The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
01:02:05 · Rory O'Driscoll, Jason Lemkin
[01:02:05] S1: Agreed. Because if you think about all that happened is it's a mature consolidating industry now. And what happens in mature consolidating industries is that the market leaders have scale, they have market cap, and they have a leverage, and they're just going to start, you know, you're seeing many off doing it, you're to see acquiring companies, and then the ones that don't acquire, you can grind out. Cause you might do this. If you're already at 40,000,000,000, your money good. You've got cash flow, you're good. Right? If you're at a 100,000,000, you're trying to get to 300,000,000 in a SaaS product, it's really hard today. [01:02:33] S0: Yeah. I wonder if we, if we even, when we started the show, it seemed like 500, you could IPO at 500,000,000. I'm not sure after Orin Friends, that's even true today in this asspocalypse. I don't know that 500 is durable or safe any longer, right? You might need a billion and 0.5 or 2,000,000,000 of ARR as a software company to have a safe IPO. And that outside of Jev and friends, that has a lot of implications that this sespocalypse is worse than we thought. 500,000,000 isn't good enough anymore. Now it's gotta be 1 to 2,000,000,000 in ARR for these companies to go public and the math gets harder and harder. So I don't wanna talk about it forever because it's a new world, but, you know, the only thing that is safe is scale.
01:02:33 · Jason Lemkin, Harry Stebbings
[01:02:33] S0: Yeah. I wonder if we, if we even, when we started the show, it seemed like 500, you could IPO at 500,000,000. I'm not sure after Orin Friends, that's even true today in this asspocalypse. I don't know that 500 is durable or safe any longer, right? You might need a billion and 0.5 or 2,000,000,000 of ARR as a software company to have a safe IPO. And that outside of Jev and friends, that has a lot of implications that this sespocalypse is worse than we thought. 500,000,000 isn't good enough anymore. Now it's gotta be 1 to 2,000,000,000 in ARR for these companies to go public and the math gets harder and harder. So I don't wanna talk about it forever because it's a new world, but, you know, the only thing that is safe is scale. [01:03:11] S2: And credit to the few who are able to transition preplays into postplays of the pre AI play to the post AI play like an intercom did. One of our businesses last week, I'm not allowed to say how much it sold for, but it sold for a very large amount of money, not billions, but hundreds and hundreds of millions, Tack Wolf to SAP. And it was it was a pre AI enterprise software company in the HR space of all spaces, and it was able to transition into an AI first company and sold to SAP for a big amount of money, the biggest ever for Belgium, which isn't particularly saying much, but still big. And so I think there is still room.
01:03:11 · Harry Stebbings, Jason Lemkin
[01:03:11] S2: And credit to the few who are able to transition preplays into postplays of the pre AI play to the post AI play like an intercom did. One of our businesses last week, I'm not allowed to say how much it sold for, but it sold for a very large amount of money, not billions, but hundreds and hundreds of millions, Tack Wolf to SAP. And it was it was a pre AI enterprise software company in the HR space of all spaces, and it was able to transition into an AI first company and sold to SAP for a big amount of money, the biggest ever for Belgium, which isn't particularly saying much, but still big. And so I think there is still room. [01:03:51] S0: But I don't think... In all fairness, like, congrats to the to the Tech Wolf guys. I remember actually I forwarded that to you in 2020 here, but I just didn't get the HR thing. Or or even Finn. Like like, okay. I don't think they count and Intercom and the team is great. I'm a minute shareholder, Rory's a shareholder, but that's not true scale. That's not a billion north in recurring. So those deals are great for the founders and they're fine for the VCs, but I don't think they countermand this point that as Spoculos is as bad as it ever did. Kudos to the Intercom for building an AI native reboot of their company to 9 figures in revenue, but that's very different than building to a billion growing 50%. And so I don't think it countermands that. Right? It's... And these exits, Menlo... Menlo's point is we need $325,000,000,000 exits per fund. Tech Wolf and Fin don't count. [01:04:35] S2: Well, not not for Menlo,
01:04:36 · Rory O'Driscoll
[01:04:36] S1: but for my fund, they return 25 difference to Harry. I mean, I think there's two separate points. One is... And I think you should disaggregate them. One is who does the $500,000,000 exit count for and who doesn't? Yeah. If you're a mega fund, it doesn't count. If you're a normal sized fund, you really can make good money there. It's not to be snared at when the check hits. That's the first comment. But the second comment I think is more interesting, what you're implying, Jason, which is post SaaS apocalypse, there's just not going to be as many of them. Because let's just say there's 200, 300 of these similar sized SaaS companies. Big tech can only buy so many at a time because it's a distraction. So they get hoovered up at the rate of 10 a year. And that's like infinite time. That's the real issue, which is, is that because there's no probability of getting critical mass and scale at an exit, you're just done. You know, I'm not done, but you're just destined to be one of hundreds of mid sized companies trying to compound your way to something that matters. And you very much have to proactively get AI native, try and drive to an outcome, try and be important to some other company, or be happy running your company for the next decade and, know, taking a dividend. Because, you know, mean, could cynically say the same is true in AI apps. There are way too many apps relative to the likely number of 500,000,000 or billion dollar outcomes. But in an expanding market, all is forgiven. What is product categories look like? Company categories? Everybody expands just like SAS did twenty years ago. It'll all be great until you hit the tipping point again.
01:06:01 · Harry Stebbings, Rory O'Driscoll
[01:06:01] S2: Can I ask, guys? I don't wanna be mister negative or finish on a negative, but Flock Safety had some problems with privacy backlashes previously. We touched on it very previously in an episode. Now they're cutting 270 people, 18% of staff. Is this a company in real trouble? Is this [01:06:21] S1: I I thought... I I I, you know, I saw a tweet. You know, I I prefer the crime to the surveillance. Personally, I prefer the surveillance to the crime. I prefer the surveillance was actively controlled. You know, we talked about that a while back. The problem here is a bunch of, renegade off limits use case for law enforcement, not doing it in the right way, or not even doing it for law enforcement at all, but checking up on personal lives has now damaged the brand. I wouldn't say irrevocably, but yeah, it's a pretty tough problem. You wouldn't want to be flock right now trying to position this because whenever red and blue America vote hates you, you got a tough thing going. And again, I defend that, the other side. I do think the crime deferral is really worth it. Think the improvements in crime in San Francisco and New York, they're just awesome, and it really expands the game. So I'm I'm not not a hater, but it it always sucks when the public has you, you know, when everyone has you like that. So I [01:07:16] S2: don't know. [01:07:16] S1: I'm sure it bottoms out, but it's a tough, not just a comms problem, it's tough business problem too.
01:07:16 · Rory O'Driscoll, Jason Lemkin
[01:07:16] S1: I'm sure it bottoms out, but it's a tough, not just a comms problem, it's tough business problem too. [01:07:21] S0: But I'll tell you my concern, which is this worries me with a lot of startups is I don't know that they have a strong enough engineering team and I think they cut too many quarters because the security issues they've had are unacceptable. They've had cameras just streaming unsecured across the Internet. They were using dated versions of Google on old Android tablets to save money that were no longer supported or had security patches in the last year, year and a half. This is unacceptable from a company where security has to be at its core and paramount. And it's happened multiple times. [01:07:51] S1: Interesting, because I was more focused on the unauthorized use, but you're saying there's also been access. That sucks.