The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:43:53 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:43:53] S2: Or there could be a really rational assumption that, hey. The music's gonna stop pretty soon, and we're gonna go through StackRank where we can get liquidity from and really be proactive in selling positions now. Cool. [00:44:04] S0: Well, that's one thing. Right? And that's that's an interesting question. But let's say you wanted to be let's say you wanted to be conservative. What do you do? Invest in the company at $50,000,000 growing 60% a year and hope it reaccelerates and is worth three times revenue and sells to Bending Spoons? I mean, what's the plan B? Like, Bending Spoons looks at 1,000 deals a year and still only does two or four. Where am I gonna sell these more conservative companies that are compound for... At at at sub AI rates for forty years? I just don't know where the... Who's gonna buy them. If there is a market for these assets, so be it. I love the quiet compounders. There's just no market for them anymore. [00:44:38] S1: I'm not sure I agree that there always won't be a market for quiet compounders above a certain scale, to be clear. But I think profit [00:44:45] S0: Could come [00:44:45] S1: a couple 100... What? [00:44:47] S0: Could come back, but right now it feels pretty thin. [00:44:49] S1: Yeah. I actually like Gokul's tweet that he was like, yeah, I'll have to do three, you know, double trouble, double double deals all day long right now, if you're capital efficient. [00:44:58] S0: Yeah. If you're burning nothing and the price is right and I can get my 20% ownership, you'll do it.
00:44:58 · Jason Lemkin, Harry Stebbings, Rory O'Driscoll
[00:44:58] S0: Yeah. If you're burning nothing and the price is right and I can get my 20% ownership, you'll do it. [00:45:03] S2: Why would you why would you be... I'm sorry. Let's just push back. This is... Why would you be happy to do that? Because there are other GPs like your Sarah Guos of the world who are not doing that, and they are putting up some phenomenal numbers. And so you can do those triple triple double doubled, have average IRRs, and your LPs will leave in droves. Sorry. [00:45:24] S1: Okay. Okay. Watch. I can... We'll take some... Yes. Sarah, absolutely. Did the seed round at inception? 50,000,000 pre, right? In the following four months, it raised money at 50,000,000 pre, $350,000,000 pre from Kleiner, 2,500,000,000 for I think index and benchmark from memory and might be raising now a 10. Those are four rounds in the same four month period, and you cannot say the risk in all four of them is the same. Because one of them is... Was it 20? Yeah. 20 times more expensive. [00:45:56] S2: I didn't say it was the same. I'm just saying... [00:45:58] S1: Harry, so the answer is if you do an early deal like that... So... But Harry, you're saying what can you do with that information? You can bet aggressively on five at 50. Love it. The fact that Sarah's done an amazing job in that fund. Right? But betting just as aggressively on 250 at 10,000,000,000, that's intrinsically a riskier deal. And do you wanna do that?
00:45:58 · Rory O'Driscoll, Harry Stebbings
[00:45:58] S1: Harry, so the answer is if you do an early deal like that... So... But Harry, you're saying what can you do with that information? You can bet aggressively on five at 50. Love it. The fact that Sarah's done an amazing job in that fund. Right? But betting just as aggressively on 250 at 10,000,000,000, that's intrinsically a riskier deal. And do you wanna do that? [00:46:17] S2: No. You're you're getting this completely wrong. I'm saying Gokul's triple, triple, double, double. I'll take them all day. I'm saying that is a ludicrous statement to make because you are in a competitive capital market where LPs can choose where to put dollars. And if you have managers like Sarah Guo who can post incredible numbers quickly with high IRRs, they will get the dollars versus your steady compounding growers with bad IRRs and no good up rounds. It will be much harder.
00:46:45 · Jason Lemkin
[00:46:45] S0: But, know, Harry, here's here's the thing. Of... Here's my my view. I think you're right. Having said that, I think Gokul's model is to do that and no matter what you call that model, you still have to achieve IRRs north of 30. So you have to pick very well and they have to compound properly. Okay. Some of your like the average LP, average top LP. I remember writing this up in Sasson '21 in 2021 had 90% IRR. Like the top quartile of LPs had 90% IRR. It did not last. 2026 will look like that. I bet the top LPs will have 90% IRR this year. Okay. Some LPs will only invest in those managers and that's great. Others will take the pen longer. But at and so you can do these other deals or or to his point, I think you can do both. Like the answer might be to do both. And the real truth is you should do every great deal you should see if you have enough capital. Okay. Every great deal. Okay. So if he sees five instincts and Harvey's a year and he sees five triple triple double doubles that he can own 20% of and can achieve the requisite IRR. This is why I worry about the exits. You should do both. Right. It's okay. You'll blend a 60% IRR. But I do think I think you're going to lose LPs to your point. But I do think many LPs that have been around will still back repeat managers that deliver north of 30% IRR. It's if you look at all the numbers, that's pretty rare, man. It's pretty rare to have 30% IRR no matter what anybody claims in a given year, 2021, 2026. If you can compound... What is compounding 90% IRR over a decade, Rory? Help me. It's pretty good. It's mathematically impossible, right?
00:48:18 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:48:18] S1: Because it doesn't happen. [00:48:20] S0: It could happen. So the low 30s is as good as it gets, right, in in the real world. Right? It's as good as it gets. [00:48:26] S2: I think Gockel is a rare exception who will likely be able to pick very well. I think the idea that you can do the triple triple double double to say, pick well.
00:48:34 · Rory O'Driscoll
[00:48:34] S1: I agree. That's why he said very clever. I mean, it was a very clever stat. I've really admired for things like this is what I do if you're a capital efficient. So basically, everyone's going to find him. He solved his search problem brilliantly by saying if you've got this correct, and then he's going to pick carefully. You're exactly right. It turns out no matter what you do, picking matters. Again, going back to the thing, I think what I'm listening to the conversation and I do it, look, you want to do the most exciting deals possible. And those are almost entirely AI forward deals at this point in time, no dispute. I think all the point I'm making, I think the point Venky was making is at some level... And I like what he said, actually, some of at 10 x, the price matters. Because what's happened is Andreessen about ten or fifteen years ago had the very simple but profound insight that other people have had, but they they claim it, so let's go with it. That, you know, it really doesn't matter about price. You just gotta get the best deals. And it's true. But what Venkatesh, if you're wrong by 10 x, then it's not true. And it may well be we're at that point in the cycle where you are in fact wrong. And some deals you are wrong by so much that in other words, the momentum trade has worked so well and for so long, that you might be at that one point in the cycle where you just overreach your skis and it has to unwind. That's the point you're making, right? And I think, you know, will every one of the 100 odd neo labs become the next on Tropic? Maybe not. Maybe most, some of them will return capital because they get acquired. But that's the only point, Harry.