This Week in Startups

Misaligned Incentives Between GPs and Founders with Altimeter's Jamin Ball | E2045

Nov 15, 2024

01:01:39

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Jamin Ball, an investor at Altimeter and former banker, shares his insights on the complex dynamics between VCs and founders. He discusses how overcapitalization can lead to unrealistic growth expectations and misaligned incentives. The conversation touches on the rapid surge in venture capital, the stark contrasts between private and public valuations, and the effect of AI on the startup landscape. Jamin also examines the challenges of IPOs, the importance of choosing effective funding partners, and the current SaaS market conditions.

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Quick takeaways

The increasing size of venture capital funds has led to misaligned incentives, prioritizing capital deployment over the success of individual startups.

Founders must be wary of overcapitalization risks and inflated valuations, which can pressure them to achieve unsustainable growth targets.

Understanding the fund size and investor motivations is essential for founders to secure the right support and ensure long-term growth.

Deep dives

The Shift in Incentive Alignment

The traditional incentive structure in venture capital, characterized by the '2 in 20' model, has undergone a significant transformation. In the past, venture capitalists relied predominantly on the carry, or 20% of profits, for substantial wealth, creating alignment with founders who similarly benefited from successful company exits. However, as the size of funds has increased, the guaranteed management fees became more lucrative, leading to a scenario where venture capitalists could become wealthy without necessarily needing to drive their founders toward success. This shift has resulted in a misalignment of incentives, where the focus lies more prominently on deploying capital rather than ensuring that the underlying companies thrive.

Intro

2min

Understanding Venture Capital Incentives and Their Evolution

4min

Understanding Misaligned Incentives in Venture Capital

5min

The Venture Capital Surge

6min

Navigating Venture Capital: Power Law Outcomes and Investment Strategies

6min

Navigating Venture Capital Dynamics

6min

The Double-Edged Sword of Overcapitalization

6min

The Shifting Dynamics of Startup M&A

14min

Navigating the SaaS Landscape: Growth and Challenges

12min

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Todays show:

Altimeter's Jamin Ball joins Alex Wilhelm to discuss VC-founder dynamics, fund returns, rapid fundraising, and its impact on M&A. They cover public vs. private valuations, startup liquidity, AI's influence, SaaS trends, and Jamin’s outlook on IPOs and exits.

Timestamps:

(0:00) Jamin joins Alex to kick off the show

(6:30) Alignment of incentives between VCs and founders

(10:25) LinkedIn Jobs - Post your first job for free at https://www.linkedin.com/twist

(11:54) Venture capital allocation demand and its impact

(15:55) Comparison of returns between small and large venture funds

(21:54) Beehiiv - Get 30 days free and 20% off your first 3 months at https://www.beehiiv.com/twist

(23:23) Power laws in startups and venture capital's impact

(24:19) Effects of rapid fundraising cycles on founders

(31:33) CLA - Get started with CLA's CPAs, consultants, and wealth advisors now at https://claconnect.com/tech

(32:59) Raising large rounds and long-term commitments

(35:15) Venture capital's influence on startup M&A activity