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Parekh: Some startups raising at $1.5B on $4M ARR will succeed
“So I'm not going to sit here and tell you that every company that raises money at a one and a half billion dollar valuation of four million of ARR is going to work, but you're going to have a subset that are definitely going to work.”
Deven Parekh predicts venture-backed startups will significantly reduce employee option strike prices
“I think there's going to be a lot of those cases where companies with our support, you know, we're going to significantly reduce the valuation of the option and equity incentives going forward.”
Deven Parekh predicts the tech IPO market will reopen in H2 2024
“Let me start by saying, since the chairman of the Fed can't predict the economy, I'm certainly not going to try, but I'm probably a little bit more optimistic. I'm probably closer to Jason, kind of back half of 24.”
Deven Parekh: Cloud optimization revenue headwinds have bottomed for software companies
“We went through 12 months where every infrastructure software company was talking about cloud optimization, which was driving down their volumes. If you look at the last quarter, that's kind of bottomed and just start moving in the right direction.”
Deven Parekh: 2023 AI valuations are in a hype cycle ahead of fundamentals
“Look, we think right now in 23, the valuation, we're in a hype cycle. The valuations are way ahead of Where companies are, and you're seeing companies who've raised money as recently as six or nine months ago who are already being impacted by something develop…”
Deven Parekh argues venture investments fail from missed growth, not overpaying
“We have a line that we use internally is that we never overpay. Companies miss their numbers. What it really is saying, if we're right on our growth underwriting, price is not really the problem, because it's amazing the power of compounding.”
Deven Parekh predicts rushed venture deal timelines will cause negative outcomes
“I think the bigger challenge today, to be honest with you, Harry, is less around price. It's more on how quickly decisions are having to get made, and I think that, I think, might have, you know, negative implications, not just for investors, but also for foun…”
Insight Partners invested in Checkout.com on a handshake without a term sheet
“I mean, you've got to be at checkout. I mean, we did that deal on a handshake. We never signed a term sheet.”
Parekh: Insight's biggest misses were passing on high-valuation winners
“And I think that where we've generally had misses They've been more because we said no on valuation and the company actually executed incredibly well at a very, very large market.”
Deven Parekh: SaaS revenue growth correlation to valuation dropped from 72% to mid-30s
“If you go back to 2020, the correlation to revenue multiple in the public markets was something like 72% was correlated to revenue growth. Today, it's in the mid-thirties.”
Deven Parekh: Insight underwrote 2020-2021 growth deals assuming 50% multiple contraction
“When we did deals in 20, 21... Revenue growth driven deals, right? As opposed to buyouts or even more EBITDA driven, we do both. We were assuming on average, 50% multiple contraction.”
Deven Parekh: Late-stage growth market activity does not dictate the IPO window
“So I don't really see a relationship between a slowdown in the late stage market and the IPO market. I think they're kind of right now disconnecting.”
Deven Parekh: Insight Partners has substantially marked down many 2021 investments
“The ones that we made in 21, a lot of them are marked down substantially.”
Deven Parekh: Insight deployed almost zero Fund XII capital to AI in 2023
“We have been active in AI, but ironically, if you look at fund 12 or most recent fund, like I think about seven or eight percent of it is invested in AI companies. Ironically, almost zero of it was invested in 2023. Almost all of it was invested in 2021. In mo…”
Insight Partners incorrectly predicted severe underperformance and halted deployment during COVID
“Where we all met with our LPs. We said, you know, we're probably not going to deploy any capital. Valuations are going to go down dramatically. Get ready for probably our worst performance in a really long time. And of course, none of that came true.”
Insight Partners' successive funds have seen higher median portfolio growth rates
“If you look at our kind of median growth rate in our funds, you know, fund five, fund six, fund seven, fund eight, as you get to each successive fund, the median growth rate is higher, and that's with bigger funds.”
Insight Partners' biggest misses came from passing on high valuations
“When we do our analysis of the deals that worked and the deals that didn't work, we often find is when we did something that we thought was cheap, those didn't work particularly well either. And I think that where we've generally had misses, they've been more …”
Deven Parekh argues brinksmanship negotiation tactics fail in venture deals
“People feel like, oh, in order to negotiate, you have to have this brinksmanship style. Actually, honestly, don't think that works.”
Insight Partners acquires 70-80% of unprofitable venture companies using zero leverage
“We also do control deals where we're buying control of companies that you would define as a venture company, where a set of existing investors For whatever set of reasons, wants to get liquidity. And we're excited about the growth profile of the company. They …”
Deven Parekh argues insider signaling risk no longer prevents follow-on rounds
“I mean, the market has shown that the signaling risk is not that significant of a risk. That is entirely possible for us to invest in something earlier, for us to not pursue the next round, and for the companies still have to be able to raise capital.”
Deven Parekh argues return-optimizing VCs should focus time on middle-tier companies
“If you said, I'm a robot, and I'm going to allocate my time in a way that totally optimizes fund returns. Actually, you spend almost no time with the winners. The market's great. The management's great. You're a cheerleader. You're not adding as much value as …”
Deven Parekh predicts life sciences will see Moore's Law-style compounding growth
“And you can think about a category that I think is going to have the same type of growth over the next 10 to 20 years and has had the same type, if not more, Moore's law effects. It's life sciences, biotech, pharma.”
Parekh: Insight Partners' data shows cheap investments rarely perform well
“When we do our analysis of the deals that worked and the deals that didn't work, we often find is when we did something that we thought was cheap, those didn't work particularly well either.”
Deven Parekh: Insight Partners had 180 companies growing over 50% in Q2 2023
“Insight has a hundred, had a 180 portfolio companies that grew north of 50% in, you know, Q two of 20, 23 over Q two of 2022”
Deven Parekh predicts venture deal pacing will not return to 2021 levels
“It's definitely the pace is going to be dramatically lower in 23. I don't know that we'll see 21 pace. Anytime soon or if ever”
Deven Parekh: Multiple Insight portfolio companies hold $300M to $500M in cash
“We have multiple companies in our portfolio that have between three and five hundred million dollars of cash on their balance sheet.”
Deven Parekh: Startups at $50M ARR growing 80% have a 75% IPO failure rate
“But the odds are that you're not going public. Like the 75% probability is you're not going public.”
Deven Parekh predicts software multiples will rebound but miss 2021 peaks
“I actually think there's upside personal opinion, but I think there's upside from today's revenue multiples, but I certainly wouldn't think that we're going back to 21 multiples either.”
Deven Parekh: Large mutual funds use pre-IPO rounds to build long-term positions
“And when these, once there's so little inventory and the amount they're selling is so small and the size of a Fidelity or Vanguard or Wellington fund is so big, their ability to buy a position in the public market is actually not that they can't get much alloc…”
Deven Parekh: Underpriced IPOs build institutional confidence for future public offerings
“Because sure, that creates more sizzle and institutional investors, mutual funds, and others who are buyers are sitting on a portfolio that's up, which gives them more confidence to buy the next issue.”
Deven Parekh: High-quality private SaaS deals will command multiples above Klaviyo's
“What I would say is that deals will get done at even north of that multiple for a high quality company that has a lot of runway in a big market.”
Deven Parekh: SaaS at 8x revenue is undervalued if 50% growth compounds
“If it's compounding at 20, then maybe eight's not a crazy multiple. If it's compounding at 50, it's really undervalued.”
Deven Parekh estimates only 20% of software workloads are in the cloud
“Even with the amount of growth we've had over the last 10 or 20 years, you know, only 20% of loads, as an example, are in the cloud, right?”
Deven Parekh argues early-stage diligence requires more time than late-stage
“And I think in some ways at an earlier stage, it's even more important to spend that time because you're really betting on the person. You're not betting on a Set of financial metrics, which we can do in a later stage company.”
Deven Parekh notes two-and-a-half-year fund deployment pacing is the venture average
“I think we're probably now average in two and a half years, and certainly a lot of firms are coming back even sooner.”
Insight Partners operates without minimum ownership targets for its investments
“We don't have, like, a minimum threshold. We don't have a minimum percentage we have to own. You know, we have companies where we own as little as three, four percent, and we have companies where we own north of 90%.”
Deven Parekh recommends splitting CFO financial reviews from board strategy discussions
“The board meetings I enjoy the most, where I have enough influence to be able to do this, I've broken up the board meeting into two separate board meetings. So one's a Financial overview of performance where the CFO just presents the financial performance. Peo…”
Deven Parekh advises delivering critical executive feedback one-on-one, not in board meetings
“We tend to be defensive when people critique us in front of five people, and we tend to be less defensive when people talk to us kind of one-on-one, or at least I do. And so I find that those conversations are much more kind of constructive and people are more…”
Deven Parekh notes famous VCs share insecurities about sourcing top deals
“I've talked, I won't name people, but I've talked to people at other Funds who are really well-known names, I mean, way better known names than me, who have the same concern about, can they keep up? Can they continue to find great deals?”
Insight Partners focuses more on missed deals than successful investments
“We spend way more of our time beating ourselves up on the things that we missed, and why didn't we look at that area, or are we not being aggressive enough in that area, or why didn't we do that deal when we saw it? So I think the first thing is you constantly…”
Deven Parekh requires junior team members to speak first in diligence meetings
“And my approach on those is always to start with the most junior person and go to the most senior person, as opposed to start with the most senior person and go the other way. I mean, I have the most junior person Speak first. Now, they don't like to be the fi…”
Deven Parekh notes Insight Partners' top cryptocurrency expert is 25 years old
“The smartest person about cryptocurrency at Insight, 25. And if I want to learn about it, I have to go back to first principles and learn it As if I'm 25, too.”
Deven Parekh: Two Insight portfolio companies plan late-stage rounds by year-end
“We have like, say, two companies right now that I know of that are looking at doing kind of a late stage round sometime at the end of this year.”
Deven Parekh initially rejected Insight Partners founders before their first fund
“I, thinking I was a hotshot vice president, you know, at the age of 25, And they were two people without a fund. Didn't seem like a really good decision, so I decided, no, I think I'm going to stay, but you guys should go do this”