May 17, 2017 · 25m · 20vc
20VC: Why It Is Good Company Funding Has Been Down 6 Quarters In A Row, Why Unanimity Does Not Work In VC Decision-Making & Why It Is Dangerous To Be A Spreadsheet Investor with Scott Raney, Partner @ Redpoint Ventures
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In this episode of The 20 Minute VC, host Harry Stebbings interviews Scott Raney, Partner at Redpoint Ventures, discussing macro venture capital funding cycles, Redpoint's investment decision framework, and key evaluation benchmarks for enterprise SaaS startups.
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 39.6% of the talking time here. How this is scored →
Harry as informed peer 3.3 Guest teaching 4.0 Guest disagreement 1.7 Harry pushing back 2.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:08 Scott rejects Harry's attempt to pin down explicit MRR growth percentages
When Harry asks for specific monthly MRR percentage growth targets, Scott plainly declines with 'No, and maybe that's not the answer you're looking for,' rejecting the premise of setting arbitrary numeric thresholds.
Hardest push from Harry ▶ 20:50 Harry presses for exact MRR percentage growth benchmarksDespite Scott having just explained that Redpoint does not do spreadsheet investing, Harry pushes back by asking specifically for 10%, 15%, or 20% MRR growth targets.
Biggest teaching moment ▶ 3:35 Scott dismantles the cliché that young investors must experience market cyclesWhen Harry brings up the common adage that great investors must experience market cycles, Scott directly counters that the advice is overplayed and dangerous to apply blindly given modern technology infrastructure.
Harry holds his own ▶ 10:32 Harry cites Floodgate's 'pier going to nowhere' insight on bridge roundsHarry showcases deep industry knowledge by citing Floodgate's specific commentary on bridge rounds, forcing Scott to address a well-known industry critique.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Scott Raney's Entry into VC and Perspectives on Market Cycles | 3 | 5 | 2 | 1 | Harry asks Scott about the perspective gained from experiencing multiple market cycles. Scott gently reframes Harry's premise, noting that cycle experience is overplayed because modern startup cost structures have fundamentally changed. | |
| The Divide Between Fundraising 'Haves' and 'Have-Nots' | 2 | 4 | 1 | 1 | Harry asks about the divide between fundraising haves and have-nots. Scott provides a detailed breakdown of market statistics and profiles which company tiers raise capital easily versus those struggling. | |
| The Impact of Extended Privatization on Startups and LPs | 5 | 4 | 1 | 2 | Harry demonstrates strong domain awareness by referencing Floodgate's view on bridge rounds as a 'pier going to nowhere' and bringing up supply chain complexities in non-software investments. Scott validates Harry's references while offering detailed context. | |
| Risk Aversion Around Unprofitable Business Models and Unit Economics | 2 | 4 | 1 | 1 | Harry asks why investors are increasingly risk-averse regarding future fundraising risk. Scott outlines how investors got burned by assuming growth would solve broken unit economics. | |
| Redpoint's Investment Decision Framework and Founder Commitments | 4 | 4 | 1 | 3 | Harry interrupts to clarify whether Redpoint uses unanimous voting or individual partner conviction. Scott explains why unanimity is destructive in VC decision-making. | |
| SaaS Milestones, Repeatability, and Avoiding 'Spreadsheet Investing' | 5 | 6 | 5 | 6 | Harry repeatedly tries to get Scott to define concrete quantitative benchmarks like MRR percentage growth for Series A. Scott rejects the premise twice, asserting that Redpoint are not 'spreadsheet investors' and value process repeatability over arbitrary metrics. | |
| Quickfire Round with Scott Raney | 2 | 1 | 1 | 1 | A collaborative and quick-paced closing segment featuring standard rapid-fire questions regarding favorite books, quotes, and market noise. |
Statements from this episode (18)
Raney: Applying past VC market cycles to present startups is dangerous
“I think that's overplayed a bit. I think that the times have changed and evolved. The nature of startups have evolved quite a bit, and so I think it's very, very, it's dangerous to try to apply too many lessons in the past to the market of today.”
Raney: Starting a company costs far less today than ever before
“I think it costs far less to start a company and get it up and running today than it ever did before. And so, Some of the challenges associated with fundraising environments during downturns before are probably not quite as applicable as they once were.”
Raney: Very early stage venture deals expanded 10x from 2007 to 2015
“We saw a 10 X increase in the number of very early stage investments and we saw 40% increase in the number of You know, kind of series A and series B invest.”
Raney: VC funding decline reflects a shift toward sustainable investment levels
“I think what we're doing is we're going from an unsustainable level investing to something that's more sustainable.”
Raney: Company creation slows when saturated markets reduce visible white space
“I think entrepreneurs are looking at the landscape and realizing it's harder to find white space right now because there are so many companies out there. It's hard to find opportunities that are truly disruptive.”
Raney: Investors refuse capital-intensive startups lacking clear profitability
“Companies that are maybe are scaling, but have more speculative business models, ones that aren't converging on profitability, Are finding it very, very difficult to raise money, and it's, I think investors are kind of unwilling, are becoming increasingly unwi…”
Raney: Startups stay in growth mode longer to pursue bigger market opportunities
“I think, you know, the first way I look at it is I think these companies are going after bigger opportunities than we ever have before as an industry. You know, as a result, they're in growth mode far longer than companies ever used to be.”
Raney: Public market scrutiny forces operational and capital discipline on startups
“Sometimes it allows a lack of discipline to creep into those businesses, and there's something about the bright lights of being a public company that forces discipline onto companies and ensures that they're making best use of their capital and behaving in the…”
Raney: Bridge rounds for struggling startups usually fail
“You know, I would say that I think the way the floodgate describes it is probably accurate most of the time. It's really difficult, I think, for companies to be able to transition through these periods, and if you've gone out and talked to a bunch of investors…”
Raney: Opportunistic bridge rounds in top startups benefit VCs and founders
“The second time that we see these things applied is, is really opportunistically where, you know, you're very excited about a company. It's doing very, very well. You just think there's an opportunity for the company to hit an additional set of milestones that…”
Raney: VCs investing in complex tech without domain depth face losses
“People that go out and read a handful of blogs and then decide that they're going to be investing in these categories are likely to experience a lot of pain.”
Raney: Startups with weak unit economics face severe funding risk
“Businesses that, that aren't converging on profitable, you need economics or have subpar gross margins. And there are many of those out there right now are scary for investors because you know that you're going to put in a certain amount of money, but that is …”
Raney: Unanimous VC voting filters out the best, most controversial investments
“We have found that unanimity is a bad thing in venture capital, that, you know, a lot of the best ideas are the ones that are the most controversial”
Raney: Redpoint requires convincing only one other partner to make investments
“You only need to convince one other partner at Redpoint that this is a good investment, and if you do, then it's an investment that we can do.”
Raney: Redpoint signs a moral contract to back founders post-investment
“Once we invest in the company, we've signed a moral contract with that entrepreneur that we are going to support them, that we're going to be there for them.”
Raney: Redpoint avoids spreadsheet investing and rigid metric checkboxes
“We are not spreadsheet investors. You know, we don't try to The fit, all these numbers into a set of checkboxes, and then determine whether or not they're achieving these things, or they've met some minimum threshold, because every opportunity is different, an…”
Raney: Early sales repeatability is more valuable than 15% MoM MRR growth
“If we're seeing repeatability, but maybe not, you know, kind of steady, consistent growth month over month, but we're starting to see the signs that this is really resonating with a certain set of buyers and a message that's beginning to resonate. That's far m…”