SPEAKER_00: All right, everybody, a longtime friend of the pod, Jason Lemkin from Saster is back on the program for his fifth appearance. And we're going to talk a little bit about navigating a downturn in private markets and being a capital allocator. Yeah, I'm calling this one VC grad school. We

Jason Calacanis: talked about all of that, how founders in BC should operate at this point, SaaS metrics, fundamentals, fundraising. I mean, this really moves fast. You may want to listen to this at one X. Yeah, point it. It's going to be a great interview. Stick with us. You're going to like it.

SPEAKER_10: This Week in Startups is brought to you by Notion. Notion is one place for notes, docs, projects, and everyday work that goes way beyond a wiki. Go to notion.so and use promo code twist to get $250 off an annual team plan. Microacquire, the startup acquisition marketplace. Start the right acquisition conversations at your own pace. Get free and instant access to over 100,000 trusted buyers with total anonymity. Say goodbye to brokers and meet your ideal buyer today. Go to try.microacquire.com slash twist. And ad quick. If most of your advertising dollars are going to digital ads, it's time to diversify. Out of home advertising like billboards offers a low cost, high value reach. Ad quick makes it easy to plan, buy, and measure all in one place. Visit adquick.com slash twist and mention twist to get $1,000 off your first campaign.

David Friedberg: Hey, everybody. Welcome to another episode of This Week in Startups. I'm here again with Molly Wood.

SPEAKER_15: Hello, everyone. And a special guest. Special guest. Fifth time on the show. Friend of the pod. Founder and entrepreneur and investor and event producer. Legend.

SPEAKER_16: Doing all three of those things. Jason Lemkin of Sasser. How are you, sir?

SPEAKER_18: You know, an eight and a half at least. Eight and a half I like. In today's day,

SPEAKER_21: market is getting crushed. Uh, yeah, you know, uh, and, and SAS multiples have come down. So what a

David Friedberg: great place to start. Yeah. Uh, we have, we had a crazy moment and man, did you time this and ride this wave? Just amazingly. You identified SAS early, uh, both as a career and as an investment thesis. And you saw the multiples start climbing and climbing and climbing on private companies. Where did it peak out at? And did you at that point say anything to yourself that this is not

SPEAKER_28: realistic? This is a bubble? No, I, I don't, I don't, I never thought it was a bubble. I did not

SPEAKER_29: understand the multiples. I, I did not understand. I sort of understood the hundred X AR deals. If the growth was insane, because it's not the hundred X AR sounds like a headline, but it's really forward growth, right? So if you're growing 10 X at a million, it's not really a hundred X AR, right? Um, I don't think there's any idiots in investing, Jason. I really don't. I mean, there are some, I think everyone's smart. I think tiger is smart. I think everyone's smart. There you just play the cards you're dealt. And, um, no, and it's funny. My, um, my fifth investment ever is sales loft. And they sold for over 2 billion cash to Vista on new year's Eve, December 31st, 2020, 21. And the whole syndicate didn't want them to sell. Okay. Uh, cash. This isn't a fake a corn or a, or a sort of corn. This is, this is two

SPEAKER_30: points some odd million on December 31st and no one wanted them to sell. And it's amazing how much changed since then to, to today, right? Can you imagine a bunch of investors today sitting

SPEAKER_29: around the table telling a company, uh, like this, and it has a lot to run and it will IPO and do all the, but not to sell for 2 point something million cash. And, and maybe it would happen today, but it's just, it's just fascinating that, that, that, that, that no one in the syndicate wanted them to sell.

SPEAKER_33: So, so tell us what was the multiple at that point in time. And then where were they

SPEAKER_34: talking about it? They're about, they just crested a hundred.

SPEAKER_35: So they just crossed a hundred million.

SPEAKER_29: Yeah. When the deal got signed, right? So 20 X, which was not crazy for a company that, that is growing, uh, you know, I, I, I don't know, you know, in the significant double digits would IPO, could IPO it more than that. Right. But probably on paper, you know, it's a stretched IPO at three times that, and there's risk and there's dilution. Um, but certainly was not seen as a good deal for both sides, right back by the December standards. Right. Um, there's plenty of others. There's plenty of others. I could give some other stories and yeah, I just, it's, it's, I did not foresee it. Um, and, uh, I think we all, you know, when, when I look back and I even look at the Saster posts, when you look at what was happening with Shopify and zoom, you saw that COVID peaked really early, the utilization, you can see it Shopify, that the e-commerce penetration started to drop almost as soon as we get the hell out of the house. Right. It started to revert to the mean. So we knew a year ago, this was happening, right. That the COVID, that the COVID boost was going to revert to the mean, but it took the markets so long to recover that maybe we, we, we thought it might never recover. Right. We didn't know what world we were in. And, um, but no, I didn't, I didn't foresee it and I'm not critical of anybody other than that. Some of the, the fact that like everyone in venture became a genius for 20 months, that part made no sense. Um, and the other part that

SPEAKER_37: made no sense, interestingly, there's no such thing as idiots, but there's no such thing as geniuses.

SPEAKER_29: Every, every new manager was a genius, every new manager. Right. And also the weird thing was that late stage went from the hardest part of venture to the easiest, and that should have been the flag to everybody. Right. When late stage became the easiest part of venture, when we all knew back in the day, when a billion was a big exit, late stage was tough. Cause you got squeezed, right. You got squeezed between the a hundred million dollar round at the billion dollar IPO. I mean, it's hard to make 10 X when the last round's at a hundred, the IPO is at a billion and there's 40% dilution along the way. How could you make money in late stage? Right. But it became, it became the easiest money. And that's, that's why we saw this money flood into venture was late

SPEAKER_41: stage. Right. It was cause it was so easy. Well, so now we're sitting here at the beginning of May, as we're talking to you, you know, it's remarkable how like a week ago, this multiple

Jason Calacanis: would be fine this week. It's not. And it, you know, there there's reasons, but maybe there are not reasons. It's like on Tuesday, a double stuffed Jalupa cost one 50, but on Thursday it's, you know, a buck like, yeah. Oh, is it? Are, is that based in fundamentals? Was it ever any of it,

SPEAKER_28: either the juice or now the drop? Listen, I'll leave it to the all in pod to discuss

SPEAKER_29: discounted cash flows and future dynamics. And, but listen, let's step back. I'm a meat and potato SAS guy. We all knew interest rates would go up. Um, and if we have even vaguely efficient markets in SAS where the revenue recurs, like we know what data dog pretty much in snowflake. We're going to do next year. It's no great mystery or Twilio. The, the band of a hit or miss is pretty narrow. And we all knew that interest rates would go up at some point. Efficient markets should have taken account to a lot of this, right? This is why I'm, I'm a bit of a bull. Okay. A bit of a bull because I don't believe in efficient market. I believe in short-term efficient markets, but not, it doesn't quite add up to me. Times are so good in SAS. And I mean, let's take a look at bill.com bill.com. One of my favorite SAS CEOs and companies, you know how much they grew last quarter, 179% at 167 million, 179% and the stock falls 18%. Like I, I get why it might fall, but this is over, this is an overreaction, right. Um, to me, but I'm not a late stage guy. I'm not even a public guy. I just know how SAS grows and bill.com is already at almost 800 million.

SPEAKER_51: It will be an $8 billion run rate company, right? We should invest in these types of companies.

David Friedberg: That is the confounding thing for me is that the incredible results have been coming out

SPEAKER_25: and then the stock drops. It's like, if it was overvalued, why wouldn't, why would people who own it wait for incredibly good news and then drop it? I don't know exactly what's going on. If that's

David Friedberg: some dynamic with, you know, funds like to hear the news and then make the decision, or maybe there's some automated trading going on here that I'm, I'm not aware of or privy to, but listen, we like

SPEAKER_54: to operate in private markets. So let's talk about those. You need a really good point. You have,

SPEAKER_25: everybody's a genius and late stage seemed like a bet. You could not lose, could not lose, could not lose. And so now we have a bunch of companies in our portfolios. Every, you know, if any capital allocators are listening and who are in SaaS, that might have done around at 50, 70 or 100 multiple, and now those companies are not going to clear market at that same multiple in all likelihood. And they might have been, you know, thinking their next round would be easier than the last one. And they might have thought that rightfully because Jason, as you know, working with young founders, if the seed was hard and the A was easy and the B was, uh, you know, order taking and the C was opportunistic and you, they were throwing money at you and said, name a price. Well, then of course, you're going to think, well, D is going to be, I'm going to just trip on a bag of money as I leave my office. Yeah. Explain to people how quickly sentiment can change because you and I have been around for a

SPEAKER_29: while. I mean, goodness, it changed in a week. I mean, um, it changed at the end of April, in the very beginning of May with the ferocity that I didn't predict. Twitter predicted it. I didn't see it. I didn't see it. Um, because you know, the markets have been decaying since the start of the year and it picked up in February and tiger had a terrible Q1. There's no reason at the end of April for everyone to collectively on Twitter and in the real world and in, in, in boardrooms and partner meetings to become terribly pessimistic. But I think we just, I think folks gave up on a quick rebound, right? Because we've seen too many bounces. Like if you look at the overall chart of the stock market, this looks like a horrible drop from its peak, right? But if I just tracked SAS stocks, we've had at least five crashes I can track since 2012. Okay. And on a percentage basis, the 2016 crash on a percentage basis was like today, everything fell in 2016, 50%. People thought the world was over in SAS, but it just only felt a very

SPEAKER_52: small amount compared to. Educate us as to what happened in 2016. Explain that moment in time.

SPEAKER_60: I don't think anybody knows it was, it's funny. It was during the Sasser annual in 2016. So you

SPEAKER_29: think all the luminaries and experts of SAS were there. I think you were there at our VIP party and the week before things are good. And as often happens with events, something always goes off the rails, right? And this one was the stock market and we walk in and everyone is mocking unicorns, right? Um, Mark's sister, who we love is throwing unicorn stuffed animals at speakers saying unicorns are dead and they're over it. It felt like in 2016, there would never be another SAS unicorn. Now there's 400, right? That was, that was 2016. And, um, I think, I don't know, but I think it's mass panic, right? Um, you have to have conviction that recurring revenues will turn into profits and free cashflow, which is interesting. We finally have proof. Now we finally have SAS companies at a billion or more in revenue generated massive free cashflow, the zoom infos and the others for a founder who

SPEAKER_65: hears free cashflow. Yes. And doesn't understand what that means. I mean, it should be somewhat

David Friedberg: obvious from the word, but explain the dynamic that's happening in a company and why that's so

SPEAKER_29: important to public market investors. Well, it's confusing. Let's step back for a minute. One of the great knocks about SAS, I would say for almost all our careers, maybe up until 2018 is that they'd never make money. Um, just like people knocked Amazon in the beginning and Bezos said, wait, wait, wait,

SPEAKER_30: we'll make profits at scale, which is still a little bit to be determined if you take AWS out of it,

SPEAKER_29: but Bezos is like, we need scale. SAS companies were like, look this, they're like this. And here's

SPEAKER_74: the issue. SAS companies spend half their revenue in sales and marketing on average, the ones without a

David Friedberg: lot of product led growth. Okay. Half their money goes to sales and marketing, right? So they're making a million dollars a year, or let's say a hundred million, 50 million is going to the sales

SPEAKER_34: department and the marketing. All of them that are sales and marketing driven. And if they're in hyper growth mode, a snowflake or whatever, it's higher, it's going to be 60% or higher. Okay.

SPEAKER_81: And so assuming you have any GNA, anyone running the place, you're going to consume all of your

SPEAKER_29: revenue or more growing, right? Because half of it's to sales and marketing, but renewals cost less, right? And eventually you hit a point in SAS where you have so many customers and they're renewing profitably that you'll crest this and you would become profitable. But imagine if you're growing at hyper growth all the way to a billion in revenue, it might take a long time because you're still consuming half of all your revenue in sales and marketing. And it turned out to be true. Finally, we're seeing cloud companies at a billion in revenue, right? And they're all profitable and cashflow. We can distinguish between profitable and cashflow positive in a minute, but they're all generating 20% or more of each dollar as free cash, cash to the bottom line of the bank account. But in many cases, they don't get there till after 500 million in revenue. So that was a bat back in when box IPO and early guys back that anyone would be profitable. No one believed Aaron Levy box would be profitable and box box didn't grow like a weed, but it's quite profit. It's generating lots of free cashflow today. And so the biggest knock from, from, from cloud and SAS has been, um, somewhat addressed. But anyhow, the, the, the, the, the concern is that the, that if the markets are based on profits, not revenue, right? What's the point of a share of stock? I'm not sure anybody really knows, but in theory it's a share of the profits, right? Right. If there's no profits because SAS eats it all up, the shares are worthless. And that was a knock. Um, but, um, so that's why, so if we roll it back in time, you know, investors, even at the early stage are going to be wondering, will you ever be free cashflow positive? Will you ever be profitable? And I think the interesting point is there's a lot of issues in, in, in SAS stocks. There's a lot of issues, for example, in low quality FinTech attached to SAS. It's great to have payments attached to SAS, but look at Shopify today. Shopify's gross margins are only 50% because most of its revenue is not from software anymore. It's what it's called merchant services, which are payments. And that's great, but the margins are lower. Square's margins are low, right? Lots of these FinTechs are low, but for a while we ignored a lot of quality of revenue and other issues. Twilio is one of my favorite SAS companies, but its margins are relatively low because there's telephony in them. Um, and so founders at least need to understand there's going to be a lot more investor scrutiny of your quality of revenue. Um, and of course, how long it's going to last, how long your cash flow is going to last, but quality of revenue has come back with a vengeance in the last eight to 10 weeks. Right.

SPEAKER_87: And it wasn't a conversation in 2021. Startups need a central hub to store information

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Jason Calacanis: love and enjoy every day. So what is going to happen? What is your advice for all of those relatively new fund managers who have only ever known life as a genius? Well, new fund managers is different

SPEAKER_81: than founders. It's new fund managers are in an interesting position because, and I'd be curious

SPEAKER_29: what Jason thinks. I would say the vast amount of new fund managers have been in the new two years, last years. It's just statistically true. There's a thousand new operator funds. Crazy. Almost all of them are momentum funds. Not all. They're almost, and this was the, when everything was golden, there was the best play in the world in venture. You know what you do? You buddy up with Sequoia, Andreessen, Redpoint, whoever it is. You add value to their portfolio when they add little, right? And you clomp into the round. There are tons of these funds that would be brought in by all different VCs to do, and maybe collectively to do 10 or 20% of the round to add value. And when the round went up 3x in 90 days, then 5x over the years, these momentum funds, many of them would have 5x or even 10x funds almost instantly. And they would rarely do follow-ons much. And so you would quickly collect these tag-along rounds, and they were amazing. When those fast-follow momentum rounds don't happen, a lot of those folks are rewriting their playbooks as we speak. It's not to say they won't be successful, but it's going to be a lot harder to get those paper tag-along markups than so many of these funds did. So many of these new funds did not invest at pre-seed or 1 million or like launch accelerator. A lot of them would write a first check at 200 million or 400 million pre. Yeah. And like, crazy. They would write a 200,

SPEAKER_38: how could you write a $200,000 check at 400 million pre? Well, if it's marked up to 4 billion next week, and you do 50 of those deals, you have an epic portfolio. You have an epic portfolio, right?

Jason Calacanis: So then if you're connecting, then to connect the founders with the new fund managers, everybody, it sounds like, I mean, SaaS, we've just considered a magic bullet word. If you're SaaS, you're good. And what you're saying, it sounds like is both founders and fund managers, especially new ones who have felt like a damn genius this whole time, need to actually consider that really good point you just made about quality of revenue.

SPEAKER_60: I think just new managers are going to have to change their playbook. The momentum playbook

SPEAKER_98: was the greatest gift on paper for about 20 months to venture.

SPEAKER_29: Yeah. Don't find your own deal, Jason. Don't create that. Don't do that stupid stuff. Don't do the hard work. I just got a memo from you. You're on like deal 300 or something,

SPEAKER_103: right? What was the number? 251. Okay. Instead of doing 251 yourself, just do 251 of Andreessen's deals. It's so much easier. It's so much easier.

SPEAKER_105: Well, you know, if you just look at another hole. Not that it was easy to do, but there was a way

SPEAKER_29: to do it the last 20 months and it was genius, but it's gone now. So managers will have to change their playbook. They may have to become real seed investors and that's really hard. It, you know,

SPEAKER_107: you, you asked my opinion on it. It's, it is a very, it was a very easy playbook to say,

David Friedberg: Hey, what did Sequoia, whoever successful got a great track record, what did they invest in? And then offer that founder, double the valuation to just slide in a check or put your money in an uncapped note and hope for the best. And sure. If the market was not discerning and people weren't looking at the quality of revenues, they could do that momentum invest. That's exactly the same as

SPEAKER_54: people, you know, buying into, um, Cathie woods arc fund, right? It's just going crazy. So it can't not go up buying into board apes. It's going crazy, but you never ask yourself, what's a board eight were worth or what's in Cathie woods portfolio. And then drilling down into those specific investments

David Friedberg: and saying, okay, well, it's zooms actual revenue. What's the multiple. And at some point, you got to take the calculator out and ask yourself, well, if I'm buying in at 200 million, and the things got a million in revenue. Well, what does the public market value it at? And how do I get a 50 x? And I think a lot of people didn't do that. And to your point, it's all paper. And they're all going to get, they're all going to go sideways, or a large portion, we're going to go sideways, and it's just going to be challenging. And originating the deals and getting in early and finding a company with two to seven people in it, and then being their first check or amongst their first two or $3 million raise is much harder. Obviously, quality of revenue.

SPEAKER_113: It's exhausting. It's much harder than momentum investing. It's like 50 times harder.

SPEAKER_114: To give you an idea, we are doing on average 50 60 introductory meetings per week, my team.

David Friedberg: That's a lot of introductory meetings. So you're talking like 3000 a year or so, certainly over 2500 is the pace right now. And, you know, to get one investment a week, you know, like to find and that's down from, you know, reading hundreds of emails or looking at hundreds of decks. So, you know, there's no substitute for hard work. Early stage investing, you know, price does matter, entry price does matter. And that's something people forgot. Now was entry price too low is a whole nother story? Or did it get too low and not reach what the exits were? You know, that may have been true at one point in time, I don't know if it is exactly now. But let's talk about

SPEAKER_54: quality of revenue. Now that we've got these funds out of the way, quality of revenue, what does it

David Friedberg: mean? The quality of revenue gave one example, if you're getting if you're getting a piece of every transaction, that seems great, a lot of money flowing through the system. But it's going to be

SPEAKER_54: whatever Stripe makes or Shopify makes very small percentages selling software, great business, but selling software, if it costs you $5, to get $1 worth of ARR, and you've got a whatever

David Friedberg: percent churn rate, you know, and it takes you four or five, six, seven years to make that money back, that's not a great business. So how does one determine what quality of revenue is? How do

SPEAKER_29: you determine it when you're looking at deals? Well, I'll give you a quantitative answer. And then let's try to make it simpler for founders, right? If your gross margins are below 70, you're not really software. Okay, and software multiples classically have assumed that software is basically free. This is the old Intuit Adobe model where margins were north of 90 in the old days, right? Pre-internet action margins were higher than post-internet, right? You would print a DVD ROM or whatever, ship it off to Staples, someone would buy it, and Adobe would keep 95 cents out of every 100, right? And you just keep printing the machine. And in theory, shipping those bits should be even cheaper, but it didn't quite turn out that way. But anyhow, if you think about that, software is expensive to write once, but free for every single copy thereafter. So we have a whole ecosystem of multiples and VCs. And then the theory always was that as you went below that, you're going to have a lower revenue multiple. Your revenue is worth less. This was a knock when Twilio IPO, great company, but 50% margins because 20 to 30% of that would go to telephony. And then everyone lost track of that in the boom of the last three, four years. And we saw crazy things happen in FinTech. We saw so many, and FinTech is very exciting, don't get me wrong, but you'd see companies that would come in, Jason, I'm doing 4 million in ARR. And you'd look in, first of all, none of it's recurring. So there's no, one of those Rs is off, right? And it turns out half of its interchange revenue from credit cards, which is great, but lower margin. And then another piece of it is eaten up with Stripe fees. And that might add up, instead of you keeping $9 out of every 10, you might keep two or three. And VCs didn't seem to care for, especially when the growth was insane,

SPEAKER_123: right? So VCs didn't even look and drill down into that.

SPEAKER_81: Kind of. I mean, everyone cared until like 2018. And then maybe we did go insane here. Maybe we went insane on quality of revenue. Maybe we went insane on a lot of payroll apps that have low margins,

SPEAKER_29: because we got so excited that payroll could explode in such an amazing way, even though sometimes the margins are in the 30s or the 40s. And we got so excited at a lot of pieces of fintech, even if they were giving away almost all their money back out the door. We'll see. I love all the expense management players because it's so dynamic, but we'll see how the margins shake out as they scale, right? And IPO, how all those players will do because... And that may be... Those may be the most punch drunk some of those investments, we'll see. But today, people are going to care. So they're going to care if your revenue really recurs, and they're going to care how much of your dollar you're going to keep. It may be second to how long your roughly is going to last, but we're back to caring about quality revenue. And if nothing else, as a founder, maybe... A lot of founders don't really know what their gross margins are. This might be something you have to go to startup or VC school on and learn roughly how to properly calculate your gross margins, roughly what expenses, telephony, finance, stripe fees, billing fees, what fees have to come out. So at least you have an intelligent answer to what your gross margins are. And I think people are going to care. And literally, I saw folks at the peak never

SPEAKER_21: asked. I think people did turn a blind eye. And when we asked founders during diligence, you know,

David Friedberg: for a $300,000 ARR company to see the bank statements, to see the P&Ls, to talk to their accountants, they were like, nobody else is asking to do that. And I was like, okay. And they're like, yeah, but we have offers from other people who don't want to do this. I was like, what does that tell you about them as an investor? And you know, sometimes we would lose a deal, because hey, I don't want to do this much diligence. And I'm like, well, we're a serious firm, we're going to try to build a 15-20% position over four or five rounds with you. And we're investing at billion dollar valuations, and at $5 million valuations. We just keep investing as we go and try to even increase our position in the winners. So wouldn't you like to

SPEAKER_25: learn this so you have it for the next round? And some people were like, no, actually, I don't want to actually answer these questions. So I think some founders, the answer was no, I don't want to drill into this. And then we would drill into it. And so many times in diligence, you'd be

SPEAKER_54: like, they did a one off software project for 100 of that $300,000. Oh, they did a training session for $25k. Oh, they did a special event for $50k, they got a sponsorship. And I'm like,

SPEAKER_25: okay, net all that out. And let's have let's restart the discussion with $125k in ARR.

Jason Calacanis: Or even last month when it was like, you know what, this valuation made sense, but it turns out your revenue is flat. And so now we cannot justify it, we just can't do it.

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Jason Calacanis: slash twist. Well, I wonder what do you think is going to happen? We have seen waves over the years of investment crazes come and go right everybody got punched drunk on clean tech and they got punched drunk on ride sharing and then they got punched drunk on food delivery apps and then all of a sudden there's a stink on those categories or direct to consumer. I still can't imagine everybody's punched drunk on crypto right now. Nick points out. It still is hard for me to imagine though that if you were able to separate think strategically and not get punched drunk on the crash, that there's no fundamental reason why SaaS investments would not continue to be good. Assuming that you are

SPEAKER_140: wisely calculating the quality of revenue. Well, let's step back for a minute. Amazon, AWS,

SPEAKER_28: Microsoft Azure, and Google Cloud collectively grew almost 40% this quarter. Incredible. I mean, pick your jaw up off the floor. That alone can create a thousand unicorns just attaching to those ecosystems like a snowflake has. It's the growth that can create a thousand unicorns. This is one of the

SPEAKER_29: many bull cases of why this overselling makes no sense medium and long term because the tailwinds in cloud and SaaS at all levels is dramatic. Gartner is predicting at the CIO level the biggest increase in cloud spend next year, period, okay? And that's from their CIOs. One of the things you want as an investor is tailwinds because this stuff's hard, right? You either need a true tailwind like we're seeing in cloud and SaaS, or you need a step change in the market like mobile or a different type of compute. That's its own tailwind, right? It just feels different. You don't want to sit. Stagnation is a tough market to play in, right? You can do it, but you want ride sharing to change.

SPEAKER_146: Well, it's hard to surf when the tide's going out, right? If the tide's coming in.

SPEAKER_31: Or just when it's flat. It's actually, maybe hardest to surf when it's flat because it's just hard to get

SPEAKER_29: going, right? But the tailwinds are, and you don't, we're talking about tailwinds on top of trillion dollar of spend. So our job as investors is to seek out the folks that are surfing these waves because it's, it's, it's an awesome force. And when it slows down, that's when we should panic a bit. That should be, and because it may not, there may be derivative effects until the startups see it, or there's other effects, but we should panic when both the AWS slows down and Azure and the CIO spend, because this has been a 10 year, insane poll that we see in the snowflakes and the data dogs and data and everything. I mean, we've never seen anything like this poll. This revenue didn't come out of nowhere. These startups, it's massive pull from buyers. And when that eventually that's going to stop, eventually all the money that's going to be spent in cloud each year, absent growth in GDP will happen, right? At some point it will normalize as X percent of our economy, but we're not close to that yet. Let me ask another question here.

David Friedberg: Um, this one could actually go to sort of, um, headwinds. Uh, there was a lot of talk about it's getting harder and harder to manage all these SaaS products, disparate ones, and maybe SaaS burnout inside the enterprise, just like people might have streaming or, you know, subscription service

SPEAKER_54: burnout in their personal life. Uh, you know, I'm, I'm not watching my Netflix, but I am watching Hulu. I'll just cut one. Is that actually real? Because I have seen founders say, you know, like I've got code, I got notion that's good enough. I don't need lattice or I got air table. I don't need Google docs or whatever it is. People pruning down to a handful of more, what do they call these platforms that are more open-ended? It can do multiple things. I don't know what they're called, but. Well, look, when you, it's interesting,

SPEAKER_29: when you look at the Okta data, for example, and Okta is integrating all these apps, right? You see, you see two trends. You see more and more apps every year in the enterprise and mid market, right? And you see consolidation. So I think we're seeing two things. We are seeing folks like HubSpot, which is one of the great performers in these challenging times, move from marketing automation to CRM. HubSpot is becoming the CRM for SMBs, not just marketing everything. So we are seeing more and more folks that want to standardize on one app. I do, I'm exhausted, right? But yet we are moving more and more workflows in humans to the cloud. So we are going to still add 20 or 30 or 40 apps per year as we automate more things we didn't. And we're still moving more and more workflows out of our own data centers into the cloud, doing more with software. So both of these things are happening at the same time, right? The best vendors, like look at Datadog, the average Datadog customer buys 10 products from Datadog. It was one in 2018. So Datadog's insane growth. What is it? Almost 80% and almost 2 billion is being fueled by being an entire suite for observability and DevOps, but it's not stopping the rest of SaaS and cloud either, is it? Right? So it's going to be both, right? We're going to get more and more from the vendors we trust. And there's going to be more and more workflows that are automated and we're going to end up having

SPEAKER_140: to buy them, right? Whether we like it or not. We didn't even know we needed Notion four years ago. Now it's doing over a hundred million. There will be another Notion.

SPEAKER_161: Yeah. Why is that so popular Notion? How did that become such a hit in enterprises, you think?

SPEAKER_29: You know, the first time we met, I think I knew why Slack was going to take off and we had a debate versus Slack versus HipChat. Notion, I wish I knew, but you know, Notion was around for like six years before it took off. That's the interesting part of the case study. It wasn't like Slack that was wildfire. The Notion founders were at it again and again and again. And finally, the Notion, the markup language Notion that we know hit a feature complete thing with developers and tech-centric teams like Slack and it took off. And I don't know as well as I know Slack, but I think it's because look, everyone's markup language, like Notion looks like Coda, like looks like a better version of like, they're all, they're all the same, these sort of markup things, but Notion got the perfect expression so that developers could turn a database into text and code and share it with normal people. And we all could be on Notion, right? I don't know about you, but for me, designers,

SPEAKER_140: developers, creatives, and business people all either like or tolerate Notion and that makes it special. They're not that many tools that all of them like that your engineers and your designer

SPEAKER_163: and your business people will tolerate. It's pretty cool, right?

David Friedberg: Yeah. And Slack has got that similar DNA and then other things don't like, you know, some CRM system, Salesforce or whatever, like maybe the sales team loves it, but the CEO hates it or, you know, this

SPEAKER_54: group loves it, the marketers love it, but the, you know, creatives don't, you know, it is hard to get

SPEAKER_18: all those people correct. You think that's a design issue? Um, I mean, Notion design centric, I actually suspect, I don't know. I suspect it's six years

SPEAKER_29: of working at it and then finally nailing that combination. And it's a lesson to founders to not quit. Right. If you really believe, right. It's a lot of years to the notion. We, it was not an

Jason Calacanis: overnight success story. Well, and that having an entire huge user base be slightly dissatisfied is fine. Yes. Don't let the perfect for designers be the enemy of the engineers, for example.

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Jason Calacanis: Yeah. I want to ask you about founder fundamentals because the end of you have this long tweet thread about the bull case at the bear case for SAS and the rational truth in the middle. But one thing I thought was interesting is how you ended. You said, I know it's almost trite. But if you have the runway now is the time to play offense, just cruise past your nervous competitors. What does that mean? Like, should you take, for example, all the money that's on the table? Should you try to scoop up all the talent? Like, what do you mean when you say play offense? Well, first of all,

SPEAKER_29: I think there's, there's, I mean, look, it's, it's always silly to be binary and say there's two types of startups, but I'd say there's two types of startups coming out of this crazy time. Okay. Venture back startups. There's ones that have, that have maybe 12 months or less of runway, and they're all doing layoffs right now, right? All of them, they're all doing layoffs. Anyone with less than 12 months of runway that is raised around north of 200 million in ARR is talking about layoffs if, if they don't have astronomical growth, right? And we see the early ones with the cameos and, and the others, but it's all going to happen, right? Cause you don't have enough runway. There's another group though, that Twitter isn't talking about enough. These are the folks that went out last year and raised 200 million and are burning a million a month. Or I have one startup I invested in that raised last year, 50 million. Their burn is under a hundred thousand dollars a month. So I just got the investor update runway 53 years. Those are the ones that should play offense and you laugh, but, but because of this crazy, there are more of them out there that in SaaS than you might think. Shame on you. If you're burning far more than your bookings in SaaS, shame on you. If you're booking 200 K a month and burning a million, shame on you, shame on you. Like, like you don't have happy customers or you don't have market pool, but the ones that are thoughtful, there are, there are many SaaS startups who accidentally are benefiting from this, right? They're going to benefit because they raised at the valuation. They didn't spend it all. And if you've got more than 24 months of runway, the beauty is today, you don't have to change anything in SaaS because the customers are buying at the same rate as ever, right? And, and don't be scared. Don't listen. Don't worry about your competitors freaking out or other people freaking out. You've got 30 months of runway. Like now this is your time. This is your time to shine because you don't have to care. You literally do not have to care. And that's a wonderful place to be when, when people are panicked.

David Friedberg: We saw it, you know, uh, in the 2008 market, what did Facebook, what did Uber, what did Twitter, Google? I mean, they just hired everybody. They just started hiring the best talent out there and they did marketing. And so they started acquiring customers because at that time, if everybody ran away from advertising, all of a sudden, what was a $7 click becomes a $1 click. And what becomes three competing offers for an engineer becomes, you know, or both seven competing offers becomes two

SPEAKER_152: or one. And, you know, you can, you can really start to deploy capital or intelligently. Um,

David Friedberg: what do you think the next couple of years are going to look like as we wash through and kind of figure out, you know, what the, what the reality is, because now public markets are starting to feel like they're going to close to IPOs. I don't know if that's exactly accurate.

SPEAKER_179: Well, I feel like it's closed. It's closed.

SPEAKER_28: Okay. So let's, do we think it stays closed? And if so, I have two investments that probably would have IPO this late this year. And they're great companies

SPEAKER_140: from the perspective of the founders. There's no point even talking about the IPO.

SPEAKER_184: Got it. So IPOs off the table. Why would you IPO at a crappy valuation? There's no, there's no point, right?

SPEAKER_21: Okay. So IPOs off the table. So that means a lot of employees at that company is a lot of venture

David Friedberg: firms, a lot of LPs are not going to get those distributions. So what, what do you think it looks like as we sort of grind it out the next year, two, three, who knows what this grind out is going to

SPEAKER_162: be and what's your advice for capital allocators and investors as we grind it out?

SPEAKER_29: I'm going to, I'm going to answer them differently. Okay. I'm going to tell you what I think is going to happen and I'm going to give you different advice. Great. Okay. So here's what I think is going to happen. This is based only on the path, not, I'm not going back to 1842 and the great railroad crash, um, or, or the, uh, the, the, the wagon wheel crash of 1884. I'm just going to deal with the last decade or so. Okay. Um, I think that we are in, we are still trying to figure out our COVID hangover. Like it, it, it was crazy when we sat at home on zooms all day and never got out. Do you remember that? Yeah. It was crazy. It was crazy when Shopify exploded because you could, you would, you thought you would die walking into a store. You thought you would die walking into a store. So we got to like, put that behind us. I think we're going to rebound fast and we're going to rebound in between, we're going to rebound in between where we were in 2018 and where we were in January. And, and just like, look at offices, the office is rebounding. It's different office, but it's rebounding fast. Everything rebounds fast. It's really, really, really, really slow. And then it's really hard to, to see these J curves and these logarithmic changes. And this market's going to rebound fast because these are good companies whose fundamentals are just as strong and you're almost, and you're going to wish you had invested. You're going to wish you had invested. So that's my prediction. Do I think it'll happen tomorrow? No. Um, and I'm not a public market guy. Do I think it will be December? I'm not betting it's December. I think it's well before December we see a snapback and we see a snapback certainly better, far better than it is today. And probably a smidge better than it was in January, 2020. That's the bet I'm making

SPEAKER_189: personally, financially, otherwise. Um, but that's not the advice that you're giving.

SPEAKER_190: That's the, that, and that's no, the advice I'm giving is add six months to your runway.

SPEAKER_29: The advice I'm giving you is add six months to your runway. Don't chop your head off. Don't run around like it's crazy. If you have, if you have one month, there's no, there's no way to add six unless you raise more capital. But if you're sitting on 12 or 18 or 24 or 30 today, don't do the layoffs. Okay. You're not out of money. Calmly sit down. I guarantee you any company with 18 months can stretch it to 24. You would agree, Jason, a hundred percent, a hundred

SPEAKER_103: percent. Without, don't, don't, don't do that in August. Do it now, right now. And I'm having

SPEAKER_29: multiple meetings with founders right now. This is the lesson calmly. Great. And you've got 10, 20, 40, a hundred million, the bank, just make it last six months longer. This is your job for financing the team. You won't miss a plan. You won't, you won't, you won't, it won't, you will not miss anything by stretching that cat. You'll, you'll just, you'll, you'll just be less sloppy

David Friedberg: with your money. If you're, if you, if money is coming in the door very easily every 12 months, um, yeah, you, you don't need to watch every dollar in the store. If somebody spent $4 on a bunch of blue bottle, chicory coffees, and people were going on conferences and people were taking sabbaticals and you had all these kinds of benefits and people were spending marketing and not looking at the ROI. Now it's time to say, Oh, we had five different marketing plans. Which two are the most efficient? Great. Cut those three and do the top two, nothing else. And that it's really essentialism and getting focus. Oh, we're trying four different products. We're trying six different ways to get new customers. Great. We're going to focus on our two money printing product products. We're not going to keep building those other two. We're going to put them on ice. Not right now list.

SPEAKER_54: Let's just expand the runway just a bit. And it doesn't necessarily need to be a real you could do something called a real org. You look and you say, given that we're going from, you know, we have six different pokers in the fire, we're going to go down to the two. Do we need these two other teams? Can we outsource something, you know, uh, and, and you'll find almost universally, there might be some things you could outsource. There might be some, you know, project projects that the CEO may have really loved or the, you know, somebody, one of the co-founders is running and it's just redeploy that money to acquiring customers, delighting customers, whatever it is. But it, if you never, one of the things is we had a generation

SPEAKER_199: that's never lived through a downturn, right? Yeah. I forget that sometimes. I do forget that. That's so weird. Yeah.

SPEAKER_198: I mean, 2008 was so scarring. The dot com bubble was so scarring. Now think about it. If this thing has only gone up since 2009, that's a, what are we talking about? 12 year bull run. If you're, if you started your company at 21, you're 33. Now there are 33 year olds running companies who have never, ever seen the market go down, let alone crash.

SPEAKER_201: Those poor little ducklings. They are not ready.

SPEAKER_14: Well, poor little ducklings. And then the employees who've only ever gotten the 21 year old sassy.

SPEAKER_202: I've invested in his, was the most thoughtful and conservative here and raised a big round right

SPEAKER_29: before the crash. So it's not, but you can read, you can read as well, but it's, it's my bigger concern. You know, my biggest concern with folks that haven't been around, don't have the scar tissue is they haven't adjusted.

SPEAKER_189: Right. Right. Because they don't, why would you believe what you've never seen before?

SPEAKER_173: You have no pattern recognition.

SPEAKER_29: I got two emails this week. One was, we don't have any term sheets. Should we tell 50 investors they have until Friday to submit them? That was one email. And these are great companies. And the other, the other one was, you know, we just raised at, at a hundred pre, how soon can we raise at 200? And those aren't bad questions in isolation. And these are good, these are good founders. These are good founders. So the po, my point is, these aren't, these are, it's, it's, it's an example of me that folks have not adjusted to the change and, and add six months to your runway and adjust to change in this environment. Those are the two best pieces of advice I can give to founders. Just, just know what's going on. And not only do they not know a downturn, but the way, the way companies were funded for 18 months was insane. Yeah. The way companies were funded was insane. Um, I had one portfolio company that, that raised, you know, north of 500 million valuation. None of these top tier VCs did any diligence at all. No one. That's stunning. Now, having said that they all called me and asked me for the G2 and I gave them honest G2 about every founder, every issue. Like I told them the truth as you would, right. But no, one's going to do this kind of stuff. No, one's going to throw chips at, at, at rounds or do no diligence anymore. And founders just, you've got to, we've just got to, everything's going to slow down and everything's going to take twice as long. Right. And valuations probably explain G2, explain G2.

SPEAKER_72: Oh, just the background, the intelligence on the startup. What's it really like, right? It's a military.

SPEAKER_217: I was gonna say, is that some super secret military term? I like it. Sorry. Maybe it is. The G2.

SPEAKER_54: Yeah, it's, uh, well, no, so basically you're doing, um, you're doing diligence by proxy and what's dangerous about that part, I just don't, but yeah, well, well, yeah, but I'm just even expanding on the idea here. You're doing diligence by proxy, which what could go wrong? The person has a vested interest in seeing the shares go up. Not saying, you know, Lemkin's going to do this, but yeah, you know, like I've been in board meetings

David Friedberg: where I'm like, Hey, for the next round of funding, we really need to have this accounting dialed in. This is not good accounting. And, um, we don't really track our churn intellectually, honestly, and I, I don't understand it. I'm reading it. I'm trying to get the churn. Uh, can we tighten that up? And then we really don't have engagement metrics. So we don't know who's using the product. I've asked you like out of these hundred customers who uses it the most, who is, you know, paying for it, but not using it. And you can't tell me, like, we need to get that dialed in. They're like, yeah, I know we got a term sheet. I'm like, okay, I guess I'm wrong. And you know, it's, it's a little frustrating to be, I dare I say, old school about how to run these companies,

SPEAKER_152: but eventually, um, you know, as Warren Buffett said, the tide goes out and you see who's not

SPEAKER_225: wearing pants. That's basically you see who's yeah, not wearing pants, uh, selling secondary and

David Friedberg: distributing. Let's go to capital allocation per second. Yep. Selling secondary, distributing shares, holding shares of public companies for your LPs before they go out. There's been a lot of discussion about this. Obviously, Sequoia is doing the Sequoia fund where they're going to manage like a giant fund and their LPs will buy into it. And then they'll keep their public stock forever. They'll still own their Google and Apple shares, not distribute them, you know, and then people can, you know, come in and out of it. How are you thinking about a secondary now? When I saw secondary available to us, when things would hit, you know, I don't know 2550 x for us,

SPEAKER_21: I would always ask, is there a chance for us to sell 10 or 20% in secondary here? Just lock in some modest profits. I know I could look like an idiot, you know, down the road. But I think when you're

David Friedberg: taking 10 20% of your chips off the table. Um, it's just nice for LPs to get a little, you know, nice email with the distribution. And it feels like good hygiene for me. Some people thought I was stupid. Um, you know, I sold shares of Uber at a higher stock price three years before they went

SPEAKER_21: public than it's trading at today. So, you know, uh, how do you, how do you think now as, you know, the head of a fund and a syndicate and all this stuff, how do you think about it? How do you think

SPEAKER_29: about secondary? Well, it's a pretty niche topic, right? The question is, it's not founder secondary, it's investor secondary. Should you sell your shares? We'll go to founders next. A final liquidity event. Should you do it? Um, look, let's step back for a minute. USV is like 60% net across seven funds. It's, it's like, I think it's the greatest in all kinds. And you, you've seen what, um, Fred Wilson's right. They sell 20, 25% of their winners early. They sold, I think 10 or 20% of Carta at a billion. They do it again and again. They don't sell all their Carta, but they do this again and again to take some, to sleep at night, to take some chips off the table. Right. Um, and so that's probably the right

SPEAKER_28: answer. Right. Um, I will say two things and I'll tell you what I do, which is feel is different. So one, you know, just follow their legends, follow that you could do worse than following what the legends do. Like, don't try to figure out your own reserve strategy. Don't figure out your own, just copy the best people. Otherwise you'll, you'll probably do worse.

SPEAKER_29: Um, so that probably makes sense. Sell 10 to 20%, like you said, put some, put some money, put some money out back in the, in, in two. Um, one thing we forgot about in this, in this COVID boom is that, and this is pretty niche. If you're not the lead investor, if you're not Excel or Sequoia or Andreessen, you can sell. Sometimes it's hard for Excel who needs to buy into the round to sell. Frankly, the large funds are often blocked from secondaries because they need to be buyers. So traditionally, a lot of the reasons LPs liked small funds that were really good is they could achieve early liquidity. Hmm. It was a, it was a superpower. No one would really care if, um, Calacanis Lemkin sells their capital at 2 billion. That's not, no one's going to care.

SPEAKER_232: Yeah. You bought in at 10. Yeah. It's reasonable.

SPEAKER_29: Yeah. Um, and so, but, but boy, what, you know, Mark Andreessen selling in the round. I mean, that's a, that's a signal, right? I mean, the guy just 400 million into Twitter and he's selling in your startup. I mean, that's a bad sign, right? So, so it's a superpower that

SPEAKER_28: smaller investors have to be able to sell like this. So you're silly if you don't take advantage

SPEAKER_29: of the fact that you have a, it's almost the opposite of pro rata. You have, sometimes you have the right to buy and sometimes you have this special right to sell that other people don't have. So you got it. If you hit 50 X, you got to consider it, right? I mean, 50 X is, is great. Um, having said all of that, if you really want to do insider baseball, when I thought about this a little bit more, if you take a fund of any size and you really want to do 8 X on this fund, I'm not talking about 2 X or 3 X, you really want to do it. You ain't going to get there selling, selling early. You ain't going to get there. Okay. Listen, if you could return four times your fund with secondary, do it. Right. But a lot of these secondary sales return 10%, 20%, 30% of your fund. Right. And, um, those sound good when you're trying to build a 2 X net fund because they're little bits and pieces to get there. But if you want outsized returns, they don't, it doesn't make any difference. So I would only, personally, I would only sell in a secondary. If I wasn't convinced

SPEAKER_41: it was one of the best companies. Right. Got it. Right. So ultimately you're a hodler.

SPEAKER_29: Interesting. It just doesn't move the needle. If you're really going big, the question is, and there's so many different goals in venture. Do you want, do you want a salary? Do you want a decent salary? Do you want to make a little bit of money? Do you want to make a lot of money? Or John door just gave a billion bucks to Stanford? Or do you want to make insane money? And, and what's really interesting is the playbooks are so different here. They're, they're nothing alike.

SPEAKER_38: They're not even playing. They're not even remotely playing the same game. All right. Molly's got to go, but I'm going to talk to you for a couple more questions.

SPEAKER_138: Thank you for advanced. This is graduate level VC Sunday school. Appreciate it.

SPEAKER_152: It's the real deal here. Great to meet you. All right. So then the next question, uh, for us, Jason to tackle is, uh, looking at, uh, the secondary of founders. So, um, recently Hopin raised that in Hopin raised that huge valuation,

David Friedberg: a little controversial founder sold 200 million, but I did the back of the envelope. They're multiple on revenue. Didn't seem that crazy. Actually seemed like a pretty good business, but obviously they had a lot of wind in their sales with everybody doing virtual conferences. So who knows if that revenue will, will, will keep up, but that's a big number when you're selling

SPEAKER_54: more in secondary than the company's making in revenue or a multiple of it. This, that seems like a big disconnect. And how does a founder stay focused when you just sold 200 million? I mean, that's like, what plane am I getting? What third, fourth home am I doing? You know, it's just, it's, it's a, it's a distracting amount of money. So, so how do we think about founder secondary as a best

SPEAKER_191: practice? You know, when you're on the board of a company, there are a number of B2B companies I can think of where the founders each made nine figures during this COVID boost, a number of them.

SPEAKER_29: Um, and my learning is, it is a, it, it, it, it's not necessarily bad, but it does change incentives. I don't, the handful of folks I know did not just retire to their mansion in windsurfing. Okay. Most, most investors can smell whether that's in a founder or not, but a lot of them have gotten pretty Zen and they gotten pretty Zen, more Zen than they would have been. Right. Um, a lot of them actually want to defer an IPO as long as possible. Good, good or bad. Right. Even like Stripe. I don't know whether they took any secondary. They probably didn't, but their goal has always been to defer this massive outcome as long as possible. But I see that with folks that have raised a lot of secondary because there's no personal upside to them unless it's the IPO is monster. Right. There's no financial upside. So, um, but I don't know.

David Friedberg: It could be a good thing. So, I mean, basically based on what you're saying and my frame, my initial framing, if it's a level headed founder, who's not checked out, uh, it means they're going to go longer and they're going to go for an even bigger outcome. Um, so it really is personality and

SPEAKER_21: situationally driven. Um, and so boards just have to think about that, but who knows if these things

SPEAKER_255: will even be on the table anymore. I have seen mostly. I mean, look, there may be a few crazy

SPEAKER_29: examples. Mostly founder secondary liquidity is a positive and mostly it works itself out. You usually don't get it in the pre-seed round. Right. Um, and my general rule is don't take it before a hundred million in valuation. It's a sucker deal. I don't know a single founder that I know that have taken that has taken secondary for a hundred million that didn't regret it because you only get it in great companies. No, one's going at 40 million and giving you a lot

SPEAKER_28: of secondary because they think you're going to get to 50, right? These are savvy buyers. Savvy buyers. So never do it before a hundred. If they want your shares, that tells you something. My Uber shares, 100% regret.

SPEAKER_65: I, I had people offering me, you know, when the $300 million Menlo round happened, people were like, I'll double it. I'll give you 600 million for your Uber shares, then 2 billion, then 5 billion,

SPEAKER_54: then 10 billion. They were just, every time there was some new benchmark hit. And then I would just talk to Travis, he'd be like, don't sell. Yeah. Don't sell. Okay. I won't sell. So pretty easy decision here. And the founder tells you like, I wouldn't sell. I'm not selling like,

SPEAKER_152: um, easy, uh, to do, um, raising funds and LPs. Again, we'll keep it, uh, here in the, uh,

David Friedberg: the capital allocation realm. Uh, LPs are really, really focused on SAS. They love SAS. There's.

SPEAKER_266: Well, at least they did until recently.

David Friedberg: That can't possibly change though. I mean, the revenue is undeniable. So if you're a savvy LP, you gotta still see the opportunity here of all the categories. It seems like,

SPEAKER_152: you know, nothing's a layout, but it seems like the highest percentage shot, the most efficient shot of any fund. Is that, what do you, what do you think LPs perception of SAS funds are?

SPEAKER_191: Well, first of all, I, I, I can say what I've seen with my LPs is there's massive indigestion right now. Oh, okay. Massive indigestion.

SPEAKER_269: Describe what that means. Yeah.

SPEAKER_29: I have several top tier LPs that just don't want any more managers. Yes. They have, there's, they're over, they were overloaded last year because people came to market too often. Like funds would come back every year, every 18 months, instead of every 36 months before. So with a larger fund, so they would triple the effective capital they needed from their LPs. That created indigestion in good times because their managers were asking for so much more money.

David Friedberg: Right. And they, they don't want to lose their slot at Sequoia or Andreessen. They don't want to benchmark anywhere. Good. They don't want to say, no, we don't want your next fund because then you might not get into the next and they don't want to tell you to pump the brakes because you're a high performing manager. I get it. Yeah.

SPEAKER_29: So others may, others may tell different stories, but I think by the middle of last, by the middle of 2021, LPs were just overloaded. Um, there, there are hundreds of new managers and new funds who are on fund two and fund three and with bigger funds. And they were just at the limits of what they had modeled for commitments to their existing managers. And they did not have room for new managers. So, so that is, that's, that's a tough situation. And now LPs are just trying to process the carnage in their later stage portfolio. Right. And it's very interesting. Most of the top LPs I wrote about this on Saster, the top LPs had average 90% IRR last year. That's what the top university endowments had 90% IRR. Now, what, now, what do you think their IRR on venture looks like going into their may one reporting or their June one reporting? They, they, they go, if you did, took the markups, um, and you didn't distribute the shares, you're going to take the downs unless you, unless I was all shares that you distributed or cash you held. So there's so many rebalancing. There's so much overhang of nine, like LPs, LPs didn't ever used to have a 90% IRR year from venture.

SPEAKER_275: It was, it was a lot more predictable, let's say, and there weren't as many LPs had 90%. That's after

SPEAKER_29: paying fees to VCs after paying them 20 to 30% of the gains after paying everything, the top endowments across their cohort of managers had 90% IRR last year. It's insane. And, and if you read some of these, some of these endowment reports, these very conservative endowments, they kind of thought it was going to last, as did many of us. Right. Um, and they got, and we, they got used to it. And so LPs are digging out of way too much commitment to existing managers and a radically different position for their portfolio. Yeah. They want a new manager here and there, but it's, it's, it's, it's overload. I think this is right now is probably the worst time to get institutional money, institutional money.

SPEAKER_34: Yes. Uh, in my career from LPs right now be the worst time.

David Friedberg: And if you think about those institutional LPs, they answer to somebody, these are not high net worth individuals, not a family office where they answer to themselves. There's somebody, you know, at their university or, you know, hospital or whatever, or retirement fund who says, Hey, we need that money. So are we getting that money or are we not getting that money? And it's like, when it's up, it's hard to say, like, it's not real. Like what is your incentive to say, Hey, you know, who knows if this is reality? Uh, just like, you know, if you look in the crypto space, a lot of people thought, you know, the momentum was going to continue and, and here it is just massively stalled and people starting to wonder as crypto and SAS crossed over yet. And is there any, you know, realistic example of a crypto company helping an enterprise do anything?

SPEAKER_281: I'm confident there would be. I, I don't have exposure there. I haven't met that one. I'm confident. I'm confident there, there is, I mean, that coin base is a, is in, in some ways is a, is a, is a software company, certainly a software company, right?

SPEAKER_107: It's a software company and they do custodial stuff. So there is, so they're custodian for big things that might be an example.

SPEAKER_206: Those are often the early winners, right? Are the folks that are providing the infrastructure for these, for these emerging markets, not the, not the emergence themselves. But

SPEAKER_281: I haven't seen, it's not that it's not there. Um, it's just not my, it's just not my, my vibe.

SPEAKER_107: Actually, I think it's not there. I think enterprises look at that, those solutions

David Friedberg: and they're hypothetical infrastructure laying, you know, ideas that are not actually solving a problem. And the whole concept of SAS is you've got an, correct me if I'm wrong here, you've got a business process that we can make more efficient and you don't have to hire developers. You don't have to create business process here. Here's just a solution login. And man, we've thought of everything. We've learned all the lessons here about OKRs or 360 reviews, or whatever it is that you're suffering through as a company. And man, we're going to make it so smooth for 10% of the cost

SPEAKER_54: it would have taken you to deal with it. That's the magic.

SPEAKER_28: Yeah, I think, you know, it might be that cryptos like mobile, it just has a really slow

SPEAKER_39: path to the enterprise. But it just may take a decade, right? We're still not there. Still, most enterprise apps are browser based sitting in front of the PC.

David Friedberg: Are we going to see, and when we will sort of wrap on this, like our strategies for

SPEAKER_54: what to do in a down market as investors, I'm investing through it. I am being very disciplined about valuations. Looking at the history, you know, your history of your valuations isn't as important to me as like, what the actual realistic multiples are. But I see this as a great time. Because all of a sudden, you know, these rounds that are closing in under a week, and I got to give them an answer within 48 hours of meeting them. They're not closing. And we're here four weeks, five, six weeks after. So that to me says I can do a thorough time get to know the founder. So for me, it's delightful. Again,

David Friedberg: that was my whole joy as a capital allocator was getting to know you, getting to know the team, and then making a really good decision for both of us. And I felt like that was lost. It was hurried. It was shotgun weddings. Not my not my bag, not my speed. I suppose for you was similar. And also, I just don't get a kick out of somebody telling me, we're raising 10 million out of 50 million posts, and the product doesn't have product market fit yet. And I'm like, Well, why not raise 3 million at 15 and get product market fit and then go raise the next hurdle. And they're like, No, we just want to skip three steps. So skipping three steps and shotgun weddings, not my bag. Now they're gone. Kind of feel like I'm going to enjoy my day to day. How about you?

SPEAKER_81: I'd like to think that's true. I certainly think venture went from like a sport to a game

SPEAKER_29: during the during the COVID boom. And it's probably back to a sport, right? The game was you don't need to meet them. You don't need to know them. Just get into 50 hot deals as fast as you can. Right? That was the game. But yeah, I'd like to think that's true. I think investing over zoom, I don't even like, frankly, that that's, that's forever. That's forever. That's not going away. That's not going away. And we'll see. Even valuations. You and I both haven't invested in companies that in the early days, maybe are just one degree off the mainstream. They're not always three kids from Stanford or MIT or the perfect pedigree. And frankly, I haven't seen like those valuations have probably doubled in the time I've, I've, I've, but they didn't have the same craziness that we see in some. So honestly, I've invested at the same valuations in the same way since my first investment in 2013, which was pipe drive. I haven't changed. My max has always been 20.9 million. Yeah. Great product. The average ownership has been 12.5% since I started. And I just, and it was frustrating for me during the boom to say no more often, like structurally to say no, just no. My, my one thing I actually hope that's changed is not so much valuations. It's that there aren't already 50 investors for the round before I talk to them, 50 small investors. What was frustrating for me was you want, and it's great for founders, like no, no criticism, but it used to be to raise a couple million bucks. You need it. And it's a real VC. You need a lead. Somebody priced it. Somebody watches the store. But then you could just get, you could just get 20, 100 K checks from great people. Yeah. That's my fault.

SPEAKER_81: Heck. I would take that as a CEO, probably seven times out of 10 myself, right?

SPEAKER_21: It's totally my fault. I inspired too many people to become angel investors with this stupid book.

SPEAKER_29: Yeah, you did. It's your fault. And it's a good thing. But I would get an email from a founder. Would you like to, and here's my numbers. It's great. How much room is left? 100,000 out of 3 million. I'm like, I can't even, I can't even, I can barely take the time to respond to your email. I don't literally mean that, but close, right? The only selfish benefit I could get is maybe I could write a $2 million check instead of a $200,000 check that. And I, at the end of the day, we can talk about ownership, but people, especially a lot of new funds are going to be left with tiny ownerships and unicorns instead of decacorns or tiny ownerships and a hundred million dollar outcomes. Yeah. And 2% of data dog is great. 2% of snowflake is still great, but 2%, it's tragic, but 2% of a $200 million outcome, 4 million bucks on a $40 million fund. I mean, you haven't done your job. You haven't even done your job. It's a disaster. It's a disaster, right? So that's a reckoning that may or that probably will come, right? Because there probably will not be as many decacorns. And, and all the crazy things we did in venture the last, you know, during the second, maybe we can end with this, but all the crazy things in the second half of 2020 and 2021 from pre-seed to the top, they all worked out if we had a hundred decacorns, a hundred new decacorns, right? But if we end up with a bunch of $2 billion outcomes, which is still insane by any historical standards, none of these small ownerships and $30 million safe notes at the pre-seed, none of the math is going to work at a $2 billion exit, right? That's the, that's the reckoning that a lot of LPs are also worried about that, that like these funds are all going to get smashed down, right?

David Friedberg: This vintage, the 2020, 2021 vintage, if not selling secondary could be a, um, a negative IRR. It could be a loss, uh, or it could not beat the public markets, uh, which means we didn't do our jobs as investors or whoever was running those funds, didn't do their jobs. It really does take

SPEAKER_152: discipline, um, on all sides of the table. And for folks listening, you know, I think the quality of the investor really matters, um, and their thoughtfulness and, and, and Jason, you are one of the most thoughtful and high quality investors, um, that I've, I've worked with over the years. If you're a SaaS company, if you got just two people and you're finishing your product,

David Friedberg: it's perfect time to talk to Jason. I'll take the time for you. If you got three customers, perfect time to talk to Jason, but you know, just also CC me. So I can maybe get a little slice and we

SPEAKER_161: can do a, a J two kind of thing here. We got to get in a deal. Like we got to shepherd a unicorn deck of corn together. Like this, let's do it. Get me, cut me in. I'd like to put a million dollars and I put a little quick million and let's do it. It's been great. All right. Listen, Jason, continued success. Thanks for coming on the pod. Uh, best place to reach you probably Twitter or

SPEAKER_281: email or the website, maybe give us some, uh, of course, a saster, S A S A A S S T R. dot com. But yeah, Twitter is great. Um, and look, I hate to say this, but you know, LinkedIn, I'm, I'm, I'm, I'm into the LinkedIn now. Oh, very nice. Yeah. Just like I gave up on

SPEAKER_314: Docsend. I've given up on respect. I will now respond to LinkedIn emails too. I like it. I like

David Friedberg: it. Getting in that in email box. It's a little hard for me because what I did with my LinkedIn was in the early days of social networking, there was a theory. Just say yes to everybody who friends you.

SPEAKER_54: Yeah. So I hired an intern. I just said, follow everybody back. So now my LinkedIn with, you know, 600,000 followers and 5,000 max connections or whatever it is. I I'd let every recruiter

SPEAKER_221: and headhunter into my network and I don't know how to get them back out now. It's almost like I should start a second account over again. Like I don't believe on LinkedIn. You can,

SPEAKER_104: I believe you'd have to start, start another account, which has a lot of identity issues. Yeah.

SPEAKER_221: I think you're dead. Yeah. I think, I think it's, it's a, well, or it's forever has to sort through my email. It's their problem. Yeah. All right, brother. Stay safe. And, uh, and, oh, and Sasser, uh, I know you did in person,

SPEAKER_198: um, uh, San Mateo fairgrounds went well. So the photos and everything, uh, what, when, when's the next

SPEAKER_29: one? And, um, uh, well, you gotta do, you gotta do something at it. It's September 13th through 15th. It's in San Mateo again. We figured out how to do the festival. Um, we're doing

SPEAKER_323: so great. I love those grounds. You take over the whole grounds.

SPEAKER_74: Yeah. For three weeks. It's, it's, I mean, if you want to talk later, it's so much work. You don't even want to know how much work it is to do outdoors, but, uh, yeah, we take it all over.

Chamath Palihapitiya: The place is a shell, but you know, the nice thing about this area of the peninsula at that time

SPEAKER_161: period is it's gonna be nice. 75 degrees. You get a beautiful temperature people. We got our highest NPS since 2016. Fantastic. Mazel tov. And you're out of San Francisco, which that's so tragic. Nobody wants to go to the city and the city just killed us on our conferences. They made everything painful. San Mateo must be delighted that you're taking that empty shell

SPEAKER_28: and bringing so much activity to it. Uh, they are, it is the easiest county to work with in the Bay Area. I will leave it at that. They are, they have different characters and it is, it is, it is the

SPEAKER_39: easiest one to work with by far. Yeah. But they're just big shells. Like you, you're literally,

David Friedberg: I go there for the, for the, um, they do like a carnival every year. My daughters love it. You know, petting zoo, but they're just big empty boxes. The warehouses.

SPEAKER_29: It's $10 million to light it. And it's, and it's a million dollars just for the tenting in addition to all the other costs. Amazing.

SPEAKER_334: So yeah. So just turning it on is not easy.

SPEAKER_28: Yeah, but it's fun. People, it was, you know, it's time to do the Coachella style. So yeah,

SPEAKER_29: you come figure out what you want to do September 13th to 15th. And, um, and if nothing else that people listen to this, um, if nothing else, and I know you're doing this in Miami, like if you're an underrepresented executive, just sign up for an inclusion ticket. It's free. We have 2000 free tickets. Okay. We invest over a million dollars in it. Just go to saster annual or saster.com and hit inclusion and come as our gas for any underrepresented guys. We want everyone. We want it to be the most inclusive event in tech. And I think we're close. Well, I mean, it's, if you want to see the world

SPEAKER_53: change, uh, and you have a vision for that, I think you have to take action, right? And you have to have a

SPEAKER_54: plan and, you know, the plan I've always done is to have free tickets, like you're saying, um, and then, uh, for the all in summit, you know, which was a $7,500 ticket, obviously that's out of reach for, you know, well represented groups. I just said, Hey, listen, here's the underrepresented group. And, you know, the male female ratio was really broken. And I just told my team, Hey, start with, you know, the, the, the people who are underrepresented and, you know, just have skin in the game, $500 ticket, whatever it is in some modest fee, uh, that would be less than your flight or hotels. And, uh, you know, we had three or 4,000 people who want to do that. Uh, so we, we, I think we're closing it on 60, 40 male, female, which in our industry is unheard of, right? In a, in a tech conference. So it's going to be quite nice to see, you know, the, you want to see the world change, right? You want to see this become more inclusive and, and, you know, it's up to the people who run events to say, I'm going to do that. And it's not just about making the maximum dollars, which you can

SPEAKER_162: do. So I applaud you for doing it. It's, it's, it's a real match move.

SPEAKER_74: Well, you, I mean, you want, you can't, you can't be inclusive if you leave people out,

SPEAKER_194: right? I mean, it's just, it's, uh, but it is work. If you don't do anything, you're going to

SPEAKER_29: end up with three days of all dudes and 90% men attending, right? If that's what you want at your Bitcoin conference, like you don't have to take any action, right? But, um, you need to spend, it needs to be for what it's worth. We got to break. I mean, I I'm, you know, I'm a white male privilege. What do I know? But we've been doing this for six years, right? A majority of w of women speakers, 66% less represented and 40% women attendees. It takes, it takes 365 days.

SPEAKER_272: Yeah. You have to work at it. Right. And you have someone like me, that's what it takes. And so you

SPEAKER_140: got, it's gotta be, if it's not one of your top five goals, it won't happen.

David Friedberg: You have to be intentional. You have to put the effort in. Um, and then what happens is the great news of it, what happened to us with our founder university was when we started doing one just for women and just for underrepresented folks, uh, in the industry executives, it, it actually, people said to me, uh, always stuck with me. I said, Hey, how, how come you didn't come to the other ones? And they said, well, when I, or I said, why did you come to this event? Somebody just said to me, when you said it was just for people who are underrepresented, I heard you say it on your podcast. I knew I was welcome. Um, and it really is that simple. Like maybe people maybe don't grok because they feel welcome and everything that maybe if it's 90% bros at your Bitcoin conference, that maybe somebody who's not a bro dude with a neck beard may not feel welcome. You know, you'll have to just take that into account and they're not going to tell you that in the

SPEAKER_350: survey. There's a 100% chance they'll feel welcome. You said it, not me. Toxic, uh,

SPEAKER_152: toxic Bitcoin culture. It's weird.