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

24:07How am I gonna get my 10x? Hey, would you give best -lays stage fun to Jason? I know everyone said they did more deals. I know iconic said they were way up and Excel said they were back and Salesforce. I didn't see enough greed in the markets in 2023. I didn't see greed return. What would you say is the biggest surprise that you saw in 23? The biggest surprise, I was very surprised that huge funds were not supporting their companies in upgrounds, good rounds that were very, very good companies, but not necessarily decacorns. I was surprised. I grew up in a world where big funds if you doubled since the last round triple Jerevenue right and there was an outside lead or whatever lead every big fund did their pro rata or they came close right I've got three billion under management I did ten ten million in the a I'll do two million in the b or three million in the c or four like I never saw a big fund not do this and then I watched a deal a very good deal where a multi billion dollar fund said they're gonna do zero and I call the partner up, but I asked him what happened.

25:08He's like, we're just very particular. We're generally not doing our per -route. It's not only done two or three recently. That is a level of conservatism that doesn't make sense to me, right, on a bunch of levels. It doesn't make sense to me as an efficient way to deploy a large fund, and it doesn't make sense to me as a good long -term play, and it doesn't make sense to me as something that will improve returns. Anyone in the top quartile should get another check from a big fund. And so the fact that that wasn't happening, I think it was fear they couldn't raise another fund. I think it maybe it's fear that they'd written too many bridge, bridge -round checks.

25:43I don't know, but that was my shocker. Well, these automatic preradas appear to have gone on pause. In the time frame where reserves will be deployed, do you think your winners and your losers will be apparent? I often it's trashed and investing in the world of consumer where I say, oh, we hit X number of DAU and that's not sustainable. And then if it's SAS, often it's just as you You said going long, it takes just a long fricking time. Yeah, they scaled a grue double, but it's not five x growth. It's not obvious. The sheer number of unicorns that were born in the work from home boom broke reserve models.

26:15So I think you have 1 ,000 unicorns, fine, 200 of them are gonna die, right? 100 of them are gonna break out. But what about the ones hairy that, hey, they're at 16 million ARR, but they're growing 80%. Now they're not worth 3 billion, 3 .2 billion like they were in the last round. But they're growing 80 % at 16 million. I've already in, I own 18%, I gotta do some reserves for that one, don't I? And the sheer number of them in the fact that they're not gonna get another round when the last round was a two billion, the reserves for the overvalued broke a lot of reserve models. And so everyone was like, I just don't wanna, like I'm gonna run out of reserves, Harry.

26:47It was not how I plan, I'm gonna run out. So I'm gonna say no to even winners if I get away with it, right? Because I may need that two million bucks, even in my big multi -million fund. I mean, need that two million bucks for that unicorn that's struggling. For founders listening, what happens then? No one takes it. It's a preroddit. No one does their reserves. What happens in that world then? Founders come out into a new environment and have to reprice because it's very difficult saying, hey, very few existing investors are coming back at who? Yes. It's a very difficult message. We'll look at a couple things.

27:15First, one, be honest. Forget about what your existing investors want to do. First of all, you have to be honest. Are you fundable at the margin? And you've got to ask, honestly, ask at the end of each board meeting, am I fundable? and then ask afterwards, would you fund me? You don't have to put everyone on the spot. Just go around the table, am I fundable? And you won't get it completely on a sensor, but you get a pretty honest answer. So if no one thinks you're fundable, then whatever you got, the banks just got a last, right? But what I have seen, then assume you're at the margin, assume you're a fundable -ish, okay?

27:44You're not opening eye, but you're fundable -ish. What I have seen in my, especially the last 24 months, but across my whole career of investing for 11 years, is there's usually only one investor that will stand up for you. There's usually only one. I've had to do three of these in the last 14 months. I have had, and often I'm the smallest fund on the cap table. I've had to be the catalyst, the one that stands up and say, look, you're at 30 million growing 90%. That's not bad. I will put the money in. If one person is a catalyst, generally folks that are, that are hummining high and that are waiting, the catalyst can force them to shit or get off the can or ester get off the can.

28:17And that's how you coalesce the round. So as soon as you've got to know, who's the one, not the back slapper, not the one that always says, great job Harry at the end of each meeting. But who's the one that's really engaged and believes in you and that will burn their social capital and their time to catalyze around? Someone's got to catalyze it. It doesn't happen on its own unless you're crushing it. Do you think VCs have shown up and made us proud in the holiday times? What do you think they've just reinforced about a Minge of Venture, if you're honest? I think founders have shown the bad side of founders.

28:49I think founders became too entitled. And I think founders expected the next round would always come. Founders became very arrogant toward VCs. Use them as fungible. Put them on irresponsible schedules. Didn't share proper diligence. Abuse the system. And they took advantage of the time. So that sounds very critical. I mean, it is critical. But both sides react poorly when the pendulum's on either side. When there's no money out there, VCs are pretty crappy. My first startup, it was terrible. I had a 5X participating preferred and a 2 million pre. And like I can't even tell you how bad the terms are in my story and all the VCs and all the VCs would collude and they'd all talk and They'd negotiate the deals down together.

29:28That's a low point, okay? And a low point for founder behavior was 2021 it was abusive toward VCs It was abusive the hop and story is abusive. I'll take a hundred and forty million out for myself F .U. VCs I know a lot of folks think that's a hero story. I think it's abusive I think it's unethical and I would not have done it as a founder. I think it's unethical You have a choice to take not deal no If you are a founder, Harry, if you're a real founder, you have constituencies, you have your employees, you have your customers, and you have your investors, and you know where real founders put themselves on that list of three?

29:59Last. And that's why what Hoppin did was unethical. It damaged the company. That company needs that 120 million. It was ripping people off. You ripped off your investors, you probably ripped off your employees. I don't know how a tender offer happened, right? And it wasn't good for the customers. Anytime I see an employee a founder put themselves above like by all means over subscribed round whatever take you know Take care of yourself, but when you're above above those it's zero percent chance. It's gonna be a success Okay, let's go over this you have an incredible revenue scaling the brand of the company is insane Fossus drone company in Europe the darling of European tech on the front page of everything and it's his soul founder He's got whatever 49 50 % of the company And investors are battering down your door begging you to take their money begging you Not you forcing it on them.

30:48They are begging you and then they say hey sell 10 % and take 150 or 200 million off by yourself that cushion so you can think bigger than ever So you can dream for the rest of your life in upside -for -hop putting everyone else first If you're a founder you're going I'm going from 50 to 40 % so actually not a huge difference I still have a huge amount in this company. Very logical. And they're begging me to do it. Okay? Sure. I don't think it's unethical. Even if it's not unethical, I think it's telling. Because a tactical rule, I'll say that if you're putting everyone else first, if you're putting the rest first, I think taking out more than 10 million is a bad sign, even in the hottest round.

31:27Because 10 million is, first of all, most founders I know are not, do not have a bizzot yacht yet. They are not buying 40 million dollar homes in Miami. I mean, they're building their frigging companies. You have to be a little bit humble for a long time or people won't work for you. I mean, I gotta find a better word, but if you're a douchey CEO, people don't wanna work for you outside of pockets of Hollywood. So I find most CEOs, especially to be live relatively humble lives. So 10 million dollars, that is enough to put a down payment on a decent home. That is enough to get a Model 3 performance.

31:56You don't even have to get the base one. And it is even enough, although it will be stressful to put your kids in pretty good school. All for it, the 10, the fifth, and maybe it's a bit more in the hottest rounds. But then there's a point where you're saying, look, I don't actually, my stock is probably, companies probably not worth this much. So I'm gonna monetize it now. That is logical. If I'm in that situation again, I will sell my shares as a seed investor. I would sell all of my shares, all of them. 100 % of my shares in that situation are underpriced. I'm going, I know he's not going, really, really going for it.

32:28But often at that stage of investment, I'm not necessarily talking about, I hope I'm just generally at that stage you've got company trajectory. 10 million isn't really what the investors are going for because they need to move more money That's why they need to move 150 to get 304 percent at my understand I understand they're goals and they may be regretting some of those secondary deals because of the incentives they created incentives matter The VCs are now living with the fact that yes the founders pushed things too hard But the VCs were the enablers. They were the drug dealers They gave out that the heroin or the whatever drugs people used today They gave it out.

33:01They give out these drugs and I'm a founder and my growth is slowed and I have a $10 ,000, $100, 200 million in the bank. I'm not gonna kill myself, Harry. Let's we learned a lot, right? Even the okay, there's the founders that took out 50, 100, 150 million from companies that the real issue is they didn't leave the planet, right? Listen, maybe I'll be criticized for hopping But one thing that is clear is it didn't leave the planet, okay? It's one thing if you're incredibly profitable and you take a dividend, okay? Like we all know folks that like we talked we started this conversation. We talked about bootstrapped companies, there's a super set of folks and not only bootstrapped but are generating lots of cash.

33:36And you know what they do, Harry? They dividend, they quietly dividend themselves out 10 million, 20 million, 100 million a year. That's what they do with their surplus cash, right? The microversion of that was when instead of giving seed companies a million or two million, we gave them 10. And now they have 10 years of runway and they're just paying themselves salaries. That's the mini version of this, right? And so we see these big stories, but we've all got, there's probably 2 ,000 startups that are run for salary right now. That was a combination of founder greed. And these ones that are run for salary, you know where the founder sit in that stack of customers, investors, employees, the founders are definitely number one.

34:11What happens to those companies? Because they do have long runways. Yeah, I think some give the cash back. I think some will remain a study and bubble economics that we are studying for years to come. Some will just keep running their companies. We briefly touched on that when we did the round table with Fatter Collective. I remember he said, look, if that frustration you got to remember, it's not your money. You gave it to them. It's not your money. And some of it will be wrongly used. And some of it will be under -deployed to misdeploy. But you can't get that. It's not your money to get back.

34:37That was a, quote, the top 10 quote for me for the year too, is it's not your money. You think it's your money as a VC? This is a VC conceit. It's not. It's not your money. But the lesson from 2021 is not your money. I wanna translate this to a forward -looking projective eye when we look forward to 2024. If you think about your home base first, SaaS early stage markets in 2024, what do you think? I've been doing SaaS since 2005, and this is the first year I'm worried. And I'm not worried the fact that we're trading at 6X, but I'm kind of worried about that because we're in the third year of Prummy, public multiples.

35:09Like I am worried about public multiples at Stuffer Investing. I am worried the acceleration that we've saw last year, that public SaaS companies growing at their slowest pace ever. I'm worried some of it may be permanent. Gardner says there'll be a trillion in enterprise SaaS spend next year. Okay, a trillion, right? You could only spend so much of the US GDP or the global GDP on software. At some point, we are saturated with SaaS and software. At some point, it's not just that we want compound products or fewer vendors or it's just at some point, literally, So far, it cannot keep growing faster than GDP forever.

35:41We've had a run for 18 years in this, where software spend exceeded everything else, or just absorbed more and more of corporate budgets in a quest for efficiency and a quest to not fall behind. If that doesn't come back, and we have finally reached maturity in SaaS, doesn't the definition of software spend change? When you think about the instruction of AI into so many of our workflows into what it does to productivity and what that does for GDP, like softwa spend as a category itself. But for that to be true, for me in my little bit of the context center is where it's the most true. For it to be truly true, you have to unlock budgets outside of IT because IT's only gonna get so much budget.

36:20I mean, I asked Aaron Levy when I talked to him, when you talk with your biggest customers, what's their AI budget? He's like, oh, their AI budget is zero. There's no AI line. Now, it may come out of a different area. It may come out of, like, and functional groups may have budget, right? But the CIO's budget and the enterprise, the IT budget, it inflated so much the last couple of years and then it deflated last year, right? Where's this extra money gonna come from? And I'm not saying the party's over. Gartner says it's not over, but I'm worried. I know why some growth slowed this in 2023, but I feel like it slowed a lot with a really, really, really strong US economy.

36:56Yeah, we have some interest rates, blah, blah, blah, zirp, durp, warp, clurp, but it's a good economy with good companies making lots of money. We hit a train rack in SaaS growth. So I'm worried that's my worry for 2024 is that we've bounced we've always bounced back these these these downturns A part of me worries we may have seen some saturation and spend for the first time bring that back to the Sun Sunny stage market. What does that mean? This is why I struggled to give you the great growth investor answer I don't think it's gonna impact early stage much I think there will always be wedges There will always be new tools new things that take advantage of technology people will figure out new ways to build neat things at seed and there will always be 100x opportunities for the next one that comes out of left field.

37:39Those will still exist. Whether there will be enough folks that can achieve a billion in revenue growing 20 or 30 % or more, that's the bigger issue. Well, there will be enough because the real math and venture like, oh, we can talk about all these eggnets and stuff, but they're predicated on hitting a billion in revenue with real growth. That's sort of the terminal state of SaaS. When I started doing all this, we didn't think it was possible. Now it's kind of commonplace. Growth has slowed, but there's so many that have crossed a billion, but a billion can't cross a billion. So I think the vibrancy of seed is here to stay.

38:11There's too many folks that made money. There's too many folks that enjoy investing. There are too many LPs that are still gonna search for that alpha. Every year there's gonna be thousand X outcomes and multiple hundred X outcomes. And so that's the, you know, the fountain of youth. or always going to be searching for the fountain of youth that's seed. If we then move forward, SaaS late stage mocking. Yes. How do you think about SaaS late stage mocking in 2024? Tough. I think it's very, very tough. Here's what I think has really happened, Harry. I think people think that there's an AI bubble in venture, right?

38:44And clearly, to some extent, there is. But then we just talked about the open AI numbers and your jaw drops. People just a few weeks ago made fun of men, though, and putting whatever a billion into and thropic. but if they're doing 200 and something million in one year, it doesn't seem like such a bad deal, that's it. My point is that what I think has changed permanently since 2021 is venture post -seed is perpetually gonna be sourcing searching for deck accorns. When I started, even when you started in this industry, when you started, we were searching for unicorns. We were all searching for unicorns.

39:16Box IPO did 800 million, HubSpot IPO did 800 million valuation, Shopify IPO did a 750 million dollar valuation, we were searching for unicorns. And then when things got good, every unicorn was a decacorn, right? In the public markets and in the private markets, right? And I think we have now been wired that way. And as long as there are a steady stream of stripes and data bricks and open APIs, there will be enough decacorns that venture is permanently decacorn hunters. Do you think there are enough decacorns? You mentioned that. I think there's enough to take the bets. There will be enough stripes and data bricks and open AIs that some growth funds can do 3X net or more.

39:53And that will get the LPs to re -up and that will re -arm the Deca corn hunters I don't think there's going to be unicorn hunters anymore. I think they're Deca corn hunters And you'll see some folks on 20 BC and say, oh, we're very conservative and we're we're optimized around $818 million dollar outcomes, but I don't think it's true I think everyone is hunting for Deca corn permanently that has changed in venture We're more realistic about how many there will be right and and frankly it's harder to believe that many will be Deca corn, which makes it hard but I think we are deca corn hunters forever, series A and beyond.

40:25I think the industry has permanently changed and it may be under disgust that we're deca corn hunters. Do you think Stripe is public in 24? I think so. I think 2024 is the year of Yamada's Wago Public. Here's the thing, Harry, we will be in the third year of a multiple downturn. You could be like 2022, oh my God, multiples fell 75 % in 2022. That's not a good year to go public, is it? Multiple plummeted 25%, okay? 2023 weird year. But you know tech Nasdaq rock in year average public company up 40 % top public companies up HubSpot up 104 % Right Mongo up 112 % Shopify up 128 % last year. These are it's like feeling good Except the IPOs were were mediocre not they're great companies Clevio arm Instacart a plus companies like but not but with just good IPOs because the markets were tough right but 2024 is the third year.

41:16If you're a stripe and there's nothing wrong with you, right, other than the multiple, you call it a day. If we're going public and we're going public at 3XAR because of our margins or whatever, you just call it a day and you just get it done and people stop caring. It's time to grow up. It's time to move out of the house. It's time to get out of the basement and you just do it. So I think people will give up on waiting for the markets to change and just do it. Do you think data breaks will grow out to you? The only question I have is the losses are still significant. No matter what everybody says about how exciting the top -line growth is, it would make sense logically to wait a year so that you could gradually taper your losses and not be pressured because you have every public company is so efficient today.

42:00If I were date, Databricks is one, based on what I know I would wait. Everyone's saying they're they're going to go, actually I hear it from ex employees and other people are going to go public and people are excited and maybe they will and they can pull it off. But logically I might burn burn more cash for I'd wait a year if I were data brick so I can continue to capture share and grow like a weed. Who else is in the, just do it. It's time to grow up. Who else is in the category of just do it. It's time to grow up. Service Titan may be the first one to go IPO of this group. Service Titan's jaw droppingly good company dominates a market.

42:33Service Titan's at over 500 million in revenue. It's cash -lapositive as I understand it. It's got 12 ,000 customers and it does something which is magical, which is that it has very high NRR at a low ACV in a tough vertical market. It is SaaS for plumbers and air -conditioned maintenance and other things and it has triple -digit NRR in that market. It is very hard to have triple -digit NRRs in SMB with small deal sizes, right? And it ended last year at 460 million in revenue. Probably so today to be today, it's at 600 million in NRR, selling HVAC software and plumbers software, growing 40 to 50 % cash flow neutral.

43:10I would be shocked. I think it'll be the next one to IPO and some people think it'll be it could be in Q1, but that's one where it's just time, right? And if it's whatever the valuations are, it doesn't matter whether it's worth at 600 millionaire, growth rate if it's worth 5 billion or 6 billion instead of 10 that they'd hope. So what's time? It's time. This is a very mature, very well -run company, right? According to data 9 .5 billion dollars. Yes, so I think this is a great example. Let's assume they're at 600 million ARR and valuation suck and they go public and they're worth 5 billion it's 5 billion dollars guys.

43:42It's time to go public It's time maybe to do a little M &A with our stock. It's time to write some liquidity with employees, right? It's just time, you know, this company is 11 years old. It's time to IPO if the last round was it close to 10 billion Do I think they're worth 10 billion? It's possible they might get a samsara like multiple But just if we're gonna be a little bit tough on them and just say you're an average the average multiple would say hey This is an A plus company that will price less than the last round and I think everyone's ever I think everyone's over that I had a conversation with one of my LPs about around that was at a great deal But was below the last last round and that no one cared everyone's already internalized this everyone's already internalized that There may be price adjustments to these ultra -late stage rounds in 2021, right?

44:25Okay, it's in moving up from the company specific. Do you stand by your position that there's H2 2024 is when everyone goes fuck it. We're going out. If I had to give it on a stands today, I think it I say I think it's gonna happen, but it's gonna be shifted six months. So I think it's gonna happen in 2025 because it's getting late. It's already January, right? So if you're gonna go public this year You've already kicked it off, right? It doesn't mean you file like a service tighten allegedly has but you've got the CFO in place you've managed the numbers and you gotta be looking 16, 18 quarters ahead to go public.

44:58And so, I don't know that folks have come back from the New Year's Eve parties and are already to go public in the second half. I may have been optimistic. The kind of dud IPOs, dud, the great duds, like the Instacart arm, clavio, which in 2021 would have been your job would have dropped. Because these are A plus company. The fact that they didn't rock it, suck some energy out of everybody. Logically it has to happen, but it may be shifted six months. I wanted to talk about M &A quickly. Obviously, Figma didn't happen in the end. How do you see M &A in 2024? There's a huge appetite for M &A, and I see it across my portfolio.

45:37And it is natural because as we talked about before, growth slowed for everyone in 2023. And what do you do when growth slowed people played the first card, which was get more efficient, pause hiring, focus on the base, raise prices, raise prices, raise prices, raise prices. What's the next thing you can do here? You got two choices. You can build another product and try to get it to market. Like HubSpot did and wait 10 years to build HubSpot C. I've met a 700 million if you're great founders, but what's the easier thing to do? You've got to buy something. I have seen lots of tire kicking across my portfolio in the last six months, a lot of it.

46:08Not just from public companies, but a lot of it from ex -public companies that are required by PE. They're all looking to bolt stuff on. They're all looking to bolt stuff on North of 20 million an ARR that they can afford, which is the tough part of the conversation, that they can afford that can move the needle at some level. What will that translate into? I think there will be lots of good M &A opportunities to bolt on in like the $100 to $400 million range next year. People are trying to do those deals. The Wall Street Journal said this week that 2023 was a low point for PE investing for like seven years or eight years.

46:41It's got to come back next year, right? If interest rates come down to even a little bit, PE gets much more attractive. And if the IPO market's open even a little bit, it gets much more attractive. If he gets compressed, when you can't see exits in three to four years, right? You got to at least sell to each other. At least insights got to sell the vista or someone's got to sell the somebody. But I see it picking up on the Figma thing. And I know a lot of folks like Brian Halligan, we talked about said that Figma thing will be like, it will create a chill on large M &A. It's not what I see happening.

47:08What I just think happening is there'll be huge appetite for M &A anyone can afford. but people will buy a Jason plays rather than directly competitive plays at scale. Maybe Adobe can't buy Figma, but maybe Google can. I mean, maybe Google's the wrong example, right? But you will buy maybe Twilio can still buy a segment, right? Whether that was the best deal for them or not, it was not directly competitive. They tried to get into the CDB face, right? These adjacent investments will happen, but folks will not be able to buy things, well, Trump could change this too. But if we stay in our current administration, it may be hard for Adobe Divided Figma, but somebody else can't.

47:42Microsoft probably can buy Figma. Someone else can buy them. Would Trump be better for M &A than the current environment? You know what I learned from the SVB and the Figma's, VCs try to claim they're these big macro folks, but they really care about their own pocketbooks. Would Trump be better for VCs for M &A? Probably. Every VC wants a Figma deal to go through, right? The Microsoft Activision deal barely went through, right? That was a huge headache. like other people would have quit and given up. Everybody wants this. It's hard to imagine that this is a top priority for the Trump administration.

48:10So I guess it's a positive. But be careful, and again, I try to say to the pox, be careful what you ask for. There's a lot of unintended consequences. Well, Trump be better for carried interest. Well, Trump be better for a qualified small business stock. Like this is something that's under discussed. Who will revoke qualified small business stock in the US? That could be disastrous on many levels. Like I don't know. I don't know. I know Trump is not a friend of California because he can't get our votes. And so I that part worries me Trump dramatically raised our taxes in California. Everyone talks about a Trump cut tax He sure didn't in California, New York all our taxes went up because we could no longer deduct our state taxes against our federal taxes My taxes went up whatever 15 % under Trump venture funding everyone says about the absolute cratering of venture funding I think in a lot of cases slightly skewed in terms of the date that they present will venture funding return in some response will it continue to be reduced, how do you predict venture funding in 2024?

49:04Would it be easier or harder to find a straight one? At the end of the day, here's the thing. VCs will deploy as much capital as the LPs will give them. They will deploy it. If they can go back to market every 18 months and find a reasonable number of deals, that's what we learned in 2021. They'll go back to market every 12 months every 18 months. What they learned the last year is sometimes you gotta go back to market every three years or even four years for some funds, right? But VCs will find a way, if allowed, they will deploy as much capital as the markets will absorb. So the real question is the segment of, when you're the closest one, I should interview you.

49:37I'll ask you the question because there are segments of LPs that are actually not that impacted by the lack of liquidity the last 18 months, okay? A lot of university and diamonds have sufficient liquidity. Some don't, but some don't care. A lot of family offices don't care. A lot of sovereign wealth funds don't care at all. What are they going to do with the liquidity? They got to reinvest it anyway, right? But there is a subset that needs that they got paralyzed, especially the folks that are deep in traditional pee where they're used to getting that cash back and recycling it, and they're under, it's almost two worlds in the LPs.

50:06Folks under stress for capital commitments and under stress for the quidies, and folks that just don't care today. And then I would add one final conclusion, which is just not new LPs to the ventures. And new LPs, yeah. Which is incredibly significant when I look at it like it or not in terms of China, but Asian LPs more broadly speaking, you've never invested in venture, but actually dramatically want to. The amount of family office Asian money is exorbitant and extraordinary. UAE is coming in on force. Europe has thousands of family offices with the most incredible liquidity reserves. They want tech and they want venture.

50:40They're a curtain business. They're a machinery business. There is a universe of new LPs that is entering that I see every single day. Yeah, no, it's hard. They may be fatiguing a subset of VCs by having gone back to market too often. It's almost a very quantitative question. I think if there's just enough pool, VCs will raise the fund and they'll deploy it. And I don't think 2024, it's not gonna be worse, but we're not gonna see the massive liquidity events, maybe we'd hope for for another year. And don't forget, even IPO's, the liquidity's very delayed. Ifigma had closed, they could have distributed the next day, right?

51:13An IPO could be 36 months from six months after the, like it could be four years until LPs get their cash back. So I don't know that it's going to be dramatically better in 2024, but I don't think it's going to be worse, right? And the other thing that folks don't realize here, you know, you probably have better data than I do. A lot of these huge pools of capital you're talking about, especially international, their annual returns are terrible. Yeah. They're not at the Harvard or Yale or Stanford level. They're not buying like swaths of forests and Scandinavia and weird assets and only investing to the top venture funds.

51:44They're returning like four to five percent a year, a lot of these things, less. And sure you could put it all in NASDAQ, right? Which has its issues, like maybe that's what they should. But venture is a great alpha to very, very, very mediocre returns. And that capital will always want to to grease it a little bit, right? They're never gonna put all of it into venture. But if they can get some of it ahead of three to four percent a year, it can move the needle a little bit. That's also why you're multi -billion dollar fund sustain, which is that you're comparing them to 6, 7 % net, which is a net.

52:15Traditionally, in your offering them 11, 12 % net, which is a 4 % bump. Okay, great. Yeah, too many people at Twitter criticize these large fund models and say, hey, how can you do 8x on a large point? That's not the point. The point is to beat the crummy returns a lot of these massaples of capital in the real world. Two things that needed to raise funds, exactly, for venture managers is DPI, that cash back to your investors. That always works. and then differentiation. If you have a truly differentiated mortal that you can prove tangibly, I think there is still LPs that will allocate to you with enthusiasm and gusto.

52:48If you're earlier stage, it may be as simple as, do you have one day to dog? DPI is great, but at the end of the day, DPI is in the past. I mean LPs are weird, I can't tell me LPs I talk. And you talk to literally 100x more than I do, but they ask, Jason used to be good, or Harry's last fun look good, whatever founders fund this or what about that future like so even DPI if you were the lead in data dog or stripe or whatever you have one true epic outcome it was just true when I started as today it carries you because then people believe they believe you can do it again right that you have the secrets us right we're gonna do it quite far and I'm gonna peppy with a couple of statements number one what if you changed your mind on in 2023 I have changed my mind that that there is any chance on planet earth, any chance that a pretty good founder can produce good venture returns.

53:38I will never again invest, I will only invest in founders that are much better than me. I will never invest in pretty good founders no matter what the traction is, no matter what the growth, no matter what it is, maybe it works in consumer, but this was the title of my last LP report. So much great progress in the portfolio in our core positions, but the lemons of right mid, but the lemons of right. I took every write -off in my last LP report that was I just wrote it off to the max anything that wasn't good for my first time I just wrote it I just I aggressively put the the red pen or whatever to it because I had enough of Good but not great founders and all the ones that that I had to take the red pencil to were good but not great Do you think enough GPs of taking the red pants that port photos have been open with our piece?

54:17No, but here's the thing after and again everyone talks at big game We're not allowed to mark up between rounds. See if we were allowed to mark up between rounds, which a lot of P firms can, and late stage folks do, right? They can mark up. Traditionally, it's a weird world. So like, everyone's like, take your mark downs and you should take your mark downs. But what about the mark ups? What about the ones that never raise again that are worth billions or whatever, we're not allowed to value up, are we? So I think it's all a weird world. It's some level LPs have gotten over the Sony Baloney valuations and it's just show me the business and if LP and if a GP doesn't mark down a given deal they just don't.

54:54I don't know that it says high drama issue as it was. I don't know that it matters, but I ask my own LP's and they didn't carry their way that much. What's the best investment advice you've received? I'm sure you've been given advice by many people. There's no shortcuts. Just say no if you're not sure. If you're not sure, just put more money into your winners. Just put more money into your winners. If you don't know in 20 minutes, don't do it. If you don't know. If you're investing for other reasons, you're investing because Harry is in the deal, or Mammun's in the deal. If you don't know in 20 minutes that this is one of the best founders you've ever met with, don't do the investment.

55:25It's too hard. We forgot him 2021 how hard this was. Now we remembered how hard it was, Harry. That's the only one thing we learned the last year. Even in 2022, it was so crazy, the knife, the falling off the cliff, we didn't even remember how hard it was because we were adapting. Slack was worth 27 billion when Salesforce bought it and probably worth 2 billion today. Like what happened before? Like we couldn't even comprehend the rate of change in 2022, right? So now in 2024, it's like, listen, if you don't invest in Dylan and Figma, you're not gonna make any money. And so those are the regrets.

55:54All the good but not greats. Honestly, I just wrote my LP report on the ones that I took that was the same answer to the three that I marked down to almost zero. Good but not great. Good but not great. And then one was great but tired. That's a different learning. Well, it's the lot of your own great but got tired. You got to smell the urgency out of their pores. It's got to be like that Darmesh, Brian Strayf from HubSpot, they're like, we had a decent an outcome, I'm going for it. If you don't smell that urgency out of the pores, I think some repeat founders, especially if they weren't the CEO, like if they were the CTO or someone else, it was hard, but they kind of forget how hard it was or they forget what happened.

56:30And you need the first time founder crazy level of urgency in a repeat founder. And when you have that, it's magical. You just have to smell it across the zoom or the riverside, that urgency. It just has to reek. And I think there's one deal I did with the founder. I've known for a long time. There was a desire and an insight, but the urgency, it wasn't there, right? Oh, I totally agree. My biggest Mac deals are 525 with an exec out of a large company who's made a lot of money, but very comfortable in life. They have no urgency. They raise five million and they have a million in cost. They've probably got five years of runway.

57:06And they just move slowly and they're very diligent and they work reasonably hard. Yeah, never. You name a nionicle in this world. You need like a maniacal sense of urgency. And you said at the beginning, the best lessons learned from mistakes. What is the biggest mistake he made? Okay, my biggest mistake I don't know how to be actionable on. I think about it constantly, right? Is I'm not a good nudge. The best investors are nudges. The classic Sequoia playbook, which literally happened to one of my portfolio companies a couple of months ago, where they sit in the lobby and just wait, you know what the term sheet, Sequoia still does it.

57:41They did it 20 years ago. They did it with talk to us with me back in the day They did it again two months ago this classic playbook Byron Deeter did it with me back in the day at Bessamer I've just sitting on your steps with the term sheet It does not work because the founders that I meet are like that's like forcing me into a marriage I don't why I don't do that either because I'm like it's your free will I don't want to impose myself unfailli. I think about a couple really good deals where I didn't nudge into my way into the deal like people do. You CVCs that are fucking nudges. Maybe, I love it.

58:13Maybe my moon's a nudge. I think he might be a nudge and I think it might be part of his skills. Now, a nudge that you want on your team, right? I think he's a good nudge. I remember meeting Parker Conrad early at the zenithit's day and I bumped into my moon like the next week. He's like, yeah, they just raised around, but I'm gonna go over there and hang out with Parker and see if maybe there's some room in the round in the zenithits, right? And then he did it in Ripley, right? He waited. He did the thing. And so I don't mean that they're all nudgy like sitting your lobby with the term sheet.

58:36There's good ways to do nudges and dinners and but I'm not a nudge like I'm like I'll meet with the founder I will try to help them for free I will give this some advice and I will say if you want me let me know if you don't let it go and I think if I Or a nudge I would be much much better investor What's the biggest deal you've lost because of no no chain? I don't know. It's like a law. It's so long list I don't want to even go into it But like most of these things they're better than the ones you did I'm not critical of the ones that I didn't see those ones don't bother me at all I'll give it a little, I didn't see it, I didn't see it.

59:07I tried a little nudgy experiment the other day just to learn if I'm a nudge and it never works. This founder who has a really great company, they tripled last year, right? And he keeps me on this investor updates. And so I asked him, lastly, hey, could I put in an extra million into the last deal? He's like, no, I would love you to be your advisor. I'll give you options. I'll do all this. I did want to invest, but I was also trying to be a nudie, and I'm like, I can't be an invite, I'm overloaded, but I can, if I can do a minimum of a million, I can still help you. And I couldn't nudge my way into the deal.

59:35He wanted me, but I couldn't as an VC, I couldn't nudge my way into the deal. This was just the other day. And so I keep trying that nudge experiment. I'm no good at it. I just, I gotta, you gotta know yourself, right? Jason, are you a better invested today than you were when you started Saster as a fund? No, I'm worse because I'm slower, and I'm worse because I take some things personally. I do love you, dude. Like, everyone's like, no, I'm so much better. Like, I've learned this, this, this, and this, and like, you know, it's just very a way that people listen. and you're like, no, I'm worse.

1:00:05Of course. Slower. Now I like, I care too much and I think it's a negative. Why do you take things personally? I thought you wouldn't give a shit as much. Should I? Oh, fuck it, I'm old enough. There's only so many trips around the sun. I should just invest. When I, if I invest a lot and I'm on the board and I've dedicated years of my life, for either the founder doesn't give it 100%, or something is slightly off or does the wrong thing, I've given too much of my trips around the planet and I should just be a financier. That should be the just whatever you move on, right? Your job's to hunt another deal and I think it's a failing.

1:00:37I think you shouldn't be too involved with portfolio companies. You have a portfolio. And to be blunt, every single investment I've ever made, I've been the most truly helpful and knowledgeable person on the board. There are sometimes I've had great operators, but I'm always the best. That can backfire. The only thing I'd say is the ability to concentrate capital across rounds is that obvious when you are a financier at Alms Length. where the company's where I am like, in it, in the whole I can shape rounds with founders, I can put a lot more money in. When I'm just told of around by email, Shit, though I think I've learned over the years that the big funds are pretty good at doing that even when they're not on the board.

1:01:18They're pretty good at tracking these deals. I've seen several times over the last 14 months when times have been tougher. I've had two investments that crossed from very good to breakout and big funds that were not at the board meetings were flies on honey or toast, right? And both of them raised eight figures from big funds in like one week. And in fact, I think those deals are the easiest deals to get done these days when you have that visibility. People are still a little bit risk averse, and I'd rather put 20 million of my fund into something where I have some visibility, right? That's top 2 % growth, then top 1 % growth where I'm not sure.

1:01:52And I think founders should take inside, like good inside rounds very seriously now because of the reason you said. This is different than a bridge, but if one of your investors really wants to step up at a higher price Six times out of ten just it's a good it's a good thing in this market. Jason. What we see a generation of VCs leave venture I don't think so. I think most junior folks have gotten little to no carry. They carry they've gotten vests So long that they never make any money from it and I think a lot of the best up -and -coming investors that are that have something special that are differentiated they could do a deal.

1:02:25They got good deals done the last 18 months. People think that like there's bad ventages, there's only bad ventages because you overpaid, but every month there's a great start up born of every year of my life. There's a great start up born and the best up -and -coming VCs found them. And the mediocre ones complained about the markets or this or that, and the best ones just were heat -seeking missiles and found them and they're going to get promoted and they're not going to lose their jobs. And the other folks may lose their jobs when funds either literally contract in size or an essence contract by having longer fundraising Well, that's still a contraction, isn't it?

1:02:54And it's okay. I think there's more jobs in venture than they're ever what. And if you thought it was easy, you're delusional. There definitely is a generation of thought it was easy. And it stemmed to solo GPs and new emerging managers who emerging managers for the last four years thought it was so much easier. Every emerging manager promised their LPs 8X net. I remember talking to one who I loved. I loved this emerging manager, but all his initial investments were at 1X. And he's going out promising 8X. And I'm like, you have a lot of charisma, but maybe tone it down just a little bit. But he was 100 % sure he was gonna do 8x in 2020 -2021, right?

1:03:26So... I definitely think a lot of people forget just how difficult it is to do, depending on fun size, but just generally, at least, at least, three -ice net is still a fucking good fund. It is. We mocked it, and people didn't understand the physics, and they didn't understand all of it. So, if 50 % of the non -GPs lose their jobs, because it's hard, or whatever, that's probably the way it should be in venture. You know what? You know what? I learned in the beginning of venture, Harry, I remember I went to... when I worked at this third party venture firm, I went to a huge LP meeting in New York to raise the new fund, and we handed them a hundred -page spiral -bound notebook about the fund, and they just flipped to the last page, and they just looked at the returns, which is what happens to us, and all they asked was, you know, are you tech or biotech?

1:04:03Like, that's all they want to know, and they all looked at the number, and your number is a fund, and you're a number as a GP, and you're a number as a partner and associate, right? And you're a number, and if you're an inventor, and you didn't put points on the board the last couple of years, you don't deserve to be an inventor. This is not a charity, This is not a best effort, it's kind of job. This is not senior marketing manager, creating infographics. Venture is both rewarding and brutal. You gotta put up the numbers. And that's why markups matter in interim numbers matter because you gotta put up the numbers, right?

1:04:30We can talk about DPI forever, but you can't wait your whole career until the DPI comes. You gotta put up the numbers. And if folks, if half the non -GPs lose their job and 25 % of the GPs, because they didn't put up the numbers, that's good. Move on. There's a veneer of kindness on top of a ruthlessness in venture, which is you gotta, you have to deliver slowly, But you do have to deliver so to let them go what founders don't get about venture when they fundraise is they really don't Understand what it means that ventures a business of outliers I'm sure you get these emails every day They're like Harry like my company's great last year was tough But if we could just get a little more money or like our growth is pretty good But not great or whatever these endless things they don't get that it's outliers You got to get into these outliers pretty good founders.

1:05:09They don't get you there. It's so hard outliers are bust final one Saster in 2024. Why do you want to be at the end of 2024? When you look across the funds and the media and the events business. Why do you want the events business to be? Why do you want the media business to be? Why do you want the funds business to be? How do you think about your goals for 2024 on those components? For investing, if I could, 2024 would be my fastest investment pace since 2014. That would be my goal. I think that was the time I had the mental bandwidth and the clarity and the schedule. so I would like it to be the most prolific time.

1:05:45In terms of like community, it's a constant learning. Some of this is pretty niche -y. It would be great if marketing budgets reflated in later 2024. Right now for Saster as a media business, it's kind of interesting. All of our revenues from Big Tech. Though the unicorns have no money, or they have money, but they're not deploying it, Big Tech had a really good year. So it's great to have added sponsors and partners like Cisco and IBM and others that we did not have before, which is great. But we lost a lot of unicorns, right? So it would be great for marketing budgets to inflate it. That would just help us invest more in the community.

1:06:20How much does, how much does Sassaday revenue was if you're able to say like 27 million the year before? What would it takes to 100 million? To do 100 million would be pretty easy in quotes, pretty hard in practice. To do 100 million, you just need to do a little bit more of what Gartner and a few other people do, which is build on Sassaday as a marketplace where buyers of software can connect with more CEOs. There's two reasons people sponsor a partner with folks, right? But for what we do, especially at the events level, you're creating a market place, if you think about it, you're creating a marketplace.

1:06:53At Sastraniwe we'll bring 12 ,000 people together, right? And about 40 % will be CEOs, right? Which are a very difficult group to access. And so events are a headache and there are a lot of work and people get grouchy and marketers complained about the expense. But what you really do is create an IRL marketplace where buyers and sellers come together, right? And you're facilitating these conversations and this marketplace. So it's faster today. We do it just by dint of having a community. We just bring people together. But if we aggressively did it the way gardeners and others do it and we blew it up the number of connections would instead of being good They would go up not just a little bit.

1:07:30They would go up like 10x. So I lament that I'm not completely executing that plan today because the things that are like Saster on the events media side, the couple things that are most like us are at 100 million. So I consider myself in some ways a failure for having invested a lot in community and founders but not as much monetizing it because the two things that are closest to Saster are money 2020 and shop -talking e -commerce and they're both over 100 million. One of the classic Saster posts and I say to founders at the end of the year is like, you gotta judge your growth not on an app, just on an absolute basis, but compared to your competitors.

1:08:04So like, let's say you're a startup, and you're 80 % last year, you're like, right, Harry, we doubled last year. But your biggest competitor grew 120, you're losing share, aren't you? Think you're great, but if you don't compare yourself to competitors, you're not being honest. So Sasters are really losing share, our business keeps growing. But when I look at folks that started, I mean, money, shop doc started at the same time, money 2020 is much older, but got rebooted at the same time. And they're a hundred million, and they don't have community and they don't have a blog and they don't have all these other social aspects or a million followers and they're 100 million.

1:08:34You feel like you've under -performed, right? But on the other hand, the interesting thing is, we did it with eight and they have hundreds and hundreds of people. The other interesting thing on this media community thing is you don't want to be a Buzzfeed. You don't want to have the massive human capital to fuel these things, right? And you have a team at 20 VC, but you don't ultimately need 100 journalists to do what you're doing. That's what's so epic about a lot of the social media, right? So there's a trade -off like would you rather be doing 27 million with eight people or a hundred million with 200 people?

1:09:04Actually, it's a complicated question, right? Jason. I love our charts Thank you so much for doing this and you've been such a star for the first guest of 2024 Happy New Year to everybody. Happy New Year to you I mean what a start to 2024 with that episode I want to say huge thank you to Jason for being such a fantastic guest as always if you want to see more from us behind the scenes of course you can on YouTube by searching for 20VC, that's 2 -0 VC. But before we leave you today, I love any innovative approach to venture and startups, and that's why I love arising ventures. They're a holding company that acquires tech startups, facing difficulties, and they help them reach that true potential.

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1:11:41As always, I so appreciate all your support and stay tuned for an incredible episode this coming Monday. Got it? Such a great debate. It's between Nick Termino and then Carla Malticoin. Such a good episode to come this coming Monday.