VC Model:

  • The classic seed model is not dead, but there are a small class of companies that price themselves in a way that many investors find unpalatable.
  • There has been a period of apathetic capital where prices have come down, but it can still be hard to raise Series A if the company is already priced high.
  • Overpricing at the seed stage can be detrimental because it makes it harder to raise subsequent rounds and can make the company uninteresting to investors.
  • It's important for early-stage investors to have a firm grasp of the present and focus on finding companies with non-consensus ideas.

Product-Market Fit:

  • True product-market fit is when a company offers something unique that people are desperate for.
  • Companies should focus on finding customers who value their advantage rather than chasing revenue or popular trends.
  • Many companies fail because they overfund before achieving true product-market fit, leading to lack of focus and poor decision-making.

Market Size and Dominance:

  • Market dominance is not always necessary for success. Some markets may be big enough for multiple venture-sized outcomes.
  • Investing in large markets does not guarantee success. It's important to assess whether the business model is good and if there is real product-market fit.

Price and Risk:

  • Paying too high a price increases risk and diminishes returns, especially at the seed stage where outliers usually start out at lower prices.
  • High-priced deals often lead to accelerated spending without achieving real product-market fit, resulting in declining performance.
  • Capitalization plays a significant role in the success or failure of venture-backed companies. Overcapitalization can distract from finding product-market fit and create risks for future funding rounds.

Founder Perspective:

  • Founders often prioritize working with investors they want to collaborate with rather than optimizing for ownership or valuation.
  • Signals such as brand reputation or high valuations may attract talent initially, but more experienced individuals tend to prioritize alignment and de-risking.
  • It's important for founders to consider the financials of their company alongside valuations to ensure a realistic assessment of risk.

Future of Unicorns:

  • Many unicorns with high valuations but low revenue may face three possible outcomes: building real companies, finding a lower-priced exit, or struggling to survive due to overvaluation.

Unicorns with high valuations and low revenue:

  • Founders may continue to believe they can fake it until they make it, but funding may become more difficult for them.
  • Recapping a company with a billion-dollar valuation when it should be lower is possible, but finding investors willing to do so may be challenging.
  • Some founders of unicorns may choose to quit or step back due to the weight of expectations and the difficulty in recruiting teams.
  • Giving back money raised at a high valuation can help maintain integrity and relieve the burden on founders. It should come from the founder's decision rather than being asked by investors.
  • Relationships between founders and investors are important in navigating these situations and finding solutions together.

The role of investors in asking for money back:

  • Asking for money back as an investor is not appropriate because it assumes ownership over the company's funds instead of considering all stakeholders involved.
  • The focus should be on problem-solving and exploring various options that benefit all parties involved.
  • If there are concerns about potential damage to the company if certain actions aren't taken, open communication between founders and investors is crucial.

The disconnect between TVPI and DPI in venture capital returns:

  • Eric Paley believes there will be one of the biggest disconnects between Total Value to Paid-In (TVPI) ratio and Distributed to Paid-In (DPI) ratio in prior vintage venture capital returns.

Venture hiring spree next year:

  • Jason Lemkin predicts that there will be a significant hiring spree in tech next year, driven by reflation happening across different sectors, including cloud spending growth.

Effect of public multiples on venture capital model:

  • Jason expresses concern about mediocre multiples for good companies outside of outliers like Snowflake and Datadog. He worries this could have cascading effects on venture capital, making it less attractive for smaller rounds if even good companies trade at lower multiples.

Jason's perspective on holding investments:

  • Jason has never sold a share of his investments and prefers to double down on companies he believes in. He sees the potential for higher returns if founders are good and companies are at scale, even if there is short-term loss.

Eric Paley's perspective on holding investments:

  • Eric mentions that illiquidity has been helpful in some cases, as it allowed companies to keep building value over time.
  • He shares examples where selling too early or taking secondary liquidity may have resulted in missed opportunities for greater returns.

Different approaches to investing and perspectives on macro views:

  • Mike Maples and Eric Paley emphasize the importance of focusing on spotting unique companies and building intrinsic value rather than having a macro view.
  • They believe that market movements will happen regardless, but identifying exceptional companies can lead to long-term success.

The role of product-market fit in investment decisions:

  • Mike Maples regrets selling some of his Twitter stock when the company had product-market fit but faced challenges with CEO selection and technical issues. This experience taught him the significance of strong product-market fit.

Opinions on IPOs and valuation obsession:

  • Eric Paley questions the obsession with going public, highlighting that it does not necessarily bring immediate benefits to founders or management teams.
  • Jason Lemkin expresses skepticism about the importance of first-day prices and suggests considering a broader range of values instead of fixating on specific numbers.
  • Both emphasize the focus should be on creating intrinsic value rather than timing markets or valuations.

Predictions for future IPO windows:

  • Mike Maples believes that if a company is truly ready to go public, it can do so in almost any market environment. The key is having a long-term view of building value.

Investing during acceleration periods vs. slower times:

  • Mike Maples points out that there are windows during acceleration periods where significant value can be gained by selling companies. However, these windows may not align with optimal buying times.
  • Jason Lemkin agrees that selling during these periods can lead to higher returns and highlights the importance of recognizing when it is a good time to be a buyer or seller.

The role of LPs in navigating investment decisions:

  • Eric Paley mentions that LPs have different preferences regarding cash versus stock, but overall, they trust GPs to make the best decisions for their investments.
  • Jason Lemkin emphasizes that LPs want outlier funds and are willing to leave investments in for long-term potential growth.

Concerns about public multiples and B2B venture capital:

  • Jason Lemkin expresses concerns about mediocre multiples for companies outside of outliers. He worries this could impact the venture capital model, making it less attractive for smaller rounds.