The Twenty Minute VCRoundtable #4 with Jason Lemkin, Woody Marshall, Deven Parekh, Harry Stebbings | E1071
CHAPTERS
- 0:00 – 0:19
Market mood shift: IPO drought, M&A returns, and “glass half full” framing
Deven sets the tone by contrasting a year-long freeze in tech IPOs and large strategic M&A with recent signs of reopening. He points to Cisco–Splunk and a few scaled IPOs as evidence the market is thawing, even if conditions remain challenging.
- •Tech IPO market had been largely shut for ~a year
- •Large strategic M&A was absent until deals like Cisco buying Splunk
- •Recent IPOs are “real business models,” not speculative stories
- •Framing matters: cautious optimism vs pessimism
- 0:19 – 2:57
Who’s at the table: backgrounds and incentives of growth vs SaaS community investing
Harry introduces the roundtable participants and their investing contexts. Deven (Insight) and Woody (TCV) describe large-scale growth investing, while Jason (SaaStr) frames his perspective as a seed investor looking ahead to IPO outcomes.
- •Insight’s multi-stage software investing platform and experience through cycles
- •TCV’s growth focus with many investments at $50M+ revenue and some profitability
- •Jason’s SaaStr community vantage point and desire to see more IPOs
- •Setting expectations for a cycle-aware discussion
- 2:57 – 8:17
Is growth dead? Underlying company growth vs slowed deal velocity
The group distinguishes between real business growth and the pace of new financing. They argue growth in strong companies persists, but transactions are down due to buyer–seller valuation gaps and reduced opportunistic fundraising.
- •Portfolio companies can still grow 50%+ even in a tougher macro
- •Deal volume/pace down sharply vs 2021–2022
- •Opportunistic ‘bid-up’ rounds have largely disappeared
- •More time for diligence and relationship-building is returning
- 8:17 – 9:39
Why fundraising is harder: runway from 2021 raises, costlier debt, secondaries, and motivation
They explain why many companies aren’t raising despite needing capital eventually. Big 2021–2022 war chests reduce urgency, while higher interest rates make debt expensive; meanwhile, secondaries provide partial liquidity without a full new round.
- •Many startups raised huge cash buffers at peak valuations
- •Higher rates changed the calculus—debt is no longer “free”
- •Secondary transactions offer limited liquidity to early holders
- •Capital is available for strong operators with realistic pricing
- 9:39 – 14:13
Scaling into inflated valuations: incentives, option repricing, and employee alignment
Harry raises the issue of companies needing to ‘grow into’ extreme 2021 valuations. Deven and Woody emphasize that the bigger risk is talent and incentive misalignment, pushing companies to reset 409As and reprice equity to keep teams motivated.
- •Investors may wait longer for returns; some outcomes become “money back” scenarios
- •Employees lack preferred downside protection—equity incentives must be reset
- •Lower 409As can be healthy, not shameful
- •Avoid decision-making driven by preserving paper marks rather than building value
- 14:13 – 18:19
Structured terms debate: when “bridging” valuation gaps becomes toxic
Jason challenges the idea that structured rounds are always bad, arguing they can help bridge price gaps. Deven and Woody agree structure can work in best-case scenarios but warn it creates misalignment—especially if a ‘good’ acquisition offer arrives below conversion hurdles.
- •Structure only matters when things don’t go perfectly—like preference stacks
- •Misalignment risk: founders/investors may reject reasonable exits due to terms
- •Structure can obscure true valuation and complicate future financing/409A
- •Principle: align incentives so everyone evaluates outcomes the same way
- 18:19 – 20:15
Valuation resets and VC marking: LP optics, auditing rigor, and “living in the past”
Harry asks whether VCs delay marking down portfolios to avoid fundraising pain with LPs. Woody notes it’s a real issue, but larger firms have audited processes that constrain gamesmanship; ultimately, inconsistent marks create conflicting motivations across cap tables.
- •LPs notice discrepancies and delayed markdowns across investors
- •Different holders may carry the same company at different prices
- •Auditor-driven valuation processes reduce flexibility at large firms
- •Fair pricing and aligned incentives matter for long-term decisions
- 20:15 – 22:15
Private equity’s role in the next wave: who gets bought and who gets stuck
Discussion shifts to PE/sponsor activity for $100–$200M ARR SaaS businesses that aren’t clear IPO or strategic targets. Deven highlights a danger zone—low growth with high burn—while noting public markets now reward credible paths to profitability more than pure growth.
- •Sponsors can buy scaled SaaS companies lacking obvious IPO/strategic paths
- •“Lower-left quadrant” (low growth, high burn) is most at risk
- •Public comps now price profitability/FCF more heavily than revenue growth alone
- •Rule of 40 framing reasserts itself for quality businesses
- 22:15 – 25:53
How to underwrite exits now: multiple contraction, Rule of 40 shifts, and metric evolution
Jason asks whether today’s profitability emphasis will persist through 2025–2026. Deven explains they underwrote 2021 deals expecting major multiple contraction; Woody adds that valuation metrics evolve from revenue to gross profit to EBITDA to net income as companies mature.
- •2021 underwriting often assumed ~50% multiple contraction (sometimes worse at trough)
- •Today’s software multiples are below long-term medians but not catastrophically
- •Rule of 40 ‘components’ have shifted from high growth/negative margins to balanced profiles
- •As businesses scale, markets increasingly anchor on earnings power
- 25:53 – 29:36
Efficiency vs growth isn’t one rule: business-model specificity and product-driven durability
Jason presses on whether investors will accept slower growth today if efficiency is strong and re-acceleration is plausible. Deven rejects one-size-fits-all rules, contrasting cases where slower growth reveals unprofitable acquisition vs temporary macro overhang; Woody emphasizes product strength and extensibility as the real driver of durable growth.
- •No universal ‘efficient is fine’ rule—depends on what drove growth slowdown
- •Some growth was artificial (e.g., uneconomic payback periods) and shouldn’t return
- •Enterprise demand can re-accelerate after overbuying cycles normalize
- •Deep product value and extensible roadmap enable long-term net retention and upsell
- 29:36 – 35:10
SaaS investing feels broken? Late-stage growth freeze and the IPO timing argument
Harry raises the concern that low public SaaS multiples (e.g., ~6x ARR) could undermine the growth market. Deven argues the most frozen segment is late-stage/pre-IPO growth where private expectations exceed public comps, but that doesn’t necessarily delay IPOs because strong companies can go straight to public markets without a validation round.
- •Late-stage growth is hardest to underwrite when private prices exceed public comps
- •Early/growth-stage bets are less tied to current public comps than late-stage rounds
- •IPO window may reopen without late-stage private rounds serving as ‘price discovery’
- •Debate: H2 2024 vs H2 2025 for meaningful IPO recovery
- 35:10 – 43:34
Klaviyo and the “put the puck on the ice” IPO playbook: small floats and long-term execution
They dissect what recent IPOs signal and how companies should think about going public. Woody argues small sell-downs (<10%) mean IPO price vs last private mark matters less; public markets reward execution over time, though macro volatility and small floats distort near-term trading.
- •Recent IPOs sold small percentages—focused on starting liquidity and price discovery
- •IPO price vs last round is less important than multi-year execution
- •Small float + macro shocks can drive unusual volatility and short interest dynamics
- •Public company benefits: liquidity, M&A currency, accountability to guidance
- 43:34 – 46:09
Should IPOs be ‘underpriced’ to restart the market? Direct listing vs aftermarket ‘sizzle’
Jason asks whether Klaviyo should have priced lower to create a big first-day pop and reignite broader IPO demand. Deven notes that leaving money on the table triggers backlash about broken IPO mechanics; still, strong aftermarket can boost institutional confidence—yet macro uncertainty makes any pricing decision fragile.
- •Tradeoff: spark a rally vs criticism for ‘money left on the table’
- •Aftermarket strength can increase willingness to buy subsequent IPOs
- •Pricing is constrained by volatile macro conditions during deal windows
- •Long-term holders focus on fundamentals, not day-one optics
- 46:09 – 48:25
Frothy AI deals: hype cycle reality, infra vs apps, and why 2021 pricing may look better than 2023
Harry probes why AI late-stage deals look overheated even as SaaS is subdued. Woody calls AI a foundational shift but notes TCV hasn’t made AI-specific bets; Deven says Insight has AI exposure largely from 2021 infrastructure investments and is cautious in 2023 because valuations outrun maturity and the landscape shifts rapidly.
- •AI is pervasive across portfolios even without ‘AI pure-play’ investments
- •Valuations appear ahead of product and defensibility in 2023
- •Rapid model/platform changes can obsolete recent startups quickly
- •Insight’s AI exposure skewed toward infrastructure and earlier (2021) entry points
- 48:25 – 54:54
Real-world valuation clinic + closing bet: what a ‘50-50-0’ SaaS is worth and Klaviyo price wagers
Jason presents a concrete scenario: $50M ARR, 50% growth, break-even (50-50-0) with >100% NRR—asking if it’s fundable and at what multiple. Deven says it’s fundable and likely at least at Klaviyo-like multiples, then the group closes with playful bets on Klaviyo’s 12-month performance and brief ARM hesitation.
- •A high-quality 50-50-0 SaaS business is still growth-fundable
- •Valuation depends on TAM, runway, and durability of compounding growth
- •Key underwriting question: does growth stay near 50% or decay to ~20% in year 5?
- •Closing: bets converge on Klaviyo being up meaningfully over 12 months; ARM avoided due to low conviction
