Apr 24, 2025 · 1h 26m · 20vc
How LP Deployment to Venture Will Change in 2025 & Are Endowment Funds in Trouble? · 20VC with Harry Stebbings
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In this episode of 20VC, host Harry Stebbings sits down with veteran venture capitalists Jason Lemkin and Rory O'Driscoll to analyze the shifting paradigms of modern venture capital. Together, they explore the strategic math behind major AI acquisitions, the evolving internal dynamics of VC firms, and the pressing liquidity crises facing university endowments and limited partners.
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 16.3% of the talking time here. How this is scored →
Harry as informed peer 5.3 Guest teaching 4.7 Guest disagreement 3.2 Harry pushing back 3.9
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 15:22 Rory Calling Harry a Hypocrite
Rory directly confronts Harry, calling him a hypocrite for paying top investment multiples while questioning whether 100x multiples make sense in current markets.
Hardest push from Harry ▶ 55:17 Defending AI Roll-Up TractionHarry explicitly refuses the guests' framing that roll-ups are crappy models, backing his pushback with concrete metrics from a portfolio company growing $0 to $30M ARR in 2 years.
Biggest teaching moment ▶ 15:50 Growth Persistence & Forward Multiple MathRory educates Harry on why revenue multiples are meaningless without growth persistence calculations, demonstrating how high growth de-risks initial entry valuations over time.
Harry holds his own ▶ 37:39 Citing 50+ LP Inquiries on Sequoia DilemmaHarry demonstrates deep LP market authority by citing primary data from over 50 institutional LPs reaching out to him post-show regarding liquidity vs Sequoia relationship trade-offs.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome and Introducing the Windsurf Deal | 3 | 2 | 2 | 1 | Harry introduces the rumored $3B Windsurf acquisition to kick off the show. Rory and Jason explain how venture capitalists react to big M&A news and frame small acquisitions relative to total market cap. | |
| The Math of M&A: 1% SVP Bets vs. 10% "Bet the Farm" Deals | 6 | 4 | 4 | 5 | Harry offers strategic analysis comparing Anthropic's developer lead with OpenAI's need to acquire, asserting Cursor was too expensive to buy. Jason counters that Sam Altman can easily spend 10 percent of market cap on strategic deals. | |
| Lessons from History: Power of Action vs. Doing Nothing | 2 | 5 | 2 | 1 | Rory delivers a detailed history lesson comparing successful tech acquisitions like Microsoft Office components with historic blunders like Excite@Home, emphasizing Altman's bias to action. | |
| Post-Acquisition Integration: Platform Play vs. The Long Grind | 6 | 4 | 4 | 4 | Harry analyzes Green Oaks leading Windsurf's seed round and argues multi-stage funds are squeezing dedicated seed firms out. Rory corrects Harry's systemic generalization, crediting individual investor picking skill. | |
| Compounding Risk and Dilution Sensitivity at the Seed Stage | 6 | 5 | 3 | 4 | Harry brings concrete market observation regarding seed round dilution shifting from 15 percent down to 10 percent. Rory reframes dilution sensitivity as a direct reflection of founder leverage and capital availability. | |
| The Return of the 100x Multiple and the Reality of Growth Persistence | 5 | 7 | 7 | 4 | Harry mentions a company valued at $700M on $7M ARR, asking if 100x multiples are back. Rory forcefully calls Harry a 'hypocrite' for paying top multiples himself and educates him on growth persistence math. | |
| The End of the Golden Era of SaaS Predictability | 5 | 4 | 2 | 3 | Harry questions whether revenue transients have fundamentally changed compared to classic SaaS compounders like Klaviyo and UiPath. Rory agrees that post-PMF velocity today is unprecedented. | |
| Why AI Adoption is Scaling at Unprecedented Velocity | 4 | 5 | 2 | 2 | Harry asks why AI product-market fit reaches $3B valuations in 90 days. Rory points to unprecedented global consensus while Jason cites early adopter market saturation and cheap $20 self-serve pricing. | |
| The Economics of Leaving: Why Younger Partners Spin Out | 5 | 4 | 4 | 3 | Harry highlights Bucky leaving Kleiner Perkins as part of a trend of young partners leaving top firms. Rory teases Jason about his ego while laying out firm leadership responsibilities for partner retention. | |
| Ditching Your Track Record: The Strategic Clean Slate | 6 | 6 | 4 | 6 | Harry asks Rory directly if his mid-sized firm suffers from LP barbell allocations between mega-funds and micro-funds. Rory responds that fund performance is the only true defense and notes spinouts allow GPs to ditch legacy fund track records. | |
| The Endowment Crisis: Tax Status, Fines, and University Cash Planning | 6 | 5 | 3 | 4 | Harry notes the tough fundraising climate and impending regulatory/tax threats to university endowments. Rory details how an Ivy League CFO must overhaul cash planning to favor liquid assets. | |
| Relationship Protection vs. Liquidity: The Sequoia Dilemma | 7 | 4 | 2 | 4 | Harry shares primary data from 50+ LPs reaching out post-show about balancing liquidity needs with protecting core Sequoia/KP relationships. He also cites news of Yale selling a $6B asset pool. | |
| PE is the Real Culprit: The Cash Planning Nightmare | 3 | 6 | 3 | 1 | Jason educates the room that private equity illiquidity, not venture capital, is the primary macro driver behind university endowment cash distress. | |
| The Denominator Effect and Mandated Outflows | 6 | 5 | 3 | 5 | Harry questions whether the denominator effect is overstated given public market volatility and reveals surprise that major endowments hold over 30 percent in private assets and venture. | |
| The Capital Paradox: Why Rounds are Ballooning in the AI Era | 6 | 4 | 2 | 3 | Harry presents a industry paradox: if AI makes running startups cheaper, why are seed round sizes ballooning? Jason explains VC appetite for capital-efficient firms and founder valuation insensitivity. | |
| The Legitimacy of AI-Enabled Roll-Up Models | 7 | 4 | 5 | 8 | When Rory calls AI roll-up plays a 'crappy model', Harry strongly pushes back using a portfolio company that grew from $0 to $30M ARR in 2 years while expanding margins from 5 percent to 40 percent. | |
| Where is No One Going? (Under-invested Opportunities) | 6 | 4 | 4 | 4 | Harry asks where under-invested opportunities lie, noting extreme overcrowding across sectors and citing an IC map showing dozens of competitors in L&D AI security. | |
| Mapping Competitors & Winner-Take-All Markets | 5 | 5 | 2 | 3 | Harry asks whether investors map all 10-15 competitors before pulling the trigger. Rory explains diligence dynamics and why enterprise software yields oligopolies rather than single winners. | |
| 10X Distributions & Navigating Crises of Confidence | 6 | 5 | 3 | 5 | Harry asks bluntly how many 10X distributions the guests have achieved. Rory candidly reflects on career crises of confidence and early deal failures. | |
| Conviction-Based Exceptions vs. Firm Culture | 7 | 5 | 5 | 6 | Harry admits passing on 1 percent of ElevenLabs at $25M valuation and asks why firms don't make valuation exception bets. Rory and Jason discuss solo GP freedom versus equal partnership culture. | |
| The Unmatched Density of Silicon Valley | 5 | 5 | 3 | 5 | Harry asks about Silicon Valley's talent density and challenges Jason on why he skips competitive diligence. Harry notes his partner pool would have a heart attack if he operated like Jason. | |
| Reference Checking, Boring Founders, and the Slog of B2B Markets | 6 | 5 | 3 | 5 | Harry discusses growth firms doing 30 customer references just to earn a meeting and challenges Jason on whether he would back a dry or uninspiring founder with top metrics. | |
| Missing Billion-Dollar Founders & Automating Venture with AI | 5 | 4 | 2 | 4 | Harry ribs Jason about famous SaaS founders whose cold emails he ignored. Jason explains how custom AI agents now review decks and alert him to sweet-spot metrics. |
Statements from this episode (63)
Lemkin: OpenAI Is Weaker Than Anthropic in Coding
“Where is OpenAI slightly weak compared to Anthropic? It's in coding.”
Lemkin: Investors Should Do Any Deal With 100% Conviction to 5x
“Any deal where you have a hundred percent conviction to Vivex, you should do it.”
O'Driscoll: Ivy League CFOs Must Overhaul Cash Planning This Year
“If I was the CFO of an Ivy League university, let's just say my cash Planning for this year would be dramatically different than my cash planning normally.”
O'Driscoll: OpenAI acquiring an AI coding company for 1% market cap is logical
“If you're open AI, if you're looking at what you're doing here, there's two or three Mongo huge use cases for your product, and you probably want to be relevant in those cases. And one of them is obviously one of the most visible is coding and picking up somet…”
Lemkin doubts OpenAI will complete reported $3B Windsurf acquisition
“I'm not convinced this deal will happen. I think windsurf is pretty epic. I think that Faroon's a great CEO, but we don't know, right? We don't know if it'll happen. Maybe Harry, you're, you are closer to the pulse of anything on planet Earth. So you may know,…”
Lemkin: Competitors will never catch ChatGPT's revenue lead
“ChatGPT has pulled away. You cannot catch it. No matter what anybody says, you will never catch that revenue.”
Lemkin: VCs in Cursor's $10B round would sell for $30B
“I guarantee you the VCs at the ten billion dollar round will take a quick three X.”
O'Driscoll: Major AI labs will inevitably acquire an AI coding app
“If they don't do if they don't do Winsurf now, the line of other coding apps outside the OpenAI office is going to go around the frickin' block. And at some point, someone's gonna buy something.”
O'Driscoll: Only Two or Three Independent PC Productivity App Companies Scaled
“After 20 years of the PC wars, there was really only two or three companies at scale That were selling apps that were personal productivity apps independent of Microsoft. It was, you know, you had Adobe, you had Quicken and maybe some of the security apps.”
Stebbings: Multi-stage VC funds are crushing traditional seed managers
“The multi-stage fund product at seed is so good, so efficient, and their cost of capital is so low that they're just crushing everyone at seed. And this, for me, is another example. Green Oaks leading the seed, doubling down on the A. I think all of the multi-…”
O'Driscoll: Green Oaks' seed success reflects deal-picking, not a systemic VC shift
“I'm not sure it says something systemic about seed versus non seed. I just think it says extraordinarily good picking from a very connected investor who just You know, most of whose stuff is working really well at a much higher level and to go from, you know, …”
Lemkin: A $1 Billion Exit No Longer Returns Modern Seed Funds
“I don't think it's true of a lot of seed managers anymore. I don't think one billion dollar out, let alone do three X net. I don't even think it can return the fund.”
Stebbings: Seed Round Dilution Has Compressed From 15% to 10%
“There's a lot more dilution sensitivity at seed where very often today the whole round is 10% and we're able to do seven and a half with two and a half for angels. Whereas before it was 15 with 12 and a half and two and a half. And I've really seen that compre…”
O'Driscoll: No Business Is So Good That Excess Capital Can't Ruin It
“There's no business so good that excess capital can't ruin it.”
O'Driscoll: Companies growing at 20% trade at 5x to 6x revenue multiples
“And in the end, everything trades at, you know, five, six times revenues if you're growing at 20%, right?”
O'Driscoll: 2021 valuations failed because expected hypergrowth never materialized
“I think what happened in 21, a lot of people paid up for growth rates at a hundred X and then didn't get the growth.”
Rory O'Driscoll: Previous SaaS Era Was Golden Age of Predictable Growth
“That's why those 10 years of SaaS was such a good business, because it was predictable, because the input of sales and marketing to the output of revenue was predictable because the revenue was sticky. In retrospect, it was the golden years of just apply capit…”
Lemkin: Cursor, Bolt, and Windsurf struggled for years before exploding
“I mean, I know Cursor almost died, right? Bolt almost died, right? And then finally it hit for Cursor. I don't know the whole story of Windsurf. Even Windsurf was Codium before it, right? It wasn't even the same, like everyone talks about Windsurf. 90 days ago…”
O'Driscoll: AI startups achieve immediate hyper-growth unlike traditional SaaS companies
“The SaaS trajectory is lock in, and Jason knows it so well, trouble, trouble, double, double, and that steady thing. The weird thing now is once you lock in, as you say, in 90 days, you go from maybe, to be fair, a year, six months, a year, you go from this co…”
Rory O'Driscoll: AI hype is bigger than PC and internet hypes combined
“The important thing about AI is that if you compare the hype, if you look at PC hype, internet hype, and AI hype is bigger than all the other hypes put together in terms of just raw belief that it's all gonna matter, right?”
Lemkin: Mainstream enterprise AI market remains 90% untapped
“A hundred percent of the early adopters are in market. And that's why I think it's early because 90% of sales, the enterprise is not even there.”
Lemkin: Ultra-cheap AI tools make traditional B2B SaaS look like a ripoff
“These products, my jaw drops how cheap these products are, and they make regular B to B look like a friggin' ripoff, and so every early adopter's like, I can use Higgsfield for five bucks, I can use Winsurfer, why wouldn't I?”
Lemkin: VC partners with a hot hand who don't run their firm should leave
“If you have a hot hand in venture and you're not running the place, I would leave the next day.”
Lemkin: Tomas Tunguz raised around $700M after leaving Redpoint
“Tomas Tungus, who just already raised like seven hundred million.”
Lemkin generated a 10x return at prior VC firm before leaving
“When I worked for someone else's venture fund, I was told what my salary was. I mean, F you, I did 10 X in that fund and you're going to tell me what my salary is.”
O'Driscoll: VC leaders must rapidly bring top young partners inside the tent
“If you're sitting there as a leader and you've got a hot, a talented younger partner and they're killing it. If you're not putting them in inside the tent as quickly as humanly possible, you're an idiot.”
O'Driscoll: Star VCs leave when trapped digging out of colleagues' fund losses
“Sometimes it can be that I'm doing great and I am not getting the reward I need. Sometimes it can be I'm doing great and there is no fricking reward because everyone else has lost all the money. So no matter how hard I work, In the next five years, I'm just di…”
O'Driscoll: VC fund size doesn't matter to LPs as long as you perform
“The world you really suffered is if you don't perform. And if you do perform, no one gives a damn if you're small, medium, and large, you know, right.”
O'Driscoll: Spinning out allows VCs to ditch poor past track records
“The other wonderful thing about starting a new firm right now that no one will ever say, not only do you ditch your colleagues track record, you also ditch your own, right? You literally go there and go, I was at mega firm from 2016 to 2024. I did some deals. …”
Stebbings: University endowments are pulling back from venture capital investments
“The withdrawal from endowment funds is very real. The awareness that fines is coming, ah, very likely for many of them, and tax-exempt status is at risk, means that there's just a lot of uncertainty, and a lot of them are just waiting.”
O'Driscoll: VC partners will refrain from spinning out in 2025-2026
“You might see in the next one to two years, a little bit of clinging to the lifeboats here, guys, because, you know, it's not going to be as easy as it was. I think 23, 24 was a unique time where it's never easy to raise a new fund. These are really talented p…”
O'Driscoll: Sequoia permanently cuts off LPs who stop re-upping
“And you know, because those guys do vindictive like no one else, that if you pull out, you're done forever.”
O'Driscoll: Liquidity premium means nothing to investors until cash runs out
“Liquidity premium is one of those words that doesn't mean shit until it means everything.”
Yale Endowment Reportedly Selling $6 Billion Private Asset Pool
“Yale are reportedly selling a reported about a six billion dollar pool of different assets in a secondary sale.”
O'Driscoll: Yale's Asset Sale Equates to Vanguard Endorsing Active Management
“Intellectually, as I said, this would be like if Vanguard said, you know, we've been thinking active management is the way to go.”
Lemkin: LPs miscalculated distribution planning during prolonged tech liquidity drought
“One, everyone got their distribution planning wrong, their cash planning wrong. That's what happened in the industry. This is even pre Trump, pre everything. This is conversations I had late last year with LPs is we just, we, we're cool with our paper returns.…”
Lemkin: Private equity illiquidity causes far more strain for LPs than VC
“PE is the big problem. They're really the same thing. I mean, venture is a subset of PE, right? And the PE is so much bigger. And the fact that these deals are, did not go public in two to three years is the bigger stressor. Venture, venture, they don't love i…”
Lemkin: Venture capital is just a rounding error used to juice endowment returns
“Venture's a rounding error in most of most endowments, right? It's a subset, just like seed is a subset of venture. Venture's a subset of PE. It's not that important. It's just juice, right? It's just a way to juice your returns. P.E. Is where you put, deploy …”
Stebbings: Multiple tier-one endowments held over 30% in venture capital
“When we raised the fund last year, whatever it was, nine months ago, you know, obviously spoke to a lot of tier one endowment funds. The amount who had over 30% in privates was shocking to me. And over 30%, even in venture, was shocking to me.”
Lemkin: Founders uncertain of IPO should cap valuations at $100M
“I tell every founder to stop at a hundred million valuation. If you're not sure you're gonna IPO, now you may get it wrong, right? But if your gut says, I don't, IPO, man, 50% of five hundred million, that's not me, don't raise that north of a hundred.”
O'Driscoll: VCs seek capital-efficient startups in capital-inefficient ways
“We want to invest in capital efficient companies, and we want them, and I want to do that in a capital inefficient way. It's a paradox, but it's true.”
O'Driscoll: AI roll-up models are flawed due to customer misalignment and churn
“I think it's a crappy model. Just for contrast. You really, the bet you're taking is you buy a set of customers that weren't picked by you because they are suited for your product. They were picked by some mom and pop founder as being the 10 best, the 10 custo…”
Lemkin: AI roll-up revenue is financial engineering rather than durable growth
“They're not going to, it's not durable revenue in any way, shape or form, right? So it's financial engineering is all in most cases.”
Stebbings: AI roll-up portfolio company grew from $0 to $30M in two years
“One of my fastest growing companies has gone from zero to thirty million in revenue in two years with a pure roll-up play, which is helped by AI tooling.”
Lemkin: LMS is one of the worst startup sectors for investment
“The LMS space, this was already overcrowded before AI, right? Wait, this is LMS was one of these classic spaces of too many vendors for a midsize Tam, right? That's the worst area to invest in.”
Lemkin: Top SF founders under-invest in complex enterprise software
“There's not as much innovation in the true enterprise. Not B to B, not mid-market, but gnarly big problems. It's just not what all the kids in SF know, right? And so there's always going to be less investment with A and S tier teams solving gnarly enterprise p…”
Lemkin: Vertical SaaS will avoid AI overcrowding due to domain barriers
“Vertical SAS is still under invested in because the AI wave is just coming to vertical SAS. It's just starting in a lot of these categories and you're going to see five competitors, but you're not going to see 500 in a lot of categories in legal. You are in sa…”
O'Driscoll: Consumer markets are winner-take-all, enterprise markets are oligopolies
“The data says consumer tends to be more winner-take-all and enterprises tend to be more oligopolies, right?”
Lemkin: All his billion-dollar exits were in competitive oligopolistic markets
“When I look at the billion dollar exits I've had, they're all in brutally competitive markets that were oligopical or similar.”
O'Driscoll values post-crash 2X returns over 2021 bubble 10X deals
“I am more proud of my two X's and three X's in 2004 and 2005, six, than any 10 X that kind of sailed into the 21 bubble and made me a fortune.”
Stebbings: Passed on ElevenLabs at $25M valuation, missing a fund return
“11 labs at twenty five million. I could have had one percent of the company. And I was like, one percent. And like, no way. It was a twenty five million dollar fund. It's a three billion dollar company now. I would have been a fund return.”
O'Driscoll: High-variance investment exceptions only work in single-leader firms
“It's no accident that the firms that have high, you know, position betting variants where they're willing to go anywhere are single leader dominated.”
O'Driscoll: Missing 5X–10X deals in a firm's sweet spot is far worse than missing outliers
“I'm far more worried about missing a five or like a five or a 10 X deal that was in the scale sweet spot of, you know, one to ten million in revenue, series A or B enterprise software. When you miss that, or even worse, when you turn it down, that's when you h…”
Lemkin: SaaStr Has Never Done Competitive Diligence Since First Investment
“I only did it once on my first investment in pipe drive and I give up. I've never done it. I've never reached out to a competitor. I've never done any competitive diligence, right? Not once.”
Lemkin: Talkdesk grew from $1M to $15M ARR in five quarters
“No, I mean, talk to us went from one to 15 and five quarters.”
Lemkin: Algolia grew 20% month-over-month for its first two years
“Algolia was growing 20% a month for the first two years.”
Lemkin will never invest in a startup without an S-tier CTO
“I no longer will give on CTO. We've talked about that in the past. That's when I will never give on again S tier CTO, or I'm off the, I'm off it”
Lemkin: Solely focused on finding one massive $8B+ outlier outcome
“At a business model, I'm only in it for one big massive win. That's it. Everything I'm going to do for the next, next years. It's just for a wizard better. I don't care about anything else from a business model. I don't care. So I'm going to do the best I can …”
Lemkin: Always knows if he wants to invest prior to meeting founders
“90, 90, I'll, every single time I've known I wanted to invest before the first meeting. A hundred percent.”
Lemkin: Owner faces more competition than any company he has backed
“I don't think I've actually invested in a company with more competition than owner, not a single one. They direct competitors, adjacent competitors, virtually identical competitors.”
Lemkin: Enterprise plays in SMB markets like Olo lack fundable TAM
“Olo is trying to do an, basically an enterprise play in an SMB market. That's really brutal, right? It's the same problem in anything in B to B e-commerce. If you're doing, if you're not doing some SMB in e-commerce, like, yeah, there's a few niche players, bu…”