VC AMA with SaaStr CEO Jason Lemkin and Black Mangroves MD Arnaud Bonzom at SaaStr APAC 2023

We've got a ton of incredible VC content. Arno Bohnsma here is a prominent angel in Singapore, joined us doing another big structured session with GGVC and several others in the afternoon. But to kick it off, venture is like such a— it's such a— there's so many questions with founders. I actually find— I don't know about you— I find venture capital very boring. It's like the same documents. There's like 4 different terms. Like from a VC perspective, everything's kind of the same. Like you do pre-seed, you do angel, pre-seed, seed, ABC. It seems so boring, but yet founders don't go through this that often. Right. And there's sort of an inexhaustible anxiety and list of questions. So we'll look at everything today. We've got Sequoia, we've got Bessemer, we've got so many of the top funds presenting. But thought for folks that wanted to ask extra questions about venture investing and others today, we could do it. And so just, I'll open it up to just general questions, but I could frame things a little bit. The only thing I would say to kind of kick off the discussion, an executive before I started asked me the question, it's like, you know, when do you think we're gonna get out of this downturn in venture? And I'll kick it off, I don't know what your thoughts are. I don't think there's any downturn in venture. I think there's just a reset. And folks that have not been raising capital or seen this side of things since, say, 2018 will think this is a terrible time. It's a terrible time because things got insane and peaked in November 2021. Like, we'd never seen the types of not just startup rounds and multiples, but public companies were trading it in at unprecedented sizes in November 2021, and then it degraded and plummeted to a low in November 2022. Where are we today in, in February '23? Actually, we're better than November 2022. The, the— if cloud stocks— if you just invested in cloud stocks in November '22, you'd be up almost 25%. Like, it's pretty good. Call it, call it a day for the year. You made 25% on your money from the low. But we are, we are we are still somewhat lower than we were in 2018 and 2019. And we're kind of consistent with what SaaS venture capital was through 2018, through the boom. So that's why it feels dire to a lot of folks. It feels dire, but actually, it's just a reset to the world where the best public companies are worth several billion dollars. They're worth several billion dollars. You know, Freshworks is one of the great breakouts from India. What's their market cap? $5 billion today on $400 million in revenue. Something like that. I should look it up. We should look it up. And that's an outlier, right? The GitLabs of the world, $5 billion. So, like, if those companies are worth $3, $4, $5 billion, um, it's very hard to be a unicorn today. It should be. There's not— there's not a lot of room. So, so I'll sort of shut up with there, but I don't think it's dire. It's just we're back to a world— what, what got inverted for 2 years from late 2020 to 2022, we— this weird world happened in venture where each successive round got earlier. Easier. It never got— it always was supposed to be harder, right? There was always supposed to be a winnowing from each round, and then it got inverted, got easier, didn't it?

Yeah, I think is why I don't really see that as maybe like a very tough time now. It's more like we readjust to what it should have been. So it just had been way too crazy in the past, and then now we go back to multiples and numbers that makes more sense. I think it just went out of the line, And then now we're going back to something more reasonable. So during that time, you can also have seen a few VCs and a few entrepreneurs with a lot of discipline in terms of— for funds managers is don't raise too much money. So that is difficult because a lot of them make their money out of management fees and not so much on carry. But it's the same for the founders. A lot of them also didn't manage to have the discipline to don't raise too much because money was so easy to get. And a lot of them were willing to get crazy valuation. But I'm seeing now like people that are building the second or third company here, even if one of them got an exit with Google here in Singapore, they're only raising $1, $1.5 million at an $8 to $10 million valuation where they can even if today still raise $5 million at a $25 million valuation. But they don't because they know that is going to be very difficult for them in 1 or 2 years down the line because they have raised too much money at a too high valuation. So I think the one having discipline will go through those times in a way better way than the one that just take all the easy money. So I think we're just back to what it should be, and that have been some crazy times. So even if now what is described as a down run, I just feel is, no, that is the price it should have been. So it's just an adjustment to go back to where things should have been since the beginning. So it was, it was too much easy money.

Yeah. So let me open up. There'll be a lot of good content today. So what questions do folks have about anything really, but venture and fundraising today that can be helpful with. Any questions? What excites about 2023? Excites you most? I'll tell you, I don't, I mean, at a personal level, like I don't try to follow any trends. I don't think renaming your company to.ai is gonna change the world. I don't know. I'm a pretty boring guy, and what I've found, and I did a SaaStr post, you can search it, and I updated it a couple years ago, what percent of public SaaS companies are new versions of existing categories? New versions, it's about 80%, okay? There are breakout companies that do things we've never seen before, but everything from Freshworks to HubSpot to Salesforce to, like, these are actually Categories, they get reinvented again and again and again. And personally, for me, of my top investments, some have been new categories, right? The second one I did was a French one, Algolia, which did— it didn't invent search, but it did invent sort of search as an API. But even then, search is like an old category, right?

Google was doing it before for their own website. You could use Google to search on the website.

For sure.

So I think it's reinventing again. Yeah.

But not to ramble, I personally, I, I don't look for the trendy things. I look for the founders that see white space in a space that's changing, right? Because every category changes every 5 to 7 years. And whether it's mobile or maybe it's AI, maybe it isn't, or just something changes in the stack, right? Compute. And I like the stuff that just gets reinvented and the best founders. So I don't have any thesis whatsoever. But certainly that's me, and you will find plenty of investors are very, very thesis-driven. You can see it on their Twitters and others. But mostly it's these, you know, everyone's looking for phase changes. I mean, the cynical thing about venture to, maybe it's not the point you're saying, but everyone's looking, it's tough. Everyone's looking for hypergrowth, right? Because if we step back, if we wanna abstract, if anyone's interested in the economics of venture for some reason, we'd be happy to explain it. But the bottom line is you really can't make money in venture venture other than fees, unless you have companies that in 7 to 10 years get to at least $100 million in revenue, okay? Now it doesn't have to be $100 million from the day you start your company. Like UiPath took 10 years to get to its first million in revenue. It really does not matter how long the very early days take, okay? But once it clicks, once you get to $1 million to $2 million in revenue, you've got ideally 7 years, 10 years at the outside to get to $100, really $200 million for an IPO. And so realize if you're frustrated with VCs, if you're trying to learn the process, like anyone, you gotta understand their business model, right? How can you go— so if you've already hit $1 or $2 million, that's why folks are gonna be looking for you to at least double and ideally triple at $1 to $2 million. It's not because VCs are completely jerks, but think of— put it in a Google Sheet and do the compounding. How can you get from $2 million to $200 million in 10 years? Niraj from Battery summarized it as the triple, triple, double, double, right? 2 years of tripling, 2 years of doubling. That's just the mathematical rate it takes. So, and a long-winded way of saying, for me, I'm, you know, when— if you're— if you're— for me, when I've been fortunate enough to invest at like a million in revenue, you can already see that happening. At a million, it's already— there's a handful of investments I've done that were already at a million. PipeDrive was my first one, which was for CRM, which sold for a billion and a half. It was already growing. About that rates at $1 million. My third investment was Talkdesk. It went from $1 to $15 in one year. Right. And but it was already growing at those rates before $1 million. I think you have to squint. You have— you can either look for very high growth at $5,000 a month, like it might be a signal, but it might be noise. You're not sure, but you're looking. So we're all looking for that. And so a thesis investor is thinking, hey, AI is going to disrupt the world. There's going to be 20 Jaspers. So this AI is going to drag us to the top, right? Or this new thing in cybersecurity or this new thing, or other folks are just looking for the world to change so that some external factor is driving it. Like, I mean, Talkdesk is worth— at least it was worth $10 billion on paper. That was one of my best investments, my first investment with a billion-dollar position, a billion-dollar position as an investor. And what the hell happened at Talkdesk in 2014? When I invested, I didn't even know. It was 8 people at $1 million in revenue. But as dumb as it sounds today, Actually, WebRTC didn't really work in the browser until 2014. And so as rudimentary as WebRTC was in 2014, literally you could not run simultaneous call centers in a browser before 2014. Didn't work. So even though it went down and you had issues, like, that was a phase change that I didn't ever understand how it works, right? And so that happens in venture sometimes. Something changes in the market, and all of a sudden, you know, web came to the— now all call centers are web-enabled, but it was so late because of a technology change. So you could add some thoughts, but that's my rambly answer.

I think what excites me now, especially in Southeast Asia, is to have a lot of second or third time founders. So I think that is quite interesting in the region because they have experience. You have also way more talent now. Like you look a decade ago finding a product manager, you need to recruit at Singtel. Now you can tap into a lot of people that are being trained here or people move back from the US. So I think the talent pool is way bigger. Not saying it's easy to get the talent, but it's bigger. There's more capital looking at the region. So I think it's— that is quite exciting now. What I want to see more would be— I mean, in the early days here, we got Zopim, who got acquired by Zendesk, that started out of Singapore. But if you mentioned Toltec, that was started out of Portugal. So what I would love to see more in the region is also people that building globally or for US, like what you see a lot in India, and see a little bit less people building only for Southeast Asia, because most of the time that is going to lose you so much time. The market here is still very small. So I want to see more people going US. That was Algolia. I mean, you get a bunch of them like Algolia, Front, Tolldesk. All of them started between France and Portugal and they go very— I mean, the first two went to YC, Tolldesk went to 500 Startups. So they use accelerator to land there and they do what I like, the arbitrage between let's keep technical talent in Europe because it's great people. And less expensive than the US and maybe easier to retain. And let's get the market in the US. So let's move the CEO there. Let's have the marketing and sales because Americans are way better than the European on those things. And let's just get the best of both worlds. I think that is interesting structure to have when you come from a market that is not so large. So I wish to see less people looking after Southeast Asia when it doesn't make sense. And I feel it makes sense if these days you are like a provider of solution that most of the company here need, meaning if you are Xero, maybe you can have some good growth here in the region, or if you are Xendit, if you do payments, why not? But compared to US, it will be still a small market. So then it's go quickly to the US, but you may still be able to get some good growth here in the region.

Well, anybody else have any question on venture fundraising, any of these pieces? Don't be shy, or be shy if you like. Hi, this is Pauline Sweeney. Yeah, it's such— actually, in my little opener next, it's going to be half of what I talk about, multiples, because it's such an important question. When I was a founder, I didn't even know what multiples were. I didn't care. I was building my company. Every dollar I made— I was a second-time founder the second time. Every dollar I made from my first startup, I just put into one ETF, VTI, the Vanguard Total Stock Market Index. I'm like, I don't have time. To worry about investing my own money or multiples. But today, founders need to be very savvy about multiples because in SaaS, basically— we'll dig into it later— you know, from— for a decade, multiples were basically the same and they were crappy. Public companies traded at 5, 6, 7 times revenue. Some did better, some did worse. There were some horrible times like 2016. The world ended in 2009, but for the most part, multiples were consistent and crappy. So you would try to get to $100 million in revenue. If you were really lucky, like HubSpot speaking, you would IPO at $800 million. HubSpot got to $100 million, IPO'd at $800 million. That's 8x. And basically startups for a long time until 2018, startups basically were all valued at 10x if they were growing quickly, or 5x if they were okay. That was my whole life as an entrepreneur, like 10x, 10x, 5x. And so then the world imploded, right? And then exploded with COVID And we saw Zoom went from $1 to $4 billion in one year in revenue. Zoom not only was the almost the fastest growing SaaS company of all time to get to a billion, then in one year it went from $1 to $4 billion. And so combined with multiples got crazy, right? And founders, if you've only been a founder for the last couple of years, you don't even know what the world used to look like. So I, I'll ramble where we don't know where multiples are going to settle at the end of this year. They are not at all-time lows. As we started, all-time lows were November 2022. We're, we're up 20 or 30%, but they're still low. They're still low. And so my general view is that basically what I see, and this is a very US Bay Area-centric view, I'll give you that. I don't have the local view. Basically, C valuations in the Bay Area have not changed that much. And after that, basically everything's getting done at 10x-ish if you're really good, 10x current revenues. And here's the important point. If you're on fire, if you're on fire, well, this is what I've learned from my portfolio. The top ones are being done at 15x current revenue. Okay. And it's almost— there's almost the growth markets. So growth is almost frozen still. There is almost no Excel Growth did one investment last year, 30-something the year before. It's frozen, OK? It is frozen. But it's warming, OK? The ground is thawing because people have— they've done the triage in the portfolio. They've done some downruns. They've done— and basically, they've internalized. They've taken a hit with their LPs, right? They've said— they've gotten through most of them. If they haven't shared their audit from last year, they've already given them a heads up that, hey, our portfolio is down, right? And so they want to deploy capital again. They're ready to get back to work. The terror, the terror kind of peaked in November 2022. But the best ones, the best growth investors have decided 15x current. What's your growth rate next year? Is that 10x forward, 8x forward, whatever? That's their ceiling. And so they're hunting. They're hunting. Okay. Is there someone at $20 million ARR that's growing 100% or more? Can we get them to do a deal at $300? OK, the best ones, not the average ones, right? The problem is a lot of the ones at $20 million ARR are growing 100% or more. You know what they raised in 2020 or '21 at? $500 or $1 billion. So the problem is all these companies are structurally unfundable. So that's what I've sort of seen is this— it's still frozen, but people will do this 15x for the best ones, but that's the ceiling. That's the ceiling.

And I think that is a good indication point for you on your fundraising. Don't look only at that because if you just look multiple, that is just a picture. What also Jason M. Lemkin mentioned is also the speed of growth, which is also something super important. It's not— it's also how fast are you growing that. But you will see VCs will also look at a lot of other things like at different stage will be also how your team is structured and etc. So if you want to look at roughly an idea about that, you can look at the SaaS napkin done by PONT9. FG Labs also do a SaaS Benchmark, you can see by different stage what are the expectations across different things in terms of traction, and you can see the size of the check you can raise and at which valuation. But you need to also do kind of this discovery by yourself and talk to a bunch of investors and see how much they're willing to give you as a multiple, because that is how much you will see the market is willing to offer at this time. So if you was 18 months ago, it's a completely different price likely than today, except on the early stage. So you need to look at what people are willing to offer, but you also need to know how much money do you need and how much are you okay to be diluted across that round. So it's not— it's again, you need to have that discipline and knowing about how much money, and it's not because people are willing to give you $20 million that you should take those $20 million. Maybe you could be, wait a minute, for the growth I want to do, for the dilution, for everything. Now I'm only taking $7, $8 million, and I may tap into you later on, not in 6 months, more like in 24 months, and then we move to the next phase. But you need to be careful of that also. So it's a balanced act to navigate that fundraising. And definitely here, the disadvantage is on the founder because you have not so much data point when the investors will, especially at the early stage, will have a lot of comparables across or the company, how much they pay for other investments. And the only way for you is to get as many as possible term sheets to get a sense about what the market is willing to offer.

Yeah, and if I had to summarize all of that into one metric, if you've mostly been a founder the last few years and that's your frame of reference for fundraising, I would just assume two things, and they're really just one thing. You're gonna be able to raise half as much money at half the price, and the money's going to have to go twice as far. You're going to have to be twice as efficient. And I just did this closed session with CEOs with Pavilion, which is like a founder group, and I just— all of millions in revenue up, and they were crestfallen when I said that. What do you mean I have to do twice as much with half the money? I'm like, I'm sorry. I'm as empathetic as it gets. But the last 2 years were insane. Because what happened was, the last 2 years, you could raise 4 times as much money and be half as efficient. The efficiency was— folks, and not everyone here is so privileged as folks in the Bay Area, but folks became wildly inefficient. Wildly inefficient. And the markets sustained it because the capital was there, and it was grow, grow, grow. And so the simple math is half as much, half the valuation for later stages, and importantly, you have to be twice as efficient. It has to go twice as fast. Far. And I don't know about this audience, I'm still learning, but for the founders involved with the Bay Area, they're still resetting to the third point. They're still resetting to having to burn half as much money to get there. And I would say most haven't gotten there. Most have reduced burn, maybe they've done a small layoff, maybe they're— or they've just done a quiet freeze or slowdown. And they're not spending quite as much on perks, but that really doesn't get you there. A startup. They get you there a lot if you're a public company, but they haven't fully reset the fact that you're going to have to get there with half as much money, right? And there's a lot of implications. So long-winded answer to the question. But multiples, I think, is something that I don't think founders had to even really understand a few years ago. Now it's got to be part of— you've got to be monitoring it almost religiously, because it just gives you a pulse of where all venture will be. And the last point I'll say, and then we'll take another question— it's in my next session. So people in seed investors are pretty chill because, because what can you do? But later stage investors got despondent last year as it was clear their unicorns were going to run out of money. They're going to have large write-downs. It was, it was terrible. Again, there's been a bit of a reset, a bounce. It might be a dead cat bounce, but a bounce since November. Folks are calm. But sorry, maybe I got a little bit distracted on what I thought was the most insightful point I was going to make. Oh, here's the point. If we— if multiples go up about another 20% from where they are today, we'll be kind of back to the old normal, OK? And what you should look for for multiples is the last point, and I'll be redundant in the next session. Once the top public companies are trading at about 10x on average, 10x or above, that's normalcy for venture. And you can make a spreadsheet, and you can talk about why and how ownership works out to distributions and But it's pretty hard to build a 3x venture fund in SaaS if we don't have 10x multiples. And we're not there today. And, you know, there's a handful that trade at that for sure. There's Cloudflare and others. But when the average pretty good public— and that's, that's rarefied air, pretty good public SaaS company. But if you go on the BVP Cloud Index, which is a great site, and I'll quote it, and you see that the top good ones are all at 10x or above, then you'll know that nature has healed. In SaaS VC. Nature has healed. People can make enough money. And just venture is a hard business to make money in, and it just— everything's frozen when multiples are too low because we lose oxygen in the system.

So I think the average for those 75 companies is 6.96.

Right. So it's, it's going up, but it's still, it's still frozen. It's still, it's still kind of broken, right? So anyone else got a question? Anything's good. Don't be shy.

How's— in determining the multiples, we've spoken of revenue.

Yeah. There's terrible advice on the internet on this. How important is profitability?

No, no. I'm saying how is profitability as a factor? Some want profitability, the other would not. Yeah.

Multiples change significantly? Yeah, let me hit that. You can get two perspectives here. I think there's— look, the internet's full of bad advice. At least at SaaStr, we try to give you pretty good advice, OK, from a lot of voices. It's full of terrible advice. This one is so confusing. Profitability does not matter. Capital efficiency matters, and how much it matters varies. We are at a period now where it matters a lot. It matters not just to VCs, importantly it matters in the public markets. If you want your stock to trade, we have companies like SentinelOne, oh my God, growing well over 100% at $500 million in revenue. Crushed, their multiples are terrible. Why? They're investing in growth, okay? But no one cared in Snowflake a year and a half ago. So we are at a phase where capital efficiency matters in the public markets, and therefore, for a variety of reasons, it's gonna matter for startups and venture. But no one wants, what no VC, here's the bad advice, what no VC wants on planet Earth is slower growth and profitability. No VC wants that trade-off because going back to the earlier point, the game is to go from $1 to $2 million to $100 million in 7 to 10 years. It really doesn't matter whether you're profitable so much as that you're able to fund the company to get there with good unit economics. And so sure, in 2021, if, if it took $200 million, so be it, no one cared. Today it might need $40 or $30, but there's no VC on planet Earth that's going to say, I'm excited about 20% growth and profitability versus 100% growth and decent capital efficiency, because it doesn't get you there, right? So maybe you knew that and it's not helpful, but I just wanted to hammer that point in because no one's excited for crummy growth and profitability. It just doesn't get— that's the wrong message that some on the internet people think is true, right?

I think in emerging markets, some VCs may care about you being profitable because they are way less risk-averse. And a lot of them have more a PE mindset than a VC mindset. So on a PE mindset, profitability matters a lot. On a VC, way less because you look at very different multiples as Jason M. Lemkin mentioned. PE, you may expect your company to do 3 to 5x. VC, if you expect your company to do 3 to 5x, you're never going to return 3x out of your fund because most of them are going to die and then are not going to cover the one that, the one that succeeded was not going to cover the one who died. Here in the region, a lot of VCs may care more for that. But maybe then we can argue they're not VCs by doing so. What they offer you is everything equal compared to another company. They offer you some more time for your fundraising because you will not have much deadline about you're running out of cash. And some VCs will have to move maybe faster if you create enough FOMO to invest in your company. So I think that can help, but it really depends on which audience you're talking to.

Yeah, it's a good nuance. Funds that don't— non-US style funds that aren't planning on other capital fundraisers or more PE-like may like that trade-off, right? But the traditional world of folks, they want efficiency today. It's very hard unless you're OpenAI. It's pretty hard to be inefficient. But the point is you can't change the math of when you have to get to $100 million, right? No, people will give you— people got a break last year and they're still getting a little bit of a break this year. And VCs definitely have taken the pressure off their existing portfolio companies. And this is why the advice is kind of bad on the internet. If you're sitting on 30 or 40 companies, OK, and you're running out of money yourself as a VC, and a bunch of your companies' growth has slowed, but they don't need any more money, you're like, oh, thank God, right? Because I've got to go deal with this unicorn that has 2 months of cash left. So I've got a bunch of— I mean, it's kind of patronizing, but VCs really do think of their investments as kids sometimes, right? And if these two kids' growth is slowing down, but they don't need any more money, they're not on my problem list. So we're still— there's a lot of triage going, but ultimately that doesn't mean that they would fund that company from scratch. That doesn't mean they would put money in today. It just means my dollars are already in, and thank God I don't have to put more into this one. It just leads to a lot of confusing advice. This is Hari here.

Yeah.

I'm from Bangalore. Hi. No, no, no, VCs do not want— none of that's correct. But keep asking with your question. Yeah. No, no, no, no, but he did mention that he compared the investors here to the Bay Area. Oh, yes. Right? And when he's saying that, so they might not be invested. I fail to really understand the whole—

Okay, so if you look at a fund, let's say it's a $100 million fund, you're going to deploy $80 million because it's 20% for management fees. Out of those $80 million, let's say you do 40 investments, 4-0. The thing is, you're going to only get likely 2 or 3 companies that are really going to have an impact on how much you return to your LPs, right? So as Jason mentioned it, you just have a very few years, like 6, 7, 8 years at the time you reach $1 or $2 million in annual recurring revenue to grow that to $100 million to likely to be publicly listed through that growth. What matters to a fund is those 2 or 3 companies that succeed. The thing is, you should— it doesn't matter which company fail. And I don't judge a VC on the company they miss or the company that fail. It's more about which one succeed because you only need to be right 2 or 3 times. Doesn't matter if you have been wrong 37 times. And then it's about focusing on the big outcome. And of course, how can you support the other one? But what really matters is the 2 or 3 that work. That is what you see more in the US with a lot of competition. In emerging markets, they prefer to have more safe bets around all the companies. And if it's kind of, oh, if it could be a 10x across all my portfolio company, I'm okay with that. If each deal bring 10x. In the US, it will be more like that company, I need to think about how can I make 100x out of that company. So it's what I feel in terms of mindset. Some are running a VC, some are running more a PE firm. And the PE is maybe more like 3, 5x expectation per deal, but they will do very few deals and they're going to be very hands-on. So it's a very different type of business. But you also see it on terms. In emerging market, the terms they ask you with— a lot of terms will be more like PE terms than VC terms. They optimize too much on the losing— they don't want to lose their money. But VC is a game of losing your money and being right just a few times. So it's why you need to understand which audience you're in front of you and how you are going to play that audience. So it's what we mentioned, profitability maybe resonates way more here in Southeast Asia. That it will resonate in US, and US, they may don't care. It's like, are you growing fast enough? Can you give me my 100x? And they want you to take that risk. So here they will be more cautious.

[SPEAKING FRENCH] Well, you know, to simplify all of it, thinking through it, when you meet— there are all different types of investors. And the investors you're going to hear after this, you're going to hear from Sequoia and Bessemer and GGVC and others. They're all going to have the same answer to this question that I'm going to tell you to ask everybody. But not all investors, especially in different smaller markets. Ask them what their goal is, what their average exit size is. Ask them what your average exit goal is. And the average exit goal for a big US fund, even if they're the local version, it's $2 billion. They want some at $10 billion, you know, and $20 billion, but the model— ask them what their model is at $2 billion, and you'll hear different— I'll give you— not to over-Europize this, but when I invested, my second investment was venture investment was this French company called Algolia. And back then, Europe was a very local market. They did not believe in unicorns until 2015, 2016. And I was able to buy more stock in the seed round than I thought I could get. And you know why? It was because Alvin, which is one of the top French capital firms, said, "We can't afford to invest in the round." I said, "What do you mean you can't afford?" He said, "Well, the valuation's $12 million." I said, "It seems like a fine— I don't care. It's a good company. My problem is I want to invest $2 million at $12 million. I can't get enough money into this company." I'm like, "What do you mean you can't invest?" And here is my aha moment, OK? And this is totally different in Europe today than it was in 2014. But what Raffi said is, "Our exit model is $50 million at our fund. It's $50 million." Now, it changed in about a year, OK?

Which also you can understand, because at that time in the French ecosystem, there weren't much big exits. it wasn't like large companies. By the way, Agolia, last one, was $2.25 billion.

Yeah, so it changes, right?

So $12 million was like small.

But see, the point is they couldn't invest. Because think about it. At $12 million pre, $14 million post, to get to $50 million, just to get to 3x, there has to be no more dilution. Right? So if you're talking with any of the type of VCs that are going to talk today, like, they're looking for $2 billion or higher exits. Now, it's OK if some don't do it. But to invest, they have to believe it's possible. It's possible. An investor with a $50 million model, like a PE firm, they may be all smiles and giggles and care about profitability, but how much money can you put into a company like a couple million bucks, right? Because there's not enough room. Like if someone comes in and invests at $5 million post and they put in $2 million and buy 40% of your company and the exit model's $50 million, there's not a lot of room. You can't even raise another round. You're done. You have one $2 million round in that model. And so those investors may be a better choice for some, but they'll work with you very differently, right? I have a friend of mine who, Canadian entrepreneur, thought he was kind of US style, but raised money from a VC in Canada. Okay, nothing against Canadians. I love all Canadians. But he didn't know what he was getting himself into. And he's like, "I raised $12 million, and then the founders got fired." OK? And why did— what, what, what? And these are great guys. I know what happened. Well, it wasn't really venture capital. It was really a PE firm. And they really gave them each $6 million of the $12 million, a lot of money, right? $6 million each. But the exit model was $100 million, and it was done. There was no more capital going in. It was all— it was just— and he didn't ask the questions, "What's your model?" And so he thought he was raising money from a VC firm, but he was really doing a PE deal where they wanted to buy most of the cap table out. They gave the founders millions, but they took over the whole company. They ended up buying 80% of the company.

I think a lot of things we mentioned today is also about for founders to really understand what is the VC business and also get a sense about who are the LPs and how LPs look at being part of those VCs. So if you talk to a VC, few questions you can ask is get a sense about what is the LP base, get a sense about what kind of profile of those people. But also in a fund, if you go talk to a $100 million fund, it's also understanding what is the check size compared to the size of the fund and the number of portfolio companies they want to build. Because then you will understand, are they doing a very small check in your company? Are they doing a very large check compared to what they're used to? So then you get a sense about how they're going to be involved, etc. But I'm always very surprised a lot of founders don't really ask much question to GPs. And you should look that as a double opt-in. Is you also decide who come in your company. Don't feel like it's just a privilege to get their money and their terms, but you also need to do your own due diligence. And you should talk to all the founders and get a sense about how those VCs behave before you take any money. I'm always surprised by how little people do in terms of homework in understanding the VC industry and to who they talk to. You should really spend time there because most of the VC will honestly make your company successful. But as Jason mentioned, a bunch of them can destroy your company.

Yeah.

So be careful on who you bring on board.

Yeah, don't— and let's make sure we have time to take a couple more questions before we have to move on. Most founders don't do enough diligence on the VCs they partner with. They do the wrong types of Diligence. If nothing else, if nothing else, ask, get to know their business model. Just like your customers. Like, if you have a big customer, you want to know what, how do your software works there? What's the business model? Don't understand, like, okay, tell me what, what you can just ask a Columbo open question. What do you hope to have happen with this investment? Just ask, you'll be shocked what answer you might get. What do you hope to have?

Or just a successful investment look for you, right?

Or you can ask what if I, I, you, or you can do like a self-effacing version. Look, we want to build the next whatever, Google, but what happens if in a couple years we sell the company for $100 million? This is a great leading question. What happens if we— $100 million is a lot of money, right? But if you ask what happens at $100 million and you, and you, and you kind of ask off the cuff at lunch without it saying that's your only goal, like you have no aspirations beyond that, because that's a flag, you'll get a great answer. Like if someone asked me what would happen if it's over $100 million, I'd be like, That's fine. It's great. Like, I'm all about founder power. Like, that's great. Probably won't make much of a difference to me. But it's good. Like, it's great. Like, if that's what's good, that's— it's like a telling answer, but you're not hearing me like stand up. Like, I'm like, $100 million, right? Because for me, you know, I've invested 4 smaller funds. I have $60 million, right? So if I bought 10% of your company and you sell for $100 million, I make $10 million, I've only gotten 15% of the way there. I haven't even— it's not even 1x. It's like, great, like, I'm all for you, but it's like, you know, it's only a snack. It doesn't even get to the main course, let alone, you know, in any hour. So those Columbo questions, you know, learn the LPs, talk to 28 other founders, but just get— the best VCs are really good at this, is at the end of a process, they'll take a founder out to lunch and they'll ask some unguarded questions that you think are just chit-chat, but they're really good questions. I'll tell you the best question I ever got from a VC, who then did not give me a term sheet. But it's, I really liked him. He took me out to a long lunch in downtown Palo Alto, and at the end he's like, "Jason, just one last question. Like, what's the first thing I'll learn at your board meeting that I don't know today?" It was such a good question. 'Cause I was just, and I gave him the totally honest answer, right? But it's like, and they're good at, so, But founders don't do this enough with the VCs. Like, you're in sell, sell, sell mode. It's weird. These people aren't even human. But ask, just, just ask the question, what's your, what's your goal here? So, all right, we'll try to do 2 more questions before we have to break. Yeah. Thanks, Jason. And thanks to our financial fraud in their portfolio. I have said that. Yeah. And I'm wondering in light of like these— Everyone. —kind of FTX and, you know, Frank's— It's changed. It's— I mean, look what— there's a lot— you ask, how could these things happen? How could these FTXs and, uh, Fast and all these crazy companies happen? And, and, but what happened was in 2021, it, you know, if you— if the company was growing quickly enough and you invested at $100 million valuation, which is high, like 4 months later it could be worth $500 million or a billion. And so on paper, you were, you were brilliant. And one of literally my favorite SaaS investors, so many unicorns, public companies, been doing this forever, one of the most cautious people I know, at the peak of 2021, want to invest in one of my companies, one doing well. And he's like, I'll just give him a term sheet this afternoon. Just tell me if there's anything I need to know. Nothing. Now, he did have me. It's a decades-long relationship since I was first going. But I was shocked, did not need to talk to— because this guy, it's not that he was stupid. He could see the math. He's like, OK, if I invest today at $300 in the crazy world of 2021, it's going to be worth $2 billion. And I'm like, and I want to do 50 this year, not, not 2, because the pace of investing was so fast and furious that people intentionally did not do the diligence. Okay. It was an intentional choice. And Sequoia was almost honest about the FTX thing, which is like, yeah, we should have done more. We got caught. But like the pace was so furious. And so I think we have reverted back, but not all the way back. People are still shooting from the hip. I think investing over Zoom encourages shooting from the hip for a lot of VCs. They don't do the extra work. What I would say to folks is just, just be aware of it. Get your acts together. Don't, don't present fake— the number one bit of advice I could give is too many founders have always done this in SaaS, but it got really bad in like 2021, early '22. People would present pseudo numbers. They would present numbers like quarterly MRR where they would take 3 months and combine them. Or worse, what I— this is the fraud I have in my own portfolio and I'll put fraud in quotes. Founders including accelerating bookings into one number. Like I have a one-year deal. I have a, you know, $120K deal. It's $10K a month. Well, I'll just book it as $120K this month. That's fraud. That's fraud. Okay. Contracts that like are pilots that are unpaid pretending they're paid. Just get your act together and don't— there's no upside anymore to these games. Right? And you will probably get caught and then the deal won't happen, right? You can't walk yourself— it's really hard, even if there's a term sheet, it's really hard to walk back fraud. It's very— so just don't, don't, don't, don't, don't do it.

I think it also depends a lot on the stages. If you're a very early stage investor, there's not much you can do in terms of due diligence. So I think on that side, it's unlikely to change. You get some early stage investors, I mean, for an example, they share publicly Fabrice Grindat, he often do a deal just by 1-hour call or even shorter and he commit. And he admitted that I think his first 100 term sheets, he didn't read anything. He just sign. It was like, okay, maybe get 1 or 2 fraud, but it was kind of— and he was surprised he didn't get any. But Sequoia, for example, I think they're working with one audit firm to go through a lot of their portfolio companies for Sequoia India/Southeast Asia. So you're going to get more scrutiny from investors at the later stage for sure. And maybe don't call your company with a name starting with an F, right? Between Frank, FTX, and Fast. So. Thank you.

Well, look, here's what I've learned. The, the best founders don't do this stuff. The best founders, and this is why venture capital actually works despite all of its warts, okay? The best founders, some of them are nice, some of them are a little rough around the edges, okay? Some of them make you feel good when you're around, some of them make you feel like, it's a lot of intensity in the room. But they all have integrity, okay? You can't lead 100 people, 500 people, 1,000 people if you don't keep your word. You can't. There has to be levels of trust and integrity to do this. And when money got thrown at everything in 2021, people without integrity raised a lot of money. Okay. And that— and those folks do have their cousins on the payroll. And there will be more stories of folks that bought Ferraris and Lamborghinis and certainly Teslas. You'll hear hundreds of those come out from low-integrity people and But if you invest, if you take— and this is why for me investing over Zoom is hard, right? If you invest in high-integrity people, this stuff doesn't— it just doesn't happen because it's not worth the founder's time. They're so focused on going up that hill, recruiting the great team. You can't— there's no time for self-dealing. It won't get you there, right? It literally won't get you there. And that's why a lot of the times the best founders, you'll often hear a story. And it's not that I want this. As an investor, be like, oh, you know, I had to go 4 months without salary, or like, you know, my— I cut my salary so I could hire her or him. And it's not that you want that, but when you hear those high-integrity stories, like, you know it's going to go well. And if you see a hint of low integrity, a hint of low integrity, um, I haven't lost a lot of— like, I haven't lost a lot of venture money on low integrity, but unlike angel advisor stuff, I, I kind of experiment and did a wider, a wider— and I have had low-integrity situations there, and I never made a dollar. I've had— what I used to— when I was getting going, I was an advisor to a bunch of CEOs, and I just wanted to learn different spaces, okay? And 4 of them I made no money on at all on my advisor shares, okay? And what happened? There was something smelly that happened in the situation. 3 of them promised me X shares and gave me less. Okay. They said, I'll give you $100,000 shares to help us. And I got the paperwork at $70K. Okay. Does it make— I'm not doing it for the money, but when I saw that they all failed, all the CEOs that said they would give me $100K and gave me— 100% of them, many of them raised a lot of venture capital, but all the low-integrity people failed. So I think it solves it. And that's why this— but there's— and for founders, realize this now that things are harder. Remember that— and people forgot this in 2021— there is trust here. So build trust with because it is scary for VC. There's a lot of trust and you do have to have some fraud, but there is a shocking amount of trust involved in venture investing. Just don't take it for granted, right?

I think it was Warren Buffett, he was saying like, you need to look at 3 things in people, like intelligence, energy, and integrity. And if they don't have the last one, don't bother with the first 2. So, it's the same thing with founders.

OK, I think we have time for one more question, then we can go to the next. Anyone else got one more question? Do you see any changes— You know, I think the issue with M&A is— and I'll answer the question. We could wrap this. It's really interesting is that for the public companies, for the most part, can't help themselves but get M&A wrong. This is another place the internet's all wrong. Public companies are subject to the same feast and famine that the rest of us are. People are making fun of Salesforce for spending $27 billion for Slack. Well, Salesforce's stock was at an all-time high, and Slack is still doing $2 billion today. It's a pretty— it's like the best thing they bought. So like, you can't help yourself. Now, sales— yeah, why doesn't Salesforce go buy another Slack for $6 billion? Well, Salesforce's stock is down by half. Its growth is slowed to the teens. It's under activist pressure. So they've lost the ability. So M&A, like, you think M&A should pick up when things are calmer, but it doesn't happen that way, right? Now, to some extent, there's a little bit of, like, you know, the Thoma Bravos and the Vistas, they have some insulation from this, but even they don't, like Vista is struggling to close its latest fund, even though Vista's historical results are really strong, right? Thoma Bravo's incredible, but their last fund is, it's J-curve-esque, but it's still negative IRR. Immune to these issues. So M&A does not pick up when multiples go down, OK? That's the most important part. Even though the internet says, oh, everyone should go on a buying spree, the handful of companies whose valuations are higher than a year ago should go on a buying spree, and they may. But that's the Trade Desk. I can't think of any other public SaaS company, and if you consider that SaaS, that's higher, that they should go— if they have a $30 billion market cap, they should go spend $3 billion, right?

And if you— I think if you look also at Southeast Asia, it's getting very calm these days. No one wants to put that much money into something very risky. So you may have more very opportunistic and looks like more IKEA here for very cheap price. So you may get those kind of acquisitions in the next few months. But very large one is no one is with so much troubles to run the company these days. The publicly listed one want to take that much risk, especially anything above half a billion or a billion. Very few are going to take risk to go there.

Yeah. Mostly like the thing— I mean, so valuation multiples are lower for M&A, we can bring it up, but at the end of the day, it's like there are different types of buyers, but it's all rational. Like public companies can pay a higher multiple than what they trade at, but not that much unless it's a game changer. Unless it's a game changer, right? PE firms can pay higher multiples than public companies are trading at, but not more than 20% or 30%. The Vistas and Insights and Tomer, they can't pay much more than 20% or 30% premiums, 40%, because they can't see that they can make money, right? So it all just comes down proportionately, and it's not even that big a deal. The bigger issue is just a lot of it has just stopped, right? It's just stopped. Like M&A, it sounds silly, but M&A has to boom when times are good. And it has to be calm when times are tougher. It's just, it's counterintuitive to all the brilliant people on the internet looking at spreadsheets, but it's, we're human beings, right? We're subject to externalities. So, all right, more stuff to come all day. We've got so much great VC content coming, but let's break today. I think we've got like 3 other, I don't even know what's on this channel. We got a ton of sessions and all, you don't have to come to my kickoff. You've heard enough from me, but I'm going to dig in a little bit on this and I'll multiples a little more if folks weren't bored of that topic.

I will run a session here at 4 PM with GGV, Vertex, and Square Pig, and we're going to discuss about Series A.

So, oh yeah, that'll be all-star. So yeah, if you want to do more about venture and you do nothing else today, come to the— come to this 4 PM one that's probably right in this room. So thanks everybody, let's have a good day today. Appreciate it.