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The Twenty Minute VCThe Twenty Minute VC

Mitchell Green: Why 50% of VCs Should Not Exist

Mitchell Green is a legendary growth equity investor and the Founder and Managing Partner of Lead Edge Capital, a firm with over $5 billion in assets under management. Known as a relentless "money maker", Mitchell has led or co-led investments in companies including Alibaba, Asana, Benchling, ByteDance, Duo Security, Grafana, Mindbody, and Xamarin, among several others. ----------------------------------------------- Timestamps: 00:00 Intro 01:17 Is the SaaS Sell-Off Justified or an Overreaction? 08:10 ByteDance Is the Most Underrated AI Company in the World 10:10 Should You Be Investing Right Now or Waiting? 12:00 AI Won't Kill Software 16:35 Legacy Software Isn't Going Anywhere 18:08 AI & Jobs: People Overestimate the Speed of Change 26:35 Why Mitchell Thinks China Wins the AI War 31:11 Buying Is Glamorous, Selling Is the Job 36:00 There Are 50% Too Many VCs in the Market 37:54 DPI Is Math, Marks Are Opinions 41:30 How Investors Destroy Value for Founders 44:55 Gross Dollar Retention: The Most Important Metric 46:42 What Happens to Private Equity's Leveraged SaaS Portfolios? 48:35 The Meme-ified Stock Market Is Making the Liquidity Problem Worse 01:00:10 Quick-Fire Round ----------------------------------------------- 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 X: https://twitter.com/HarryStebbings Follow 20VC on Instagram: https://www.instagram.com/20vchq 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 ----------------------------------------------- #20vc #harrystebbings #investing #venturecapital

Mitchell GreenguestHarry Stebbingshost
Mar 7, 20261h 4mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 1:17

    Intro

    1. MG

      ByteDance is the most advanced AI company in the world. You know, it's very underappreciated by the Western world.

    2. HS

      Today, we have Mitchell Green at Lead Edge joining us. In a world of fluff and framework-thinking investors, Mitchell Green is a money maker. Mitchell has co-led or led investments in insane companies like Alibaba, Benchling, ByteDance, Grafana, among many others.

    3. MG

      I think fifty percent of people in the venture business should not actually be in the business. There's too much money, and there's, like, too many tourists. Fifty, sixty percent of people in this industry that actually probably add negative value to companies. People that spin out of, like, Anthropic or OpenAI and raise [laughs] money at, like, two billion dollars for a freaking idea. Like, there's nothing more than an idea and a napkin. Tell us that seems complete lunacy. There's gonna be a really big downturn. Markets just don't go up forever, and I think it's gonna happen in the next ten years. Buying is glamorous, selling is the job. Don't count China out. I bet they win the AI world.

    4. HS

      Ready to go? [upbeat music] Mitchell, dude, it is so good to have you back in the studio. I love doing these with-- You and Larry are my favorites. You know why?

    5. MG

      We gotta have us on together.

    6. HS

      No, I-- Do you know what'd be great to have you on together? If you're in London together, we should do it, and we should do it actually over, like, a dinner and mic everyone up.

    7. MG

      Hundred percent.

    8. HS

      proper style.

    9. MG

      It'll be amazing.

  2. 1:17 – 8:10

    Is the SaaS Sell-Off Justified or an Overreaction?

    1. HS

      Uh, listen, I wanna start with, um, something that's actually quite disarming for a lot of investors today, which is bluntly the SaaSpocalypse, the SaaSaca. And we're looking at the markets, and they're just in the shitter. And I think there's a lot of people who are questioning whether they are actually [chuckles] good investors or whether we were just in a bullian cycle. Is this justified in terms of the downturn, or is this an overreaction to AI and anthropic product releases?

    2. MG

      We are buyers. We're buying software stocks right now. You know, a portion of our funds can be invested in public equities, so we're buying companies like Procore, Workday, Appian. Um, we love Clearwater Analytics, but it's in the process of being taken private, so the stock doesn't move. Um, we're big investors in Toast, which we've been buying back. We were early investors in it and sold and are rebuying. These companies aren't going anywhere. Like, the incumbents have distribution, data, and balance sheets. You know, it's a, it's a fool's errand to think all these companies are gonna go away. Now, that being said, in any period when there is big periods of disruption, you know, y-you know, there will be new companies that are created, there will be incumbents that thrive and adapt, and there'll be some incumbents that blow up.

    3. HS

      Help me understand. I, I love your perspective, but I don't understand it. Workday is at six point eight percent growth now. We're seeing the cannibalization of the seat model. We're seeing bluntly no impressive use of any agent products within the existing incumbent set.

    4. MG

      Uh, well, Workday's AI business is growing super fast inside it. Uh, keep in mind, they are ten billion dollars of revenue and, like, three billion dollars of free cash flow. So there is, you know, law, law of large numbers, uh, for a lot of these companies. You know, look, it is not normal for companies to grow like Anthropic or OpenAI have. And oh, by the way, you know, w- you know, Workday does it with serious profits or a company like ByteDance grows at, you know, thirty percent a year at-- with massive profits. Like, let's see what these companies would-- how they would grow if they had profits. But the seat, seat-- Look, I mean, for seat-based pricing for Workday, I mean, Workday is, is more tied to, like, employment gr-- you know, employment growth in the United States. But, you know, the company, you know, is, is like a high... lo-low, you know, low teens, high single digits grower. But again, it is a huge business. It is like a ten billion dollar revenue company. I actually think what people got wrong and why a lot of these stocks, software stocks have actually sold off, looking back in hindsight is, if you went-- if you looked at the end of last year, street numbers were too high for this year, just in general. Like, they didn't show enough decel. And what I mean by that is you'd have a company that was forecasted to grow, like, you know, it grew twenty percent last year, where the street thought they would grow, like, nineteen point five percent this year. It's just law of large numbers. As companies get really big, they, they decel. Um, and street numbers in general acro- all across software were, were too high. And so what ne- what's hap- what will happen is, you know, Wall Street analysts, sell-side analysts are like, you know, pigeons, uh, like, you know, squirrels, and as the stock goes down, they're like, "Oh, now, now we gotta lower my numbers and take the numbers down." And nobo-- And, you know, a lot of big public hedge funds or public market investors, you don't wanna own stocks when numbers need to come down. You wanna, like, own them when numbers are about to go up. So estimates are about to go up. So what you're gonna see is they're gonna take numbers down at a bunch of companies, give it a quarter or two, companies will start to then, you know, beat numbers. They'll... Then they'll raise the numbers, and the stocks will start to work. But they're-- it's probably dead money for a little while.

    5. HS

      I was always a big fan of Howard Marks-

    6. MG

      Yeah

    7. HS

      ...and his investor letters.

    8. MG

      Yeah.

    9. HS

      And one of his big things is, you know, never try and catch a falling knife.

    10. MG

      Yeah.

    11. HS

      And so I see what you see in terms of the opportunity, but I'm like, "I have no idea where this is gonna go." And honestly, a month ago, I was looking at Duolingo going, "Wow, what a buying opportunity." And the lesson I have on Duo is, wow, there really is no floor.

    12. MG

      Well, if you don't have earnings or EBITDA, there is no floor in a lot of these things. What we tell people is, is if you wanna own 'em, just buy 'em over, like, you know, buy 'em over a month-long period or buy 'em on down days. But just like if a stock's for an individual and you think you wanna own a million bucks or two hundred thousand dollars of some name, buy fifty thousand dollars every time it, you know, it, it dips and sells off hard. And maybe you'll never get fully filled, but you just... you won't, you won't catch a bottom. But the funny thing is, if you actually do the, like, long-term analysis on buying just indexes like the Nasdaq or the, you know, S&P, it actually turns out just like, if you look at, like, very long-term, like, longitudinal data, that if you just actually just buy it on a big down day, y- it's, it's nearly impossible to try to try to time it.

    13. HS

      We, we mentioned Workday. We also have seen recently in Workday, Aneel Bhusri, the founder, coming back.

    14. MG

      Yeah.

    15. HS

      Not specifically about Workday, but I'm unwaveringly negative on companies where the founder is not the CEO and we're in this AI transformation. Do you share that non-founder-led companies are inherently disadvantaged?

    16. MG

      I would agree with that partially. I-- Though I do think there are very good CEOs. You need like a growth mindset, and I believe that there are companies that are run for growth and there are companies that are run for margins. And I believe in any time you have big technological transformations that, um, you want the entrepreneur-- you want the management team that is run by the company that, that is focused on growth, that are like they're growing. And by the way, those are oftentimes entrepreneurs. You know, another way to think about it is oftentimes when companies are run for margin, earnings or EBITDA margin, they're oftentimes heavily levered. Where I think the biggest opportunity to disrupt incumbents today is soft-software, tech-enabled services. Any company, it actually can be a manufacturing company, it doesn't matter, any company with a bunch of leverage on it. 'Cause those companies don't have the cash flow to innovate. And by the way, you can look at ninety-nine and two thousand and look what happened. And so we, we... If we had sat here in ninety-nine, we would have debated are all the traditional retailers gonna go bust, and are all these e-commerce companies gonna be gigantic? If you look today at the ten largest e-commerce companies in the United States, you know, six or seven out of ten of them are traditional retailers. They're people that were around way before ninety-nine. Walmart, Target, Home Depot, Lowe's. However, there were a bunch that went bust too. Sears, Kmart, you know, Montgomery Ward, Bed Bath & Beyond. And you, you have to ask yourself why. And most of those companies had huge amounts of leverage, so they couldn't innovate. Whereas like Walmart, we didn't have leverage and we're like, "Listen, we're, we're going all in. We're gonna like bet the company on this stuff." And you're gonna see the same thing, I think, today.

  3. 8:10 – 10:10

    ByteDance Is the Most Underrated AI Company in the World

    1. HS

      There, there's many things I wanna just somehow... You said you run a company for growth or you run a company for margins.

    2. MG

      Yeah.

    3. HS

      If we take like a Meta and a Zuck, he's running it for growth, which is why free cash flow is in the drains.

    4. MG

      Yeah.

    5. HS

      And now I think it's valued at like a thousand one hundred X free cash flow. [chuckles]

    6. MG

      Mm-hmm.

    7. HS

      Um-

    8. MG

      Well, the CapEx burn for all these things is totally insane.

    9. HS

      And he's being pummeled for it.

    10. MG

      Yeah.

    11. HS

      Is it right to pummel him for it, or is he in the right mindset for growth?

    12. MG

      This is the million-dollar question. Is Apple right, or is Google, Microsoft, and Meta right? And you know, like, Apple's spending very little right now, you know, and those other three or four companies are spending insane amounts of money. W- Time will tell. But we... It's probably somewhere in between is actually probably the right answer. Um, you know, I, I would argue though, you know, if, if you are, um... You know, it's interesting. If Mark Zuckerberg deserves to tr- to go for it, like he's... It's his business. He built the damn business. Like I don't think you really have much to say y- to be like, "Oh, don't bet on the guy." And by the way, he ha- he kinda has to because his competitors are, are doing the same thing as well.

    13. HS

      Yeah.

    14. MG

      So, um, look, I mean, our view is that ByteDance is the most advanced AI company in the world. Um, inter... And you know, it's r- very underappreciated by the Western world, like you know, how much AI they use, um, and, and how much they're investing in it. Our view, like AI is gonna change the world. It's an incredible thing. Like it's gonna... Now again, though, we sat here in ninety-nine, the word social media doesn't show up. We would never have talked about Facebook or anything, right? It's three trillion dollars of value now. AI is not gonna be about the next call center company or the next like Workday. I truly believe what we're seeing right now in the AI and like people investing in a lot of these AI companies across the board, look, some of them are gonna be gigantic, a whole bunch of them are gonna bust out, are gonna bust. But like, I actually think it's the stuff that's gonna start over the next like two to five years, those are gonna be like the giant businesses, and

  4. 10:10 – 12:00

    Should You Be Investing Right Now or Waiting?

    1. MG

      I don't even know what it is. I mean-

    2. HS

      We, we're gonna go back to ByteDance, but then do you agree with the play the game on the field analogy, or do you actually think there is such moving sands that actually an optimal strategy is to be conservative, not invest a ton right now given the transience of markets, and sit and wait for some form of new equilibrium to emerge?

    3. MG

      That's a great question. I think it depends on what business you're in. If you are an early stage venture fund where returns are made, you know, hundred Xs or zeros, you should be investing in stuff. Now, I think you should-- We like to always ask, if I make an investment and it grows for like eighteen months and it hits my numbers, am I like now in the money? The problem is when you invest at a hundred times revenues or something, you grow eighteen, you can grow at some crazy rate for eighteen months and you're like, "Well, I'm still nowhere near in, in the money." So we always like to ask ourself that. But if you're trying like... We're in the business of trying to make two to five times our money in three to seven years for like a twenty-five IRR, and like we, we don't drive zeros. Like we don't... We also don't have twenty Xs. I think we've had like two ten Xs ever, something like that, but we've only had like, you know, one or two zeros ever. And so it's this environment for us is just kinda wei-- it's just, it's different. Like-

    4. HS

      Are you finding it hard?

    5. MG

      It is definitely harder to invest today than it was in two thousand and seventeen, for sure. Although there's like different pockets of opportunity. You know-

    6. HS

      'Cause I-

    7. MG

      Like the secondary market for us right now a-and it's like exploding. And like our special sits business, you know, we just did a deal in a company that, you know, in a special sit and put two hundred million to work, and the company is, there's an... The company is now raising a round at like two X the price, you know, we invested at, and literally it happened a month ago.

  5. 12:00 – 16:35

    AI Won't Kill Software

    1. HS

      I don't understand. When you look at a lot of the growth equity investments that you and a lot of people have made in the last years, are they not made a lot more vulnerable in the new environment that we sit in?The like well-priced company up north in the UK that's doing like accounting whatever

    2. MG

      Look, one of our companies is, is Grafana Labs. Like it just-- it's a giant business growing crazy fast, and like, you know, it's be- it's, it's benefiting from a lot of this like AI spend. You know, their customers are a bunch of-- are some of these big AI companies.

    3. HS

      But I would say that's a straight down the fairway Silicon Valley deal. It's with, it's with Sequoia and it's like-

    4. MG

      Yeah. Yeah, but like when we invested, nobody knew what the company was. Like it was a bootstrapped twelve million dollar software company. Like us and Lightspeed were the first two investors in. It was bootstrapped. The guy had actually built like a twelve million dollar company.

    5. HS

      How did you find it?

    6. MG

      We-- cold calling. Cold calling the CEO.

    7. HS

      You cold called?

    8. MG

      Cold called. So we have a team of eighteen, twenty-two to twenty-four-year-olds like pounding the phones, calling companies all day long. And-

    9. HS

      Learned from Insight.

    10. MG

      Learned from Insight, yeah. So by the way, and they just replicated with Summit and TA'd it.

    11. HS

      Yeah.

    12. MG

      Um, yeah. So by the way-

    13. HS

      I just had Jerry Murdo on the show.

    14. MG

      Yeah, yeah. He, he's fantastic. So if you-- if the company calls you back, it's like hang up the phone. It's the CEO you call every two days for a month. That's who you wanna get on the phone. And look it, people are building like amazing companies. Like we have a business down in Florida that makes-- called Pacemate. Uh, it makes cardiac monitoring software. So if you put like a pacemaker in your body or a defibrillator, it takes the data off the device. That data then is sent to the manufacturer's like s- website. There's lots of different manufacturers, lots of different models. This is like single pane of glass software for, um, for cardiac clinics. By the way, it is like a ninety-nine percent gross dollar retention business. They-- these guys, when we first invested, it was like twenty million of revenue. Uh, had only b- had raised eight to get there, but only burned three. It was growing like fifty percent a year. I don't know, it probably did like forty-five million re-revenue last year, a few years, you know, after we invested. Um, by the way, we're gonna-- we're using AI to benefit. Like we have a h- a huge amount of people in the call center, or like in the customer service, like analyzing the data, making sure all this stuff is like, is working. The company can now continue to grow and not ac-- I mean, they don't have to fi- they're not gonna fire all these people, but they can, they can k-keep the same number of people and make people much more productive. And I think that's what people are missing, that like... I think there's two things. One, this is gonna lead to a giant productivity boom. Um, and two, um, in ter- like software companies have never been about like R&D. This is not semiconductor, Dustin. Like it's very different. So if you were to look at your average software company that goes public, you know, if you look at cumulative spend since inception, it's usually around like thirty percent is R&D. So like a huge amount of these businesses are about like sales and marketing, distribution, customer support, things like that. But like AI will help a lot of those things.

    15. HS

      Are you worried that we might see a-- I'm sure you read the Citrini research piece, um, or saw it come out and, you know, wipe billions off the stock market, essentially saying that we-

    16. MG

      That, that's a more incredible thing.

    17. HS

      What? That-

    18. MG

      That some random person can write a research report. Imagine if we had Twitter in two thousand and eight. Like it's incredible. Like why don't-- it's amazing that people are listening to some random research firm versus listening to people like Stan Druckenmiller, Howard Marks, Ken Griffin, Steve Cohen, like Marc Benioff, people like Mark Zuckerberg, uh, you know, Jensen Huang, who's like, "Software is not dead at all." Like yet a random research r-report can, you know, get twenty-five million views and takes it off the stock market. It's crazy.

    19. HS

      Is this not the ultimate sign, though, that we're seeing the casinoization of public markets?

    20. MG

      Yes. [laughs]

    21. HS

      Yeah.

    22. MG

      Yes.

    23. HS

      A-a-and that-

    24. MG

      Which actually makes it-- by the way, that's the opportunity for long-term investors. Like you buy, you know, as Warren Buffett said, you buy when people are scared. Like and you can make-- you'll be able to make lots of money.

    25. HS

      Or the flip side, you don't wanna take part in entirely irrational markets which are no longer tied to value.

    26. MG

      Look, I was working at a hedge fund seeded by Julian Robertson in two thousand and eight and two thousand and nine. This is nothing like this. This is like amateur hour. This is like nothing. Like this isn't even volatile compared to like what was going on back then. The market was whipping. The, the, the indexes were whipping up and down like eight percent in like intraday, in intraday moves. Like you'd have fifteen percent swings. Like this-- but that presents the opportunity, by the way. Had you bought in early o- in like oh-nine or late oh-eight, you know, and bought great companies, you could make a ton of money. And so like this is the opportunity to buy stuff on sale. Now again,

  6. 16:35 – 18:08

    Legacy Software Isn't Going Anywhere

    1. MG

      you-

    2. HS

      Okay. H-I-I'm gonna push back on you there and say there was no fundamental like technology inflection point in two thousand and eight which could render an incumbent set relatively redundant, which there is today.

    3. MG

      The mainframe business is still a five and a half billion dollar market. Mainframes, they came out in nineteen fifty. Most banks are run off of mainframes. Oracle is a legacy software company. Microsoft is a legacy software company. SAP is a legacy software company. They are some of the biggest software companies in the world. These companies are not going away. I will bet any amount of money on it. Now, th-there will be some that will, so focus, focus on the companies that have ninety, ninety-five, ninety-eight percent gross dollar retention. Now, there will be new giant companies created, one hundred percent. But n-not-- like most of these incumbents will not disappear. They will-- like some of them will innovate and become exponentially bigger. Some of them will grow five, ten percent a year. I mean, there are a ton of software companies that have been around, you know, twenty, thirty years that are still growing. Um, and you know, I actually think the biggest disruption you're gonna see is in like manufacturing, is in like healthcare, is in, um, you know, think about like the companies that can figure out how to get drugs to market much faster than anybody else. Like I think, I think AI could potentially like... So huge parts of cancer could be solved. Dementia could be solved 'cause you can run drug trials faster. Think about manufacturing. If AI and robotics can come about, the company that, you know, if you have two competing companies that make cars, one's levered, one's not levered, the one that's not levered is probably gonna be able to invest a lot of resources into, you know, completely, you know, you know, it's gonna be hugely beneficial

  7. 18:08 – 26:35

    AI & Jobs: People Overestimate the Speed of Change

    1. MG

      for them.

    2. HS

      Totally get that. Going back to what we were just talking about, you know, we were saying about the casinoization-

    3. MG

      Yeah

    4. HS

      ...and how crazy it is. You, we mentioned productivity increases.

    5. MG

      Yeah.

    6. HS

      Are you worried that we will see productivity increasesBut with that, less and less consumers having jobs and a weakening of consumer wallets

    7. MG

      Not really. There were a couple million switchboard operators in nineteen eighty. There's been lots of jobs that have been lo- you know, lost over the years. Think about all the number of re- you know, there's been retailers over the years that have gone bust. People innovate, and it's funny, I was just talking to somebody at one of the world's largest banks, very senior person at one of the world's largest banks this week in London, and his point was, "Look, we have hundreds of thousands of people in like back and middle office. Those people have... We've trained them for five to twenty-five, thirty years, right? These people are not all gonna... We're not getting rid of them all. We're gonna retrain them. And by the way, the people that don't wanna be retrained will be, 'Okay, fine, go work for the government then,' 'cause, you know, you can do like old school jobs there." But like a lot of these pe- like companies will retrain people. They'll do different things. It's a, it's remarkable. Throughout history, there's been like lots of technological disruption over the last hundred years, and like people find new things. If you're, if everybody's worried about, uh, everybody's gonna lose their job, you got- then don't invest in any of these companies 'cause it's gonna be a com- it would be a complete disaster. It's like I would... I guess I tell people like, "If you're worried about China invading Taiwan, you really shouldn't worry about your ByteDance position 'cause you're gonna have a lot bigger things to worry about." Um, at some point, by the way, the government would get very involved, like if, if all of a sudden all these jobs start to disappear and you have ten, twenty, thirty percent inflation, or sorry, unemployment. It's not, it's not happening. First of all, people always think this change comes faster than it does. Most big companies that are like financially regulated, you can't even go on to Claude or ChatGPT. Like li- you can't even like get on the system to do work. And by the way, we're still five years in. It's literally like people woke up a month and a half ago and were like, "Oh my gosh, all these companies are gonna go away, and like unemployment's going to thirty percent." Like it's, it's, it's, it's, it's nonsense. It's silly. Like we're gonna sit here in ten years, and we're gonna have like, like it's gonna be an amazing time to invest. You're gonna have a bunch of amazing new companies come and created. Well, you're gonna have a bunch of them. You'll have some bui- some legacy and companies that went to zero. Not all of them or anywhere near all of them. You know, you're still gonna go to retailers. You're still gonna get your hair cut. Like but the, um... I just think it's gonna be like an amazing time to invest. And by the way, during periods of volatility and the, you know, the casinoization of the stock market, you want to buy fundamentally good businesses on multiples of earnings. Like-

    8. HS

      Do you, do you worry that the world is just being memed? That the world is-

    9. MG

      Yes

    10. HS

      ... being calcified?

    11. MG

      Yes.

    12. HS

      Fucking calcium. The world is just a fucking calcium polymarkets replica.

    13. MG

      It's, it's totally insane. Like, uh-

    14. HS

      Is that a momentary thing, or is this a new world of social media, dopamine junkies, real time?

    15. MG

      It, it's a great question. Look, I mean, I- I've joked for years that, that social media is like the demise of society. Um, yeah, look, I mean, Jonathan, uh, has done a amazing research on like, you know... This stuff needs to be regulated. It will be regulated. Um, it is incredible, though, how fast information moves. You know, right? And, um, just imagine if like Twitter had been around in two thou- or been, you know, big in like two thousand and eight and two thousand and nine. It's absolutely incredible. And now, um, I will say that this... look, the makeup of the stock market is different today than it was, you know, twenty years ago. Passive, you know, passive ETFs are much bigger. The retail stuff comes and goes, um, like retail trading, but, um, you just have to buy good businesses when they're on sale. Like buy good businesses at multiples of fundamental. If you don't have earnings, there is no floor. Um, but if you have earnings, like in free cash flow, then, you know, um... Yeah, another thing that people... Well, the reason a lot of these stock or stocks and internet stocks are actually still not cheap is because the stock-based comp. Like the stock-based comp in a lot of these companies is totally nuts. Like the amount of e-equity compensation and dilution the founder t- of like, o-of like shareholders is, is very high, and I'm actually surprised more people don't talk about it.

    16. HS

      Why are we not talking about it? What do we not know that we should know? Are we in a new norm for the Snapchats and OpenAIs of the world to have unreasonably high SBC and no one question it?

    17. MG

      It's, you know, some of the big public market investors have been questioning it for a while. It's surprising that more people don't talk about it and just look how much like stock option dilution there is in a bunch of these big Silicon Valley companies. It's not as bad outside of Silicon Valley, but like the dilution is real. Like, uh, I'm, I'm surprised more people don't talk about it.

    18. HS

      What should happen? Like if you're a Snap holder, and Evan is running a, a gifting program right now.

    19. MG

      Yeah.

    20. HS

      Like...

    21. MG

      I don't know. It's... Look, we're not activist shareholders, and I, and I, um... At all. You would... Like I have a lot of respect for entrepreneurs like Larry Ellison, who effectively did a levered recap of Oracle. You know, he, he basically was like, "I have all this, I have all this c- free cash flow. I'm gonna borrow debt and buy back an enormous amount of stock." And what did he do in the process? He didn't sell any of his own, so he just kept making it. He'd make sure it can't go down, not up. Um, people forget that in companies there's, you know... It's market cap equals number of shares times price of shares. Um, and so like, you know, and so companies that respect, you know, that have discipline on that I think are s- are powerful.

    22. HS

      We, we've seen so many names that are so well known be in the dumps.

    23. MG

      Yeah.

    24. HS

      And, and a lot of people are questioning, "Oh, well, are the CEOs and the management team buying when they're in the dumps?" You know, the ServiceNow CEO who bought three million dollars worth.

    25. MG

      I mean, I think Salesforce just came out and said they're gonna buy fifty billion dollars of stock or some crazy number. It was a, like from the earnings report last night. No, I agree with you. By the way, companies should be buying back stock. Those that aren't buying back stock, you should question and ask why.

    26. HS

      Okay, but ServiceNow's bought three million dollars worthOkay.

    27. MG

      Yeah.

    28. HS

      Which is less than his car collection.

    29. MG

      Yeah. But I don't know, is the company buying a lot of stock back? I don't know. But you have to ask, also ask like how much stock does the CEO of ServiceNow already own? Does he own $300 million of stock? Um, but like that should tell you something. The companies that the found- the-- where the like founders are buying or the companies are buying huge amounts of stock back, like that, that to us would make one more bullish on that company versus like another company, 100%.

    30. HS

      Hmm.

  8. 26:35 – 31:11

    Why Mitchell Thinks China Wins the AI War

    1. MG

      Um-

    2. HS

      Yeah, but in a de-globalized Trump world, I'm, I'm just doing the, the kind of alternate argument here just to understand. In a de-globalized Trump world, it's not gonna list in the US, is it?

    3. MG

      Zero percent chance it'll list in the US. No, I mean, uh, that's right. So I have no clue.

    4. HS

      Sure.

    5. MG

      But no, it'll list in Hong Kong. Like, um, that, that's where, you know, a lot of these... But it's great. You know, people have been talking for years that they're gonna like delist all these U- these Chinese companies, Baidu, CTrip, Baba. They never did. Like, um, and th- keep in mind, like Alibaba and Tencent... Or Alibaba's stock has like doubled off the lows over the last year. So like sentiment today on China is a lot better than it was eighteen months ago. Although we were buy- you know, when we were buying Byte, [clears throat] when we were buying ByteDance stock, like, you know, w- you know, we were, we were buying it at prices like sub, you know, around two hundred billion dollars. Like we, we thought the risk-adjusted r-reward given the earnings power was just like incredible. I also think that, that, um-

    6. HS

      Well, who's-

    7. MG

      Don't count China out. I bet they win the AI world. I bet they win it. I think that win, it's not right, but like look, the great thing in China is you can build a nuclear power plant in a couple years. You can build power plants like no problem. But we, in the US, we are gonna run into major issues around power.

    8. HS

      Why do you think they win the AI war? Just because of the power?

    9. MG

      Because of the power, resources, consumption, like number of PhDs, like how much they value science and technology, and, um, I think power though is a real... And like look, there's things that could totally change it. Like nobody's really talking about quantum. We are not quantum experts at all. But is that something that could make these things like exponentially more efficient? Um-

    10. HS

      How does that realization change how you invest? I completely hear you, and I agree.

    11. MG

      Yeah.

    12. HS

      I think we still dramatically underestimate the capability of China-

    13. MG

      Yeah

    14. HS

      ... or just choose not to think about it or push it to one side. But if that is the realization, how does that impact your go-forward mindset on investing?

    15. MG

      Well, that's why we own a lot of Chi- that's why we own a lot of ByteDance. Um, but it's not like winner take all. It's not that ByteDance wins and like Google and Facebook and, you know, but loses. A year ago, when I was probably on the show, I don't, I don't know if we talked about like Google. Everybody thought Google was gonna lose. They're like, "Ah, Google's dead. It's done. Like nobody's gonna search it." Seen the stock in the last year? Stock's like doubled. Now it's gonna win everything. Now it's gonna beat OpenAI and all these other things. No, like they're both, they're both gonna be fine. The, the, the biggest question for us on these LLM model companies is can they ever turn like a real-- can they ever turn like a real profit? Like I just don't know the answer. Uh, and I don't think anybody really does right now. Um, but again, I think another thing you're gonna see in the United States as it relates back to power, and, and you really haven't seen much of it yet, is local communities getting like really upset. Like you're the, you're the small local town in Iowa or the small town in, you know, Kansas or Ohio or wherever, Virginia, and you know, they built this giant data center. They employed all your people. They employed a ton of people locally to build it. They then built it. Now it sits there and has fifty local people that work there, and your power, your power, local power prices have tripled. And like is it polluting the environment and things like that? It's this big ugly building. Like I think you're gonna see real local pushback, and I don't think it's only the United States. I think it's probably Europe as well. Um, and it's like, hey, you know, these people that are, are not better off today than twenty years ago, and these things are in their backyard and, you know, people in Silicon Valley and the coast are making tens of billions and a hundred billions and hundreds of billions of dollars off them. Like I think there's gonna be like real pushback, and there needs to be regulation on it.

    16. HS

      Do you not think climate is a luxury problem? We were all so worried about it in the last three to five years, and now no one gives a shit about it.

    17. MG

      We should be worried about it.

    18. HS

      Clim- climate investing is in the drains.

    19. MG

      Yeah. We should be worried about it. Like, um, like it's, it's probably important. Look, it's-- we've always struggled with how do we invest there because of how capital inefficient a lot of those businesses are.

    20. HS

      Yeah.

    21. MG

      Um, but I mean like and--And I think like just China has some advantages in that res-respect, whether it's like sol- giant solar farms they can build or whether they, they can just, they can do things that we, we can't do. But I would expect look, if you look at the internet, the, the biggest innovation in internet is usually, is over the last decade or fifteen years has come out of China. Like if you actually wanna look where like e-commerce is going and like social media is going is go look at China. Like that could happen in, um ... I, I d- you know, it was not a surprise to me when DeepSeek came out, but don't, don't, um, underestimate like Chinese, uh, creativeness and like ingenuity, um, to like figure out how to like reverse engineer and engineer things in much cheaper ways than Americans can do.

  9. 31:11 – 36:00

    Buying Is Glamorous, Selling Is the Job

    1. HS

      Can I ask you, going back to the ... uh, not specifically on the ByteDance, but I actually really want your advice on the sell side, which is like when you look at a, a ByteDance-

    2. MG

      Mm-hmm.

    3. HS

      There's many opportunities to sell-

    4. MG

      Mm-hmm

    5. HS

      ... in, in a lot of these names, so not taking ByteDance specifically. How do you think about, "Ah, you know what? We're 3X up on where we are. We've been in it for four years. Let's take chips off the table." How do you think about sizing positions over time, and have you got any big lessons or advice for me on that?

    6. MG

      Buying is glamorous, selling is the job. Constantly under- re-underwrite. That is actually what it really is, and we're trying to make 2 to 5X in three to seven years. If you put that in to a, a, on a curve, that's a twenty-five IRR curve, put it into a fund, make it two to two and a half X net fund. That's what we're trying to do. Like, that's what we tell our investors. So we're constantly just re-underwriting to saying like, okay, like if we were gonna sell a bunch of, uh, ByteDance today at five fifty, which is, you know, where it's been reported that like General Atlantic is selling a bunch and there's other people, and we've been offered higher than that. And so I think it's always like what is the probability it can double? And, and then we ... To, on ByteDance, we look at like what fundamental earnings are and we're like, "Okay, th-this is doubling no problem." Now if somebody came to us today and said, "Hey, I'll offer you one point three trillion dollars," we'd sell a bunch. N- because it's, it's not that I don't think the ... I think the company will do a hundred billion of earnings in the next five years, and that's at 20 times, that's worth two trillion dollars, but like there's a risk. What does it trade at at a multiple basis? W-what, what would we be on our total investment at that price?

    7. HS

      Sure. And how far ahead are you paying for growth? And at-

    8. MG

      Correct

    9. HS

      ... a point, there's a really valuable moment to go, yes, you're paying four years out-

    10. MG

      What we like to... Oh, yes. Correct. What we like to say is, is I think this has actually kept us out of a lot of trouble too, which is like are we in the money eighteen months out? Like that's what we think. With a reasonable multiple, are we in the money eighteen months out? And, you know, and can you-

    11. HS

      Can you like unpack that? What do you, what do you really mean by that?

    12. MG

      So like if we invest today and revenues are twenty million dollars with a reasonable model-

    13. HS

      Yeah

    14. MG

      ... at eighteen months out, are we in the money? Like with a reasonable multiple, not fifty times revenues.

    15. HS

      But do you buy with your companies like the pacemaker company, I didn't wanna pick on them, so I'm just-

    16. MG

      No, it's fine

    17. HS

      ... like twenty to forty-five million, which is great, phenomenal, fantastic, but like who's gonna buy that company?

    18. MG

      I mean, there's a line of strategics that would buy it. There's private equity firms that would buy it. The, um, I mean-

    19. HS

      At a good multiple?

    20. MG

      Yeah. We'd make great money. By the way, y-y- you know, we forgot what I p- what, what did I pay for it? Like y- you know, we, we ... Good investment and good company are two very fundamentally different things too, and you're trying to like get the union of both of them. Like there's a lot of A+ companies at D- prices.

    21. HS

      Yeah.

    22. MG

      Nor do I also wanna buy a D- company at A+ price. You're trying to find the-

    23. HS

      Do you not wanna buy, do, do you not wanna make that investment? I've, uh, you know, I'm always taught by, uh, most people on the show that I've never made money with a good deal.

    24. MG

      See, like I would strongly disagree with that statement. Like there are a lot of people that invested in good companies or great companies in 2020 and 2021 at really stupid prices and didn't make money. So it's like, it's the intersection of both. It's not like you're not trying to buy a D asset at an A+ price. That's like zero. But like if you can buy a B+ company at an A+ price, we have over the last f- twenty years, you can make like amazing risk-adjusted returns. But look, we also buy A+ companies too, and you can buy like the, the great thing is, is can you do like structured secondaries or can you do like really unique things like some of the stuff Larry will do and we'll do, and can you buy an A+ company or an A company at like a, a s- a B, a B-, C+ price? Those are like incredible deals. Um, can you get in like cheap through buying out old LPs out of an old fund that need liquidity? Um, by the way, we're, you know... I joke that we're an Nvidia earnings miss away from like a recession. By the way, if you get that, a bunch of old funds are gonna be like, you know, they have horrible DPIs. You're gonna have all these LPs that are like, "You know what? I'll sell an interest in my, this 2013 fund or this 2015 fund," and be able to buy stuff, you know, super cheap. But like the, I, look, w- um, there are j- there are also different b- beliefs. People are just like, "Oh, look, there are a lot of people in the venture business that are just like I will pay anything because I'm trying to get like the power law and I'm trying to find the next Google."

    25. HS

      Would you not advise me though that actually when a, when you have a world where upside is relatively uncapped and you have trillion dollar companies, or at least m- many more hundred billion dollar companies, I should be so much more elastic on my pre-billion dollar entry price than paying three hundred or six hundred? I know-

    26. MG

      No, because most companies don't become that. Like the vast majority of... It just depends what you tell your LPs. By the way, we tell our LPs make two to 5X in three to seven years, rinse and repeat, generate two to two and a quarter X, two to two and a half X net funds with 29 IRRs, and it turns out if you can do that over like a t- twenty-year period of time, you are like the best of

  10. 36:00 – 37:54

    There Are 50% Too Many VCs in the Market

    1. MG

      the best.

    2. HS

      Dude, I, I, I'm very good friends with Jason Lumpkin from SaaStr.

    3. MG

      Yeah.

    4. HS

      He was on a, on a show with me very recently. He said, "Oh, fuck this picking winners early stage stuff. I just wanna do an anthropic-ass PV. It's much easier."

    5. MG

      It's not easy to do this stuff. Um, the, uh, I think there, I think 50% of people in the venture business should not actually be in the biz. There's 50% too many VCs. Maybe more. There might be 70. Actually, it's not only VCs. It's private equity, alternative access.

    6. HS

      What makes you say that?

    7. MG

      There's, there's too much money and there's like too many tourists, and there's people that don't show likeInvesting, you need to show discipline on price. Like go talk to the greatest venture investors on the planet, and they'll be like, um, like price matters at the end of the day. Again, let's see what all these companies get out at, at the end of the day that are valued in the trillions of dollars. There aren't that many of them, to be clear. Um, right? And look how much earnings a company like Facebook and Google and Microsoft and Amazon and Nvidia generate, like profits. I think there's a lot of companies that are way ahead of themselves in terms of like valuations and what their profit numbers will be at the end of the day.

    8. HS

      Do you think we will have more or less money in venture in three years' time then?

    9. MG

      Probably less. I don't know. At some point, I don't know if it's three years or five years or seven years for sure, people are gonna wake up in 20- in 2030, in 2032 and realize it's, oh my God, they're still all in this stuff from 2012 and 2015. Like if you weren't selling, when are you gonna sell? That's actually the best advice I would give to s- to to young fund managers and like people starting funds is liquidity windows open and close, and when they are open, t-take advantage of them. Like you should be selling even if you're winners, sell 20%, sell 30%, sell 5%. And like continue to g- again, your job is to return money. Like, you know,

  11. 37:54 – 41:30

    DPI Is Math, Marks Are Opinions

    1. MG

      um-

    2. HS

      Companies are bought not sold. Uh-

    3. MG

      Yeah, like I guess marks are opinions. DPI is math. And so like you c- no, no, companies are bought not sold. That's not true, but you don't have to sell the whole company. If there's a round being done in a company that you're investors in, especially if you're, if you're s- if you're a small new fund, you can go to the founder and be like, "Oh, founder, you've taken some money off the table. Like I won't be in business in five years if, you know, if I can't get some liquidity back to our, back to your company." So by the way, you can do the math. If, if you build the next giant company and you, you know, you sell some at 500 million or a billion, like who cares? Like you still own 80, 90% of your whole thing. But like LPs want money back, and the people that stay in, that are gonna be in business 10, 15, 20 years from now are people that will continue to give money back to their investors.

    4. HS

      Are you seeing LP sentiment change today around what they care about, do you think?

    5. MG

      Absolutely. I think you've started already seeing it. So we've always cared about DPI, but, um, I think that the, you know, we've, we've always been really disciplined, two to five X, two to seven years, like hit it, move on. You know, probably a third of our deals have been secondary sales. So people have accused us of being traders. That's fine. Like I'm, I guess I'm a trader. But you know what? I gave money back to my investors. And guess what? The investor like is my client. Like they, they, you know, I have two clients, entrepreneurs and investors. Without investors, I don't have any mo- I don't have a business. And so like, I think people need to r-remember like who pays the bills. Um, and I, and I, and I, I do think that investors are very, very, very focused on DPI now. And I think if you are-- and, and it is possible with a small early-stage fund as a new relative upcomer in the first couple funds, you can actually generate amazing DPIs. It, it's a game you can play. I don't know if you've ever had like Fabrice Grinda on here or Jose Marin from, from like FG Labs. Those guys are like 10, 15-year LPs of ours, friends. Those guys have played the game extremely well. They, they understand that not every company goes to the moon. Take some chips off the table, give it back to your investors, rinse and repeat.

    6. HS

      I think the advantage that a lot of these small funds have that most people don't consider is they're able to sell so much easier without-

    7. MG

      Correct

    8. HS

      ... really disturbing kind of-

    9. MG

      Oh, yeah. Like-

    10. HS

      ... progress at all.

    11. MG

      No.

    12. HS

      If you're, if you're Fabrice Grinda, with respect to him, he can sell very easily, and it's not a big problem. If you are Sequoia-

    13. MG

      Correct. It's hard

    14. HS

      ... it's hard.

    15. MG

      It, it's like negative signaling, 100%, versus that's what I'm telling younger funds. It's, you can be like to the entrepreneur, "Hey, you're selling some stock. I really need to sell some stock here. Why? Because if I don't return money back to my investors, like I won't, we won't be talking in three years 'cause I'll need to find a new job 'cause I won't have a, I won't have my second fund."

    16. HS

      Do you worry about being a trader and that not being an attractive investor to founders?

    17. MG

      Nope, 'cause I believe if you, uh, help founders and do what you say you're gonna do-- Now, a lot of investors don't do that either. I, I think there's 50, 60% of people in this industry that actually probably add negative value to companies. Um, but if you-- I, I... The simplest lesson I think f- entrepreneurs, anybody can learn, and I learned it early in life, is just if you say you're gonna do something, actually do it. It's like the number of people that promise, like overpromise and, you know, and underdeliver, like be the reverse. Underpromise, overdeliver. And so like if you've been really helpful to an entrepreneur, helped them recruit, helped them like, you know, uh, helped them recruit, helped them like with customers, you sell 20% of your holdings, like who cares? Keep helping them. I mean, we have, we have companies we've sold 100% of that we still help drive customers to. Like it's like, great. By the way, great, you helped me make like five times my money. Nobody else in the cap table is liquid. We sold all of our stock. I'll keep helping you, please.

    18. HS

      What are the most

  12. 41:30 – 44:55

    How Investors Destroy Value for Founders

    1. HS

      common ways you see investors provide negative value to companies for founders listening that they should watch out for?

    2. MG

      Burn money at all costs. Um, recruiting. They actually just act like they know how to run the business. By the way, I never ran a company in my life, though I know or have like 98% of venture investors or private equity investors. Get people around the table that have done what the entrepreneur's trying to do. So if like you're a $20 million AI company or a $20 million software company, find entrepreneurs around the table. Help the ent- help the founder recruit people that have built businesses from 20 million to 200 million and get them around the table and get out of the way, is truly the advice that I, I, I think. And like I just think there's too many knuckleheads, you know. The worst is somebody, you know, who went to bus- Stanford Business School, worked for 18 months at a startup, and now comes in, you know, is a venture investor, and now they're experts, right? Like, I, I just think it's be humble and don't act like you know, because most of these, by the way, myself included, have never actually runI'll bet, I mean, look, again, if you wanna start a venture fund or growth equity fund, I've done that. I can give people advice on that. But, like, if you, if you're trying to figure out how to build out a great sales team, go talk to great sales leaders and get advice on that. So I actually think that's the best way that VCs or private equity people can help founders and entrepreneurs, is connect them with people who have done it before and help them recruit. I truly think that's why Sequoia and Benchmark are great and Index are great, 'cause they help founders and entrepreneurs recruit amazing talent. And, and, and people wanna work for those funds' portfolio companies.

    3. HS

      Dude, I just sound, I'm a switchboard. [laughs]

    4. MG

      All right.

    5. HS

      I honestly just feel like the women in the 1960s, you know, connecting people all day.

    6. MG

      Yeah.

    7. HS

      'Cause I'm like, "No idea how to do that. Speak to my friend down-"

    8. MG

      Speak to my friend.

    9. HS

      "... C- CPO." [laughs]

    10. MG

      Exactly. 100%. Great.

    11. HS

      N- but no idea how to do that.

    12. MG

      And I, and I, and I think that's what the best entrepreneurs actually want to-

    13. HS

      100%. Uh-huh. Here's my mid view from seeing a load of companies. Uh, no, don't want that. Um-

    14. MG

      No, no.

    15. HS

      You, you said they're like, "Oh, a negative value is like, 'Hey, burn money, burn money.'" They say, "Burn money, burn money," 'cause they need to see growth.

    16. MG

      Mm-hmm.

    17. HS

      And they are looking at markets today going, "For me to get my next round of funding, the game's changed."

    18. MG

      Yeah.

    19. HS

      It's no longer triple, triple, double, double. It's, "I need you to go from zero to honestly 30, 40 for this to be interesting."

    20. MG

      Well, that's about right, 'cause that's, 'cause that's the price that they paid in the deal. Like, if you, if you paid these asinine prices on the way in... By the way, what's, what's really interesting to me in the market right now, and we don't even see any of these deals 'cause it's not what we do, is these, like, people that spin out of like, or like leave Anthropic or OpenAI and [chuckles] raise money at like $2 billion or $1 billion-

    21. HS

      Several

    22. MG

      ... for a, for a freaking idea. Like, there's nothing more than an idea and a napkin. To us, that seems complete lunacy. What I actually wanna know, have any of those ever actually worked ever? Like, has anybody ever raised at some crazy price initially, just like on an idea on a napkin, like billions of dollars or $500 million, and have any of those things actually ever worked? I don't know.

    23. HS

      Anthropic?

    24. MG

      What was their first-- I don't know what the orig-

    25. HS

      I mean it was-

    26. MG

      When did, like, Dustin Moskovitz invest? I think it was pretty small.

    27. HS

      I- it was like billions.

    28. MG

      No, no.

    29. HS

      But a single d-

    30. MG

      I think the original seed deal was e- was, was, like, much lower than that. I don't know, is the short answer. But I thought, like, when Dustin and some of these guys invested, like the seed, it was, like, much lower, but I don't know.

  13. 44:55 – 46:42

    Gross Dollar Retention: The Most Important Metric

    1. HS

      yeah.

    2. MG

      Okay. Yeah, yeah.

    3. HS

      I'm not sure about that. Um, we, we said about kind of burn money and they want the growth. Is the triple, triple, double, double dead? There's so many SaaS founders who ping me every day, and they're like, "I've been told for 10 years, you know, triple, triple, double, double, and then we'll be in a good place to raise our next round. I, I'm in that third year where I've doubled, and I'm now gone from 10 to 20, and no investor wants me."

    4. MG

      I think it's... By the way, that, w- by the way, call us. We think those things are interesting 'cause we can get 'em at potentially good prices. That's where it matters, like, what is your gross dollar retention? So we-- Like, here's the deal. It's the most important number in, in tech companies, gross dollar retention. But what I mean by gross dollar retention too, 'cause everybody wants to quote nets, is gross dollar. You ended 24 with, you know, you ended 2024 with 20 million of revenue. What did those same-- What did you end at 2025 with just those same customers? No upsells, just downsells. You know, 18 is good. Like, you want, like, 90%. Um, anything less than 18 we won't touch. Great is 19. Incredible is 19.5. Like, you're looking for 90% gross is good, 95% is great, 98 is amazing. Now, the problem is a hu- and by the way, the reason why there's so much dead wood in venture and, like, all these living dead, there are so many companies with, like, 60, 70, 80% gross dollar retention. Yeah, good luck. I don't... You know, and the prob- it's not when you're 10 million in revenue that's the problem. It's when you get to, like, 150 million of revenue and you're, like, have 70% gross dollar retention. You're just, like, churning through. And so that's why, like, the company that's got 95 gross dollar retention can grow really fast and not burn much money, because they're not spending money on sales and marketing

  14. 46:42 – 48:35

    What Happens to Private Equity's Leveraged SaaS Portfolios?

    1. MG

      to fill up the bucket.

    2. HS

      If you're Atoma Bravo-

    3. MG

      Mm-hmm

    4. HS

      ... and you've got your Coopers and your Anaplans, but the companies are kinda growing at best mid-teens, what, what happens to this generation of growth equity PE investors in tech?

    5. MG

      So I, look, I think growth equity and, like, buyouts are very different. And I think even buyouts are very... Like, I think, like, people like Hellman and Fried- like, if you wanna go to the large cap, people like Hellman and Friedman and, um, people like Primera are probably slightly more growth-oriented, and there are probably p- there are other firms that are probably more, like, margin-focused. I think it's probably a function of how much debt they have on their companies, to be honest. I have not looked and spent tons of time, like, studying the, the financials of Coupa Software or, you know, Anaplan and things like that. If I was them, it's like I know that all these companies, they drive EBITDA margins from 5% to 40%. The question is, how are they doing it? Which I, I don't know. Uh, um, I would hope that they've done it mainly through, like, cutting really inefficient go-to-market and sales and marketing and G- GNA. I would hope they haven't taken the engineering sales count, head count from 200 to 20. I suspect they have not, but, like, that would worry me i- if, if they had done that. But I suspect they have not. Like, by the way, these people are really smart people. Like, and the question is if, if those companies have been bought with no debt, then they, um, they would be investing hugely, I'm sure, in AI and stuff like that. They probably already are. But, like, for me, that's why w- what I said at the beginning, we worry about any company and any big technological disruption that is levered with a lot of debt on it, regardless if it's a software company or a manufacturing company or an accounting services firm or an industrial services firm, whatever. Like, with debt, you're just, like, hamstrung with how much you can do 'cause you have massive interest payments

  15. 48:35 – 1:00:10

    The Meme-ified Stock Market Is Making the Liquidity Problem Worse

    1. MG

      to make.

    2. HS

      Do you not worry that given the casinoization of public markets and the volatility that ensues from a Figma where it rides up to where it is to then being-

    3. MG

      Which is totally insane

    4. HS

      ... in, in the gutter, and Atlassian, which is posting accelerating numbers and it's down 76%.

    5. MG

      So you buy, you buy a company like Atlassian. That would be my argument.

    6. HS

      Okay, fantastic. I agree.

    7. MG

      Yeah.

    8. HS

      I think Mike's amazing, also founder-like company, going back to my point.

    9. MG

      Correct, 100%.

    10. HS

      If I'm Canva, I'm looking at this going, "There's no fucking way I'm going out." If I'm Stripe, I'm going, "Thank you. I feel very vindicated in my decision to stay private." Does this meme-ified stock market not just make-

    11. MG

      It's not good for LPs, put it that way.

    12. HS

      It makes the liquidity problem worse.

    13. MG

      Correct. So what will change it? When LPs go to the biggest venture funds in the world and private equity funds and say, "We're not investing in your next fund until you get liquidity in these names." Man, that, that's the reality of it. Um, but, but I, I don't... I agree with founders, by the way, too. Um, I do think there are-- Look, there are companies, there is something to be said for a company going public. I'm friends with a bunch of guys that run big public spec funds.

    14. HS

      You just had EquipmentCheck go public.

    15. MG

      Yeah, go public. And by the way, they went public. By the way, stock's actually done quite well. Like, um, and actually it's like a derivative play. So it was our derivative play on AI, 'cause build data centers, right? You gotta like get a shovel, and you gotta get like a dump truck. Um, but again, that was a company in 2020 and '21 that everybody thought was like a tech company. It's not a tech company. It's like an equipment rentals business run by a couple awesome founders that are like, that are studs and like killers. And, you know, we were able to partner with them to buy a bunch of secondary from people that were like desperate to sell and like it's been an awesome-

    16. HS

      So that's how you got into that business.

    17. MG

      Yes, bought a ton of secondary.

    18. HS

      You bought a ton of secondary from people who wanted to sell.

    19. MG

      Yeah. They were like, "Oh, this is a tech company." No, no, this is an equipment rentals business that uses some technology. It will, you know, drive higher EBITDA margins and better utilization rates. And by the way, they went public 'cause they want to like, they, they want to, uh, like, get their brand well-known. There are a bunch of companies out there, you know, like the Vivas of the world and Datadogs, and why'd those companies go public? CrowdStrikes. Because big enterprise companies are like, "AI, like are, you know, how big are you? Like are you, are you like survivable?" 'Cause you have the big public companies like being like, oh, Mic- Microsoft telling people like, "Oh, this company's gonna go out of business." You're like, "That's not a business. It's like a thirty billion dollar company." And so like being public, um, being public helps, I think, with credibility. On the flip side to the entrepreneur, I get why they don't go public. They get a billion dollars of cash, or two billion dollars of cash. But so I think it is... So for us, it's really about finding entrepreneurs that like we are very confident will be public company. That like we talk to them up front, like, "Listen, if your plan is to try to stay private forever, you're, you're just not for us. Like w- we just don't wanna invest in you." By the way, not because we don't, we don't disrespect you, but it's just like we need to get out of stuff at some point.

    20. HS

      Why, given the fluidity of secondary markets, if you spoke to a Collison who's like, "Yeah, we absolutely wanna stay private forever," and you're like, "Great, but I can... There's very liquid secondary markets for what you're saying."

    21. MG

      Yeah, that's true. There is now. Um, I just, our view is we wanna back entrepreneurs that if w- if we think the thing has a very good shot at going public, we wanna hear from, we wanna hear from the entrepreneur that's like, "Look, I wanna go public." By the way, you know how many more public companies there would be right now if these companies didn't have six hundred million dollars of cash on the balance sheet or a billion dollars of cash? If they only had thirty million, they'd all be public companies. Um, just it's the amount of money that's available for these companies is incredible. Now again, now who knows if, I have legitimately no clue if like Stripe is trying to buy PayPal, but if they're trying to buy PayPal, they would probably rather be a public company right now to do it, unless they've got some sovereign wealth fund that's gonna write them a forty billion dollar check. Like, you know-

    22. HS

      So just help me understand, why would Stripe being public help them buy PayPal?

    23. MG

      Well, you, how are they gonna pay for it now? I mean, 'cause if, if Stripe was a hundred and, I don't know what even what, I don't know what the market cap of-

    24. HS

      Hundred and fifty million dollars for Stripe.

    25. MG

      For Stripe. If Stripe was worth a hundred and fifty and PayPal's worth fifty-

    26. HS

      Hmm

    27. MG

      ... well, they'd have a liquid publicly traded stock that they could then merge together. They would be a cash offer, and then they'd get the, the shareholders of PayPal get liquid stock, and they would sell the stock. Like that, that's a cash, that's an all stock merger. That happens all the time as public companies. PayPal shareholders are not taking private stock in Stripe. Like that's not gonna happen. The, the public companies don't do all cash offers. Now, could they, could they go public in a reverse te- in a reverse merger? Maybe that's the way. Maybe you reverse merger into, um, into PayPal. Again-

    28. HS

      There is no freaking way-

    29. MG

      I can't imagine that happens

    30. HS

      ... the Collisons would ever do that.

  16. 1:00:10 – 1:04:04

    Quick-Fire Round

    1. HS

      agree. Let's do a quick fire round, my friend.

    2. MG

      Sure.

    3. HS

      What have you changed your mind on in the last 12 months?

    4. MG

      That I think AI is even gonna be bigger than we thought it would be. Like it's, it's, it's gonna change the world in like so many more areas that we're not even like thinking about.

    5. HS

      What's the single most memorable first founder meeting you've had?

    6. MG

      Nat Friedman, founder of Xamarin. W- We nego- we, uh, we, we white boarded how to save money with Starwood Airline points and like, uh, and sorry, Starwood Hotel points and Delta Airline points. [chuckles] Like he's just like a great humble guy, like normal guy, like, and now he runs obviously AI at Facebook.

    7. HS

      You can invest in one seed firm, one Series A firm, and one growth firm. Which do you choose?

    8. MG

      S- A Series A fund would probably be BenchmarkUm, growth fund would be myself because that to me, that's what I invest in. I have a huge amount of respect for the guys at Iconic though. We don't really compete against them because they're-

    9. HS

      Yeah

    10. MG

      ... more Silicon Valley. We're outside Silicon Valley. Seed fund, I don't know. On the seed fund stuff, it's, it's like... Oh, another one. We don't have much experience with them, but I think the found- I mean, those founder fund guys have, like, their returns are totally nuts. Um, so that would be another really good fund as well.

    11. HS

      What's been the hardest decision you've made in your career?

    12. MG

      Hardest decision has been to hi- to hire people that have the kind of same, um, view on how to generate returns, and so it's like you're a cohesive group. I think that's, like, just like the hardest, like you can-

    13. HS

      Because yours isn't the sexy way.

    14. MG

      It's not the sexy way. Correct. And so like you-

    15. HS

      And for young people-

    16. MG

      The hardest decision is-- Actually, the hardest decision was, did we, should, should we have in like nin- two thousand and seventeen and eighteen, like, and sixteen, like pay, like w-when everybody, when we were paying five to seven times revenues for software companies, and Iconic came in and started paying ten times and just like winning the best deals and prices. We're like, "We know these are the best companies. Should we do these deals?" We did not. We were wrong.

    17. HS

      What was the biggest miss and how did that change your mindset?

    18. MG

      Oh, I mean, like, uh, I mean, Procore, we were in it, tiny amount. We did the deal with Bessemer, put a tiny amount of money in, and like we were in a position to lead the next round that Iconic did, and then two rounds later, we sold to them. Now again, this, this decision to sell actually wasn't that big a deal because it wasn't that big a position. No, I mean, the mistake was not actually investing. Oh, I don't know. We also got two million dollars in the Shopify IPO because we knew the founders and, um, that would've returned our second fund, like two X had we just not sold the stock. Like didn't have to do anything.

    19. HS

      What investor do you most respect who does not get spotlight?

    20. MG

      Probably my partner, Nimay, actually. Um, I just think he's like insanely disciplined. He's like, you know, like the, like loss ratios. I mean, I think, I mean, maybe lost-- I don't think he's ever lost money. Maybe he's lost money on one deal ever. Um, no, again, he's never had ten Xs or twenty Xs either. Probably my partner, Nimay.

    21. HS

      Final one. What are you most excited for when you think about the next ten years?

    22. MG

      Actually, what I'm the most excited about is there's gonna be a really bad downturn. It's gonna be d- it, you know, it's different than ninety-nine and two thousand, but there's gonna be a really big, big downturn and like markets just don't go up forever, economies just don't go up forever. Uh, I think there's a lot of policies in the government and the world like right now that might end really bad. That'll be-- And I think it's gonna happen in the next ten years. That'll be the best time ever to invest. And with combined, like the productivity booms like that you're gonna have with AI. It's like you avoid the gen one AI companies, just like, you know, if you had avoided the, you know, internet one point O companies and then think about all the internet, the, the internet companies that were started in like O three to like O six and like I think the same thing could happen with AI, which again could benefit like an anthro-- like a Thrive or a Andreessen who are raising these new giant funds and they could potentially invest it during those periods as well.

    23. HS

      Always have money to play the game.

    24. MG

      Correct. If, yeah, if you don't have money, you're out of the game. So.

    25. HS

      Dude-

    26. MG

      Cool

    27. HS

      ... this has been such a pleasure.

    28. MG

      Thanks.

    29. HS

      Thank you so much.

    30. MG

      Thanks for having me on

Episode duration: 1:04:14

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