Jul 15, 2024 · 1h 7m · news
Saam Motamedi: Why Series B Won’t Make Money & Why $1M ARR is a BS Milestone for Series A | E1177 · 20VC with Harry Stebbings
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In this episode of the 20VC podcast, host Harry Stebbings interviews Saam Motamedi, General Partner at Greylock, to dissect the current "exuberant bubble" in AI valuations, the flaws of standard VC milestones like $1M ARR, and the real dynamics of sourcing and backing elite founders.
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 23.5% of the talking time here. How this is scored →
Harry as informed peer 5.3 Guest teaching 5.7 Guest disagreement 3.1 Harry pushing back 4.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 33:17 Saam rejects signaling risk as total bullshit
Saam forcefully rejects the multi-stage signaling debate, calling it total bullshit and dismissing common venture industry wisdom.
Hardest push from Harry ▶ 26:18 Harry refuses seed valuation risk-reward framingHarry directly refuses Saam's defense of 20 to 40 million dollar seed valuations, arguing firmly that investors are not compensated for pre-product, pre-revenue risk.
Biggest teaching moment ▶ 48:25 Saam predicts negative returns for current Series B vintageSaam educates the audience on growth market supply-demand imbalances, predicting that the current Series B asset class vintage will fail to make money overall.
Harry holds his own ▶ 5:04 Harry explains market price distortion via strategic buyersHarry demonstrates deep market knowledge by showing how cloud providers and corporate venture arms distort AI valuation multiples through non-financial incentives like cloud credits.
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, Introductions, and Formative Years | 3 | 3 | 1 | 2 | Harry asks biographical opening questions about Saam's debate and research childhood. Saam responds constructively, pushing back mildly on whether venture is exclusively a young person's game by citing his partner Ashim. | |
| The AI Investment Bubble and Valuation Dislocation | 6 | 5 | 2 | 6 | Saam details public vs private valuation dislocations in AI. Harry offers informed pushback, pointing out that corporate buyers like cloud providers distort valuation metrics because they seek strategic credit consumption rather than financial returns. | |
| Finding Signal Amidst Hype and Differentiating Competitors | 5 | 5 | 3 | 5 | Harry presses Saam on whether VCs must play the game on the field when a startup hits 20M ARR despite questionable retention. Saam outlines Greylock's two-lens framework balancing growth momentum against market fundamentals. | |
| Application Layer AI vs. Traditional Software Investing | 4 | 6 | 2 | 4 | Saam explains why application-layer AI is not fundamentally different from traditional SaaS wrappers, referencing Brian Halligan's comments on HubSpot. Harry questions OpenAI's platform risk. | |
| The Foundation Model Layer and Greylock's Approach | 4 | 6 | 2 | 3 | Harry asks about value accrual in foundation models. Saam details Greylock's thesis that pure API model provision is hard to monetize long-term unless tightly integrated into direct first-party applications. | |
| Per-Seat Pricing and the Death of SaaS Debate | 5 | 7 | 5 | 4 | Harry references Dave Friedberg's thesis on the end of SaaS. Saam strongly disagrees, laying out three core structural shifts (data model, delivery model, interface) that make now an ideal time to back new SaaS incumbents. | |
| Monetizing AI and the Reality of Customer Upgrades | 7 | 6 | 5 | 8 | Harry strongly challenges current seed valuations of 20 to 40 million post for pre-revenue teams, insisting investors are not being paid for the risk taken. Saam counters by citing power-law dynamics and risk reduction with proven teams. | |
| Urgency, Capital, and Founder-Driven Execution | 6 | 5 | 4 | 7 | Harry asserts that giving founders large initial seed rounds destroys desperation and urgency. Saam argues that top-tier founders maintain urgency regardless of capital raised. | |
| Signaling Bullshit and Board Ownership Sensitivity | 6 | 6 | 6 | 7 | Saam dismisses multi-stage signaling risk as total bullshit. Harry immediately pushes back, noting that Greylock's follow-on success does not disprove the systemic existence of signaling risk. | |
| Reserves, Offense, and Defensive Portfolios | 5 | 7 | 3 | 4 | Saam explains why using 1M ARR as a rigid Series A filter is flawed, illustrating his point with Wiz raising its Series A at zero ARR based on team and market transition. | |
| Being Contrarian and Right in Growth Markets | 7 | 5 | 3 | 5 | Harry advocates for unsexy monopolies with zero competition as the best venture investments. Saam clarifies two different ways to be contrarian, including paying high prices for hyper-competitive generational winners. | |
| Markets Have Gravity: Seed vs. Series A Frameworks | 6 | 6 | 3 | 6 | Harry posits that all venture investing stage frameworks reduce to evaluating founder quality. Saam agrees in principle but adds that market gravity prevents even elite founders from escaping small or bad markets. | |
| The Illusion of a Dead Growth Market and Series B Froth | 6 | 7 | 5 | 5 | Saam makes a bold contrarian claim that the Series B market is frothier than in 2021 and unlikely to generate net positive returns for this vintage. Harry highlights the shift in growth market capital providers. | |
| Sourcing vs. Servicing: What Makes a Great VC? | 5 | 6 | 2 | 4 | Saam openly breaks down his past anti-portfolio mistakes passing on Glean and Codium. Harry queries the relative importance of sourcing versus servicing in early-stage venture. | |
| Career Advice and Successful Navigation inside Venture Capital Firms | 7 | 5 | 4 | 7 | Saam advises young VCs to focus on firm success rather than personal deal counts. Harry offers a counter-perspective, distinguishing between VCs aiming for internal partner tracks versus those building personal brands to launch independent funds. | |
| Quick Fire: Helping Founders Find Product-Market Fit | 5 | 5 | 1 | 2 | In quick fire, Saam asserts VCs can meaningfully assist pre-PMF founders. Harry fully agrees. Saam praises Elad Gil and recalls his first meeting with Braintrust founder Ankur Goyal. | |
| Quick Fire: Why Startup Incubations Succeed or Fail | 4 | 6 | 2 | 2 | Saam explains why most venture firm incubations fail due to cap table greed and adverse selection, while acknowledging outliers like Greylock and Sutter Hill. | |
| Quick Fire: Portfolio Swap and Respect for Cyberstarts | 5 | 6 | 2 | 4 | Saam praises Cyberstarts partner Gilly Renan. When Harry asks whether all big companies start small like Facebook on campus, Saam provides a refined concentric circles model of market expansion. |
Statements from this episode (52)
Saam Motamedi: Seed rounds frequently hit $100M+ post-money valuations
“It's not unusual for us to see seed rounds for companies that are just getting started being priced in the many tens of millions of dollars, even a hundred million dollar plus post money ranges.”
Saam Motamedi: Series B market is frothier than peak 2021
“I think the series B market may be even frothier than it was in 21.”
Saam Motamedi: Most venture capitalists are not helpful
“And our view is most people in Metro Capital are not helpful.”
Motamedi: Uncompetitive VCs Fail Slowly Due to Lagging Signals
“And if you're wired that way, I think it doesn't matter if you're 20 years old, 30 years old, 40 years old, 50 years old. But I think if you're not wired that way, you're dead. And it takes a while to notice, given the lagging nature of our business.”
Saam Motamedi: AI investing is in a crazier bubble than peak ZIRP
“The short answer is yes, we are in a In an exuberant bubble. I think we may not even fully appreciate in how big of a bubble we're in, and what's happening, I could argue, is even crazier than what was happening in peak 2021, 2022 zero interest rate period.”
Motamedi: 100x-200x AI multiples make no sense without unprecedented growth persistence
“Now you're investing at a hundred to 200 times revenue when public names are trading at the best public names are trading at 15 to 20 times. That dislocation does not make sense to me unless you believe that these companies fundamentally have much more persist…”
Stebbings: Big Tech cloud credits distort AI market valuations
“With the rise of corporate investing with Amazon investing with Google investing with Your largest cloud providers investing. They are no longer purely incentivized by the price of the deal. They're incentivized by the partnership, by the cloud credits. That's…”
Motamedi: Google Trends for AI prosumer apps show rapid drop-off
“Take your favorite, you know, AI prosumer application that's going really fast and just go run the Google trend graph on it. For many of them, you'll see an amazing peak. And then also it really quickly comes down.”
Greylock refuses to invest in fast-growing startups lacking retention
“And if we don't like the answers to those questions, it doesn't matter if the company's gone zero to twenty million in six months, we're not going to invest.”
First-gen AI writing apps have seen growth metrics crash
“And by the way, Harry, like again, it's early, but we're seeing some of the first generation AI apps that two years ago, everybody was talking about writing assistance and the rest that had unbelievable growth metrics. You know, now come down quite a bit and r…”
Motamedi: AI application layer investing is no different from traditional software
“I don't think it is. And I think this is like one of the biggest misnomers in the venture zeitgeist where”
Motamedi: Dismissing AI startups as 'wrappers' will age like early SaaS critiques
“I think we're going to look back on this discourse a few years from now, and it's going to feel very similar.”
Motamedi: OpenAI will compete ruthlessly in pure code generation
“I think coding is a foundational capability. And I think if you just take kind of Pure code generation. I would bet very strongly that OpenAI is going to compete ruthlessly on that.”
Motamedi: Focused AI applications will yield many large public companies
“Like, I think there's going to be many, many large companies, public companies built that will be focused applications On top of these large model capabilities, but that's where we're focused.”
Harry Stebbings says a friend sold a window blinds company for $9.5B
“One of my friends just sold his blinds business, you know, window blinds for 9.5 billion dollars.”
Motamedi: Foundation models with tightly coupled applications will generate strong venture returns
“On the other hand, we do think there are some applications where you need to own the model because the model needs to be tied to the application. Whether it's a personal agent, as an example, you referenced inflection. And for those, we actually do believe mon…”
Motamedi: Long-term value creation for standalone AI API services is doubtful
“I think if you're just building like, you know, An API service. I'm more skeptical. I think there's a lot of value this year, next year. I'm skeptical how it plays out.”
Motamedi: Customer service AI startups should not build their own models
“Whereas you mentioned customer service AI, that's an area where I don't think you need tie-in, where the startup should be really focused on everything except for the model.”
Motamedi predicts SaaS will shift to hybrid seat and work-based pricing
“I think we're going to see hybrid pricing models. Where you're going to layer on to seats the type of work that you're doing for the end user, and you're going to monetize that separately, and that will allow these companies to continue growing inside accounts…”
Motamedi: Right now is the best time in years to invest in SaaS
“I couldn't disagree more. I sincerely believe it is the best time in a long time to be building SaaS companies and investing in SaaS.”
Motamedi: No new horizontal system of record SaaS company launched in 5-6 years
“Now, why has there not been a new deep horizontal system of record SaaS company built over the last five or six years? I can't think of one.”
Motamedi: Sales reps won't use Salesforce's interface in 10 years
“And I would argue in 10 years, sales reps won't even know what the Salesforce UI looks like because the interface to the underlying system of record has changed.”
Motamedi: AI pricing power requires replacing human workflows
“The bet I would take is if you take a slightly longer term view I do think you will be able to price to increase price pricing power, but the way you're going to do that is by really replacing elements of work.”
Motamedi: Series A valuations range from $80M to $200M post-money
“For series A, based on what we're saying, again, for that kind of cohort of companies, If you have a little bit of product market fit, again, we're seeing pricing between 80 and maybe a 152 hundred post on the high end.”
Motamedi: VCs shouldn't pass on elite founding teams over early-stage valuations
“So when you find one of those teams, I really don't believe you should be passing on price in those ranges. Because whether you do it at 20, 25, 30, 35, 40, if that company goes on to get to a hundred million plus of ARR with high growth, you're going to be ve…”
Motamedi: Greylock led a $26M seed round in cybersecurity startup Upwind
“We backed a team coming out of NetApp, where they had previously built and scaled a business and they sold it to NetApp for half a billion dollars, and they're building a new cybersecurity company called Upwind that's off to the races, and we led a really larg…”
Motamedi: Greylock's 17th fund is $1B and targets 20-25%+ ownership
“For us, you know, we invest, you know, we're investing in our 17th fund. It's a billion dollar pool of capital. We are more ownership sensitive than price sensitive within a range, and so the lens we take on our kind of core early stage positions is how many o…”
Stebbings: 20VC's worst investments raised $5M on $25M valuations
“My worst performing companies are the five on 25 or bigger.”
Motamedi: 80% of Greylock investments start before company inception
“In this case, we got to know these people when they were still full-time employees elsewhere, and we're helping them before the company even existed, and that actually, I think something like 80% of our investments, they're of that flavor, where we met the per…”
Stebbings: Top VC brands give startups extra runway to achieve product-market fit
“Because Sequoia and Greylock have such great brands, they will generally, 90% of the time, always get more money, and because they get more money, they have more time to get product market fit.”
Motamedi: Greylock frequently scales $5M initial checks into $70M-$100M positions
“And so, as I said, it's not uncommon for us to start with a five million dollar position. It yields a 70, seventy, five hundred million dollar position.”
Motamedi: Greylock regularly leads defensive inside rounds when startups hit air pockets
“Reserves aren't just for when things are going great. It's also for when like companies hit an air pocket. And many of the great companies we've been a part of have been Have hit those air pockets and we've had to step up and we have gladly done that and let i…”
Motamedi: Wiz Raised Series A at $500M Valuation with Zero ARR
“Wiz, when they raised their Series A at a five hundred million dollar valuation, had zero in ARR.”
Motamedi: ARR Should Be a Secondary Consideration in Series A Investing
“It's an important proxy for product market fit, but I always start with who's the founder and what's the market. And then I go to ARR as a secondary consideration.”
Stebbings: Greatest venture returns come from unsexy non-competitive markets
“I look at my biggest and best property management in Berlin, commodities pricing providers, like, unsexy businesses where no one is going after it. That's, I think, where great money is made.”
Abnormal Security reached $100M ARR growing over 100% year-over-year
“We were fortunate at Greylock to initiate a company called Abnormal Security, which recently announced they've crossed a hundred million of ARR growing north of a hundred percent.”
Harry Stebbings: Startups stall at $50M ARR when founders lack second acts
“Why is, why do most companies stall out at, you know, some growth level at fifty million an hour? It's because the founder doesn't have a second act, because they can't operate a new geography, a new product, a new market. They can't get that second layer of t…”
Saam Motamedi: Founders cannot overcome poor market dynamics late in growth
“Markets have gravity. And I don't think even the best founder can overcome a market that has the wrong dynamics when it's too late.”
Motamedi: Greylock Backs Flawed Ideas if General Market 'Zip Code' Is Right
“I think we are more likely to do it if we think the general zip code is good, right? So, like, if you're in a good zip code, but the street you've picked to build your house on is a bad street, like that we're more willing to get behind because we're like, hey…”
Motamedi: Greylock's Biggest Seed Misses Came From Disliking Iconic Founders' Ideas
“Our biggest mistakes where we have not, you know, pursued the investment has been where we've met someone truly iconic and we did not like the idea. And by the way, Harry, often we're right. Often two years later, the founder is working on something different,…”
Motamedi: Current Series B VC vintage overall will not perform well
“Again, Harry, I come back to, unless you're betting that public market multiples are going to re-expand, or that the growth durability of these assets is a lot stronger than what we've seen in the past, the vintage writ large is not going to perform. It does n…”
Motamedi: Don't overthink market dynamics when backing iconic repeat founders
“And when you have the opportunity to work with someone like that, you don't overthink the dynamics around the market because he for sure understands it better than you do.”
Motamedi: Sourcing is the hardest and most important pillar of VC
“But I think the hardest and most important is sourcing. I believe like you are only as good as what you source.”
Motamedi: Young VCs focus too much on personal metrics over firm success
“I think most young investors make a big mistake, which is they think too about too much about themselves and not enough about the firm.”
Stebbings: Stepping-stone VCs should leverage winning investments for personal brand
“What matters is being able to say I was a part of a winner and leverage the shit out of it for your personal brand to be able to raise your fund or get a job at one of the best.”
Harry Stebbings: Automatically follow exceptional investors into deals without second-guessing
“One of my lessons is when someone really great brings you into a round, don't ask twice.”
Motamedi: Most VC firm incubations fail due to cap table greed
“Broadly, I think incubations don't work for a number of reasons. I think most firms take too much of the cap table. There's negative selection bias where they don't get the best founders to want to work with them. They can't actually help. And so I broadly thi…”
Motamedi: Moving up the application stack protects focused AI models
“If you can start with a better focused model and then very quickly move up the stack into the application layer, it's actually a very good strategy.”
Stebbings: 20VC passed on an early ElevenLabs investment at $100M valuation
“We got a tiny check offered to us at like a hundred million price. And I was like, what's the point in doing?”
Motamedi: OpenAI model competition will not disrupt ElevenLabs due to workflow moats
“It might compete on the model layer, but I don't think it will matter for 11 labs because I think they built really fantastic workflow around it.”
Motamedi: VC reference checks do not correlate with founder quality
“I would say in my experience, it's not correlated. Like I have backed great founders who did 12 references on me and I've backed great founders who did zero references on me. And so for what it's worth in my data set, it hasn't been correlated”