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The Twenty Minute VC

Jason Lemkin: WTF is Going On in VC? Are LPs Investing in New Funds? | 20VC #965

The question is: “are VCs still investing?”. Today we are joined by Jason Lemkin; one of the OGs of SaaS of the last decade.

Jason LemkinguestHarry Stebbingshost

Jan 13, 202357mWatch on YouTube

Summaries, chapters, transcripts, and FAQs on this page are made by uListen, not YouTube.

CHAPTERS

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Chapter summaries

Deal flow paradox: VCs want to invest, founders think no one is writing checks
Harry and Jason open on the mismatch between investors saying there are “no companies” and founders asking whether VCs are investing. Jason explains how quickly the market reset changed risk tolerance, raising the bar for what counts as a fundable early-stage deal.
- •Perceived freeze: GPs claim lack of quality deals while founders perceive lack of capital
- •Jason’s own pace slowed dramatically compared to his 2013 investing burst
- •Macro shift forced a reset in risk-taking and return expectations
- •Social media narratives can be misleading about how active investors really are
The end of the “Postmates effect”: why being #1 matters again
Jason describes the 2021-era belief that #3 or #4 players could still generate massive outcomes, changing how investors underwrote competition. As that window closes, he argues founders must clearly articulate why they will win—competition analysis is back.
- •‘Postmates effect’ enabled investing without needing a clear #1 category winner
- •SaaS categories expanded, allowing multiple ‘number ones’ via segments/verticals
- •Now billion-dollar outcomes feel hard again; unicorn bragging has faded
- •Founders must explain why competitors stumble and why they will win
What early-stage investors now demand: growth plus capital efficiency
Jason reframes what hasn’t changed in SaaS: you still need a credible path to $100M–$200M revenue over ~7–10 years. What has changed is how much capital you can burn to get there—investors want top-tier growth and top-quartile efficiency at the same time.
- •Core SaaS math remains: a decade-ish to reach IPO-scale revenue ($100M–$200M)
- •Historic growth heuristics (e.g., ‘triple, triple, double, double’) still matter
- •The allowable total capital raised has compressed back toward older norms
- •Today’s bar: strong growth AND strong burn discipline, even at ~+$1M ARR
SaaS buying patterns aren’t uniformly bad: winners, losers, and ‘middle’ markets
Jason pushes back on doom narratives, arguing the downturn is uneven across sectors and go-to-market segments. He gives examples from his portfolio to show some categories have rebounded or stayed strong, and urges founders to find demand pockets.
- •Three buckets: doing fine, deeply troubled, and ‘harder but workable’
- •Sector effects matter: healthcare steady; startup-only sellers feel the pain
- •E-commerce example: early drop then rebound (Shopify ecosystem, Gorgias)
- •Usage-based/mobile subscriptions example: RevenueCat re-accelerated
- •Founder takeaway: stop saying ‘the world ended’—reposition to winning segments
Marketing budgets under pressure: the pipeline hangover risk
They discuss how marketing spend has become extremely short-term, with CEOs approving only immediate ROI programs. Jason warns this creates a delayed pipeline shortage that will bite later, echoing past downturn mistakes like cutting sales capacity.
- •Marketing decisions have become quarter-to-quarter and board-driven
- •Only near-term ‘funnel assist’ spend survives; brand/long-cycle programs get cut
- •Over-cutting marketing today leads to insufficient pipeline later in the year
- •Historical pattern: companies repeat downturn mistakes (e.g., cutting sales)
Practical advice: set budgets, empower leaders, and avoid ‘marketing to zero’
Jason advises seed and Series A founders to extend runway without eliminating growth engines. His prescription is to allocate clear budgets to sales/marketing leaders, force prioritization within constraints, and avoid simplistic CAC thinking that kills necessary spend.
- •Give sales/marketing leaders a fixed budget and let them optimize within it
- •Layoffs are incremental ‘snacks’—they don’t create growth by themselves
- •Many teams lack strong ops/finance planning muscles after years of easy money
- •CAC is often misused; some acquisition is ‘too expensive’ but still rational over LTV
- •Do ‘best possible’ execution with constrained spend rather than stopping entirely
Target setting in volatility: plan from trailing velocity and scale sanely
Jason outlines a CEO-led approach to setting targets amid uncertainty: start with the trailing 3–4 months as the baseline truth. Then adjust gradually rather than demanding impossible re-acceleration that demoralizes teams and breaks burn assumptions.
- •Base plan = average of last 3–4 months’ growth and burn (who you are today)
- •You can’t realistically ‘inflect’ from 20% back to 100% quickly without damage
- •Unrealistic targets can destroy sales teams and morale
- •Burn rate must be modeled with equal rigor to revenue targets
Founder planning mistakes: weak sensitivity models and fundraising delusion
Jason highlights two recurring errors: not modeling downside scenarios where missing growth increases burn, and assuming later rounds will be available. He argues founders should behave as if they’re unfundable until they have proof otherwise, and raise while they can.
- •Insufficient sensitivity analysis: small growth misses can spike burn materially
- •Build explicit ‘worse case’ plans that reflect fixed headcount costs
- •Assume you’re unfundable absent evidence; don’t rely on ‘we’ll raise later’
- •Advice: raise as much as you can now if you have access
Valuations reset: living in a 5x ARR world and what ‘good’ looks like now
They discuss how public-market multiples anchored venture expectations and how the market has normalized into a lower-multiple regime. Jason shares an example growth offer (15x ARR) that still exists for elite companies, but with profitability as a key requirement.
- •Markets feel more ‘certain’ now than late 2022: expectations have reset
- •Public comps anchor private pricing; many are operating in a ~5x ARR mindset
- •Selective growth capital exists for top-decile outcomes (example: 15x ARR)
- •New underwriting: strong growth plus (near) profitability, assuming no next round
Employee equity reality: unicorn offers, preferences, and why outcomes won’t trickle down
Harry presses on downside protection and how headline valuations can mislead employees. Jason argues many employees joining unicorns in 2023 should not expect meaningful equity outcomes, as $100B-style results are rare and public comps have compressed.
- •Preferences/protections can preserve investor outcomes while employees go underwater
- •Joining high-valuation startups now can be a ‘sucker play’ if you’re optimizing for equity
- •Many strong public SaaS names are worth far less than prior expectations (e.g., GitLab, HashiCorp)
- •It’s difficult for employees to get rich without $10B+ outcomes
Why Jason avoids public markets: focus, fund economics, and ‘drop everything’ for great deals
Jason explains he views public-market investing as a distraction from the core venture job: finding rare breakout startups. He emphasizes concentration and focus—when a truly great deal appears, the right move is to drop everything and pursue it.
- •Public investing can dilute attention from sourcing/conviction-building in venture
- •Solo/small funds can generate huge personal outcomes with meaningful ownership
- •Best practice: ‘drop everything’ when you find a high-quality venture opportunity
- •Critique: buying public shares instead of hunting the next breakout is a losing mindset
The reckoning for overfunded SaaS: markdowns, limited exits, and consolidation as an escape hatch
They explore what happens to companies valued at extreme ARR multiples with large cash balances. Jason discusses when he marks down holdings, why many early overfunded companies will struggle to produce 10x-raised exits, and why mergers may become necessary.
- •Some startups have unprecedented runway lengths due to 2021–22 fundraising
- •Jason marks down mainly when growth stalls; growing companies’ marks matter less to his LPs
- •Historic rule: selling for 10x capital raised made outcomes workable—now harder with massive early raises
- •Quality exits are rare; many companies may need to merge with competitors to survive
Team quality, diligence, and the ‘bullshit artist’ risk after the boom
They debate whether downturns spark innovation and discuss how startup hiring became ‘highly paid ordinary jobs.’ Jason and Harry criticize declining talent quality in the boom and Jason explains his diligence approach—especially pressure-testing the org beyond a charismatic CEO.
- •Most displaced workers will seek comfortable jobs, not start new companies
- •Boom-era hiring lowered average quality; leaders quietly acknowledge it
- •Jason’s diligence: spend meaningful time with the CTO as product proxy
- •Meeting additional execs can reveal red flags (e.g., VP Sales quitting, weak marketing leadership)
- •Downturn reduces tolerance for ‘bullshit artist’ founders who benefited from low scrutiny
The mature founder advantage vs ‘strategic retreat’ traps
Harry observes that mature founders handle volatility better; Jason agrees with the intuition but warns against confusing caution with prolonged retreat. He shares how experience enables fast “fix it” mode in crises, but stresses startups must re-engage aggressively after a reset.
- •Maturity can stabilize decision-making during downturn emotional swings
- •Short ‘strategic retreats’ (one quarter) can be healthy; long retreats kill momentum
- •Crisis response is a learned playbook (Jason’s SaaStr COVID cancellation story)
- •Persistence matters, but seasoned operators can also quit too quickly now
LP markets and re-ups: no appetite for new managers, decimation of micro-funds, DPI pressure
Jason explains what he’s hearing from LPs: they don’t want additional managers, but many remain calm about venture as an asset class—so far. They discuss distribution timing, the coming squeeze on small/new funds, and why re-ups depend on DPI, predictability, and relationship management.
- •LPs are saturated: ‘no one wants another manager’ unless it’s truly exceptional
- •LPs are relatively patient short-term; a prolonged slump could change allocations
- •Distribution lag made 2022 look better in cash than headlines suggested; 2023 may be tighter
- •Micro-funds/new managers likely suffer due to less founder-wealth and fewer re-ups
- •Re-ups hinge on DPI, predictable pacing, and avoiding ‘unexpected risk’ (e.g., calling 95% quickly)
Looking ahead + lessons unlearned: modest recovery, no 2021 return, and ‘adult up’ founder mindset
In closing, Jason predicts conditions improve by year-end with multiple expansion, but he insists 2021 conditions won’t return. He warns founders not to wait for a mythical market ‘thaw’ and ends with a hard-edged reminder that building startups is supposed to be painful.
- •Forecast: end of year better than start; multiples may rise 20–40%
- •Even with recovery, 2021-era valuations and hyper-growth dynamics won’t come back
- •If you’re unfundable now, a mild recovery likely won’t change that—raise/operate accordingly
- •Jason reflects on boom-era unicorn lessons and the need to re-tighten standards
- •Founder psychology: expect hard years; resilience and discipline are part of the job

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