Nov 4, 2021 · 35m · 20vc
20VC Unscripted: Pricing is Crazy, Pre-Emptive Rounds are Normal, Pricing at 200x Revenue Multiple is Common, There is More Cash Than Ever. What Happens Next; Market Analysis with Ryan Denehy, Founder and CEO @ Electric
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In an unscripted edition of 20VC, host Harry Stebbings interviews Ryan Denehy, CEO of Electric, to analyze current venture capital market distortions, hyper-inflated valuations, and the operational realities of scaling a growth-stage startup.
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 29.3% of the talking time here. How this is scored →
Harry as informed peer 5.3 Guest teaching 4.6 Guest disagreement 3.0 Harry pushing back 3.5
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:45 Ryan calls out founder secondary greed
Ryan forcefully dismisses early founder secondaries, criticizing a founder doing sub-million ARR who insisted on taking four million dollars off the table.
Hardest push from Harry ▶ 24:04 Host pushes back on CEO scaling clichéHarry explicitly refuses the popular consensus that CEO scaling doesn't get easier, asserting from his own observation that it definitely becomes easier once PMF and cash flow exist.
Biggest teaching moment ▶ 14:22 Dick Costolo Twitter valuation storyRyan educates the host on how rapid paper markups do not reflect real enterprise value creation, using Dick Costolo's address to Twitter employees following their public stock pop.
Harry holds his own ▶ 11:02 Host articulates overcapitalization distortion thesisHarry demonstrates deep market insight by explaining how massive early funding rounds force startups to hire VPs of sales prematurely without repeatability or playbooks.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Transition into Unscripted Market Discussion | 4 | 3 | 2 | 2 | The host opens with context about their casual market commentary and sets up a structured discussion on diligence processes. Ryan contrasts his rigorous early Series A diligence experience with today's two-day term sheets without diligence. | |
| Conducting Rigorous Backchannel Diligence on Investors | 5 | 5 | 3 | 4 | The host questions whether founders are forced by market competition to accept inflated prices, offering a counterpoint to prudent valuation advice. Ryan reframes the pricing debate through public market comps and the mathematical reality of subsequent funding rounds. | |
| How Overcapitalization Distorts Startup Execution | 6 | 4 | 2 | 3 | The host articulates a clear thesis that early overcapitalization distorts startup execution and causes premature executive hiring. Ryan agrees strongly, detailing the physical limits of hiring engineers and the fallacy that capital speeds up execution. | |
| Preemptive Rounds and the Perverse Incentives of Continuous Fundraising | 5 | 5 | 3 | 3 | The host brings up preemptive rounds occurring months after prior funding as a major concern. Ryan illustrates the absurdity of fast markups with a story from Dick Costolo about Twitter's public market pop. | |
| Market Corrections, Disappearing Small-Cap M&A, and Impending Zeros | 6 | 5 | 4 | 4 | The host notes that in five years of investing, almost no portfolio companies have died due to loose capital. Ryan explains how high entry valuations destroy M&A optionality, pointing out that corporate development teams won't buy early revenue startups at massive multiples. | |
| Debating the Ethics and Impact of Early Founder Secondaries | 5 | 6 | 5 | 3 | The host probes into early founder secondaries occurring as early as Series A. Ryan takes a strong contrarian stance against early founder cash-outs, citing a founder who took four million in secondary on minimal revenue. | |
| Why Scaling a Company Actually Gets Easier for CEOs | 6 | 4 | 3 | 6 | The host explicitly rejects the conventional wisdom that scaling a company doesn't get easier for CEOs. Ryan enthusiastically agrees, breaking down how senior executive leadership reduces daily CEO stress. | |
| The Necessity of Founder Involvement in Crafting the Sales Playbook | 5 | 5 | 2 | 3 | The host posits that founders must personally craft the initial sales playbook before handing off to sales leaders. Ryan agrees and shares how he and his first employee hustled around New York City on the subway to close early deals. |
Statements from this episode (17)
Electric raised a $90M funding round led by GGV Capital
“Raised ninety million, led by GGV, and you know, all of our other insiders came in and got the round done”
Traditional VCs are skipping due diligence to win competitive deals
“Term sheet in two days. No diligence, right? Just like, maybe send us a board deck. And there used to be a small number of well-known growth stage fund who would do that, but increasingly what's happening is a lot of more sort of traditional VCs, I think, are …”
Bad executives can be fired, but bad 10% investors cannot
“Because if I hire an executive and they don't work out, I can fire them. But if I bring on an investor and they suck, you can't really like fire someone who owns 10% of your company.”
Raising larger rounds never allows startups to skip future fundraising rounds
“No one ever skips around. You spend the money and you're back out in market on the exact same schedule you were if you raised Half as much money.”
Electric raised an $80M Series D at just 10% dilution
“The number we came up with was roughly eighty million. And then we looked at that and said, okay, look at comps in the market. Hey, eighty million actually works out to where, you know, we can raise that round with, you know, 10% dilution. That feels right for…”
Electric grew ARR from $17M to nearly $40M in 2021
“A company like ours that went from, you know, 17 to close to forty million in ARR this year”
Capital cannot overcome limits on engineering hiring velocity
“More capital isn't necessarily going to make you move faster. There's a physical limit to how many talented engineers you can hire. In a six to eight month window.”
Startups with $15M ARR valued at $1.2B will struggle recruiting executives
“Like, hey, if you're a 15 millionaire or a business valued at 1.2 billion, I think you're going to have a challenging time recruiting the caliber of senior leadership that you want.”
Preemptive round markups rarely reflect actual commercial progress
“When you think about these like preemptive rounds where it's like, oh, some company raises at five hundred million in January, and then in March, they raise at a billion. It's like, it's unlikely in most of those cases that you actually engage in any commercia…”
Public markets cannot absorb the thousands of unicorns created since 2019
“If a thousand billion dollar plus valuation companies were created in the last two years, what we all know to be true is that in two to five years, like the public markets will not be able to ingest a thousand, maybe 2000 of these businesses far from it. And m…”
Raising at nosebleed valuations eliminates startup exit optionality
“And if you raise a nosebleed valuations and you ingest boatloads of capital, all of your optionality goes out the window in terms of successful exit.”
High valuations will trigger a major surge in total startup failures
“Yeah, so based on that, like, honestly, I think you're going to see a lot more zero.”
Zero of Denehy's 25 angel investments went bust in two years
“I have been of the 25 companies I've invested in in the last two years. No one's gone out of business.”
Scaling a startup gets easier as direct reports become senior executives
“Liz, it actually does get easier. Trust me. Like it does get easier because as you A bunch of things happen that make it easier. One, you understand your customer better. You understand your own business better. You understand the economic model better. In thi…”
Growth startups can fail on experiments if core targets are met
“As long as the stuff in that experimental bucket doesn't drag down or otherwise negatively impact the OKRs of the business that we're aiming for next year, do what you want. Like, obviously, we want those things to work, but, like, it's okay to fail in that re…”