Aug 9, 2023 · 1h 15m · news
Jason Lemkin: Every VC has a FRAUD in their portfolio; The IPO market is about to EXPLODE | E1046 · 20VC with Harry Stebbings
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Venture capitalist and SaaStr founder Jason Lemkin joins Harry Stebbings to dissect the recovery of the enterprise SaaS and IPO markets, analyze the harsh realities of venture fund math, and expose the systemic issues of valuation inflation and due diligence in the startup ecosystem.
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 14.7% of the talking time here. How this is scored →
Harry as informed peer 4.7 Guest teaching 4.7 Guest disagreement 3.0 Harry pushing back 3.5
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:49 Lemkin shuts down host's rule on cold inbounds
Jason flatly rejects Harry's claim that cold inbound pitches do not work, citing top tier VCs like Keith Rabois and David Sacks who backed decacorns directly from cold emails.
Hardest push from Harry ▶ 53:47 Stebbings refuses to accept founder NPS protection during fraudHarry forcefully pushes back on VCs soft-pedaling founder fraud out of concern for their founder NPS scores, arguing that dishonest founders deserve no protection.
Biggest teaching moment ▶ 27:08 Lemkin breaks down enterprise software spending cutbacksJason reframes Harry's premise on software bundling by detailing the step-by-step internal layoff process companies apply to software applications and cloud spend.
Harry holds his own ▶ 46:26 Stebbings demonstrates deep institutional fund sizing mathHarry demonstrates sharp venture operational knowledge by laying out the exact math connecting check size, partner count, deployment pace, and reserve ratios to total fund size.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| First-Year Venture Advice: Ignore Caution and Play Your Hot Hand | 2 | 5 | 1 | 1 | Harry opens with a broad career advice question, allowing Jason to monologue about ignoring traditional venture guidance to hold back during year one. Jason illustrates his thesis by listing five early unicorn wins and explaining the value of riding a hot hand early in a VC career. | |
| The Art of the Sweet Spot and Managing Valuation Risks | 5 | 4 | 2 | 4 | Harry presses Jason on whether his initial string of hits was luck or skill and challenges his valuation flexibility by pointing out how moving pre-money valuations from 12 to 25 doubles capital requirements to hit ownership targets. | |
| The Evolution of Seed: Sourcing, Valuations, and the Squeeze on Seed Funds | 6 | 5 | 4 | 5 | Harry questions why seed rounds are splintering and mentions he has never done a deal from a cold inbound pitch. Jason aggressively counters Harry's experience by citing prominent VCs like Keith Rabois and David Sacks who have backed decacorns from cold emails. | |
| Enterprise SaaS Recovery: Bouncing Off the Bottom | 3 | 6 | 2 | 1 | In response to Harry's prompt about enterprise software bundling, Jason breaks down the internal mechanics of corporate 'app layoffs' and SaaS spending cutbacks. He educates the host on how public cloud and SaaS metrics indicate enterprise software has already bounced off the market bottom. | |
| The Grim Series A & B Reality and the ZERP Runway Hangover | 4 | 5 | 4 | 3 | Harry asks about Series A and B dynamics and how to handle ZERP-era startups sitting on ten years of runway without product-market fit. Jason passionately criticizes founder entitlement and recounts asking a founder to return capital only to be met with complete apathy. | |
| First-Time vs. Serial Founders and Sourcing Strategies | 6 | 4 | 4 | 6 | Harry actively defends backing serial entrepreneurs and older founders to avoid basic rookie operational mistakes, stating he would happily pay a 2x premium. Jason counters by framing his value add as helping outsider founders navigate those exact insider networks. | |
| Solo GP vs. Institutional Firm Building and Fund Sizing Math | 7 | 3 | 1 | 2 | Harry lays out the fund sizing equation based on deployment velocity, partner counts, check sizes, and reserve ratios to demonstrate why scaling institutional firms forces fund sizes upward. Jason builds on Harry's calculations to show the massive exit market cap needed to return a $500M fund. | |
| Series A Market Dynamics and Valuation Discipline | 4 | 5 | 2 | 2 | Harry asks whether Series A markets remain stagnant, prompting Jason to contrast the hyper-competitive seed environment with the discipline currently returning to Series A. Jason explains why pricing discipline makes Series A currently the best risk-reward stage for VCs. | |
| The Reality of Due Diligence and Fraud in Venture Portfolios | 5 | 4 | 5 | 7 | Harry brings up Jason's tweet on superficial VC due diligence and forcefully rejects the idea that VCs should preserve founder NPS when fraud occurs. Jason explains how competitive pressure forces VCs into confirmatory diligence and acknowledges that almost every portfolio contains misrepresentations. | |
| Growth Valuations and the Secondary Market Cleanup | 4 | 6 | 2 | 2 | Harry asks about late-stage growth market health. Jason explains that growth investors are enforcing a strict 15x ARR valuation ceiling while aggressively pursuing secondary cleanup deals to buy out early seed investors at discounts. | |
| The Changing Landscape of LP Liquidity and Sovereign Wealth | 7 | 5 | 3 | 4 | Harry shares first-hand perspectives from institutional LP conversations, noting that veteran fundraisers call current conditions the hardest fundraising environment since the dot-com bust. Jason offers counter-narratives on LP preferences, sharing how top endowments urge managers to maximize net returns over early DPI. | |
| The Future of High-Beta Momentum Investors | 3 | 6 | 5 | 2 | In response to Harry's question about what he has changed his mind on over the last year, Jason delivers a sharp critique of remote work culture and tech worker productivity post-2021, arguing that post-boom entitlement has hindered startup execution. | |
| Predicting the IPO Rebound and a High-Stakes Bet | 5 | 3 | 4 | 6 | When Harry asks for an IPO market prediction, Jason confidently claims the back half of 2024 will average an IPO per week. Harry immediately challenges the bold forecast on air by offering a $10,000 bet at 5:1 odds. |
Statements from this episode (45)
Lemkin: 2021-level venture market peak will not return for 20 years
“It's gonna take 20 years to experience that moment again. It will happen again. It's every 20 years, right?”
Lemkin: 2024 will be rich with tech IPOs and solid multiples
“But twenty-twenty-four will be rich with IPOs, and it will be a good year with solid multiples. Solid multiples.”
Lemkin: First five VC investments all achieved unicorn valuations
“And I did five real unicorns in my first 13 months, right? I did pipe drive, which exited for like 1.25 billion. And then I'll go, it was my second. That's where 2.5 billion will IPO next year. I did talk to us worth ten billion. I did Parklet greenhouse, whic…”
Lemkin: Search API company Algolia will IPO in 2024
“And then I'll go, it was my second. That's where 2.5 billion will IPO next year.”
Lemkin: Recruiting software company Greenhouse will IPO in 2024
“I did Parklet greenhouse, which will IPO next year. They're at two hundred million.”
Lemkin: One early iconic VC winner can support three subsequent funds
“The earlier you get a winner and a winner really being like the person on the board, the first investor, like an iconic winner where the founders will back you. The earlier you get in your career, you could probably raise three funds on the back of that, even …”
Lemkin: Talkdesk reached $10B valuation despite $150M public comps at investment
“When I invested in talk desk, the best comp was five, nine, which is public today. They were worth a stunning hundred and fifty million dollars as a public company. So the comp was horrific, right? It was terrible. You know, we can look at, I think five nines …”
Lemkin: Investors never lose money backing great founders at $1M ARR
“If you get, if you're able to invest in a million and the founders are great, you'll never lose money. If the founders are graded a million in revenue”
Lemkin: Valuation does not matter if target ownership percentage is secured
“Within a range, I simply don't care about valuation. I want to have a fair valuation where I can hit the ownership target, and I don't care.”
Lemkin: Seed market has no downturn and is more vibrant than ever
“There's no downturn in seed whatsoever. No matter what, Twitter's wrong. Twitter, seed is more vibrant than ever, and we can talk about why, and seed is also split up more than ever.”
Lemkin: Multi-stage VC funds writing small pre-seed checks will fade
“Because you can't return a two billion dollar fund writing tiny checks into pre-seed companies. You can't return a two billion dollar fund.”
Lemkin: Top VCs have made their best investments from cold inbound pitches
“They all have done some of their best investments from cold inbound. All of them.”
Lemkin: Seed investors cannot generate returns by investing in hot startups
“I just don't think you can make money in seed investing in hot seed startups. I don't think you can.”
Lemkin: Wait to invest later in startups when market categories are crowded
“The more crowded a category, the later I would invest.”
Lemkin: Many leading sales SaaS companies are experiencing zero percent growth
“A lot of the sales leaders are growing zero percent.”
Lemkin: Enterprise IT spend has hit bottom and is recovering
“We are bouncing off the bottom. We are bouncing off these lows that we went through this period the last 18 months where not, not Failing unicorns. Big successful companies retrench their IT and spend budgets, right?”
Lemkin: Iconiq Growth completed zero growth deals in 2022
“Iconic Growth, I think, had done four growth deals in 2023, zero in 2022, zero.”
Lemkin: Wave of zero-traction startups with 10-year runway will not recur
“We'll never again see a massive wave of startups with 10 years of runway and no traction. This is gonna take another 20 years to happen, okay?”
Lemkin: Founders with long runway and no traction should offer capital back
“My advice to all of them is they should offer to give the money back, a hundred percent. Offer. And I said offer. I didn't say give it. I said offer. A hundred percent should offer to give the money back.”
Lemkin: Stuart Butterfield offered to return remaining capital when gaming startup failed
“Stuart Butterfield, when it didn't make it, his second gaming company, he offered to give all the money back. He offered to give what was left.”
Lemkin: Modern founders no longer respect venture capital investors
“Founders today don't respect venture capital anymore. They don't respect venture capital.”
Lemkin asked a portfolio founder with 10 years runway to return money
“That one founder, the only one I did that had 10 years of runway, I asked him to give the money back.”
Stebbings: Older and repeat founders avoid blase attitudes toward fundraising
“That's why I prefer one older founders and two serial entrepreneurs. I find with both, you do not get both of those situations. You don't get the blase. Oh, I'll raise it a 106 months time. And you don't get the flippant. Why do you care? Kind of moody.”
Lemkin: I have achieved a 10x lifetime return on venture investments
“And listen, he's a better investor than I, but I'm 10 X lifetime. So I'm not bad.”
Lemkin: 90% of my investments over 10 years make money
“The average investment I make makes money. 90% of the time. Okay. Over 10 years.”
Lemkin: Only 50% of my pre-revenue repeat founder investments make money
“The only pre revenue ones I've done are these repeat founders. These two X that had big exits that I know personally. So I know them personally. There's no ethics issues. I don't have to do any diligence. Only half of them are, have are going to make money.”
Lemkin: Not building a large team at SaaStr was my biggest mistake
“I think my biggest mistake, and you're not making it, Harry I think the biggest mistake I've made, and this is just me, because, again, everyone's different. This is the complicated thing about ventures. Everyone has different strengths and sweetnesses. I thin…”
Lemkin: VCs raise larger funds to support teams, not for fee growth
“They think it's for the fees. It's not for the fees. It's because that's what it takes to sustain a team.”
Lemkin: A $500M fund needs $30B in exit market cap to succeed
“And so, so that means you need a three billion of exits, right? Gross. So that means you need thirty billion of market cap to make that fund work. If you have 10% real ownership, thirty billion of market cap.”
Lemkin: Series A is the best stage to invest in cloud software
“Series A is the best place to invest today in cloud and SaaS, right?”
Lemkin: I deployed all my personal cash into public markets in 2023
“I deployed all my cash at the beginning of the year. Like I feel smart in the public markets. If I deployed it all at the peak, I would feel dumb, but I happen to have a lot of cash at the beginning of the year. I put it all in”
Lemkin: Successive funding rounds should be an order of magnitude harder
“Each round was probably an order of magnitude harder to raise than the last. It's supposed to be a winnowing.”
Lemkin: VC due diligence is purely confirmatory after deal decisions are made
“And why it's because the diligence is always confirmatory. VCs decide they want to do the deal and they don't want to hear reasons to not do it.”
Lemkin: Every venture capital firm has a fraudulent company in its portfolio
“And every VC has a fraud in their portfolio. Every single VC has a fraud in their portfolio.”
Lemkin: VCs will write fraudulent startups to zero rather than expose them
“No, it won't come out because VCs aren't talking about it. They're just marking them to zero.”
Lemkin: Early SaaStr portfolio company will announce $300M+ exit soon
“Now I do have one exit, one company I did a long time ago with this and you know, they're going to have a big, three hundred million dollar plus exit to announce soon.”
Lemkin: Non-AI SaaS growth companies face a 15x ARR valuation ceiling
“For traditional cloud companies, SAS companies at growth. I would say, generally speaking, there's a 15 a X AR ceiling, a pretty universal.”
Lemkin: SaaStr portfolio companies above $30M ARR face high secondary demand
“The companies I have that are north of thirty million are overwhelmed with growth investors trying to do secondaries.”
Lemkin rejected a 10-figure secondary offer for his SaaStr fund holdings
“I recently had a conversation with one of my LPs last week about a secondary offer. You know, that was 10 figures, a 10 figure secondary offer, ok? And we both agreed no was the answer.”
Lemkin: A 100x startup exit returning 1x fund does not move needle
“Doing a seed investment at five and exiting at five hundred million sounds great, but if you own 10% and you have a fifty million dollar fund, it's still only one X. One X doesn't pay the rent for anybody.”
Lemkin: Inexperienced first-time fund managers will never raise $50M again
“Emerging managers are delusional about how hard it is to raise a fund one with no track record. Like what you could do in 20, 21 is as unprecedented in the history of the industry where someone with some Twitter followers and never having a record could raise …”
Lemkin: Momentum funds like Tiger and SoftBank will return when multiples spike
“I just think when those things are going to die and then when Multiples get insane again. They'll all reappear. They're just high multiple vehicles, right?”
Lemkin: Current generation of tech knowledge workers will never work hard again
“I've changed my mind on the distributed world and distributed knowledge workers and everything, and I've just gotten a little jaded, and I just don't think most of the current generation of folks will ever work hard again.”