20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

23:58If I was in their shoes it'd be hard for me to say no. I'm just being realistic right. Sorry for getting on a high horse I was like, I listened to 70 podcasts and it's like, you know, I wish you get back to building the old one. It was all full. We four -grought the shit out of companies. Let's just be honest. I know that we is in us, but like our industry did. Everyone did. I mean, we played the game that was on the field until the chair stopped and we can say that we did better than others or not, but the game that was on the field, you have to play, right? So one other thing I would say to Jamens Point and your point is that let's move to a world of exits that you no longer have mega exits anymore.

24:36Like, for example, I sat through the customer thing, it took us 16 months from signing to sell the medal because I'm anti -trust regulations, right? And would that have gone through today, do you think? Fuck no. No way. And by the way, it had nothing to do with anything other than they hated Zuckerberg. Customer was a business -to -business software thing and you had Ireland to go through. You had the EU to go through, the US to go through, right? So that was a, you know, reportedly according to Bloomberg over a billion dollar exit. The point is is that let's say those go away and in a world that give 300 to 400 million dollar exits.

25:09The world would pal out to repeatedly buys companies from one 50 to 600 million dollars. How much money can a company take in order for investors to make money? What does that mean for late stage investors? Jim, I'd love to know kind of how you thinking about it. How do you choose which of the ones are going to be the three billion dollar companies? Because please tell me so that I know where that can be setting down the plaque. Early guys will do well as long as they're not paying 50 to 75 free for some of these inception rounds, if they exit a 3 to 500 but you need more of those to return to fund.

25:35It changes the dynamics of everything where ownership matters and choosing what can go long matters. How do you know when a company is doing 5 to 10 million when you know that's going to be that multi -billion dollar at scale business? I think the realization that everyone has had recently is, look, there really just aren't that many special markets and in those special markets there's not that many special companies that exercise the right to be special. In 2021, everyone was funded and discriminately as you are going to be a public company. You're in a market that's big enough, you have a product that's differentiated enough to support a public market type company.

26:10And when I say public market type company, what does that mean? You are sustaining growth at 100, 200 million plus of ARR, sustaining meaning you're growing, call it 30, 40, 50 % plus. The universe of companies that can do that is very small. And when you raise around when you raise that series a round the thing that I always tell myself is okay Is this a business that is gonna peter out at 50 or can it get to a hundred when you do that series D series E round the question is is it not a business that is gonna peter out at 50 It's is it a business that can get to a hundred two hundred million of AR are still growing 30 40 percent and there's just not that many Markets with products that are differentiated enough to get there What are the reasons why a company peders out at 50, 60, 70?

26:54Because I often speak to growth investors. And I'm super joked about my portfolio company being at 10 or 15. I'm like, there's a rocket in there. Like, dude, I've seen so many of these peder out at 50, 60, 70. And I'm like, oh, why? Basic ones, right? The market just wasn't that big. There were some early adopters, maybe in Silicon Valley that were using your product. But the reality is, is you never really broke into the enterprise. Right? You never really broke into where the big dollars were. And it's hard to make the unit economics really work in scale when you're kind of servicing these smaller customers.

27:25Am I being too harsh to say that the difference between those that peter out and those that don't is just a simply great founder because the simply great founder builds that go to market machine that smashes enterprise the great founder moves into that second chapter of the business. Yeah, it's definitely a huge ingredient and you see some of the most successful public companies today the crowd strikes of the world the data dogs of the world right it's exactly what you just said it's moving from a point solution to a platform. Like, that's really hard. Before we actually go to that, like, do you sell and M &A's IPOs, we mentioned before about kind of at lay stage investors getting the liquidity, being happy with the 1X, being able to recycle that capital, bridge rounds.

28:03Are we going to see bridge rounds or are we going to actually see the preservation of cash from investors and shy away from anything that's not a great company, purely to concentrate capital into the best? How do we feel about that bridge round just before we touch on M &A and IPO? Yeah. One clarification is someone who does kind of like that gross stuff as well. I don't think anyone's happy with a 1x, right? It's a little bit of, hey, is a 1x in the context of what happened over the last few years an acceptable type outcome where you can recycle that money back into new opportunities. And I'll go back to, I listed this podcast with Doug Leoni, which I just absolutely loved.

28:38And he talked about a fun that they had. I can't remember if it was the 2000 or more of a 2008 type vintage. where they had to kind of kick scratch and claw to get from a less than one X type fund, right? I think you maybe called it a point three or point four X fund to a 1 .9 and what he said was what you can't do as an Investor is blame vintage and move on to the next one. They fought to make every fund a Positive vehicle for their investors and one way to do that is through recycle It's through taking investments that maybe didn't get to the exit you hope for that 3x Maybe you got that one x taking those proceeds and recycling it back into into new opportunities Right, and so I think what you do have is a lot of investors who are thinking now Hey, is that a good thing should we be doing that?

29:27And I think that can be a way of Finding returns for investors and funds that were more challenging but I think the wrong answer is giving up blaming vintage and moving on. I would add to that is that if you look at funds, everyone talks about kind of that outlier especially the early stages that drives kind of performance like the one to two outliers that drives the massive performance. But if you don't quit on the founders and work with the founders on the less on the bottom third, you could probably cobbled together another 0 .5 to 0 .75x from some of those exits by returning 75 % and the cash back on certain deals.

30:03Maybe getting a 1 .3X where it's not that heroic. And then maybe a 2X here or there, but you cobble some of those things together, that can be the difference between a top 25 % fund or a top 10 % fund. Can I see you guys just a blank question? If my biggest mistake was not setting positions that I really should have done, what were your biggest mistakes that you reflect back on? I literally just had my annual meeting in November. I had the same prioritization that you do, Harry, is that maybe we could have sold some a little bit down and sold a little down kind of on the way up. And instead of leaning in 1000%, right?

30:36I mean, those are the balances that you have to kind of look at over time. We're in deals together. You continuously concentrate capital and do kind of bridge rounds where rounds are in place, fascinating to see. I've really learned a lot from you in this way. I'm just interested how many of those work out positivity versus negatively? I'd say probably two -thirds work out more positively than negatively, but the ones that work out can be outliers. Everything is not always up to the right. And when you've fun to things that are way ahead of the market, that are kind of new categories, or just kind of doing things completely different, it always requires something extra.

31:11Guy from Sneak, we've funded him three times before he's got his A -round done. No one wanted to fund that company. They're like, why is he focused only on JavaScript up in Source? Why is he only focused on developers? I have a list of 100 firms. I'll pull this spreadsheet one day. I'll show you all the firms that said no multiple times over. Okay, that's one. Big ID, three rounds before they got their A -round done. And then Zuckerberg was sitting in front of Congress, testifying about privacy. And then all of a sudden they raised a bunch of money and they're doing very well. Security scorecard?

31:38The market's not big enough. It's not this, it's not that. They did over 100 million of ARR last year. And they required a bridge around between Sydney before Sequoia jumped in. And the final one I would say is even customer, we required a bridge between the A and the D. because people are like, you just need a few more checkboxes to compete against send -desk before I even believe in your innovative kind of new way of doing things. So all of our best winners, I can't tell you any of them were the ones where East Cayman said, hey, first of all, those founders are just the lights out founders like the Air and Bean Beans because they aren't until they are.

32:09And then too, there's always gonna be a come to Jesus' movement. And if you have some insights and you have some trust and the founders have conviction, the Jews' founders are so much fucking conviction. And you watch them and you see the customers kind of looking at the product, maybe they're not signed yet, but you talked to them, and that you see the energy you lean in. You're not going to get everyone in them right, because I can tell you a bunch that didn't work out. But if they do work out in the margin, that's where you get that extra delta. John, what would you say your reflections are on?

32:34Yeah, there's kind of three buckets of mistakes folks can make when kind of investing at the stage that I do, right? One bucket is a simple one. Like, do we just pick wrong? Right? Like, was the The company just like not in a good market, did the product actually not work, did we pick the wrong company? Then there is, did we forecast wrong? Did we have expectations for how the business was going to perform and were we just really off, obviously kind of related? And then the third one, which is maybe only relevant in the 2021 period because before that, you didn't think anything else, but did we get the exit multiple wrong?

33:11Those three buckets of mistakes, I think we're very common. and on the ladder and there were folks who said, hey, these public multiples 20, 30, 40 times revenue, like that's a new normal. Like we can underwrite to a 30xx at multiple and then we'll make money, right? Like it's totally crazy in hindsight, but I'm sure there were people who made those types of mistakes. I think the mistakes that I made, right, when I reflect back was that middle category, right? It was forecasting wrong. It was saying, hey, I think I'm identifying a good market and a good business, but I had an expectation for growth durability that just didn't happen.

33:45And part of that was macro related, right? It got harder for everyone, but part of it was getting back to the conversation that we had earlier, which is there are different things, businesses need to get done and to achieve that help them sustain growth at 50 million of ARR, at 100 million of ARR, at 150 million of ARR, right? It's turning that point solution into a platform. It's is that point solution, does it have enough when I call strategic real estate, where you can truly layer on other products around it and build the foundation of a platform, or is your point solution actually part of someone else's platform that will get layered into someone else's platform and you don't have the strategic real estate.

34:24So I think not accurately forecasting forward was the biggest mistake that I made. And again, when you're investing at bigger valuations, like that is where you can really run into a lot of challenges. We can fire back. I just have to ask you mentioned that like forecasting and exit multiples. You guys did hop in 8 billion. How does one rationalize? I'm just genuine. How does one rationalize doing that? If one wants a 3X, I say, did one genuine. Anything? That's a 25 billion dollar company. Yeah, look, again, I think this does get back to in that 2021 period. There were plenty of businesses that if you just looked at their historical performance, you'd say that is end of one.

35:04And if we kind of project that forward, it's the next thing. And I think there was a case to be made that, hey, virtual events are going to be an enduring part of the future. I think what ended up happening in practice was COVID went away and there was just tons of pull forward. There are lots of businesses that no longer made sense that, right, we're using that platform that churned off and that turned into a situation where you had a business now that probably no longer made sense in the new world, which was really the old world that we lived in. And so I'd say the mistake there was thinking that, hey, this thing that hit insane product market fit that had like the best product market fit.

35:44You have to go back now and a lot of companies doing this. Did we really have product market fit, right? Or was it just market fit where we just the thing that everyone had to grab and use because they all needed it all at once. But maybe we just hadn't actually built the thing right. And now that the world is coming out of that and there isn't that insane market fit, Are there alternatives? Are there different ways of solving this problem? And I think there's, you know, there's two sides of product market fit. There's the product in the market. And when we had this jostle, that was the 2021 period and COVID and everyone was kind of like in their homes, I think the fundamental thing that we got wrong there was projecting what the world would look like when we come out of COVID.

36:24It ended up there was not product market fit, right? Coming out of COVID. And what do you do with a company that might not have it? Maybe kind of the best I can do on that one. I actually hear this conversation going on about platforms and during companies and stuff. I also don't want to scare kind of founders away either because I like to say it's not the tam you start with, it's a tam you exit with. I don't want a founder coming in telling me I'm going to start a platform company. What's 10 person company is going to come out and sell a platform and compete against the giants, right? I need a founder to come in.

36:56What about RIPPling? Well, he's a special guy. Look at him. He did something before, right? I mean, he did something over. He knew where he was doing. He started out with a massive kind of checkbook when he started, right? That was a big round. So he's a special founder. I'm talking about your average everyday founder that no one even knows about. The way you do it is that I like to say, you've got to be able to zoom in. Zoom in on the end user, zoom in on how you make their life 10 times better with your product and how you can uniquely solve that problem. So you sell the product. But then you can market the vision to us.

37:22I like to ask the question in three to five years, if everything went right, what does this look like? And then you get the idea of like, hey, I'm gonna start here, but I made, I could jump into three other places, right? So I just wanna tell founders that I like them to start kind of on a narrow path with a vision that they can go bigger. And I just don't know which direction it can go. I just don't want to scare them to think like, hey, I need to find a platform from the very beginning because it's the very rare founder that can go and do that and usually a second or third time founder. And people like, let's give that person 20 line box, right?

37:51And so, Ampalka is incredibly unique as a guy. He's super unique. He often comments on my tweets though and I'm like yes, but that's for you. It doesn't count Did you know he was an intern for me once? He was an on your credit Harvard. Yeah, no kidding. Us but a miss ad no fans You should have kept that relationship alive That's going god harry used to be so nice when he started this You tried around one long enough things like that happened So you got jaded don't you add? Anyway, I do have to ask you because there's different scenarios in terms of access. You could have M &A, we mentioned customer in the face, but you can also have IPO.

38:31We start on M &A. I take a very negative view as to M &A moving forward because I don't think anyone's looking to add head count and add cost. I think regulation has never been worse. How do you guys foresee the M &A markets in 2024? Am I wrong to be so negative? from a regulation standpoint, it is really hard to see any large scale M &A right now in this administration and this environment. Like that is a really hard path that I think every company now, right? Looking at kind of like the Figma Adobe resolution is saying, do we want to embark on a big distracting, distracting to employees, distracting the customer's process?

39:11If the end state is most likely a no -go. And I think a lot of boards and founders are saying it's not worth it We don't even want to embark on that potential and so right now like that door is is maybe closed for the smaller scale M &A right I think this is why it's so important to start having these conversations now with these companies There's only so many acquirers in the reality is any acquisition smaller large takes time and energy and in on some level is a Distraction right you can't have how outdo isn't gonna go acquire 10 companies right in the next year They might acquire a couple, same with all these other like large requires.

39:46And so when it comes to these acquisitions, you will see them. You'll see two different types of them. You'll see acqua hires, which is really more of a, hey, these are special people that we want to bring under our 10. Or it is a the sneak acquisition playbook of there are tangential products to what we offer that we think are very strategic to the overall thing that we are building, right? Snowflake just announced an acquisition of a company called with Samoa, which is a business that we work with, right? They viewed that product as very creative to their overall platform. So I think you're going to see a lot of companies looking to be acquired.

40:22There's only so many companies that can be absorbed. And I think that will be a bottleneck, which again is just why it's so important to start having these conversations now. I think that the great answer, like very few, few geminies because of any trust, maybe save cyber security, which has national security interests in those things tend to go a little bit faster, but other than that, no. So, Aqua Hires for public companies, I'd say not really. And I'd say what happens is if you're the one prod company back to your point, Chairman, if you're the one prod company and things are going well, but not as well as you thought, this is your opportunity because ultimately it's a game of musical chairs.

40:54There are so many seats out there available for like a Palo Alto to buy a DSPM player or some other kind of player. They're going to look at five of them and they're going to talk about five of them. I mean, even when Sneak bought the last company that we just bought in the ASPM space, we talked to three or four. Ultimately found the team that we wanted at the price that we wanted with the product that we wanted, right? But because of all the funding that has happened in the last three years, there's 10 of everything. And in this gaming musical chairs, there'll be a couple winners and a lot of losers.

41:22The sooner you can get your ducks in the row and have the conversations, say, am I enduring a business or not? Am I going to be the one acquiring other companies or not? Then you can determine kind of what your fate's going to be. Look, we just sold a company right towards the end of the year as well. Well, Pedro Dudy bought Jelly, nor as a fantastic founder. They went again to the incident analysis space and evolved, and that's it, you know, well, right? I mean, they're clearly looking at some other companies. These all needle move is for firms in any way, though, all they, like, you can't cash back, and you're like, it just depends.

41:52I would say it just depends on the situation, but if you have a product that people need in your head of the curve, and maybe you're not the best at sales in marketing, but you're really great at building, you can create some pretty good valuable exits, right? Look at all the stuff that Palo Alto bought. A lot of those companies had two to three million dollars of ARR getting sold for two to three four hundred nine dollars, right? So those are the discussions you have to have and you've got to be open It also goes to not taking too much cash up front because I limits your ability to exit at those numbers And the final thing I'd say that we haven't talked about yet is private to privates This is where for example like the airplane to air table situation I think you know if you look at the numbers I know there's a lot of debate online But let's just assume that if they only spent half of the 40 million there was 20 million dollars of cash on the balance sheet.

42:35So perhaps the founders investors made some money on it, right? Maybe they took air table at a, I don't know what price it took it up, but maybe they took it at a higher price, maybe inflated price that they would have to grow into. Maybe they distributed the cash back, maybe there's a retention pool, but you're going to see more private to private as well. And the reason why that makes sense for a private company is because if you're a one -proc company going back to the platform point, you're going to go happy, you're going to have to buy another product or two and show that you can get out to the public markets with two or three products, and that you can be a true platform.

43:04That's been by something you can integrate it and you can sell it. So I think you'll see, while it's harder to do on the private to private side, there'll be some more private's coming down the line for some of these unicorns who say, gee, I think the only way for me to go public is to add more products to my platform. But are those boards approving them? I mean, boards obviously are cool to those discussions. Are they gonna say, yeah, you should acquire that and you can't be able to do it? We just followed a topic, Jarda. Docker is from what you see out there is a company that can go public the next two to three years.

43:33This just gets back to one of these core themes we're talking about today. If you get acquired for a hundred to three hundred, the difference in whether you as a founder in your employees can make really good money or make no money can be the difference of did you raise a crazy round or did you not? The challenge is they raised $200 million and now all of a sudden their pref stack is really big. They're sitting on a really high valuation and that exit path now is a really hard thing to get to because of some of these rounds that were raised in 2021. In a world where my private multiple is going to start to converge more with public multiples, what do I need to do from a business standpoint to get to a kind of two to three X markup?

44:21Do I think I can get to those metrics in the next two to three years? Can my market support That size business in this market, I think asking those questions and knowing, hey, when we raise a round of funding What are we implicitly signing up for for the next few years and just being honest? Can we get that ad you mentioned docker, you know, being in a position to go public in the next two to three years? IPO Windows, I had Jason Lemkin on the show. He said that 2024 is the year of our fuck it. We might as well be a public Time to move out of the basement. Do we agree is 2024 the year of fuck it?

44:54We might as well move out of the basement. The IPO markets are always open, right? You can always go public. It's just a question of, do you want to accept the market clearing price at that point in time? Companies could have gone public in 2022. It just would have been at a much lower valuation, right? Relative to a their last private rounder or what they were expecting to get. So I would say the markets are wide open. It's just a question of, do you want to go public and do you want to accept the reality of what that valuation means? In many ways, I think an IPO is a great point in time. It's a great event.

45:27It's a great transaction for businesses to reset the cap table. All the preferred is converted to common. Your shareholder base starts to turn over. You can innovate in the public markets. I think there are plenty of examples of companies who are able to innovate and build Act 2, 3, 4 in the public markets. Again, I think you will see companies who start to say, hey, look, let's just reset this business. We'll take a down -round IPO. But guess what? Public stocks go up, public stocks go down. Private valuations should go up. Private valuations should go down. Let's reset this business in the public markets.

46:00Let's get liquidity for folks who have been here for a while. If that's at a down -round to our 2021 Zerp round, so be it. We'll manage it. We'll set employee expectations and we'll grow from there. Is there ever a case where it's just too much? And so if you take an example like, but like CAUSE, it's a 400 million in air. Our Henry's been very public about that. If you to apply the 10X revenue multiples to them, that'd be at $400 billion for the best in class. And they probably wouldn't be that because their margins on the services side and not as high, that'd be 8X. Okay, so they're trading at $3 .5 to $4 billion when they get public.

46:33Their last round was at $7 .7 .5. When you are that far off, $3 .5 billion in enterprise value off. Is that too big to assail that gap or is it still, let's go out as best? Look, snowflake was trading at $400 a share. That's trading at $200 a share, right? It's still half, like despite the recovery we've seen in public stocks, right? Like that business is trading at half of what it was trading at the peak. But that are all things that can be worked through. What we're not seeing, right? If we were wind the clock back, we'll wind the clock back to kind of 2008. A lot of rounds that were raised kind of in that period had ratchets, really heavy anti -delusion clauses.

47:11And the reality was is if you wanted to go public at a significant down -round, the cost to the company in terms of incremental dilution was so high that it actually was in the best interest of these companies, not to go public because they would be diluting themselves to the ground with a down -round. The reality of the moment we live in today is a lot of these zirp rounds, they didn't have ratchets, they were the opposite. They were very light on terms and they were very light on structures. So you don't have this dynamic of super heavy Ratchets anti -delusion clauses that structurally make it really difficult to go public at a downround It's really more about like how do you manage promises you made to employees right?

47:52You hired people two years ago. You said you're gonna be worth X now The sudden you're worth Y like since you lose the trust I think it's more of those types of issues versus real structural ones and did this is great I'll just say that this also makes you realize who your board is as well Look, the majority of companies that go do go public. This year will be down -ounds from the prior rounds, especially if they're ready to start the Zurbair. It just is a reality, right? I think the question to your point, Harry, is at what price are you willing to go? Well, is it 50 % or 30 % or whatever? I think part of the answer to, there are some benefits and there's some negative issues with going public, right?

48:25Benefits could be, you now have a public currency in which you can hire some amazing talent as a public company now, because there aren't many people that want to work at a L .A .C. company right now, unless they know what the price is, right? So it's hard to know what my restricted stocks really worth unless it's public. Two is is now you have a public currency in which maybe you have three or four companies you want to buy. And once again, the buyer now and the buyer, you know, as a public company can go out and talk to a private company and say, Hey, look, I've got Rollstock that's really valued in within six months.

48:52Perhaps you can sell that thing. So those are positives, right? So really accumulating, accelerate that platform play. The negative would be you're going to have to accept from the most part that it's going to be tough to get an upround. honestly did raise to around 2021. I mean, there's pretty much unlikely that the valuation raised that in 2021, you've probably raised a really great multiple at that point in time. Given the fact that it takes six to nine months to really get in shape for an IPO, I don't think you're gonna see much go out in 2024. I think the other thing. Well, I think people have been prepping for the last 18 months.

49:21Erie, like that people are ready. So I'm just saying the ones that have thought about going public, like the rubrics of the world, they're almost all IPO ready now. Just a matter of, do they want to file confidence that they're not? So I'm talking about kind of the next herd. If you're on the data breaks pool, would you say to go public? No, from what I know, I am not in the board, but two is that their expense line is still, you know, relative to the grouse There's still kind of not but if you're gonna go public I think you've got to be cash flow breakeven I think you have to have 30 % plus growth, which is probably what high growth is right now And you know, you've got to be moving towards a rule of 40 or 50 in my opinion with slanted more towards the growth than you are cash flow breakeven, right?

49:59So I think those are the things that you're going to need. But as I said, jamming could probably comment better than me on that. I love listening to podcasts, especially podcasts with some of the greats that have been in the industry for a while. And there's a recent podcast that Bill Gurley was on. They had a little bit of this discussion, which was, hey, well, the trouble with the public markets is there's lots of scrutiny. Everyone's going to pick through your financials with a fine -tuned comb and like, maybe we don't want that. And I think what he basically said was like, grow up, do you not want that scrutiny?

50:25Do you want to be a child? The metaphor he raised or that he brought up was imagine a college athlete a college athlete says you know What I don't think I really want to go to the pros people are gonna really just look at my statistics and gonna critique me a lot And I'm gonna be on national television. I just want to stick to college and then he kind of like drew this parallel between This fear of like the screw -in -t in kind of like the microscope like that's actually a good thing right like that Will force companies to get fit that will force companies to talk about their path to profitability It will force companies to think about why are we in enduring business over the next 10 years?

50:58And while it may seem scary, it's actually a good forcing function on. Let's get fit. Let's build the muscle that will help us sustain and endure for the next call it 10 plus years. There's a generation of new firms, though, which I heard Brad discuss on a different podcast actually, and he mentioned this. He said, there's a generation of firms that have been created, which basically extend that private window. And if you apply that scenario, They're the Twinkibars. They're the snooze on your alarm clock, so you don't go to the gym. They're the ones that letting you stay in that Stopping you from going pro and so I mean this respectfully.

51:32Is that not part of our team as his business? Look, I mean I think in general if you look at the venture capital market like it's expanded massively over the last 10 years And I saw some tweet from Goku the other day who brought up like bestimers memo on mind body And it was kind of crazy to go back and look right this was 2010 and they were doing a deal at 10 million of air are at 42 pre and you're thinking that wasn't that long ago, right? Like 10 million of AR at 42 pre, like the reality is the venture markets have expanded so dramatically. Again, another Doug Leone quote, right? You know, he called ventures moved from a high margin cottage industry, right?

52:08To a low margin mainstream industry. And there are lots of implications of that. I think one implication that you have these really big funds, right? who their mandate is to put money into private companies. When you have big pools of capital chasing the scarce resource, which is the high quality founders and high quality businesses, it can create this dynamic of keeping companies private for longer. You had companies like Twilio and Mango and Shopify. The list goes on of really not that old companies. That went public at a billion, two billion dollar valuations. And they saw their companies value appreciate significantly in the public markets.

52:49And the challenge of staying public for longer is companies generally follow this growth curve, of growth mode to maturity mode. And the challenge is if you wait too long and you go public once you're in kind of like de -growth mode, the story and the multiple that you will get will be drastically different. And if you're not profitable and your growth is really starting to slow, So there's just not going to be much appetite in the public markets and you just have to be willing to accept like a two times Three times revenue multiple right and that's a very different outcome than going public earlier in that journey And so I'd encourage lots of companies just to think more critically about like should we go public sooner?

53:28Just let's accept that down round right in the same way layoffs where this taboo thing from 2022 no one wanted to do them and then everyone started doing them and they were okay I think kind of down rounds are down round IPOs will be the same thing they'll be a taboo on them, but they'll be normal. Final one for me to do a quick fire, but I've mentioned Jason Namikin, but you know, to some point, he said, the biggest worry that I have 15, 16, whatever years it is into SaaS investing is that the growth has slowed. Have we reached saturation point in software spend? Those CFOs have like AI, there's a line item on their budgets.

54:01Yes, they will want it, but it's not a line item. Have we reached saturation of software spend? Does growth or the deceleration of company growth show that? I would answer in a couple of different ways. I shouldn't be in the business if I didn't think of creative destruction and that the world gets reinvented every 10, 15, 20 years, right? So I fundamentally believe that with the new platform shift happening with kind of AI and by the way, I'm not an AI investor in order to chase AI things. I just believe AI is just part of what we do every day. It's going to be infused in most software where it makes sense, where people pay for it, where it's economically important.

54:34But do think we're going to enter a new cycle where things have been around 15 years and they're going to get reinvented. So as an always -stage venture investor, I need to believe that. And that's always going to be the case. Secondly, yeah, Jason's right on and things have slowed down. They're not growing a hundred percent year -to -year. Yeah, enterprises aren't spending will in the early. In fact, enterprises bought way ahead of the curve. I think if they're continuing to grow up into the right. And the other part would be probably 25 % of all this revenue from all these tech companies was selling to other startups.

55:01That shit vaporized, dude. So if you look at the growth from that, that automatically kind of dragged everything down. But I do think that the customers that are signing on board last year are buying at the right numbers. From there, this new cohort of customers, I think that retention is going to get back to a place where it's more like 110. It's not going to be 130, 140, but maybe healthy numbers like 110, 115, we're going to work through it all by think that we're going to actually come back to the point where retention will get back up. We have to believe that people are going to create new things all the time, which I do.

55:32That's optimistic. I'm so glad to hear that. I got one for you too, Harry. I got a crazy one. Like the other thing is there's these new markets that you don't even know what's gonna happen particularly in cyber Like even like protect AI in the AI security space We funded that thing in early 2022 when the at thesis was three years from now Maybe there'll be a seminal event in security in AI that's gonna actually make people rush run for the hills We didn't realize GPT would come around You know at the end of the year and all of a sudden AI security now is a big deal There's always these new things that we never have thought of because we're not smart to think about it, it's the crazy fowler as it do.

56:05You know, we all need to keep our eyes open for those types of things too. Are we ready to do a quick fry, Chaps? Let's do it. Let's go with ad. What's the best investment advice you've received? This shit is really fucking hard and it takes a long time, so you gotta be patient. And the things that always seem like the best ones you can portfolio may eventually be the worst and the vice versa. So you gotta figure that out, you gotta write through the times. And I think when things are going really, really well, that's when you challenge the founders even more. and when things are shitty, that's where you kind of pick them off of the ground and maybe kind of chew them on a little bit.

56:35So I call that my three CH's cheer challenge and chill and you kind of do the opposite and you know sometimes the worst ones can come out and create some value for you. Jammin, what investment advice do you most often get? Cool is the is the enemy of reality, right? There are a lot of products in venture companies that seem cool. But like at the end of the day, you need to solve a real tangible problem for someone. Someone on the other end of the buying decision is putting in a purchase order who is making a case to their boss that this is the problem That I'm solving with this product and here is exactly why I'm buying it, right?

57:09And so you have a lot of cool products that sound good But at the end of the day, it's the boring stuff that really actually moves the needle and builds the big businesses Honestly, yeah when I do my portfolio it's the boring stuff that provides the returns The sexy never never works fucking consumer social The problems of boring became sexy for a few years and that kind of destroyed evaluations for a while. Sure. Now, Jammin, you're recused from this one for compliance reasons. Ed, you're not getting away with this. What was your buy and short for 2024 with the year ahead? Yeah, I'm looking at Microsoft, even though that's still priced pretty high, I just think that because of their lead on everything AI, that they're taking market share on the cloud side.

57:51So I think that's going to drive a lot of their business. I'm hoping that by the back half of the year, you start seeing some of the revenue numbers reflected in that. That would be my long. My short would probably be, I mean, just what everyone's looking at now is just Apple. You know, you've got an iPhone growth issue. One thing that gets me excited about Apple is the idea of machine learning and AI on the edge device, whether it's in the laptops now or even in the phone. So these models get smaller and get pushed out onto these devices. I think there's going to be some interesting stuff built that has privacy, compliance, see built -in speed built into that but I don't see where that resultant revenue in this year from that perspective.

58:28I'm more excited never about Apple. I think their ability to run models locally on device gives them unparalleled access and advantages. All about access to that end consumer point. That's just exciting. All these stuff on the edge. Which under the radar company, will company less discussed? You think we'll have a killer 2024? Look, I think a broader theme that I truly believe in is you don't have an AI strategy without a data strategy, right? And a lot of the AI value prop today really comes down to, do you have your data house in order? And so I think we're going to see a lot of, maybe without shilling portfolio companies.

59:05Yeah, I think we're going to see, you should. You wouldn't be a VC if you don't show. Go show. Sure. I think you're going to see a lot of like data businesses and data platforms like really take off as folks realize, hey, we have to get our data house in order before we can truly adopt a lot of this AI stuff. Yes. So maybe in true VC fashion, right? Tabular is a business that is building a data lake house solution around Apache iceberg, which the founders built inside of Netflix that I think is super exciting, right? And in kind of this data lake house, right? You have data bricks to behem with the big gorilla.

59:36I think that category is a really big and important one. And I think tabular is gonna play a pretty big role in the future of that. I'll just chill right at the back. Okay, so to his point, I think that there's no AI in the enterprise without AI secured. And I think that's a completely new category now, but do see a lot of pain, whether it be the idea of MLSecOps, which is kind of understanding kind of how data scientists are building their models and kind of how secure the data is, how secure the models are, all the way to the idea of what we'll call it ML Bombs, the bill of materials. What goes into, you know, because an S -bom will be software, but an ML bomb includes data and the model and the software.

1:00:16So I'll show Protect AI, which I really love the founder to start company right now out there saying some pretty interesting enterprise customers. And he's got a really interesting proc strategy and and proc the boot. So I'm just going to chill and I think there's going to be a lot of other AI security companies coming down the pike as well. And I think the big boys are going to start paying attention to that as a customer's ask for it. What LPs not know right now that they should know? I would say maybe what's like a misconception. I think you do have a lot of folks who view venture as something they can kind of like pick ventages to sit in and out of.

1:00:53And I would say picking ventages from the LP side is is really hard. In my opinion, right? Like the right approaches pick a manager and pick managers and manager selection right now is more important than never and invest across those small set of managers, like across ventages and kind of like that's the better way to diversify versus let me try and pick a vintage. You know, and manage around that. I think that generally leads to kind of like missing some of the best ventages right market timing is very hard in any asset class. Yeah, that's what I would say. Same. This is the time to put money to work.

1:01:26And so that could be counterintuitive. Maybe some LPs don't want the capital calls, but the firms that are making capital calls in 2024 putting dollars to work. I think this is going to be an amazing vintage because people are valuation adjusted. I think founders have the religion and the one starting from now. And I think this is going me a fucking incredible vintage five years from now. I gotta leave some optimism here. Yeah. If you're investing in our stages, I'm not optimistic. I might as well not be in the business, but that's kind of what I would look at now. Let's finish on a final one.

1:01:53You said about optimism. What are we most optimistic about looking forward to 2024? A topic that we've been discussing today, like companies are being built the right way. That is happening at an inflection point of a massive technology shift. When I think about like, where do I want to be investing? I want to be investing in a period that is the bottom half of the valuation reset with the first half of a technology shift, right? It's really hard to call like, are we at the bottom? Are we 20 % off the bottom? Like, that's too hard to do. But I think the setup for this year, for next year, is that we're in the bottom half, or maybe the bottom third of the valuation reset.

1:02:31And in the first third of a massive technology shift that's going to create a ton of creative destruction. I am incredibly optimistic about this period in time, the startups that will be created, the opportunities to create value and the opportunity for this vintage this year next year to be a special one. Call me stupid crazy, but I am bullish on Israeli founders building new startups. We have over a dozen Israeli founding teams right now, and two of my fastest growing companies in Fund 5, vintage 2021. one, on to that inception to now, from zero to about 2 million of ARR, where both Israeli infrastructure companies.

1:03:11And mine you, one of the teams that two of the founders called into reserve duty as they're in a very special unit. And despite all that, they still grew faster than any other portfolio company. The resiliency is off the fucking charts. And as people back away from Israel, because they're fearful of kind of what's happening, I'm still seeing amazing teams there. And I think there are great opportunities to keep putting dollars to work in security and infrastructure deals in Israel. I saw the tweets when I was in the gym and they're doing a pump because I've got to get, you know, up to shape with Ed.

1:03:40And I'm so glad that we did this. Thank you so much for doing this on a weekend. You've been fantastic and, and, and jammin, you know, you haven't seen my negativity before. So Ed's, you, the chip by now. I'm used to Harry's negative, I like seeing the negativity, Harry, because that's good. No, this is fun. Thanks for putting it together. I mean, I just love doing that. I really enjoy the panel shows. They're much more natural and I think conversational. If you want to see more on YouTube, you can check it out by searching for 2 -0 VC. There's the full video with the slides that we saw in the episode there.

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