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Jason Lemkin & Rick Zullo: How "Mark to Market" Corrupted Venture Capital | E1052

Jason Lemkin is the Founder @ SaaStr one of the best-performing early-stage venture funds focused on SaaS. In the past, Jason has led investments in Algolia, Pipedrive, Salesloft, TalkDesk, and RevenueCat to name a few. Prior to SaaStr, Jason was an entrepreneur, selling EchoSign to Adobe for $100M where it is now a $250M ARR product. Rick Zullo is the Co-Founder and General Partner at Equal Ventures. Prior to co-founding Equal Ventures, Rick was an investor at Lightbank, Prior to Lightbank, Rick worked with investment firms Foundation Capital, Bowery Capital, and Lightview Capital. -------------------------------------------------- Timestamps: 0:00 Why VC Needs a "Jerry McGuire" Moment 2:21 Mega Funds 32:15 How "Mark to Market" Corrupted Venture Capital 39:42 The Pitch vs Substance 50:31 The Heuristic VCs Forgot 1:06:49 Quick-Fire Round ---------------------------- In Today’s Episode We Discuss: 1. Why Venture Capital Needs It’s Jerry Maguire Moment: Why does Rick believe that VC needs it’s “Jerry Maguire” moment? What needs to change? What needs to stay the same? Why does Jason believe we will see even more mega funds in 2024 and 2025? 2. Unicorns are So 2019: Why does Jason believe that “unicorn investing is mostly dead for bigger funds and none of them are looking for a $1BN outcome anymore?” Why does Rick believe that multi-stage fund investing at seed simply does not make sense? What does Rick believe many founders need to know when they take multi-stage money at seed? Of the over 1,000 unicorns created over the last few years, how many of them do Rick and Jason feel are actually unicorns today? 3. Efficiency and Growth: We Need it All: Why does Jason believe, as a founder you should be embarrassed if you ever had a RIF (reduction in force)? Last year many founders got a pass on growth as they were more efficient. Is that pass over? Do they need to get back to growth? What is the single biggest reason that companies do not scale from seed to Series A? What happens to the many companies with years of runway but no product-market-fit? Are we entering a new age of efficient company building or will we go back to high burn environments and excessive spending? 4. Entering the World of LPs: If Jason and Rick were to advise LPs today on how much to discount the value of their venture books, what advice would they give? How have markups completely corrupted the venture ecosystem? How does LPs being incentivized by paper-marks make the industry even more screwed? What are the single biggest misalignments between GP and LP? -------------------------------------------------------- Subscribe on Spotify: https://open.spotify.com/show/3j2KMcZTtgTNBKwtZBMHvl?si=85bc9196860e4466 Subscribe on Apple Podcasts: https://podcasts.apple.com/us/podcast/the-twenty-minute-vc-20vc-venture-capital-startup/id958230465 Follow Harry Stebbings on Twitter: https://twitter.com/HarryStebbings Follow Jason Lemkin on Twitter: https://twitter.com/jasonlk Follow Rick Zullo on Twitter: https://twitter.com/Rick_Zullo Follow 20VC on Instagram: https://www.instagram.com/20vc_reels Follow 20VC on TikTok: https://www.tiktok.com/@20vc_tok Visit our Website: https://www.20vc.com Subscribe to our Newsletter: https://www.thetwentyminutevc.com/contact ------------------------------------------------- #JasonLemkin #RickZullo #HarryStebbings #venturecapital

Jason LemkinguestHarry StebbingshostRick Zulloguest
Aug 22, 20231h 12mWatch on YouTube ↗

At a glance

WHAT IT’S REALLY ABOUT

How Mark-to-Market Incentives Broke Venture Discipline and Founder Behavior

  1. Jason Lemkin and Rick Zullo argue that mark-to-market accounting, mega-funds, and asset-management style incentives have structurally distorted venture capital. Markups on paper valuations pushed VCs to over-fund and over-price companies, prioritize IRR optics, and drift away from hands-on, Jerry Maguire–style company building.
  2. They contend this environment encouraged founders to overspend, ignore basic financial discipline (like not running out of cash), and optimize for top-line growth and high valuations rather than sustainable business models and efficiency. Board oversight and honest pushback weakened as investors chased NPS with founders and rapid fundraises over fiduciary responsibility.
  3. Both believe the industry is moving toward larger, more professionalized asset managers with multiple strategies, but see a simultaneous need to return to basics: smaller portfolios, deep engagement, realistic outcomes (including $300M–$1B exits), and “stairstepping” value rather than hunting only for decacorns.
  4. They also discuss the likely resurgence of mega-funds, the coming wave of busts instead of down rounds, the importance of efficient growth and business model quality, and why AI funding will likely increase sharply despite clear signs of froth.

IDEAS WORTH REMEMBERING

5 ideas

Mark-to-market incentives pushed VCs to over-fund and mis-fund startups.

Paper markups created strong pressure to show high IRRs early, leading funds to chase valuation step-ups rather than underlying business quality, distorting decision-making from seed through growth.

Founders must treat ‘not running out of money’ as rule number one.

Lemkin insists that taking a big round at a high price is fine only if founders maintain strict burn discipline, forecast zero-cash dates, and avoid driving off a cliff assuming the next round is guaranteed.

Board members have underperformed their fiduciary duty by avoiding hard conversations.

Zullo highlights that many investors, especially at mega-funds, dodge tough topics like burn and RIFs to preserve relationships and NPS, even when responsible governance would mean forcing painful but necessary changes.

SaaS has proven it can be highly profitable; inefficiency is now a choice, not a law.

Public SaaS companies rapidly shifted to strong operating margins in about a year, showing founders that efficient growth and healthy CAC/ROI are possible and may be required for public-market support going forward.

Venture outcomes don’t all need to be decacorns; ‘stairstepping’ works.

Both emphasize that repeatedly 3x-ing from round to round and accepting strong sub–$10B outcomes can build excellent funds, and that forcing non-decacorn companies into decacorn paths wastes capital and time.

WORDS WORTH SAVING

5 quotes

As a founder, your job is not to run out of money.

— Jason Lemkin

Venture would be radically different if there were no markups—and I’m confident it would be a better industry.

— Jason Lemkin

We all got a little high at the party, and people are paying a lot for that right now.

— Rick Zullo

If you’re a great SaaS CEO, you should never have a RIF.

— Jason Lemkin

Let’s just cut through the sales for a second and actually just have substance.

— Rick Zullo

How mark-to-market accounting distorted incentives and behavior in venture capitalMega-funds, asset-management models, and the future structure of VC firmsFounder discipline: burn, runway management, RIFs, and not running out of moneyBoard dynamics, investor–founder tension, and the loss of candid pushbackEfficiency vs. growth: lessons from public SaaS profitability and business model qualityValuations, LP trust, markdowns, and the consequences of over-marking portfoliosDecacorn hunting vs. stairstepping: realistic outcomes and portfolio construction in VCAI investing dynamics and expectations for capital deployment in 2024

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