Dec 6, 2024 · 1h 14m · news
Zachary Bookman: Why Valuations and Fundraising are BS | E1235 · 20VC with Harry Stebbings
0:00 / 0:00
⌖ your search result is the highlighted band (18:09–18:41). Playback starts there
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of 20VC, OpenGov CEO Zachary Bookman discusses the harsh realities of venture capital, the strategic evolution of his GovTech company leading to a landmark $1.8 billion acquisition, and the deep-seated psychological drivers that fuel high-performing entrepreneurs.
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 16.6% of the talking time here. How this is scored →
Harry as informed peer 4.4 Guest teaching 5.1 Guest disagreement 2.8 Harry pushing back 2.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 9:26 VC-Founder Conflict Callout
Zachary aggressively dismantles the narrative of VC-founder alignment, directly telling Harry that venture power-law incentives make investors fundamentally unaligned with and indifferent to mid-tier multi-billion dollar outcomes like OpenGov.
Hardest push from Harry ▶ 18:11 M&A as Running Out of IdeasHarry bluntly challenges Zachary's growth strategy, explicitly framing corporate M&A as a sign that a company has run out of organic product ideas.
Biggest teaching moment ▶ 9:26 Power Law Mismatch ExplanationZachary provides a masterclass on venture capital fund mechanics, explaining to the host why fund size constraints force tier-one VCs to prioritize top 0.01% hits over solid multi-billion dollar exits.
Harry holds his own ▶ 1:03:29 OpenAI Valuation Math & Risk AnalysisHarry demonstrates sharp venture expertise by outlining precise probability brackets, liquidation preference protections, and market-cap acquisition ratios for OpenAI's mega valuation.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Show Opening & Bumper | 3 | 4 | 2 | 1 | Harry opens with warm rapport and asks about pricing thresholds for enterprise sales. Zachary explains early struggles selling low-ASP software before adopting Marc Andreessen's logic on high pricing and recounts Palantir's JP Morgan negotiation. | |
| Selling to Government and Growth Durability | 5 | 6 | 4 | 5 | Harry challenges the attractiveness of the GovTech market, calling it 'doggy' and asking if it can produce $10B VC outcomes. Zachary counters by explaining GovTech's high gross retention annuities and contrasts durable growth like Tyler Technologies against short-lived ZIRP growth spikes. | |
| The Conflict of Interest: Founders vs. VCs | 4 | 8 | 6 | 4 | Zachary explicitly details the structural conflict between founders and VCs, stating that power law economics incentivize tier-one VC funds not to care about multi-billion dollar exits. Harry pushes back slightly by arguing that being an unloved portfolio company provides operational freedom. | |
| The 2019 Turning Point, Cost-Cutting, and M&A Strategy | 5 | 6 | 4 | 6 | Harry aggressively questions OpenGov's 2019 cash burn and challenges Zachary's M&A strategy as a sign of running out of ideas. Zachary reframes M&A in vertical SaaS as jumpstarting innovation and skipping years of domain discovery. | |
| Board Disagreements, SaaS Valuations, and Product-Market Fit | 7 | 5 | 3 | 5 | Harry shares active investment committee debates regarding inflated vertical SaaS valuations, while Zachary describes conflicts with Marc Andreessen over logos versus revenue and defines true product-market fit as repeatable, profitable customer success. | |
| Product Expansion, Morale Management, and Coping with Doubt | 3 | 4 | 1 | 1 | Harry asks empathetic questions about leading through flat growth periods. Zachary opens up about overcoming personal tragedy during hard operational times and relying on Ben Horowitz's writing to stay the course. | |
| The Illusion of Fundraising, Operational Intensity, and Board Dynamics | 4 | 7 | 4 | 3 | Zachary dismisses early fundraising hype and re-educates founders on board governance, emphasizing that boards exist to represent shareholders and hire/fire the CEO rather than act as personal friends. He illustrates this with an anecdote about Marc Andreessen abruptly leaving a board meeting at noon sharp. | |
| The $1.8B Cox Enterprises Acquisition and Founder Wealth | 6 | 6 | 4 | 5 | Harry presses Zachary on whether taking secondary liquidity reduces founder drive. Zachary breaks down the $1.8B Cox transaction structure, explaining how secondary liquidity removed baseline financial anxiety and allowed him to operate with greater long-term clarity. | |
| The Reality of Venture Returns, Frauds, and Asset Allocation | 6 | 5 | 2 | 2 | Harry and Zachary align on the weak underlying state of the venture capital asset class post-2021. Zachary criticizes paper IRRs, long fund distribution timelines, and angel investments that turned out to be outright frauds. | |
| High-Stakes Quick-Fire: Bad Meetings and Board Lessons | 4 | 5 | 3 | 4 | Harry uses a quick-fire card game with donation stakes to press Zachary for candid stories. Zachary recounts terrible pitch experiences with Peter Thiel and Mike Moritz, as well as strict governance lessons from Marc Andreessen. | |
| Introduction to the Quick Fire Round & Trusting Your Gut | 2 | 3 | 1 | 0 | Harry initiates the official quick-fire round. Zachary discusses relying on physical gut instincts for decision-making and accepting life changes following the birth of his child. | |
| Lifepath What-Ifs: London vs. Silicon Valley | 4 | 4 | 2 | 2 | Harry reflects on his personal decision to stay in London at age 18 rather than moving to Silicon Valley. Zachary banters about Harry's success and discusses the shift toward massive private liquidity rounds like Databricks. | |
| Shifting Minds on Talent: Up-and-Comers vs. Experienced Playbooks | 7 | 4 | 2 | 3 | Zachary shares his pivot from hiring playbook executives to promoting hungry internal talent. Harry demonstrates strong expertise when analyzing the valuation economics and downside risks of mega AI rounds like OpenAI. | |
| Childhood Struggles and the Entrepreneurial Drive | 4 | 5 | 1 | 1 | Harry gently probes into Zachary's personal background. Zachary candidly describes growing up with an alcoholic mother, mowing lawns at age eight to feel secure, and how childhood instability drove his entrepreneurial ambition. | |
| The Obsession of the Craft and Longevity in Work | 5 | 4 | 3 | 2 | Harry and Zachary discuss their shared workaholism and obsession with the craft, with Harry revealing he hasn't taken a holiday outside the UK in ten years. Zachary humorously pokes at Harry about his personal wealth. | |
| The Mistake of Going Fully Remote | 2 | 5 | 3 | 0 | Zachary reflects on his mistake of taking OpenGov fully remote in 2020 and details why returning to the office is essential for organizational alignment and employee mental wellbeing. |
Statements from this episode (40)
Bookman: Venture funds take 15 to 20 years to distribute cash
“People think these companies take like five, seven, nine, 10 years. Not true. They take like 15 to 20. That means your venture fund takes 15 to 20 years to distribute the money.”
Bookman: Multi-billion dollar exits do not move the needle for top VCs
“OpenGov's been quite successful, but it doesn't move the needle. It's a couple billion dollar type exit. That's not what you're in the game for.”
Bookman: OpenGov Took Five Years to Find Real Business Traction
“We were, we actually came out of the gate selling about a year in, but we were selling 5000 dollar software, 10,000 dollar software, transparency reporting. It was kind of a political sale. Governments would buy it to show off the data in their 3040 year old E…”
Bookman: Modern enterprise sales reps target seven-figure software deals
“10 years ago, 25, 50, 75 it used to be like, all right, get to a hundred K. Now I think kind of big league enterprise salespeople think a hundred K deals is like tic-tacs and we need to be targeting seven figure deals.”
Marc Andreessen: There is no upper limit on software pricing
“Marc Andreessen said to me, you want a big company? Charge high prices. You want a medium-sized company? Charge medium prices. You want a small company? Charge small prices. And there's a lot to that. He actually said there is no upper limit on the price of so…”
Bookman: High gross retention is the most critical metric in SaaS
“And the whole game in enterprise SaaS is high gross retention. Let's just be clear. The whole game is high gross retention. You look at a lot of companies, if they're in the, you know, seventies, eighties, good luck. I don't want that business.”
Bookman: OpenGov maintains gross retention in the mid-to-high 90s
“I'll take ours in the mid to high nineties.”
Bookman: Vertical software markets are mostly winner-take-all
“I think some of these verticalized markets are winner, winner take all. I do think there's a lot of room to build big vertical software companies, but not many great companies in single verticals.”
Bookman: Top VC brands create recruitment and sales flywheels for startups
“I don't think it's irrational. The brand, it's one of the, I, look, are the Sequoia guys, like, Amazing investors. They probably are, but it's probably also an incredible flywheel or network effect where if they invest in your company, it simply helps you recr…”
Bookman: Bootstrapping is superior to venture capital to avoid alignment conflicts
“However, for those who can like bootstrap, that's the ultimate That's the ultimate, in my opinion, to avoid all of the conflicts that come from raising venture capital, and to own much more of the company yourself, that, that's when I'm like, tip of the cap, a…”
Bookman: OpenGov was valued at $210M before its $1.8B acquisition
“A group in Tampa, the Weatherford capital. It was at two 10 pre-Harry just five years ago, and we just got marked, you know, in February at 1.8, so.”
Bookman: OpenGov generated $20M in revenue while burning heavily in 2019
“I was probably in the twenties, if I remember correctly, and I was burning cash like a drunken sailor.”
Bookman: M&A should drive product innovation rather than just revenue acquisition
“M&A can be innovation. It's not just buying for customers or revenue. We don't even do that. We buy for product quality and adjacency, and it jumpstarts the innovation.”
Bookman: Scaling ARR from $0 to $5M takes as long as scaling $5M to $25M
“So getting the first 1,000,002, three, four, five of revenue Can take as long as going from five to 25.”
Bookman: Rippling executes acqui-hires whereas OpenGov acquires built products
“By the way, I think the guys at Rippling are doing something slightly similar. They're gathering founders, and they're, some of these have subject matter expertise, some don't, and it's a, they're acquihiring, and we're doing product acquisitions.”
Bookman: Vertical SaaS startups must build multi-product suites to support viable ASPs
“In a lot of these verticals, you've got to get to like workday level product or, you know, rippling compound multi-product company to get the ASPs working.”
Bookman: Narrowing ideal customer profiles directly increases SaaS growth rates
“Every step we took to shrink the product market fit segmentation, and to get more focused on the ICP, the ideal customer profile, our growth rate ticked up.”
Bookman: OpenGov ignores inbound sales leads from outside its core US ICP
“We literally, we get an inbound, if you gave me an inbound from the central office of the UK, we're not responding. We're not responding. Our sellers, they can't prospect outside the ICP segmentation.”
Bookman: Startups should launch secondary product lines as early as possible
“I think is, is the earlier, the better.”
Bookman felt for years that building OpenGov ruined his career
“The short answer is yes. Basically all the time. I don't know how I kept going because I felt for years like I destroyed my career. I'd made the worst set of decisions.”
Bookman: OpenGov Would Have Died in 2014 Without Unfair Advantages
“If we didn't have some of these unfair advantages, we would have been dead pretty early, like in 2014 or 15.”
Bookman: Startups Are Judged Solely by Exit Liquidity, Not Valuation
“You will be judged and weighed by your exit and by the liquidity That you can provide to people.”
Bookman: The Board's Purpose Is Governance and Managing the CEO
“The board is for governance. They're to make sure that there's no fraud, and like, it's a real company, and primarily to hire and fire the CEO.”
Bookman: OpenGov ARR grew from $110M during deal talks to over $150M
“When we did the price negotiation, we were probably one 10, one 15, something like that. Very quickly, we've surpassed one 50.”
Bookman: Denying founder secondary liquidity forces entrepreneurs to play small ball
“I'm not less committed now. I'm honestly able to drop back and scan the field and throw passes in a way that I wasn't before. You, it's actually a decent way to encourage the entrepreneur to play small ball. For somebody who grew up without a lot, you know, mo…”
Stebbings: 2021 Venture Vintage Will Show Poor Returns Amid Inflated Valuations
“I'm pretty worried for venture as an asset class. I think 21 will be some pretty bad numbers and a really shitty vintage, and I think people are artificially keeping numbers high, and I don't think LPs have quite the understanding of how bad it is.”
Bookman: Founders Fund and Peter Thiel mocked his formal attire during pitch
“I pitched Peter Thiel, and I was so green, and I'd just gotten back from Afghanistan, and I literally would go to work in slacks and leather shoes, like a business lawyer-looking type person, and the Founders Fund guys, at least in those days, did not respect …”
Bookman: Marc Andreessen walked out of board meeting exactly at scheduled end
“I scheduled a two-hour board meeting, and the board was opening up, a lot of give and take, big discussion going on, some important issue, so I decided to let it run, and at, you know, maybe it was 10 a.m. To 12 p.m. At 12 p.m., Mark literally just pulls his c…”
Bookman: Snap Judgments and Gut Instincts Are Crucial for Major Decisions
“Snap judgments are very valuable. A lot of people tell you gotta be thoughtful, you gotta be balanced, and look, you do, especially when, as the organization gets larger, but you gotta listen to your stomach and your gut. I often advise our execs or others, wh…”
Bookman: Databricks and Stripe raised massive rounds primarily for employee liquidity
“They're raising, Databricks is raising most of that to deliver secondary to employees, including to deal with some tax issues, and I know that's what Stripe did, and Josh, I think, is doing most of these.”
Bookman: Mega-cap private tech companies will go public around 2026
“So, look, I think that can continue, but no, I don't see how these companies don't go public. I'm sorry, they've raised a ton of money At some point, people need liquidity, and that's gonna come, so I don't know whether it's in 25, 26, or 27. If I'm guessing, …”
Bookman: Hire growth-mindset up-and-comers over playbook-driven executives
“I've changed my mind on up and comers. I spent a lot of time hiring, been there, done that. And I've grown a little tired of it. And I all, I see the value of promoting from within. I see the value of hiring people that are geniuses and want to work like all t…”
Bookman: xAI at $50B is a solid investment because betting against Elon Musk fails
“I think you'd tend to not invest against Elon, and if I sat down with him, and talked with him, and said, are you like, is this real, and are you all in? And he's, I think he clearly is. I think that's probably a perfectly good investment.”
Stebbings: OpenAI has virtually no downside risk due to Microsoft backstop
“I didn't actually think there's actually any chance that it's a goose egg. I mean, maybe it's like a one or a two percent. I think the chance that Microsoft actually takes something with it and It, you get the press stack back at least.”
Stebbings: $50B tech acquisitions will happen as acquirers hit $3T valuations
“By the way, people are like, you've never seen a fifty billion dollar acquisition. Yes, actually you will do when companies are worth three trillion as a percent of market cap. It's absolutely aligned to what, you know, traditional acquisitions were.”
Bookman details difficult upbringing marked by mother's severe alcoholism and divorce
“I grew up, you know, I had a difficult home life. My mother was severe alcoholic and parents got divorced after kind of years of home war zone.”
Bookman: Entrepreneurial drive is fueled by a desire to prove worthiness
“I think there's probably something like this in a lot of entrepreneurs. You would have more experience in it than me talking to so many entrepreneurs as you do, but there's the, you know, Wanting to prove that, you know, I'm good enough or I'm worthy, that kin…”
Bookman: Reversing OpenGov's Remote Policy Because In-Office Productivity Is Far Superior
“And the reality is I was dead wrong. We're getting back into the office. The collaboration, the productivity, like, it's not even close, and it's very painful getting back into the office, and you know what is worse than that? It's not getting back in the offi…”
Bookman: Remote Workers End Up Quitting Due to Isolation and Disconnection
“It's the disaffection. It's the, I don't want to be paternalistic, but my colleague, Tiago, who is our one of our key leaders here, he said, look, people think they're happier sitting at home, and they're not. And they end up quitting like a week later. They s…”