The Exchanges

Q Listen, I want to dive in with a little bit of an intro just so people get familiar with each other's voices. So let's start off with you, Jammin, and then move to you, Ed. What do you do? And just provide a little intro for the audience.

A Yeah, it's great to be here. So I've been in the venture world for, let's see, eight, nine years now. I'm currently at Altimeter Capital. I was at Redpoint Ventures before that. Over at Altimeter, we have two different strategies that, that we run. We have a public investing strategy, right, that kind of looks, acts, and feels like a hedge fund, and then a private investing strategy, which looks, acts, and feels like a venture fund. Um, on the venture side is where I spend all of my time Our primary focus is partnering with companies right around that product market fit, uh, point and then beyond. And so whether that's a series A, a series B, a series C, uh, whatever it might be kind of around product market fit and then scaling beyond it is, is kind of typically where we look to, to partner with founders and businesses.

AI assessment note: “on the venture side is where I spend all of my time”

Q What would you say your reflections are on mistakes?

A Yeah. There's kind of three buckets of mistakes folks can make when kind of investing at the stage that I do, right? One bucket is a simple one. Like, did we just pick wrong? Right? Like, was the company just, uh, like not in a good market? Did the product actually not work? Um, right? Did, did, did we pick the wrong company? Then there is Did we forecast wrong? Right? Did we have expectations for how the business was going to perform? And were we just really off? They're obviously kind of related. And then the third one, which is maybe only relevant in the 20, 21 period, because before that you didn't think any, anything else, but it's, did we get the exit multiple wrong? Right? And so those three buckets of mistakes, I think were very common, right? Like on, on the latter end, there were folks who said, Hey, this, this kind of these public multiples, 20, 30, 40 times revenue, like that's a new normal. Like we can underwrite to a 30 X exit multiple and then we'll make money, right? Like it's totally crazy in hindsight, but I'm sure there were people who made those types of mistakes. Um, I think the mistakes that I made right when I reflect back was that middle category, right? It was forecasting wrong. It was saying, Hey, I think I'm identifying a good market and a good business, but I had an expectation for growth durability. That just didn't happen, and part of that was macr…

AI assessment note: “I think the mistakes that I made right when I reflect back was that middle category”

Q in a position to go public in the next two to three years. Um, IPO windows. Um, I had Jason Lemkin on the show. He said, ah, 2024 is the year of, ah, fuck it, we might as well go public. Um, it's time to move out of the basement. Um, do we agree? Is 2024 the year of fuck it, we might as well move out of the basement?

A The IPO markets are always open, right? You can always go public. It's just a question of, do you want to accept the market clearing price at that point in time? You can go, companies could have gone public in 2022. It just would have been at a much lower valuation, right? Relative to their last private round or what they were expecting to get. Uh, so I would say the markets are wide open. It's just a question of, do you want to go public and do you want to accept the reality of what that valuation? Means, right? Um, in many ways, I think an IPO is a great point in time. It's a great event. It's a great transaction for businesses to kind of reset the cap table, right? All the preferred is converted to common. Your shareholder base starts to turn over, right? You can innovate in the public markets. I think there are plenty of examples of companies who are able to innovate and kind of like build act two, three, four, like in the public markets. Um, and so again, like, I think you will see companies who start to say, Hey, look, let's just reset this business, right? We'll take a down round IPO, but guess what? Public stocks go up. Public stocks go down. Private valuations should go up. Private valuations should go down. Let's, Levels. Let's reset this business in the public markets. Let's get liquidity for folks who have been here for a while. Um, if that's at a down round to our …

AI assessment note: “I think you will see companies who start to say... take a down round IPO”

Q Let's finish on a final one. You said about optimism. We don't like negativity. What are we most optimistic about looking forward to 20 24?

A Maybe to tack on. Right. I mean, I think a topic that we've been discussing today, like companies are being built the right way. Right. And I think that is happening at an inflection point of a massive technology shift. Right. I think when I think about like, where do I want to be investing? You know, I want to be investing in kind of a period that is right. Like the bottom half of the valuation reset with the first half of a technology shift, right? It's really hard to call, like, are we at the bottom? Um, are we 20% off the bottom? Like that's, it's too hard to do, but I think the setup for this year for next year is that we're in the bottom half, or maybe the bottom third of the valuation reset, and in the first third of a massive technology shift that's going to create a ton of creative destruction. Uh, and so maybe just kind of to echo what Ed just said, I am incredibly optimistic about this Period in time, the startups that will be created, the opportunities to create value and kind of like the opportunity for this kind of vintage this year, next year, right to, to be a special one.

AI assessment note: “I am incredibly optimistic about this Period in time, the startups that will be created”

Q What would you say your reflections are on mistakes?

A Yeah. There's kind of three buckets of mistakes folks can make when kind of investing at the stage that I do, right? One bucket is a simple one. Like, did we just pick wrong? Right? Like, was the company just, uh, like not in a good market? Did the product actually not work? Um, right? Did, did, did we pick the wrong company? Then there is Did we forecast wrong? Right? Did we have expectations for how the business was going to perform? And were we just really off? They're obviously kind of related. And then the third one, which is maybe only relevant in the 20, 21 period, because before that you didn't think any, anything else, but it's, did we get the exit multiple wrong? Right? And so those three buckets of mistakes, I think were very common, right? Like on, on the latter end, there were folks who said, Hey, this, this kind of these public multiples, 20, 30, 40 times revenue, like that's a new normal. Like we can underwrite to a 30 X exit multiple and then we'll make money, right? Like it's totally crazy in hindsight, but I'm sure there were people who made those types of mistakes. Um, I think the mistakes that I made right when I reflect back was that middle category, right? It was forecasting wrong. It was saying, Hey, I think I'm identifying a good market and a good business, but I had an expectation for growth durability. That just didn't happen, and part of that was macr…

AI assessment note: “I think the mistakes that I made right when I reflect back was that middle category”

Q I want to move to that conversation then, because it's a tough one to have, and there's many competing voices on a board in a cap table. Um, so what are the different Incentives between, as we said, founders early and late, and how does that determine where the conversation goes?

A There's one variable here that is becoming a lot more important that I don't think a lot of people really thought about, founders or investors, which is the size of the pref stack, right? One of the downsides of raising these big massive rounds is now all of a sudden your pref stack is really big, and that really starts to come into play when we think about An acquisition. What price can you truly be acquired at? And is it greater than that prep stack? And the reason this, this matters, right? Is I think when, and again, just to speak in gen, you know, broad strokes here, you have a lot of late stage investors who I think the typical stereotype is they can get very reflect, you know, very, um, um, You know, they can jump around and how they view the world, like they can have loose conviction right at the, at the first sign of things not going well, they're going to want to jump ship, pull the ripcord and get out and maybe kind of atone for some of the sins of the high valuation rounds and, you know, they can flip flop around a lot more. I think on the flip side, you know, the very early stage investors, there's very different dynamics in play, right? I'd say the earlier you go from a fund dynamic, the more your fund returns are driven by Bigger power law comes in, you know, a zero X, a one X, a two X, right? It's all kind of the same thing, right? It's either it's at a hundred …

AI assessment note: “late stage investors... want to jump ship... early stage investors... driven by Bigger power law”

Q if you apply that scenario, they're the Twinkie bars. They're the snooze on your alarm clock that you don't go to the gym. They're the ones that are letting you stay in that, you know, less tear, stopping you from going pro. And so I guess my question is like, is this not a world that we've created? And I mean this respectfully, is that not part of Altimeter's business?

A Look, I mean, I think in general, if you look at the venture capital market, like, it's, it's expanded massively over the last 10 years, and I saw some tweet from Gokul the other day who brought up, like, Bessemer's memo on MindBody, and it was, it was kind of crazy to go back and look, right? This was 2010, and they were doing a deal at ten million of ARR at 42 pre, and you're thinking, that wasn't that long ago, right? Like, ten million of ARR at 42 pre, like, it wasn't, you know, 14, you know, 1314 years ago, like the reality is the venture markets have expanded so dramatically. Again, another Doug Leone quote, right? You know, he called venture. It's moved from a high margin cottage industry, right? To a low margin mainstream industry. And there are lots of implications of that. Um, I think one implication is you have these really big funds, right? Who their mandate is to put money into private companies, right? When you have Big pools of capital, a very big supply, right? Chasing, I'd say, the scarce resource, right? Which is the high quality founders and high quality businesses. It can create this dynamic of keeping companies private for longer, right? You had companies like Twilio and Mongo and Shopify, right? Like the list goes on of like, really not that old companies that went public at a 1,000,000,002 billion dollar, right? Valuations, right? And they saw Their compa…

AI assessment note: “It can create this dynamic of keeping companies private for longer”

Q What do LPs not know right now that they should know?

A Hmm. Sure. You know, I would say maybe a slight, I'll, I'll rephrase, I'll rephrase the question slightly. Like, I would say, you know, LPs know a lot, right? But, but maybe what is a, A misconception. I think, you know, there's obviously a spectrum. Um, I, I would say maybe what's like a misconception. I think you do have a lot of folks who view venture as something that they can kind of like pick vintages to sit in and out of. Um, and I would say picking vintages from the LP side is, is really hard. Um, The, you know, the, in my opinion, right? Like the right approach is pick a manager and pick managers and manager selection right now is more important than ever and invest across those kind of that small set of managers, like across vintages and, and kind of like, that's the better way to diversify versus let me try and pick a vintage, um, you know, and manage around that. I think that generally leads to kind of like missing some of the best vintages, right? Market timing is very hard in any asset class.

AI assessment note: “view venture as something that they can kind of like pick vintages”

Q How, how does one rationalize? I'm just genuinely interested. How does one rationalize doing that? If one wants a three X, I did one genuinely think that's a twenty five billion dollar company.

A Yeah, look, again, I think this, this does get back to in that 20, 21 period, there were plenty of businesses that if you just looked at their historical performance, you'd say that is end of one. And if we kind of project that forward, like it's the next thing. And I think there was a case to be made that, hey, virtual events are going to be an enduring part of the future. I think what ended up happening in practice was COVID went away and there was just tons of pull forward. There were lots of businesses that No longer made sense that, right. We're using that platform that turned off and that turned into a situation where you had a business now that probably no longer made sense in the new world, which was really the old world, right. That we lived in. And so I'd say the mistake there was thinking that, Hey, this thing, um, that hit insane product market fit, right. That had like the best product market fit. You have to go back now. And a lot of companies doing this, Did we really have product market fit? Right. Or was it just market fit? Right. Did we, were we just the thing that everyone had to grab and use because they all needed it all at once, but maybe we didn't, and this isn't hop in specific. This is just kind of broader, right? Like maybe we just hadn't actually built the thing. Right. Right. And now that the world is coming out of that and there isn't that insane ma…

AI assessment note: “there was a case to be made that, hey, virtual events are going to be”

Q I want to move to that conversation then, because it's a tough one to have, and there's many competing voices on a board in a cap table. Um, so what are the different Incentives between, as we said, founders early and late, and how does that determine where the conversation goes?

A There's one variable here that is becoming a lot more important that I don't think a lot of people really thought about, founders or investors, which is the size of the pref stack, right? One of the downsides of raising these big massive rounds is now all of a sudden your pref stack is really big, and that really starts to come into play when we think about An acquisition. What price can you truly be acquired at? And is it greater than that prep stack? And the reason this, this matters, right? Is I think when, and again, just to speak in gen, you know, broad strokes here, you have a lot of late stage investors who I think the typical stereotype is they can get very reflect, you know, very, um, um, You know, they can jump around and how they view the world, like they can have loose conviction right at the, at the first sign of things not going well, they're going to want to jump ship, pull the ripcord and get out and maybe kind of atone for some of the sins of the high valuation rounds and, you know, they can flip flop around a lot more. I think on the flip side, you know, the very early stage investors, there's very different dynamics in play, right? I'd say the earlier you go from a fund dynamic, the more your fund returns are driven by Bigger power law comes in, you know, a zero X, a one X, a two X, right? It's all kind of the same thing, right? It's either it's at a hundred …

AI assessment note: “you have a lot of late stage investors... early stage investors, there's very different dynamics”

Q Jamin, what investment advice do you most often give?

A I mean, I think they're very related. I think most of the investment advice that I might give was investment. That advice was, that was given to me. Uh, so in many ways they're similar. Uh, but I would say look like, you know, I can't remember who said this, um, but like cool is the, is the enemy of reality, right? There are a lot of products in venture companies that seem cool, but like at the end of the day, you need some, you need to solve a real tangible problem for someone. There's someone on the other end of the buying decision is putting in a purchase order who is making a case to their boss that this is the problem that I'm solving with this product. And here is exactly why I'm buying it. Right. And so you have a lot of cool products that sound good, but at the end of the day, it's the boring stuff, um, that, that really actually moves the needle and builds the big businesses.

AI assessment note: “it's the boring stuff, um, that, that really actually moves the needle”

Q How, how does one rationalize? I'm just genuinely interested. How does one rationalize doing that? If one wants a three X, I did one genuinely think that's a twenty five billion dollar company.

A Yeah, look, again, I think this, this does get back to in that 20, 21 period, there were plenty of businesses that if you just looked at their historical performance, you'd say that is end of one. And if we kind of project that forward, like it's the next thing. And I think there was a case to be made that, hey, virtual events are going to be an enduring part of the future. I think what ended up happening in practice was COVID went away and there was just tons of pull forward. There were lots of businesses that No longer made sense that, right. We're using that platform that turned off and that turned into a situation where you had a business now that probably no longer made sense in the new world, which was really the old world, right. That we lived in. And so I'd say the mistake there was thinking that, Hey, this thing, um, that hit insane product market fit, right. That had like the best product market fit. You have to go back now. And a lot of companies doing this, Did we really have product market fit? Right. Or was it just market fit? Right. Did we, were we just the thing that everyone had to grab and use because they all needed it all at once, but maybe we didn't, and this isn't hop in specific. This is just kind of broader, right? Like maybe we just hadn't actually built the thing. Right. Right. And now that the world is coming out of that and there isn't that insane ma…

AI assessment note: “if you just looked at their historical performance... project that forward”

Q I'm just intrigued. Do you think late stage investors have come to that realization moment of fuck it? 2021 was a wild time. If we get one X, we've done okay. Has that realization hit?

A Um, let me share, let me share something with you. And I think this just, this just sets the stage, right? And, and I want to walk through the math of a hundred X ARR round at scale, right? And what we have here are public, like the median multiple for public software companies going back to call at the beginning of 2015. And what you'll see is that You know, on average, software companies trade around seven and a half times forward revenue, right? You can ignore that 20, 20, 21 period when interest rates went to zero. And so companies on average are going to exit at seven to eight times forward revenue, right? Another cut at this data is looking at, you know, what percentage at any given point in time, what percentage of public companies are trading Over 10 times revenue, right? There are points on this graph where it was zero. There was not one public software company trading over 10 times, right? There was a period of time very recently where that number was low single digits. So the math here is, and this is why we can get into as well what we're still seeing today, but some of the challenges of these hundred X error rounds, and I'm not talking about a hundred X valuation when you're at, you know, 200 K of error. I'm talking when you're at, you know, 10 plus, right? And your valuation is into the billions and you're raising it, you know, a hundred X multiple. If you're goin…

AI assessment note: “I want to walk through the math of a hundred X ARR round at scale”

Q I'm just intrigued. Do you think late stage investors have come to that realization moment of fuck it? 2021 was a wild time. If we get one X, we've done okay. Has that realization hit?

A Um, let me share, let me share something with you. And I think this just, this just sets the stage, right? And, and I want to walk through the math of a hundred X ARR round at scale, right? And what we have here are public, like the median multiple for public software companies going back to call at the beginning of 2015. And what you'll see is that You know, on average, software companies trade around seven and a half times forward revenue, right? You can ignore that 20, 20, 21 period when interest rates went to zero. And so companies on average are going to exit at seven to eight times forward revenue, right? Another cut at this data is looking at, you know, what percentage at any given point in time, what percentage of public companies are trading Over 10 times revenue, right? There are points on this graph where it was zero. There was not one public software company trading over 10 times, right? There was a period of time very recently where that number was low single digits. So the math here is, and this is why we can get into as well what we're still seeing today, but some of the challenges of these hundred X error rounds, and I'm not talking about a hundred X valuation when you're at, you know, 200 K of error. I'm talking when you're at, you know, 10 plus, right? And your valuation is into the billions and you're raising it, you know, a hundred X multiple. If you're goin…

AI assessment note: “I want to walk through the math of a hundred X ARR round at scale”

Q investors getting liquidity, being happy with a one X, being able to recycle that capital. Bridge rounds. Are we going to see bridge rounds or are we going to actually see the preservation of cash from investors and shy away from anything that's not a great company purely to concentrate capital into the best? How do we feel about that bridge round just before we touch on M&A and IPO?

A One clarification. I think, um, as a, as someone who does kind of like that growth stuff as well, I don't think anyone's happy with a one X, right? It's a little bit of, Hey, is a one X in the context of right. What happened over the last few years and acceptable type outcome where you can recycle that money back into new opportunities. And I'll go back to, um, I listened to this podcast with Doug Leone, which I just absolutely loved. Um, and he talked about A fun, a fun that they had. I can't remember if it was kind of a 2000 or more of a 2008 type vintage, uh, where they had to kind of kick, scratch, and claw to get from, I think, and again, I, I might be misremembering the numbers here, um, but you know, a less than one X type fund, right? I think he maybe called it a .3 or .4 X fund to a 1.9. Right. And what he said was what you can't do as an investor is blame vintage And move on to the next fund, right? They fought to make every fund a positive vehicle for their investors. And one way to do that is through recycle, right? Um, it's through taking investments that maybe didn't get to the exit you hoped for that three X. Maybe you got that one X taking those proceeds and recycling it back into, into new opportunities. Right. And so I think what you do have is a lot of investors who are thinking now, Hey, Is that a good thing? Should we be doing that? And I think that can be …

AI assessment note: “One clarification. I think, um... I don't think anyone's happy with a one X”

Q investors getting liquidity, being happy with a one X, being able to recycle that capital. Bridge rounds. Are we going to see bridge rounds or are we going to actually see the preservation of cash from investors and shy away from anything that's not a great company purely to concentrate capital into the best? How do we feel about that bridge round just before we touch on M&A and IPO?

A One clarification. I think, um, as a, as someone who does kind of like that growth stuff as well, I don't think anyone's happy with a one X, right? It's a little bit of, Hey, is a one X in the context of right. What happened over the last few years and acceptable type outcome where you can recycle that money back into new opportunities. And I'll go back to, um, I listened to this podcast with Doug Leone, which I just absolutely loved. Um, and he talked about A fun, a fun that they had. I can't remember if it was kind of a 2000 or more of a 2008 type vintage, uh, where they had to kind of kick, scratch, and claw to get from, I think, and again, I, I might be misremembering the numbers here, um, but you know, a less than one X type fund, right? I think he maybe called it a .3 or .4 X fund to a 1.9. Right. And what he said was what you can't do as an investor is blame vintage And move on to the next fund, right? They fought to make every fund a positive vehicle for their investors. And one way to do that is through recycle, right? Um, it's through taking investments that maybe didn't get to the exit you hoped for that three X. Maybe you got that one X taking those proceeds and recycling it back into, into new opportunities. Right. And so I think what you do have is a lot of investors who are thinking now, Hey, Is that a good thing? Should we be doing that? And I think that can be …

AI assessment note: “I don't think anyone's happy with a one X, right?”