Lead Edge Capital's Mitchell Green says the firm's eight buying criteria narrow about 9,000 companies to roughly 900, with 5 to 7 deals made a year.
Green says Lead Edge put about 12% of Fund 3 into Toast, selling $180m before the IPO and expecting $350 to $400m in total returns.
Green warns that AI capex is a bubble that will end badly, like telecom, and expects models to commoditize, favoring Amazon, Microsoft and Google.
Lead Edge built a growth equity machine on cold calls
Lead Edge is a growth equity firm built as a repeatable process rather than a string of bets. Thousands of cold calls produced pattern recognition, simple criteria narrow the field, and an operator LP base keeps capital stable. Green says steady returns, disciplined selling and skepticism toward hype multiples matter more than chasing outsized outcomes.
Takeaways
Lead Edge runs growth equity like a software company. Green and partner Brian cold called about 10,000 companies to build pattern recognition. Now about 18 analysts aged 22 to 24 speak with roughly 9,000 companies a year. The firm's key metric is 95% gross dollar retention for its LPs.
Eight criteria are a strike zone, not predictor. The criteria cut about 9,000 companies to around 900 meeting five or more, then 150 to 175 get diligenced for five to seven deals a year. Green sees no link to performance. His biggest mistakes were passing on companies inside the zone.
Operator LPs support retention as well as returns. About 95% of capital comes from roughly 800 LPs who are executives and entrepreneurs. Rick Wagoner, the former General Motors CEO, can help with sourcing and diligence. Green argues this network matters most for keeping LPs, not only for performance.
Consistency matters more than the level of returns. Lead Edge targets 2x to 5x per deal over three to seven years, and its funds return 2x to 2.25x net. It has lost all its money in only one deal. Funds hold about 20 companies.
Disciplined selling made Toast a success. Lead Edge put about 12% of Fund 3 into Toast at roughly $500m, about 20 times revenue. It sold $180m before the IPO and expects $350 to $400m in total. Green calls assuming 20 to 25 times exit multiples reckless.
Software incumbents win on distribution, not R&D. Distribution, customer success and client services matter more than R&D. Workday has 98 to 99% gross dollar retention on about $10bn of revenue. Green sees overleveraged private equity owned software as ripe for disruption, as Coupa grew after SAP left Ariba in debt.
AI is transformative, but capex is a bubble. Green expects AI to be the biggest productivity gain in 7,500 years, yet compares the capex boom to telecom. He expects models to commoditize, favoring large platforms with more data, and calls OpenAI at $800bn a little insane.
The eight buying criteria
Scale and growth. At least $10m in revenue and growth of about 25% a year.
Quality of revenue. Gross margins of 70% or more and recurring revenue.
Capital efficiency. A ratio of revenue to cumulative cash burn of about 1 to 1, plus profitability.
Tap a name to go there · tap a line to see why they are linked