The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:22:00 · Sameer Dholakia
[00:22:00] S0: Well, I mean, that math not terribly off. I would just say we included the whole world because you and I both know Max, and he has global ambitions. And when you add in the rest of the world, by the way, you don't grow the tame a little bit. You add another 60%. You know, it's The US market is only 40% of it. But, yeah, I think that that math is is is not way off. I do believe you can get after the services dollars, I'll say, that go into into the legal market. It is, you know, the cliche that everybody keeps talking about Jevin's paradox. I do believe there's a lot of legal needs that don't get served today because the prices are too high. So I I just think there's... The... This market, when you just have... The way we thought about it very simplistically, I'll say is there's about a trillion dollars of legal services spend in the world When you're just thinking about this, that size of the TAM, I believe that they don't have to take any meaningful share of that to go build a massive business. And by the way, if they build a 5 to $10,000,000,000 revenue business, that thing is gonna be worth, you know, you put any multiple on that that is that is reasonable, and you're gonna make you're gonna make a very good return.
00:23:00 · Harry Stebbings, Sameer Dholakia
[00:23:00] S1: The thing that's interesting when you look at all markets today is the competitiveness has changed. Dude, when you were building, you know, SendGrid... You know, in no offense, there weren't that many competitors. There were there were several, but not the depth that we have today. And when we look at like a a Lagora and a Harvey, I'm gonna be unpopular. I think both will do very well. When we look at a fireworks, I think base 10 and modal will do well too. I think fireworks will win, which is why my money is there. Has the competitiveness changed in your mind? And does that shape how you think about investing and market outcomes? [00:23:34] S0: Look. I actually don't believe that the competitive breadth has changed. What's changed is the capital intensity behind the competition, and therefore, it leads to this competitive intensity. Right? Like, if you looked at the the war chest, the amounts of money that take a Lagora and Harvey have both raised, That leads to a competitive intensity that absolutely is different than than what I dealt with in my era. [00:23:59] S1: Is capital a moat today? Is that the differentiator?