Oct 18, 2019 · 41m · 20vc
20VC Exclusive: Roy Bahat on Bloomberg Beta's New Fund, The Truth About Valuation That Very Few VCs Will Tell You & Why Founders of Venture Backed Startups Make The Best Angels
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews Roy Bahat, head of Bloomberg Beta, following the launch of their $75 million Fund III. Bahat provides an insider's view on venture capital mechanics, valuation discipline, founder-VC trust, and early-stage startup governance.
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 29.4% of the talking time here. How this is scored →
Harry as informed peer 5.1 Guest teaching 4.9 Guest disagreement 1.9 Harry pushing back 3.0
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 31:06 Roy Critiques Tech Role Models
Roy interrupts the standard quickfire flow to express strong frustration with tech industry heroes, arguing that financially successful founders are often terrible, arrogant role models.
Hardest push from Harry ▶ 9:03 Harry Challenges Roy on Customer Reference CallsHarry refuses to accept Roy's premise that early customer reference calls are bad practice, pushing back to ask whether it simply demonstrates early enthusiasm and conviction from the VC.
Biggest teaching moment ▶ 9:11 Roy Explains Diligence Etiquette and Founder-First ServiceRoy re-educates Harry on VC diligence ethics, explaining that jumping to customer calls burns a founder's most precious resource prematurely and mistakes VC enthusiasm for true customer service.
Harry holds his own ▶ 32:46 Harry Defends Next-Gen Tech LeadersHarry directly counters Roy's broad critique of tech figures by citing specific high-profile modern leaders like Patrick and John Collison, Justin Kan, and Alex McCaw who embody humble and conscious leadership.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome Roy Bahat and Bloomberg Beta Fund III Announcement | 3 | 3 | 1 | 1 | Harry warmly welcomes Roy and asks standard background questions regarding his career and the announcement of Bloomberg Beta Fund III. Roy shares his background across government and business before announcing their identical $75M third fund strategy. | |
| Understanding Fund Size as Strategy | 5 | 6 | 3 | 4 | Harry asks sharp follow-up questions about VC diligence and early customer reference calls. Roy reframes Harry's assumption that early customer calls show conviction, explaining why doing so burns precious founder capital and resources prematurely. | |
| The Trials of Scaling Founders | 4 | 4 | 1 | 1 | The conversation turns to founder support during rapid growth. Roy explains how successful founders experience intense trial and why the market has evolved from 'founder friendly' toward helping founders build great companies. | |
| Decision Speed and Competing with Multi-Stage Funds | 6 | 5 | 2 | 4 | Harry offers a thesis about decision speed driving deal wins and asks if multi-stage funds dipping into seed worry Roy. Roy provides a nuanced counterpoint using historical data showing that very few large multi-stage funds actually produce seed-stage winners. | |
| Valuations as Dependent Variables and Price Sensitivity | 5 | 5 | 1 | 3 | Harry probes price sensitivity in an inflated market featuring $20M pre-money seed rounds. Roy explains valuation mathematically as a dependent variable of fund size and ownership targets rather than an absolute measure of quality. | |
| Ownership Strategy, Follow-on Rules, and Market Uprounds | 6 | 5 | 2 | 4 | Harry brings up market uprounds and asks if the current VC ecosystem exhibits Ponzi scheme dynamics. Roy details Bloomberg Beta's unanimity rule for follow-on checks and agrees that a 'greater fool' dynamic exists among late-stage VCs. | |
| Rethinking Early-Stage Boards and Learning from Sequoia | 5 | 5 | 1 | 1 | Harry quotes Roy's public comments on seed-stage boards being useless. Roy gives a quick historical background on corporate boards dating back to Dutch East India Co. to explain why seed-stage formal boards waste founder time. | |
| Quick Fire Round: Insights, Critique, and Recent Investments | 7 | 6 | 4 | 6 | During the quick fire round, Roy breaks format to critique tech industry role models as arrogant and insular. Harry actively pushes back, pointing to a new generation of vulnerable, global-minded leaders like the Collisons and Justin Kan. |
Statements from this episode (23)
Bahat: Bloomberg Beta launches $75M Fund III
“We are today announcing our Third fund. And the exciting news is that it is precisely the same as the previous two ventures, a funny occupation where you get to like say, hooray every couple of years when you keep doing exactly what you've been doing. But when…”
Bahat: Startup valuation does not reflect how highly VCs rate companies
“A lot of founders believe mistakenly, in part because VCs lead them on, that company valuation is some kind of a marker of how highly the VC rates your company.”
Bahat: Bloomberg Beta Will Never Back a Portfolio Company's Competitor
“The competitive lanes issue, which is if I back you, I'm not going to back your competitors. And so that means that every time we write a check, we're giving up the opportunity cost of serving another customer and of backing other companies in that space.”
Roy Bahat: Founders should share sensitive data with VCs gradually
“You got to go gradually. I call it the egg toss. Of trust. You know, that game kids play where you stand near each other and you toss an egg and then you stand a little bit further away and you toss the egg a little bit further. That is to me, the model is I w…”
Bloomberg Beta only requests customer references late in diligence
“There's a reason we only ask for customer calls at the end of the process. Once we really already have strong conviction, because that's a very delicate, sensitive thing.”
Bahat: VCs requesting early customer calls is a bad sign for founders
“VCs who ask founders to talk to their customers right off the bat, I tell the founder like, whoa, slow that down a minute. Like that's a bad sign about the VC that they want to go for the sanctum sanctum. Before they've even had a chance to build trust.”
Bloomberg Beta publishes deal documents and diligence questions publicly
“If you go on our website, you can see our long form deal documents and the questions that we ask in diligence.”
Bahat: Bloomberg Beta never issues exploding offers and encourages shopping term sheets
“Our offers never explode, and we encourage founders to go shop our offers.”
Bahat: Bloomberg Beta loses seed deals to multi-stage VCs at 2-3x valuations
“And when we lose on a two or three X price difference often because again, valuation is a function of fund size.”
Bahat: Very few multi-stage VCs historically produce top seed-stage winners
“We did an analysis looking at the top company performers. And what you see is that since the era that seed funds have existed and who funded them at the seed. And what you see is that some of them were funded by seed funds, first round true others funded some …”
Bahat: Startup valuation is primarily a mathematical function of VC fund size
“The way it works is your fund has a strategy and you say to yourself, do I want to invest in this company? And if I want to invest in this company, then I have a check size. And the check size is usually determined by the fund size, because again, back to our …”
Roy Bahat: Bloomberg Beta is comfortable losing deals on valuation price
“We're very happy to lose deals on price. We need to be able to be deeply enough enmeshed financially with the winning companies to That we make enough to make up for all of the cases where we take risk and companies don't work out.”
Bloomberg Beta secures target ownership on initial check rather than over time
“So for us, it goes back again to the founder as customer. So our core model is own what we want to own the day we invest.”
Bahat: Asking VCs about pro rata is useless; ask about underperformance instead
“Founders often ask their investors, will you do your pro rata at the next round? It's, I think that's a dumb question because if there's a next round that's led by an outside investor, generally people are clamoring for their pro rata. To me, the better questi…”
Bahat: Bloomberg Beta requires one partner for initial checks, unanimity for follow-ons
“In our first check, We invest where anybody can say yes, and that's designed to produce good accountability and independent decision-making and avoid groupthink. But the issue with the follow-on checks is then you're serving that company, you become emotionall…”
Bahat: Venture capital's greater fool dynamic will not survive a market downturn
“We do have this greater fool dynamic happening in our industry. And one of the challenges is if your strategy, nobody's explicit strategy is this, but if your actions reveal that actually your approach is making money on the greater fool, which is to say the l…”
Bahat: Formal seed-stage board meetings are ludicrous and distract founders
“And it's turned into this advice-giving, checking-in governance body, and at the stage at which we invest, where founders are making critical decisions daily, the idea of meeting once every month, or two months, or three months, and doing a PowerPoint presenta…”
Roy Bahat: Sequoia's culture defaults to expecting greatness
“I just go back to what I said about Sequoia generally, which is the habit of defaulting to expecting greatness is such a strong cultural pull.”
Bahat: A founder's personal financial situation heavily drives startup decision-making
“The founder financial situation is one of the most personal financial situation is one of the most important and under discussed aspects of the life of a company, because it's going to drive so much decision making.”
Bahat: Many financially successful tech industry icons are awful role models
“I think many of the heroes that we have set up in the technology industry are... Awful role models in that the heroes that we have set up are often the people who have been the most financially successful.”
Bahat: Dollar-for-dollar, angel investors are more valuable to startups than VCs
“Angels dollar per dollar are the most valuable investors in the ecosystem, even more valuable than VCs, more valuable than us, especially angels who are themselves founders of venture backed companies.”
Bahat: All Bloomberg Beta returns go directly to Bloomberg Philanthropies
“The returns we earn go to Bloomberg philanthropies, and that means they go to an organization whose mission it is to help improve the lives of people around the world and fight guns and fight climate change and fight for education”