The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:37:49 · Harry Stebbings, Rory O'Driscoll
[00:37:49] S2: Would you actually argue then that now is a better time because your check size requirements have gone up two and a half to three x, but the outcome sizes on the back end have gone up significantly more than two and a half to three x when we look at the cursor [00:38:02] S1: No. I wouldn't make that argument at all because what you're confusing... For the... It it... The The outcomes today happened from the checks that were smaller. In other words, because what you're saying is, hey, the outcomes today on checks written five years ago are amazing. Therefore, the checks today, which are much bigger, will be amazing too. Implicitly in that you're assuming, you know, that the $25,000,000,000 outcome today becomes the $50,000,000,000 outcome three years from now. And if that's the case, then you're correct. [00:38:34] S2: I'm the same rate of inflation applies to the exit scenarios.
00:38:34 · Harry Stebbings, Rory O'Driscoll, Jason Lemkin
[00:38:34] S2: I'm the same rate of inflation applies to the exit scenarios. [00:38:38] S1: Yeah, but I take it, but the exits didn't just go up by nominal GDP, they had by even more than that. Right? In other words, you've seen it. That's why it's always hard to disaggregate things, you have normal GDP go up, but then the stock market has massively outpaced that. And venture exits have even more massively outpaced that again. So there is a long term secular trend and the size of exits going up. But there's probably an overlay of evaluation lift right now that might persist. And here I gotta give a shout out to Venky from Menlo who did a really nice piece that, you know, went around all the venture community yesterday just about, you know, playing the game at the top of the cycle. And how do you think about it when, you know, when the music stops, be sure you have a chair. It's worth reading. [00:39:16] S2: I get you. But with the greatest respect, Menlo have paid the highest price of everyone on most rounds. [00:39:22] S0: Yeah. That's why they're playing the music.
00:39:22 · Jason Lemkin, Rory O'Driscoll, Harry Stebbings
[00:39:22] S0: Yeah. That's why they're playing the music. [00:39:24] S1: That's why... But I think... No. I think that what he would say is... I think he would say that. He would say, we very wisely... Look. I I think it was a really good analysis. I didn't mean to take us off, but he's basically... There's two players now. There's players who are playing with the house money, he put themselves in that category. They've done so well on Tropic, and they're probably feeling a little happy, and they're probably gonna be aggressive. And then he said there's some players who didn't do that... Didn't do those early rounds and are now playing to catch up. And the point he was making, the macro point he was making is between the giddily happy people and the and the terrifyingly desperate people, there's a lot of people writing checks with fear in their heart of miss... Of FOMO. And it gets back to your comment. Some part... That's why it's always... Some part of the increase in size is justified by math. But let's be honest, I think some part of it is justified by FOMO and the fear of missing the next cursor. And that's fine, but that's the kind of thing that can change on a dime. And that was the insight. [00:40:18] S2: Does that change how you invest when you reflect on that? What should I take from that, Rory? What should LPs listening, GPs listening take from this?
00:40:18 · Harry Stebbings, Rory O'Driscoll, Jason Lemkin
[00:40:18] S2: Does that change how you invest when you reflect on that? What should I take from that, Rory? What should LPs listening, GPs listening take from this? [00:40:26] S1: It's a good question. And again, I'm always in the middle. I think you have to say at times leaning in can pay out, but you don't want to find yourself so lent in on so many deals that are so high priced at such a, you know, on sort that if a downturn comes, get, you know, you just can't survive it. As often is the case, investing is not a rules based business, do A and only A, it's typically do some A, but some B and the mix is everything. I think for us, it's a consistent pace, broadly the same stuff and recognize that, you know, it's super hard to time that. But be cognizant of the risk you're taking is the bare minimum you have to do. [00:41:06] S2: Is that... I'm I'm not being rude to say. I'm I'm going for [00:41:09] S1: you here, but fucking you go for me. [00:41:11] S2: Be cognizant of the risks you're taking. Seriously? Like, I thought that piece was a blowhard piece, if I'm honest. Be careful of the music stopping. Be cognizant. Again, you guys have paid [00:41:22] S0: up money. That's what the next one's for. Why do need be careful the music stopping? You raise a fund every eighteen months. We all can get a mulligan. Yeah. If I don't make any carry, don't make any carry. I make it on the next one. It's alright. Doesn't matter. [00:41:34] S1: But the... But I I I just got a point. I don't think that that's
00:41:34 · Rory O'Driscoll, Harry Stebbings, Jason Lemkin
[00:41:34] S1: But the... But I I I just got a point. I don't think that that's [00:41:39] S2: I'm not saying that is it, but what I'm saying is there's just... There's not that much to take away from that. Yeah. Be cognizant of the music stopping. Thanks. [00:41:46] S0: I'm with you. I'm with you on Harry. It it it it... It's a little condescending in its own way. Right? Oh, thank you. I wasn't aware that the AI Gold Rush might end someday. Good point. I so lost in JEV all weekend. I missed the point. You're right. I missed the point. [00:42:04] S2: From the guys who made out like Bandits, which I'm thrilled of. They're they're awesome people. [00:42:08] S1: They may... Okay. Watch this. The the big... They made out by Bandits by being aggressive at a time when people were still uncertain. Right? And therefore, price of those deals, while high in absolute terms, reflected a fair amount of uncertainty relative to traction, right? The same deal today would probably be three or four X higher. And it's simply a point, if all you say to yourself is that deal that worked four years ago had that risk return profile, and underwriting that same deal today probably means I'm gonna get four times less return because of where pricing is, you should at least pause and think rather than blindly saying x worked, Therefore, all the other deals that just look just like x will work also. [00:42:49] S2: I never thought it fucking obvious.
00:42:49 · Harry Stebbings, Rory O'Driscoll, Jason Lemkin
[00:42:49] S2: I never thought it fucking obvious. [00:42:51] S1: Harry, in general, one of my favorite quotes... And I'm gonna take you... You're coming for me. I'll come for you. Right? Barney Baruch, I think I quoted this before. Right? And I'm sorry if I did, but he was a Wall Street financier in the twenties and thirties. He just said, if every day you look in the mirror and you say to yourself, two and two makes four, you probably could avoid a lot of mistakes. Right? Stating the obvious. Typically the things that bite you in the ass are things that are actual obvious all along and you just chose to ignore them. So, it is obvious, but, you know, you have to take into account. [00:43:21] S0: What do you do about that? Right? Like, I'll give you an example. In 2021, I made one investment. I did the seed rounded owner, just closed at 2,300,000,000. It's a pretty large position for me. Okay. Now we've had ups and downs, great founder team, one deal in all of 2021, only deal I did. You could do the same thing right now. You could say it for the next four years, I'm going to do like one or two deals. Like, I have to have a little dislocation in the force. It's gotta be this. It's gotta be that. And that... That's how you take that the the chairs are gonna end. Otherwise, you you just gotta... It's... You gotta deploy the fund. It's other people's money. You gotta put it to work.