20VC: Why Fund Returners Are Not Enough Anymore | Why Sequoia Had the Best Strategy at the Worst Time | What it Takes to Be Good at Series A and B Today | Benchmark Leads Manus Round: Should US Funds Invest in Chinese AI

Unknown Source May 01, 2025 85 min

artificial-intelligence startup investment generative-ai ai-infrastructure openai google microsoft

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106 Companies

139 Key Quotes

5 Topics

4 Insights

🎯 Summary

20VC Podcast Summary: Fund Returns, AI Gold Rush, and Liquidity Cycles

This episode of 20VC, featuring Jason Lemkin, Rory O’Driskel, and guest Fabrice Grinder, dives deep into the current state of venture capital, focusing on return expectations, the frenzy surrounding AI, and the structural challenges in the exit environment.

1. Focus Area

The discussion centers on Venture Capital Strategy and Economics, specifically:

Fund Return Expectations: The shift from seeking 1X returns to demanding 3X or more, and the critical importance of the Internal Rate of Return (IRR) versus total multiple.
The AI Gold Rush: Analyzing the massive capital deployment into AI, the associated valuation inflation, and the risks of rapid boom-and-bust cycles within the sector.
Liquidity Environment: The structural problems caused by the stalled IPO and M&A markets, and how this impacts LP patience and VC strategy.

2. Key Technical Insights

Rapid AI Disruption Risk: Fabrice highlighted the danger of building on foundational models (like using LangChain/Pine Cone) only to have the underlying provider (like OpenAI) release a superior, integrated feature (like GPT-4.0), leading to the immediate obsolescence of the custom stack (“risk of zero”).
The Speed of AI Scaling: Companies in the AI space (like Lovable) can achieve multi-million dollar ARR in months, contrasting sharply with traditional B2B SaaS scaling, leading to concerns about the sustainability of these hyper-growth valuations.

3. Business/Investment Angle

Return Hurdle Shift: Investors are no longer satisfied with 1X returns; the expectation is now 3X funds, emphasizing that speed matters as much as magnitude (IRR vs. Multiple).
The Liquidity Feedback Loop: The lack of public market exits (IPOs/M&A) creates an “ungraded test” environment where VCs and founders are marking up each other’s valuations without external validation, leading to potential overconfidence.
Contrarian Investing: Fabrice suggested that given the AI gold rush, the best time to invest might be in funds not solely focused on AI, seeking differentiated data sets and less competition.
Secondary Markets as IRR Drivers: Rory noted that for highly diversified, early-stage managers, selling winners via secondary markets has become crucial for delivering early distributions and boosting IRR, even if the final multiple is fixed.

4. Notable Companies/People

Jason Lemkin & Rory O’Driskel: Providing commentary on current market sentiment and strategic VC mechanics.
Fabrice Grinder: Offering an early-stage investor perspective, emphasizing data differentiation and the risk of platform disruption in AI.
Josh Kaufman: Referenced for his tweet emphasizing that speed of return (IRR) is as critical as the final multiple.
Founders Fund: Mentioned for their early adoption of the evergreen fund structure, which benefits from long compounding periods.
OpenAI: Cited as the epicenter of the current gold rush and a source of massive platform risk for smaller AI startups.

5. Future Implications

The conversation suggests a bifurcation in the market: an intense, high-velocity AI gold rush coexisting with structural illiquidity that will eventually force a reckoning. LPs are questioning if the current low-liquidity environment is a temporary cycle or a permanent structural shift in company maturation, which could lead to capital retreating from the asset class if patience runs out. Companies will likely only return to earlier IPO timelines when private capital becomes scarce.

6. Target Audience

This episode is highly valuable for Venture Capital General Partners (GPs), Limited Partners (LPs) concerned with fund performance metrics (IRR vs. Multiple), and Founders/Executives operating in or adjacent to the high-growth AI sector who need to understand investor expectations regarding speed and sustainability.

🏢 Companies Mentioned

Ant Financial ✅ tech_company

Alibaba ✅ tech_company

Manas ✅ ai_startup

Adobe ✅ ai_application

Zendesk ✅ ai_application

SAP ✅ big_tech

Palantir ✅ ai_application

SpaceX ✅ other_tech

Manlo ✅ investment_firm

Insight ✅ investment_firm

Excel ✅ investment_firm

Google ✅ big_tech

Brax ✅ ai_application

Notion ✅ ai_application

GitHub ✅ big_tech

💬 Key Insights

"I think it's actually one of my faults is that if you just want to pile on the dominant winners and the mega-trends, please stop thinking because that sentence is all you need."

Impact Score: 10

"My vision is that Ukraine could become the manufacturing hub for defense. They in general, and it won't I'm an investor in general, the problem is their cost is extraordinarily high. And so the way you measure this is cost for kill and they're not battle-tested."

Impact Score: 10

"Should we be funding Chinese AI companies?"

Impact Score: 10

"I worry, and again, this is the reason I've been avoiding these AI deals, that it's kind of like 21 where in every category you were going after, there were like eight well-funded, eight great teams well-funded. And the very fact that there were that many actually killed the economics of the category until eventually a winner emerges."

Impact Score: 10

"Are we moving into a world where there is this dislocation between value creation and value extraction? My guess is probably not."

Impact Score: 10

"I think AI helps the enterprises on balance and hurts the SMB players on balance. The SMB players just don't have as deep, they have a lot of data, but it's not as deep. You can disrupt them faster."

Impact Score: 10

📊 Topics

#artificialintelligence 160 #startup 48 #investment 37 #generativeai 5 #aiinfrastructure 1