The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:05:41 · Harry Stebbings, Rory O'Driscoll
[00:05:41] S2: Jason, you're right. You said earlier that kind of specificity box has really narrowed in terms of what is interesting to investors. Yeah. And I'm seeing that more and more with this concentration of capital going to fewer and fewer names and everything else being wholly unfundable, which more so than I've seen ever in venture before, which is surprising for a sheep like market like Venture. [00:06:02] S1: But what you're saying is if you think about... If you think of the role of venture financing innovation, what you're saying, there are lots of companies that look on the surface to have very good numbers that can't raise money. That's what you mean. Correct? [00:06:14] S2: Correct. [00:06:15] S1: And I think that's probably true. I mean, let give you the contrast, At the same time, I don't think it's just going to 10 or 20 companies in total. Because at the same time, are a whole bunch of projects that probably in another era would not get funded at all, that are getting venture money, data centers in space, quantum computing, you know, so we're very risk on for stuff that has ultra high upside. And I think the stuff that's struggling to get funded is, as you say, it's software for specific markets where there's some inarticulate fear that AI will make it all go away. Is that kind of a fair next level summary? [00:06:48] S2: Yeah, think so. I think you're absolutely right. I think it's this like power law on steroids requirement where it's like, unless you can paint me the trillion dollar market cap, I'm not interested.
00:06:57 · Jason Lemkin
[00:06:57] S0: To answer your question a little more, to be more tactical, Harry, I think you're right that you roll with a high powered crowd. I think if you want Sequoia and Benchmark and one of the better partners at Andreessen to fund you, the box is very specific, right? It's cursor better, right? Open routers, okay, but let's see what we can do better next time. I will say for companies like you described, growing at numbers that approach the iconic outlier metrics, right? Here's where I think actually the world is today. You gotta meet a 100, you gotta meet every VC, you gotta meet a 100. It is like the old days. And you will find someone that takes that bet. It will not be the seven benchmark partners and all the rest, but someone will take that bet at a reasonable, but still elevated valuation because it's the best deal they've seen this quarter. Someone will take it. You just got, it's the old days where you got to beat a 100 and there are growth investors whose names are not index and Dreeson and Bessemer. And they will take that bet because it's a good bet to grow his point. Will lead to a listen labs or better. In some cases, it's just you better meet everyone on planet earth. Now, if you just have top decile numbers, but top decile for a while was like an automatic of term sheet, right? For years, it was an automatic term sheet, right? You'd walk into Rory's office. Rory knew every deal since the dawn of time. He would know exactly if you're the top decile. If he believed in you and trusted you, you'd walk out with a term sheet from scale, right? The world just doesn't work that way today.
00:08:14 · Rory O'Driscoll, Harry Stebbings, Jason Lemkin
[00:08:14] S1: You might still walk out with a term sheet from sale. So what you're saying is there's a small number of extraordinary potential startups that the very best VCs are focused on almost to the detriment of anything else. That's your point, Harry. Correct? [00:08:29] S2: No. I'm saying the whole venture landscape has realized that a certain few categories are the most interesting and exciting, and everything else is uninteresting in a way that has not been before. [00:08:42] S0: Rory, back me up here. If you're raising a $5,000,000,000 plus fund, you you have to have billion dollar positions in everything. You even need a $5,000,000,000 position here or there, right? So what a $2,000,000,000 Listen Labs just doesn't is not good enough because the odds unless you have 51% ownership, which most founders are not cool with, it's pretty hard to build a billion dollar position. I mean, if I were working at one of those mega funds and we were playing our game, that would be my final question to the team. How are we going to get at least a billion dollar position out of this? And I'll take 1% of Anthropic. I think that still gets me to a billion dollar position, with dilution, right? The Eric Schmidt story. But you gotta have billion dollar positions in everything in in Big Boy Venture today, think. And and I don't mean boy with a gender attribution, big, big folk. You gotta have billion... It's billion dollar positions or nothing. There's no point in investing otherwise with large funds.
00:09:29 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:09:29] S1: Well, I still go back to the statistics we cited last week, which is, you know, 10 to 20 decacons per decade in The entire US tech industry, and we clearly believe that there's gonna be 90 of them this year. And one of those two facts is gonna be at variance with the other, and I'm willing to bet on the fifty years of data, albeit lifted up for growth. You know, it's not gonna be just predicting on the past because you allow some kind of growth over the years for bigger exits. But I don't think I don't think you can confine yourself to saying, I'll only do deals where I can get a billion dollars to work or a billion... Or it's a... What's the demand on common $25,000,000,000 outcome? I mean, you want some of those, but it's the whole industry is not going to be able to say we're all going to do those and have more than five funds. Cause it's just not enough. [00:10:11] S0: Maybe five is enough. [00:10:13] S2: Jason, I think Rory is not going along with our thread here.
00:10:13 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:10:13] S2: Jason, I think Rory is not going along with our thread here. [00:10:16] S0: Listen, haven't sat in an Andreessen or index partner meeting, but I'm pretty sure the math is something like how can we make at least a billion dollars off this deal? It's not even enough. That's, I Everyone has the four different scenarios when they write up the investment memo. A billion dollar position, not an exit, billion dollar position, is just the B outcome. This is 10% probability analysis, 25,000,000,000 or higher. 25, you know, this percent, we only make 1,000,000,000 on the deal, right? We're raising these funds every eighteen months, these 5 to $10,000,000,000 funds. We have to have so many billion dollar positions, positions, gains to even be playing at this game. It's just math. It's just the maths. [00:10:54] S1: To take the other side of the argument, actually, talk about seed, which is your role, Jason, you probably... I'm assuming you would agree that from a multiple perspective, it's going to be far easier for the best seed investor to generate a five X net fund than it's going to be for someone who's writing billion dollar checks into things.
00:10:54 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:10:54] S1: To take the other side of the argument, actually, talk about seed, which is your role, Jason, you probably... I'm assuming you would agree that from a multiple perspective, it's going to be far easier for the best seed investor to generate a five X net fund than it's going to be for someone who's writing billion dollar checks into things. [00:11:11] S0: No, it's harder. It's much harder because unless you really do the Roger Ehrenberg find something in Antarctica, right? The entry prices are so high and the ownership typically is lower unless the seed fund is very large that actually, and all these Valors are cutting my pro radas, Rory. How am I going make it up on the back end with my SPVs and my triple? I can't make any, Five x is so much easier. I'll do it at 1,000,000,000 in town, and we'll raise it 5,000,000,000 next week, and I'll take the rest of the year off. The entry price, 50,000,000, a 100,000,000 seeds, you you can't make money. [00:11:45] S2: Just to add to that, not only can you not make money, you can't make money even worse because they're a multistage product for those big players in terms of they're the ones who lead them, and they crush your allocation. So not only does the price go way higher, but your allocation goes way lower. And so you have 3 to 500 k at best, and I've I've got this. And I've got this in a company that is going now to 18,000,000,000. It still doesn't move the fucking needle, Rory. [00:12:11] S1: Because what? You only got 300 k in the middle. [00:12:13] S2: 300 k in, and it's at a 100,000,000 price. It's...