The Twenty Minute VCJason Lemkin: Every VC has a FRAUD in their portfolio; The IPO market is about to EXPLODE | E1046
CHAPTERS
- 0:00 – 4:41
Contrarian advice for new VCs: invest early, but stay zen inside someone else’s fund
Jason opens with two pieces of advice he’d give his younger VC self: don’t be afraid to do real deals early if you have a strong network, and remember that joining another firm means you’re not fully in control. He explains how traditional guidance (“don’t invest your first year”) protects the fund, but may not serve an individual’s long-term career momentum.
- •Traditional VC advice to wait a year protects funds from over-deployment
- •Getting an early ‘winner’ can define a career and help raise future funds
- •Leverage brand/network early even if you’re new to venture mechanics
- •If you join someone else’s fund, accept the apprenticeship dynamic and friction
- 4:41 – 7:04
How the first five unicorn bets happened: time, focus, and a narrow “sweet spot”
Jason argues his early hit streak wasn’t luck: he had time to hunt, lacked portfolio baggage, and stayed tightly within domains he already understood. He emphasizes that clarity on your “type of deal” also naturally shapes risk and valuation discipline.
- •Having no boards/workouts early creates an investing advantage: time and emotional bandwidth
- •Success comes from staying in a narrow domain overlap you deeply understand
- •Founder quality plus early traction mattered more than broad thematic bets
- •Knowing your deal type helps prevent accidental risk and valuation creep
- 7:04 – 10:40
Valuations ‘don’t matter’—until ownership and fund math do
Jason explains he doesn’t obsess over small valuation differences if ownership targets still work, and warns against over-relying on comps as markets shift. He outlines his historical barbell of ‘traditional seed’ vs ‘late seed’ and how fund size constraints make certain modern rounds impossible to do rationally.
- •Within a reasonable band, valuation matters less than fair entry and ownership targets
- •Comps can mislead when markets re-rate (e.g., Five9 vs Talkdesk)
- •Jason’s historical approach: seed with some revenue + late seed near ~$1M ARR
- •Late seed has been “obliterated” as $1M ARR moved up-market
- 10:40 – 14:51
Seed isn’t down: why rounds are splintering into many small checks
Jason disputes the narrative that seed has sobered up; he sees it more vibrant than ever due to massive operator liquidity and a growing appetite for angel investing. He argues founders should close angel-heavy rounds when available, and that later-stage investors mainly care about the rocket ship, not the seed cap table’s brand names.
- •Operator liquidity from 2020–21 fuels persistent seed supply
- •Seed rounds increasingly filled by many small checks; trend won’t reverse
- •Founders should take available capital rather than wait for a ‘lead’
- •Series A investors care about momentum/quality, not whether seed was angels vs funds
- 14:51 – 17:55
Multi-stage funds ‘spraying seed’ is temporary—and mostly helps insiders
They discuss big funds moving down-market to stay active while later-stage slows. Jason believes it fades because a multi-billion-dollar fund can’t be returned via tiny seed checks; the math demands big ownership in big outcomes, and seed becomes a distraction unless it feeds true winners.
- •Large funds dabble in seed to stay in market during growth slowdowns
- •Returning a $2B fund requires concentrated, double-digit ownership in massive outcomes
- •Seed programs can distract from the real job: writing $100M+ into winners
- •Easy ‘checkbox’ seed checks tend to favor insiders with networks/traction
- 17:55 – 24:34
Insiders vs outsiders: where traditional seed funds can still win
Jason argues “insiders” are priced to perfection, while “outsiders” (less networked founders) still offer more reasonable pricing and access. He challenges the idea that seed funds must chase the most obvious hot rounds, suggesting their edge may be finding earlier or less visible talent—often via inbound.
- •Outsiders still price more reasonably than insiders, even post-2021
- •Hot/obvious seed rounds may only work economically for mega funds
- •Seed investors should define a lane that isn’t ‘perfect deal’ competition
- •Great investments can come from cold inbound—especially at early stages
- 24:34 – 27:08
AI fatigue and crowded categories: the problem is losing the ability to ‘wait’
Jason addresses investor jadedness around repetitive AI tools. His historical rule: the more crowded the category, the later he wanted to invest—waiting for breakout signals. Today, he’s discouraged because many segments no longer allow waiting until meaningful revenue without being priced out.
- •Categories reinvent every 4–5 years; crowding doesn’t mean ‘no winners’
- •In crowded markets, waiting for traction reduces selection risk
- •Modern pricing often forces earlier entry before differentiation is clear
- •Sales tech is both highly innovative and heavily impacted in current cycle
- 27:08 – 31:08
The ‘unbundling’ reversal was a cost-cut cycle—now buyers are bouncing off the bottom
Jason explains recent enterprise “bundling” pressure as a temporary response to budget scrutiny: workflow optimization plus ‘app layoffs’ where companies cut unused tools and then duplicate-feature spend. He believes that cycle is largely done and that AI-driven spend is restarting, setting up healthier 2024 conditions (but not a return to 2021).
- •Enterprises first optimized cloud/workflows, then cut apps in rounds
- •Second-wave cuts hit leaders when features existed elsewhere (good-enough bundling)
- •He sees the cut cycle ending—no ‘third or fourth’ app layoff meeting
- •AI is pulling spending forward again; public SaaS names show bottoming signs
- 31:08 – 34:08
Series A/B today: capital exists, but expectations are misaligned
Jason calls Series A/B “terrible” primarily due to a disconnect: investors want rationality and discipline, while many founders still expect 2021-style fast, hot step-ups. He describes likely outcomes: some companies fail, some accept more normal rounds after humility, and a patient strategy can work for disciplined investors.
- •Slowdown isn’t lack of funds; good managers are funded but cautious
- •Founders often still assume quick ‘hot A’ after seed despite new bar
- •Some startups will fail; others will reset burn and raise later on better terms
- •Patient investors can profit by backing companies that miss-and-then-hit metrics
- 34:08 – 38:28
The ZIRP hangover: 10-year runway startups and founders’ eroding respect for capital
They discuss startups with massive runway but no PMF as a ZIRP-era anomaly. Jason advocates founders offering to return capital when abandoning the model, using Slack’s pre-Slack story as an ethical and trust-building template. He laments that many founders treat venture like a game and don’t prioritize investor outcomes.
- •10-year runway without traction is a rare ZIRP-era phenomenon
- •Founders should ‘offer to give money back’ when the thesis breaks
- •Slack’s pivot story as a model: offer return, earn renewed investor conviction
- •Jason argues founder respect for VC and capital discipline has deteriorated
- 38:28 – 45:01
Jason’s edge as an investor: accelerating outsiders without making them dependent
Jason and Harry debate investing in first-time vs serial founders. Jason argues his superpower is helping outsiders compress time-to-network and avoid preventable hiring mistakes (VP Sales/COO/marketing), distinguishing “wanting help” from “needing rescue.” The discussion ties strategy to fund constraints and risk tolerance.
- •Serial founders cost more, but reduce execution mistakes and time loss
- •Jason believes he can materially improve first-time founder outcomes via recruiting support
- •For outsiders, investor help accelerates network-building rather than creating dependency
- •Fund strategy dictates whether paying 2x for de-risking is rational
- 45:01 – 49:59
Biggest mistake: not building a larger team—and why fund size follows org design
Jason reflects that as venture scaled, he may have needed a bigger team to keep seeing enough of the market, but he resisted becoming a large-scale manager. He explains that bigger funds aren’t mainly about fees—they’re often necessary to support partner and associate headcount, which then increases return requirements dramatically.
- •Market expansion makes it harder for solo-style investors to ‘see enough’ deals
- •Scaling a venture org often forces fund size increases to sustain the team
- •Larger funds require much larger exit volumes; math pressure rises quickly
- •Different investors must choose a model that matches what they enjoy and can execute
- 49:59 – 56:28
Why he stopped doing diligence for other VCs: diligence is confirmatory—and fraud is endemic
Jason argues most VC diligence is a formality after the decision is made, so warnings are frequently ignored. This dynamic, combined with fast timelines, contributes to fraud and misrepresentation across portfolios. They discuss why VCs often avoid confrontation due to reputation/NPS concerns and why walking away can be rational.
- •VCs often decide first, then use diligence to confirm—not to falsify
- •Experts’ negative feedback is frequently ignored; deals proceed anyway
- •Fraud ranges from outright deception to ‘ARR shaping’ and margin misrepresentation
- •Reputation and founder-NPS dynamics discourage investors from taking hard actions
- 56:28 – 1:03:23
Growth stage realities: active market with a ~15x ARR ceiling and a surge in secondaries
Jason sees growth investing as active again, but bounded by valuation discipline—often ~10–15x ARR for efficient companies. Many companies can raise at those levels, but may delay if they don’t need capital or can’t reconcile down from prior marks. Growth funds increasingly pursue secondary purchases from earlier holders as an alternative.
- •Growth is active for efficient SaaS, but valuations are capped (~15x ARR)
- •Not enough qualified companies: many are overmarked or not urgent sellers
- •Founders may wait for better conditions rather than take a ‘fair but stressful’ round
- •Growth investors pursue secondaries to build positions when primaries don’t happen
- 1:03:23 – 1:11:00
LP and fundraising landscape: consolidation, sovereign wealth, and why ‘Twitter narratives’ mislead
They unpack fundraising difficulty relative to the 2020–22 benchmark and how LP behavior differs by mandate. Jason shares examples of LPs dropping managers, changing strategy, or adding new managers—showing heterogeneity rather than a single ‘closed’ market. They also discuss mega-fund viability tied to sovereign wealth and huge pools of capital needing deployment.
- •Fundraising is harder vs 2020–22, but still easier than older venture eras for some
- •LPs vary: some consolidate managers, some exit a strategy, some add new managers
- •Mega funds can work for sovereign wealth seeking steady alpha and capacity
- •Large capital pools shape VC ‘products’ and explain fundraising trips to Gulf capital
- 1:11:00 – 1:13:35
Mindset shift: remote work, lower effort culture, and tougher scrutiny on talent
Jason describes a change in his personal outlook: he’s more skeptical that many knowledge workers will return to high-intensity execution, citing side hustles and reduced hours. This raises the bar on hiring and makes capital efficiency harder, especially for early-stage startups relying on small budgets.
- •Increased skepticism about work ethic and execution intensity in tech labor markets
- •More scrutiny on execs and hires; side hustles and low hours as red flags
- •Easy 2021 conditions created expectations that now feel toxic
- •Opportunity for ambitious builders: it’s easier to outperform in a lower-effort baseline
- 1:13:35 – 1:15:36
IPO outlook and closing bet: ‘IPO week’ in the back half of 2024
In rapid-fire, Jason predicts a major reopening of the IPO market in late 2024, contingent on a few iconic offerings (e.g., Stripe/Databricks) that trade up and restore confidence. He expects a backlog of strong SaaS companies to follow once the window opens, and he and Harry lock in a wager.
- •Predicts IPO market ‘explodes’ in back half of 2024 with steady cadence
- •Needs marquee IPOs that price well and trade up to restart sentiment
- •Large backlog of $200M+ ARR SaaS companies waiting for the window
- •IPO process lead time means momentum must start months earlier than it appears
