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

Joining Harry in the hot seat today is Jason Lemkin, Founder @ SaaStr and one of the OG SaaS investors of the last decade. The discussion today is broken into two segments: 2023: A Year in Review: Breakout company Best early-stage fund Best late-stage fund Most surprising event Founder of the Year 2024: Predictions: What is to Come: Does the IPO window open? Do Stripe, Databricks, and more go public? What happens to early-stage venture markets? Does the growth stage come roaring back? What happens to the M&A market? How does Trump change the startup ecosystem? Will a generation of young VCs be washed out the system? Will a ton of venture firms shut down?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Jason Lemkin?

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

• 0:16Harry Stebbings?

  Welcome back. This is the first 20 VC of 2024. Happy New Year. And I wanted to kick off our first episode with a look back on the winners, losers, highs, lows, surprises of 2023 for half of the show. And then I wanted to spend the other half predicting, predicting funding markets for startups, for funds, the LP landscape, M&A, IPO windows. What does 2024 bring us? Joining me is a dear friend, Jason Lemkin, founder at SaaStr and one of the OG SaaS investors. But before we dive into the show today, I love any innovative approach to venture and startups. And that's why I love arising ventures. They're a holding company that acquires tech startups facing difficulties, and they help them reach their true potential. The arising ventures team are tech founders.

• 1:00Harry Stebbings?

  They're not bankers, so they know what other founders really care about. They've given many great businesses a second chance at success, like Jive, a business arising ventures relaunched after it shut down in 2021. Arising Ventures bought them out of liquidation, brought back key team members, and took them from nought to 1 million ARR in just five months. Thanks to arising ventures, Jive now serves some of the largest brands in the world. So if your tech startup is facing hard times, arising ventures could be just what it needs to find new life. And you can learn more and connect with the team at arisingventures.com/20vc. After submitting your information, you'll hear directly from the founding team within 24 hours. Go to arisingventures.com/20vc.

• 1:45Harry Stebbings?

  And speaking of innovations in venture, Carter is a standout. Fund admin in venture capital is a nightmare. It's boring, it's tedious, and to be quite blunt, it's just a pain in the ass most of the time. But Carter provide a better way to run your fund, trusted by over 5,000 firms with over 126 billion in assets. They provide one click capital calls, access to over 300 fund accountants, Tax experts and they provide live interactive LP reports for your LPs. It's a total game changer of a product for any emerging manager raising a fund or any established manager with many funds under their belt, but wanting the best product for their LPs. Head over to Carter.com to check it out and find out more. And speaking of game changing products,

• 2:29Harry Stebbings?

  Intercom is a complete AI powered customer service platform and the only platform to combine a help desk, AI chatbot and proactive support tools. It also comes with a fully featured inbox, ticketing, help center and messenger, making it not only complete, but also the most powerful support platform out there. Intercom, every single tool you need, all in one place, enhanced with AI, so you can give every single customer the fastest, most personalized experience imaginable. Learn more at intercom.com.

• 2:58Speaker 02

  You have now arrived at your destination.

• 3:01Harry Stebbings?

  Jason, I am so excited for this. This is our first show of 2024, so thank you so much for joining me today.

• 3:07Jason Lemkin?

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

• 3:19Harry Stebbings?

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

• 3:26Jason Lemkin?

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

• 3:45Harry Stebbings?

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

• 4:02Jason Lemkin?

  Well, look, I mean, there's only so much we can talk about OpenAI, right? The funny thing about OpenAI is, you know, if they ended the year at 1.4 billion run rate, which the information said, and let's assume it was a hundred, you know, a hundred million at the start of the year. Then, you know, we thought it was crazy when it raised at 20 billion and then it raised at 80 and then it fell apart, the tender offer, now they're raising it a hundred. But if you can grow at those rates, it's epic, right? It's generational growth of revenue, even if the gross margins may not be great.

• 4:31Harry Stebbings?

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

• 4:41Jason Lemkin?

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

• 5:15Harry Stebbings?

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

• 5:27Jason Lemkin?

  It really is. I think it's impressive also because people today don't even remember the old HubSpot. The HubSpot that got going the same time I got going, you know, this is probably two generations ago as a founder. This was a blogging company. This was a website creator and blogging company. Most of us use HubSpot. If nothing else, we use it for marketing automation, right? For sending our customer community. That was even part of the original product. And then the fact that now they're doing 700 million, their CRM product, their CRM, which is the first real threat to the low end of Salesforce we've ever seen. It's super impressive. And my big learning, the takeaway, this is what I learned talking with,

• 6:07Jason Lemkin?

  when I got to interview Brian and Dharmesh, the co-founders together, what I really, the one thing I really learned was really, really, really, really going long. And the fact that Dharmesh had already had an okay exit, right? A 100 million or $80 million exit, and that they both from day one are like, listen, we're going to build something big or that's it, right? We're not going to, we're going to go long. And so I met Dharmesh in 2013 or 2014 when they were thinking about CRM, right? And they'd met with Pipe Drive, which was my first venture investment, right? Which eventually sold for a billion and a half, but lost to HubSpot. Interesting story, lost, Pipe Drive lost to HubSpot. That's how I met them. And the fact that they were willing to go so long, spend years with the free CRM, even though it was going to detract resources from the marketing side, right?

• 6:48Jason Lemkin?

  It has to detract resources and wait and wait and wait. And now that they're coming up on 700 million, one of the greatest second acts of all times, because there's almost no synergy to the first act.

• 6:57Harry Stebbings?

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

• 7:15Jason Lemkin?

  Yeah, money is complicated. Brian, he actually did sell a bunch of his stock pre-IPO, I think, to Sequoia, and he said it was the most expensive decision he'd ever made. So we need a little bit of money. It's never quite that simple. I actually think that, I'm not sure if in venture, if not caring about money is a positive. I'm not convinced. I think it has some positives at the pre-seed stage. I really think to go long in this business, you've just got to bleed money. You've got to want to put the zeros and ones in your bank account, or what's the point? What's the point of venture after a certain phase? If you're a pre-seed investor, the founders forget about you when they get big. You get dropped off the investor updates. I think there is a category of lifer VC with no other opportunity that are mediocre investors that are, can be inadvertently toxic.

• 8:00Jason Lemkin?

  They can be so focused on the downside. They need their million dollar salary. There's nothing, they have no other possible career path and they have no savings, right? Those folks, I think, are the most dangerous.

• 8:10Harry Stebbings?

  Are there many of them?

• 8:11Jason Lemkin?

  I've worked with many, and they're especially frustrating in exit scenarios for the reasons you say, right? But I think the problem, the folks that I know of founders that are too rich that got into venture, it's a problem. Let's say, Harry, you were lucky enough, you sold your company for a billion dollars. You made $200 million, okay? And you put it away and actually last year was pretty good on NASDAQ. So last year you made $40 million in the stock market and you raised an $80 million fund with four of your friends. So five of you are splitting an $80 million fund. What's that, 16 each, right? And after a decade, you do 3X growth, which is still pretty good. Like it was terrible in 2020, but it's pretty good. So let's do the math. The 80 million, 3X growth, 240, what's the gain on that?

• 8:54Jason Lemkin?

  160, but let's take out all the fees and all that. So the gains, what, 100 million over 10 years? Divided by five partners, that's 20 million each. Over 10 years, that's an extra 2 million. Now, 2 million is a lot of money a year, but it took you 10 years to get there. You had to, and he made 2, she, he made 200 million on their exit, right? Now, if you're too rich an investor, you just have to raise billions and billions and billions. That's the only way. It's like, and I do, I, David Sacks, who I, I, I have a ton of respect for, you know, I, I, you know, he's raised almost four billion for Kraft since I started investing. You've got to, to be impactful at that level, right? Or, or Andreessen Horowitz, it's not as silly as it sounds, right?

• 9:31Harry Stebbings?

  Shooting from the hip here, but I had an LP email me this morning and said, of the multi-billion dollar funds,

• 9:37Jason Lemkin?

  Yeah.

• 9:37Harry Stebbings?

  which one are you most confident will do a three X net?

• 9:42Jason Lemkin?

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

• 9:52Harry Stebbings?

  I, I said, I said one answer. I said founders fund and I said it because of something that Brian Singerman told me, which is like, we are unparalleled in the willingness to have extreme capital concentration on a per company basis, which means we could lose a lot, but if we're right, we do get the same upside that a smaller fund would get because of the concentration we have. And so I would have founders fund as mine. Who would you have as yours?

• 10:18Jason Lemkin?

  That's a good answer. The returns from some of their bigger funds were epic, right? Were, were jaw droppingly good. So that, I think that's a good bet.

• 10:24Harry Stebbings?

  Okay. We're going to move on in our awards ceremony from best company to best founder. Whose standout year was it in 2023?

• 10:32Jason Lemkin?

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

• 10:49Harry Stebbings?

  Two thousand nine hundred and thirty six.

• 10:51Jason Lemkin?

  This is why I won't even talk or interview a founder below 20 or 30 million in revenue because they're not honest enough. They don't have enough life experience, right? To hear from Nvidia, which has been in a ruthlessly competitive market with non-recurring revenue, right? Live or die on these margins, finally become one of the breakout top five tech companies of all time and say, I wish I wasn't a founder, not literally, but conceptually. I mean, I don't know. It's got to be founder of the year. Talk about going long.

• 11:17Harry Stebbings?

  You said there you wouldn't speak to founder beneath 20, 30, just because of the lack of wisdom or experience.

• 11:21Jason Lemkin?

  Yes.

• 11:21Harry Stebbings?

  What do you mean by that, Jay?

• 11:22Jason Lemkin?

  They're always just. compelling themselves. You don't want to hear what's great about Nvidia. You want to hear about the mistakes. The mistakes are what's compelling in any journey. Some folks talked about whether that Bezos interview the other day was compelling or not, right? I thought, I actually thought it was pretty good, but the problem with it is there weren't enough mistakes discussed. That's what's interesting. And I find that founders below 20 or 30 million, all they can do is do a commercial. I used to think 20 to 30 million was a lot of revenue until I remember talking to Todd McKinnon, who's CEO of Okta. And he said, it wasn't until 30 million that he thought they couldn't be killed, that they weren't an early stage startup anymore. And I used to think that was later in the journey, right? It's also about the same time where you can start being honest and say, here's what I screwed up building the 20 VC fund.

• 12:02Jason Lemkin?

  Here's what I screwed up earlier in my career. Here's what I screwed up in Nvidia versus I'm the world's best compliance software HR manager company in the world. No one wants to hear that.

• 12:12Harry Stebbings?

  No, listen, I agree with you on Jensen. I'm going to throw one hat in the ring also for Brian Armstrong at Coinbase. I just think, given the volatility of crypto, the man is just an unwavering force of strength in the community with CZ, with SBF, with everything that he faces, regulatory, he's standout, he's a standout leader. There's so many things also that he's said. He was killed for the no politics in Coinbase. Everyone now is saying, yeah, we agree, no politics in Coinbase.

• 12:40Jason Lemkin?

  I'm not with you on this one, Eric.

• 12:42Harry Stebbings?

  Why? Hit me.

• 12:43Jason Lemkin?

  I believe every crypto company that has an earned program is a fraud. How can you pay these interest rates? And if Coinbase is the good one, but I'm looking at their website today, I can get 10% APY on my crypto, 10%. How is this possible? It's called fraud to me. When I hear someone's a good one, and I remember someone, I remember, I didn't know anything about Binance and people back then were saying it was the good one. And I looked up on their earned program when interest rates were zero, it was like 18%. How could I get 18% interest when the Fed was at zero? I know Coinbase is the good one, but where are they getting this 10%? It's a pyramid scheme. It's fraud. I think the marketing positioning is genius, right? And I got to tell you, as an investor, Harry, I now I reflect a lot over 11 years of 10, 11 years of investing.

• 13:24Jason Lemkin?

  And when I even, and yes, Coinbase is wildly successful, when I even smell these little wafts of fraud, it never, whatever for me has played out well. It's always there eventually. This earned stuff, it just, it's too good to be, well, if it's too good to be true, it's too good to be true.

• 13:39Harry Stebbings?

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

• 13:53Jason Lemkin?

  The average public SaaS company was up 41% last year, even though growth plummeted. Growth was at all time lows in SaaS, all time lows in 2023. The average public SaaS company only grew 16% last year. It's terrible, but the stock was up 41%. And not only did growth plummet, but stock prices went up. And, and, and the reason is likely efficiency, right? Everyone got so efficient, they got so fit and they cut all marketing spend and they froze hiring. Right? So weird world where just being in public cloud stocks was great. Growth was terrible, but what happened was all that growth came from the base. It all came from price increases. It all came from pushing customers to sign long-term contracts they didn't want to sign. New logo growth was very low.

• 14:36Jason Lemkin?

  And so what happened was this weird world where sales and marketing efficiency cap were at the lowest. Tax are at the highest they've been in my lifetime as a founder that we know of. It cost the most to acquire a new customer last year because we sort of hid in our existing base. So we're, we're in a tough world in 2024, which is, um, we all got fit. We all got efficient. We all, we all made those venture rounds stretch. Every unicorn that can't raise again, if they're not going under, they, they figured out how to at least grow a little bit with half the headcount. But how are we all going to get back to growth? That's the story for 2024. How are we going to get back? And everyone's hoping it's AI, like I'm going to put some bots on my website and that's going to create growth. I, I think AI can create some efficiency, but growth, I'm skeptical of great growth, right?

• 15:19Harry Stebbings?

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

• 15:30Jason Lemkin?

  I think we're absolutely there and I think I've invested in six companies at the pre-seed stage that are now north of 200 million. And so they're IPO candidates. Okay. And I would say a bunch of them are on the bubble. And what I mean is they're all cash flow positive now, all of them. Everyone got cash flow positive. Okay. Cause you had to, because the next round wasn't going to come. It actually wasn't that hard. You just paused hiring. Most of them didn't do layoffs. You just. Pause hiring and you get cash flow positive in SaaS at that scale at 200 million. But the question for these folks is they are back to growth because they have marginal growth now. They have marginal growth and no one wants to IPO at 4X revenue or 5X revenue. And so, yeah, they got their fit and efficient, but instead of growing 40% and losing 20%, maybe they're at 20 and 0, right?

• 16:14Jason Lemkin?

  Or 20 and 5. Here's the stressful part. People don't have the answers in 2024 about how to get back to growth, but the good ones are there. You went on the diet and we hit our target weight, Harry. Now we gotta pump up. We cut and then after you cut, you gotta pack on the muscle, don't you?

• 16:29Harry Stebbings?

  Do you not just wonder if this is a good business? And I don't mean to be depressing in that way, but like, you know, entry prices are as high as ever. I think that if you have great quality SaaS founders or founders or coming out of any blue chip, they're as high as they've ever been. They haven't been depressed pricing really at seed, maybe in some cases 10 or 20% down, but not

• 16:46Jason Lemkin?

  No, no decline, really.

• 16:47Harry Stebbings?

  Okay, no decline, but then we've seen this compression in terms of exit scenarios, in terms of sizing and pipe dramatically to 4 or 5X.

• 16:56Jason Lemkin?

  Yes.

• 16:57Harry Stebbings?

  Does venture even make sense as a business in that world?

• 16:59Jason Lemkin?

  Well, it's funny, if one of the questions you'd asked me was what was, what was the most impactful tweet you saw last year on venture, right? Bill Gurley had the one about how the way venture works is you just wait for the, for these little periods when you can actually make money and get exits. And you gotta sell all your winners or take them public in these little windows where there's bubbles, where there's 20X, 40X, 50X ARR, like 2021, and you really can't make money in venture outside of these windows. That's what he said, right? There are these windows where you make money in venture that really, it hit me kinda hard, right? To your point, I'm like, you know, it doesn't feel like in beginning of 24 that venture is a particularly easy industry, does it? It feels pretty hard, right?

• 17:38Harry Stebbings?

  I mean, but it was never meant to be easy.

• 17:41Jason Lemkin?

  No, but at least when I started in 2013, at least when I started in 2013, the exits were terrible, but the entry prices were lower, right? I didn't actually, when I started investing, I didn't think I would be any good and I didn't think I'd have any great returns, but I thought everything I did would make money because the entry prices. Were acceptable. When I invested in Pipe Drive in 2013, my first investment, it was 16 pre at 1.2 million ARR, growing 9% a month. And we argued over the price. Now, pros and cons, but it did exit for a billion and a half. So if you got in at 1.5 million ARR, tripling at 16 pre, you were going to make money, right? You were going to make money. Now it's stressful because I feel like most investments I make, I'm not sure they're going to make money. I do wonder going to Bill Gurley, if we're all just waiting for these windows.

• 18:25Jason Lemkin?

  We're all just waiting for these windows to swing back 12 to 24 month periods of hyper liquidity and hyper multiples. And because of that, honestly, I was reflecting on this deeply. I've changed my mind to founders. I think some of the worst advice I've given to founders is when to sell their company. When I look back on 10 years of investing, 11 years, I've given bad advice on when to sell their company. What advice have you given that you would like to have changed? The advice I've given them is I made the same mistake so many founders turn investors do is I give them the advice I learned, which is if you have something good, if growth is high, if burn is low and NR is high, never sell because you keep adding value, right? If you're at 10 million ARR, growing 100% with 110% NR,

• 19:06Jason Lemkin?

  then next year you'll be at 20 and then you'll be at 40 or 38 or 72. And that's how you build, that's how you build a Decacorn. And so what tends to happen is just as it gets good, you get a couple M and A offers. And so my advice to founders has always been, don't take, don't take it, but you might as well go long because that value keeps compounding. And that's what I saw in my space. But now I see so many founders that said no to offers in the 2020 to 2021 period that will never get back there and will have to work a decade to get to lower exit values. And now the Bill Gurley thing resonates. Like if you get a good offer and it's in bullish times, take it. It may be a decade. I think we're going to see 2021 again and maybe AI will bring it back faster.

• 19:49Jason Lemkin?

  But it could be a decade until we see another boom of that level, right? Okay, we're going to move on in our Oscar ceremony. What's the best early stage fund 2023? Look, it has to be Y Combinator. Gary Tan coming back to Y Combinator. Was that the beginning of 2023 when Gary came back? Yeah. Talk about. Right person, right time, energy, rebuilding the entire city of San Francisco. The energy that Gary has, the weird thing when I first met Gary, which was probably 2013 too, maybe 2014, the weird thing back then was every founder loved him. They just felt like Gary was the one that had their back. Not one, but every founder I met that Gary was an investor and thought Gary had their back. I don't know how you do that. That's not me.

• 20:30Jason Lemkin?

  However, he reboots Y Combinator will add an order of magnitude of value to this organization. But A++ getting Gary to run Y Combinator and leave initialized and leave initialized. Leave a, what did he raise a billion dollars and had a top 10 fund, right? On many levels. Yeah. Initialized one's like 50x tiny fund, maybe 100x. And initialized two, I bet is 10x net for a big fund. To leave that, if you ask most VCs, they would think it's crazy. Why would you leave that cushy job of managing billions with top decile returns to go BCO of something that you didn't even start? Cause he's probably not the boss, but he didn't start it. So to go from something like initialized, which you start, right? You are the managing partner. You are the director that he built to then run something you didn't start.

• 21:14Jason Lemkin?

  Like that's, that's pretty epic for everybody. So it's gotta be the, the quiet venture story, right? Another incredible decade for YC and this was a genius move.

• 21:23Harry Stebbings?

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

• 21:58Jason Lemkin?

  I view Mamoon as, and then this may not be, it may be the wrong term. When I think about a traditional fund and a traditional investor, I think top 0.1%. Mamoon goes in and it's like, it's going to be Slack. It's going to be Figma. It's going to be whatever. It's going to be Rippling and he knows the playbook and he doesn't bend the rules. He doesn't lower the standard because he didn't get a deal done last quarter. He doesn't do it for the fees. And if it's just a smidge below the bar, he don't do it. And he's a heat-seeking missile. And if that means, and I remember when I started investing, I would do a deal and the moon would be like, oh, can I meet them next week? And he would mark the deal up if needed be. He didn't care. He's like, okay, if there's 100x opportunity in Slack, it's fine. It's fine. And most folks don't have

• 22:41Jason Lemkin?

  the ability to understand which one's a Slack or Figma, and they don't have the confidence to do that deal. The only thing I would say is I think he wants to perfect the art of traditional venture capital, right? A small number, just every year being in a couple of the best, right? Has he 10x the amount of capital that Kleiner manages? Probably not, right? Has he 100xed it? I don't know that he wants to build an Andreessen or a Bessemer or something like that, right? So the odd thing in venture is if you stay in your lane, it's the best way to achieve returns for your LPs and everything. But there are a lot of pressures to not stay in your lane.

• 23:12Harry Stebbings?

  I think Maritac would be another example, though, of an under-discussed but hugely successful franchise, which have stayed in their lane and delivered incredible returns.

• 23:22Jason Lemkin?

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

• 23:28Harry Stebbings?

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

• 23:34Jason Lemkin?

  I think in 2023, very few deals got done north of 200 million valuations. Very, very few deals. With the average public SaaS company trading at 2 billion, I just didn't see a lot of outside growth investors rushing to do deals north of 200, unless it was a bargain. So I saw a lot of tire kicking in 2023, post 200 million, but I only saw aggressive investing up to about 200 million valuations, just because I think people got intimidated that how are they going to get their 10x? If my comp's trading at 2.1 with several rounds of dilution in IPO, how am I going to get my 10x?

• 24:08Harry Stebbings?

  Who would you give best later-stage fund to, Jason?

• 24:11Jason Lemkin?

  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.

• 24:22Harry Stebbings?

  What would you say is the biggest surprise that you saw in 23?

• 24:25Jason Lemkin?

  The biggest surprise, I was very surprised that huge funds were not supporting their companies in up rounds, good rounds, that were very, very good companies, but not necessarily deck of horns. I was surprised. I grew up in a world where big funds, if you doubled since the last round, tripled your revenue, right, and there was an outside lead or whatever lead, every big fund did their prorata or they came close, right? I've got three billion under management. I did 10, 10 million in the A. I'll do 2 million in the B or 3 million in the C or 4. 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 didn't call the partner out, but I asked him what happened. He's like,

• 25:09Jason Lemkin?

  we're just very particular. I've only, we're generally not doing our proratas now. I've only done two or three recently. That is a level of conservatism that doesn't make sense to me, right? On a bunch of levels. It doesn't make sense to me as an efficient way to deploy a large fund. And it doesn't make sense to me as a good long-term play. And it doesn't make sense to me as something that will improve returns. Anyone in the top quartile should get another check from a big fund. And so the fact that that wasn't happening, I think it was fear they couldn't raise another fund. I think maybe it's fear that they'd written too many bridge, bridge round checks. I don't know, but that was my shocker, was these automatic proratas appear to have gone on pause.

• 25:48Harry Stebbings?

  In the timeframe where reserves will be deployed, do you think your winners and your losers will be apparent? Often it's traction investing in the world of consumer where it's like, oh, we hit X number of DAU or MAU. That's not sustainable. And then if it's SaaS, often it just, as you said, going long. It takes just a long fricking time. Yeah, they scaled, grew double, but it's not 5X growth. It's not obvious.

• 26:09Jason Lemkin?

  The sheer number of unicorns that were born in the work from home boom broke reserve models. So I think you have a thousand unicorns, fine, 200 of them are gonna die, right? 100 of them are gonna break out. But what about the ones, Harry, 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, I'm already in. I own 18%. I gotta do some reserves for that one, don't I? And the sheer number of them and the fact that they're not going to get another round when the last round was a $2 billion, the reserves for the overvalued broke a lot of reserve models. And so everyone was like, I just don't want to, like, I'm going to run out of reserves, Harry. It was not how I planned. I'm going to run out. So I'm going to say no to even winners if I can get away with it, right? Because I may need that $2

• 26:53Jason Lemkin?

  million, even in my big, multi-billion fund, I may need that $2 million bucks for that unicorn that's struggling.

• 26:58Harry Stebbings?

  For founders listening, what happens then? No one takes parada, 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 all.

• 27:12Jason Lemkin?

  Yes.

• 27:13Harry Stebbings?

  It's a very difficult message.

• 27:14Jason Lemkin?

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

• 27:56Jason Lemkin?

  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 humming and hawing and that are waiting, the catalyst can force them to shit or get off the can, or S or get off the can, and that's how you coalesce the round. So as founders, you've got to know who's the one, not the backslapper, not the one that always says, great job, Harry, at the end of each meeting, but who's the one that's really engaged and believes in you and that will burn their social capital and their time to catalyze a round? Someone's got to catalyze it. It doesn't happen on its own unless you're crushing it.

• 28:37Harry Stebbings?

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

• 28:46Jason Lemkin?

  I think founders have shown the bad side of founders. I think founders became too entitled and I think founders expected the next round would always come. Founders became very arrogant toward VCs, used them as fungible, put them on irresponsible schedules, didn't share proper diligence, abused the system, and 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 were in my story. And all the VCs, and all the VCs would collude and they'd all talk and they'd negotiate the deals down together. That's a low point, okay? And a low point

• 29:31Jason Lemkin?

  for founder behavior was 2021. It was abusive toward VCs. It was abusive. The Hoppin' story is abusive. I'll take 140 million out for myself. F you, VCs. I know a lot of folks think that's a hero story. I think it's abusive. I think it's unethical and I would not have done it as a founder. I think it's unethical.

• 29:45Harry Stebbings?

  You have a choice to take that deal.

• 29:48Jason Lemkin?

  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? Last. 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, oversubscribed around whatever, take, you know, take care of yourself. But when you're above, above those, it's 0% chance it's going to be a success.

• 30:26Harry Stebbings?

  Okay, let's roll with this. You have incredible revenue scaling. The brand of the company is insane. Fastest growing company in Europe, the darling of European tech, on the front page of everything. And it's a sole 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. They are begging you. And then they say, hey, sell 10% and take 150 or 200 million off. Buy yourself that cushion so you can think bigger than ever. So you can dream for the rest of your life. In upside for Hoppin, 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've still got a huge amount in this company.

• 31:09Jason Lemkin?

  Very logical.

• 31:10Harry Stebbings?

  And they're begging me to do it. Okay, sure. I don't think it's unethical.

• 31:15Jason Lemkin?

  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. Because 10 million is, first of all, most founders I know do not, do not have a Bezos yacht yet. They are not buying $40 million homes in Miami. They're not, 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 want to work for you outside of pockets of Hollywood. So I find most CEOs, especially me, to be live relatively humble lives. So $10 million, that is enough to put a down payment on a decent home. That is enough to get a Model 3 performance. You don't even have to get the base one.

• 31:58Jason Lemkin?

  And it is even enough, although it will be stressful, to put your kids in pretty good school. All for it, the 10, the 15, 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, the company's probably not worth this much. So I'm going to 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, 100%. Because I know he's, I know he's not going, really, really going for it.

• 32:27Harry Stebbings?

  But often at that stage of like investment, I'm not necessarily talking about Hoppin, but just generally at that stage of like 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 3 or 4% at least.

• 32:42Jason Lemkin?

  I understand, I understand their goals and they may be regretting some of those secondary deals because of the incentives they created. Incentives matter. The VCs are now living with the fact that yes, the founders pushed things too hard, but the VCs were the enablers. They were the drug dealers. They gave out the heroin or the whatever drugs people use today. They gave it out. They give out these drugs and, and I'm a founder and my growth has slowed and I have 10, 50, 100, 200 million dollars in the bank. I'm not going to kill myself, Harry. Listen, 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.

• 33:25Jason Lemkin?

  Okay, like, we all know, folks, that the quiet, like, we talked, we started this conversation, we talked about bootstrapped companies. There's a, there's a super, there's a super set of folks, and not only bootstrap, but are generating lots of cash. And 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 micro version of that was when, instead of giving seed companies a million or 2 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, we've, there's probably 2,000 startups that are run for salary right now. That was a combination of founder greed. And these ones that are run for salary, you know where the founders sit in that stack of customers, investors, employees?

• 34:09Jason Lemkin?

  The founders are definitely number one.

• 34:11Harry Stebbings?

  What happens to those companies? Because they do have long runways.

• 34:14Jason Lemkin?

  Yeah, I think, I think some give the cash back. I think some will remain a study in bubble economics that we are studying for years to come. Some will just keep running their companies. We briefly touched on that when we did the roundtable with Founder Collective. I remember he said, look, if that frustrates you, you 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 and misdeployed, but it's not, you can't get them, it's not your money to get back. That was a quote, the top 10 quote for me for the year two 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.

• 34:47Harry Stebbings?

  I want to translate this to a forward-looking, projective eye. When we look forward to 2024, if we think about your home base first, SaaS early-stage markets in 2024, what do you think?

• 34:59Jason Lemkin?

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

• 35:41Jason Lemkin?

  We've had a run for 18 years in this, where software spend exceeded everything else. It just absorbed more and more of corporate budgets in a quest for efficiency and in a quest to not fall behind. If that doesn't come back, and we have finally reached maturity in SaaS.

• 35:58Harry Stebbings?

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

• 36:11Jason Lemkin?

  But for that to be true, for me in my little world, the contact center is where it's the most true. For it to be truly true, you have to unlock budgets outside of IT, because IT is only going to get so much budget. I mean, I asked Aaron Levy when I talked to him, when you talk with your biggest customers, what's their AI budget? He's like, their AI budget is zero. There's no AI line. Now, it may come out of a different area. It may come out of like, and functional groups may have budget, right? But the CIO's budget in the enterprise, the IT budget, it inflated so much the last couple of years, and then it deflated last year, right? Where is this extra money going to 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.

• 36:56Jason Lemkin?

  Yeah, we have some interest rates, blah, blah, blah, zerp, derp, warp, clerp, but it's a good economy with good companies making lots of money. We hit a train wreck in SaaS growth. So I'm worried. That's my worry for 2024, is that we've bounced, we've always bounced back these downturns. A part of me worries we may have seen some saturation in spend for the first time.

• 37:15Harry Stebbings?

  Bringing that back to the SaaS early-stage market, what does that mean?

• 37:19Jason Lemkin?

  This is why I struggle to give you the great growth investor answer. I don't think it's going to 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. Those will still exist, whether there will be enough folks that can achieve a billion in revenue growing 20 or 30% or more. That's the bigger issue, will it be enough? Because the real math in venture, like, oh, we can talk about all these exits and stuff, but they're predicated on hitting a billion in revenue with real growth. That's sort of the terminal state of SaaS. When I started doing all this, we didn't think it was possible. Now it's kind of commonplace.

• 38:03Jason Lemkin?

  Growth has slowed, but there's so many that have crossed a billion, but a, you know, a billion can't cross a billion. So I think the vibrancy of seed is here to stay. There's too many folks that made money. There's too many folks that enjoy investing. There are too many LPs that are still going to search for that alpha. Every year, there's gonna be 1,000x outcomes and multiple 100x outcomes. And so that's the, you know, the fountain of youth. We're always going to be searching for the fountain of youth at seed. If we, if we then move forward, SaaS late-stage marketing? Yes. How do you think about SaaS late-stage marketing in 2024? Tough. I think it's very, very tough. Here's what I think has really happened, Harry, and this is, and I, I think people think that like there's an AI bubble in venture, right? And clearly to some extent there is, right? But then we just talked about the OpenAI numbers and your jaw drops.

• 38:48Jason Lemkin?

  People sort of just a few weeks ago made fun of, of Memo and putting, you know, whatever, a billion into Anthropic, but if they're doing 200 and something million in one year, it doesn't seem like such a bad deal, does it? My point is that what I think has changed permanently since 2021 is venture post-seed is perpetually going to be sourcing, searching for Decacorns. When I started, even when you started in this industry, when you started, we were searching for unicorns. We were all searching for unicorns. Box IPO'd at 800 million, HubSpot IPO'd at 800 million valuation, Shopify IPO'd at a $750 million 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.

• 39:33Jason Lemkin?

  And as long as there are a steady stream of stripes in Databricks and open APIs, there will be enough Decacorns that venture is permanently Decacorn hunters.

• 39:43Harry Stebbings?

  Do you think there are enough Decacorns, though? You mentioned-

• 39:45Jason Lemkin?

  I think there's enough to take the bets. There will be enough Stripes and Databricks and OpenAI's that some growth funds can do 3X net or more, and that will get the LPs to re-up, and that will rearm the Decacorn hunters. I don't think there's going to be unicorn hunters anymore. I think they're Decacorn hunters. And you'll see some folks on 20VC and say, "Oh, we're very conservative, and we're optimized around $818 million outcomes," but I don't think it's true. I think everyone is hunting for Decacorns permanently. That has changed in venture. We're more realistic about how many there will be, right? And frankly, it's harder to believe that many will be Decacorns, which makes it hard, but I think we are Decacorn hunters forever, Series A and beyond. I think the industry has permanently changed, and it may be under discussed that we're Decacorn hunters.

• 40:29Harry Stebbings?

  Do you think Stripe goes public in 24?

• 40:32Jason Lemkin?

  I think so. I think 2024 is the year of, "You might as well go public." Here's the thing, Harry. We will be in the third year of a multiple downturn. You could be like, "2022, oh my god, multiples fell 75% in 2022." That's not a good year to go public, is it? Multiples plummeted 25%, okay? 2023, weird year, but NASDAQ, rocking 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 mediocre. Not they were great companies, Klaviyo, Arm, Instacart, A-plus companies, but just good IPOs, because the markets were tough, right?

• 41:15Jason Lemkin?

  But 2024 is the third year. If 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 3X ARR 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.

• 41:39Harry Stebbings?

  Do you think Databricks will go up, too?

• 41:41Jason Lemkin?

  The only question I have is that the losses are still significant. No matter what everybody says about how exciting the top line growth is, it would make sense logically to wait a year so that you could gradually taper your losses and not be pressured. Because you have, every public company is so efficient today. If I were, Databricks is one, based on what I know, I would wait. Everyone's saying they're, they're gonna go, actually, I hear it from ex-employees and other people, they're gonna go public and people are excited. And maybe they will and they can pull it off. But logically, I might burn, burn more cash for a year. I'd wait a year if I were Databricks so I can continue to capture share and grow like a weed.

• 42:18Harry Stebbings?

  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?

• 42:25Jason Lemkin?

  Service Titan may be the first one to go IPO of this group. Service Titan's jaw-droppingly good company. Dominates a market. Service Titan's at over 500 million in revenue. It's cash flow positive, as I understand it. It's got 12,000 customers and it does something which is magical, which is that it has very high NRR at a low ACV in a tough vertical market. It is SaaS for plumbers and air condition maintenance and other things. And it has triple-digit NRR in that market. It is very hard to have triple-digit NRRs in SMB with small deal sizes, right? And it ended last year at 460 million in revenue, probably. So today, maybe today it's at 600 million in ARR, selling HVAC software and plumber software, growing 40 to 50%, cash flow neutral.

• 43:10Jason Lemkin?

  I would be shocked. I think it'll be the next one to IPO. 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 million ARR growth rate, if it's worth 5 billion or 6 billion instead of 10 that they'd hoped, so what? It's time, it's time. This is a very mature, very well-run company, right?

• 43:30Harry Stebbings?

  According to data, 9.5 billion dollars.

• 43:33Jason Lemkin?

  Yeah, so I think this is a great example. Let's assume they're at 600 million ARR and valuations suck and they go public and they're worth Five billion. It's $5 billion, guys. It's time to go public. It's time maybe to do a little M and A with our stock. It's time to provide some liquidity with employees, right? It's just time. You know, this company is 11 years old. It's time to IPO. If the last round was at 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 going to 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, I think everyone's over that. I had a conversation with one of my LPs about a round that was at a great deal but was below the last, last round. No one cared. Everyone's already internalized

• 44:18Jason Lemkin?

  this. Everyone's already internalized that there may be price adjustments to these ultra late-stage rounds in 2021, right?

• 44:25Harry Stebbings?

  Okay, so moving up from the company specific, do you stand by your position that the H2 2024 is when everyone goes, fuck it, we're going out?

• 44:34Jason Lemkin?

  If I had to give an honest answer today, I think, I say I think it's going to happen, but it's going to be shifted six months. So I think it's going to happen in 2025 because it's getting late. It's already January, right? So if you're going to go public this year, you've already kicked it off, right? It doesn't mean you filed like a service titan allegedly has, but you've got the CFO in place, you've managed the numbers, and you've got to be looking 16, 18 quarters ahead to go public. And so I don't know that folks have come back from the New Year's Eve parties and are all ready to go public in the second half. I may have been optimistic. The kind of dud IPOs, dud, the great duds, like the Instacart arm Klavia, which, which in 2021 would have been, your jaw would have dropped

• 45:16Jason Lemkin?

  because these are A-plus companies. The fact that they didn't rocket suck some energy out of everybody, logically it has to happen, but it may be, it may be shifted six months.

• 45:26Harry Stebbings?

  I want to talk about M and A quickly. Obviously, Figma didn't happen in the end. How do you see M and A in 2024?

• 45:33Jason Lemkin?

  There's a huge appetite for M and A. And I see it across my portfolio and it is natural because as we talked about before, growth slowed for everyone in 2023. And what do you do? People, when growth slowed, people played the first card, which was get more efficient, pause hiring, focus on the base, raise prices, raise prices, raise prices, raise prices. What's the next thing you can do 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 CRM at the 700 million if you're great founders. But what's the easier thing to do? You've got to buy something. I've seen lots of tire kicking across my portfolio in the last six months, a lot of it, not just from public companies, but a lot of it from ex-public companies that are acquired by PE. They're all looking to bolt stuff on. They're all looking to bolt stuff on north of 20 million in AR that they can afford,

• 46:18Jason Lemkin?

  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 dollar range next year. People are trying to do those deals. The Wall Street Journal said this week that 2023 was a low point for PE investing for like seven years or eight years. It's got to come back next year, right? If interest rates come down 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. PE gets compressed when you can't see exits in three to four years, right? You've got to at least sell to each other. At least Insights got to sell to Vista or someone's got to sell to somebody. But I see it picking up. On the Figma thing, and I know a lot of folks like Brian Halligan we talked about said that Figma thing

• 47:03Jason Lemkin?

  will be like, it'll create a chill on large M&A. It's not what I see happening. What I just think happening is there'll be huge appetite for M&A anyone can afford, but people will buy adjacent plays rather than directly competitive plays at scale. Maybe Adobe can't buy Figma, but maybe Google can. I mean, maybe Google'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 phase, right? These adjacent investments will happen, but folks will not be able to buy things. Well, Trump could change this too. But if we stay, if we stay in our current administration, it may be hard for Adobe to buy Figma, but somebody else can. Microsoft probably can buy Figma. Someone else can buy them.

• 47:44Harry Stebbings?

  Would Trump be better for M&A than the current environment?

• 47:48Jason Lemkin?

  You know what I learned from the SVB and the Figma is VCs try to claim they're these big macro folks, but they really care about their own pocketbooks. Would Trump be better for VCs for M&A? Probably. Every VC wants a Figma deal to go through, right? You know, the Microsoft Activision deal barely went through, right? That was a huge headache. Other people would have quit and given up. Everybody wants this. It's hard to imagine that this is a top priority for the Trump administration. So I guess it's a positive, but be careful. And again, I try to say out of politics, be careful what you ask for. There's a lot of unintended consequences. Will Trump be better for carried interest? Will Trump be better for qualified small business stock? Like, this is something that's under discussed. Who will revoke qualified small business stock in the US? That could be disastrous on many levels. Like, I don't know. I don't know. All I know is Trump is not a friend of California because he can't

• 48:32Jason Lemkin?

  get our votes. And so that part worries me. Trump dramatically raised our taxes in California. Everyone talks about how Trump cut taxes. He sure didn't in California or New York. All our taxes went up because we could no longer deduct our state taxes against our federal taxes. My taxes went up, whatever, 15% under Trump.

• 48:48Harry Stebbings?

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

• 49:06Jason Lemkin?

  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, and you're the closest one, I should interview you. I'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 endowments have sufficient liquidity. Some don't, but some don't care.

• 49:49Jason Lemkin?

  A lot of family offices don't care. A lot of sovereign wealth funds don't care at all. What are they gonna do with the liquidity? They gotta reinvest it anyway, right? But there is a subset that needs that, that got paralyzed, especially the folks that are deep into traditional PE where they're used to getting that cash back and recycling it and they're under, it's almost two worlds in the LPs. Folks under stress for capital commitments and under stress for liquidity and folks that just don't care today.

• 50:11Harry Stebbings?

  And then I would add one final constituent, which is just net new LPs to the venture.

• 50:15Jason Lemkin?

  And net new LPs, yeah.

• 50:16Harry Stebbings?

  Which is incredibly significant when I look at, like it or not, in terms of China, but Asian LPs, more broadly speaking, you've never invested in venture, 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.

• 50:37Jason Lemkin?

  Yes.

• 50:38Harry Stebbings?

  They want tech and they want venture. They're a curtain business. They're a machinery business. There is a universe of new LPs that is entering that I see every single day.

• 50:47Jason Lemkin?

  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 going to be worse, but we're not going to see the massive liquidity events maybe we'd hope for for another year. And don't forget, even IPOs, the liquidity is very delayed. If Figma had closed, they could have distributed the next day, right? An IPO could be 36 months from six months after the, like, it could be four years until LPs get their, their cash back. So I don't know that it's going to be dramatically better in 2024, but I don't, 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

• 51:32Jason Lemkin?

  annual returns are terrible.

• 51:33Harry Stebbings?

  Yeah.

• 51:34Jason Lemkin?

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

• 52:09Harry Stebbings?

  That's also why your multi-billion dollar fund sustain, which is like you're comparing them to six, 7% net, which they net traditionally, and you're offering them 11, 12% net, which is a 4% bump. Okay, great.

• 52:20Jason Lemkin?

  Yeah, too many people at Twitter criticize these large fund models and say, hey, how can you do 8X on a large fund? That's not the point. The point is to beat the crummy returns, a lot of these massive pools of capital in the real world.

• 52:30Harry Stebbings?

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

• 52:48Jason Lemkin?

  If you're earlier stage, it may be as simple as, do you have one data dog? DPI is great, but at the end of the day, DPI is in the past. I mean, LP is a weird industry. I can't tell LPs I talk and you, you talk to literally a hundred X more than I do, but they ask, Jason used to be good or Harry, Harry's last fund looked good or whatever. Founder's fund this or what about that future? Like, so even DPI, if you were the, the lead in data dog or Stripe or whatever, if you had one true epic outcome, it was as true when I started this today, that carries you because then people, they, they believe you can do it again, right? That you have the secret sauce.

• 53:22Harry Stebbings?

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

• 53:29Jason Lemkin?

  I have changed my mind that there is any chance on planet earth, any chance that a pretty good founder can produce good venture returns. I will never again invest, I will only invest in founders that are much better than me. I will never invest in pretty good founders, no matter what the traction is, no matter what the growth, no matter what it is. Maybe it works in consumer, but this was the title of my last LP report. So much great progress in the portfolio and our core positions, but the lemons have ripened, but the lemons have ripened. I took every write off in my last LP report there was, I just wrote 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.

• 54:13Harry Stebbings?

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

• 54:17Jason Lemkin?

  No, but here's the thing. And again, everyone talks a 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, they can mark up traditionally. It's a weird world. So like, everyone's like, take your markdowns and you should take your markdowns, but what about the markups? What about the ones that never raise again that are worth billions or whatever? We're not allowed to value up, are we? So I think it's all a weird world. At some level, LPs have gotten over the Sony baloney evaluations 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. I don't know that it's as high drama issue as it was. I don't know that it matters, but I asked my own LPs and they didn't carry their way that much.

• 55:01Harry Stebbings?

  What's the best investment advice you've received? I'm sure you've been given advice by many people.

• 55:06Jason Lemkin?

  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's in the deal or Mamoon'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. It's too hard. We forgot in 2021 how hard this was. Now we remembered how hard it was, Harry. That's the only one thing we learned the last year. Even in 2022, it was so crazy, the knife, the falling off the cliff. We didn't even remember how hard it was because we were adapting. Slack was worth 27 billion when Salesforce bought it and probably worth 2 billion today. Like, what happened or 4 billion? Like, we couldn't even comprehend the rate of change in 2022, right?

• 55:47Jason Lemkin?

  So now in 2024, it's like, listen, if you don't invest in Dylan at Figma, you're not gonna make any money. And so those are the regrets. All the good but not greats. Honestly, I just wrote my LP report on the ones that I 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.

• 56:07Harry Stebbings?

  What's the learning on great but got tired?

• 56:09Jason Lemkin?

  You gotta smell the urgency out of their pores. It's gotta be like that Dharmesh, Brian Stray from HubSpot, where they're like, "We had a decent outcome. I'm going for it." If you don't smell that urgency out of the pores. I think some repeat founders, especially if they weren't the CEO, like if they were the CTO or someone else, it was hard, but they kind of forget how hard it was or they forget what happened. And you need the first time founder crazy level of urgency in a repeat founder, and when you have that, it's magical. You just have to smell it across the Zoom or the Riverside, that urgency. It just has to reek. And I think this one deal I did with a founder I love, I've known him for a long time. There was a desire and an insight, but the urgency, it wasn't there, right?

• 56:49Harry Stebbings?

  Oh, I totally agree. My biggest, my biggest meh deals are five on 25 with an exec out of a large company who's made a lot of money, but very comfortable in life, that has no urgency. They've raised 5 million and they have a million in costs. They've probably got five years of runway. And they just move slowly and they're very diligent and they work reasonably hard.

• 57:12Jason Lemkin?

  Yeah.

• 57:12Harry Stebbings?

  Never goes anywhere.

• 57:13Jason Lemkin?

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

• 57:17Harry Stebbings?

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

• 57:24Jason Lemkin?

  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, with the term sheet. Sequoia still does it. They did it 20 years ago. They did it with Talkdesk with me back in the day. They did it again two months ago. This classic playbook. Byron Dieter did it with me back in the day at Bessemer. Of just sitting on your steps with the term sheet.

• 57:51Harry Stebbings?

  How does that work? Cause the founders that I meet are like, that's like forcing me into a marriage. I don't want, I don't do that either because I'm like, it's your free will. I don't want to impose myself unfairly.

• 58:03Jason Lemkin?

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

• 58:47Jason Lemkin?

  If you don't, let it go. And I think if I were a nudge, I would be much, much better investor.

• 58:54Harry Stebbings?

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

• 58:56Jason Lemkin?

  I don't know, it's like a long, 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. Like, if I didn't see it, I didn't see it. I tried a little nudge experiment the other day just to learn if I'm a nudge and it never works. This founder who has a really great company, they tripled last year, right? And he keeps me on his investor updates. And so I asked him last week, 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 nudge again. I'm like, I can't be an advisor, I'm overloaded. But if I can do a minimum of a million, I can still help you. And I couldn't nudge my way into the deal. He wanted me, but I couldn't, as a VC, I couldn't nudge my way into the deal. This was just the other day.

• 59:40Jason Lemkin?

  And so I keep trying that nudge experiment. I'm no good at it. I just, you gotta know yourself, right?

• 59:45Harry Stebbings?

  Jason, are you a better investor today than you were when you started SaaStr as a fund?

• 59:50Jason Lemkin?

  No, I'm worse because I'm slower and I'm worse because I take some things personally.

• 59:56Harry Stebbings?

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

• 1:00:05Jason Lemkin?

  Worse, slower. Now I like, I care too much and I think it's a negative.

• 1:00:10Harry Stebbings?

  Why do you take things personally? I thought you wouldn't give a shit as much. You're like, oh, fuck it, I'm old enough.

• 1:00:15Jason Lemkin?

  There's only so many trips around the sun. I should just invest. 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. I think you can, you shouldn't be too involved with portfolio companies. You have a portfolio. And to be blunt, every single investment I 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.

• 1:00:52Harry Stebbings?

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

• 1:01:11Jason Lemkin?

  Though I, I think I've learned over the years that the big funds are pretty good at doing that even when they're not on the board. They're pretty good at tracking these deals. Uh, I've seen several times over the last 14 months, when, when times have been tougher. I've had two investments that crossed from very good to breakout and big funds that were not at the board meetings were flies on honey or toast, 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 than top 1% growth where I'm not sure.

• 1:01:52Jason Lemkin?

  Uh, and I think founders should take inside, like good inside rounds very seriously now because of the reason you said. This is different than a bridge, but if one of your investors really wants to step up at a, at a higher price, six times out of 10, just it's a good, it's, it's a good thing in this market.

• 1:02:07Harry Stebbings?

  Jason, will we see a generation of VCs leave venture?

• 1:02:10Jason Lemkin?

  I don't think so. I think most junior folks have gotten little to no carry. The carry they've gotten vests so long that they never make any money from it. And I think a lot of the best up and coming investors that are, that have something special, that are differentiated, that could do a deal. They got good deals done the last 18 months. People think that like there's bad vintages. There's only bad vintages because you overpaid. But every month, there's a great startup born of every year of my life. There's a great startup born and the best up and coming VCs found them. And the mediocre ones complained about the markets or this or that. And the best ones just were heat seeking missiles and found them. And they're 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 in essence, contract by having longer fundraising cycles.

• 1:02:53Jason Lemkin?

  That's still a contraction, isn't it? And it's okay. I think there's more jobs in venture than there ever would. And if, and if you thought it was easy, you're delusional. There definitely is a generation that thought it was easy. And it, it, it stemmed to solo GPs and new emerging managers too. Emerging managers for the last four years thought it was so much easier. Every emerging manager promised their LPs 8X net. I remember talking to one who I loved. I love this, this, 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?

• 1:03:25Harry Stebbings?

  I definitely think a lot of people forget just how difficult it is to do, depending on fund size, but just generally at early stage. 3X now is still a fucking good fund.

• 1:03:34Jason Lemkin?

  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 100-page spiral-bound notebook about the fund and they just flipped to the last page and they just looked at the returns, which is what happens in a WSP and all they asked was, you know, are you tech or biotech? Like, or that's all they want to know and they all looked at the number. And you're a number as a fund and you're a number as a GP and you're a number as a partner and an associate, right? And you're a number. And if you're in venture and you didn't put points on the board the last couple of years, you don't deserve to be in venture.

• 1:04:17Jason Lemkin?

  This is not a charity. This is not a best efforts kind of job. This is not senior marketing manager creating infographics. Venture is both rewarding and brutal. You gotta put up the numbers and that's why markups matter and interim numbers matter because you gotta put up the numbers, right? We can talk about DPI forever, but you can't wait your whole career until the DPI comes. You gotta put up the numbers and if folks, if half the non-GPs lose their job and 25% of the GPs, 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 let them go. What founders don't get about venture when they fundraise is they really don't understand what it means that venture is a business of outliers. I'm sure you get these emails every day. They're like, Harry, like, my company is great. Last year was tough, but if we could just get a little more money.

• 1:05:02Jason Lemkin?

  Or like, our growth is pretty good, but not great, or whatever. These endless things they don't get that it's outliers. You gotta get into these outliers. Pretty good founders, they don't get you there. It's so hard. Outliers are bust.

• 1:05:12Harry Stebbings?

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

• 1:05:30Jason Lemkin?

  For investing, if I could, 2024 would be my fastest investment pace since 2014. That would be my goal. I think now is the time. I have the mental bandwidth and the clarity and the schedule. So I would like it to be the most prolific time. In terms of like, community, it's a constant learning. Some of this is pretty nichey. It would be great if marketing budgets re-flated in later 2024. Right now, for SaaStr as a media business, it's kind of interesting. All of our revenue is from big tech. 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?

• 1:06:14Jason Lemkin?

  So it would be great for marketing budgets to reflate a bit. That would just help us invest more in the community.

• 1:06:20Harry Stebbings?

  How much does SaaStr revenue wise, if you're able to say?

• 1:06:23Jason Lemkin?

  Like 27 million the year before?

• 1:06:25Harry Stebbings?

  What would it take to do 100 million?

• 1:06:27Jason Lemkin?

  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 SaaStr as a marketplace where buyers of software can connect with more CEOs. There's two reasons people sponsor or partner with folks, right? But for what we do, especially at the events level, you're creating a marketplace. If you think about it, you're creating a marketplace. At SaaStr Annual, we'll bring 12,000 people together, right? And about 40% will be CEOs, right? Which are a very difficult group to access. And so, events are a headache and they're a lot of work and people get grouchy and marketers complain about the expense. But what you're really doing is creating an IRL marketplace

• 1:07:11Jason Lemkin?

  where buyers and sellers come together, right? And you're facilitating these conversations and this marketplace. So at SaaStr today, we do it just by dint of having a community. We just bring people together. But if we aggressively did it the way Gartner's and others do it and we blew it up, the number of connections would, instead of being good, they would go up not just a little bit, they would go up like 10x. So I lament that I'm not completely executing that plan today because the things that are like SaaStr on the events media side, the couple of 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 SaaStr are Money 2020 and Shop Talk and Ecommerce and they're both over 100 million.

• 1:07:57Jason Lemkin?

  One of the classic SaaStr posts, and I say this to founders at the end of the year is like, you've got to judge your growth not on an app, just on an absolute basis, but compared to your competitors. So like, let's say you're a startup and you grew 80%, 100% last year. You're like, "Hooray, 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 SaaStr isn't really losing share, our business keeps growing. But when I look at folks that started, I mean, Shop Talk started at the same time. Money 2020 is much older, but got rebooted at the same time. And they're 100 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. You feel a little bit, you feel like you've underperformed, right? But on the other hand, the interesting thing is, you know, we did it with eight and they have hundreds and hundreds of people.

• 1:08:41Jason Lemkin?

  The other interesting thing on this media community thing is you don't want to be a BuzzFeed. You don't want to have, need 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 100 million with 200 people? Actually, it's a complicated question, right?

• 1:09:06Harry Stebbings?

  Jason, I love our chats. Thank you so much for doing this. And you've been such a star for the first guest of 2024.

• 1:09:12Jason Lemkin?

  Happy New Year to everybody, happy new year to you.

• 1:09:16Harry Stebbings?

  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 20VC. 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 their true potential. The arising ventures team are tech founders. They're not bankers, so they know what other founders really care about. They've given many great businesses a second chance at success.

• 1:09:50Harry Stebbings?

  Like Jive, a business arising ventures relaunched after it shut down in 2021. Arising ventures bought them out of liquidation, brought back key team members and took them from nought to 1 million ARR in just five months. Thanks to arising ventures, Jive now serves some of the largest brands in the world. So if your tech startup is facing hard times, arising ventures could be just what it needs to find new life. And you can learn more and connect with the team at arisingventures.com/20vc. After submitting your information, you'll hear directly from the founding team within 24 hours.

• 1:10:24Harry Stebbings?

  Go to arisingventures.com/20vc. And speaking of innovations in venture, Carter is a standout. Fund admin in venture capital is a nightmare. It's boring, it's tedious, and to be quite blunt, it's just a pain in the ass most of the time. But Carter provide a better way to run your fund. Trusted by over 5,000 firms with over 126 billion in assets, they provide one click capital calls, access to over 300 fund accountants and tax experts. And they provide live interactive LP reports for your LPs. It's a total game changer of a product for any emerging manager raising a fund or any established manager with many funds under their belt, but wanting the best product for their LPs.

• 1:11:06Harry Stebbings?

  Head over to Carter.com to check it out and find out more. And speaking of game changing products, Intercom is a complete AI powered customer service platform and the only platform to combine a help desk, AI chatbot and proactive support tools. It also comes with a fully featured inbox, ticketing, help center and messenger. Making it not only complete, but also the most powerful support platform out there. Intercom, every single tool you need, all in one place, enhanced with AI. So you can give every single customer the fastest, most personalised experience imaginable. Learn more at intercom.com. As always, I so appreciate all your support and stay tuned for an incredible episode this coming Monday. God, it's such a great debate. It's between Nick to Minow and then Carl at MultiCoin.

• 1:11:50Harry Stebbings?

  Such a good episode to come this coming Monday.