May 22, 2025 · 1h 19m · 20vc
Rippling vs. Deel Lawsuit: WTF Happens Now? The Future of the Late Stage Private Market · 20VC with Harry Stebbings
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In this episode of 20VC, host Harry Stebbings joins guests Rory O'Driscoll and Jason Lemkin to analyze the shifting realities of late-stage venture capital, IPO structures, and corporate litigation like the Rippling vs. Deel dispute. They also explore how the rapid rise of AI is driving massive operational shifts, forcing venture capitalists to re-evaluate software defensibility and the future of traditional SaaS platforms.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 11.6% of the talking time here. How this is scored →
Harry as informed peer 5.1 Guest teaching 5.6 Guest disagreement 3.2 Harry pushing back 3.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 56:40 Rory warns Deel CEO of criminal litigation risks
Rory forcefully rejects Deel's legal positioning despite Harry being an investor, bluntly warning that escalating trade secret disputes risks criminal investigations.
Hardest push from Harry ▶ 18:48 Harry challenges Rory's market framing using Klarna dataHarry directly refuses Rory's generalized IPO window framing by bringing up hard figures from his partner showing Klarna's growth deceleration and borrowing costs.
Biggest teaching moment ▶ 29:22 Rory exposes Harry's secondary citation of Vencap LP dataWhen Harry cites Vencap LP data to make a point about exit sizes, Rory reveals he already requested and analyzed the raw dataset directly, playfully exposing Harry's surface-level prep.
Harry holds his own ▶ 18:48 Harry counters guest premise with proprietary internal analysisHarry demonstrates domain mastery by interjecting specific financial figures regarding Klarna's cost of capital and 13% growth rate to counter Rory's broader narrative.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Chime S-1 Analysis and Business Model | 6 | 5 | 2 | 2 | Harry opens by citing key Chime S-1 metric benchmarks like active user counts and primary account ratios. Rory educates the room on the mechanics of Durbin Amendment arbitrage and how small banks leverage debit card interchange fees. | |
| The Impact of Late-Stage Valuation Cuts and Ratchets | 5 | 5 | 3 | 2 | Harry references Sequoia's late-stage structure and General Atlantic's Shein deal protections. Rory overrides Jason's question to detail mandatory conversion terms and ratchet mechanics in late-stage filings. | |
| "Seed is for Suckers" and Late-Stage Investment Risk | 4 | 5 | 2 | 2 | Harry questions when venture firms transition into playing an IRR risk game rather than capital loss risk. Rory and Jason explain why late-stage investors run on annual IRR while early-stage investors face write-off risks. | |
| The IPO Window and Public vs. Private Capital Choices | 7 | 4 | 2 | 7 | Harry forcefully pushes back on Rory's premise by citing his partner's data showing Klarna's growth decelerating to 13% alongside rising borrowing costs. Rory acknowledges the distinction between cash-flow machines and capital-hungry financial businesses. | |
| M&A Paradox: Strategic AI Buys vs. Private Equity "Indigestion" | 6 | 5 | 2 | 5 | Harry points out contradictory market signals between Orlando Bravo's M&A pessimism and the recent acquisition of Convergence by Salesforce. Jason shares real-world examples of $500M tech buyout offers being rejected by founders. | |
| The "Fund Returner" Fallacy and Seed Fund Economics | 6 | 7 | 5 | 5 | Harry presents Vencap LP data on historical exit size growth to question mega-fund critiques. Rory humorously catches Harry out for using someone else's data, pointing out he obtained the underlying dataset directly from the source. | |
| The Liquidity Dilemma: When to Sell, Taxes, and the Death of IPOs | 4 | 6 | 6 | 3 | Harry brings up UK capital gains tax advantages relative to California. Rory dismisses the comparison by mocking European tech outcome sizes and explaining how private holding periods create LP/GP liquidity friction. | |
| Reforming the Public Markets and The Cost of Private Capital | 3 | 5 | 2 | 2 | Harry asks for structural reform ideas to make public markets more attractive to tech founders. Rory proposes time-based voting models and highlights the hidden costs embedded in late-stage private ratchets. | |
| Real-World Predictions: OpenAI's Non-Profit Status and ChatGPT-5 | 3 | 4 | 2 | 2 | Harry prompts quick-fire prediction market questions regarding OpenAI and ChatGPT-5. Rory explains how the non-profit branding was critical for attracting elite AI engineering talent early on. | |
| Analyzing the Rippling vs. Deel Lawsuit and Settlement Strategies | 5 | 8 | 8 | 6 | Harry attempts to defend Deel CEO Alex Bouaziz as a personal friend and portfolio founder. Both guests forcefully reject Deel's counterclaims as a sign of weakness and advise settling immediately to avoid potential criminal exposure. | |
| Key Takeaways from SaaStr 2024 and the AI Pivot | 4 | 5 | 2 | 2 | Harry takes credit alongside Jason for banning past-focused sessions at SaaStr 2024. Rory contrasts post-crash founder mindset scarring with the necessary forward-looking AI pivot. | |
| AI's Impact on Tech Budgets, Team Headcounts, and Moats | 6 | 6 | 3 | 2 | Harry brings up Microsoft's move to open-source VS Code features and its potential impact on Cursor and Windsurf. Rory reframes Microsoft's aggressive move as evidence of competitive pressure from nimble startups. | |
| AI Sales Tools, Commoditization, and the Power of Wedge Products | 5 | 7 | 5 | 5 | Harry expresses strong skepticism regarding crowded AI note-taking investments. Rory schools Harry using an Amazon bookseller analogy from 1996 to explain how narrow wedge products evolve into platform defensive moats. | |
| Inside the VC Boardroom: Defensibility vs. Growth Trade-offs | 7 | 5 | 2 | 2 | Harry introduces Anthropic's revenue run-rate jump from $1B to $2B in a single quarter. Rory details internal VC boardroom debates balancing commodity fast-growth deals against high-IP defensible investments. | |
| Chegg's Collapse and the Threat of Model Context Protocol (MCP) | 5 | 7 | 2 | 2 | Harry asks what incumbent software category will collapse like Chegg next. Jason explains how Model Context Protocol (MCP) could strip application layers down to basic underlying databases. |
Statements from this episode (41)
O'Driscoll: Deel CEO should pay whatever it takes to settle lawsuit immediately
“If I was, my ass was on the line, and I was the CEO of Deal, I'd be like, how much money does it take to settle this thing by Friday?”
Lemkin: Fund-returning investments are overrated and insufficient for venture capitalists
“A fund return is not enough, man. We don't get out of bed for a fund returner. A fund returner just returns the fund. Like, everyone talks in venture about fund returners like they're so great. I don't think they're so great.”
O'Driscoll: Venture Fund Profits Are Concentrated in Rare Seven-Year Cycles
“One of the depressing facts about venture is we make an embarrassingly large percentage of our money once every seven years when you're in the white heat of must acquire, must own high growth venture assets.”
O'Driscoll: Chime will expand into offering loans and cross-sell products
“They're going to add, you know, loans, which they don't really do a lot of today and all the other cross sell stuff that every financial services company does at scale.”
O'Driscoll: Sub-$10B banks earn 1.2% debit interchange versus 0.5% for large banks
“There's a rule that says if you are a bank more than ten billion dollars in assets, you can only charge approximately, the devil's in the details, but approximately 50 bips on a debit card. If you are a sub ten billion dollar bank, you can charge more, and the…”
O'Driscoll: Chime will IPO around $10 billion, down 50% from peak
“I think if you end up plus or minus ten billion, you know, rough order of magnitude here, you are looking at a deal going public, you know, 50, 55% below the last round price.”
O'Driscoll: Late-stage ratchets make peak private valuations an illusion
“You didn't, and an interesting lesson for the founder, you didn't raise money at twenty five billion. You thought you raised money at twenty five billion. But in fact, if you go public at 12, you raised money at 12 and you just didn't know it.”
Lemkin: I no longer read seed deal documents and just sign them
“But I'm not grumpy about it anymore. I just signed the documents. I don't even read them anymore. Cause it don't matter what's in them. I just sign them, and it doesn't matter what I think.”
O'Driscoll: 30-35% of growth-stage deals fail versus under 10% late-stage
“At our stage, you know, 30, 35% of our deals don't work out, right? At the stage these guys are at, most of their deals, 90% plus of their deals, when you're writing those kind of checks, should be a one X plus IPO pop.”
O'Driscoll: Late-stage hedge funds target 30% annual IRR, not cash multiples
“I remember realizing when you watch the late stage hedge fund guys come in that they fundamentally run their entire life on IRR. They have, you know, yearly high watermarks, compensation schemes, and therefore they're competing for a deal and they're not sayin…”
O'Driscoll: Chime's $1.7B revenue exceeds 80-90% of IPO-candidate unicorns
“This is still a 1.7 billion dollar revenue company. It'll probably be larger than, you know, 80% of the companies that are, you know, unicorns that have been maybe 90% of the companies that have been talked about for IPO.”
O'Driscoll: Klarna needs public capital access while Stripe commands infinite cheap private money
“If you're a Klarna, if you're a financial player where access to capital is really important, you know, you are fundamentally a lender. I think being public and having access to money in all its different ways makes sense. If you're a high growth AI company or…”
Stebbings: Klarna's growth slowed to 13% as borrowing costs surged
“13% growth, the cost of borrowing is way up.”
O'Driscoll: Large software companies will make numerous small AI acquisitions
“There'll be a whole ton of these over the next, you know, two to three years as these large software companies, you know, Listen to Jason telling them they're screwed on this podcast and decide, I don't want to be screwed. I want to be a contender, right? And …”
Lemkin: Two portfolio companies recently received $500M acquisition offers
“I've had two portfolio companies recently that got offers to buy them at five hundred million. Okay, now in isolation, that sounds great, okay? But these are very good companies, okay? This is not open AI. These are very good companies. One was just a smidge a…”
O'Driscoll: Four or more venture exits will top $65B in 5-7 years
“If there's not four exits, Above sixty five billion in the next five or seven years, then the people who bought Stripe, SpaceX, Databricks, OpenAI and Antropic are screwed. So I don't think they're screwed. So I think there's going to be, this trend is going t…”
O'Driscoll: A delayed Google IPO would have set a $140B exit benchmark
“If Google had stayed private one year longer, Google's market cap in the end of oh five, it was about a hundred and forty billion dollars. If they just stayed private another year, The entire data would be swamped by the fact that, oh my God, the biggest ventu…”
O'Driscoll: Mega venture funds must win the top 5-6 power-law deals
“What it means is that the bigger your fund, the more imperative it is you have to be in those six deals, which explains why capital is so easy to raise for those companies. It all makes sense. It was great analysis. I'm not sure it points to everybody can do g…”
O'Driscoll: Investors should sell late-stage private stock 80% of the time
“Private late stage companies in 2025 are just the same asset class as IPOs in 95 to 2005. The same analysis applies. Most of the companies barely beat their IPO price a year later or ever again, and a small number of companies compound and do amazing, right? S…”
Lemkin: Seed investors should sell at $2B valuation unless 100% certain
“When I was looking at this on a spreadsheet, my new role is at two billion, sell unless you're a hundred percent sure you shouldn't as a seed manager at two billion.”
O'Driscoll: Death of IPOs severely harms venture capital allocation
“The death of IPOs is just bad news all around for capital allocation, because now as a GP, you're sitting there going, I want to hold this thing forever. My LP would probably like to get some liquidity. If it was public, I'd distribute, and I'd keep mine. They…”
O'Driscoll: High taxes are not a valid reason to leave California
“It's a great place to live. So I'm genuine, genuine comment, not, you know, I wish it were lower, but tax is not the reason to leave California.”
O'Driscoll: Private market capital remains cheaper than public market capital
“And there's no doubt that bizarrely enough, The cost of capital in the private markets remains cheaper than the public markets.”
O'Driscoll: Tech IPO baselines will never return to $100M revenue
“And if you get high priced rounds with lots of price protection and you ultimately go public, you may in fact discover that the last couple of rounds were way more expensive than you thought. And I think that's, what's going to kind of, I don't think it'll eve…”
Lemkin: OpenAI is the most successful dysfunctional company ever seen
“I've never seen a dysfunctional company that's more successful than OpenAI.”
Lemkin: OpenAI will not reveal ChatGPT-5 this year
“It will happen, but given all the activity, it wouldn't be surprised to me if it pushes a year longer, right? ... I'm saying I think no”
Lemkin: Rippling will 100% win its trade secret lawsuit against Deel
“There's no chance they'll lose you know, it could get settled, right? Which is, they're always the right outcome, even when there's emotion. The right outcome is always to settle it, right? There's no way they lose a hundred percent. The facts are too bad. The…”
Lemkin: Founders should settle all lawsuits, especially when innocent
“Like to all founders out there, settle everything. Especially when you're not in the wrong, when you're not in the wrong, settle it, right? When you're, when it's the, what, cause it's so hard if you're not in the wrong to settle it, right? It's so wrong. That…”
O'Driscoll: Lawyers assure strong cases initially, then call them 50/50 before trial
“The lawyer that you engage will tell you, you've got a great case when you start out. As you get closer, To the courtroom door. And as you spent more and more money, they start changing the tune slightly just because suddenly, and maybe just not hearing what t…”
O'Driscoll: SaaS is not dying, and AI-forward companies will reaccelerate growth
“This whole SaaS is dying is bullshit. It's changing. And you better be AI forward or dead. But if you are, I'm very certain that if you do the right, make the right moves, you can grab hold of this thing and can, you know, not just grow, but reaccelerate growt…”
Lemkin: Tech executives are eager to replace bottom 30% of headcount with AI
“The basic vibe was everyone recognized 20 to 30% of their team's gonna be replaced with AI, and they're happy for it.”
O'Driscoll: Execution speed will drive tech value creation over next three years
“A good portion of the value that will be created over the next three years is just by running fast.”
O'Driscoll: Microsoft Open-Sourcing VS Code Signals Relative Weakness
“If you were the developer behemoth, which was Microsoft, the fact that you have to do this now to remain relevant at a zoom out level, This is a sign of relative weakness, not absolute weakness.”
O'Driscoll: AI startups face inevitable churn without mutual success metrics
“Step one on all these deals and every AI deal is do you, the vendor, and you, the customer, have a mutually agreed figure of merit on what success looks like that you can both track? If not, at some point, you're going to churn.”
Lemkin: Otter.ai has crossed $100 million in revenue
“Otter AI just announced across a hundred million in revenue, right?”
O'Driscoll: Core AI features will commodify within 3 to 5 years
“You got to pick your wedge AI entry point for that two or three years where there's kind of magic AI premium, but you got to operate on the assumption that three, five years from now, the core thing you do is going to be commodified. And what you got to do is …”
Lemkin: OpenAI projects burning $44B before 2029 profitability
“OpenAI also said they're going to burn at least another forty-four billion until they're profitable in twenty-twenty-nine.”
O'Driscoll: Only 2 or 3 foundational AI model providers will survive
“I don't buy the commodification argument. There's going to be two or three of them. I don't think there's going to be 10”
O'Driscoll: AI model providers are the anchor tenants of AI economy
“They're the anchor tenants of the AI economy, just as Amazon, Azure, and whatever Google, Google Cloud were kind of the anchors of the cloud economy.”