The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:39:47 · Harry Stebbings
[00:39:47] S0: We... We're gonna go a layer up and just a little excursion out of, like, deliberate AI, which is Miro, one of the hailed names from 2021 that raised at $17,500,000,000, interactive whiteboards for teams for people that don't know, sold to Bending Spoons, the Italian juggernaut that buys everything for $1,300,000,000. As I said, it's a long way down from the 17.5. We didn't... Well, Paul, my partner, who is very intelligent, did an analysis of it. Excel made money. Founders and employees made money. Latest Asian investors, not really. How do we see this asset, guys, for a darling of the SaaS ecosystem?
00:40:26 · Rory O'Driscoll
[00:40:26] S1: Inevitable and not bad. Right? Inevitable because I have a little report on our Salesforce that literally lists every unicorn, and I can do it a bunch of different ways, One of them being literally by post money. I just eyeball down and you see what's going on, and you just rank them, and it jumped out of you like a sore thumb. The last round was in '21 at 17,000,000,000. And when you eyeball, start to see the lagoon, you start to see the level, you start to see all the cognitions just above them and just below them, know, new rounds at $10.20000000000. You see we track headcount growth at the same time. Oh my god, headcount's exploding. And then you have the thing stuck at 17,000,000,000. And it was really the largest, utterly stale valuation from that period. So you look at it you go, Ah, almost inevitably you're high and dry because you're a productivity tool in a world that just doesn't work that way. It's obviously way ahead on valuation of where its actual market size or traction can be. So this is just an inevitability. It was inevitable that at some point it would get done. Andrew Reid from Sequoia had a really cute tweet. It's like a little graphic of, you know that picture of the death with the sickle knocking on every door, and it knocks on the Evernote door, and then it knocks on the air table door. And then in this case, it's knocking on the mirror door, and instead of a sickle, it has a bending spoon. Death comes for us all in Sassland. And I was exactly right. It was just an inevitable cleanup operation because it was just so far wrong in terms of pricing, and it was a good outcome for everyone. You kind of snidely said something about the late stage guys, I'm but gonna say something. The great thing about the late stage business is this. If your losers give you a one x, then you'll die rich. So Iconic, I think. Iconic had a ton of money in that deal. So that's a bad deal. A bad deal is when they get a one x. You know, if you're playing the venture game and because you're playing late and your preference gives you one x and everything, on on the worst case outcome, by definition, I mean, just using simple math, the overall distribution is net positive. So it's a good outcome for everybody. It needed to happen. It's now part of a liquid asset. I think, interesting, I didn't know this until today, so I'm winging it a little.
00:42:37 · Rory O'Driscoll, Jason Lemkin
I did see some portion of the consideration rolled. In other words, some people said, I'll take stock in bending spoons for that, which is interesting choice. [00:42:45] S2: Yeah. I don't know whether it was required or whether it was a way to juice the outcome, right, by rolling it over. You could see it being either way. Right? Bending spoons needed the... They don't have an unlimited balance sheet. There's only so many murals they can do. Right? But it could have also been to roll... It could have been a rollover into.
00:42:59 · Rory O'Driscoll
[00:42:59] S1: The cynic in me says, it's interesting if you do roll. It's like basically saying we couldn't do what it takes to turn this company into a cash flow positive machine. So I'm selling it at 2.7 times to guys who are trading at 14 times because they are tough enough to do what it takes. Because that's really what's happening. And to some extent, even though that sounds bullshit, it's true. Venture syndicates... I've been in boards where the company just flattens out and it needs to get ruthlessly efficient. It's just not our DNA, it's not how we roll, it's a syndicate of five different people. Oftentimes, these assets are better owned by a single owner who says, look, this is the way it's going to be, this is what we're going to do. I mean, I don't if you saw the CEO of Bending Spoons. He made a wonderfully controversial take He said something to the tune of, you know, we don't basically get all excited about the title founder. We don't want to know what you did. His basic comment is, we don't want you know what you did ten years ago when you founded this. We want to know what you're doing now. And what it's basically saying is, we can't do what it takes to fix this thing at three x revenues, so we'll sell it to you, take your stock at 12 times revenue, because you'll be hard and old enough to cut extraneous costs, raise prices, accept a fair amount of churn, and plow through. Just interesting, but also not great. It's kind of an interesting comment on how institutions can determine outcomes. It's not all rational economics, and it probably makes sense. Bending spoons will probably do a better job than a venture syndicate at making that thing cash flow positive. And if you're a customer of any of these companies, just be ready for the 40% price increase.
00:44:28 · Harry Stebbings, Rory O'Driscoll, Jason Lemkin
[00:44:28] S0: Yeah. The churn on their acquisitions is brutal. When you actually study the graphs on usage, the churn is absolutely brutal. They are not revitalizing these. They're increasing prices and cutting costs to the extreme. [00:44:39] S1: What they're really finding out is the marginal propensity to pay versus how much. The the VC... We probably almost certainly as an industry overinvested in sales and marketing and sold people who had to be sold into the product. What they're saying is, I don't want the customers who had to be sold into the product. I want customers who hate us so much for doubling our prices, but still need this product and won't go away. It's a different worldview, actually, because yeah, you're going to get initial churn when they put you with those price increases, but the perspective is the people who stay really need the product. This is like what happens when you have to pay full bill. [00:45:13] S2: Yeah. You triple the prices and you have 30 to 40% churn and the math's pretty straightforward. Right? I'll tell you my thought on on the Miro one, it was... I almost wanna move on. What's the game duck duck goose with kids? Where you... And don't you take out a chair each time you go around? [00:45:26] S1: Yeah. Yeah.
00:45:26 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:45:26] S1: Yeah. Yeah. [00:45:27] S2: Yeah. I felt like there's only like one or two chairs left from the pre AI era. And Miro took... Bending spoons looks... They said in one of the interviews this week, they do a thousand... They look at a thousand targets seriously and do five to 10 a year. And even they are... Do not have an unlimited balance sheet. Everyone... PE is sitting out. Tom O'Bravo is mostly sitting out. I feel like there's one or two seats left for a thousand unicorns. And we can talk about why the... Why Icona got one x back and like like if if there were like a lot of options, I felt like it's different. There's like two chairs left at the end of DuckDuckGo. Miro grabbed one. Just like Airtable they only got one offer. When you sell for a 2 point something x you know for sure there was that there was no other offer because anyone can pay 2.4x or 2.5x it's not much more for Salesforce or Tomo Bravo or Francisco partners outbid so you have two and like I almost want to move on because I can tell you personally I've ended the game for me of DuckDuckGoose. I'm not running around the chairs anymore whatever it's fine. [00:46:24] S0: Who's next then?