if it’s 2,000,000 or less, I can just do it. So it’s not new, this idea of, like, bigger funds having a a lower threshold for different professionals.

The funds are just bigger. Right? But there’s also more startup. I don’t think it’s bad, but my point is, those deals, the deals where the principals of the VP can do it, they’re pretty hard if you didn’t come out of Stripe, come out of YC, or have traction. It’s not as simple as it sounds. But finding that sole almost solo founder from Lisbon that knows no one, that that that only doesn’t even have a desk in San Diego, like when I met TalkDesk, or these these nontraditional other entrepreneurs, they’re not gonna just check the box.

It’s that five minute check the box has to have something else supporting it beyond, I think it’s a great idea, or I love the idea. No one wants to throw their money away, and I love the idea. Right?

Well, look, I think you have two choices. One is find outsiders. Outsiders are most of the world is not privileged, Harry. Most of the world did not graduate from Stanford or Stripe or Y Combinator. And when you find outsiders, they’re they’re not dumb. These are the best entrepreneurs, but there the the prices are much more reasonable with outsiders. Right? They’re much more they always have been, and and they still are today, and they even were in in 2021, outsiders. Insiders are priced to perfection, but if we take a pause, shouldn’t they be?

The venture markets have changed so much in my when I started as a as a founder, venture was so small, the firms would collude. I remember when I got my first offer from a VC, I went to meet another VC, and they’d already called each other, agreed on the price, and and agreed to lower the price and split the round. Okay? That doesn’t happen so often today. Okay? Now, like, if you have the hottest startup in the world, why shouldn’t you be 700 pre in your seat if you want it?

I mean, there’s downsides to racing at 700 because the next round may be tough, But let’s put aside that that meta issue. Why shouldn’t the perfect seed round be priced to perfection? Right? And that may make seed investing impossible for seed funds. Right? The the seed round priced to perfection only works for mega funds. It does not work for seed funds, and seed the seed investors are crying all over Twitter, but maybe that’s not their job. Maybe their job is not to invest in the perfect, high profile, obvious, perfect seed fund.

Maybe what did Jody Bonsall, after selling AppDynamics for 3,700,000,000, raise his pre money in Hardist? I bet it was a 100 pre even back then. Right? And Menlo did it, but maybe I can’t do it. It’s okay. Go find the go find Jody before his first one, not not his second one. Right? I did this venture digital event back when there were digital events, Harry. And I had Keith on, I had David Sachs, I had Aileen Lee, and I had Satya Patel on. Okay? It was just a VC only event, and I it was my for lead off question.

And I said, because I’ve done multiple true cash out unicorns from inbounds. And I asked them all, Keith, how do you do it? David, Satya, Aileen. They all have done some of their best investments from cold inbound. All of them. Now, they all like different things. It was really interesting. I think Keith wanted a deck. He’s like, just send me the deck. I’ll flip through the deck. David wanted a really short email, like, maybe the simplest way to atomize the whole thing. I like the world’s longest email with everything in it, and the best deck.

I wanna learn everything about you before I talk to you, and I can’t remember what Aileen said she liked, but they all did it. And then some people don’t do it, but I also think what gets confusing is it doesn’t work late stage. No one in the world that SoftBank or Tiger or even the better ones, the Iconics, I can’t imagine any of them respond to raw inbound emails. They may do something that’s close. Right? It’s like, Doug at Iconic, I know I saw you at SaaStr annual, let’s catch up.

That’s not a raw inbound, is it? So when I ask growth investors, they think it’s insane, but a pretty good lineup, wasn’t it? And I can’t remember which which of his, like, Decacorn Satya said from homebrew that they did from raw inbound, but it was one of them. Right?

I don’t agree at all. It’s possible he’s reacting to the $700,000,000 seed. I don’t think seed investors can participate in hot startups anymore. Right? I just don’t think you can make money in seed investing in hot seed startups. I don’t think you can. I can give you a story on that in a minute. But I think he may be focused on we’re all kind of remembering the days when everyone could invest at Uber at 4,000,000 pre or whatever it was, or remembering even a more recent deal when, like, deals used to take a month to happen in the old days, and you could you could collaborate more on them.

And there were certain natural you when I started investing in SaaS and cloud, there were a few natural floors, like seed rounds didn’t really get done north of real seed, like early stuff, but with revenue, didn’t get done much more than 10 post or 10 pre. They just didn’t happen that way. Not later not once you’re getting more revenue, but you had time, and you knew the price, and you could socialize things. Right? And those days are gone, this socialization, or a month to get to know the founder and stuff like that.

And the other thing is, you know, a lot of the best and best the Peter Thiel’s and others, despite some of their toxicity, you know, the point is that every month, there is an amazing startup born. Right? Every month, and every week, there’s a pretty darn good startup born. This hard part about seed is, you know, if you wanna make real money, you’ve gotta get in earlier and earlier. That’s the stressful part today. You gotta get in earlier and earlier. You can’t invest at a lot of these at a million in revenue anymore.

It’s not seed anymore, is it? But you can still be the first person in.

It’s it’s an adjacent story, but I think it’s very telling. I was talking with a founder I invested in where I was the first investor in, and in today’s market, they had an offer to invest at $4.50. Okay? And they’re doing double digits in revenue. This isn’t pre seed. Okay? But it so so but I’ll tell you the point of the story. They had an offer to invest at $4.50, and he said to me, this is the first time as a founder I’ve paused. And I’m like, what do you mean?

He’s like, well, he sat down with me. Said, I’ll I’ll invest in you at $4.50, but let me tell you what it’s gonna take for me to make five x net on this investment. With dilution, another round in an IPO, and the founder immediately walked from the the proposal. Right? I mean, it was the first time on that path from 6 to hundreds of millions in valuation. Here’s my point, that he paused and thought what the implications of all of this are. Right? That’s just a whole new world where founders founders don’t care anymore what the implications of these valuations are.

Right? This was the real world moment where it where it became alive, and and I applauded him for doing that. You know, it may be a case where taking that optionality off the table wasn’t a good idea.

A bigger issue I have with this. Right? I get it. But categories get reinvented. Right? They get reinvented every four to five years. And when I started investing, I had a rule. The more crowded a category, the later I would invest. For example, when I invested in Pipedrive, my first it was CRM. There’s so many there were so many folks that wanted to do Trello for CRM. Okay? And really, the only reason Pipedrive won was because of the of the secret sauce of ingredients you needed in the early days.

They got the mix right. Okay? They got the sliding, the Kanban right, and the ease of use. But there were 10 other Kanban CRMs out there, and if I had to guess at five k MRR, I would have guessed wrong. Okay? But the next second investment I did was Algolia. Now, at the time, Algolia had one competitor, Elastic. So I could at eight k or 10 ks, I could make an educated decision. Okay. How does this compare in a market of n equals two direct competitors?

Right? They had indirect competitors. Right? And what I would love to do in this AI space is wait. I don’t think we need 88 sales outbound tools, especially when the leaders in sales is perhaps the most impacted category in SaaS today. Right? A lot of the sales leaders are growing 0%, and so it’s very hard to even understand what’s happening with some start. Because there’s so much innovation in sales, right? But yet, it’s probably the most impacted category overall in leadership. So I’d love to wait to a million or 2,000,000 in revenue.

I’d love to wait to one to two and see someone break out a little bit, and then lean in. Right? But I can’t lean in at a 100 or 200. So that’s the issue. It’s not that I’m jaded. I’m discouraged, because there are categories I can no longer wait in that I used to wait. Like, I could wait in TalkDesk, CallCenter, I mean, it was disruptive, what they did back in the day, but I wouldn’t have been able to it still was still a slightly crowded category in the early days.

I was able to wait until a million of revenue, and have at least a hypothesis why it was gonna break

starting to be in the rearview mirror, Harry. We are bouncing off the bottom. We are bouncing off these lows. We went through this period, the last eighteen months, where big successful companies retrenched their IT and spend budgets, right, all across the board. You saw it across your portfolio. And they did it, and they did two things. One, they spent an enormous amount of energy cutting back spend, cutting back workflows, cutting back cloud spend. We saw this with AWS, Azure, Google. Like, how can I I’m not gonna cut those applications, but how can I optimize my workflow?

Mongo saw it. Everyone saw workflow optimization, Datadog. Right? And then they went through a second thing, which I call the app layoffs. And what they did is and and and you have to have been through a real human layoff in a big company to get how this works. But here’s how layoffs work in big companies for both people and human beings. Okay? And these are companies that are successful. They get all the VPs in the room, and you go around the table, and you’re like, you gotta cut one person or one app.

And the first one’s pretty easy, because there’s one person on your team that doesn’t even show up to work anymore. So you’re like, Lemkin, let’s fire. Like, throw him on the table. And when you go to the VP layoff meeting at a big company, like, if it’s a small layoff, like less than 5%, people are actually happy at the layoff meeting, because they haven’t been able to get rid of Lemkin or Harry for five years. They’re so excited. I can finally get this this toxic person that doesn’t work off my team, and everyone’s drinking and having mean, not alcohol, but coughing, and having fun.

Right? And then the second meeting happens, it gets harder. Right? Then you start to cut closer, and the the third meeting is not fun. Right? And we only got through two of these meetings and apps. So everyone got around the room, and they said, look, we gotta cut 10% of our apps. We’re gonna cut 10 or 20% of our spend, and and these guys are gonna work on this. The procurement finance guys are gonna they’re gonna manage it, and we’re gonna just cut names. And so everyone bought some app in 2021 to to send free mugs to their sales team, or to automate some obscure process, because it was just go, go, go, go, go, and they’re looking and like, we’re barely using this.

So they cut that one. Right? And then they did another level, and this hurt some real leaders. And so the first one, they just cut the one they were barely using. This seemed, like, helpful. Right? And then the second one and this was tough for some of the leaders. They’re like, well, I really want some wonderful products, like a Gong or an Outreach, Epic products, or others, but I’ve got that feature in another product. Right? This isn’t suites. This is not the same thing, and they’re like, I’m gonna cut back my spend on Gong, because I have some of that in Salesloft or Outreach, or I’m gonna cut back some of this piece.

And those are great companies that are doing hundreds of millions of they just saw this impact from, I’ll I’ll settle for a a crappier solution, because it’s already in something I’m paying for. Okay? So these two things happened, and we’re done, Harry. There isn’t gonna be a third or fourth meeting. If you look at Mongo’s latest quarter, if you look at Atlassian’s that just came off, we’re we’re not ripping back at 2021, but they have all bounced off the bottom. Mongo is up. Atlassian is up.

Not everyone. Even ZoomInfo, which is like the most pure play sales and marketing tool out there that’s like us, it still had a rough last quarter, but not as rough as the core prior quarter. It bounced off the bottom. They’re all bouncing off the bottom, because your CFO and CIO can’t spend their entire lives optimizing workflows. And what Amazon said yesterday was very interesting. Amazon said the cutbacks have been more than than than counterbalanced by the amount of AI workflows people are putting on. And we can say that’s all AI, but what it really is is, listen, we gotta AI is so disruptive, We gotta spend again.

Maybe AI is the vanguard here that’s pulling spend out of the enterprise and companies, but we’ve bounced off the lows. And if you’re a Debbie Downer, you’re missing what’s happening in the enterprise. You’re missing what’s happening with buyers. We have bounced off the bottom. How high we’re going to bounce? I’m not saying we’re bouncing to 2021. It’s going take twenty years to experience that moment again. It will happen again. It’s every twenty years. Right? But 2024 will be rich with IPOs, and it will be a good year with solid multiples.

Solid multiples.

Terrible. I think it’s terrible. And and actually, I would ask you. You may have in some ways, you may have a better perspective. Everything’s better than a year ago. Let’s be clear, no matter what Twitter says. Like, it was interesting. You know, Iconic Growth published their data when they came to SaaS Europe in June. Iconic Growth, I think, had done four growth deals in 2023, zero in 2022. Zero. So from zero to four, I don’t know what their traditional pace was, but zero to four is pretty pretty different.

Right? The deals were lower valuations. Right? They were lower perceived risk, which is important. Right? So everything’s tougher. I just think A and Bs today the reason there’s a huge slowdown at A and B is not because the money isn’t there. Everyone that’s good has a fund, Harry. And in fact, they often have an undeployed fund. Everyone’s in market. Let me in some in some sense in some sense, everyone that’s good is in market, but a and b’s want a return to rationality, and founders aren’t there yet.

They may never get there. Every founder that raises a seed round still thinks in twelve months they’re gonna raise a hot a. Every founder. So there’s a large disconnect between what As want to do, and what founders think an A is. And I don’t think that that’s been diminished much by the by the tumult of last year, because these are newer founders and newer companies. Right? They haven’t been through the tough times. So what happens

Well, one, I don’t think it’s that big of a deal. Some of them will fail, and that’s fine. Seed companies are it’s okay if some fail, but it is seed investing. Right? And some will get religion and struggle for six to nine months and gain humility and raise a normal round. And it’s a tough venture strategy. It’s a tough one. But the one of waiting and investing in the ones that miss the window, but then but then accelerate a little after the window, that that patient model, you can criticize it, but if you’re very disciplined, it works.

The ones that they couldn’t raise the a fourteen months after the seed, it took twenty four months, but then hit the number, being disciplined, picking over y c a year afterwards rather than a month before. The problem with that strategy doesn’t produce enough decacorns, but it work it sure works. So some of them will just have to wait. They’ll just have to learn. They’ll have to have a life experience. But the ones with high burn, they’re all gonna fail.

To me, I think this whole Zerp thing is is abused what happened with Zerp, but this is a Zerp phenomenon, if nothing else. We’ll never again see a massive wave of startups with ten years of runway and no traction. It’s this is this is gonna take another twenty years to happen. Okay? There should be a massive wave of startups with twelve months of runway and no traction, but not a decade of of that was a zerp phenomenon, and my advice to all of them is they should offer to give the money back.

A 100%. Offer. And I said offer. I didn’t say give it. I said offer. A 100% should offer to give the money back. It’s a great process. It’s a great process. You know, Slack, before it was Slack, was a gaming company. Right? And Stewart Butterfield, when it didn’t make it, his second gaming company, he offered to give all the money back. He offered to give what was left. He’d spend about half. There’s a whole Andreessen post in their blog. It’s great. And Andreessen and the investors actually thought about it.

They thought about it for a beat. Right? They said, no, you’re you’re one of the best entrepreneurs. You just go do what you wanna do. If it’s this Slack thing, the ten millionth messaging tool, and that’s what you’re you and Cal are passionate about, go do it. But Harry, he offered, and if you do that to your investors, it is the most profound bonding moment, and it is the ethical thing to do. Founders today don’t respect venture capital anymore. They don’t respect venture capital, and it’s one of my least favorite parts of the industry, is that founders do not respect venture capital anymore.

And I over respected it in my day. It was venture capital was so hard to get when I started in this industry. We over respected it. Like, we we thought it was dad and grandpa, and we genuflect, and we we brought them coffee, and then we met them at Pebble Beach, and, like, venture capitals were gods. Now it’s swung so far the other way that founders have no respect for money. Why do they not? I think it’s what they’ve been taught, that it doesn’t matter. It was like this great founder we we talked about before, who didn’t think about what money meant until he wanted to raise at $4.50, and finally having to exit at 3 or 4,000,000,000, but they all think it’s a game.

My friends raised at 80, Harry. There was there was a deal I almost did. Okay? I love this founder. He was didn’t even finish high school. Like, I know we I’ve done young founders before, but this would have been my youngest. Okay? This would have been my first that, you know, couldn’t couldn’t what can you do when you’re 18? And and I wanted to do it, and he’s like, well, I’ll let you in at 20 today. I’m like, well, listen. I can I I’m not arguing with you?

I’d never argue over price, but for where you’re at today, I can’t do it for a variety of reasons. It’s like, yeah, but in six months, I’m raising at 80. And I’m not even criticizing him. You gotta have some chutzpah sometimes to be a founder. But my point is, it’s just this disconnect for what anything means, what an exit means, how hard it is. I don’t find very many of the current generation founders actually care about returns for their investors. They actually care about Stuart cared.

Stuart’s like, you know, he wasn’t rich. They sold liquor for 40,000,000 to Yahoo, but they had a bunch of founders and investors. How much did he make even at Yahoo? I mean, he made millions, but not tens of millions. He wasn’t rich. And when there was a couple million bucks in the bank, he respected a couple million dollars that was left from the seed round. And I I over respected money myself, but today, it’s like, whatever. And, you know that one founder, the only one I did that had ten years of runway, I asked him to give the money back.

And you know what his response was to me? Why do you care? Now unpack that for a minute. Why do you care? He didn’t care whether I made money, but he didn’t understand why I would care. What venture is just a sport. It’s just a game. You’re just throwing dice on the roulette on the whatever the crap don’t gamble. You’re throwing those dice so that he couldn’t understand why I would care. I told him you got you should gotta offer. You gotta offer. You’ve abandoned your current business model.

You have ten years of runway. You gotta make the you don’t have to take it, but you gotta make the offer. And his answer is, why do you care?

You I like the opposite of that two by two, but I I hear your point.

of all, you you often will pay two x. Right? And it’s not that it’s not worth it. Right? But you have again, it goes back to our first point of your strategy. Does your fund strategy and size and risk profile permit you to pay two x to derisk that investment? Right? From my perspective, as someone who has built a SaaS company that even today is doing 250,000,000, that has been a founder, that has been a decent investor in first time founders, I feel like I can help mitigate that risk by working with them.

I can help them avoid not all the they’re gonna make 70% of the mistakes, but I genuinely feel by bringing them their first VP of sales, by bringing them their COO, by bringing them their first marketer, by helping them hire all their reps, I know these mistakes, and they’re still gonna make a bunch of them, but I feel like a superpower I can make is mitigate enough of them that instead of a two x entrepreneur, they become a 1.25 x on you know, whatever. I give them an extra I think I give them an extra point two five x.

Here’s the fallacy in that thinking, if you want my my learning. Right? I hear you, and that’s the classic Vinod Khosla, who’s wildly successful thing. Like, the classic is my best founders don’t need me. Right? That’s the that’s what they’ve said. And listen, he’s a better investor than I but I’m 10x Lifetime, so I’m not bad. Okay? What’s missed there is that if you’re a true outsider, if you just showed up in the Bay Area from Lisbon or even London, okay, or Estonia, or Paris, and know nobody, but you didn’t even get to go through YC, you know nobody, Yes.

You’re tenacious as hell. Yes. You grabbed your whole family and moved them out here. And yes. You are committed. But if I can be an insider and give you some of those connections you don’t have when you get here, that’s not needing me. That’s me accelerating a process that would take you time to develop. You can’t show up in the Bay Area, literally, or sort of metaphysically speaking, and have a 100 connections on day one, can you? How can you know them?

Yes, you can hustle your way and go to all all the AI events in Hayes Valley, and and schmooze on Twitter, and but, like, you just cannot build the twenty years of relationships I have, or the even the decade you have, and you can’t build those in one week showing up. Right? So totally agree for Series C. For seed, like the Showpad founders said, was the first person they met when they came here from Belgium, from The US. Right? And so if you can help someone like that, they don’t need you, but you accelerate it.

It’s outsiders versus insiders. If you have to help insiders, it’s embarrassing. Those third time founders, if I have to help Jody Bonsall find a VP of sales, I mean, he we owe it to him to find him one, but he he’ll find his own, won’t he? Look. I’m not disagreeing that the playing two x for the seasoned founders is a good bet. I just want to invest the extra time on the gorgias and the RevenueCats and TalkDesk and Algolia. I’m willing to invest those cycles to see beyond those and take that risk.

And I think the risk you take is more rational. It lets you deploy more capital. Put it on a spreadsheet, it’s probably the better risk to take. That many of the best investors do that. For me, what I don’t like is the only way I can invest on the two x founder in my fund structure is pre revenue. Okay? Here’s my learning. And I recently did this analysis. It’s about fifty fifty for me versus 90% of an ordinary investment. Talk to me about that analysis. Sorry.

Average investment I make makes money 90% of the time. Okay? Over ten years. And that’s not all good. It means I’m not taking enough risk, blah blah blah blah blah. It’s just but it’s just the spreadsheet. The only pre revenue ones I’ve done are these repeat founders, these two x, that had big exits that I know personally so I know them personally. There’s no ethics issues. I don’t have to do any diligence. Only half of them are are have are gonna make money. Now, if that’s your approach, half is still pretty good.

Right? But I have to pay more, and they’re all pre revenue. So I have to take, like, a year to two years more risk. There’s a couple I I regret. I’m not sure I’m just not sure looking at the spreadsheet, like looking at a comment, I’m not sure. And the ones you regret, what do you regret? What did you not see that you see now? I think my biggest mistake, and and you’re not making it, Harry. I think the biggest mistake, I should have built a big team under me, but I didn’t wanna be that guy.

I didn’t wanna manage 10 or 20, whether they’re full time GPs, or folks running extra related funds. My LPs pushed me to do it. Right? People wanted me to do it. But I’ve already been an entrepreneur twice, and I gotta enjoy what I’m doing, and I did not wanna be this massive fund manager. It just wasn’t me as a human being. I consider myself a founder first and an investor second, and I just couldn’t do it. But I do think I think people get it wrong.

Why do folks raise bigger and bigger funds and all of this? They think it’s for the fees. It’s not for the fees. It’s because that’s what it takes to sustain a team. This is what I learned from Sunil at Amplify. Right? Because he went from an amazing solo GP into Datadog, and then he built that into and I asked him one time why he did it. He’s like, well, I have to do it for the team. Like, they need their 60,000,000 per fund, and then their 100,000,000.

Like, I can’t have four GPs, and the four GPs need associates. And they did I I need, like, 10 people, and so I gotta raise this fund size. So and he was like, if in a perfect world, I would I might do it on my own, right, or just him and his partner, but the again, the strategy dictates the fund size and the strat right? And so A 100%.

$500,000,000 fund. You need 500,000,000 with 60% reserves to make that work. Otherwise, you’re taking too much risk. You need 500,000,000. Right? Exactly. And so you So that means you need 3,000,000,000 of exits. Right? Gross. So that means you need 30,000,000,000 of market cap to make that fund work, you have 10% real ownership. 30,000,000,000 of market cap. So let’s say that fund has a pager duty in it, and let’s pick another one, another great one, a sprinkler in it. How far am I to that 30,000,000,000? And I’m raising 500 every two years.

I gotta get so many of those 30 I gotta do 30,000,000,000 of exits every two years.

Well, I have two different perspectives, one from venture, one from seed. I I said this a few months ago, and then, you know, I said, hey, Series A is the best place to invest today in cloud and SaaS. Right? And David Sachs’ response was, don’t tell anybody. Right? Because when you have a dislocation at a stage, that’s where you make money and venture. Right? There’s no dislocation in seed from the carbonara farmers. Anyone that thinks seed isn’t happening, they’re out of their minds. We have a we still have hyper location in seed.

We don’t have dislocation. There is realize they may not be able to raise. Right? And so everyone in Series A is being disciplined, maybe they’re being too disciplined. That we’ll have to find out. Because, you know, cloud is up 35% this year. If you measure it from the peak, it’s down, but, you know, I deployed all my cash at the beginning of the year. Like, I feel smart in the public markets. If I deployed it all at the peak, I would feel dumb, but I happen to have a lot of cash.

At the beginning of year, I put it all in, and a is the best time. But let me summarize it this way, Harry. I know this will sound obvious to you, but but founders still don’t get it. Every round’s supposed to be harder, but in 2021, every round got easier. Think about it. They literally got easier in 2021, didn’t they? It’s not just that people raised this up raised at 400 and then 800 the next week. It’s not even that the valuations went up. They actually got easier.

The hysteria. Raising a 400 made it easier to raise at 800, because I didn’t get into the round. Right? And every round is the a should be somewhere between you know, maybe it’s step function. Maybe an a should be 10 times harder than a c, and a b should be 10 times harder than an a, and a c. That’s the way certainly was when I started. Each round was probably an order of magnitude harder to raise than the last. It’s supposed to be a winnowing.

Well, I was having a little fun, but, you know, I remember my entire life as an entrepreneur or investors, I try to avoid any time a VC wants to do diligence with me. I try to studiously avoid it. I remember, my very first company as a founder, actually, we made implantable batteries from nanomaterials. Very hard tech. Okay? What we did was impossible. Only a handful of people could do it in the world. And this fancy VC fund asked my co founder, my CTO, and me, and she knew more than me, we’re looking at the startup in this space.

What do you think? And my co founder, who’s a very cautious engineer, right, very calm, she gets on the call and she says, let me tell you, I have I’ve worked in this space for a decade. I actually did some work here. It’s impossible. What they’re doing is impossible. It’s a fraud. It can’t work. And then she explained calmly, not not in the emotion I am, very calmly, here’s why. The data that you’re looking at is accurate, but you’re reading the wrong things from the data.

Right? And they said, very thank you, and wrote a $20,000,000 check that they quickly lost. And I’d never really done that before, done diligence for a VC fund, I found it very frustrating. Right? Not profoundly frustrating. And then I learned subsequently, every VC diligence call is like that. Right? And then there are certain spaces where I know something about. Right? I always ask me to help them with diligence. Right? Because I I I’m a subject matter expert, and usually I I don’t say anything, but once in a while, I know something’s just a terrible idea, and I tell them.

And they always do the deal anyway, and why? It’s because the diligence is always confirmatory. VCs decide they wanna do the deal, they don’t wanna hear reasons to not do it. They don’t wanna hear it. So it’s a niche topic, but I’ve given up almost entirely. My my response to Act Now usually is it’s a good space. And it’s such a waste of time. The real point is, how did we get into all this FTX trouble? And every VC has a fraud in their portfolio. Every single VC has a fraud in their portfolio, and there’s a couple reasons it happened.

It was the pace. Right? It was the times. It was the markups. But it’s also the fact that VCs only do confirmatory due diligence. The truth is they only do confirmatory due diligence. They make a decision based on a certain set of assumptions, and then they go off and do diligence. The more competitive the deal it is, the more compressed the timelines are, the less they take objections in that diligence properly. Right? That’s how con VCs can do diligence after a term sheet, because it’s gonna close if it’s a good fund.

Do you think there will be a wave more of fraudulent companies come out? No. It won’t come out because VCs aren’t talking about it. They’re just marking them to zero. Fraud’s everywhere. And there’s different layers of fraud. For example, just lies. Lies are not always crimes. Right? This is like the great Trump debate. What did he say that I think what the indictment said, it was okay for him to lie about the results not being right, but something else he did was illegal. Like, the founders can lie about certain things, and it’s not fraud.

I actually think it’s all fraud myself, but everyone’s got a founder that claimed they had ARR that really mashed months together, that their financials were not accurate, that misrepresented a plan that was impo or compressed a bunch of revenue wrongfully right before fundraising that wasn’t really quite there after fundraising, or misrepresented their gross margins. It’s it’s just all over the place, and The thing for is me the thing for Everyone’s got one in their portfolio. Any VC that says they don’t either isn’t close to their portfolio, or is ignoring it.

Everyone’s got fraud. The thing that worries me though, Jason, is honestly,

I

think you’re right, but having said that, the amount of fraud I’ve had is relatively small. But what I have had to deal with, I’ve had to be the one to give the hard talk to the founders, and have been the only one to do it again and again and again. My NPS has been damaged from it. I’m confident of it. My NPS has been damaged. I I’ve had multiple times when the company was gonna drive the car off the cliff, I had to have the talk, and it saved the company.

Right? And anyone but the great founders, don’t forgive me. Now, I do have one exit one company I did a long time ago with this, and they’re gonna have a big $300,000,000 plus exit to announce soon, having raised very little. The founders will make a lot of money, and they they took that advice while others, but I’ve had serious NPS hits from this. I I I think the answer I I think this is a complicated question. Right? I I think it makes logical sense as an investor if you can afford to if you can afford to to walk away from a toxic situation.

There used to be board partners, and there still are, and they’re there for a reason. It also avoids the tension. It’s not just the opportunity cost, it’s the tension. What do you mean by that? What do you mean the tension? The NPS issue, all those issues. If you can walk away from an investment and leave the founders alone, it’s not perfect, but it’s certainly better than every sixty days having tension. That tension, they just take it personally, and they and they react to it, And it’s it’s not good for anybody, is it?

We mentioned diligence.

Yeah. What does that mean? From a founder perspective, from the A and B, everyone has money at A and B, it’s slower than it was. Right? But keep going.

I’m seeing something different in my and look, we have very different portfolios. Right? What I’m seeing today in ’20 is a very active growth, but with very specific boundaries. Okay? Let’s put aside the AI outliers. Okay? For traditional cloud companies, SaaS companies, at growth, I would say, generally speaking, there’s a 15 x ARR ceiling. All the growth investors, if you have a good company, that and it has to be a fit it does have to be more efficient today. Okay? But if you’re at the growth stage, $3,040.50, 60,000,000,000 in ARR, okay, and you’re not and you’re not burning epic amounts of cash, You will have a series of term sheets laid out in front of you at 15 x ARR if you’re a good company.

If you’re at thirty, four fifty. If you’re at 50, whatever, six fifty. Right? I mean, 10 x 15 x is sort of the the the reach. And maybe that will flex later this year if multiples continue to re expand. The only problem is, and when I talked to Reuters, there just aren’t enough candidates like that. They’ve raised at too high prices. That’s the main reason. And the secondary reason is, today is because they’re efficient, sometimes they just won’t take the deal today. FiftyNEX is not a bad deal.

The public averages six x. You can’t intellectually say it’s a bad deal. But if Harry, you and I are running the SaaS company, we’re 40,000,000 ARR, we’re kind of breakeven, and Nice Guy Growth Fund wants to buy 20%, but then we have to do more, and we have to report to them. We don’t need the secondary, and we’re not sure what to do with the money. We might it’s not that we would say no. We might just wait. Let’s do it at 60. Let’s wait till we’re next year’s feeling pretty good, Harry.

Why don’t we do it at 60 or 70? Like, this seems like a stressful time to do it at 40 or 30, and so they’re they’re either waiting because there’s not urgency, or they’re sitting at a valuation where the growth round’s not possible. But these fifth they’re literally putting these 15 x term sheets, like, on the driveway like a used car. They’re all out there, and they’re hoping that they’ll take. And in the interim, what they’re all doing is secondaries in these companies. The companies I have that are north of 30,000,000 are overwhelmed with growth investors trying to do secondaries.

Talk to me about that. What’s happening there? If I can’t get 15x deal from the company, I’m going try to get it from the seed guys. Overwhelmed. The companies I have that are efficient, north of 30, they’re overwhelmed with folks, often not to me, although sometimes to me, but from anyone else trying to clean up the cap table at the valuation they want. Like, if they can clean up the the cap they can buy out everyone at 10 x that’s early. Right? If it’s at 40,000,000 revenue, and I’m comfortable doing 500, but a bunch of guys invested at 10, some of them will take the deal.

You can’t and and so that’s what I’m seeing happen with growth guys beyond the scene, is doing as many cleanup deals as they can. Just aggressively doing ones that are in the zone, but the founders are like, maybe next year, maybe later.

I’ve seen both happen. I’ve seen folks that have micro funds sell, for sure, and sometimes that could return their whole fund, right, or more. But I think Twitter gets another thing wrong. I recently had a conversation with one of my LPs last week about a secondary offer, you know, that was whatever, 10 figures, a 10 figure secondary offer. Okay? And we both agreed no was the answer. We’re in the business to make money. We don’t want to take a discount. So what’s confusing is like, is there pressure to do DPI versus TVPI and all this?

Sort of. But the best LPs want best LPs want these six x, eight x, 10 x funds. They really do, and they’re more appreciative of how rare they are than than we all thought it was. The best LPs, they know the liquidity will come. The best LPs they’ve been doing this a long time. What I’ve learned is the best LPs want the highest possible return, and I asked them, well, do you want cash? And all my LPs, my three largest LPs, said, no. They don’t want cash.

Now I know you’ll hear other stories, but this is what I’ve heard.

liquidity,

Actually, you have a bigger lens than I do. What I’ve asked them all this literally the last couple weeks. In fact, one of my LPs told me this last week, actually, we think you should reopen your last fund. Why? What was what was the thinking? Because they think it could be a high enough return that they want to stuff as much as they can into that fund. They don’t want the cash out now. They want the highest possible return from that fund. They said, this this was a new one to me.

Reopen the prior fund. I’m like, I didn’t think you could reopen a prior fund if you’re investing out of a new fund. They said, we do this. We do this. It’s not that uncommon as long as you get your L pack and everyone to consent. If you can recycle or find other ways to put more money into a closed fund, put it in. Isn’t that the opposite of DPI today? It is indeed. What did you say? I said, hadn’t thought about it. And their point is, yeah, don’t confuse gross and net multiples.

Their point they said all of our best managers deploy well in excess of a 100% of the fund as quickly as possible, and it’s fine to do it later. It’s fine to do it late in the fund’s life cycle. Things pop later. It’s fine to do it. And getting that extra three x on that extra money into the fund, on that extra money can make the difference in those net returns. That was an moment to me, and the thing about Twitter is different LPs are playing different games.

Right? And you’ve got to know what game they’re playing. Doing a seed investment at five and exiting at 500,000,000 sounds great, but if you own 10% and you have a $50,000,000 fund, it’s still only one x. One x doesn’t pay the rent for anybody. So it sounds great. Wow. Like, that could probably be a 50 x return. Right? A 100 x from five to 500, but let’s assume 50 50 x sounds great. You can brag on Twitter. You can put it in your slide for raising your next fund.

But if you’re in it for carry, it’s only a step,

I think the problem is that we’re still using twenty twenty twenty one into 2022 as the reference. Yes. It’s brutal compared to those three years. Right? It’s easier than when I started venture. I’ll sure tell you that. It was like impossible to raise a fund when I started ten years ago, or when I raised my own first fund in 2016. Like, it’s still so much easier than it used to be. Let me give you just three stories. My three largest LPs. Okay? Who, again, I all met with, and they all said don’t take the secondary, the the billion dollar plus secondary.

They all said, don’t take it. One said, which is a wildly successful university endowment, for their category number one, okay, they’re dropping two managers this year. Good managers. No new managers. Dropping two good ones. Better than me. Good ones. Second one, not going to do that type of venture going forward. They’re gonna do other stuff in PE and venture and other things, but not gonna do these traditional seed series a funds. Third one’s done three new managers this year. Three new managers this year, and did zero last year.

Just like Iconic did the five versus zero, this other top tier massive LP already did three seed investors this year, and did none last year.

Wants to just concentrate in smaller number of winners to react to react, because of the cash distributions, because of DPI. And this first one, of the peer set of of endowments, was number one in his peer group. The only one that was positive last year for his group. This is one reason. The only one that was positive last year of peer group. Everyone else had negative, versus an average 90% IRR the year before. So 90% in the prior year, negative last year. So how do you react to going from 90 to for him to still positive, and for the rest, negative?

The instinctive reaction is to shrink. Right? To shrink managers. Right? And this is one of the best. So he’s trying to figure out who’s past their peak, who’s past their prime. You know, they were great back then, but Harry and Jason left, and I don’t know if Bill and Bob are quite as good as Harry and Jason. And it was that kind of, you know, this kind of industry stuff. One is just changing their strategy, and the other is adding three managers versus zero last year.

Right? So I think it’s not that simple, but I do think it’s harder and harder to raise the mega funds. Like, you can’t argue the math. Right? It’s just hard to raise the mega fund, and it is hard to be emerging managers are delusional about how hard it is to raise a fund one with no track record. Like, what you could do in 2021 is unprecedented in the history of the industry, where someone with some Twitter followers and never having a record could raise a $50,000,000 fund.

It will never happen again. That that’s a ZERP thing. That will never happen again.

I can only share what I’ve learned. I’m not as much of an expert here as you, but the other thing that some of some of these top LPs said to me is they they challenged that a little bit. We had that conversation, and what they said is, yes, for traditional LPs managing a certain amount of capital, that makes sense. We’re gonna revert more to a classic type of investing, right, where large funds are tough to make work, and it’s way too much energy to work with emerging managers.

Way too much energy for not enough absolute return. Right? Yeah. We’re we’re back in the world. But the massive pools of capital, right, the massive government level pools of capital, those even the big funds are optimized to produce a return for sovereign wealth funds. Sovereign wealth funds still have single digit returns, if you look at them. It is so hard to deploy that capital. And if an Andreessen or Sequoia and Bessemer and Lightspeed can you think you have to have Alpha to Nasdaq, but it’s not that simple.

If you can have Alpha to their endowment and and absorb $500,000,000 a year, that’s better than a lot of the things. It’s just as massive, and so that’s why they’re all going to Abu Dhabi or Dubai, and they’re all chasing these funds, and it’s not as silly as it sounds, because the amount of capital they have to deploy is it’s it’s so large, you can’t even imagine. Even GIC in Singapore, it’s so much money. Right? I I agree. I I had a

Across. So that’s why Twitter’s a little bit wrong. These these multibillion dollar funds are optimized around sovereign wealth type. They’re they’re all products. Right? Everything in VC that’s been around a while is a product. Right? Those products, I suspect, if they can return 10% a year reliably for real, and absorb massive amounts of capital, they will be

continually

I guess the last point is just the amount of capital. Even with some valuation compression that we’ve seen in multiples, the amount of capital that startups can absorb pre IPO still is is large. The amount of money that’s gonna go into venture is equal to the amount of money startups can absorb pre IPO. And even if it has gotten harder, you know, if companies can IPO at a 5,000,000,000, $6,000,000,000 valuation and a few higher, they’re gonna absorb half of that in capital, 20% of that in capital.

There are. They’re they’re all gonna absorb it. One way or another, it’s gonna get absorbed. Right? It’s gonna flow there. Jason, what happens to Tiger and SoftBank? I actually I kind of admire the Tiger strategy. Massive momentum investing. I actually admire it. It just momentum investing doesn’t work once the momentum starts. Right? But it sure worked when it when it did. Right? SoftBank, I don’t know. Those things are gonna die, and then when multiples get insane again, they’ll all reappear. They’re just high multiple vehicles.

I’ve changed my mind on the distributed world, and distributed knowledge workers, and everything, and I’ve just gotten a little jaded, and I just don’t think most of the current generation of folks will ever work hard again. I’m becoming much I’m using much deeper scrutiny on executives and hires. Everyone is a side hustle. Everyone’s working twenty hours a week. Everyone you know, there’s a Wall Street Journal article this week that workers are the happiest they’ve ever been since the Wall Street Journal studied. Do wanna know why they said that?

Did you read this article? Do wanna know the happiest they’ve ever been? It’s because they work the least. They don’t work at home. I have become zero sum on your average tech worker. People wanna be paid hundreds of thousands of dollars a year to manage large teams and not work. This is where I sound like a fuddy duddy, but this is what’s broken in venture. It’s very hard to do much on a small amount of capital a unless you’re very careful who you hire. Because everyone needs six people to do a tweet, And every salesperson I know is incredibly grouchy because they have to work harder than 2021.

Every sales I wrote this post on SaaStr. The sales rep that’s making $500,000 a year in 2023 and is miserable. Okay? I wrote it. And you know why? Because he had to work half as hard to make more money in 2021. He’s miserable making $500,000 a year in his twenties, okay, as a sales rep, not as a founder. Right? This is toxic, and I almost and I know this is a funny, funny thing. I almost think we shouldn’t hire any of these people in startups today.

You have to have had some adversity adversity or or have have worked worked before before the the boom. Boom. You just need to flush through this and have a fresh perspective. Nothing’s easy, but it was too easy in the boom. It wasn’t easy, but it was too easy.

yeah, or with this or with the learner’s mind. You don’t have to just literally but from a fresh perspective. But too many folks still have, like, anti scratch issue from 2021. They wanna go back in time. They wanna go back when all the leads were handed to them. They wanna go back when every startup could grow a 100% because demand was inexhaustible, and they’re not struggling. They were struggling last year. This year, they’re just they’re not adjusting. Too many people are not adjusting to today’s world.

That’s what changed. I’ve given up on a lot of people that I wouldn’t have given up on a year ago. When will IPO’s windows open, and why? It’ll be huge in the back half of twenty four. It’ll be huge. The public markets, the multiples have reflated enough, the markets have grown enough. There is plenty of appetite for top tier properties. Okay? We need a Stripe, a Databricks, we need a few iconic ones to to get the engine going again, not ones that IPO at a billion or two.

We need we need a 10 bill $10,000,000,000 plus IPOs that are underpriced, which Bill Gurley hates, so everyone makes money. And Databricks or Stripe IPOs at a high valuation, but it trades up 50%, so everyone’s feeling rich, everyone’s feeling smart, and then I just wrote this up. There is a flood of SaaS companies all north of 200,000,000 growing at higher rates. I’ve invested in four or five that are over 200,000,000. They’re just waiting. They actually if the stars aligned, it could have happened now. It’s just too fast.

You first of all, it takes six months to IPO, best case. So you can’t IPO tomorrow. Right? If you started today, best case would be late q one, q two of next year. Plus, takes longer because of accounting reasons, and you need these leaders to go out. So if it’s gonna take until early next year for some good ones to go out that you can follow, it’s gonna be the back half of next year. I think it’ll be a good IPO a week, at least, a good one that we’ve heard of in the back half of 2024, and it will feel great.

Now, the valuations will not be insane. They’ll just be good. Right? But it’ll be an IPO week in the back half of ’24. I’m I’m reasonably I’ll I’ll bet you whatever you want, five to one, up to a point, that this is right. There’ll be an IPO week in the back half of twenty four. $10? Do I have to I’ll go $10, one point. Okay. How much how much when do what do I have to do? I’ll do $10. What did I say? You said 5 to one.

Oh my god. $10? Well, you did call me on it. Right? Yeah. I guess we can I guess we can do it five to one?