The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:23:59 · Harry Stebbings, Sameer Dholakia
[00:23:59] S1: Is capital a moat today? Is that the differentiator? [00:24:02] S0: I absolutely believe capital is a moat. I have always said that markets pick winners, and then it becomes a self fulfilling prophecy. Right? Like, our day, you know, SendGrid and Twilio were the API building blocks to to plug into your application to go send communications. And then once developers had decided that, it was game over. We had won. Like, that you you you were the default that you became the market winner. And that does happen, and we see it in in our... In these markets if we take that one as an example. There are lots of legal tech companies, lots of AI legal providers. But if you ask anybody at a big law firm who are the major legal AI companies, they would they would name those two. And so I do believe that the capital creates the... Both the ability to scale at an extraordinary pace and, therefore, a brand for those businesses, talent then ends up flocking. And then you just get this reinforced flywheel, then they win more customers, and then that just... You know, the virtuous cycle continues. [00:24:55] S1: Do you believe in king making? I do. To your point that if capital is a moat, excessive amounts in short amounts of time give inherent advantages. Do you agree in... With king making like I do or not?
00:24:55 · Harry Stebbings, Sameer Dholakia
[00:24:55] S1: Do you believe in king making? I do. To your point that if capital is a moat, excessive amounts in short amounts of time give inherent advantages. Do you agree in... With king making like I do or not? [00:25:08] S0: Yes. Because I believe everything you said, which is the capital is a moat, and it is a signal to the market. And having built software companies for a very long time, your product has to be exceptional. Your company leadership has to be excite... It's... I I would say in in, you know, in math speak, it's necessary but not sufficient. It is a necessary condition for you to win the market that you have the biggest war chest, that you have the most capital. I really do believe that you are in that kind of a game. And it's because the compute is so scarce, and therefore, the compute is so expensive that if you don't have that, you just can't play. So, yes, I agree with you at the first part of your statement, but it is not sufficient. You have to then deliver an amazing product that your customers rave about, love about, tell their friends about if you wanna be the king. Otherwise, you have no chance. [00:25:54] S1: So I agree with you completely there. And I also agree with what you said earlier, which is, like, you know, the 10 to 12 x and the the growth rates now are very different to what they were. When you look at what you're seeing today growth rate wise, is the triple triple double double that Sasta and me and Jason always talked about. Is that wrong? Is that not enough anymore?
00:25:54 · Harry Stebbings, Sameer Dholakia
[00:25:54] S1: So I agree with you completely there. And I also agree with what you said earlier, which is, like, you know, the 10 to 12 x and the the growth rates now are very different to what they were. When you look at what you're seeing today growth rate wise, is the triple triple double double that Sasta and me and Jason always talked about. Is that wrong? Is that not enough anymore? [00:26:14] S0: It is not enough to attract capital from venture capitalists who have opportunities to put them into these hyper growth companies that are growing much, much, much faster. You know, all of us as venture capital funds, your capital as big as these funds are, we just raised $5,750,000,000. It's still scarce capital. There are deals to be done at crazy hypergrowth rates. Now all that said, I do still believe in finding companies that are doing the t two, d three because the entry prices on those in this environment can be dramatically different, a very different multiple, and you can still make a great venture return on those. [00:26:51] S1: Do you buy that? Like, do you remember the the kind of ex... I call it the Excel deal. Do remember the Excel growth deals like the one pass words, the Qualtrics, where they found these kind of amazing assets in less obvious locations that were maybe more capital efficient? They then juice them up with some growth capital, and then it turns into an even better business. Do you believe those will exist in the next gen or actually not? You have to have that capital to get to the scale.
00:26:51 · Harry Stebbings, Sameer Dholakia
[00:26:51] S1: Do you buy that? Like, do you remember the the kind of ex... I call it the Excel deal. Do remember the Excel growth deals like the one pass words, the Qualtrics, where they found these kind of amazing assets in less obvious locations that were maybe more capital efficient? They then juice them up with some growth capital, and then it turns into an even better business. Do you believe those will exist in the next gen or actually not? You have to have that capital to get to the scale. [00:27:15] S0: I think that over time, we'll see a bunch of application companies that can look like what you just described. I just don't think that that's where the venture dollars are gonna flow in the near term. When you have opportunities to invest in things that are 10 x ing at scale and your opportunity is something that's doubling, of course, you're gonna go to the TEDx ing, not just like an intelligence test. [00:27:34] S1: We call it cake or death. Yeah. You ever seen Eddie Izzard? He goes, cake or death? And you go, cake, please. Cake? Wow. What a surprise. I wasn't expecting that. [00:27:46] S0: What a tough question. I... So I I... But all that said, like, do I think we can make money investing in companies that are t two, d three? Absolutely. You can. And so then it comes a little bit of a of a mixed question. Like, how many... How much do you wanna have in one versus the other? You know?
00:27:46 · Sameer Dholakia, Harry Stebbings
[00:27:46] S0: What a tough question. I... So I I... But all that said, like, do I think we can make money investing in companies that are t two, d three? Absolutely. You can. And so then it comes a little bit of a of a mixed question. Like, how many... How much do you wanna have in one versus the other? You know? [00:28:00] S1: So you mentioned the $5,750,000,000. It's quite a lot, to be honest. Let's just let's just... Let's start with the $1,750,000,000 seed and early Seed and early. Do you need a billion dollars to do seed today? We just saw literally earlier today, USV announced their $900,000,000 funds. Do you need a billion to do seed? [00:28:23] S0: Seeing the prices that I'm seeing, valuations we are seeing for the early stage deals coming in for my teammates on the early stage side, if you just think about the number of shots on goal you need to have to find the winner, I don't know how you would have a small seed fund and be successful. I don't. [00:28:39] S1: What are you seeing in that pricing and ownership level?
00:28:39 · Harry Stebbings, Sameer Dholakia
[00:28:39] S1: What are you seeing in that pricing and ownership level? [00:28:42] S0: Depending on the business. If it is a capital compute intensive business, and a lot of these AI businesses are that. Right? So it also depends a little bit on where you want to play. Where in the stack do you want to play? How capital intensive of a business do you want to invest in? If you're like, hey, I don't need to invest in, I don't know, something that requires hardware or robotics, or I don't want to invest in something that's like training a model for compute, maybe there are places where where you don't need that capital intensity. But I just think in this era of intelligence and AI, I just... I think a lot of them do. And so if you assume that that's the case, man, the math math just won't math for the for the entrepreneur or you if you're not paying what... You know, in my day, look, I've been doing this for... You know, I've been in software for thirty one years. Like, a seed check-in the day was, like, 3 to $5,000,000 on a 20 to $40,000,000 valuation. Like, you know, it's a dramatically different time. [00:29:34] S1: And what is it today?