The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:53:13 · Luke Harries, Harry Stebbings
[00:53:13] S1: I said billion dollars of valuation. So... And and I think truthfully, at that point, it was, like, probably half the enterprise value of the company was Peter's model. [00:53:22] S0: Nuts. Yeah. Unbelievable. Can I ask you, we mentioned? I'm really jumping around, but fuck it. I enjoy it so much. We mentioned, like, the enterprise discussions you had earlier moving into enterprise. The big concern with a lot of, essentially, these Gen AI companies today is that they're sugar high revenues. They're unsustainable. We've seen them both. They hit $50,000,000 hour, wow, wow, wow. But it's like, is it real revenue? How do you think about... Do we have a generation of companies where it's pretty synthetic revenue or not? [00:53:51] S1: You know, it probably varies by product to product. [00:53:54] S0: Yeah.
00:53:54 · Harry Stebbings, Luke Harries
[00:53:54] S0: Yeah. [00:53:54] S1: But if they're solving a real problem and the retention is strong, I see no reason why these aren't real revenues. And the thing I've spoken to a few VC friends, I don't understand why they're not upping the rate that they're investing. They're seeing companies which are now... They're like, oh, it's already on $6,000,000 MRR in, like, one year. And I'm like, why aren't you investing on it? And they're like, well, there's this other one which is now on, like, $10,000,000 of MRR. You're like, surely now is the time. Like, the wrong time to be the tiger global play of investing quickly was back in the COVID boom. The exact right time is now when I think you have this unlock of capabilities with the AI models, which has meant new products which just couldn't exist before. [00:54:35] S0: I think the hardest thing is before, there were two to three competitors always. Now there is literally 10 to 15 Yes. On everything. And so discerning winners is much harder when all of them have relatively impressive traction and [00:54:48] S1: revenue. But as long as they're solving real problems and scaling quickly and the customers are retaining, particularly if you're doing b to b or enterprise, you're going to get that cohort of customers for a while. And so if you're already on $10,000,000 of revenue, if we think that it used to be the threshold for IPO was like, oh, let's get to $100,000,000 of ARR, you actually have entire waves of companies which are now reaching those thresholds. What is good retention?
00:54:48 · Luke Harries, Harry Stebbings
[00:54:48] S1: revenue. But as long as they're solving real problems and scaling quickly and the customers are retaining, particularly if you're doing b to b or enterprise, you're going to get that cohort of customers for a while. And so if you're already on $10,000,000 of revenue, if we think that it used to be the threshold for IPO was like, oh, let's get to $100,000,000 of ARR, you actually have entire waves of companies which are now reaching those thresholds. What is good retention? [00:55:16] S0: This is a hard point, which is like in traditional enterprise, it was like, you know, very, very high, very high. And you'd look at like a Lovable with like, I think they're 86%, I think Anton said on the show. In traditional SaaS, that's still shit. We're churning 14% a month.
00:55:31 · Luke Harries
[00:55:31] S1: I think people largely think about retention for consumer and pros team as wrong. So for enterprise, it's very clear, which is you sign one contract, say you sign a large enterprise, hypothetically Slack, and you land them one seat and then you expand, and then you can look through and be like, oh, our NRR after one year is we're now on 150% NRR. Great. That contract's grown. If you think about the way it's actually grown underneath, it's like seat expansion within Slack. I'm sure lots of those individuals have churned. On an individual user, they're probably not growing that individual user's revenue more than a 100% instead of you're growing within that account base. And I think when you look at consumer and prosumer, yes, for that individual user, you may only be on 87 revenue retention. But what then happens is you build a product on Lovable, you then share it with a bunch of your friends, and for more people sign up to Lovable. And so when you take into account the natural virality rates, I think your overall NRR of that one account you've grown may actually be a lot higher. You should still look at the individual, like, seat retention. I think it's fine to have it below the 100% on the individual level. And then when you zoom out and taking into account the organic growth, which comes because of it, that you do want to be over a 100%.
00:56:50 · Harry Stebbings, Luke Harries
[00:56:50] S0: You know what's nuts is actually the fact that the revenues are growing so fast by the time the rounds are done. Yes. I mean, when we did Lovable, I think it trebled its revenue by the time the round had completed. [00:57:01] S1: And I [00:57:01] S0: was like, I would wanna retrade on price. Like, it was actually only a 10 x revenue multiple when we did it. Yeah. Yeah. Fucking nuts. [00:57:08] S1: Yeah. We we both invested in Lovable. And at the end of q one on ElevenLabs, we did very well. We had, like, our best quarter ever. We had more enterprise using it. We had more consumers, more prosumers. I was, like, tapping myself on the back, you know, growth team. I was like, we did pretty well. And then we got the, email from Lovable with their latest results. I was like, okay. We need to up our game a bit. [00:57:28] S0: Back to what... No one leaves the office. No one leaves the... Don't let Matti see this email. Don't let Matti see this email. What do you actually think happens there? Does Lovable become a $10,000,000,000 company and change the way that we create websites? Does it do Squarespace, Wix, you know, adopt similar process? What happens?
00:57:28 · Harry Stebbings, Luke Harries
[00:57:28] S0: Back to what... No one leaves the office. No one leaves the... Don't let Matti see this email. Don't let Matti see this email. What do you actually think happens there? Does Lovable become a $10,000,000,000 company and change the way that we create websites? Does it do Squarespace, Wix, you know, adopt similar process? What happens? [00:57:47] S1: I think there's a few ways they could go. Overall, though, I'm just very bullish. I don't see a reason that the level of intelligence in these AI models will slow down. And so given that it will keep rising, I think you're going to see more and more engineering. We're already at, say, 60% of all our code being AI generated. Then you have, like, the broader life cycle of all the testing, deployment infrastructure. There's no reason why any of that couldn't be all done by AI as well. And so I think Lovable's in a fantastic place to own that core stack. The tricky bit, I think, at the start is how do you make it super secure? How do you get enterprises to build it? How do you do full apps? And I think Replit is kind of dead at the wheel at the moment. I don't hear the recent things they've been launching, and so I could imagine that Lovable going in that direction. You're cringing. [00:58:35] S0: No. I... I'm with you totally. I remember when they were the hottest company. [00:58:38] S1: Yes. Yeah. [00:58:39] S0: Actually, I haven't I haven't heard anything.