The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:33:46 · Jack Altman
[00:33:46] S1: The characterization that Harry opened up with, I mostly agree with, which is basically that the initial rounds have gotten so extreme. And there's two reasons. One is that there's like, you all are saying there's these labs where you can't do anything for less than two hundred million. And so that's the first round. The other reason is there is a set of founders that are very like in the Silicon Valley network that don't necessarily need to raise a $50,000,000 seed, but they can. And so they skip the first round, they skip the six at 40 or whatever that round used to be, and they just don't raise it. Or maybe they raise $300,000 just to get a month in and then they raise the money. And so in many lanes, think that round has kind of evaporated. And so I think there is a cohort of the market where traditional seed investing, where you're gonna write 3 to $6,000,000 checks by eight to 15%, where I just think that is fully brokenjust isn't there anymore. All of that said, there is another part of the market which, Jason, I remember reading your blogs like way back when I was starting Lattice twelve years ago, ten years ago, whatever. And a lot of it was just like trying to get my head around what the venture math was. And it's a small fund, you buy 10 of a company, you hope it's worth a billion or 2, you get a 100 to 200,000,000, you do that a couple times out of a basket. I actually think that that might still exist. But the way that it exists is not in the things that we're reading about on Twitter and in headlines. It is these rounds where at the moment they, for one reason or another, can't go do that round. They're either not in the right markets or the shape of the company isn't quite right. And they somehow pivot or they get more traction than you thought, and it just kind of gets bigger, but it happens the slow way. We have now gotten accustomed to all of these stories playing out in a year or three year. We're talking about instinct. It's like these stories play out so quickly they get big. But even if you take a company like Legora, which obviously I know Harry knows well, these stories still play out in a short number of years. And we've all gotten used to that. But there is another part of venture that takes place over ten to twenty years where a software company just kind of compounds slowly.
00:35:54 · Jack Altman, Harry Stebbings, Rory O'Driscoll, Jason Lemkin
And so do I think that there's a three at 30 round happening today where in 2041 that company is just going to have quietly compounded in the market of police or fire departments or libraries? Like, yeah, I probably do. So it's just it's just a different it's just a different part of the market, and it has really had a big dispersion. [00:36:12] S3: I just don't think that's an industry. [00:36:13] S0: I just [00:36:14] S3: think that's an anomaly, and we're in an industry. And I don't wanna bet on a potential pivot three years down the road that might lead to a misshapen company that then becomes shaping again. I can't bet on flat pivots. [00:36:25] S0: Jack, every time I try and pitch the story to Harry, he clubs me just like that. [00:36:30] S2: That's bullshit. [00:36:30] S0: And I I... You know? And I want to believe in it because we've made some magnificent bets on companies like that. But I do agree that the table at the moment is 80% the fast action table and 20% the slow action, which makes sense because in 2022, there was a discontinuity and everything before that became obsolete. So by definition, anything at this stage four years in is fast action by definition because it started in '22.
00:36:30 · Rory O'Driscoll, Harry Stebbings
[00:36:30] S0: And I I... You know? And I want to believe in it because we've made some magnificent bets on companies like that. But I do agree that the table at the moment is 80% the fast action table and 20% the slow action, which makes sense because in 2022, there was a discontinuity and everything before that became obsolete. So by definition, anything at this stage four years in is fast action by definition because it started in '22. [00:36:56] S3: Also, you wanna go for that model, your numbers will be crap for quite a long time. And we always forget that we're in an opportunity cost game where people can put money into your Sarah Gwos and your benchmarks of the world. And while you guys post numbers that are just never before seen... I was messaging Chatham last night, Jack, being like, oh god. Just stop. The latest fund is just ridiculous. We're an opportunity cost. You can be in those... Well, you can't be in those funds, but, you know, you can try and be in those funds. And so trying to be smart where no one else is. [00:37:26] S0: That's a lot agreed. It's about, Yeah. The the giant sucking sat... The the... Basically, money is a signal, price is a signal, and price is sending a signal, everybody go right here. And everyone will go right here because that's the job of price. Mister Hayek would be happy.
00:37:26 · Rory O'Driscoll, Jason Lemkin
[00:37:26] S0: That's a lot agreed. It's about, Yeah. The the giant sucking sat... The the... Basically, money is a signal, price is a signal, and price is sending a signal, everybody go right here. And everyone will go right here because that's the job of price. Mister Hayek would be happy. [00:37:40] S2: The problem with the Quiet Compounder to Jack's point, in my view, as someone who's pitched Quiet Compounding since 2012, is they're just not stable. You have to build so much more software so much more quickly. Right? Jack and I are both on the board of owner, is, you know, a rocket ship north of $100,000,000 revenue. But look how much effing software they have to build this year, right? How many folks can pull that off? How many folks can raise the capital? Like, and even if you have 10 times more competitors, right? I have another company at 100,000,000 They put up a competitor slide at last board meeting. I never heard of eight or nine of the ones. I thought we had one competitor. Turns out we have nine, right, at $100,000,000 So it's not that I don't want to believe. Forget about the fact that it's harder to raise LP capital, is Harry's point. This instability is something that I think people under reflect on. Right? That's the problem. It's just... It's so unstable that it it... It's just... It's so undurable.
00:37:40 · Jason Lemkin, Rory O'Driscoll
[00:37:40] S2: The problem with the Quiet Compounder to Jack's point, in my view, as someone who's pitched Quiet Compounding since 2012, is they're just not stable. You have to build so much more software so much more quickly. Right? Jack and I are both on the board of owner, is, you know, a rocket ship north of $100,000,000 revenue. But look how much effing software they have to build this year, right? How many folks can pull that off? How many folks can raise the capital? Like, and even if you have 10 times more competitors, right? I have another company at 100,000,000 They put up a competitor slide at last board meeting. I never heard of eight or nine of the ones. I thought we had one competitor. Turns out we have nine, right, at $100,000,000 So it's not that I don't want to believe. Forget about the fact that it's harder to raise LP capital, is Harry's point. This instability is something that I think people under reflect on. Right? That's the problem. It's just... It's so unstable that it it... It's just... It's so undurable. [00:38:29] S0: Put another way. Yeah. If you're making a compounding play, the quid pro quo should be low risk. And if the world is such that the tech environment is changing so much that you get the compounding, not the hyper growth, but you get the same level of risk, that by definition is a suboptimal game.
00:38:29 · Rory O'Driscoll, Jack Altman, Harry Stebbings
[00:38:29] S0: Put another way. Yeah. If you're making a compounding play, the quid pro quo should be low risk. And if the world is such that the tech environment is changing so much that you get the compounding, not the hyper growth, but you get the same level of risk, that by definition is a suboptimal game. [00:38:45] S1: Yes. And sort of to me, one of the most dominant reasons why I do agree with Harry here is it's just like, it's a talent war in the most insane way right now. It's just the... These opportunities are just too enticing for great people. [00:38:57] S0: Which is a perfect segue. Perfect segue, Harry. Come on. Figure it out. [00:39:02] S3: Are you suggesting that Jack teed me up there, Rory, for a slant [00:39:05] S1: on time? But you missing it. Harry, I didn't see it either. And I also try to be a podcaster, so I... That was a hard one. [00:39:10] S3: Jack, I think we're just a bit slower than Rory. Okay? Professor O'Driscoll has... He's very sharp. He's very sharp.