The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:16:52 · Sameer Dholakia
[00:16:52] S0: Entry price always matters. Every venture capitalist has taught me that. By the way, I mean, know me. I'm four and a half years into this second career of mine, so I'm still learning. I appreciate that it is a craft like every other, and so I don't pretend to have all the answers by any stretch. But I know how important entry price is. And I will say that what matters most is whether or not you believe it can grow at scale and compound it for a very long time and still make you a venture return. And so I'm just very focused on the looking out the, as they always say, the windshield as opposed to the rearview mirror. And if I look at some of the investments of which I'm most proud, they were at current ARR multiples that would make most venture capitalists throw up. I mean... And they were difficult conversations in our firm IC, right, in the investment committee. I mean, I think, like, when we invested in a bridge, they were at 5,000,000 of ARR, and we were paying whatever it was, dollars $708,100,000,000 valuation. When we invested in Anthropic in that $15,000,000,000 round, I think they were at $100,000,000 like 150 times current ARR. Labora, 20,000,000 of ARR when we invested and led that $1,800,000,000 round. That's insane. And and if you're only looking at present and backwards, you'll say, Samir, do you not understand math? Like, a 100 times, that's what you're paying to get in? But if your view, as was mine in each of those instances, was that, yeah, but on an NTM basis, and that's what I care about, I'm looking at what do I think in the next twelve months this thing can be, and do I feel like this is a reasonable multiple in the next twelve months?
00:18:24 · Harry Stebbings, Sameer Dholakia
[00:18:24] S1: So you look at end of year next year. Again, this is me trying to learn. You look at end of year next year, and then you look at gross profit on top. [00:18:31] S0: Of year. Not end of year next year. I'll go, NTM, next twelve months. And, yeah, depending on the business, next twelve months only because, you know, depending on where you are in the year, and that could be more like eighteen or twenty four months, and I won't pay that far forward because it's really hard to see that far forward in any business. And I've been an operator. I've been a CEO. I know how hard it is to predict that far into the future when you're scaling at these rates. But next twelve months, you should be able to get your arms around, at least get closer. [00:18:56] S1: What is exciting enough in that respect then? When you look at NTM, what is green versus red?
00:18:56 · Harry Stebbings, Sameer Dholakia
[00:18:56] S1: What is exciting enough in that respect then? When you look at NTM, what is green versus red? [00:19:01] S0: You know, depending on the business, it'll it'll vary. But, you know, something something that's in the 10 to 15 times NTM, I don't think is crazy, especially if there are these businesses that are growing at rates that have never been seen in the history of business, and I've certainly never seen in my career of thirty one years. I don't feel like paying 10 to 15 times NTM is all that crazy because they're gonna blow through it. And I look at, you know, Legora, we invested at 1,800,000,000 leading that round, and that seemed insane at the time, you know, but the company just went, you know, 20 to 200. And I know we're... I think we're in that together. I know you know Maxwell. You know, they're on fire, and and I feel pretty good about that 1,800,000,000. [00:19:34] S1: We're we're gonna get to the gore, and I completely get that. Does your feeling good about that 1,800,000,000 change depending on customer makeup, quality of revenue, run rate versus enterprise revenue. We see some quirky ways to calculate revenue today. Does that change?
00:19:34 · Harry Stebbings, Sameer Dholakia
[00:19:34] S1: We're we're gonna get to the gore, and I completely get that. Does your feeling good about that 1,800,000,000 change depending on customer makeup, quality of revenue, run rate versus enterprise revenue. We see some quirky ways to calculate revenue today. Does that change? [00:19:51] S0: For sure. Quality of revenue matters deeply. You know, I prefer I'm an old school. I've been in enterprise B2B software since 1995. So that is my bias. I prefer the gross dollar retention rates, the net dollar retention rates of highly sticky customers that for whom your thing is super strategic, and they're gonna keep they're gonna keep expanding. So I would pay a much lower multiple for, like, a prosumer y business or a consumer business. You know, churn can can kill you. So [00:20:20] S1: What about margins? You look at someone like Elagora, who we both love. Their margins good. Dental, enterprise
00:20:20 · Harry Stebbings, Sameer Dholakia
[00:20:20] S1: What about margins? You look at someone like Elagora, who we both love. Their margins good. Dental, enterprise [00:20:27] S0: software margins. Margins... So this is where, you know, again, having done this for a while, like, it depends on your lens. Am I worried about their gross margins in the next twelve months? I am not. I have got a hold period of five to seven years at a growth stage check. And so when I think of it over the next five years, what do I think that's going to grow into and why? You have to be really thoughtful on... If the gross profit picture doesn't look pretty and you're envisioning some, like, you know, fun with math in a spreadsheet that all of a sudden it's gonna be magically hit 60 or 70% in five years, you sure as hell better defend that. You better know why you think that that is possible. But in a lot of businesses, you know, economies of scale really matters. Share and position really matters. And, you know, I I can remember most of the businesses I invested in, gross margins at the time we invested in this AI world were meaningfully lower than they are at scale today. I mean, meaningfully lower, like factors, improvement inside of twelve to twenty four months.
00:21:26 · Harry Stebbings
[00:21:26] S1: When we look at, say, a legora of the world... I'm an investor. I always hold my hands up. I'm a big fan. You did it at 1,800,000,000. The legal market is 300,000,000,000 in The US. If we assume a 20% take for software and that is $60,000,000,000 and we assume that it's split up between a couple of different players, including your Harvey of the world, you can get to like 5 to 10,000,000,000 maybe in revenue. Is that how you thought about it? How do you get to a ten twenty x when you enter 2,000,000,000 on a company like Ligura? Help me.