20VC Newsletter - Nov 19th, 2023
Here are the top takeaways from 20VC episodes released this last week!
Monday’s episode with Ryan Petersen, Founder & CEO of Flexport, last valued at $8B:
Download the full transcript here:
Here are Harry’s Top 10 takeaways:
1. Velocity over Speed:
Velocity is speed in the right direction.
If you're speed in the wrong direction, that's negative velocity and that's really bad.
The key is being agile, you have to be able to change direction without losing speed.
That's a hard thing to do.
2. Advice to Founders Who Raise Large Rounds:
Immediately do a hiring freeze.
Do not hire anybody for 90 days. More people are not going to solve your problems.
Overhiring has been our biggest mistake.
3. Too Much Cash Kills Companies:
I've never seen a company raise a bunch of money & not start spending it in ways that are not smart.
You lose discipline. We spent $50K on a container for an event post our Series A.
Take the money, put it in a bank & pretend it isn't there.
4. The Key Role of Leadership:
Identifying talent within your company, not externally.
The problem: companies are in a hurry and external talent is a shortcut.
The sad thing on internal promotions is when they do not work, they are hard to come back from.
5. Invest in People Who Have Been Wronged:
Revenge is a powerful motivator. Two benefits of this:
1. Incredibly driven for comeback.
2. Likely passed over by other investors.
Parker Conrad is a great example. Building Rippling into a much bigger biz than Zenefits was.
6. Why Remote Work is Hard:
Teams don't form over video conferencing.
Teams form when you get together & collaborate.
Emotion, body language, context. So important and it's not constrained by the 30 minutes of our video call.
That just doesn't happen on remote work.
7. Global Trade is Unstoppable:
It's grown 4% annually since the Mongol invasions in 1200 AD. It's innate in the human species.
Adam Smith: “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.”
Humans will trade more and more.
8. Valuation Reality:
After each round I tell the team this is not our valuation.
This is a group with a view of the future & it is uncertain.
Our valuation: take all possible futures & assign a probability outcome to each. Collapse that distribution curve down to get a price.
9. The Future of Trade with China:
China is a unique manufacturing capability that you can't replace easily.
China is no longer the cheapest manufacturing site in the world, but it's the highest competency.
I don't think that's going to go away.
10. Why Data is Overrated:
It is too slow and often inaccurate. It is a view of the past.
Most people know what they want to do and justify that by using selective data.
All data comes from the same place; the past. The future is different and your data can be useless.
Wednesday’s episode with Des Traynor, Co-Founder & Chief Strategy Officer at Intercom:
Download the full transcript here:
Here are Harry’s top 10 takeaways:
1. Why 90% of Dollars in AI Startups Will Go To Zero:
We will see increased startup fatality for two reasons:
Think layer wiped out by OpenAI upgrade.
Margin compression: all core workflows powered by expensive API calls reduces margin significantly.
2. Not all LLMs Are Equal:
Different LLMs will specialise in different ways.
The best companies will use many different LLMs simultaneously for different functions.
3. How to Know if an Incumbent is Vulnerable:
If you were to sole the problem they are solving for today; would you borrow from their codebase.
If you would, they have a thick wrapper, if you would not and it would be a new stack, then they are in trouble.
4. The Pricing Model for the Future of AI:
A lot of work is going to get handed over to LLMs over the next five years.
We're going to start pricing against the work that is being done, not the seats that are being used.
5. Why Google Are Behind:
Bard felt like “we have to release this because Chat GPT was getting a lot of traction”.
Google need to have a Jay Z, “allow me to re-introduce myself moment”.
The core question: are they willing to risk it all to win it?
6. How Apple Could Win:
They're training LLMs and looking for LLMs that can run on their hardware natively.
Siri will finally be useful.
When it is as conversational as ChatGPT & can take actions on device, it'll change the entire interaction model on desktop & iOS.
7. How Amazon Will Challenge OpenAI:
Amazon could just straight up buy Anthropic and make it part of the EC2 cluster.
Why choose Amazon then?
Well, it is already in the cloud, it is virtually private, they can leapfrog a lot of other adoption concerns.
8. Who Wins the Infrastructure Layer in AI:
Infra: There will be 3-4 big providers.
GCP, Azure, OpenAI, AWS.
They will end up in direct competition competing on price.
9. Three Steps to Great B2B Marketing: Most B2B marketing sucks.
The best B2B marketing is three things:
Unique
Valuable
Simple
Speak to your users in this way and you will resonate.
10. Most Startup Advice is BS:
Very little advice in startups survives more than five or six years.
The rate of decay of operating experience has never been greater.
Everything is just constantly evolving around us.
AI is going to change so much traditional startup advice.
Friday’s Roundtable episode with guests Eurie Kim, Managing Partner at Forerunner, Rabecca Kaden, Managing Partner at Union Square Ventures, & Nicole Quinn, General Partner at Lightspeed Venture Partners:
Download the full transcript here:
Here are the top 10 takeaways:
Evolving Consumer Applications and Crypto: The next wave of consumer applications will integrate crypto features, signaling a revival in the crypto sector.
AI as a Time-Saving Tool: AI is likened to winning a 'lottery of time', significantly reducing time spent on tasks like writing newsletters or customer support.
Venture Capital Trends: There's a shift in VC from traditional seed funding to multi-stage funds being the first to invest in hot seed companies.
Specialization in Venture Capital: Lightspeed Venture Partners specializes by stages and sectors to provide the most value as board members, contrary to some firms that invest across all stages.
Seed Market Dynamics: The seed market is robust, with valuations not dropping despite macroeconomic factors. However, there's a debate about whether seed valuations will eventually decrease due to market dynamics.
Series A Market Trends: Series A market is experiencing a variety of scenarios, with some sectors still receiving high valuations, especially those showing strong momentum and led by seasoned teams.
Importance of Momentum and Efficiency: For a strong Series A round, momentum must be paired with efficiency and a compelling market story.
The Challenge of High Valuations: Companies that were overvalued in previous rounds face difficulties in raising further funds unless they readjust valuations.
Adapting to Market Realities: The panel discusses the need for companies to adapt to current market conditions, including accepting lower valuations and focusing on solid, sustainable business models.
Future of Venture Capital: The industry might move away from consensus-based decisions to more innovative and individualistic approaches, focusing on developing unique ideas and solutions.
Thank you for reading this week’s newsletter on Substack! More to come next week! 🚀