The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:12:03 · Harry Stebbings, Jason Lemkin
[00:12:03] S2: So Jason, you're on the side of day one. [00:12:05] S0: I think everyone's wrong here. [00:12:06] S2: Yeah. [00:12:07] S0: I think it went too far. I think the CEO handled it poorly and said he wished they'd never been an investor when they clearly bailed them out multiple times. That's not cool. And hiring Quinn Emanuele for a very aggressive investor is a step too far. They both did the wrong thing.
00:12:22 · Rory O'Driscoll
[00:12:22] S1: Yeah. I agree. Because I think... No. Play it out here. I mean, because I mean, now down in the weeds of what are you actually going to win here? It's whenever you start an argument, and I do this a lot too, you forget to ask yourself, what are you going to win? First of all, you've waived your pro rata rights. So if you want 5%, you're not going to get 5% of the round because someone's waived the rights. Once that's happened, it's all up for grabs. The springback is only proportional to how much the other person who got to come in on springback rights puts in. In other words, if the strategic got to put in 5,000,000, then your ratio is relative to that. So it might be a whole ton of money anyway, right? So you're suing for the right to get 10 or $15,000,000 in at 6,000,000,000 pre when you already own 5% of the company, we're $300,000,000 What are you doing here? Even if it's $100,000,000 right, you have your win, picking this fight's a mistake. Whenever you pick a fight with a founder, and occasionally you do it when you're not thinking, it's just not worth it. I'm kind of what Jason is. Both people can be intellectually wrong, but pragmatically right. Pragmatically, this is a, you know, why and say I'm hurt, and then move on. And we've left out the whole Russia Epstein dimension. There's a whole bunch of noise around that. That's very Twitter centric about day one, and I know nothing about it. I'm going to acknowledge it, and I'm sure at some point it'll be used in the defense. I think forget that leaving that aside, even I think the pragmatic thing is what are you fighting for relative to what you already have? Why are you doing this?
00:13:44 · Jason Lemkin, Harry Stebbings
[00:13:44] S0: That's just my life lesson is listen, if you are quote, air quote, wronged by a founder as a VC. In fact, it happened to be once with Harry years ago, raise it once and let it go raise it once. And I made this mistake once years ago, around years ago, Harry doesn't even know he wrote a small check-in to a company he didn't know and a very large fund. This is one of the rare cases where I wanted my pro rata. It was important to me. I don't really care after the second check, but I needed to get my second check-in. And I love this guy, Harry Steppings, but I get an email that Harry's investing in the round and I'm cut back to zero. And I'm like, I was the only investor in this company for years. I bridged you. I helped you. I've been the only one. And I love Harry, but I know he has this fabulous podcast, but why is Harry getting an allocation and I get nothing? This is a true story. When I said it that way, and I shouldn't have quite said it the way I did, it was so obviously wrong that Harry got his allocation that really bent the relationship with the founder. Didn't break it, but it bent it. Right? Because there was no good answer to why Harry Harry gets his allocation and I don't. And I learned from that, don't even say it because the decision's been made. It doesn't it doesn't matter if it's right or wrong. Let it go. It doesn't matter. [00:14:49] S2: But Jason, I felt a real bond with you as a result of that. You said
00:14:49 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:14:49] S2: But Jason, I felt a real bond with you as a result of that. You said [00:14:53] S0: even know what that happened a until today. Say that, how he said This was five or six years ago. You never even knew until today. [00:15:01] S2: Dude, I have no idea what company you're even talking about right now. I hope it's a good one. [00:15:05] S1: It's a [00:15:06] S0: good one. Yeah. Oh, good. They've been fantastic. You gotta let it go. Jason, I thought that was [00:15:12] S2: incredibly nuanced commentary, by the way, from you
00:15:12 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:15:12] S2: incredibly nuanced commentary, by the way, from you [00:15:14] S0: on that. I was very impressed. The interesting thing for this, everyone's so biased on this issue. I've never seen more crap, more selfish takes on Twitter that are seen as generous. Like, I'm only a pure seed investor. I don't need pro rata. And then you see other folks who are like, this is the most important rights under the constitution of venture capital investing. You peel the layer back, everyone's biased in the answer they give. It's just, you can't get a straight answer on this. The only thoughtful answer I ever heard, the last time this issue came up a couple of years ago, I remember what Keith Rabois wrote, which was, I thought a simple answer. He's like, you could get rid of pro rata, but it's core to our business model as larger funds. Maybe it at Founders Fund at the time. Right. And he's like, I just have to pay a much lower price than worst case. Right. If I'm investing early with an expectation I can deploy a lot later, I'm comfortable overpaying in the early round for my pro rata. I'd have to pay like a half the price I'm paying otherwise. Are you comfortable with that founders and the crickets? No one set up, I'm willing to raise at half the price for no pro rata. [00:16:12] S1: Can value an... You're exactly right. Keith's right. You can value an option and deduct it from the price. You're exactly right. [00:16:17] S0: It has a value, right?
00:16:17 · Jason Lemkin, Rory O'Driscoll, Harry Stebbings
[00:16:17] S0: It has a value, right? [00:16:18] S1: You know, and it is one point, as I said, and you said it, Jason, all the people, even the megaphones who are coming in saying, you guys should waive your rights, ain't fixing to waive theirs, which shouldn't be a clue about the real value thereof. Right? [00:16:31] S0: You wave, but I ain't waving mine. [00:16:33] S2: Moving swiftly on, we... I'm... I love the bromance and partnership that is Zuck and Alex Wang. I I just... It's like uplifting in ways that are cool to see together. [00:16:45] S0: I like how they match. That's my favorite part. The outfits match. [00:16:48] S2: Did you see Zuck drinking the Guinness in the cheeky pint? And then he pulls away, and it's, like, clear that he's never tried Guinness before, and he hates it. But Meta is back at the frontier with a new model, Muse Wonder, just shy of Opus 5.5 on Independent Index. Let's start there. I don't wanna add too much. How do we think about this, guys? Another meaningful movement from Meta into the model layer, even more pros for Zuck? It's a zero. [00:17:16] S1: It's a zero.