20VC Will Seed Pricing Remain High Where is the Funding Crunch Three Core Elements Required to Raise a Series BC Why AI is Like the Lottery Today Why Now is the Best Time to be Investing in Crypto Why Investors Do Not Want to Reprice Companies

In this dynamic roundtable on "20 VC" with Harry Stebbings, venture capitalists Nicole Quinn of Lightspeed, Rebecca Kaden of Union Square Ventures, and Yuri Kim of Forerunner Ventures delve into the shifting venture capital landscape. They discuss the future of consumer applications with crypto underpinnings, the impact of AI on venture investments, and the challenges of maintaining momentum through different funding stages. They also touch on the importance of clean terms over structured deals and the necessity of building businesses that solve real problems. The conversation suggests a return to collaborative investing across stages, a potential retreat of multi-stage funds from seed rounds, and an increased mortality rate for startups unable to secure Series B and C funding. The panelists also predict a shift away from consensus-based venture capital towards more innovative and specialized investing, underscoring the significance of liquidity and the evolving role of venture in a more cautious market.

• The next era of consumer applications will integrate crypto without it being the main focus.
• Crypto rails will be a foundational element but not necessarily visible to the user.
• There is optimism about reviving from a crypto winter.
• The present is seen as the best time for crypto ventures.

"The next era of consumer applications will look like a consumer application and have crypto rails buried beneath the hood and is going to revive a crypto winter. Now is the best time ever for crypto."

The quote highlights the belief that consumer applications will increasingly incorporate cryptocurrency technology in a seamless manner, suggesting an underlying confidence in the crypto market despite recent downturns.

• AI is compared to winning a lottery, indicating its high value and transformative potential.
• The exact context or continuation of the lottery analogy is not provided.

"I would say AI is akin to winning the lottery and what I mean by that, it is the lottery of."

This quote suggests that AI holds exceptional promise or value, akin to the rarity and fortune of winning a lottery, but the speaker does not complete the thought to explain the full analogy.

• Investors are currently cautious about entering the market and repricing investments.
• Some prefer taking a significant downround over adding complex structures to investments.
• Encouragement for portfolio companies to accept lower valuations rather than complicated deal structures.

"Time we are seeing across the board. Investors are very hesitant to come in and reprice things." "I would much rather take a significant downround than having structure on that. That's what I'm really encouraging our portfolio companies to do."

These quotes reflect the current investment climate where investors are cautious and hesitant to adjust valuations. The speaker also expresses a preference for simpler, albeit lower, valuations over complex investment structures.

• The roundtable with Harry Stebings was unscripted and spontaneous.
• The discussion included Nicole Quinn from Lightspeed, Rebecca Caden from Union Square Ventures, and Yuri Kim from Forerunner Ventures.
• Harry Stebings invites feedback on the roundtable format via Twitter and promotes the full video on YouTube.

"This is 20 VC with me, Harry Stebings, and today this roundtable was totally unscripted, no questions ahead of time, and I'm so glad what an amazing discussion it was."

Harry Stebings describes the nature of the roundtable discussion as unscripted and expresses satisfaction with the quality of the conversation, inviting further engagement from the audience.

• Notion is presented as a tool that consolidates notes, docs, and projects.
• Notion AI can automate tasks and assist with content creation within the platform.
• A free trial of Notion AI is advertised with a link to support the show.

"What was supposed to simplify your workflow just made it way more complicated. Unless, of course, you're in notion."

This quote critiques the complexity that can arise from using multiple digital tools and positions Notion as a solution that simplifies workflow by integrating various functionalities, including AI.

• Mercury offers an intuitive and aesthetically pleasing banking experience for startups.
• Described as easy to use and compared to finding a kindred spirit.
• Mercury is a fintech company offering banking services through partners.

"Mercury is just so easy to use." "The aesthetic of it is actually quite relaxing." "For me. It was less a choice and more finding a kindred spirit."

These quotes praise Mercury's user experience, ease of use, and emotional connection, suggesting that the banking service provides more than just financial transactions but also resonates with users on a personal level.

• Navan offers cost savings on travel and expenses and rewards employees with personal travel credit.
• A promotional offer includes receiving personal travel credit for taking a demo.
• The service is an all-in-one travel, corporate card, and expense super app.

"But now you can reduce costs up to 30% and actually reward your employees."

The quote introduces Navan's value proposition, which is to provide cost savings and incentives for employees, positioning the service as beneficial for both companies and their staff.

• Yuri Kim, Rebecca Kaden, and Nicole Quinn introduce themselves and their respective venture capital firms.
• They discuss their investment focus, approach, and the evolution of their funds.

"I'm Yuri. I'm a partner at Foreigner Ventures." "I'm Rebecca Kaden. I'm a managing partner at Union Square Ventures." "I'm Nicole Quinn. Or Nikki as Margarita drinking good friends like Harry call me."

Each speaker provides a brief introduction, offering insight into their professional roles and the character of their interactions within the venture capital community.

• Lightspeed Venture Partners has scaled their funds to support companies throughout their journey.
• Growth funds and opportunity funds are differentiated by stage and investment strategy.
• Opportunity funds are for later-stage investments over a billion dollars and often in companies already within the portfolio.

"What's the difference of a growth fund and an opportunity fund?" "Opportunity is later stage, like over a billion, and then the opportunity fund mainly goes into companies we've already invested in, whereas select new companies."

These questions and answers clarify the distinction between growth funds and opportunity funds, with the latter focusing on later-stage, high-value investments, often in companies with prior investment relationships.

• Traditional seed funds can still compete with multi-stage funds for hot seed companies.
• Structural venture capital rewards hustle and early engagement with founders.
• There is a shift back to valuing unique ideas and hypotheses over consensus.

"Disagree. I disagree with that for a bunch of reasons." "You are going to have an era, a vintage of big funds that are God awful performances, right."

The speakers debate the viability of traditional seed funds in the current investment landscape, with some expressing disagreement with the notion that they cannot compete. The discussion also touches on the potential for poor performance from large funds due to overvaluation and flawed strategies.## Allocation of Capital and Market Dynamics

• There's a concern about the misallocation of capital in the venture capital industry.
• Seed funds may reduce the number of checks written and limit their growth due to market constraints.
• Capital dynamics are changing, with growth rounds becoming increasingly difficult to secure.
• Seed companies that fail to meet benchmarks could lead to a reduction in the cost of capital over time.

"They will retreat from writing as many seed checks. The seed funds that are often earlier in their vintages, first or second, are going to stop growing with every successive fund as much as they were before, because the market's going to constrain it, which will stop seed rounds from continually expanding."

This quote highlights the potential retreat of funds from seed investments and a halt to the expansion of seed rounds due to market constraints.

• Large multi-stage firms have deep entrenchment with endowment funds, institutions, and family offices.
• Some LPs value the brand association with these firms, even if certain investments are loss-making.
• The venture capital industry has a short memory, with bad funds potentially being offset by new good funds.

"They are so entrenched within large endowment funds, institutions, multifamily offices. I see it in Europe where they're like, we know we're going to lose money on x firm, but the brand is so valuable that we get customers because of it. We don't even care."

This quote emphasizes the value LPs place on the brand of large multi-stage firms, which can outweigh the financial performance of specific investments.

• Some firms use early-stage investments to gain experience for their partners.
• Growth investments require higher traction, leading to experimentation with smaller checks at earlier stages.
• Firms like Lightspeed specialize by stage and sector to provide the most value as board members.

"Candidly, it's an effort for their earlier partners to get some experience because they're not going to be able to put growth dollars to work because growth is harder, the traction needs to be higher."

The quote discusses the strategic use of early-stage investments as a learning experience for partners due to the challenges of growth-stage investing.

• There's a shift in some funds from carry optimization to fund deployment and Asset Under Management (AUM) growth.
• Lightspeed maintains a focus on carry rather than AUM, reminding partners of this priority regularly.
• Large funds may face challenges in balancing carry with AUM growth, necessitating an increase in partner numbers and global presence.

"We are laser focused at Liesbeat on making sure that it is about the carry. It is not about the Aum."

This quote signifies Lightspeed's commitment to prioritizing carry (profit-sharing) over simply increasing the size of the assets they manage.

• Venture capital is evolving into a different asset class with varied strategies and outcomes.
• Firms are diversifying their investments, including into areas like healthcare and biotech.
• The structure of firms and the management of portfolios can vary widely, affecting team dynamics and investment decisions.

"Like, I think the other argument is that venture has become a very different asset class."

The quote points to the changing nature of venture capital, which is becoming more diverse in its approach and investments.

• The Series A market is diverse, with some sectors commanding high multiples, especially those with momentum or experienced teams.
• Companies with complex stories or those in complicated markets may struggle to raise funds.
• Valuations for Series A have fluctuated over the years but have remained relatively stable compared to other stages.

"I think the series a market right now is actually really interesting because you're seeing tale of many different worlds depending on what you're looking at."

This quote reflects the current complexity and diversity of the Series A market, with varying levels of investor interest based on company momentum and market sector.

• Valuations are subjective and based on what investors are willing to pay.
• Historical acquisitions, like Facebook's purchase of WhatsApp, demonstrate the potential long-term value of investments.
• Lightspeed believes in the potential of AI and is willing to pay a premium for investments in this area.

"I would also just add something is worth what someone's willing to pay for it."

The quote underlines the subjective nature of valuation in venture capital, where the perceived potential of a startup can lead to varying valuations.## AI Investment Landscape

• Light Speed has invested in 54 AI companies, with over a billion dollars invested, not limited to generative AI.
• AI is becoming a critical component across various sectors including healthcare, fintech, enterprise, and consumer.
• AI's ease of use and its integration into existing platforms can dramatically change business trajectories.

We've invested at light speed in 54 companies in AI. Invested over a billion dollars in AI, but big.

This quote highlights the significant investment Light Speed has made in the AI sector, indicating a strong belief in the technology's potential.

AI is quickly becoming a sometimes critical building a lot piece of many companies versus it being an AI company.

This quote reflects the growing trend of integrating AI into businesses rather than focusing solely on AI-centric companies.

The packaging is very different than previous shifts, and so the opportunity to easily implement tool sets that are coming onto the market and match it with platforms already at some scale in different categories is so powerful.

This quote emphasizes the transformative impact of AI due to its user-friendly nature and the potential for integration with existing platforms.

• AI is compared to a lottery of time, with the potential to significantly reduce time spent on tasks.
• There is a debate on whether the current high pricing of AI investments is sustainable or untenable.
• The focus is on AI's ability to meaningfully change consumer lives and create viable business models.

I would say AI is akin to winning the lottery.

This quote metaphorically describes the time-saving benefits of AI, likening it to winning additional hours in a day.

You just can't play the AI game today because the pricing today for anything good is untenable.

This quote expresses concern over the high valuations in the AI investment space, suggesting that it may be difficult to justify the costs.

AI is something that can actually change consumers' lives.

This quote underscores the real-world impact of AI on consumers, differentiating it from other tech trends like crypto or NFTs.

• There is a shift towards a flight to quality, with the best teams and high-growth companies continuing to receive funding.
• Founders and investors are becoming more realistic about valuations due to a crunch at Series B and C funding stages.
• The importance of clean terms and avoiding structured deals in down rounds is emphasized.

Listen, there is a crunch in terms of valuation, definitely that is coming down. But I do still believe the best teams and the ones that are growing 2345 x year on year, they will continue to get funded.

This quote suggests that despite a valuation crunch, high-performing teams and companies will still attract investment.

Do you think that realization has hit in the minds of founders in terms of the valuation crunch?

This quote questions whether founders have adjusted their expectations to the current market realities of lower valuations.

I would much rather take a significant down round than having structure on that.

This quote advises companies to prefer clean terms in funding rounds, even if it means accepting lower valuations, to avoid the long-term complications of structured deals.

• Founders are becoming more aware of market changes and the need for realistic valuations.
• Employees may struggle with the concept of their shares being worth less than before, leading to turnover.
• The market is shifting towards logical repricing, with an emphasis on clean terms and sustainable business growth.

But my shares were worth a million dollars and now they're like underwater.

This quote captures the disappointment employees may feel when their equity's value decreases, potentially leading to turnover.

It's either that or you go out of business.

This quote plainly states the stark choices companies face: adapt to market conditions with realistic valuations or risk failure.

Some of the founders understand that the last rounds, they don't think their companies were really worth that at the last round.

This quote reflects a growing understanding among founders that previous valuations may have been inflated and that adjustments are necessary for long-term success.## Increased Mortality Rates in Venture Capital

• Mortality rates among startups have increased.
• The current market conditions demand startups to be in sync with downstream market players and Series A investor expectations.
• Startups need to align with market expectations of metrics and big markets.
• Companies that are considered fringe must strategize to secure follow-on investments.

So we have way increased mortality rates, we think. How do we think about that?

This quote reflects the concern about the rising mortality rates of startups, prompting a discussion on the importance of aligning with market and investor expectations.

• Seed stage investment is challenging due to the necessity of contextual understanding of the market.
• The increase in mortality rates is linked to the difficulty of seed stage investments.
• Market dynamics require startups to meet the expectations of subsequent investors.
• Valuations increased in "frothy times," but responsible investors maintained a steady pace of deployment.
• The influx of "tourist" investors into venture capital led to insufficient due diligence and overfunding, which can be detrimental to startups.

Mortality rates, which may go back to the beginning of why seed is hard.

This quote ties the increased mortality rates to the inherent difficulties of seed stage investing, emphasizing the need for a strategic approach in early-stage funding.

• M&A activity is expected to be limited due to the focus on cash conservation and business essentials.
• Later-stage companies are being advised to prioritize burn rate and core business functions.
• There may be some activity in the form of acqui-hires or smaller scale M&A.
• Selling to tech giants like Facebook and Google is not as viable in the current era.

I think we might see a little bit of M A, but I actually think that M A is really hard right now.

This quote suggests that while some M&A activity may occur, the current market conditions make significant M&A deals challenging.

• Limited Partners (LPs) are overallocated to venture and concerned about liquidity.
• There may be repercussions for venture firms due to the challenging liquidity cycle.
• Investors are likely to focus more on proven strategies and shy away from emerging managers with funds affected by recent market dynamics.
• Creative solutions for liquidity are emerging, such as secondary sales of older positions to provide consistent returns.

I think there's going to be some repercussions. You're hearing from lps. They've been overallocated to venture.

This quote highlights the concerns of LPs regarding their venture capital allocations and the potential consequences for venture firms in the current market.

• The venture capital industry is moving away from consensus-based investing towards developing unique ideas and perspectives.
• There is a renewed focus on building businesses that solve real problems, rather than chasing trends.
• Investments in non-traditional venture areas, like auto body shops, are being considered if they have scalable, technology-driven business models.
• The conversation points towards a return to basics and collaboration among different stages of venture funds.

I think mine is we are exiting the time of consensus based venture capital.

This quote indicates a shift in the venture capital industry away from herd mentality investing towards a more thoughtful approach focused on individual ideas and market needs.

• There is a trend towards specialized roles in the venture funding process, with seed funds, and multi-stage funds collaborating more effectively.
• The venture capital industry may revert to a more traditional approach where different stages of funding are shared among various investors.
• The panelists discuss the importance of collaboration and specialization in supporting startups throughout their growth stages.

I think we spent far too many years with the multi stage funds doing the seeds, the a's, the b's, the c's, and then suddenly realizing, wow, now I'm the only one on the cap table.

This quote criticizes the approach of multi-stage funds handling all stages of investment alone and suggests a return to a more collaborative model.

• Technology is not an end in itself but a tool to solve real-world problems.
• Venture capital is returning to fundamentals, focusing on investments that have tangible impacts and are scalable through technology.
• The panelists emphasize the importance of understanding the behavior behind tech trends and investing in businesses that address those behaviors.

It's not about what's hot because half the stuff that's hot, I don't even know what they're talking about.

This quote from Yuri Kim expresses skepticism about chasing trends without understanding the underlying behaviors and emphasizes the importance of solving real problems with technology.