The Current State of Venture Capital and Cloud | SaaStr Software Community

All right, well, thanks everyone for, for joining that listen live and then the tons of folks that will listen later on podcast and on YouTube and all that. But just by way of background, about eight days ago, Nick Mena, who's CEO of Gainsight that Byron has invested in, is on the board of. We're emailing late at night. We're like, you know, we should just get together and just talk about what it was like as CEOs the last time things were challenging in 08 or 09. So we shot out an email. We had a thousand people come last week and people loved it.

They loved it.

And I thought, okay, who's the best VC I can get that I know and trust to talk about all sides of this? And obviously that was immediately Byron. And Byron, several things. First of all, for folks that are founders out there, he's one of the few investors in SaaS that I unqualifiedly, even if that's not quite a verb or Jaron recommend. So it's a short list, folks. It's probably filled on one and a half hands. And also beyond that, Byron's been a founder himself of software SaaS company and he has been. He's an OG SaaS investor before there are any unicorns. Forget about the hot ones like Twilio and Sendgrid and Procore and a longer list that he's done and, and Bessemer is done. But he did the OG stuff he did. Folks won't even remember these companies anymore on this. He did Cornerstone on Demand, which I think probably IPO'd eight or nine years ago.

Right.

It's still public still. He did Eloqua, which you'd have to be an OG SaaS person to remember that was acquired for a billion for Oracle. So these were like the first Accords. Right? They're probably. When you started investing in SaaS, there were no unicorns. There probably wasn't a public company outside of Salesforce that was worth a billion, right?

No, no. When you were starting Echo Sign, I was doing Trigo. There wasn't a single cloud company. In fact, in 2000, it took a couple of years before the first emerged and the first private unicorn was LinkedIn in like 08. So all new land.

So yeah, LinkedIn. So there's no one that sort of done all of it and then has empathy for what folks are going through than buyer. And so I wanted to leverage this because there's just. My sense is the world is getting worse, but things are calming down a little bit on the venture cycle. We went through this a lot of deals in transition. The deals that people freaked out. Things may be worse but they may be settling down a little bit versus last week. But I want to chat through all these things with Byron and take some of your questions just in a couple of frameworks. First of all, we got so much feedback on this. 1500 people to sign up. We're going to it won't be all about one great speaker, but we're going to do a bigger summit on April 22 about this theme, bridging the gap. So we'll remind everybody Byron wants to come back and do the do the Cloud presentation from annual live to more folks. We can do it but we're going to blow this up on April 22 as big as we can before we break the webex or that's just a joke, the zoom. So look for that invite but we're excited about this, that we'll push out in a little bit and then just a couple framing slides for this discussion and agenda. Then I'll dig in with Byron. But these were a couple tweets from the last day or two that folks might have seen at times like this. The opacity of venture capital is especially frustrating and perilous to startups. If VCs have stopped or slowed invested, they should be transparent about it. I think this is something that, you know, everyone with it, we're open for business and it's just really confusing. So we're going to talk a lot about this and I want to save some time to talk about the cloud because there's a lot of VCs that can talk about bridge rounds, But Byron is uniquely positioned. We want to talk about meta cloud issues because cloud is tied to our global economy but also experiencing weird effects that maybe aren't identical to the rest. And I want to look at that in context, but we want to get some transparency that most folks will do. And then here was a follow up. This one kind of hurts me a little bit as a founder. Waited until we hit our metrics to raise and I'll kick my raise off at Sapster Annual. Oh man, I feel you right folks maybe don't have the EQ to realize what they can't hear. And I think there's also a founder lag for processing some of these things like what's going on? Why do VCs think this way? So I really want to look behind this and then this is the third one, then I'll hit the agenda. I actually don't know Gil, but I assume he's an excellent investor, actually looking at him on his background. But any VC saying they're open for business is lying or stupid.

Well, that's direct.

You probably don't want either one on your cap table. I'm still considering new investments, but our stratospherically high bar is astronomically high. Now there's a lot to unpack that, I guess reacting to everyone in the world saying nothing's changed. Drop by Sand Hill and South park and we're still there. So I won't read the agenda, but I'll just hit it in case we forget something. We'll come back to it. What's going on in venture now? What happened in the past? This one I particularly. We actually need to add a sequence, but I want to leverage Byron to talk about cloud assumptions. There's no one I know that's more fluid. And thinking about how NASDAQ and revenues and all these things interact together with startups, I want to do a quick deep dive on how VC really works. Because founders don't know this stuff. What is a reserve? Aren't VCs built for downturns? Don't you have the 2 billion sitting in the bank already? These things when times are good, founders don't need to know how VC works. But I think it de stresses things if you know how the physics work. And then just some advice on folks that are raising now and then with whatever time we have left, we'll dig in. But Byron, how about this one as a framing one? March 16 was like, feels like months ago, but this was a Twitter poll. Are you deploying the same capital as in the past? 30% said it and then 70% said less. Kind of like deepak this for us. What's going on at Bessemer in the world in general? What's changed in terms of how many checks are going to be written this.

Year in check size? Absolutely. Well, thank you for having me back, Jason, and great to at least virtually be back with the Saster community. And I'll just say your intro is very kind, but probably most relevant to this, let me say that I've got a lot of empathy for where founders are at right now. As Jason alluded to, we were both in your shoes back in the early 2000s going through this as founders and CEOs, and I had a term sheet pulled on me. I had to do layoffs. I had to go through this from your side of the table, so to speak. And now on the investor side, I went through the 2008 cycle as a partner at Bessemer and a board member to many companies and now also leaning on the experience of my partner. So we'll try to bring that to bear. But maybe responding to the tweet on the open for business business as usual comment and this I think the idea that it's business as usual is crap. I don't think any venture firm is approaching it that way and I think anyone that's suggesting that is misleading at best. I do think a lot of firms are still very much open for business though. However, you have to understand that current portfolio gets priority. That'll be a benefit when you are in the portfolio of a venture firm. But the triage right now is non trivial and we'll talk more about reserves and those things. But companies need to first take a defensive posture on behalf of their companies and so a lot of the time energy and potentially dollars are being spent there. The implications are that fewer cycles and potentially fewer dollars are going towards net new deals. And there's also this idea that there is a lag and we'll talk about timing I'm sure a lot, but it will take a while for the private markets to adjust to what we've seen very rapidly happen in the public markets and I think that's going to impact deal pace as well.

And if you had like today, how many boards or board like investments, maybe if you're even an observer, do you have and how much of your week is taken up on existing portfolio and has that changed in the last two weeks?

Yeah, so for me personally it's about a dozen and that's a mix of late stage and early stage. And overwhelmingly the focus has gone to internal things. You know, I've had direct conversations, texts, emails, we've had quick board meetings. A lot of these discussions are scenario planning. Fortunately, a lot of these companies took advantage of the good times and have stable balance sheets and can weather this. But that doesn't mean that they don't need to take action. And so almost every company is going through some version of replanning, potentially hiring freezes, variable spend controls and setting up new dashboards to understand what are the metrics I need to be following so I can get those early warning indicators and headlights to know which of these many scenarios am I really on and how bad is it going to be.

Yeah, and just to provide some context to folks, you're an investor but you're also running a multi billion dollar financial entity. Right? Many billions of dollars. So that means a bunch of your time is Just running a multi billion dollar institution. Right. You have help, but it takes time. Then there's your existing portfolio and how much time typically would you have for new deals and has that ratio changed the last two just to give folks, do you have a third of your time been compressed to 10% or it's gotta been compressed, right?

Yes, actually I think you nailed it exactly. One of the benefits of new investors when they come into the market is you tend to have an open calendar and so they spend a lot of time on net new deals, maybe two thirds or more. I'm kind of the reverse. I probably spend a third of my time typically on net new deals. And a lot of that is just the fun learning and sitting in the audience at events like Saster and just absorbing and doing the mine expansion. A lot of it is meeting with new companies. That's the piece that needs to shrink in the short term right now obviously I've expanded hours in the day to address this. So a lot of evening and weekend work as well. But current portfolio and firm certainly take priority. We've done a lot to Jason's point on internal firm things as well. Certainly one of the benefits of a multi decade platform and a multi billion dollar fund is that we have 10 year fund cycles and so we don't have the business model volatility on our revenue side that our businesses do. But we certainly have a lot of volatility in terms of portfolio values, reserves, those sorts of things. We have calls with our limited partners and give them updates. We have internal all hands calls to reassure people about their jobs and about the path and talk about the portfolio. And so those are normal things of running a large business that we share with you. And as a result I think over the next couple of weeks expect that it's going to be much harder to get VC cycles and hours that will swing back over time probably well before the market does in terms of time allocation. But don't take it personally. Everyone's got that internal triage that they're doing right now as well.

So and just one tactical and one strategic question. If I sent someone at Bessemera you an email and it's a good one and I got ghosted just because you're busy. Should I just resend that in 30 days?

Absolutely. I think that the rules of engagement are different now and you know, again don't take offense by it at all and similarly don't feel bad about reaching back out or asking. I would say the easiest discussions to have now are where there's a pre existing relationship obviously at the extreme end where you're already in deal terms and we'll talk about probability closure and those things in a minute, I'm sure. But where you've had prior interactions, maybe where they didn't quite find a match on a seed round or series A and you're coming back to market, those may be doable virtually if there's enough history, context, et cetera. And those discussions are the ones that I'm tending to slot in in the gaps in the day right now is reconnecting with those groups. The net new conversations are hard and the bar is always high, but as one of the prior tweets said, it's astronomically high right now. That will adjust and that will come back to a little bit of normal deal management in the next few weeks, but I suspect that's probably a mid April target. Near mines give it three or four weeks for people to dig out first. I'll also say that for new funds, for first time funds or for angel investors, be a little more tolerant because they may be dealing with more chaos than the established platforms just because they may have LPs doing irrational things. Angel investors may have benefited from a 10 year run but gotten very overexposed and at the extreme end they may be needing liquidity and needing to reshuffle even their private positions. Just understand that reactions could be very different and seemingly irrational, but because of a lot of things going on that you can't see.

Yeah, let's talk a little bit about LPs and denominators in a little while because it's an interesting thing for founders to learn on this. Just one last thing and then we'll hit the next slide relating to your like, give everyone 30 more days to calm down. Like literally. If you're an EF or YC or 500 Startups and you're like going through an accelerator right now. Right. Is there any, I mean of course there isn't. Is there any shame in just following up in 30 days? Do you get a pass if it's a challenging time? I mean I can't pay any attention to any of this stuff. So what's your advice to folks in structured programs? Like, because that has pros and cons.

It does, and I think to the extent possible, hit pause if you don't have discussions underway. I think maybe think of it as bimodal and two extremes. If you've got discussions underway and enough momentum to complete it, hit it hard and try to like finish immediately and don't worry about optimizing price or valuation or terms bluntly, just get it done and think of that as speed over greed. If you're not in the process, I think it's going to be really hard to start an outside LED process in the next few weeks and almost pointless. And so give it a few weeks to play through. And what I believe you'll find is first time will unlock, you'll be able to get the meetings and then over time you'll find that dollars unlock more and that you'll be able to find more of a match on valuation terms. And it's really hard to close a net new financing with people you've never met in person. And so I would have the mentality that it's going to be open as a process until things return to somewhat in person meetings. But if there's some prior contact it.

May be possible and just one follow up on that and this isn't fair, but it is true. I believe you can challenge me on it. I think if you are in a top tier accelerator and you don't get funded quickly, there is a bit of a black scarlet mark. It's not huge, but it's not just yc. But if you're in a top program, there's an assumption that Bessemer has an army of analysts that all the big funds that, that Andreessen, Sequoia, they picked everything over and it's not fair. And people are always looking for the overlooked startup, right? Absolutely. But can you turn that frown upside down in this environment and say, look, I mean, this was a crazy time. Is there not a negative to not being the hot startup in an accelerator?

So I do think there's a positive that's even bigger than that, which is things have been going so hot and so fast for the last several years that perfection was sort of expected at every level. And I think that absolutely the companies coming out of these structured programs, you get a hall pass on a lot of things and people still understand the quality of the team and the potential. So I think that that investing interest will come back and be there. The other thing though, for those of you operating businesses that are already funded and are thinking through plans, is that you're going to get a hall pass on the next few quarters in terms of the numbers. Now that doesn't help you if you're in a fundraising cycle and you still want to post growth or at least the potential for high growth. But I do think that people are going to look past these quarters years from now and take it as a wash. And so for companies that are running hot and have a lot of tech debt, process debt, that just haven't been able to round out their team or processes, now is a phenomenal time to use those resources. Maybe the go to market resources aren't getting calls returned to redeploy there or tech resources to shuffle the prioritization of features a little bit. And I think that will end up being a gift, not one we wanted through this method, but I think it will actually help companies be built in a better foundational way for the long term at the back end of this.

Yeah. So. Or maybe maybe put a little differently. If you're fortunate enough to have 18 months of Runway say, right, and you're venture backed, take advantage of these next two quarters to work on your deferred maintenance to build out your management team. Right? To fix your product, to solve that damn feature gap, to actually do customer marketing instead of demand gen. Right? Take advantage because no one's going to care. I mean, look, if you're running out of money or growing 0%, but as long as you're in a rough zone, no one's going to care. You're going to get a pass for the next two quarters, right. And reflect on what you could do to build for the next 10 years. What did you give up in the drive to close this week?

Right?

To drive the biggest. Did you give up your free edition? Did you ignore your SMBs? Did you break your funnel? Did you put too much friction into your sales process? Like, can you step back and build your brand today and build your team? Because I think the leaders can build their brands today. It's not just zoom. The leaders can run away with their brands when everyone else is hiding. Right? Invest in your brand.

I think that's a great point and totally valid. I'm not going to be so bold to say that you should lean in on go to market in these times, as I'm sure a few companies will attempt to. But in those other areas, absolutely.

Okay, this one's for fun and I want but like I want to talk about the Bessemer cloud index in a minute because it's super interesting to see. But this one is this I chart eyesore chart from Jefferies. But it does highlight there have been a few downturns. I remember at SAS Granule 2016 there was the flash crash. I think SAS crashed like 50%.

Right.

It's hard to even tell on this chart. I mean, it's low but like it seems like A long time ago. But like the mood was so gloomy in February 2016, people thought it was over. A leading VC who I love was throwing unicorns at the founders, saying that unicorns were dead. It seemed pretty bad for like 13 days in 2016, didn't it?

Yeah, that was ServiceNow and LinkedIn missed their quarters. There was some fear that it was gonna roll through, fell 30% and we'd fully recovered by December. It was a, it was sort of a false crash on signals that people over read. This, by contrast, is the fastest 30% plus decline by the broad market in history. I mean this beats the Great Depression, the 08, the dot com, etc. So the magnitude and speed of this pullback across all sectors, not just tech, is unprecedented. The good news is that it is driven by this external shock that will have a finite end. It's not the unknown like the housing crisis was or the Great Depression where you had a whole economic complex equation unwind. In this case, a vaccine will ultimately solve this. The problem is that will probably take, experts are saying nine to 18 months to mass produce. And so you could have this huge economic lag that's dependent on that and then a rebound cycle that's unknown even after that. And so I think for a total market perspective, we have to be pretty conservative in our expectations. But from a multiple perspective, I think that the thing to call out here is even after this pullback, we're still looking at 8, 9, 10 x multiples in the public markets on revenue. Other industries are used to that as an EBITDA multiple, we're feeling a little sorry for ourselves and certainly for the human impact on this more broadly, but for the tech impact, what I would remind people as founders is, hey, raising money at 10x was how all the big ones did it years ago. Like that was the premium valuation years ago. And if it falls to that in the private markets, from these 20x and 30x pricings that were happening in early stage deals, you're going to be fine. You can get your business financed. The infrastructure platforms are out there to build on cheaper and faster and fantastic businesses will be created in this time at what in hindsight will look like very reasonable numbers.

Yeah. And so what? And beyond. It's funny, when Nick and I were chatting about what it was like all of last week, which seems like a month ago, and it is, it gets worse in many ways each day. Right? There's no question. But Nick and I were both saying last week, not this week, that actually 09 was worse. Because only as cos, not for the horrible 3 million unemployment claims. I mean I can't even, you know, breaks my heart to even talk about it, but as CEOs in 09, it wasn't sure the world would ever recover. Like our financial system was broken. Citibank called me and told me to take our startup's money out of the bank and put it in a mattress. Citibank, I don't know if they're the largest bank in the world. They're the largest US bank. Told me to take my money out. And for better or worse, we backstopped the Fed and the treasury had backstopped a billion and a half in addition to the bailout. So there was no certainty back then, was there? We had no freaking clue what would happen.

Yeah, and I certainly don't think we have the run on the banks in the same way. But I think a lot of the learnings actually are still applicable. I do think that shoring up the balance sheet, including debt facilities and potentially drawing them down makes sense right now. And I absolutely think disaster planning for a multi quarter meaningful recession is essential. That the health impact here will hopefully resolve itself soon. The economic impact will lag that. Absolutely. And fantastic companies have been created in the last recessions. I mean in the Bessemer portfolio alone we had Twilio, Shopify and Pinterest were all seed and series A investments coming out of that 08 crisis. And so we are very cognizant of the fact that great entrepreneurship happens across all cycles. The exits tend to be clustered, but the entry points aren't. However, the rate and pace of investment and of your scaling will be moderated during this recessionary period.

Yeah, and let's just dig into that because it's the advice you're giving folks. And it's sometimes it's confusing as a CEO when a VC gives you advice.

Because they have a portfolio.

Right. And they're similar, but they're not the same. But when you're saying like prepare for maybe an 18 month rough period, what does that mean? How do I. And maybe with like one or two scenarios for my revenue, what if my revenue hasn't shrunk that much? Right. Do I lay off half my company, Byron? Or like how do I think about 18? Because there's so many scenarios. ABCDEF, how the heck do I even think about 18 months beyond the next quarter?

Yes. So I'll try to come up with a few of the variables that will probably be leading indicators for how directly you're hit by this. And then there's a lot of nuances for a business, but obviously one of the overlays is geography. China early looked like one of the early was going to be hit the hardest. They've actually already started to stabilize and their economy will likely build out of this next few quarters. But New York and California are directly hit and probably much of the US now. And so for us focused businesses, which is probably many on the call, and Western Europe assume that you're in a direct hit Industry geography, the next is industry vertical. We talked a little bit about the success that you're seeing, that Zoom is seeing, and certainly a Slack or a Peloton or a Docusign or a Box will probably benefit from this. But we also read about trip actions doing meaningful layoffs or Airbnb needing to scramble for cash. There's a whole class of companies that are serving hospitality, transportation, the Gartner groups that we were talking earlier about that are all experiencing just complete dislocations, revenue that could trend to zero for a couple of months. So certainly if you're in one of those industry verticals, you need to be conscious of it. If you're SMB oriented, which would be the segment question, which would be the third bucket, the S of SMB is very clearly going to be hit the hardest. When you talk about those unemployment stats that Jason just mentioned, world leading economists are talking about numbers that will go well north of 10%. Some are even suggesting numbers into the 20% when you include a lot of the seasonal workers or workforce more broadly, and that will ripple through the economy. That will hit SMB businesses very hard. And then the next thing is functional verticals. And I would say that the more core your systems are, the more resilient they will probably be if your customers survive. So recruiting solutions are probably going to have a tough go of it for the next couple of quarters. Martech solutions are probably going to have a tough go of it. Whereas core financial systems will probably be more resilient if they're targeting mid market or enterprise customers that are going to stick around, I would run that filter through things and then I would try to create your own dashboard for what are your leading indicators. If you have transaction volumes of your customers going through your system, even though that's not a revenue metric for you necessarily, that could be your leading indicator for customer health, which will ultimately lead to churn, which will ultimately hit your business model. There's a lot of things in terms of usage, engagement can be proxies. Our portfolio companies are starting to see seats deprovisioned, which are probably an indicator that some layoffs have happened in their customer base or they're furloughing workers. And so those are leading indicators. And so just trying to understand and get ahead of it. And I'll tell you, this changes so fast. Right now we literally have companies that last week said we're seeing no impact that are down 30 or 40% already into this week. And so I would say be extremely conservative in your projections and assumptions until you see positive signs otherwise, but prepare for some economic hit because the world is going to take it directly here.

Yep. And let's actually let's flip around. Let's come to this and I want to talk about this. So related a few things on this. We talked a little bit about triage. We can talk a little more. Let's talk about a couple of these topics, these inside topics like bridge rounds and inside rounds. So I'm a SaaS CEO. I am Venture backed. I know most folks probably aren't statistically, but I am. And I've got, I'm hit. My business is impacted 50%. I'm not as in a tough position as maybe a StubHub or Eventbrite is. And I feel for that having produced some events. But can I get a bridge round today? How should I think about it? How are you thinking about amount of money to reserve for your companies versus 2 weeks ago? What are VCs thinking about bridge rounds?

Yeah, so most firms right now are going through the portfolio triage and just trying to bucket their companies by cash needs and availability and revisiting reserve assumptions and going through this internal analysis. And I would say for the vast majority of companies where you've created value, where there is still a go forward proposition that capital will be available, if it's not external, then it will be internal, assuming that your investors have strong LPs and have done reserves. The issue you have to realize is that though they are fiduciaries of other people's money and so every new dollar has to be it at what is seen as a market rate now, no one enjoys jamming their companies. And venture investors aren't private equity experts at structure or trying to make their money on terms or those things. And so I think what you'll generally find is people will try to be as accommodating as they can rationally be while still being fiduciaries for their LPs. And so what that means is potentially metering the money out over time. So trying to get you to a position where you can raise outside money. Perhaps it'll mean, you know, some, some M and a lick pref or some, you know, or a higher than usual. If normally that convert would have been done at 10% discount to the next round, maybe it's 20 or 30% now. There'll be some things in there where they just have to show that they're reflecting current times. But the reason to work with long stable standing firms is for these times as well, where they will get you through it. And what I think you'll find from best firms is they have plenty of reserves. They absolutely are going to support not only their best companies, but they're good companies and they're high potential companies. And the companies that maybe have been struggling for a while and were struggling to raise and maybe tight on cash. Those are going to be hard situations. I think you'll still find a lot of collaboration and certainly on the cost cutting, hopefully even in many cases the bridges. But realize that it's hard in those cases for the incremental dollars to unlock when potentially you've already been through a bridge or two and when the external market has given tough feedback. And I think those will be the hardest.

A couple questions out of that. I find first of all that founders, they do two things wrong on bridges even in the best of times. One thing they do is sometimes founders just assume the checkbook's always open and they literally don't like. One of the lessons from one of my investors I got when he invested and it didn't hurt my feelings, but I remember it vividly when he invested and he said don't ever expect another check from me. And there's a reason that that Vasey said it but it was very visceral. But I took that to heart and actually I wasn't one of those founders that ever expected another dollar. But I never heard that message right? So some founders don't get while the checkbook doesn't come and then.

And then a different and then.

And then I'll ask my direct question then. Another thing is founders don't know how to talk about bridge round so they actually don't know what the parameters are. They're worried they won't get a doll. I was bad at this as a CEO. I didn't know I had Jason Green from Emergence as my vc. I loved him, right. And when we were, when we crossed like 6 or 7 million, he kept saying if you need a little more money, let me know. But I didn't know how to like I didn't know how to frame that discussion. Right. I felt like I might get a terrible deal or like I might be, I might be and I'm not a great negotiator but I just didn't know how to handle how that would have been more opportunistic than a bridge. But you get my point, like so I guess the question is if I'm Byron, if you're my investor, can I send you an email today and say I just want to talk about a bridge. Is that, do you want to have that discussion? Can we have an honest discussion and should all founders do that with their investors now?

So certainly I would hope that you can always have those discussions with your investors and usually it's the text or the quick call saying hey, here's what I'm thinking and what the investors will say back is let's go through the scenarios first to understand just what the needs are. And for companies that have a large balance sheet, many of our companies are still doing top off rounds and the discussion is look, if you can get that outside top off done, we'll participate, but let's go out and get a pile of net new cash while the getting still good. Those were discussions that were in process and we've got several deals that are closing right now that are for those top offs. For companies that don't end, that can be large or small. For companies that don't have those underway, the next posture is look, if there's value in the business, assume a bridge is there. But let us look at what the internal options are first, meaning how much cash do we have, what are our debt options, what are the cost containment measures we can take, etc. So that we don't necessarily need to use that mulligan right away, but we still have that in reserve and we can do other things. For the companies that maybe were right about to kick off their financing at Saster Annual and had been growing like crazy and doing good things but hadn't but don't have a cash cushion as most early stage companies don't, then that's where the quick bridge discussion can make sense. I think we approved two or three in our Monday meeting this week and I'm sure we'll approve a couple more next week. This week.

Well that's the answer. You proved two to three already, right? And there's no shame in asking the question of your investor like ask.

Right, ask. Absolutely. And quite the opposite. I think that showing that you're on top of it, going in with the scenarios and having a clear point of view of this is what it takes. And those bridges are smaller than they normally would be because you're going through like hey how do we get through this time period so that then we can go out and do a raise second half of the year or those sorts of things. But those dialogues are absolutely happening. A related question, what I'd say is for those outside numbers and one of the questions that have come in is are the valuations bottoming out in eight or nine months or how does this play out? I think it's less that VCs are trying to time it. I don't think any of us would be in this business if we were market timers. We'd be hedge fund folks. But it's that just the natural inertia of private markets. It takes longer to adjust. Private markets can fall 30% in two weeks. Publics can. The private side hasn't adjusted to that. And I think that's what folks one is time they're doing triage internally. But then come mid April I think people will be new deal minded. It's just that market cycle will need to come through to figure out what is fair value again.

Yeah, I think it's an important. And make sure after this I want to talk about debt for a second because it's an interesting topic you brought up but I think what founders to understand is look, the market has. We have these weird little bounces but the market's fallen dramatically. Right. And it takes. VCs can't just take the round that was at 50 pre last week and turn it into 30 and maybe they even can with the deal in process. We'll just briefly talk about that. But like new deals it's hard for valuations to adjust. VCs can say hey you should be worth half because the markets are down 30 and startups are NASDAQ on steroids. So you should drive more. But it doesn't mean a deal is going to get done. Like it actually puts things in lim this time gap for private public just puts things in limbo because everyone has to adjust if they adjust at all. Right. It just takes, it takes maybe 10 times longer.

Yeah and that's the thing where we've got a number of our CEOs have asked for deals that are in process. You know, hey, you know, I don't know if this is going to close or not or what happens if they come back wanting to renegotiate. Is that unethical? And each situation is different. I would say if you're on the 11th hour about to close and it's an early stage company where there's not much revenue or something to go off of anyway, we certainly expect those deals are going to close. The late stage deals that have been in process for a long time, we're still seeing most of those close. But at the same time it devastated me when my term sheet was pulled and we had zero alternatives and had to scramble when I was an entrepreneur in 2000 and that was a total miserable disaster state and fortunately we got through it. But what I would say if an investor comes to you, and this isn't self serving because I don't think I have any of these situations in play right now, but if an investor comes to you saying, hey, you know that deal we've been talking about and one of the reasons why term sheets are non binding is because both sides do have options to back out if they come to you and say, I'd like to discuss the pricing and figure out what is more reasonable. Now I would encourage you to be open minded to that when our CEOs call and ask that we say, look, close the current deal on the table if you can. But if they want to reprice, have that discussion, it doesn't mean that you have to reflect the full pullback. It doesn't mean that you have to give it all necessarily. But finding some meet in the middle is probably the right way to start the relationship. Giving them a little bit of a win and making sure that you can get it closed, which is the most important thing right now.

Yeah, I think this concern which is all over Twitter are down rounds and broken rounds and drama. We're going to get past that in four weeks because there won't be any more deals in flight. Right? But the reality is, and I had multiple term sheets pulled for me for different reasons. One SEO backed out, one the VC at the last minute added a term. I had to step down. I'm a CEO, like maybe that was me, I don't know. But I had a. But I look, I had it hard. I had to like, I had to like sign a full recourse note for my house and all these other. But I didn't take it personally because the world changed, right? I think I would take it personally if things were signed. But if it's a term sheet, like in the next couple weeks, if things change, roll with it. It is a term sheet, right? It is an expression of an idea at a moment in time and if you take it too personally, as A founder, you're not doing your job right. It's an expression of a moment. And yeah, I mean, it really sucks. If you sign a term sheet, you have three weeks of cash.

Right?

That's the whole. That's. Then there's this weird ethical thing that does happen. They're not folks we tend to work with, but there are folks that try to take advantage of those, like, out of cash situations. But otherwise, it's a moment in time, isn't it? Yeah, it is.

And I'll tell you, I think most of the founders here, particularly the early stage ones, you probably are on the side of being very transparent, and so your employees may be going on this roller coaster with you as well. We worked entirely transparent in our fundraising process. And when that term sheet was pulled, we had a lot of chaos in our employee base. What we did, this was back when plane tickets were cheaper and the like was we did an off site to Vegas for 24 hours and took the group out and said, you know, look, we'll spend the 2,000 bucks or whatever it costs for a small team, but, like, we'll get through this, but let's just unplug for 24 hours as a team and just kind of be together and then come back and hit it again. But I think part of the beauty of small companies is the highs are super high and the lows are unfortunately, correspondingly low. But great businesses will be built and will roll through this. I will say that the cloud models, both because they play into the collaborative nature, but also the business models are fundamentally so much better than what licensed software experienced or what consumer models are experiencing right now. They are more resilient. And so, yes, it sucks that valuations have been hit hard, but the multiples are still pretty good in absolute case. And yes, it sucks that bookings will slow, but for those of you with a book of business, your churn may go up. But remember that the licensed software world, your bookings could have gone to zero. There could have been quarters where literally your revenue was near 0 in the 2000 period or the 08 period. And so we have evolved a lot. And this sector is one of the most resilient during this crazy time where no one's immune.

Yeah, and I want to dig into that before I time. But one last thing on debt, because I'd like to learn what you're seeing, because I don't see enough. We've been, you know, there used to just be venture debt and then we had a little bit of revenue financing the last couple years alternative non dilutive financings becomes. I mean who wouldn't want. Even you would want like even if you're a vc, you'd love the next rounds to be non dilutive, wouldn't you?

Hallelujah.

Absolutely. Wouldn't you like all the rounds after you invest to be non dilutive? I mean there's nothing more attractive than non dilutive financing at 0% interest and no warrant coverage. But can that even function in an environment with the volatility we're having? What's going to happen with both venture debt and alternative things? And I love all these products, right? I'm a fan of all of it having used it. I like to raise it and not use it. That's the one thing I learned from John Doerr, raise it and don't use it for debt. But where are we? Is this over? Are the glory days of alternative to venture on pause?

So very timely and extremely active point of discussion in our CFO forums and CEO discussions. In fact, yesterday we had an internal call with all of our CFOs and the CEOs of the three top debt providers, including Silicon Valley bank on these exact topics. And I think the conventional wisdom there, which we would tell our CEOs which the debt providers may or may not like, is that the financial system is strong. This isn't the 08 dislocation that was really generated from the banks out. But take nothing for granted and in the old possession is 9, 10 of the law notion. If you anticipate needing to spend that venture debt in the next 18 months, we would strongly encourage you to draw it down now, have it in your account.

If you have it and you haven't seen any, there's no issues right now in order to be able to call it you think you you're still able to call it.

So yes, right now that's true. And it's intended to be insurance. So to be able to truly use that insurance, it really helps to be in your account. And so paying a little bit of a carrying cost on that interest rates are really low but paying the carrying cost to make sure you have access we think is worth it. In 08 we did see several venture debt providers, not the tier one folks, but the level below them block lines or recall lines. In one very painful case in our portfolio, it killed the company, a company that should not have died because of the complexity and it had a broad investor base and it created this storm where we couldn't single handedly fill the gap and save them. Given all the dynamics going on and the venture debt provider took the company down as part of this. For those of you that can do equity financings, absolutely do equity first because job one of a CEO or CFO is never run out of money and equity at least even if you have to price it at terms you don't love, at least it's permanent. The next best is balloon capital. These flex products, Jason, that you're alluding to. If you can get equity like characteristics, so maybe you're not having to service the debt for two years or three years and you can not only get through this, the short term to medium term impact of this, but also get back in business building mode, then that will at least have equity like characteristics where if it doesn't work over that time period then maybe your business was going to be challenged anyway, but at least you live to fight through this.

And things and things that I love as a founder, they see out there just to finish the lighter capitals. Tamia Capitals, clearbanks, all these interesting things without picking any vendor in particular, are they still going to be open for business the next six to eight months or are they going to be slowing way down too?

So I think it's safe to assume that the new entrants or the fringe entrants in most cases are going to be the ones most impacted. That applies to venture firms, debt firms, corporate venture firms, etc. There's even potentially the crossover hedge fund investors and the like. There's a whole group of folks that came into this asset class or these combination of asset classes because of the 11 years of great returns and they're not experts and or they don't have long term commitment or capital base to go after it. And so I would be most worried about those folks and the people that are the long standing stable partners, the Silicon Valley banks, the Comericas, etc. Of the world are in here through the cycles and I think those are worth the premium you're going to pay. Give them a little extra kicker in fees, warrants or interest and make sure you've got the best.

So just because I think it is helpful to dig into that because in the last four years there's been like over a thousand seed funds raised. Your advice that you just gave, which is good, but standard advice, is the tourists go down first. Like worry about the tourists, worry about the folks that the hedge funds that just raised a new venture fund worry about the folks that just started issuing startup debt last week. It makes sense, right? To tourists. They don't have the base to average it over. They don't have the models, they don't have experience. But just and I don't know the answer to this but just as a thought or a challenge, if I am a new fund and I just raised $100 million fund and my LPs are decent, might I be more open in some ways today? Because I'm not worried about maintaining my existing portfolio. I'm not worried about my nav and markups. I have 100 million. They're not all high net worth individuals. I have LPs. Might there be pockets in those literally 1,000 new venture funds since might there be pockets there that maybe are some of the best partners in the coming.

Yeah, so I think there's absolutely a case there. So there's maybe two classes of the best. There's one just the cycle of folks that are on, you know, whatever fund 5 or 10 or 15 and they've got a long history making fun of making money for their LPs. They're going to be in business for decades to come and that should be very much sort of as stable as you get. The next class is folks that are maybe raising fund too or three that have bandwidth, that have committed capital and are in a position where they've got stability and they've got bandwidth to engage. And I think absolutely those could be good partners. I think for the other classes what you want to look at is them to maybe complement around but don't bet at all necessarily on that group. Or if you do have those direct conversations, ask exactly where they are in a fund cycle. Ask exactly how they're thinking through reserves, ask about their LP base because those are your indirect investors and those are completely reasonable questions to ask right now. And I think pretty important to understand if your next round is going to be there, if a bridge is possible and how they think about supporting you if this market is still choppy for your next race.

Yeah, I want to make sure we have at least two topics before you run out of time. I want to talk about fund stability and cloud. We hit a lot on cloud but I want to use the BVP slides to talk about it. But I want to make sure we finish the bottom of the SL because we've touched on it. But be direct. What if I need to raise now and what if I want to raise like you know what March is. Okay, Byron, like you know what, I'm a work from home product but I don't need to. I know you sort of hit this, but what if I have 100 days of cash and what if I feel good about my business? Like what's your simple advice on those two scenarios?

Yeah, hit it hard if you need to raise now and and also try to do anything you can for cost containment and also see what top off tuck in bridge or debt options exist. I would say pursue every option possible because the name of the game right now is creating multiple viable options to then pick among them. But survival is essential. If you want to raise but don't need to, I would say absolutely don't be shy about it and get out there. But I think in the very short term optimization two weeks from now or three weeks from now, it may be cleaner to run a mini process than trying to hit it right now. And then the message in terms of how you're thinking through it, if you raised around last year have grown a lot but are open to extending that round for a great partner, I think there's a lot of receptivity to that. It's clean, it's easy. You're sort of diffusing the valuation question up front and we have a lot of those discussions actually that are in process now or that are starting up that we're open minded to. If it's a net new process with net new people at TBD terms, absolutely. Dive in if you want to just expect that it will be slower and that you both may want to meet in person to make this thing happen, which could naturally put some delays on it that ordinarily wouldn't be part of a process. And so this could drag until summer timeframe just because of the unique elements of this environment independent of how great your business is.

And just briefly, can we just talk about like outliers and late stage? If I'm the next Hashicorp or I'm Zoom when Sequoia invested in others, can I still go guns a blazing into venture even now?

Absolutely. The best companies will get funded in all market cycles without even a drop in valuation.

If I'm on fire, I'm slacker Zoom. Can I just go guns a blazing for late stage today and raise at a billion pre or is that kind of icy at the moment?

So I think it's unrealistic to expect that there won't be a valuation adjustment. Now your specific examples of Slack or Zoom, I think that mentally people are adjusting the multiples but their revenue is actually going up as a result of this and so the net effect may be a smaller pullback than others. I think for and Hashi, you mentioned them they raised sort of at the perfect timing right before this hit. So they certainly didn't see a valuation hit because it's a fantastic business and their timing was also perfect. But I think for the equivalents that are raising now, there will be piles of money for great businesses, but expect that there will be some economic adjustment reality to reflect the market. The public markets are trading at 8 to 10 times right now, 8 times forward, 10 times trailing as a mean and so on. The private sector you'll get a premium to that, but it's unrealistic to expect that multiples of last month will still apply across the board.

And related to that, there's both multiples and valuation if you're still fundable. But there's also time. There was some advice on Twitter that I didn't put in here, but a bunch of folks were alluding to the fact that sometimes even especially if you're not on 12 boards and you work from home, you actually have more time for discovery like a vp, an associate, or even a new partner. But the deals may take much longer and you may even get more meetings than you might. That lead nowhere. Any thoughts on time management in fundraising now? Is it possible accidentally people might waste more of your time?

It absolutely is and I would say that it's a false leading indicator that your sales teams may be experiencing now as well. Some of our companies have reported a surge of demos because some of their customers are sitting at home with more open calendars and so they're tire kicking to learn. I think well intentioned, but the odds of those deals converting to purchases may be much lower. So you may have this spike in activity and the conversion rate may be much lower than you would have normally expected. The same could be true in venture for late April and May, which is a combination of some firms that aren't really in business but are saying they are and they're trying to keep the motions going even though they don't have reserves or they were just about to close a fund that now isn't closing. And I think for the stronger firms, what you'll find is that absolutely people will engage again and be looking at new deals and active and in many cases they may be reworking their strategies or what we call roadmaps at Bessemer for a work from home environment or these sorts of things. So I think it's reasonable to expect that as the time opens up, the checkbooks may lag a little bit.

Yep. My only advice for thinking on it, for what it's worth, is the Sales one's a great analogy. Right. There's a lot of discovery calls going now if you have the resources. There's nothing wrong with building your pipeline today. There's nothing wrong with sticking the top of the pipeline, getting conversations going with buyers that might close at the end of the year.

It's great to have those discussions.

They weren't in your pipeline. Right. Some VCs will waste your time. But even if the odds of any VC going to plummeted 75%, few of them are wasting their time too.

Right.

So take the call if you have time. Just be much more guarded on what that call means. That call does not mean just because I got a call with someone on the Bessemer team, that does not mean I'm getting a term sheet on Monday. Right. Even less so today than a couple weeks ago.

And that's actually a great point though is we are trying to be ruthlessly efficient with our own time nonetheless prospective entrepreneurs. So we are taking no courtesy meetings right now or over the next several weeks. Any meeting we take we legitimately think is interesting and could be an investment full stop. And I think that's true for most folks. It's just that the filters and individual firm situations may then impact how they process the deal in different ways than would have been the case earlier in the year. Yep.

All right, just two things, because we're going to run out of time. But this ugly slide I made for this presentation, I was looking for a better image on the Internet, but I couldn't quickly find it. But I just think no one gets this. And I think it's good to understand in the coming months. Here's a hypothetical. Your last fund's bigger than 100 million, right? How big was it?

I can't remember. A couple billion, but close.

But the math, even with a few exceptions for the top funds, the top ones aside, this math is basically the same. Here's a hundred million dollar fund and a bunch of it's going to go to costs, right. And that's going to be over a decade. But that just isn't aside that people don't get. Then there's a ratio of new investments to reserves. And reserves can mean a lot of things. But at the end of the day, it's money. It's money for second, third, fourth or eighth checks. Right. And the bigger the fund, roughly, you're almost always going to be past one to one, aren't you? Sometimes even more than this number.

I think for early stage funds this is very representative. I think this Is totally fair.

This red, I'm colorblind. This red might be even larger.

Right?

The ratio might be even larger. Right. When we did the holiday event, you said of your 150 million allocation, in that one vessel of fund, you put half in Twilio.

Right.

And obviously that wasn't the first check.

We started with $125,000 seed check and over many rounds built out.

Just explain two things on us. First of all, how much goes to reserves and is that changing today? And what does this mean for venture? And let's briefly touch on. When do you get that 2 billion? That 2 billion is not in the bank. Let's have more fun the other way. The 2 billion that you just raised, it's not all in the bank today, is it?

No, absolutely not. Because time value, money matters. So you do capital calls in line with funding, typically, you know, by quarter. For us, some firms, it's deal by deal.

Yes. So and then let's just. So first of all, yes, venture firms are built for bad ish times, right? But they're not. Not all firms are built for terrible times. All the money isn't in the bank. If all the money is in the bank, all the tourists and all the other ones with funky LPs would still be okay outside of a lawsuit because the money would be in the bank.

Right.

But a new fund might only have a few percent of the money in the bank. Right? It's entirely possible.

Right.

And so just briefly on that. And then. So we're early in this down cycle, as crazy as it is, right, with this global pandemic. But VCs have their own investors called LPs that we kind of quickly delved into nomenclature. But Some of those LPs will come under two types of stress, right? Some, if it goes long enough, may not even be able to fund the VCs, right. And others may just not want to. They may have too many VCs, they may have too many commitments to VCs, and they may even be reluctant. Maybe the two categories are the same. But your point is, there may be a lot of new funds that literally can't get their money from their own investment. Right?

Yeah, it'll be an interesting thing. So the terms usually are, if an LP misses a capital call, they forfeit their prior capital calls. So in other words, it's a very painful provision if you're midway through a fund to back out, one, reputationally and two, financially. Because in theory, if they make good investments, you're writing off your ownership position. All those investments for the right to walk away. And so for firms that have multiple fund cycles and things like it's a very damaging thing for an LP to do and almost never happens and you know, you almost never see it for a brand new fund or for more fly by night LPs and things, crazy things happen and if they are completely impaired, they had maybe they committed to deals that they hadn't yet funded. Maybe they had, you know, were committing to funds that they hadn't yet, you know, fully allocated then absolutely funds and LP limited partner funds and fund of funds do blow up. And we saw that in the last two cycles with some painful examples and some companies were really hit because of it. And there are times where you may have wounded investors who come to you saying I need liquidity fast and where you're trying to raise and yet you've caught a big investor who's selling and that will happen. And so just be eyes open to it. And it's because of this math that Jason shows here where the reserve allocations for a lot of early funds, their models may be very different because in the go go times they were all optional up rounds whereas now these may become mandatory support rounds.

And when just briefly and then I want to get this one last slide. But when in this cycle there's a related issue is more LPs pressuring VCs to slow down their, their pace of deployment. Is that starting or if not, when are we going to see it? Because founders need to be aware they may be able to get their money from the LPs but the LPs may say I've been asked for too much money. Slow it down spend like slow it down 30% even slow it down half. We saw that in the last down big downturn everywhere.

Right.

Is that happening? Will it happen and what should founders take away from that?

Yes. So that happens much more and absolutely will be kind of the brake pedal that you don't see will be a few influential LPs may call a small fund and say look, we really would love it if you'd hit the brakes hard for a couple of quarters so we can service our calls elsewhere. I would say though that different tiers and quality tiers of LPs are sort of like our venture fund comments before behave very differently for us in 0708 we once things stabilized and we've done the triage, we did the exact opposite. We actually raised an opportunity top off fund to be more aggressive and we had LPs that said, you know, Now's a buying opportunity and supported our commitment to do that. And I think that will be the case in this environment for the strongest funds with the best LPs where they will absolutely have done their own reserve modeling. Well, they will fully support being more aggressive in the back half of this year and going in early next year. And I think those partnerships will be strong with those companies and firms that are able to do that.

So just last question here and then I do want to make sure with whatever time we have we at least hit a couple of these slides on and promote the BVP index and others. But if I'm talking, if I'm lucky enough to have a good VC conversation over the coming months, is it okay to just ask nicely any change that it's hard to get the money for the round? Is it okay is that I know Bessemer doesn't have any issues, but is it okay to ask? And should you ask with a nice smile, not be a jerk? Should you ask if there's any issues or are we not there yet?

I think everything's on the table. I think the more insightful questions though up front are fund size, fund timing, reserve models and types of LPs. I think those will give you the health status kind of sense up front. Every VC is going to say of course the money's there. So I'm not sure you're going to get a candid answer. But I think the data on those earlier questions will actually give you the probabilistic model to figure it out yourself. And if they just closed a fund but haven't done a capital call on it and are first time fund, there's some risk there. If they're at the end of a fund and they were about to go out fundraising, then it really matters what the reserve models are because if they're off on that math, there may not be money available. And so I think those are the things to really push on. Got it.

I think it's good advice for what it's worth is probably the only thing. You have much more experience than me I might challenge you on. I say just ask if it's a new fund or you don't. It's a lot of complexity to figure out fund size stage reserves. I think it's just like it's okay to ask to talk about a bridge round which are uncomfortable. If you like an investor, it's okay to ask. I'm just checking. My friend told me I was on this Saster webinar with Byron and Jason like, just in case he was there, what are the odds if we get to a term sheet, what are the odds it can close? It's a different way to ask, if we get to a term sheet, what are the odds it can close? And it, it's a softball. But I think you should ask just in case we just don't know what's going to come in the coming months.

Right? Absolutely. Fair.

Yeah. So, last one, there's a lot of stuff I'd love to dip into this kind of, we kind of hit this before, but like, I just, I grabbed the BBP NASDAQ index. Here's our time. Like, things still seem pretty good and they're terrible at the same time. How do I process this? And this next one, like, here's CNBC today. Like, I know we hit this, but I just want to wrap on this. We can take questions if you have time. But like, Slack popped 15% last night and jobless at 3 million. Like, how do I process this? How do I just not to put back, how do I process the fact that you and I have been doing cloud for a while? I mean, these are still the best of times. They're just not the very best of times. Right? They're still in the top 90% of all times of business software. Even today. At least today. At least today we're still in the top decile of all times in cloud, aren't we? So as a cloud student, as a cloud investor, cloud CEO, in this. And then this crazy juxtaposition, like, what are you thinking? Where are you thinking in the next 12 months? Is this chart here, the BB Cloud Index, is it still going to keep going to the right? It's just that there should be more beta, shouldn't there be? I mean, isn't that part of life? Shouldn't there be beta?

Absolutely, and there will be. So this. Yes. We've been tracking the Bessemer Cloud Index going back to 2011. For those thrill seekers, McLoud is a live ticker. We partnered with Nasdaq for this eMcLd,. You can track it on your phone and see the basket of the pureplay public cloud companies here. WisdomTree even turn it into an ETF under WCloud if you want to buy it in a basket. But what you see is basically an amplification of the S and P where typically hyper growth is rewarded on the upside and then disproportionately hit on the downside. The interesting thing is that relative to the market overall, though, actually the cloud index in this cycle has outperformed the other indices and the reason being that one, you have the tailwind to some of these stocks, including the Zoom and Slack and the like who are actually benefiting from the work from home movement. But I think more broadly people are realizing that the enterprise class of these companies will probably be hit less than the general economy and that some of these businesses will accelerate this re platforming trend. That will be the long lasting gift of cloud where we move to these distributed technology models. And so I want to leave you with the thought that I do believe the economic impact from this is going to be unfortunately more significant than people are digesting yet. And this could take several quarters and well into next year for the overall economy to get started again. And we have to have empathy for our customers, for their employees, for our extended employees, etc. Because that's going to be real. With that said, I do think that the cloud business models are about as well positioned as you can be to weather this. And I think that the valuation impact that you're going to feel is very modest relative to the rest of the economy. And certainly with the historical context that Jason added, it's still a fantastic time to be a cloud founder and entrepreneur. Capital will be available, employees will be available, and the customers will come back to you soon.

That's awesome. All right, thank you. Byron. Is there anything. I know we're probably over anything you wanted to hit that we didn't hit?

Well, I appreciate all the questions online. We've got dozens here. I think we've tried to touch on them and I apologize for many that we didn't get to live but love the engagement and I don't know if you want to attempt to moderate through this to fire a few rapid fire, but otherwise.

Hold on, let me see if we. I'm still learning the Zoom. Let me see if I can actually get a few.

If you want to take a few. Hold on. People are. People have the question product going and the chat. I'm very impressed. I'll admit I'm.

Hold on. You might have. I'll moderate if you have a minute. I have time but I have to figure out how to get out of the Zoom. So you might have to take the first one.

Absolutely. And so while we're going through this, why don't we hit on. There's a question here. What's the best way for a bootstrapped and profitable 1,000,000 ARR SaaS product to exit or be acquired right now? And you know, I would say that this, that market is definitely going to have a short term pause, but I think the MA market is going to be extremely active later this year and open much more aggressively than the IPO market will. What you've got is a lot of strong companies with big balance sheets that have been telling people for a while they're waiting for this moment and they've been stockpiling cash, much like you saw in 2016 when Microsoft bought LinkedIn for 6.2 billion. Right after that pullback and the like, I believe you will see companies that have been waiting to be aggressive to jump in now and that should absolutely work for the smaller transactions as well. Start building real partnerships and relationships with those buyers. But that should roll through to MA activity coming out of the summer.

Yeah, let's just take a couple hours and you tell me when you've got to run. Maybe we could do just till 1:30 or something, grab a couple. But this is just. This one is a good one. Even though we talked about. It's a good reminder. To be clear, Byron said wait a few weeks before going out for a seed, whereas Jason said in three to four weeks anything in flight will be dead. I meant to say something slightly different, but anyhow, we're going for a $1 million seat on Monday. Do we go forward or wait? We have six to nine months of Runway. I think if anyone wants to take the zoom, take it. But if you have six to nine months, I wouldn't push. Right.

Just to reiterate the issue and this I may have been trying to get too specific with coaching. And so in the big picture, trying to optimize for a couple of weeks certainly generally doesn't make sense in this point in time. For instance, I think this last week has been a very tough time to get people to engage on new meetings. And so maybe roll it a week or two was my point in terms of the outreach because I suspect your response rate will be much higher. But don't overthink it. If you need to raise, then get the process started. And so whether it's this coming Monday or on a Monday or two, trying to get the conversation started and expect that people may still want to meet you in person when they think, you know, shelter in place, orders are pulled up. But that should, there should still be time to do that. And so for strong businesses you can still get your rounds done with a little more chaos and probably a little, a little longer process.

Yeah, just one, not to put you on the spot for your own portfolio companies. So feel free to abstract away to the venture world in general. But I'll give you my thoughts. But you'd have much more data when the market's offering lower valuations in a bridge. Do you bridge at a lower valuation? And just a couple related questions thinking about let's say I did my last round at 8 pre on safes. I mean how much lower can it go or four pre or two pre right. And then let's say my business is okay today and I did the last round at 80 pre and I was at 4 million ARR and I'm at 12 today. Like is flat a default if you're doing okay? Like is it just simplest to default to flat if you've made progress or if there's not much lower? Or is that not. Or is that off the table in these crazy times?

Yeah, I mean the adage in the last pullback probably applies here which is flat as the new up that if you've raised recently and you can do a top off or do another round close to your last round, then that's probably a win in the short term. If you made a ton of progress then of course up rounds will still be readily available. But just accept that those multiples were pretty fantastic before and in an objective sense they still may be really good even if there's a flat round to be had there. I think on the convertible notes and things it's just, it's tough because remember that is debt, it will make your next round harder. And so if you end up having a fairly low valuation and a large bridge, then you set yourself up for what could be a rough next financing. And so my, my preference if I'm in your shoes would be to do priced capital or at least keep the ratio of bridge capital to total valuation low so that it doesn't create much of an overhang for the next round. But of course if that's the way you're going to get around done now and you need the capital, take whatever you can get, build a great business and everyone will do just fine in the end.

Yeah, I mean and the other thing just related like I think people get there, we all get our danders up from time to time, right? Especially with bridge rounds maybe being slower. The absolute dilution from a bridge round may be trivial at a valuation delta. Anyway, if you raised your last round at 30 and you made a lot of progress and you think you're worth more, but the small bridge of a millions at 30, is it going to make any difference? It's just not the dilution on A small bridge is so. I mean, in perfect times, we can obsess about every share, but right now, it's just not going to make a difference, is it?

Yeah, I totally agree that the total, if the business works, the value creation is spectacular, and you're going to have more money than you can spend in the big arc, and you're going to end up focusing, as Most of our CEOs do, on how do I give it away and what are my philanthropic goals. And so get the business funded, get off to the races and go. I mean, my first round in 2000, you know, I took 50% dilution to get it done. You know, that was just. That was the nature of the environment.

I took more, actually, in 2002, I think I took like 104% dilution.

I have to go back.

I didn't think it was possible. I think I took more than that. I have to go back.

Jason, there's a lot of people here saying, how do we get a recording? This is great. With most of us in quarantines, how do we do. Can you do more webinars? There's a lot of those questions, so I assume there'll be a. I want.

To take one last question with you, and then I'll answer the technical question. Let's go. Because this one is actually more complicated than it sounds. Right? Is 18 months Runway sufficient, like, a couple weeks ago? That's an easy question to answer, Byron. I'm growing 8% a month. My burn rate's 400,000, and I have 7.6 million in the bank. But telling startups they need 24 months or more also can be ridiculous too, in some ways. Right? Because the math, like, what's the. Is there a magic. Is there a magic shoot from the hip answer? How do I think about this?

18 months today, there's a curve by stage. So for later stage companies, that is insufficient. And you should be thinking 24 months plus for early stage companies, late stage.

That'S really infinity, isn't it?

Well, it depends. We certainly have companies that are still burning a lot. So you want to get to a point where you control your own destiny, which means you could cut variable spend, ideally maybe some headcount, and get to break even, at which case you have control to have infinite Runway. And that's the goal every CEO should strive for. Earlier stage, it's hard. Obviously, you're not going to raise three years of cash. And so 18 months often is sufficient to play it out. We're using 24 months for our early stage companies, if you can get there, great. But 18 months right now feels okay to play through at least the short to medium term part of this. And realistically what that probably means is you're raising in Q4 or Q1 so that you never really are drawing down that back. Nine months of capital and you always have some cushion ahead of you.

Yep. I mean, we will run out of time, but 18 months really is 12. Right. That's the stressful thing about it.

Yes.

You can't raise money on month 17 even in good times and in bad times. You need to plan more time. Right.

So. Well, and you better. You need to update all your assumptions and scenarios now, which is assume that bookings falls off a cliff and churn spikes and you still have 18 months.

And that's, that's, that's my point. I think it's, I mean you can do it in a Google sheet, but it's hard. It's complicated too, isn't it? I mean, it's, it's hard. There's no easy answer. Okay, well, thank Byron. This was amazing. Everyone, I believe will get emailed this. We'll put it up on YouTube. YouTube saster. And then we'll edit it down to a 30 minute version with better audio and push it out to 100,000 people on the podcast sooner. Since it's possible the world may change before the podcast goes out. So we'll accelerate it. We'll do more of these, a little bit more of these, but this and with Nick are great. We'll probably do one more and then we'll concentrate our efforts on a big one. Each individual speaker may get less, but we'll concentrate on a big one on April 22nd. We'll try to get like 20 people together in a virtual Saster summit on April 22nd. So thanks everyone and thanks everyone for, for staying so long. Thank you, Byron.

It's great. Sure. It's always a pleasure. And keep pushing this cloud mojo out there, folks. Excited to see what you build.