Nov 30, 2022 · 1h 16m · news
Jason Lemkin: Cold Email Tips; Why Only 15% of Founders Listen to their VCs | 20VC #954 · 20VC with Harry Stebbings
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In this deep-dive interview, SaaStr founder Jason Lemkin joins Harry Stebbings to dissect his legendary investment in Algolia, sharing critical insights on operator-led investing, VC fund math, cold email strategies, and the cold realities of LP fundraising.
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 15.3% of the talking time here. How this is scored →
Harry as informed peer 3.2 Guest teaching 5.0 Guest disagreement 2.3 Harry pushing back 2.4
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 43:00 Jason telling Harry he is wrong about delivering hard board feedback
Jason directly opposes Harry's insistence on aggressive board feedback, asserting that Harry and he are wrong and that giving unvarnished criticism permanently damages founder relationships 60% of the time.
Hardest push from Harry ▶ 42:30 Harry rejecting passive board members and spineless VC cultureHarry vehemently rejects the idea of staying silent on boards to protect reputational positioning, passionately arguing that VCs have a fiduciary duty to deliver hard truths even if founders react poorly.
Biggest teaching moment ▶ 1:10:40 Jason diagnosing Harry's operational bottleneck at 20VCJason candidly diagnoses Harry's key operational mistake, explaining that Harry is under-maximizing the 20VC empire by acting as a solo creator rather than building a team of four GMs to run distinct business units.
Harry holds his own ▶ 33:46 Harry exposing VC alignment incentives around zombie companiesHarry demonstrates sharp institutional expertise by reframing why zombie companies persist, pointing out that VCs do not face an existential crisis because they can collect fees while hiding stagnation from LPs.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| High-Velocity Inbounds: What Makes a Cold Email Stand Out | 2 | 4 | 1 | 1 | Harry asks standard interview questions about inbound deal flow mechanics and email formatting. Jason reframes cold email expectations by explaining how pitch emails reveal founder communication skills, citing positive and negative examples. | |
| Valuation Sensitivity: Jason’s Second Venture Investment in Algolia | 2 | 5 | 2 | 2 | Harry prompts for exact valuation and check size figures for the Algolia deal. Jason educates on early seed valuation mistakes and YC allocation dynamics, admitting he optimized for small exit downside protection early in his career. | |
| Risk Tolerance: Learning to Lose Money in Venture Capital | 4 | 5 | 3 | 4 | Harry asks a sharp question challenging whether high-ownership seed deals suffer from adverse selection. Jason dismisses the adverse selection argument as psychological melodrama and outlines the mathematical necessity of high ownership for solo GPs. | |
| Betting on What You Know: Solving Real Operator Pain | 3 | 6 | 2 | 2 | Harry guides the discussion around moving from founder to VC. Jason explains how personal operator pain points drove his best early seed bets and asserts that operator-turned-VCs have a strict two-year window before domain insight decays. | |
| Existential Decay: How VCs Stay Fresh and Relive Pain | 3 | 5 | 2 | 2 | Harry asks how investors can preserve their edge and stay close to operator pain. Jason candidly argues that investor decay is permanent and that anyone claiming otherwise is being disingenuous. | |
| Operator to VC: Two Crucial Rules for the First Year | 2 | 6 | 2 | 1 | Harry asks for first-year advice for operator VCs. Jason outlines two rules, highlighting why traditional VCs do not understand the necessity of investing in founders who are demonstrably better than the investor. | |
| Navigating Competition: Why Great Founders Respect Their Rivals | 3 | 5 | 2 | 2 | Harry asks about competing with free open-source software and how founders should frame competitive landscapes. Jason critiques standard 2x2 competitive matrices as throwaway slides and highlights respect for rivals as a key founder signal. | |
| Avoiding Lazy VC-Isms: The "Why Wouldn't Salesforce Build This?" Question | 3 | 5 | 3 | 3 | Harry brings up race-to-the-bottom dynamics in commoditized software. Jason counters by calling commoditization and incumbent threats lazy VC tropes that cause investors to miss outlier deals like Stripe. | |
| Iteration Velocity: The Compounding Effect of Rapid Shipping | 3 | 5 | 2 | 3 | Harry prompts with a counterexample about pre-PMF product crafting (citing Figma). Jason insists that rapid shipping velocity and fast customer feedback cycles outweigh prolonged stealth development. | |
| The Zombie Epidemic: Pre-Product-Market Fit Over-Funding | 5 | 4 | 2 | 3 | Harry offers clear insight into VC incentives around zombie companies, observing that long runways allow VCs to protect fee streams and defer write-downs. Jason agrees and details how overfunded pre-PMF startups lose urgency. | |
| Rethinking TAM: Why Early Hypergrowth Proves Market Size | 2 | 6 | 2 | 1 | Harry asks about Algolia's apparently small $2M initial market size. Jason explains his practical approach to TAM calculation, arguing that sustained early hypergrowth mathematically disproves a small market. | |
| Why Startups Plateau: Sticking with the 1.0 Management Team Too Long | 5 | 5 | 5 | 7 | Harry forcefully pushes back against investors who avoid delivering harsh board feedback, calling out spinelessness. Jason strongly counters that providing unvarnished critical feedback permanently damages relationships with 60% of founders. | |
| Solo GPs vs. Partnerships: Conviction and Decision-Making | 3 | 5 | 2 | 2 | Harry probes the decision-making efficacy of multi-partner VC firms versus solo GPs. Jason explains why venture partnerships larger than two people become inherently dysfunctional. | |
| LP Realities: Understating Venture Multiples and the Flight to Trust | 5 | 5 | 3 | 3 | Harry quotes Semil Shah on LP turnover and pushes back on absurd fund return expectations. Jason breaks down the reality of institutional returns, explaining why 3x net is exceptional and beats competing asset classes. | |
| You Are the Product: The Cold Reality of LP Diligence | 2 | 5 | 1 | 1 | Harry asks Jason to clarify his phrase 'you are the product' regarding GP fundraising. Jason shares a memorable story from an early LP pitch to demonstrate that LPs evaluate funds strictly by return metrics. | |
| Cutting Corners: Postmortems on Bubble-Era Investing | 4 | 5 | 2 | 3 | Harry candidly shares his biggest investment failure with Airlift in Pakistan due to lack of local due diligence. Jason reflects on cutting corners during the market boom and the loss of relationship trust in remote investing. | |
| Brand Equity: Moving with Platforms from Blogs to TikTok | 4 | 4 | 2 | 3 | Harry shares his fear of being displaced by a new generation of creator-investors on platforms like TikTok. Jason explains how enduring personal brands survive platform shifts if core distribution channels are maintained. | |
| Scaling the Empire: Jason's Feedback on the 20VC Platform | 3 | 6 | 3 | 2 | Harry asks Jason for candid operational advice on 20VC. Jason delivers a sharp critique, telling Harry that he is under-maximizing his media platform by failing to hire a deep executive team of general managers. | |
| Quickfire: Algolia Postmortem, Underrated Backers, and the Future of Search | 3 | 4 | 2 | 1 | Harry conducts a quickfire round covering premortems, underrated investors, and future market outlooks. Jason dismisses premortems, asserting that B2B startups are resilient and rarely die unless founders abandon them. |
Statements from this episode (51)
Stebbings: Wearing a hat increased 20VC video engagement by 28%
“Fun fact, we got 28% higher engagement because of the hat.”
Lemkin: Every successful venture investment came from inbound emails
“I only invest from inbound Saster super fans. Every deal I've tried to go out and get, I've failed. I do nothing outbound. Every warm referral doesn't work out. Nothing works out except the high velocity inbound email.”
Lemkin: A founder's capability can be evaluated solely from their cold email
“The best founders are great communicators one way or the other. Right. And so if you can write an incredible cold email, like an incredible inbound email you can judge a human being and a company just from that email.”
Lemkin: Decided to invest in all initial unicorns before meeting them
“I already wanted to invest before I met all of my initial unicorns.”
Lemkin: Pipedrive Sold to Vista Equity Partners for $1.5B Cash
“The first one was pipe drive. They sold for 1.5 billion cash to Vista last year.”
Lemkin: Algolia Is Worth $3B and Would Have IPO'd in Better Markets
“I'll go like today's worth three billion probably would be IPO and if it wasn't for the markets”
Lemkin: Invested $500K in Algolia's Seed at $12M Pre and $3.5M in Series A
“I did only 500 K in the first round and I bought up in the next. I did three and a half million in the A. So I did 500 K in the seed at 12 pre.”
Lemkin: Went five to six years in venture without losing money
“I didn't even lose any money for five or six years.”
Lemkin: Emergence Capital's fund backing EchoSign returned 12x
“I was in emergence too. That's like a 12 X fund.”
Lemkin: Would pass on early Algolia deal today over ownership
“First of all, I would have done the million at 15 in a heartbeat, right? And that would have been my bare minimum of investment, right? Because then I would have owned eight percent or something in the company. And no, I would have passed on it.”
Lemkin: Majority of his portfolio companies have female CEOs
“The majority of the companies I've invested in have a woman CEO”
Lemkin: Small VC funds need one real unicorn annually with high ownership
“If your fund size isn't huge to win in venture, like you need a real unicorn a year with large ownership and the math is magical.”
Lemkin: Maestro QA will reach a $1 billion valuation
“I invested Maestro QA, which will be worth a billion in the not too distant future.”
Lemkin: New operator-VCs should invest in five pain-point startups initially
“Invest in like five companies your first year that are your top problems, where you have this special insight, and you'll know who the best founders are in that space too, because they can't bullshit you.”
Lemkin: Operator-VCs have only two years to leverage prior operational insight
“As folks that have gone from CEO to VC, you got about two years before you'll understand the problem, right? You'll understand the problem, but not necessarily what's next generation, right?”
Lemkin: SaaStr Will Generate $40 Million in Revenue in 2022
“So Sastro Inc. Will do forty million this year.”
Lemkin: VCs Who Ignore Aging Out Turn Into Fee-Milking Funds
“You get like, you age out of a lot of things in venture. You really do. And if you're not honest about it, I think you're used to end up in a fee milking vehicle.”
Lemkin: New Operator-VCs Should Ignore Advice to Slow Down and Invest Aggressively
“Don't listen to the advice to slow it down, right? If you join a larger fund, their incentives are different than yours, right? You're new, the ball is set. They're just hoping, a large fund is hoping in the next two years you find one notion, that's all they …”
Lemkin: Operator-VCs Should Only Invest in CEOs Better Than Themselves
“You have to invest in CEOs that were better than you. If you know the problem, if I know, if I'm a podcaster and I know Riverside or whatever the other versions are, and I look, Riverside's great. We're on it today. And you meet the CEO who I don't know, and h…”
Lemkin: Algolia Investment Was Made Despite Unanimous Rejection From Partners
“Algolia, and again, this was the first venture investment I did when it was unanimously no, and I still did it, but the founders were clearly better than me. The traction was better than I had. The understanding of the problem was better than I had as a founde…”
Lemkin: Early traction against free open source is the ultimate signal
“There's probably no better signal than when you compete with a free open source platform and your product is exploding, even at an early day, because it's gotta be magical.”
Lemkin: Pitch deck two-by-two competitive matrix slides waste time
“Most of those two by two matrices are throwaway slides. Don't have a throwaway slide. Don't have, it's a, it not only is it a waste of everyone's time, but it makes you look less than great if you have a throwaway slide.”
Lemkin: Invested in Salesloft pre-revenue before $2.5B acquisition
“I was involved, invested in sales loft pre-revenue, right? We sold for two and a half billion last year.”
Lemkin: Early startup hypergrowth always proves a large TAM exists
“What I have learned is that, you know, hypergrowth in the early days can decay for a variety of reasons, right? But it does prove you have a large TAM. It always proves to me that if you grow quickly in the early days, you have a large TAM, even if it looks sm…”
Lemkin: The e-signature software market has grown to $6 billion
“Even e-signature is not to talk too much about the old days, but like that was a one million dollar TAM, right? And today it's a six billion dollar business”
Lemkin: 100% of SaaStr's unicorn portfolio companies experienced a plateau year
“Every single The company I've invested in every unit, true unicorn, a hundred million more revenue or billion more cash exit. All of them have had a plateau year all a hundred percent”
Lemkin: Algolia's founder waited until $40M revenue to build an executive team
“Nicholas was very clear on this. He waited until forty million to build his first management team. That was way too long.”
Lemkin: Startups lose a year of progress with every bad VP hired
“You lose a year with every bad VP. You hire two bad VPs, you might lose a year and a half.”
Lemkin: Algolia co-founder stepped down near $100M ARR
“Nicholas did step down as they were approaching a hundred million and Bernadette took over.”
Lemkin: Only 15% of venture-backed founders can handle critical VC feedback
“Even of this Ivy League of venture-backed founders, I would say only maybe 15% really can take the feedback. And 25% will tolerate it, and then 60% will hate you for it. They hate you for it.”
Lemkin: Talkdesk was his third investment and reached a $10B valuation
“My third investment was talk desk, which is worth ten billion today.”
Lemkin: 'Conviction' in VC often justifies sloppy thinking
“One of the VCisms I hate is conviction. Right. Because conviction can justify so much sloppy thinking, but it doesn't mean it's wrong.”
Lemkin: VC partnerships with over two partners become dysfunctional
“So VCs are legal partnerships, but I think once they're beyond two, They become dysfunctional almost. They have to be dysfunctional. You start to lose or at a minimum, you're only there because of the fun size, because it, you lose all the benefits of a partne…”
Lemkin: Would have built legendary funds with a co-founding partner
“I would have been a much better investor with a partner than as a solo GP. I'll say it with a hundred percent certainty, a hundred percent. Sorry. I would have been better. I'm going to do fine. Don't get me wrong. No, no, I will do well, but I could have had …”
Lemkin: LPs Will Drop Many VC Managers But Stay Committed to Venture
“Managers are going to get dropped. Don't get me wrong. Like it's going to be brutal. Right. But they're not going to not remain committed to the asset class.”
Lemkin: Andreessen Horowitz Has Generated 3.5x Blended Net Returns Historically
“If you look at the overall numbers for Andreessen, I'm shocked at how wildly successful Andreessen has been across these funds as they've grown. Wildly successful. That their blended returns are like, 3.5 X net after all these years.”
Lemkin: 3x Net VC Fund Returns Will Become Rare Again
“There's a reason three X net used to be rare until the boom. It's because that beats everything. Three X net beats every other asset class, except exhaust, except timber in good years or diamonds in odd years. Three X net beats everything. And three X net is u…”
Lemkin: LP appetite for emerging VC managers could evaporate within 12 months
“I wouldn't be shocked if that evaporates in the next 12 months. If the appetite for the new, the next one just is, is gone. If it's just evaporates at the LP level”
Stebbings: Pakistani startup Airlift was his biggest fund loss
“My biggest fuck up in this fund cycle was a company called Airlift in Pakistan. I thought I knew better. I analyzed the market to the end of the world, the opposite of FTX. I did more diligence than anyone could have done, and actually, I'd never been to Pakis…”
Lemkin: Commits to never cutting due diligence corners again
“I will never cut a corner. I will never cut a corner again. And even though there are minor corners, I won't, I just won't do it. And it will impact investment velocity.”
Lemkin: First founder-VC pitch meetings will never happen in person again
“Like the first meetings will never happen in person again, right? Even if you're in San Francisco, you're all in San Francisco, they'll never happen.”
Lemkin: Skipping early relationship building harms founder-VC trust during downturns
“When you build a relationship, it goes better, doesn't it? It goes better in the tough times. There's more honesty. There's less baloney. And so when we skip that step, We just never have that relationship”
Lemkin: Subscale Brand Building in Venture Capital Is a Waste of Time
“Subscale brand building on VC is a waste of time.”
Lemkin: Half of Early SaaStr Deal Flow Came From Quora
“Half of my, probably my deal flow came from Quora in the early days.”
Lemkin: SaaStr Still Generates 500,000 Monthly Views on Quora
“And I'm still there by myself getting a half a million views a month”
Lemkin: Top VC Brands Yield One to Two Quality Deals Annually
“If you have a top brand, you're going to get into one or two good deals a year by hook or by crook. If you play the game and it's enough, that's the beauty in venture.”
Lemkin: B2B SaaS startups only die when founders kill them
“I don't think, I don't, I think that only way a B to B startup dies is when the founders kill it.”
Lemkin: European VCs passed on Algolia at $12M pre-money valuation
“The other investors thought that fifty million was the highest outcome for Algolia. One of the reasons I was able to invest is because twelve million pre was too high for them. Because a fifty million dollar exit can't support anything much more than a five to…”