20VC: Why Seed is for Suckers | a16z's $20BN Fund & Founders Fund's $4.6BN: What Makes Them So Good | Why Josh Kushner Is the Master of Venture Capital Strategy | Why Extended Private Markets Screw US Citizens with Jason Lemkin and Rory O'Driscoll
Apr 17, 2025
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Join Jason Lemkin, a SaaS investor known for his impressive portfolio including Algolia and Talkdesk, and Rory O'Driscoll, a General Partner at Scale, as they dissect the evolving landscape of venture capital. They discuss why seed investing may be misguided and the increasing risks of venture capital today. The duo explores insights on a16z's hefty $20BN fund, the strategy genius of Josh Kushner, and the ethical challenges in B2B practices, all while navigating the delicate balance between opportunity and caution in a shifting market.
The podcast discusses a transformative strategy in venture capital where investing in high-growth sectors leads to faster liquidity and increased capital efficiency.
It highlights the urgent need for investors to adapt their traditional frameworks, particularly regarding key performance metrics, amidst the rapidly changing technology landscape.
Discussion on the heightened risks in venture capital emphasizes the unpredictable nature of product-market fit and the challenges posed by market saturation.
The evolving dynamics between private equity and venture capital illustrate a strategic shift, forcing venture capitalists to reassess their investment approaches in a competitive landscape.
Deep dives
The Thrive Strategy Explained
The Thrive strategy emphasizes investing in the best-performing companies across multiple sectors, akin to playing Monopoly. By purchasing leading properties in high-growth areas, like FinTech and AI, investors can achieve increased liquidity remarkably faster than traditional seed funding methods. The approach suggests that while the returns on a per-investment basis may be lower, the overall absolute profit can significantly rise, making it a more efficient use of capital. This strategy is being viewed as a smart pivot away from the conventional venture capital methodologies, which often rely on lengthy timelines and relentless growth projections.
Current Trends in Venture Capital
The podcast examines the changing landscape of venture capital, noting a shift in investment strategies and the dynamics of recent funds from prominent firms. There is discussion surrounding large funds, like those from Andreessen Horowitz and Founders Fund, indicating a trend towards significant capital raises, even amid previous economic uncertainties. The need for faster liquidity options has led to rising amounts of capital being allocated to startups, shifting how venture investors interact with high-potential firms. Investors now need to adapt to this new normal, which increasingly favors large checks in fewer, but carefully selected deals.
The Shortcomings of Traditional SaaS Investments
The narrative suggests that traditional SaaS investing is becoming outdated, with a reliance on key metrics such as net revenue retention (NRR) becoming less predictive of success. Investors are finding that previously reliable growth formulas are showing diminishing returns as market saturation occurs. Newer technology, particularly in AI, is changing the investment landscape rapidly, leading to a need for investors to reassess their traditional frameworks and expectations. As the competitive environment evolves, so must the metrics used to evaluate investments in tech startups.
Risks of Increased Competition and Market Saturation
A critical discussion point centers on the heightened risks associated with current venture investments due to increased competition and market saturation. Investors face a challenging environment where substantial initial investments may lead to rapidly fluctuating product-market fits. The rapid pace of technological change means that many startups can achieve or lose market fit in significantly shorter periods than before, complicating investment assessments. As a result, venture investors must navigate greater uncertainty and volatility, leading to potential bimodal outcomes among venture funds.
The Impact of AI on Venture Capital
The podcast delves into the transformative impact of AI on the venture capital landscape, emphasizing its unpredictability and speed. The emergence of successful AI companies has created a rush to invest, but with this comes a new set of risks regarding understanding and predicting their growth trajectories. As AI technology advances, thus evolving business models and market demands, investors increasingly find it challenging to determine which companies will sustain growth and achieve profitability. This shift has sparked relevant discussions about what constitutes reliable investment criteria in this evolving landscape.
Shifts in Company Valuation and the Role of PE
The evolving roles of private equity (PE) firms and their interaction with venture capital today illustrate a marked shift in strategy. PE firms traditionally prefer stable, cash-generating businesses but are now eyeing earlier stage companies due to lower valuations and potentially higher returns. This trend underscores the need for venture capitalists to reassess their strategies as they compete on valuation and deal access in a market where prominent startups are remaining private for extended periods. The implications of these shifts are expected to reverberate throughout the investment landscape as more players enter the space.
Navigating Risks in Deal Making
Navigating the risks associated with aggressive deal-making practices is a focal point in contemporary venture discussions. Recent incidents of value erosion or unethical behavior within companies signal a warning for venture investors to exercise due diligence in their operations. The importance of reliable metrics, such as GAAP revenues rather than more flexible accounting indicators like ARR, has resurfaced as a critical point for assessing company health. As emphasis shifts towards evaluating the risks involved in how deals are structured and executed, investors are encouraged to reconsider their strategies in terms of ethics and standard practices.
Jason Lemkin is one of the leading SaaS investors of the last decade with a portfolio including the likes of Algolia, Talkdesk, Owner, RevenueCat, Saleloft and more.
Rory O’Driscoll is a General Partner @ Scale where he has led investments in category leaders such as Bill.com (BILL), Box (BOX), DocuSign (DOCU), and WalkMe (WKME), among others.
In Today’s Episode We Discuss:
04:23 What is Wrong with Billionaires on Twitter: Are They Depressed?
08:49 Why Does product Market Fit Mean Less Than Ever
11:50 Why is Venture Capital More Risky Than Ever and No One is Discussing It
16:17 Will Private Equity Save a Generation of SaaS Companies and VCs
23:53 a16z’s $20BN Fund: Seriously?
31:29 Why Josh Kushner and Thrive Capital are Masters of the World
38:21 Why is Seed Investing for Suckers
45:49 Why Are $50 Million Seed Funds Useless
46:21 Founders Fund Raises $4.6BN: Analysis
52:00 How WIll LPs Change Their Approach to Venture in the Next Five Years
59:53 When Will IPOs Comeback?
01:09:15 Why Does it Not Make Sense for the Best Companies to IPO
01:09:51 Lost Ethics and Morals in Founder Secondaries and Term Sheets
01:22:58 Quickfire: OpenAI, Cursor, Deel vs Rippling
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