The Twenty Minute VCJason Lemkin: Why Pricing is Worse Than Ever and There is More Funding Than Ever | E1157
CHAPTERS
- 0:00 – 1:22
Seed investing is broken: growth bar, market share, and churn realities
Jason opens with a blunt macro take: there’s still huge capital, but far fewer startups capable of triple‑digit growth, making seed structurally tougher. He frames the speed required to win (1→$10M ARR fast), why IPO math forces steep growth, why companies must expand once nearing ~10% share, and why high churn undermines the SaaS model.
- •Too much money chasing too few triple‑digit growers
- •Best companies reach $10M ARR in ~5 quarters
- •IPO path requires “triple, triple, double, double”
- •Need a second act when nearing ~10% core ICP share
- •>3–4% monthly churn means it’s not really SaaS
- 1:22 – 2:13
“The Review” format + defining “best” deals: cash vs NAV
Harry introduces the show’s premise—reviewing great and bad deals for lessons. Jason explains why he tracks wins two ways (cash returned vs reported NAV) and notes the lists don’t overlap yet, reflecting how long outcomes take and how scarce cash exits have been post‑2021.
- •Show concept: analyze best and worst deals for lessons
- •Two scoreboards: cash returns vs NAV (on paper)
- •Few recent B2B IPOs makes cash outcomes stand out
- •Early expectations vs later realities in venture timing
- •Why top cash and top NAV lists can diverge
- 2:13 – 3:35
Top cash exits: SalesLoft, Pipedrive, Logikall—and the ownership/dilution lesson
Jason details his biggest cash-returning outcomes and emphasizes a non-obvious takeaway: ownership matters more than “being early.” He uses Logikall to show how being a large investor and limiting dilution can matter more than headline exit size for fund-level impact.
- •SalesLoft: ~$2.5B cash at ~100M ARR (late 2021 era)
- •Pipedrive: ~$1.5B cash to Vista at ~100M ARR
- •Logikall: $300M sale but meaningful due to ~20% ownership
- •Early bragging rights don’t matter without ownership
- •Dilution and follow-on behavior drive real cash outcomes
- 3:35 – 7:17
SalesLoft deep dive: founder grit, binary pair, and surviving a near-reset
SalesLoft’s early journey included dumping an $8M revenue product—an extreme move that still proved correct. Jason’s key lesson is that exceptional commitment plus a strong “binary” founder/exec pair (often CEO+CTO/CPO) is the hardest-to-replicate ingredient, especially as time-to-liquidity stretches.
- •“Certain founders can’t lose” due to relentless commitment
- •Binary pair (CEO + technical/product leader) as a core predictor
- •Radical product reset (8M→~0) can be right if executed well
- •Competitive markets can still allow multiple winners (SalesLoft & Outreach)
- •Long timelines make anything less than extreme commitment unattractive
- 7:17 – 19:28
How his diligence changed: talk to the CTO second, not last
Because deals move faster now, Jason rearranges diligence to quickly test technical truth and execution capability. He describes how he assesses CTO quality rapidly through demos, product pride, transparency, and clarity about gaps—using “surprise and delight” as a signal.
- •Modern pace forces faster conviction and faster filtering
- •CTO call moves to the very beginning of process
- •Ask CTO to run their own demo; look for “surprise and delight”
- •Great CTOs instantly articulate frustrations and feature gaps
- •Slow/brittle product at ~$1M ARR is a strong negative signal
- 19:28 – 22:57
Investing in competitive markets: when competition helps, and when it hides weakness
Jason agrees competition is unpleasant but argues you can’t automatically avoid it without missing generational winners. In big markets, competition can educate buyers; truly hyper‑agile teams can pull away quarter by quarter. He also warns that “easy” vertical markets with Excel/SAP as competition can mask mediocre engineering velocity.
- •Avoiding competition can exclude Datadog/Rippling/Gusto-type outcomes
- •Big markets naturally attract competitors; be careful not to pick small markets
- •If your product/engineering is best-in-class, competition can amplify category creation
- •Teams that iterate fastest can separate over time
- •Excel/SAP-as-competitor can hide lack of real product compounding
- 22:57 – 28:18
Pipedrive: breakaway execution, but product evolution and founder departure risk
Jason explains why Pipedrive was an easier bet early (already breaking away in growth) even in a crowded SMB CRM landscape. The longer-term lesson is that the product didn’t evolve enough as a platform, and once founders leave, competitive agility often fades—prompting his rule to sell when founders exit.
- •Early signal: among lookalikes, Pipedrive was already pulling ahead
- •HubSpot built/iterated into CRM over years and ultimately dominated
- •Product that doesn’t change much over a decade risks being outflanked
- •Rule: when founders leave, Jason prefers to liquidate when meaningful
- •Timing matters; “don’t hold forever” can be correct
- 28:18 – 34:43
Exit dynamics: sell when founders insist—and PE ‘mulligans’ after 2021 pricing
Using SalesLoft, Jason shares a VC maxim he now believes: when founders say sell, sell—because they often see risk earlier and more holistically. He then broadens to post‑bubble pricing: PE and VCs may both receive “mulligans” from LPs, and timing can overwhelm fundamentals in realized outcomes.
- •Founder conviction on selling is a strong signal; don’t fight it reflexively
- •2021 created distorted exit expectations (last-card mentality)
- •LPs may forgive 2021 venture funds; question if PE gets similar grace
- •Public market timing can halve values even as revenue grows
- •Secondary/insider behavior changes the practical outcome set
- 34:43 – 39:00
The deals that hurt: bad exec hiring, burn ‘pickles,’ and doubling down on bad signals
Jason outlines a painful near-miss: a company sold for $100M that should have been far bigger, derailed by hiring a poor CEO and scaling a bad sales org, ballooning burn. His biggest realized loss came from ignoring integrity red flags and writing a third check—highlighting how follow-on discipline is often weaker than initial diligence.
- •Bad CEO + mass hiring of weak reps can reduce sales while burn explodes
- •Letting bad decisions run 4–6 quarters creates an inescapable burn trap
- •Largest loss: misrepresented financials crossed the ‘bullshit line’
- •Core error: wrote a third check instead of stopping at earlier exposure
- •Follow-on rounds often get near-zero diligence in the industry
- 39:00 – 42:46
Anti-bullshit diligence: bank statements early, then customer calls for confirmation
Jason describes how he now prioritizes quick financial verification early—using bank statements and an accounting review to detect manipulation—before heavier customer diligence. He distinguishes between using references to flip a decision (bad practice) vs confirm a near-certain investment (better founder experience).
- •Move financial diligence from end to beginning to detect shenanigans
- •Ask for bank statements to verify basic revenue/expense reality
- •Goal isn’t precision—goal is to eliminate manipulation and recurring ‘bullshit’
- •Customer calls should mostly confirm, not decide, when metrics are strong
- •Founder empathy: avoid burning references unless highly likely to invest
- 42:46 – 44:48
Growth bar and IPO math: why ‘triple, triple, double, double’ still rules
Jason sets a hard standard: lowering the growth bar tends to create regret. He ties together ARR growth expectations, the 1→10M ARR speed benchmark, and how IPO markets reward current efficiency rather than your fundraising story or past burn.
- •Best outcomes: 1→$10M ARR in ~5 quarters or less
- •At ~$1M ARR, ~8–10% monthly growth is a meaningful bar
- •IPO gating function remains “triple, triple, double, double”
- •Public markets care about near-term efficiency at IPO, not history
- •Deel/Wiz set aspiration but don’t change the underlying math
- 44:48 – 52:25
More funding than ever—for the outliers: insider capital floods and its downsides
Jason argues today’s funding isn’t uniformly scarce; it’s concentrated in the few companies still growing extremely fast. Insiders with massive funds increasingly “crowd out” new investors by overfunding winners, often inflating valuations and encouraging secondary/structured behavior that can be unhealthy for companies.
- •Outliers with triple‑digit growth face a capital glut
- •Insiders increasingly protect ownership and flood rounds
- •Overfunding reduces discipline and can distort valuation reality
- •Secondary and blended-price logic pushes investors to overpay
- •Structured/opaque rounds can hide weak performance signals
- 52:25 – 59:08
Churn benchmarks: enterprise NRR, SMB monthly churn, and the PLG requirement
Jason draws a clear line: enterprise companies at ~$1M ARR should show >110%+ NRR, and anything below is a red flag. For SMB, he focuses on monthly churn—3–4% may be endemic for very small businesses, but higher levels threaten the entire SaaS model unless CAC is near-zero and the product is truly self-serve/PLG.
- •Enterprise at ~$1M ARR should have triple‑digit NRR (north of ~110%)
- •SMB: >3–4% monthly churn raises ‘is this SaaS?’ questions
- •Volatile churn should be smoothed using L4M (last-4-month average)
- •Small-business customers cancel fast; product quality must be exceptional
- •Sales-led + high SMB churn is structurally unsustainable
- 59:08 – 1:06:56
Burn and forecasting: L4M predictability, burn ratio limits, and SMB vs enterprise operators
Jason recommends a pragmatic forecasting method: L4M averages for growth, churn, and burn often predict the next 8–9 months surprisingly well. He critiques simplistic burn ratio use and warns against importing enterprise playbooks into SMB economics, where payback windows and churn realities are harsher.
- •L4M averages for burn/churn/growth are highly predictive in practice
- •Burn ratio ‘1 or less’ isn’t universally safe—depends on NRR, margins, and funding certainty
- •Very small-business SaaS starts to resemble B2C payback constraints
- •High burn + high churn compounds capital needs and increases fragility
- •Enterprise veterans can fail in SMB contexts due to incompatible assumptions
- 1:06:56 – 1:13:04
RevenueCat case study: founder-market fit, long commitment, and the ‘no good deals’ rule
Jason tells the early RevenueCat story, including a moment of misunderstanding (GMV vs ARR) that led him to take unusual early risk. The success reinforces his core pattern: founders who deeply know the space and are committed for decades can build category-defining platforms; he contrasts this with founders who ‘woe is me’ when growth gets hard and with end-of-fund overconfidence.
- •Early check: ~10% ownership pre‑YC at ~$7–8M pre (2018)
- •Key driver: founders knew the domain cold and committed long-term
- •RevenueCat scaled to massive footprint; later built enterprise motion (first $1M deal)
- •Contrast to failed investment: founders fired sales/marketing when growth slowed
- •Heuristic: if a deal seems ‘too good,’ it’s usually a trap; end-of-fund discipline matters
- 1:13:04 – 1:24:53
Quick-fire: underrated CEOs, SaaS valuation dislocations, LP realities, and why ownership matters
In rapid questions, Jason highlights leaders like ServiceTitan and Klaviyo, and discusses why public-market multiples can feel disconnected from company quality. He shares LP learnings (few true believers matter) and closes by arguing low ownership stakes and 2021 pricing have made seed structurally difficult to make work at the fund level.
- •Underrated CEOs: ServiceTitan’s Ara, Klaviyo’s Andrew (operator excellence outside ‘inner circle’)
- •Public market multiple gaps (e.g., Klaviyo vs Atlassian) feel irrational to him
- •‘Zombie’ public companies can still be valuable via high margins + modest growth and PE buyouts
- •LP strategy: a few concentrated, supportive LP relationships can be powerful
- •Systemic issue: seed math breaks with high entry prices + dilution + low ownership stakes
