Jan 10, 2024 · 1h 14m · news
Ed Sim & Jamin Ball: Did Figma Kill M&A Markets & 3 Requirements to IPO in 2024 | E1101 · 20VC with Harry Stebbings
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In this episode of the 20VC podcast, host Harry Stebbings discusses the stark realities of the 2024 venture capital landscape with investors Ed Sim and Jamin Ball, exploring startup valuations, the collapse of mega-M&A, down-round IPOs, and tactical portfolio management.
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 17.2% of the talking time here. How this is scored →
Harry as informed peer 4.8 Guest teaching 4.3 Guest disagreement 1.9 Harry pushing back 3.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 13:34 Ed rejects Jason Lemkin's board guidance
Ed forcefully rejects the premise cited by Harry that board members shouldn't push hard exit conversations on founders because they will just say 'fuck you', asserting that taking that friction is essential to doing one's job.
Hardest push from Harry ▶ 39:11 Harry directly confronts Jamin on HopinHarry directly challenges Jamin on Altimeter's $8B valuation investment in Hopin, asking how anyone could rationalize underwriting a $25B outcome during the height of COVID hype.
Biggest teaching moment ▶ 17:52 Jamin breaks down public vs private revenue multiplesJamin educates the room on the stark mathematical disconnect between 100x ARR private rounds and median public market multiples (7-8x forward revenue), demonstrating why 12-13x top-line growth is required just to break even on entry valuation.
Harry holds his own ▶ 53:05 Harry performs detailed valuation analysis on CartaHarry demonstrates deep financial expertise by analyzing Carta's financials ($400M ARR, 50% margins) to illustrate that realistic public market multiples yield a $3.5B enterprise value compared to its last private valuation of $7.5B.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Guest Welcomes and Backgrounds | 3 | 1 | 1 | 1 | Harry welcomes Jamin Ball and Ed Sim to the show and sets up the background. The dynamic is lighthearted and conversational, with Ed bantering about entering VC in 1996, the year Harry was born. | |
| The ZIRP Hangover and the 2024 Market Reality | 4 | 4 | 1 | 2 | Harry sets the premise around the ZIRP hangover and whether 2024 is the cliff for overvalued startups. Jamin presents Pitchbook chart data showing venture funding dropped 90% from peak back to 2016 levels. | |
| The Highly Competitive Seed Market and Inception Bubble | 6 | 3 | 3 | 7 | Harry actively challenges Jamin's data and macro premise based on his own portfolio experience, pushing back that seed remains hyper-competitive and no portfolio companies are dying this year. Ed reframes the issue from cash runway to business viability. | |
| The Preferred Stock Stack and Complicated Exits | 5 | 4 | 4 | 5 | Harry brings up Jason Lemkin's thesis that board members shouldn't force exit discussions because founders just say 'fuck you'. Ed forcefully rejects this framing, arguing that taking the heat is a fiduciary requirement of being a good board member. | |
| Late-Stage Realities and the Loom Case Study | 4 | 6 | 1 | 2 | Jamin educates on the mathematical reality of 100x ARR late-stage rounds, walking through historical public multiples (7-8x forward revenue) and showing why companies need 12-13x top line growth just to break even on valuation. | |
| The AI Hype Cycle Exception | 6 | 3 | 2 | 7 | Harry openly dismisses Jamin's advice that AI founders should turn down high valuations, pointing out that VCs with multi-billion dollar funds face massive deployment pressure and will keep driving up prices. | |
| The Death of Mega-Exits and New M&A Realities | 3 | 5 | 1 | 1 | Ed details how regulatory antitrust hostility killed mega-exits like Meta's acquisition of Kustomer, shifting the exit landscape to $300M-$600M outcomes. | |
| Why Startups Peter Out at $50M ARR | 5 | 5 | 2 | 5 | Harry asks why $10-15M ARR startups plateau at $50M ARR and pushes back against Jamin's market dynamics answer by suggesting founder capability is the primary deciding factor. | |
| Elevating Fund Performance on the Margin | 4 | 5 | 1 | 2 | Harry asks guests about their biggest fund management mistakes. Ed shares how he repeatedly bridged category leaders like Snyk and BigID before others recognized their potential. | |
| The Three Buckets of Growth-Stage Mistakes | 3 | 6 | 1 | 1 | Jamin outlines a structured framework for growth-stage investment failures, categorizing them into misjudging market size, miscalculating growth durability, and underwriting unrealistic exit multiples. | |
| COVID Pull-Forwards and False PMF: The Hopin Story | 7 | 6 | 3 | 8 | Harry directly confronts Jamin on Altimeter's $8B investment in Hopin, asking how anyone rationalized a $25B exit expectation. Jamin acknowledges the mistake, explaining how COVID pull-forward created false product-market fit. | |
| Starting Narrow and Expanding TAM Over Time | 4 | 4 | 2 | 3 | Ed argues startups should start narrow rather than trying to build multi-product platforms immediately. Harry brings up Rippling as a counter-example, leading to banter about Parker Conrad interning for Ed at Harvard. | |
| The 2024 M&A Outlook and Figma's Chilling Effect | 5 | 4 | 1 | 3 | Harry frames 2024 M&A bleakly due to cost cuts and regulatory barriers. Jamin agrees, highlighting the chilling effect the blocked Adobe-Figma deal had on large tech acquisitions. | |
| The Musical Chairs Game in M&A | 5 | 5 | 2 | 5 | Ed describes middle-tier M&A as a game of musical chairs. Harry pushes back on the relevance of these deals, asking whether $100M-$300M exits actually move the needle for venture returns. | |
| Board Realities and the Case of Docker | 7 | 5 | 2 | 6 | Harry demonstrates deep financial analysis using Carta as a case study ($400M ARR, 50% margins, $3.5B public EV vs $7.5B last valuation) to highlight the massive gap startups face when considering down-round IPOs. | |
| Pros, Cons, and Readiness for Going Public | 5 | 4 | 3 | 4 | Ed outlines the strategic benefits of public currency for M&A and hiring. He pushes back on Harry's claim that 2024 IPOs are unlikely, noting top companies have been prepping for 18 months. | |
| Embracing Public Market Scrutiny | 7 | 6 | 3 | 7 | Jamin cites Bill Gurley's critique that private founders fear public scrutiny. Harry hits back directly, asking if large private growth funds like Altimeter enabled this dynamic by giving companies a 'snooze button' to avoid going public. | |
| Software Spend Saturation & Creative Destruction | 6 | 5 | 2 | 5 | Harry quotes Jason Lemkin's concern that software spend has hit a structural saturation point. Ed counters with an optimistic argument based on creative destruction and AI-driven technology refresh cycles. | |
| Quick Fire - Golden Investment Advice | 3 | 2 | 1 | 1 | The group moves into quick-fire topics covering investment advice, long/short stock picks (Microsoft vs Apple), and under-the-radar category picks like data platforms and AI security. | |
| Quick Fire - LP Misconceptions & The Power of Vintages | 3 | 3 | 1 | 1 | The conversation closes with LP advice, vintage dynamics, and Ed expressing strong bullishness on Israeli tech founders despite military reserve duty obligations. |
Statements from this episode (56)
Ball: Regulatory opposition will block large-scale tech M&A in 2024
“From a regulation standpoint, it is really hard to see any large-scale M&A.”
Sim: 2024 IPOs require cashflow breakeven, 30% growth, and Rule of 40
“If you're gonna go public, I think you've gotta be cashflow breakeven. I think you have to have, you know, 30% plus growth, which is probably what high growth is right now. You've gotta be moving towards a rule of 40 or 50 with slanted more towards growth than…”
Sim: Third-time founders raise $10M at inception versus $1M for first-timers
“A third time founder is going to raise ten million dollars out of the gate and they may very well deserve it. Whereas a first time founder may get one.”
Sim: The era of late-stage tech startups growing 100% YoY is over
“The years of companies at the later stages going 100% year over year are over.”
Sim: 2024 is the year zero-interest-rate startups face severe market fallout
“This is the year that the shit's hitting the fan because, you know, you can only extend runway so much and it doesn't mean much if you're not growing.”
Ball: Software startups crammed five years of funding into 18 months
“If I had to summarize that 20, 21 period, it really was, we crammed five years of fundraising into an 18 month period.”
Ball: Software venture funding fell 90% from peak to 2016-2017 levels
“Really, twenty-twenty-one and probably the first half of twenty-twenty-two, and now in twenty-twenty-three, we're down 90% from where we were at the peak, but we're really just back to the 2016, 20 17 trend line, right?”
Sim: Seed valuations were the only startup stage to increase since 2021
“There's data from Carta that shows you that if you look at priced rounds from Q one of 20, 21 compared to, let's say Q four of last year, the only round that increased in valuation Was the seed round”
Sim: There is a massive valuation bubble in inception-stage startup rounds
“I think there's a massive bubble with what I call inception stage.”
Stebbings: No 20VC portfolio companies will run out of cash in 2024
“I don't have any companies running out of cash this year. I think the closest one to running out of cash is 18 months. Everyone's just kicking it down the road, so I don't think this is the year of mortality, and I push back strongly.”
Sim: Having 36 months of cash runway does not mean you have a business
“Just because you have 24 or 36 months of cash doesn't mean you have a business.”
Ball: Complex VC exits take 12 to 18 months due to investor alignment
“This is why these processes end up taking 12, 18 months is because it's not 12, 18 months of negotiating with an acquirer or figuring out how to do a dividend back to the preferred, right? It takes 18 months because these are really hard decisions that are oft…”
Ball: True founder-friendliness requires investors to have hard conversations
“To be a truly founder friendly investor and board member. It is about having those hard conversations. It's not about shying away from conflict.”
Ball: Public software companies average 7x to 8x forward revenue multiples
“You know, on average, software companies trade around seven and a half times forward revenue, right? You can ignore that 20, 20, 21 period when interest rates went to zero. And so companies on average are going to exit at seven to eight times forward revenue, …”
Ball: Most 2021 mega-round startups will never reach their peak valuations
“I think there's the vast majority of companies who raise these mega rounds in 2021. Will probably never be worth at any point in time, right? The valuation that they were given in the public markets.”
Sim: Loom sold for under $1B after a $1.5B peak 2021 valuation
“At the end of last year, I'm not in the room with Loom, but that last round valuation was at 1.5 billion dollars, right? That was led in 20, 21, and they sold for nine 99 or something, nine 50, right?”
Ball: Founders should raise smaller, milestone-based rounds to minimize cap table risk
“And like the way that we talk about it internally is don't make the cap table a risk to your business, right? Build a business the old fashioned way, raise smaller amounts of money, right? More frequently that are more milestone based. Where, when you raise a …”
Sim: Boldstart made eight net new investments in 2023 versus three in 2022
“We did eight net new investments last year, and we only did three the prior year with our largest fund yet”
Sim: Meta's acquisition of Kustomer took 16 months due to antitrust regulations
“I sat through the customer thing. It took us 16 months from signing to sell to Meta because of antitrust regulations, right?”
Sim: Meta's acquisition of Kustomer would not be approved by regulators today
“Fuck no. No way. And by the way, it had nothing to do with anything other than they hated Zuckerberg, right?”
Sim: Early VCs need valuation discipline to succeed on $300M to $500M exits
“Cause if early guys will do well, as long as they're not paying 50 to 75 Brie for some of these inception rounds, you know, if they exit a three to 500, but you need more of those to return a fund. So it changes the dynamics of everything where ownership matte…”
Ball: In 2021, startups were funded indiscriminately as future public companies
“In 20, 21, everyone was funded indiscriminately as you are going to be a public company. You're in a market that's big enough. You have a product that's differentiated enough to support a public market type company.”
Ball: Public-caliber SaaS companies must sustain 30% to 50% growth at $100M+ ARR
“And when I say public market type company, what does that mean? It's you are sustaining growth at a 102 hundred million plus of ARR, right? Sustaining, meaning you're growing, call it 30, 40, 50% plus. The universe of companies that can do that is Very small, …”
Ball: SaaS startups stall at $50M ARR when failing to penetrate enterprise
“The market just wasn't that big, right? There were some early adopters, maybe in Silicon Valley, that were using your product But the reality is, is you never really broke into the enterprise, right? You never really broke into where the big dollars were, and …”
Ball: Transitioning from point solution to platform drives top SaaS success
“And you see some of the most successful public companies today, the crowd strikes of the world, the data dogs of the world, right? And it's exactly what you just said. It's moving from a point solution to a platform. Like that's really hard.”
Ball: Recycling proceeds from modest exits can rescue difficult fund vintages
“And so I think what you do have is a lot of investors who are thinking now, Hey, Is that a good thing? Should we be doing that? And I think that can be a way of finding returns for investors in funds that were more challenging vintages. But I think the wrong a…”
Sim: Two-thirds of startup bridge rounds yield positive outcomes
“I'd say probably two thirds work out more positively than negatively, but the ones that work out can be outliers.”
Sim: Boldstart funded Snyk three times prior to its Series A
“Guy from sneak we funded him three times before he got his A round done.”
Sim: SecurityScorecard surpassed $100M in annual recurring revenue in 2023
“Security scorecard. The market's not big enough. It's not, this is not that they did over a hundred million of error last year.”
Ball: Overestimating growth durability was my biggest investing mistake
“The mistakes that I made right when I reflect back was that middle category, right? It was forecasting wrong. It was saying, Hey, I think I'm identifying a good market and a good business, but I had an expectation for growth durability. That just didn't happen…”
Sim: A startup's exit TAM matters far more than its initial TAM
“It's not the TAM you start with. It's a TAM you exit with.”
Sim: Founders must deliver 10x value narrowly before expanding their platform vision
“You've got to be able to zoom in on the end user, zoom in on how you make their life 10 times better with your product and how you can uniquely solve that problem. So you sell the product, but then you can market the vision to us.”
Ball: Major tech acquirers like Palo Alto Networks will buy few startups
“Palo Alto isn't going to go acquire 10 companies, right, in the next year. They might acquire a couple. Same with all these other, like, large acquirers.”
Sim: Cybersecurity will be exempt from the tech antitrust M&A freeze
“Very few, huge M and A's because of antitrust, maybe save cybersecurity, which has national security interests and those things tend to go a little bit faster.”
Sim: Palo Alto Networks paid $200M to $400M for startups with $2M ARR
“Look at all the stuff that Palo Alto bought. A lot of those companies had two to three million dollars of AR getting sold for two, three, four hundred million dollars, right?”
Sim: Unicorns will acquire private startups to build platforms before IPO
“You're going to see more private to private as well. And the reason why that makes sense for a private company is because if you're a one product company, going back to the platform play, you're going to go, you're going to have to buy another product or two a…”
Sim: Docker is positioned to go public in the next three years
“Docker is, is, is from what you see out there is a company that can go public the next two years, two to three years.”
Ball: IPO markets are always open at market-clearing prices
“The IPO markets are always open, right? You can always go public. It's just a question of, do you want to accept the market clearing price at that point in time?”
Ball: ZIRP-era funding rounds lacked ratchets blocking down-round IPOs
“The reality of the moment we live in today is a lot of these zerf rounds, they didn't have ratchets. It was the opposite. They were very light on terms and they were very light on structure. So you don't have this Dynamic of super heavy ratchets, anti-dilution…”
Sim: Most 2024 tech IPOs will be down rounds from the ZIRP era
“Look, the margin majority of companies that go do go public this year will be down rounds from the prior rounds, especially if they're raised towards the Zerp era.”
Ball: Public market scrutiny forces tech companies to build long-term endurance
“Like that will force companies to get fit. That will force companies to talk about their path to profitability. It will force companies to think about why are we an enduring business over the next 10 years? And while it may seem scary, it's actually like a goo…”
Ball: Bessemer invested in MindBody at $10M ARR on a $42M valuation
“This was 2010, and they were doing a deal at ten million of ARR at 42 pre”
Ball: Down-round IPOs will become normal despite the current taboo
“I think kind of down rounds or down round IPOs will be the same thing. There'll be a taboo on them, but they'll be normal.”
Sim: 25% of tech company revenue previously came from selling to startups
“Probably 25% of all this revenue from all these tech companies was selling to other startups. That shit vaporized, dude.”
Sim: Software net dollar retention will normalize to 110% to 115%
“From there, you know, this new cohort of customers, I think that retention is going to get back to a place where it's more like one, 10. So that can be one, 31, 40, but maybe healthy numbers like one, 10, one, 15.”
Sim: Investors should challenge founders during good times and support them during bad
“When things are going really, really well, that's when you challenge the foundries even more. And when things are shitty, that's where you kind of pick them off from the ground and maybe kind of cheer them on a little bit. So I call that my three CH is cheer, …”
Ball: Boring products that solve real problems build the biggest venture businesses
“Cool is the enemy of reality, right? There are a lot of products in venture companies that seem cool, but like at the end of the day, you need some, you need to solve a real tangible problem for someone. There's someone on the other end of the buying decision …”
Sim: Microsoft's AI leadership will drive cloud market share and H2 revenue
“Because of their lead on everything AI that they're taking market share on the cloud side. So I think that that's going to drive a lot of their business. And I'm hoping that by the back half of the year, you know, you start seeing some of the revenue numbers r…”
Sim: Apple edge AI developments will not generate meaningful revenue in 2024
“My short would probably be, I mean, just what everyone's looking at now is just Apple right now. I think Apple, You know, you've got an iPhone growth issue over there at Apple, but the one thing that gets me excited about Apple is the idea of machine learning …”
Ball: An enterprise AI strategy is impossible without a data strategy
“You don't have an AI strategy without a data strategy, right? And a lot of the AI value prop today really comes down to do you have your data house in order?”
Sim: Enterprise AI adoption requires dedicated AI security
“I think that there's no AI in the enterprise without AI security. And I think that's a completely new category now.”
Ball: LPs should select core managers rather than attempting to time vintages
“And I would say picking vintages from the LP side is, is really hard. The, you know, the, in my opinion, right? Like the right approach is pick a manager and pick managers and manager selection right now is more important than ever and invest across those kind…”
Sim: The 2024 venture capital vintage will produce incredible returns in five years
“But the firms that are making capital calls in 20, 24, putting dollars to work. I think this is going to be an amazing vintage because people are valuation adjusted. I think founders have the religion of the ones starting from now. And I think this is going to…”
Ball: The 2024-2025 VC vintage sits at the valuation bottom
“I think the setup for this year for next year is that we're in the bottom half, or maybe the bottom third of the valuation reset, and in the first third of a massive technology shift that's going to create a ton of creative destruction.”
Sim: Boldstart's fastest-growing 2021 vintage startups are Israeli infrastructure companies
“We have over a dozen Israeli founding teams right now, and two of my fastest growing companies in fund five vintage 20, 21, which had, you know, funded inception to now from zero to about two million of ARR were both Israeli infrastructure companies.”
Sim: Great opportunities persist for investing in Israeli security and infrastructure startups
“I think that as people back away from Israel, cause they fearful of kind of what's happening there, I'm still seeing amazing teams there. And I think there'll be great opportunities to keep putting dollars to work in security and infrastructure deals in Israel…”