Feb 13, 2023 · 49m · news
Tom Loverro: The Ultimate Startup Survival Guide for 2023 | 20VC #977 · 20VC with Harry Stebbings
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In this episode of 20VC, IVP General Partner Tom Loverro joins host Harry Stebbings to analyze the macroeconomic shift in venture capital and deliver a tactical survival playbook for startup founders. Loverro explores valuation corrections, fund deployment realities, and concrete operational strategies for navigating the 2023 tech market downturn.
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 31.6% of the talking time here. How this is scored →
Harry as informed peer 3.9 Guest teaching 3.5 Guest disagreement 1.1 Harry pushing back 2.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 4:42 Tom countering host's portfolio observations
Tom directly challenges Harry's claim about portfolio runways by contrasting Harry's sample size with broader IVP deal flow data.
Hardest push from Harry ▶ 4:42 Harry pushing back on 2023 fundraising necessityHarry uses concrete data from his own 50-company portfolio to refute Tom's thesis that startups must raise in 2023.
Biggest teaching moment ▶ 18:28 Tom explaining the nuances of private markdownsTom educates Harry on why public market comps cannot be directly mapped to private early-stage valuations.
Harry holds his own ▶ 18:28 Harry pressing on VC book markdowns as an LPHarry leverages his experience as an active LP in venture funds to call out fund managers for holding inflated book marks.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Tom Loverro's Journey into Venture Capital | 3 | 3 | 1 | 2 | Harry introduces Tom and asks about his VC background and viral Twitter thread. He probes on down rounds by referencing Albert Wenger's tweet, while Tom explains why framing valuations purely as discounts is flawed. | |
| Analyzing Startup Runway Data and Market Corrections | 5 | 4 | 2 | 5 | Harry directly challenges Tom's tweet thesis using data from his own 50-company portfolio where none need to raise until late 2024. Tom counters by distinguishing Harry's portfolio from broader IVP desk data showing real-time market corrections. | |
| Zombie Startups and the Calm Before the Storm | 3 | 4 | 1 | 2 | Harry asks about companies sitting on high valuations and massive runways without product-market fit. Tom details the mechanics of 'zombie startups' and explains why time triage will create a fundraising storm. | |
| Reserve Management and the Economics of Bridge Rounds | 4 | 4 | 1 | 3 | Harry shares his own eight years of venture experience asserting that bridge rounds almost never work. Tom acknowledges the statistical reality but provides a notable counterexample in Venmo. | |
| Comparing Macro Hangovers: GFC vs. Today | 4 | 4 | 2 | 3 | Harry brings up Jason Lemkin's contrarian claim that recent unicorn employee equity is 99% worthless. Tom rejects the extreme framing, explaining how boards restructure equity incentives to retain top talent. | |
| LP Pressure and the Art of Marking Down Books | 6 | 4 | 2 | 4 | Harry draws on his experience as an LP in funds to criticize managers for failing to mark down portfolio books aggressively. Tom nuances the discussion by explaining the art of private markdowns and long-term tech cycles. | |
| Secondaries and Strategy for Taking Cash Off the Table | 5 | 3 | 1 | 3 | Harry calls out conventional venture wisdom to 'lean into winners' as flawed based on his own experience. Tom outlines a staged approach to selling secondary shares while balancing macro sentiment. | |
| Startup Survival Guide: Fundraising Timeline and Tactics | 4 | 3 | 1 | 2 | Tom outlines fundraising rules of thumb for founders nearing 12 months of runway. Harry compares effective fundraising strategies to stand-up comedians testing material on smaller audiences. | |
| Optimizing Marketing Spend and Capital Leverage | 2 | 4 | 0 | 1 | Tom breaks down how reduced ad competition makes marketing spend more efficient during a downturn. Harry seamlessly guides the conversation into survival versus valuation focus. | |
| Managing the Fundraising Process and Executive Hiring | 4 | 3 | 0 | 2 | Harry asks a sharp operational question about how founders can collect multiple term sheets without appearing to shop them. Tom offers tactical advice on transparency, trust, and setting firm deadlines. | |
| Balancing Growth, Unit Economics, and Product Quality | 4 | 4 | 1 | 3 | Harry pushes back on sacrificing growth for unit economics by citing Jason Lemkin's view that current investors demand both. He also highlights marketplace models like DoorDash and Instacart. | |
| Going on Offense and Avoiding Half Measures | 4 | 3 | 1 | 3 | Harry raises concerns about a talent flight to safety at Big Tech incumbents like Google during economic downturns. Tom counters that workers fleeing risk aren't suited for startup culture anyway. | |
| Quick-Fire Round: Governance, Carry, and Industry Reflections | 3 | 2 | 1 | 2 | In the quick-fire round, Harry questions Tom's claim that governance and boards are back in style among founders. Tom maintains that founders recognize the need for hands-on help during tough times. |
Statements from this episode (31)
Loverro: The tech market frenzy of 2020-2021 is not coming back
“The craziness that went on in 2020 and 21 isn't coming back”
Loverro: VCs avoid down rounds because they hate the complexity
“Fewer down rounds happen than probably should happen because VCs don't like them.”
Stebbings: None of my 50 portfolio companies need cash before Q3 2024
“Transparently, I have 50 companies, and I didn't have a single one raising until Q-three, 24.”
Loverro: IVP saw two potential down rounds in a single week
“We're seeing, I would call it a trickle, but like a noticeable uptick from Q-four in deal flow, and we saw two potential down rounds this week.”
Loverro: Public software multiples have corrected to 2016-2018 levels
“So, you know, in the public markets, software companies, multiples there have corrected to what we saw in 2016, 1718 to normal multiples.”
Loverro: IVP announced multiple 2022 deals at 10-15x forward ARR
“We've, we announced multiple deals last year in 2022, where they were priced at something like 10 to 15 times forward ARR.”
Loverro: Late 2023 and 2024 startup fundraising wave will overwhelm VCs
“The way I back into the math says that there's a lot of companies that are going to be raising the end of this year and next year, and what's going to happen is there's only so many hours in a day for the investors who do, say, A, B, and C rounds that are goin…”
Loverro: Startup bridge rounds must provide at least six months runway
“A good bridge round at least six months. So I would ask really hard questions about any bridge round that's, you know, measured in weeks or a month or two.”
Stebbings: Zero bridge rounds have succeeded in eight years of investing
“I, despite my use and good looks, I've been doing this for eight years, I've never had a bridge around work.”
Loverro: RRE Ventures executed a rare successful bridge round for Venmo
“At RRE, there was a bridge round we did for what is now a very famous fintech company that got the company to a sale. Ironically, though, in retrospect, that was just a good company. And they should have just raised more money and kept calling. That company wa…”
Loverro: VCs should heavily fund good companies or give zero capital
“If it's a good company, give them a lot of capital, and if it's not, zero. That's probably the right decision framework.”
Loverro: Startups will rush fundraising into July and August 2023
“I think a lot of firms or a lot of startups are going to be raising later this year. And that usually means like labor day and everybody wants to get in front of that. So my guess is July and August, we start seeing a lot more businesses come to market knowing…”
Loverro: Current tech downturn hangover will be worse than 2008 GFC
“In the lead up to the great financial crisis mortgages were going bananas. You had LBOs going bananas. Investors and venture weren't to the same degree. You didn't see companies in the public markets in tech or the privates trading at You know, hundreds of tim…”
Loverro: Venture firms shifting back to three-year deployment cycles
“They, they're now saying, okay, I have to hit the brakes and I'm going to go back to that three year deployment cycle. And so that's dividing the dry powder out there by a third.”
Loverro: LPs will refuse to commit to fast-deploying venture funds
“Unfortunately, I think that is gonna be the comeuppance that a bunch of funds suffer. LPs are gonna say no.”
Stebbings: VC funds are failing to proactively mark down valuations
“I'm an LP in funds they're not marking their books down very much and very reactively, Tom.”
Loverro: Every VC firm should have marked down portfolios recently
“Everybody should have done some sort of markdown in the past 12 months for their venture investments.”
Loverro: VC LP commitments in 2020-2021 will exceed 2023-2024 combined
“If we were to take a bet, Harry, is there, are there more LP commitments in 2023 and 24, or 21 and 21 combined? I guarantee you the 20 and 21 number was gonna be bigger than the 23 and 24 number, if you really zoom into that small timescale”
Loverro: Valuation corrections take 1.5 to 2 years to reach seed investors
“What happens is, here, here's the waterfall, right? Okay, public markets multiples correct, and you're, let's say you're like a mutual fund, and you do pre-IPO rounds, and companies aren't trading at 30 times revenue anymore, they're trading at seven times, an…”
Loverro: Seed and Series A valuations won't return to $1.5M pre-money
“Now, are prices gonna go in seed and series A back to, you know, in series A levels where, you know, great companies were done at one and a half pre? No. Not happening.”
Stebbings: Failing to take liquidity from winning investments was a big mistake
“I didn't take cash off the table in some winners where I probably should have done over the last years, and that was a big mistake looking back.”
Loverro: IVP took a disproportionate amount of liquidity in 2021
“We did feel a little bit like that in 21, and so we took a disproportionate amount of liquidity in 21.”
Loverro: Startups should finish fundraising with 6-7 months runway remaining
“My rule of thumb is you should start raising by 12 months. If you have 12 months of capital left, you're in the red zone. Now, does that mean you need to hit go and speak to every venture firm with exactly 365 days, you know, to go? No. But it means your strat…”
Loverro: Marketing dollars are more effective in downturns as CAC falls
“The marketing spend that you have now is so much more powerful Then the marketing spend you had say during 21. Why? Your competition has pulled back. They're not bidding on keywords. So the CAC is down.”
Loverro: Ten-Day Fundraising Deadlines Work Best After Prior Relationship Building
“10 days is a good deadline. Have a deadline. The only other thing I'd add though, is if you really want people to have maximum conviction, 10 days is like the detailed diligence, but if they understand the business and they have a relationship with you, have t…”
Loverro: VC Investors Focus on Recent Data Over Historical Metrics
“And so people care about the most recent data points, not the oldest data points. And you got to show them that.”
Loverro: Uber Proved Unit Economics by Highlighting Mature Cities Like NYC
“You know, Uber did this well, for instance, by showing, you know, yeah, hey, we're bleeding money left and right. But if you look at our oldest cities, these dense cities like New York, you know, the unit economics are actually fantastic.”
Loverro: Easy decisions made by startup management are usually half measures
“If a decision is easy, it's probably a half measure. If it's hard, if it's really damn hard, if it's controversial, you're probably doing enough of it.”
Loverro: Passive venture capital governance is dead and will not return
“Last year, I have to say there was this meme that founders didn't want investors on their board, that governance wasn't important, and that founders just wanted cheap, easy capital, and I'm not sure I ever fully believed it, but I was damn scared that could be…”
Loverro: Venture capital is too hierarchical and promotes talent too slowly
“And I think venture is too hierarchical we promote people too slowly, but a lot of the talent and the ideas come from people who are younger in their careers and so I think venture firms need to promote sooner, give mid-level junior people more credit, it'll o…”
Loverro: Passing on Fivetran cost hundreds of millions in missed gains
“Biggest mistakes in investing are not doing the things that make you a lot of money, because the opportunity cost there so far outweighs anything else. So I feel like my biggest mistake in the last couple years was not investing in an entrepreneur named George…”
Shorts cut from this episode
▶ When will early stage prices for companies get hit? 📉 · 20V (@22:14)
▶ Why Your Marketing Spend Has Never Been More Powerful 💸🤔 · (@30:35)
▶ Why SPACs Were Always a Crazy Idea 🤯 · 20VC with Harry Steb (@47:35)
▶ Mass Extinction Event for Startups in 2023 🙀 · 20VC with Ha (@1:47)
▶ Venture Capital is The Best Industry on Earth 🌎🙌 · 20VC wi (@0:00)