Oct 11, 2023 · 54m · news
Roundtable #4 with Jason Lemkin, Woody Marshall, Deven Parekh, Harry Stebbings | E1071 · 20VC with Harry Stebbings
Deven Parekh · 22m spoken Woody Marshall · 17m spoken Jason Lemkin · 6m spoken Harry Stebbings · 4m spoken
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
A digital roundtable of prominent venture capitalists and investors discusses the shifting realities of growth-stage investing, navigating the hangover of inflated 2021 valuations, and the long-term outlook for the newly reopened tech IPO market.
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 8.2% of the talking time here. How this is scored →
Harry as informed peer 3.3 Guest teaching 3.9 Guest disagreement 2.1 Harry pushing back 2.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 40:55 Woody forcefully rejects asset manager's pessimistic IPO view
Woody directly counters Harry's anecdote from a trillion-dollar asset manager, flatly stating 'I don't. I don't' and attributing aftermarket performance to small floats and macro headwinds.
Hardest push from Harry ▶ 40:19 Harry challenges guest optimism using a $1T asset manager's critiqueHarry refuses to accept the guests' positive framing of recent tech IPOs, bringing in direct quotes from an asset manager who characterized all three offerings as lackluster.
Biggest teaching moment ▶ 16:37 Deven schools Jason on how structured terms ruin M&A alignmentDeven reframes Jason's naive defense of structured terms by demonstrating how a guaranteed 2x liquidity structure blocks sensible mid-tier strategic M&A acquisitions.
Harry holds his own ▶ 31:34 Harry uses market data to challenge the IPO window timelineHarry demonstrates strong market expertise by connecting 6x ARR public trading multiples with frozen late-stage growth rounds to argue for a delayed 2025 IPO window.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Roundtable Participant Introductions | 1 | 0 | 0 | 0 | Standard intro round where Harry quickly welcomes the panelists and has each guest summarize their firm background and role. | |
| The State of Growth Investing and Deal Pacing | 2 | 4 | 1 | 1 | Harry prompts with the general belief that growth investing is dead. Deven reframes this by providing portfolio data showing solid underlying company growth despite slower deal pacing. | |
| Scaling Into High Valuations and Option Realignment | 4 | 4 | 2 | 3 | Harry asks a targeted question about whether 100x ARR valuations create scaling issues and if team equity gets wiped out by liquidity preferences. Deven and Woody explain option resetting dynamics. | |
| The Debate on Structured Terms in Funding Rounds | 1 | 6 | 4 | 0 | Co-guest Jason challenges the consensus against structured terms, while Harry remains passive. Deven and Woody educate Jason on how 2x liquidity structures create severe M&A misalignment. | |
| VC Write-Downs and LP Alignment | 5 | 5 | 2 | 4 | Harry challenges the panelists on VC delay in marking down books to protect LP fundraising. Deven uses an Ivy League admissions analogy to explain public multiple shift toward profitability. | |
| Can a 6x ARR Multiple Sustain the Growth Market? | 6 | 5 | 3 | 5 | Harry cites 6x ARR public baselines and argues that frozen late-stage growth rounds will push the IPO window back to late 2025. Deven counters Harry's premise, taking Jason's side for late 2024. | |
| IPO Pricing, Execution, and Public Market Realities | 2 | 4 | 1 | 1 | Woody and Deven explain why recent tech IPOs were priced small to put the puck on the ice. Jason asks how late-stage firms discuss down rounds internally while Harry listens. | |
| Venture Capital Risk Culture and Internalizing Mistakes | 7 | 5 | 5 | 6 | Harry pushes back on guest optimism by quoting a top asset manager who called recent tech IPOs lackluster. Woody forcefully disagrees, citing low floats and high short interest. | |
| The Economics of High-Quality SaaS Startups | 2 | 3 | 2 | 1 | Jason asks if high-profile SaaS IPOs should take one for the team by pricing lower to restart the market. Deven and Woody explain why leaving money on the table causes editorial backlash. | |
| Late-Stage AI Valuation Hype Cycle | 4 | 3 | 2 | 2 | Harry queries the panelists on late-stage AI valuation frothiness. Deven confirms Insight avoided AI deals in 2023 due to a valuation hype cycle. | |
| Case Study: Is a 50/50/0 SaaS Company Fundable? | 2 | 4 | 1 | 1 | Jason presents a hypothetical 50/50/0 startup case study to ask about growth multiples. Deven notes valuation depends on 5-year compounding durability rather than current multiples alone. |
Statements from this episode (29)
Woody Marshall: 70% of TCV portfolio companies generate over $50M revenue
“About 70% of the businesses that we invest in are at least fifty million of revenues, and, you know, about half are Profitable.”
Deven Parekh: Insight Partners had 180 companies growing over 50% in Q2 2023
“Insight has a hundred, had a 180 portfolio companies that grew north of 50% in, you know, Q two of 20, 23 over Q two of 2022”
Deven Parekh predicts venture deal pacing will not return to 2021 levels
“It's definitely the pace is going to be dramatically lower in 23. I don't know that we'll see 21 pace. Anytime soon or if ever”
Deven Parekh: Multiple Insight portfolio companies hold $300M to $500M in cash
“We have multiple companies in our portfolio that have between three and five hundred million dollars of cash on their balance sheet.”
Deven Parekh predicts venture-backed startups will significantly reduce employee option strike prices
“I think there's going to be a lot of those cases where companies with our support, you know, we're going to significantly reduce the valuation of the option and equity incentives going forward.”
Woody Marshall: Refusing to reset inflated valuations causes suboptimal business decisions
“The smart companies are, you know, resetting the deck. They're ripping bandaid off because the problem with companies that hold on to some of those valuations is they're going to make decisions that are suboptimal.”
Woody Marshall: TCV's 2021 investments will take longer to yield returns
“If you look at the things we invested in, in 21, we like those companies a lot. It may take, it's gonna take us longer. To get our returns. It just is, because multiples have come down.”
Deven Parekh: Startups at $50M ARR growing 80% have a 75% IPO failure rate
“But the odds are that you're not going public. Like the 75% probability is you're not going public.”
Woody Marshall: Different venture capitalists often hold the same startup at different valuations
“You can have many different investors in the same company, you know, holding, holding a particular security or a particular company at different, different prices.”
Woody Marshall: Large venture firms face strict auditing on portfolio valuations
“If you're a firm as big as mine or as Devon's, there's a very sophisticated process that gets reviewed by auditors, which is a little different than, you know, with a lot of the early stage guys, so it's hard for us to play around with valuation”
Deven Parekh: SaaS revenue growth correlation to valuation dropped from 72% to mid-30s
“If you go back to 2020, the correlation to revenue multiple in the public markets was something like 72% was correlated to revenue growth. Today, it's in the mid-thirties.”
Deven Parekh: Insight underwrote 2020-2021 growth deals assuming 50% multiple contraction
“When we did deals in 20, 21... Revenue growth driven deals, right? As opposed to buyouts or even more EBITDA driven, we do both. We were assuming on average, 50% multiple contraction.”
Deven Parekh predicts software multiples will rebound but miss 2021 peaks
“I actually think there's upside personal opinion, but I think there's upside from today's revenue multiples, but I certainly wouldn't think that we're going back to 21 multiples either.”
Woody Marshall: Public markets shifted Rule of 40 expectations toward balanced margins
“Two years ago, if you had talked to the public market... It used to be 60 to 70% growth with the -20 to -30% EBITDA. Today, depending on who you talk to, it's like 30 and 10, 20 and 20. Like they want to see both.”
Deven Parekh predicts the tech IPO market will reopen in H2 2024
“Let me start by saying, since the chairman of the Fed can't predict the economy, I'm certainly not going to try, but I'm probably a little bit more optimistic. I'm probably closer to Jason, kind of back half of 24.”
Deven Parekh: Late-stage growth market activity does not dictate the IPO window
“So I don't really see a relationship between a slowdown in the late stage market and the IPO market. I think they're kind of right now disconnecting.”
Woody Marshall: The tech IPO market is open for companies resetting valuations
“So to me, I actually think the markets are open. But people have to, you have to rip the bandaid off and not be wed to, you know, oh, but in 2021 I was valued at X. It doesn't matter. If you're a public company today, that's in the rearview mirror. The public …”
Deven Parekh: Two Insight portfolio companies plan late-stage rounds by year-end
“We have like, say, two companies right now that I know of that are looking at doing kind of a late stage round sometime at the end of this year.”
Deven Parekh: Large mutual funds use pre-IPO rounds to build long-term positions
“And when these, once there's so little inventory and the amount they're selling is so small and the size of a Fidelity or Vanguard or Wellington fund is so big, their ability to buy a position in the public market is actually not that they can't get much alloc…”
Woody Marshall: Penalizing venture partner mistakes creates risk-aversion and mediocre fund returns
“If all of a sudden you start smacking people on the hand for, if they make a mistake in a risk business, what are you going to end up with? You're going to end up with a risk averse set of, You know, investors and you're guaranteed your next fund is going to b…”
Deven Parekh: Insight Partners has substantially marked down many 2021 investments
“The ones that we made in 21, a lot of them are marked down substantially.”
Deven Parekh: Cloud optimization revenue headwinds have bottomed for software companies
“We went through 12 months where every infrastructure software company was talking about cloud optimization, which was driving down their volumes. If you look at the last quarter, that's kind of bottomed and just start moving in the right direction.”
Deven Parekh: Underpriced IPOs build institutional confidence for future public offerings
“Because sure, that creates more sizzle and institutional investors, mutual funds, and others who are buyers are sitting on a portfolio that's up, which gives them more confidence to buy the next issue.”
Woody Marshall: TCV has made no direct AI investments as of late 2023
“We have not made any AI specific investments, although I would say. 100% of our companies are leveraging AI in lots of different ways, whether it's, you know, how you touch the end customer or how you make some of your processes more efficient.”
Deven Parekh: Insight deployed almost zero Fund XII capital to AI in 2023
“We have been active in AI, but ironically, if you look at fund 12 or most recent fund, like I think about seven or eight percent of it is invested in AI companies. Ironically, almost zero of it was invested in 2023. Almost all of it was invested in 2021. In mo…”
Deven Parekh: 2023 AI valuations are in a hype cycle ahead of fundamentals
“Look, we think right now in 23, the valuation, we're in a hype cycle. The valuations are way ahead of Where companies are, and you're seeing companies who've raised money as recently as six or nine months ago who are already being impacted by something develop…”
Deven Parekh: High-quality private SaaS deals will command multiples above Klaviyo's
“What I would say is that deals will get done at even north of that multiple for a high quality company that has a lot of runway in a big market.”
Shorts cut from this episode
▶ The Case for Optimism in Public Markets · 20VC with Harry St (@0:00)
▶ How to Predict Revenue Multiples in 2023 · 20VC with Harry S (@22:47)
▶ Beware of these companies ⚠ · 20VC with Harry Stebbings (@21:02)
▶ Companies Sitting on $500M in Cash 💰 · 20VC with Harry Steb (@8:54)
▶ Why we’re cautious about AI Investing ⚠️ · 20VC with Harry S (@47:30)