20VC Roundtable Are IPOs Back Is Growth Dead What Does it Take to Raise a Growth Round Today How Do VCs Solve The Liquidity Challenge Will We See a Massive Resetting of Valuations AI Hype Growth Rounds

In a roundtable discussion featuring growth investors Devin Pereck from Insight and Woody Marshall from TCV, alongside SaaS community leader Jason Lempkin, the conversation centered on the state of the growth market in technology. Despite a slowdown in late-stage growth and IPO activity, the panelists expressed optimism, citing recent strategic acquisitions like Cisco's purchase of Splunk and successful public offerings from solid business models. They debated the valuation recalibration needed in the wake of 2021's inflated prices and the importance of aligning incentives for investors and employees alike. The discussion also touched on AI's impact on the market, with a general consensus that while valuations are high, the technology represents a fundamental trend. The group concluded that growth is not dead, but rather that the market is adjusting to a more sustainable pace and valuation framework.

• The technology sector experienced a significant pause in IPOs and large-scale mergers and acquisitions (M&A).
• Cisco's acquisition of Splunk and three companies going public at scale with solid business models indicate growth is not dead.
• The challenge lies with companies that exhibit poor growth and high burn rates.

"We went over a year without any tech ipo. We went about a year without any kind of meaningfully large strategic M&A. Cisco just bought splunk. You had three companies go public at real scale, which are real business models."

The quote highlights the recent developments in the tech industry, including the notable acquisition and IPOs that suggest a resurgence in market activity after a period of stagnation.

• The roundtable aims to address the question of whether growth in the tech sector is truly dead.
• The episode features prominent growth investors Devin Perek and Woody Marshall, alongside SaaS community leader Jason Lemkin.
• The discussion will explore recent IPOs, investor optimism, and future expectations for the market.

"Everyone says that growth is dead. And so today in this roundtable episode we unpack is growth really dead? Should we be optimistic about the ipos that we've seen and what should we expect?"

The quote sets the stage for the roundtable discussion, framing the central question regarding the state of growth in the tech sector and the outlook on recent IPOs.

• Canva's Magic Studio introduces AI-powered tools for design, including Magic Design and Magic Edit.
• Magic Design creates custom designs from text prompts or media uploads.
• Magic Edit allows for image modifications with a simple text prompt.
• Canva offers a vast library of templates and content to assist teams in achieving their design goals.

"Canva is on a mission to empower the world to design. That is why they've introduced Magic Studio."

The quote explains Canva's mission and the introduction of Magic Studio, which enhances design capabilities through AI tools.

• Mercury is praised for its user-friendly business banking experience and aesthetic design.
• The platform is appreciated for its ease of use and onboarding process.
• More than 100,000 startups have adopted Mercury for their banking needs.

"Mercury has been a breath of fresh air. Getting started was maybe one of the most delightful onboarding experiences I've had."

The quote reflects a user's positive experience with Mercury's business banking services, emphasizing the platform's ease of use and onboarding process.

• Navan offers cost savings up to 30% on travel and expenses while rewarding employees.
• Employees earn personal travel credit when they save company money under the travel policy.
• Navan is confident in their all-in-one travel, corporate card, and expense app, offering incentives for demos.

"Navan rewards your employees with personal travel credit every time they save their company money."

The quote describes Navan's unique approach to travel and expense management, where cost savings for the company translate into personal travel credits for employees.

• Devin Perek introduces himself as the Managing Director at Insight, with experience since January 2000, having witnessed market fluctuations.
• Woody Marshall, General Partner at TCV, joined the firm in 2008, focusing on growth and technology in software and consumer sectors.
• Jason Lemkin runs SaaS, a global community for SaaS founders, and has a decade of seed investing experience.

"Devin Perek, managing director with Insight. Been at Insight since January of 2000."

The quote introduces Devin Perek and his long-standing role at Insight, setting the context for his perspective on market trends.

• Devin Perek asserts that growth is not dead, citing Insight's portfolio companies' substantial growth in a challenging macro environment.
• Investment pace has slowed, but companies that have executed well and have reasonable valuation expectations can still raise capital.
• Many companies capitalized on favorable conditions in 2021, raising significant funds, which has reduced the urgency for new rounds.
• A return to a more traditional market pace allows for better relationship-building between investors and companies.

"First of all, growth is not dead. Let's start with underlying growth in actual companies."

The quote from Devin Perek counters the narrative that growth is dead by pointing out the continued growth of companies within Insight's portfolio.

• Woody Marshall agrees with Perek, noting the decrease in transaction volume and the valuation disconnect between buyers and sellers.
• Companies are engaging in transactions for strategic reasons, such as M&A or thoughtful growth investments.
• Secondary market transactions are providing partial liquidity for some investors.
• Companies need compelling reasons to raise funds due to valuation gaps.

"Nevin's totally right. I mean, volumes are down. There's still a disconnect between buyers and sellers."

The quote from Woody Marshall acknowledges the current market conditions and the challenges in aligning valuations between parties.

• Companies with high valuations from previous funding rounds face the challenge of scaling into those valuations.
• The focus is on ensuring that the team remains motivated, which may require realigning equity incentives.
• Performance of the company and its team is the ultimate determinant of valuation.
• Smart companies are proactively addressing valuation issues to avoid making suboptimal business decisions.

"Yeah, but I think there's two different constituencies that I worry about. In that case, obviously, I worry about myself because I might have written a check or two, but probably more importantly, I actually worry about making sure that the team is incented."

The quote from Devin Perek expresses concern about ensuring that teams remain motivated in light of challenging valuations, highlighting the need for adjustments in equity incentives.

• The expectation is that returns on investments made in 2021 will take longer due to lower market multiples.
• Companies need to adjust to the current market valuation to maintain employee motivation and make appropriate decisions.
• Unrealistic valuation expectations can lead to poor decision-making and hinder company growth.

"It's going to take us longer to get our returns. It just is, because multiples have come down."

This quote emphasizes the impact of decreased market multiples on the timeline for investment returns, indicating a need for patience and adjusted expectations.

• Companies must consider the most efficient ways to allocate capital in the current market environment.
• The temptation to "go all in" and maintain high valuations can be counterproductive.
• It is crucial to be realistic and honest about the company's valuation, even if it means accepting a lower figure.

"The only way we're going to be worth anything is we have to literally put everything in. I'm all in on black. As opposed to thinking about how should you most efficiently allocate capital given the environment that you're in today."

This quote from Devin Perek highlights the risky strategy of betting everything on one outcome, suggesting a more calculated approach to capital allocation is advisable.

• Companies attempting to preserve past valuations by using structured securities can create artificial valuations, leading to misalignment with current market values.
• This approach can complicate employee stock option pricing (409A valuations) and is not consistent with public company standards.
• Public companies, such as Facebook, take action based on stock performance, implying private companies should also adjust valuations based on performance.

"The one thing I'd add, where you have companies where they're trying to hold on to that last valuation, forget now from an employee standpoint, but because they think it's better to go to their employees and say, our valuation is flat, when everybody, including the employees, know it's not."

Devin Perek's quote stresses the importance of being transparent about valuation changes, as employees are likely aware of the true situation, and dishonesty can harm company credibility.

• Structured terms are often criticized for being toxic due to their potential to create misalignment between investors and companies.
• While structured terms may seem beneficial in successful outcomes, they can lead to significant issues if the company does not perform as expected.
• The preference for alignment over structured terms is to ensure that all parties have the same motivations and benefit equally from company growth.

"Well, look, it's great when the outcome works, right?"

Devin Perek acknowledges that structured terms can be advantageous when a company succeeds but implies that the risks associated with them can outweigh the benefits.

• Misalignment between investors and company interests can occur when structured terms do not match the company's performance or exit opportunities.
• Investors prefer alignment to ensure that all parties are working towards the same goals and making decisions that benefit everyone involved.
• Structured terms may bridge valuation gaps but can also lead to conflicts and suboptimal outcomes.

"So I like alignment. Now, what I'm not saying is two things. One, I'm not saying that we don't have any companies that have it, and b, I'm not telling you that we've never done a deal that has it..."

Devin Perek expresses a preference for alignment over structured terms, though he admits that they may sometimes be part of the deal, despite the potential drawbacks.

• The venture capital industry faces challenges in resetting valuations, which may not align with the interests of venture capitalists or their limited partners (LPs).
• LPs are waiting to see if valuations have fully adjusted to the market, and there is a need for honesty in pricing to resolve decision-making issues.
• Firms with sophisticated valuation processes, reviewed by auditors, are less likely to manipulate valuations.

"And if you talk to lps, there are many of them that are waiting have all the shoes dropped."

Woody Marshall points out that LPs are cautious and want to ensure that all valuation adjustments have been made before making further decisions, indicating a desire for transparency and fairness in valuation practices.

• There is a market for SaaS companies with substantial ARR, decent growth, and no clear path to an IPO or strategic acquisition.
• Companies with poor growth and high burn rates are less attractive to investors.
• The public markets have shifted focus from revenue growth to profitability, path to profitability, and free cash flow, affecting private market valuations and strategies.

"I think you're going to see, and we've done a bunch of these deals, others will have done some of these deals. Those are going to be companies..."

Devin Perek predicts that private equity will show interest in certain SaaS companies, particularly those with reasonable growth and revenue scale, despite not being ideal candidates for public offerings or strategic acquisitions.

• The correlation between revenue growth and company valuation has decreased, with more emphasis now on a path to profitability.
• Investors are considering long-term software multiples and expecting some upside from current revenue multiples, but not a return to the peak levels of 2021.
• Over time, valuation metrics may shift from revenue multiples to EBITDA, gross profit, and ultimately net income.

"Today it's in the mid 30s. What's the spread? Well, path to profitability or free cash flow, and everyone's reset now..."

Woody Marshall discusses the changing dynamics in valuation metrics, indicating a shift towards profitability and away from a sole focus on revenue growth.

• Founders and companies must navigate the balance between growth and efficiency, considering macroeconomic impacts and the desire for re-acceleration.
• There is no one-size-fits-all answer to whether companies should prioritize growth or efficiency, as it depends on the specific circumstances of each business.
• Admissions analogy highlights the need for companies to excel in both growth and efficiency to be competitive.

"Jason, I think the problem is, I think it's kind of very hard to generalize the answer, right."

Devin Perek emphasizes the complexity of decision-making regarding growth and efficiency, suggesting that the right approach varies significantly based on the company's unique situation and market conditions.

• Business models and market conditions heavily influence the approach to managing a company's growth and expenses.
• Companies may experience overbought periods, requiring expense cuts before reacceleration.
• Growth rate changes depend on various factors, including the business model and income statement dynamics.
• There is no one-size-fits-all rule for managing these aspects in a business.

"It kind of depends on your business model, depends on kind of what's changing about your income statement, what affected your growth rate."

This quote emphasizes that managing a company's growth and expenses is not straightforward and varies depending on specific business circumstances and financial factors.

• Spending time understanding the product and customer enthusiasm is crucial.
• Core product value and the pacing of customer relationships are key metrics.
• Gross retention and net retention are important, with net retention also driven by additional products and features offered to customers.
• Companies that innovate and iterate well can create new product initiatives that weren't discussed at the time of initial investment.

"Understanding what the core value of a product is, what should the pacing of a customer relationship look like?"

This quote highlights the importance of understanding the fundamental value of a product and the dynamics of customer relationships in driving business growth.

• Revenue multiples are a significant topic in SaaS venture investing.
• There is a debate on whether current revenue multiple benchmarks are sufficient for sustaining true growth markets.
• Late-stage growth, defined as pre-IPO, is currently the least active part of the growth stage market due to uncertainties in underwriting returns.

"If 50% growth with great economics are eight times forward, there's a lot of companies that have less good economics."

This quote discusses the relationship between company growth rates, economic performance, and their revenue multiples in the market.

• The late-stage growth market's activity does not necessarily drive IPO market trends.
• Companies with strong economic models and predictability may bypass late-stage funding rounds and go public directly.
• Public markets will determine valuations based on companies' long-term economic value.

"I don't really see a relationship between a slowdown in the late stage market and the IPO market."

This quote suggests that the slowdown in late-stage growth investments does not directly impact the timing or likelihood of IPOs for companies ready to go public.

• Companies should bet on themselves and focus on execution for valuation.
• Selling a small percentage during an IPO can be strategic.
• Long-term public market performance is more important than initial IPO pricing.

"The only thing that's going to determine ultimate valuation is your execution."

This quote implies that a company's operational success is the primary determinant of its valuation over time, rather than the conditions of its initial public offering.

• Late-stage investors may need to adjust valuations based on public market conditions.
• Successful companies may seek late-stage funding for liquidity before an IPO without expecting massive returns.
• Market corrections have been internalized, and methodical valuation processes have adjusted to market conditions.

"I think that the most likely investors that are already talking to them are the same people who are going to buy stock if the companies go public in the public markets."

This quote reflects the idea that late-stage investors are often long-term players looking to build positions in companies they believe in, rather than seeking quick returns.

• Venture investing is inherently risky, and mistakes are unavoidable.
• A risk-averse investment team is undesirable, as it can lead to mediocre fund performance.
• Methodical valuation and market adjustments are necessary to manage investment risks effectively.

"If all of a sudden you start smacking people on the hand if they make a mistake in a risk business, what are you going to end up with?"

This quote addresses the need for venture capital firms to accept and manage risk without penalizing investment managers for individual mistakes, as it is part of the nature of the business.

• IPO performance is influenced by macroeconomic factors and market conditions.
• Stock performance post-IPO may not necessarily reflect the health of the underlying company.
• The approach to IPOs should be based on company reporting and long-term potential, not short-term market reactions.

"I wouldn't say at all that the stock performance is indicative of the underlying companies."

This quote suggests that the immediate stock performance following an IPO does not always accurately represent the company's true value or potential.

• Valuation is determined by company performance.
• Going public in a volatile market is a self-bet.
• Current market conditions require companies to be realistic about their valuations.
• The macroeconomic environment is a significant factor in public offerings.

"But the fundamentals again is valuation is only determined by your performance. And going public in a market like this, you're betting onto yourself."

This quote emphasizes that a company's value is fundamentally linked to its performance, and choosing to go public is a bet on its own potential in the current economic climate.

• There was a significant drought in tech IPOs and large strategic M&A for over a year.
• Infrastructure software companies focused on cloud optimization, reducing volume.
• Recently, there has been a positive turn with acquisitions and profitable companies going public.
• Perception of the market can be seen as half empty or half full, depending on the viewpoint.

"We went over a year without any tech IPO. We went about a year without any kind of meaningfully large strategic m and a and we went through twelve months where every infrastructure software company was talking about cloud optimization, which was driving down their volumes, right."

This quote describes a period of stagnation in the tech IPO and M&A space, with a focus on cloud optimization impacting company volumes.

• Klavio's valuation and IPO pricing are discussed.
• Pricing to perfection versus optimization is debated.
• The potential impact of leaving money on the table or taking dilution during an IPO is considered.
• The restarted market raises questions about the right approach for companies going public.

"Should it have ipo to 25? A company leaves a bunch of money on the table or takes some dilution."

This quote questions the appropriate IPO pricing strategy for a company like Klavio and the implications of either undervaluing or overvaluing at the time of going public.

• Aftermarket performance can be positive even if companies leave money on the table during IPO.
• Institutional investors gain confidence from portfolio performance.
• Companies are expected to price their offerings reasonably.
• Macro uncertainty affects the timing and success of public offerings.

"Other companies leave money on the table and have great aftermarket performance. I'm not complaining, if that's your question."

This quote suggests that even if a company doesn't maximize its IPO pricing, it can still perform well in the aftermarket, which is not necessarily a negative outcome from an investor's perspective.

• The AI market is considered frothy, particularly at late stages.
• AI is a fundamental trend with significant impacts, but direct investments in AI are approached with caution.
• Many companies are leveraging AI, but the investment focus may be on infrastructure rather than AI directly.
• Valuations in AI are currently high, leading to cautious investment strategies.

"We have been active in AI, but ironically, almost zero of it was invested in 2023."

This quote indicates that while the speaker's firm has been active in AI investments, they have not made significant investments in the year 2023, suggesting a cautious approach due to high valuations.

• The fundability and valuation of a SaaS startup with specific growth and net retention rates are discussed.
• The importance of the size of the total addressable market (TAM) and the duration of growth compounding are highlighted.
• Rational expectations for exit multiples and growth rates are necessary for investors.

"Certainly probably worth the Clave multiple, right?"

This quote refers to a hypothetical SaaS startup's valuation, suggesting it could be worth a multiple similar to that of another company, Clavio, given certain growth and net retention characteristics.

• Predictions about market capitalization and stock prices are made.
• The speakers discuss potential bets on the future performance of companies like Klavio and Arm.
• The conversation reflects the speculative nature of predicting market movements and the difficulty in forecasting returns.

"I'll bet ten grand to anyone that takes it. That Clavio. Twelve months from when this episode goes out, or today, whatever Harry says trades it 20% or higher from where it is today."

This quote shows one speaker's confidence in Klavio's stock price increasing by at least 20% over the next year, illustrating the speculative aspect of investing and market predictions.

• Chip shortages and AI advancements are affecting markets.
• Market liquidity and investor behavior can significantly influence stock prices.
• Fundamentals may not always be the driving factor in stock valuations.

"And if people are trying to get liquid that have been long term investors, arm is very closely held that could know the stock price more than anything else."

This quote points out that factors such as investor liquidity needs can impact stock prices, sometimes more than the company's fundamentals.

• Mercury is praised for its business banking services.
• Canva's Magic Studio is highlighted for its AI-powered design tools.
• These tools and services are crucial for startups and businesses.

"Mercury has been a breath of fresh air."

This quote reflects a customer's positive experience with Mercury's business banking services, indicating its importance for the startup community.