20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock
Jul 15, 2024
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Saam Motamedi from Greylock discusses the frothy seed market, challenges in Series B pricing, and prioritizing founders over markets. He evaluates the current venture capital landscape, the bubble in AI investments, and the importance of data-driven decision-making in SaaS companies.
Seed pricing is rational despite being at all-time highs, requiring a strategic evaluation of when to invest.
Series B investments are currently not profitable due to excessive pricing and market competition, necessitating a reassessment of viable assets.
Investing in exceptional founders and impactful markets is crucial, focusing on market potential and team quality over revenue metrics.
Deep dives
Overview of the Current Venture Landscape
Seed rounds for startups are reaching valuation ranges in the many tens of millions to over a hundred million dollars, showing a frothy Series B market. The podcast speaker emphasizes the competitive nature of venture capital and discusses the importance of investing in teams with potential to build significant companies.
Exuberance in AI Investing
The podcast highlights the exuberance in AI investing, noting inflated seed round valuations and concerns over companies raising at high multiples of revenue. The speaker questions the sustainability of such valuations and discusses the impact of irrational buyers on market dynamics.
Discussion on Business Strategy and Team Evaluation
The podcast delves into the role of competition, founder evaluation, and market dynamics in venture investments. Emphasis is placed on the importance of focusing on high-quality founders, market fit, and strategic decision-making rather than relying solely on revenue metrics like ARR for investment decisions.
Investing Strategy: Being Contrarian and Right
Investing in markets where others are not prevalent, taking risks when traction data is lacking, and choosing exceptional founders in competitive situations have proven successful with investments such as Abnormal Security and Uppwin. Greylock looks for iconic founders and impactful markets, exemplified by their investments before obvious product market fit.
Market Dynamics and Investing Approach
Emphasizing the importance of large markets, the speaker revised their perspective on focused models leading to a better application layer. Despite the challenges of incubations, successful outcomes like Palo Alto Networks and workdays have underscored the significance of backing exceptional founders and picking extremely large markets for substantial growth potential.
Saam Motamedi is a General Partner at Greylock, where he has led investments in Abnormal Security (incubated at Greylock), Apiiro Security and Opal Security, as well as AI companies like Adept, Braintrst, Cresta, Predibase, Snorkel, and more. Before Greylock, Saam founded Guru Labs, a machine learning-driven fintech startup, and worked in product management at RelateIQ, one of the first applied AI software companies.
In Today's Conversation We Discuss:
1. Seed Today is Frothier than 2021:
How does Saam evaluate the seed market today?
With seed pricing being so high, how does he reflect on his own price sensitivity? When does he say too much and does not do it?
Despite seed pricing being higher than ever before, why does Saam believe it is rational?
How has the competition at seed changed in the last few years?
2. Series B and Growth are not a Viable Asset Class Today:
Why does Saam believe that you cannot make money at Series B today?
Why has pricing gone through the roof? Who is the new competition?
When does it make sense to "play the game on the field" vs say this is BS and do something else?
What would need to happen in the public markets for Series B to be a viable asset class again?
3. Markets vs Founders: The Billion Dollar Mistake and Lessons:
How does Saam prioritise between founder vs market?
What have been Saam's biggest lessons when it comes to market sizing and timing?
What is Saam's biggest miss? How did it change his approach and company evaluation?
Which other VC would Saam most like to swap portfolios with? Why them?
4. Saam Motamedi: AMA:
What does Saam know now that he wishes he had known when he got into VC?
Saam has had a meteoric rise in Greylock, what advice does Saam have for those younger investors look to really scale within a firm?
Sourcing, selecting and servicing: Where is he best? Where is he worst?
Why does Saam believe that most VCs do not add value?
20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock
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