The state of venture capital (with Peter Walker)

Will the funding market screw you, or accelerate your plans? 

In this episode, we talk with Peter Walker about funding and why it matters to GTM teams.

• (00:00) - Introduction
• (03:04) - What commercial teams need to know
• (05:44) - What does the market look like right now
• (07:19) - Are IPOs still backed up?
• (09:24) - Political landscape
• (12:29) - Two paths during a downturn
• (17:17) - Time Between Funding Rounds
• (20:28) - The AI Hype Cycle
• (27:31) - Startup Shutdowns
• (30:54) - Down Rounds and Their Impact
• (33:14) - Predictions for 2025

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Creators & Guests

Host

Mikkel Plaehn

Marketing leader & b2b saas nerd

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

Guest

Peter Walker

Head of Insights @ Carta | Data Storyteller

What is The Revenue Formula?

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Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.

With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.

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[00:00:00] Toni: Are we all being screwed by the current VC market?
[00:00:02] Are IPOs still backed up? And why does this matter?
[00:00:06] Will we see more unicorns this year? And why does funding even matter for go to market leaders?
[00:00:12] Peter: So imagine you're a go to market person, one of these startups, and your founders thought they were going to raise every two years.
[00:00:17] And now they have to make that cash last an extra year.
[00:00:20] What does that mean for you?
[00:00:21] Sadly, it means cutting software spend, potential layoffs. Like you have to change, A lot of things about your operations in order to deal with misjudgment of time.
[00:00:30] Toni: That's Peter Walker from Carta. He answers a bunch of important questions about funding, and that's pretty important, even though you aren't the CEO
[00:00:40] Peter: But it's still incredibly important to understand, like, if we are optimistic about 2025, which I happen to be. Will that be, will there be tailwinds to your business? Should you plan on expanding, hiring a little bit earlier than you had initially anticipated?
[00:00:53] Should you, you know, make some strategic investments that you were waiting for some signal, some external signal to push play on?
[00:01:00] Toni: Before we jump into the show, today's episode is brought to you by Fullcast. The only AI powered platform that streamlines your entire sales cycle from plan to pay.
[00:01:12] Customers report up 80 percent cost savings, 20 percent growth in pipeline, and 30 percent boost in RevOps efficiency.
[00:01:19] With modules like Territory and Quota Management, Routing and Capacity Planning, Fullcast adapts to your unique needs whether you need one solution or an all in one platform
[00:01:31] Visit fullcast. com, book a demo, and mention the revenue formula podcast. To unlock an exclusive premium gift just for listeners
[00:01:41] And now enjoy the show.
[00:01:44] Mikkel: At least it's interesting. Not like you Mikkel. It's not like, I can't, I can't use a lot of it for anything up until when I choose to then, I guess, found a company. Like really, it's still like, there's still some subjects. It's so difficult to get when you're just a worker bee.
[00:01:58] It's
[00:01:59] Peter: are you thinking about founding a company, Mikkel? Come on,
[00:02:01] Mikkel: Yeah, yeah, yeah, yeah. I've done it way back, but it was not VC backed. This was like, I was going to say SU backed, but it's not an international term. Yeah, yeah, it still counts. Worker B.
[00:02:11] Toni: But I mean, you must be interested in all the salary reports coming out, you know, all of them going down and down and down.
[00:02:17] And I should actually be like, I should be truing you down, not
[00:02:20] Mikkel: truing you up. You know? That's true. That's true.
[00:02:22] Peter: Every quarter a salary change. That's
[00:02:24] pretty
[00:02:24] Mikkel: yeah, yeah, yeah. No, it's like, so we're gonna, we're gonna adjust you down again. No, that's,
[00:02:32] Peter: reflection on your performance. It's
[00:02:33] just
[00:02:34] the
[00:02:34] Mikkel: no, yeah.
[00:02:35] Peter: So that's
[00:02:35] all
[00:02:36] we can
[00:02:36] Mikkel: the market thing. It's just the market thing, Mikkel. Sorry. I like how you just ended up teaming up against me.
[00:02:42] And I was gonna say, Hey, why does this conversation right now matter? And I'm not sure it fits as an opening question, but Peter, thanks so much for joining. We're going to talk a bit about what's happening on the venture capital markets at the moment for our audience out there. Before we just jump into the conversation, I actually want to just, it might feel far away from those people in the go to market to, to realize, does this actually matter to me, right?
[00:03:04] It's just funding. How important is it really? And I just wanted to ask both of you, the conversation we're about to have on. Basically the state of the funding market. Why is this important for the the commercial teams to be aware of?
[00:03:17] Peter: I have many thoughts, but do you want to take that first?
[00:03:19] Toni: So what I think could be interesting and important for people to kind of understand is yes, we've been through the, you know, crazy times of the market. They're coming down. I think we're, We're, we're balancing out with finding a new normal. And many of us in the SaaS community have been selling to other SaaS vendors.
[00:03:39] Right. And you know, when your customers run out of cash, that's kind of bad for your business as well. Right. That, that, that's not a, that's not a great situation to be in. And I think what's what's really kind of good to know, and that's where we brought Peter on is. Let's dive into some of the numbers and the things surrounding where this thing is heading in 2025, right?
[00:03:58] Because this might be changing how you maybe think about planning for 2025 growth, how you maybe change your tune and your board conversations, et cetera, et cetera. So it's not necessarily for you to go out and, you know, now get a series A and, you know, understand what the benchmarks for that are. But really to have a little bit of a feel how much hurt your customer set is potentially going through.
[00:04:19] Right. And, and I think from that perspective, I think it's really it's really on point for folks to understand what's going on and that's why we have Peter here. So, but that's, that's my angle on that. Peter, what do you think?
[00:04:29] Peter: think it's important for go to market people to be aware of the context into which they're selling. As you mentioned, there's no way that you can forecast accurately if you don't take into account the macro environment. And I know everyone who's had to report to a board always gets that same question, which is, okay, yeah, we know the macro is bad, but what are you doing, right?
[00:04:49] How are you creating alpha rather than just going with the market flow? But it's still incredibly important to understand, like, if we are optimistic about 2025, which I happen to be. Will that be, will there be tailwinds to your business? Should you plan on expanding, hiring a little bit earlier than you had initially anticipated?
[00:05:07] Should you, you know, make some strategic investments that you were waiting for some signal, some external signal to push play on? All of that stuff kind of comes from the funding. And I don't think there's anyone in VC who's been incredibly excited about the funding over the past two years. So maybe we're turning a corner.
[00:05:24] Mikkel: Yes. And I think that's what I'm really curious about because I saw coincidentally enough, one of your posts around 23 had been a really bad year for, I want to say seed investment was probably what one of them. What are you seeing right now with 2024 coming, you know, to an end? What does the market begin to look like from, from your chair?
[00:05:44] Peter: It's, it's a bit of a mixed bag, but in general, I do think that we're improving cautiously optimistic is the way that I'm talking about 2025 these days. So just to give people a little bit of sense of the numbers context in 2021, companies on Carta, we serve about 45, 000 startups raised something like 200 billion U.
[00:06:04] S. startups, which is a wild amount. In 2023, they raised 70. And in 2024, they're going to end up raising 85 or 90. So, not as low as it was, we're bouncing back, but we're nowhere near the peak of the boom times, which in some ways is good, some of that was unhealthy, but of course, it's easy to say that in hindsight.
[00:06:26] So, I do think that things will continue to improve. In 2025, if you look by stage though, it is a little bit different. You know, the people that were closest to IPO got hit the hardest with the funding decline and are now digging their way back out. Whereas Seed and Series A kind of felt like a little bit insulated from the worst of the damage from the downturn in 22 and 23.
[00:06:48] And now some of that is shaking out. The Seed round volume hasn't really popped up as much as I would have hoped. So there's still like, you know, some founders or some go to market people might be listening to this and they say. Yeah, but our business isn't doing that great, or our business is struggling to raise.
[00:07:03] That's still a story that's happening across a lot of different places.
[00:07:07] Mikkel: Yeah. So what I'm hearing is you're not hawkish. You're not hawkish at this stage. That's, that's good.
[00:07:12] Peter: But my job is to be naturally optimistic, so probably take what I'm saying with a grain of salt, right? Yeah.
[00:07:18] Mikkel: And I think that's fair.
[00:07:19] Another thing we've heard, at least when the market was a bit difficult was you had IPOs kind of, I would say some of them are just getting canceled or being backed up. Now at least I wonder, are we seeing more unicorns and more IPOs appearing? Is that anything you've been tracking?
[00:07:33] Peter: I mean, it is, I'm like knocking on wood here, guys, the IPO market is the thing that needs to change for Venture to get healthy again. It is, we talk about it a lot, but we actually don't talk about it enough, because it is the number one signal to many late stage investors that they can trust some of those valuation marks.
[00:07:52] It is, it's the thing that like keeps the cycle moving, it recycles capital through the ecosystem. Yeah, you can have mergers and yes, you can have secondaries, but none of those get close to what the recycling impact of an IPO. So they're very important. And in the last three years, I mean, 2023 and 2024, I've seen like less than 20 technology IPOs combined versus, I don't know where we were, over 100, 140 or so in 2021.
[00:08:18] So, it has been beyond dead. 2025 looks more optimistic. We can leave aside the politics stuff for a moment in the here in the US, but even absent that, I do think that a lot of bigger companies are viewing 2025 as a great year to IPO. It will work in tandem with interest rates and all these other factors, but that will be fantastic.
[00:08:40] And then unicorn creation, you know, there's always a hype cycle in venture. There's something to get excited about. Lately, it's been AI. And yes, there's been. At least within our database, you know, more unicorns created in 24 than there were in 23. And actually, interestingly, more unicorns created in every quarter of 2024 versus the last quarter.
[00:09:01] So the, like, the pace is increasing. Is that, like, you know, we had all these unicorns created in 21 and a lot of them turned out to be paper unicorns only, so I wouldn't take that as, you know, completely, it might just be a sign of hype versus Full on, you know, category creation or value creation, but it's a signal that at least things aren't getting worse.
[00:09:21] Toni: had kind of this, and I just want to kind of double click on this.
[00:09:24] You had the, the political situation in the U S. And maybe we're going to cut this out later. I'm not sure where this is going, but I was actually wondering kind of what, you know, a few pieces of this political thing have now played out, right?
[00:09:37] There's a little bit of an understanding, which party at least is going to be in power next year. How do you, how do you think is that without being a political pundit or something like this, but how are people thinking about this? What is the expectation here?
[00:09:51] Peter: Yes. Again, another caveat on my end, not a political pundit, but we do have a wonderful policy team here at Carta who keeps their finger on the pulse of a lot of issues that affect the private market. I'd say the biggest thing that people are talking about in Silicon Valley is just whether or not this is going to be a full on change in the attitude towards acquisitions.
[00:10:10] So, that is, that's probably the biggest turning point. I will say, look, we track number of acquired startups off of Carta. That's actually also improving. That's good to see. About 170 or so companies were acquired last quarter. When you look at acquisitions though, I think it's underrated how many of those are small companies.
[00:10:29] You know, we read about Figma and we read about Activision or these big, big, big acquisitions, but the vast majority of acquisitions are happening to pre seed and seed companies. So those aren't really impacted by regulatory, you know, Lenacon isn't getting interested in a 10 million acquisition most of the time.
[00:10:47] So I don't think that's going to actually be that impactful. I do think that if there is a different stance towards major tie ups, Maybe you'll see, especially the big tech companies, be a little bit more acquisitive in 2025, which is a good thing. You know, there should be multiple exit paths for startups.
[00:11:03] Not everybody needs to IPO in order to have a great outcome.
[00:11:06] Toni: Yeah, I was about to say that. So, you know, if, if I were to translate it basically in the, in the last couple of years, and you mentioned Figma as, as one of the examples, which is actually a major acquisition that ended up not going through. Yeah. It's costing 1 billion for Adobe. That was, that was for Adobe.
[00:11:21] I'm not quite sure if it, if it stalled in the European or the U. S. courts, I'm not kind of sure about this anymore, but basically what you're saying that potentially you know, with With the republicans basically kind of taking the reins that there might be a bit of a loosening actually. Of not wanting to, to push down those acquisitions so much, which then opens up, not only the IPO window for recycling cash into, into the ecosystem, but that's the same actually also for not just smaller acquisitions, because they're obviously not affected, but for those bigger marquee acquisitions, basically.
[00:11:52] Mikkel: But I also just want to point out for that one, at least the, some of the conjecture that's been on that deal, specifically Figma was they were just way overvalued and then the market crashed. And it just didn't make sense to burn that amount of money on the deal. So what I wonder is if a lot of people have been holding back with those elevated valuations and then things crashing, waiting to see, hey, have things stabilized?
[00:12:16] Maybe that's a conversation for another time, but maybe also cut that out. Yeah.
[00:12:22] Peter: No but I actually think this is important because there's like a, there's something that's happening.
[00:12:29] You can take two paths through a downturn in the market. If you're a late stage company, you're a real business. Maybe you were overvalued, but you're not going to go out of business.
[00:12:37] There's something really there. There's two paths. One is you can take the down round. You can like revalue yourself. You can make a lot of changes to your underlying operations. The other is you can wait. And a lot of companies have simply been waiting. You know, they may have raised a lot of cash in 2021 or late, early 2022, and they've just been waiting.
[00:12:58] Waiting for the market to pop back up so that their valuations make more sense. And in the meantime, they've grown, many of them, right? So they have materially higher revenues and financial profiles than they would have two years ago. And now those valuations don't seem quite as frothy as they used to.
[00:13:14] So I do think that's a part of it. The other thing that's happening, though, is this is venture. There's always some ridiculous hype cycle happening, no matter what time you're looking at. And there is a huge hype cycle right now in late, late stage private companies that don't need cash. We all know the names, SpaceX rumored to do another secondary, etc, etc, crazy valuations.
[00:13:39] Like, there are some companies for whom 2021 never went away. And they're just as hyped as they ever were. And the weird part is, this is the thing that's kind of strange when we talk about IPOs. There's a, a small, small cohort, call it five to ten companies at max, maybe less than that, maybe just five, for whom IPO doesn't actually look that attractive.
[00:14:05] They're private companies. They have effectively unlimited access to private capital. We're talking about Stripe or SpaceX here. They can run a secondary to get their employees liquidity whenever they want to, and the investor demand is super high. Why IPO? What is the value to them of IPOing? There's a huge value to the ecosystem for them to IPO, for sure.
[00:14:28] They don't need the capital, and they just increase their regulatory scrutiny for no real reason. So, you know, when we look out over IPOs, one of the things that we're all kind of waiting for is Who's going to be the big name to like kick off this race. And some of the big names are thinking to themselves, I, you know, this is my personal take, Hey, what's the point.
[00:14:49] Why do we, why do we need to do that? And I, I haven't heard a great case for, you know, again, that's only five companies or 10 companies that can say that about their capital needs, but I, for them, I haven't heard a great case as to why.
[00:15:00] Yes,
[00:15:03] Toni: you know, this stands also kind of is almost sounds a little bit like founders in general, not just of those five IPO companies but, but, but founders in general are getting a little bit more like, Hey, do we actually need to raise cash? You know, is, is there another path to the whole thing?
[00:15:19] Right. So I think there's, there's a bunch of more folks that are looking at this actually as let's build a business instead of let's You know, measure the amount of VC capital that we can acquire. Right. And again, I just kind of, if, you know, some, some listeners might have lost, you know, we might've lost some listeners right now kind of talking about this IPO stuff.
[00:15:36] Why is this important? I just want to kind of bring it back one more time. It's like, well, if, if a couple of those IPOs actually, you know, proceed there's a lot of money obviously coming back into the ecosystem, as you mentioned. But also you investors might be looking at this market and be like, Oh, okay.
[00:15:53] So you can go IPO again. This is actually what I want to achieve. So therefore my purse is a little bit more loose now and I can start investing again. Right. For them, this is basically the starting shot to kind of say, okay, let's, let's, let's get back into, into investing mode. Right. That's why it's so important that some of those IPOs are.
[00:16:11] Are finally happening again.
[00:16:13] Peter: Absolutely, there's literally.
[00:16:16] sense of animal spirits, right? Like it matters psychologically to the ecosystem. But actually, it actually matters in cold hard cash, which is an LP looks at Venture and they say, I have not received any money back from my Venture funds in 5, 6 years.
[00:16:32] Toni: Yeah.
[00:16:33] Peter: That's tough. Like, am I going to continue to vent? And these are the LPs that actually understand Venture. And they know it's a 10 plus year life cycle. There are some LPs who are invested in Venture funds who did not understand Venture when they did that. And they thought they were going to get their money back in 5 years.
[00:16:48] And they're, they're going to wait 15. And it's, it's just like a money losing proposition for them. They're looking to other asset classes. And so if you're a startup that wants to raise VC, the attitudes of the people with the cash above your VCs matters and exits help with that.
[00:17:06] Toni: And, and in this vein, you just mentioned, Hey, it's going to take a lot longer for you to return your cash as an LP. I mean, all of these financial, you know, big elusive things that are hanging out there.
[00:17:17] They all come back to actually core pieces of, of how the business is an operating that, that actually connects back to probably also some folks that are listening to us.
[00:17:27] So one, one thing that I saw recently is that actually the, the time between those funding stages is, is delaying more and more, right? I mean, this is the, the cliff notes, but can you give us some more, some more details, some more color on this? Yeah.
[00:17:41] Peter: it's the time between funding rounds, you know, when you'd speak to a US VC Over the last 10 years, most of them would have said, we expect our companies to raise every 18 to 24 months. So that's your C ground, and then you wait two years, and then you raise your A, and then you wait two years, and you raise your B, et cetera.
[00:18:00] Pretty standard. And from our data, we actually saw that that was a pretty true piece of wisdom. Like a lot of companies actually did follow that 18 to 24 month path. What we're seeing now is that, especially in Like the slightly later rounds, so series A to series B, or series B to series C, for instance.
[00:18:19] The median time between those rounds has gotten much higher than that. You know, for series A to series B, it's closing in on a thousand days. Which is much higher than two years. It's, and that's, that obviously has deep impacts for you. So imagine you're a go to market person, one of these startups, and your founders thought they were going to raise every two years.
[00:18:37] And now they have to make that cash last an extra year. What does that mean for you? Sadly, it means cutting software spend, potential layoffs. Like you have to change, A lot of things about your operations in order to deal with misjudgment of time. But what it, so that's on the narrow level, like what does this mean for me as a startup?
[00:18:56] What it means for general, the ecosystem is really interesting because as you mentioned, a lot of startups are looking at this pattern and they're saying, well, is it smart for us to continue to plan to fundraise? Or should we change our operations such that we would never need to fundraise again, even if that means we grow more slowly than we would have.
[00:19:19] That's a big choice. Once you're on a VC path, that's a very difficult choice to make. Cause your investors are going to push you to go faster. A lot of companies are actually making that choice themselves. So there's, I break it into three types of companies. Company one is. We'd love to fundraise, we just can't do it.
[00:19:34] Our investors won't give us more cash. Nothing has changed, we just can't do it. Company two is, we fundraised a little while ago and we're making changes to our operations such that we may never need to fundraise again and we are like in this middle ground. And then the third company is, we're starting out with the idea that we're probably never going to take VC and we're going to grow more slowly but we're going to own more of the company and we're going to, you know, have a sustainable business from the very beginning. Really, it's cool to see those different models work their way out. I still think if you want to be a billion dollar company, it's hard to get there without any outside funding. But it will happen more often probably than it used to.
[00:20:16] Mikkel: There can only be so many mailchimps,
[00:20:18] Peter: Yes. And it's funny because everyone, everyone actually points to the same like three examples. It's like
[00:20:23] Mikkel: No, yeah,
[00:20:24] Peter: yeah, you know, there's like four and they go, whoa, they did
[00:20:26] it.
[00:20:27] Mikkel: yeah, yeah, yeah.
[00:20:28] If it's okay, there's one thing I want to go back to. You mentioned a bit around the the hype cycles and one of the things that's happened and we've, we've touched upon it very briefly is the most talked about subject, artificial intelligence. What is that doing to the market right now?
[00:20:43] Is this a case where you, you just, if you don't have AI on the deck pitch deck, you're just not going to get any funding. What, what does that look like right now?
[00:20:50] Peter: it was, it was that way until, well, I shouldn't say it. Let's back up. Definitely AI is the talk of everyone in Silicon Valley and across most of US VC right now. What's happening in our data is sort of two different stories. One, there's a ton of companies being founded right now. And most of those companies are incorporating AI in some way, shape, or form.
[00:21:14] The question is, are they AI companies? And there's a difference between using AI. And being an AI company. And at the beginning, right after ChatGPT launched in late 22, VCs were tossing cash at basically anyone who had AI on the deck in the, you know, if you bought the dot AI URL, like, great, well done.
[00:21:35] This, that has definitely changed. The VCs are being much more discerning about what they consider to be an AI native company. So the easy ones are, you know, if you're trying to build a foundation model to compete with OpenAI or Anthropic. You're an AI company, if that makes sense. If you're building a AI agentic experience where the company wouldn't have existed if not for the advent of ChatGPT, maybe it's an AI company, maybe it isn't, and then there's a whole big swath of companies that were started before the AI boom and are now just using AI like any other part of their tech stack.
[00:22:10] You know, it's like, you wouldn't call someone a JavaScript company. That's kind of what you're doing when you're saying I'm an AI company if I just call a chat GPT. So investors are much more discerning about what they consider and every investor has a different view on it. But it is possible to raise money while not being an AI native company.
[00:22:30] But if you're a founder or go to market person listening on this call and you're looking around you're like is my company an AI company? You should have a story about it, or you should be at least thinking about how you can use it to To improve your own operations because investors are going to ask.
[00:22:45] Toni: And, and I would say if you're sitting there and like asking yourself a question, probably you're not an AI company. Like
[00:22:52] that's, that's, that's, that's, a really good head for you. Do, do you have some, I mean, you, you're the, you're the data guy. Do you have some data on some of this actually you know, AI companies, are they getting more money?
[00:23:03] Are they getting higher valuations? You know, how many non AI companies are there, you know, et cetera, et cetera.
[00:23:08] Peter: Totally. So let's just focus on the early part of the market maybe as a shedding point. So Series A fundraising in the U. S., about 30 percent of the capital that was invested into Carta companies this year at that stage went to AI companies. And you say, you're thinking, okay, 30%, is that good? Or is that really high, really low?
[00:23:27] In 2023, it was like 12. So it is shooting upwards. However, it's also not even half, right? So there are companies that are not AI companies that are raising funding. It is not impossible to do. The tricky part is the valuations and the speed, etc. So AI companies are raising, generally speaking, more money in bigger rounds at faster paces for higher valuations.
[00:23:54] And their non AI counterparts. So we split, like, even within the SaaS category, we split it into AI and non AI, and the AI premium is something like 30 35 percent on the valuation.
[00:24:05] Toni: Yeah.
[00:24:05] Peter: So definitely a gap, but it is not impossible to do it if you're not an AI company. But again, You should have a story as to why you're not using this if you are using this.
[00:24:15] Not because you have to be open AI in order to raise, but because your investors will expect you to use the latest tech, and this is the latest tech.
[00:24:23] Mikkel: Yep. So you kind of said they're raising more money basically at a higher valuation.
[00:24:30] Why, why do you think that is? Why is that actually the case?
[00:24:34] Peter: There's a, there's a couple of dynamics. It could be mostly an investor thing. So they could be saying, look, this is a AI company that we think has a lot of potential, therefore the round is much more competitive. Therefore, it generally gets bigger at a higher valuation when you have multiple term sheets and different funds competing for the same company.
[00:24:55] Which, you know, if you're a non AI company and you feel kind of unloved right now, maybe you have one term sheet and it's taken or leave it. So that's one dynamic that's happening. The other is there are certain applications of AI. Where you would expect the company to burn some more cash, right? There's, AI is great, but it can be very capital intensive.
[00:25:15] So, in those cases, the bigger rounds are just kind of, look, this company needs more money in order to make it. Just the way that hardware companies or biotech companies sometimes raise bigger rounds. Because they're building real things in the real world.
[00:25:30] Toni: I'm not sure. It was, this was probably not a stat from, from you and from Carter, but I saw something where AI versus SaaS, like if you can really make this distinction anyway Kind of the growth rates where we're fundamentally different for AI teams in terms of their, their revenue that they were able to kind of rack up.
[00:25:47] Right. So we, there are a couple of examples right now that are swirling around. I think kind of very recently was the cursor guys showing they jumped from 1 million to 65 and like. 12 months. That's pretty nice. And then the, you know, copy AI, 11 acts, you know, writer. com. There are a couple of examples that are that are kind of saying, Hey, listen, yes, you know, there is more FOMO on the deal.
[00:26:11] Yes, it's more capital intensive, but also we're just growing a lot faster and therefore, you know, those valuations are justified, right?
[00:26:20] Peter: I think it's kind of weird to pit AI versus SaaS.
[00:26:22] Like,
[00:26:22] Toni: Yeah. Yeah.
[00:26:23] Yes.
[00:26:24] Peter: There are a ton of AI SaaS companies.
[00:26:26] Toni: Yes.
[00:26:27] Peter: Now, are they growing? Are AI companies, or some of them, growing a lot faster? Yes, they have been. I, you know, Jason Lemkin at SaaSter has this, I think, I think it was him, I had a great point the other day, which is, you know, we'll see in 2025 what happens to a lot of that.
[00:26:41] There's a lot of Experimental budget from big companies that is being spent on AI. Will they continue to spend it next year? Or will they say, look, we tried this tool. Worked, but not that great, so we're gonna, you know, use that experimental budget for something else. I think that's very possible. There are, you know, clear, clear winners like Cursor and others that are just flying.
[00:27:02] So, some of that growth, or some of those evaluations are justified by the growth rates, for sure. Remains to be seen how different some of those pricing models are. There's a whole, like, naughty subject about how you change your pricing based on AI usage, you know, are you still charging by seat? Are you doing it by actual committed you know, resolved tickets, for instance, if it's an AI customer service rep, I don't know exactly how that's going to shake out, but many people will try many different models over the next couple of years,
[00:27:30] Toni: So I wanted to leave the realm of AI a little bit, if that's okay with you. Mic. Oh, do you have another wonderful follow-up? No, no. Go for it. Okay, wonderful. So I wanted to go back to maybe some of the sad topics of, of this whole situation. You're such a
[00:27:44] Peter: bringing the conversation down.
[00:27:47] Toni: I know, I know, I know, I know, I know.
[00:27:49] So there was. You know, so actually kind of, we build a company, I build a company and we also shut it down recently. So kind of, I looked at some of those, I looked at some of those stats quite closely when it happened. And actually the amount of people shutting down has been increasing, increasing over the last couple of quarters.
[00:28:07] Is that leveling out or is that, you know, I'm just kind of thinking about as a 2025 thing, is that leveling out or is it increasing? Kind of what, what do we see there?
[00:28:17] Peter: Look, I'm, I'm hopeful that it starts to, so it's been increasing effectively since the beginning of 23 or even the middle of 22. I think we will see it level out in 2025. I am sadly not hopeful for this quarter. Typically actually Q4 is the worst quarter for shutdowns because, you know, It's like you don't want to do another year of taxes effectively when you're making that decision, so you try to get it done in December.
[00:28:43] That happens a lot. I hope that 2025 is better. What's, I think, screwing people up is they're looking at this funding graph and they go, Okay, the bump was in 21, maybe early 22. That was a while ago. Like you either would have made it by now or not made it by now. And it just doesn't work that way because all of these people in these companies have made changes.
[00:29:07] They've made decisions along the way. They've made layoffs. They've changed the structure. Maybe they adopted AI. Like they've just, their businesses are different than they were so they can extend a lot longer than you think. So unfortunately my instinct is that Shutdowns, maybe, maybe Q4 will be the worst quarter for it, but I don't think that they're going to go, they're not going to drift back down quickly.
[00:29:29] They're going to stay relatively high for a while as more and more of those companies sort of just like come to the end of their road at their own timelines.
[00:29:37] Toni: But you see this primarily as an outcome of the, basically the crazy cohorts from the 2021 era, right? Kind of, is that kind of how you're thinking about it?
[00:29:45] Peter: I do, I mean, if you just take as a truth that 9 out of 10 Startups will fail. I don't think that we somehow got it to 10 over the last 5 years. We just funded a lot more companies. So, it will just look weirder because companies that raised a lot of money now are shutting down. And you'll be like, how did they do that?
[00:30:07] But the fundamental law remains the same.
[00:30:10] Toni: Yeah.
[00:30:11] Peter: So, I just think that's almost always true. I don't know if there's a way to increase Radically increase the number of venture backable businesses that are actually going to make it. I'd love to know that, but then I would be in a different job.
[00:30:23] Toni: Yeah. And the you know, one follow up on this, right? So we talked about all the wonderful signs and now kind of, you know, Tony the downer is bringing in something else here. We talked about the shutdowns, which essentially what he's saying is kind of, Hey, take this graph from how many companies 2021 and just push it three years out.
[00:30:39] And that should kind of probably be the same shape of the curve at that point. But what about. What about those? And we, we touched upon this briefly 10 minutes ago. What about those, those folks in the middle that maybe are forced to take a down round?
[00:30:54] Do you guys have data on down rounds that were kind of, that were taken and kind of, how's that, how's that developing?
[00:30:59] Yeah.
[00:31:05] Peter: year would be a down round where the valuation falls from the prior valuation. And like, side note, I think it's kind of silly that we have so much stigma around down rounds. I understand why that is because it's a negative signal in a sea of no signal.
[00:31:21] So if you only hear from a company every two years, and one of the things you hear from them is they took a down round, I get it. It's tough. But if you think about the down rounds that happen every single day for public companies, we're not better at valuing private companies than we are at valuing ones that are actually on the stock markets.
[00:31:36] So off the soapbox there for a second. But 20 percent or so of the rounds on CARTA in 2024 have been down rounds, so twice as high as the historical average. Again, I was expecting this to go down by now, but it hasn't. And some of that is, you know, companies raised a ton of money in 21, they didn't have to fundraise, and they were hoping to get there, and then they just found out, ah, we couldn't quite get there without taking a lower valuation. That's tough. Like, down rounds are very hard for, you know, The founders, the employees, and the investors. Employees maybe most of all, because they're kind of in the dark about it most of the time. And they don't really understand what it means for their equity. So,
[00:32:15] Toni: they use cards, I guess. Right. Then, then they would
[00:32:18] Peter: Well, then they find out that it happened, but if they weren't communicated to beforehand, then they're considerably I know of employees that found out that their company was taking a down round from TechCrunch.
[00:32:28] You
[00:32:28] Mikkel: Wow. Oh, yeah.
[00:32:30] Peter: It's not good. Yeah, yeah, yeah. That's, that's a, it's a comms problem. So they're still high. It's no fun, but at least the company, when they take a down round to say, look, we got out over our skis. We recognize that. And we still have investors that are willing to stick with us. So in some ways I view it as a silver lining, but it's, it's no fun.
[00:32:48] Mikkel: Hmm. But I mean, also, what would they do with this? Send you a text message now saying, Hey, congratulations. All your options are underwater.
[00:32:55] Peter: Well, they should have a town. They should have a company meeting and be
[00:32:57] like,
[00:32:57] Mikkel: yeah, they should. Yeah, they should.
[00:32:59] Peter: Here's what it means for you. Here's why we're still incited about the company. Like face it head on. Don't, don't let a reporter do
[00:33:06] your
[00:33:06] Mikkel: No, I agree. I
[00:33:07] agree. So there's I mean, we also, by the way, I don't know if you got the text message, but we asked you to bring something, the crystal ball.
[00:33:14] Because we're, we're headed towards 25. Wow, Mikkel. If you're going to start looking at, yeah, yeah, yeah, yeah, yeah, yeah. If you're going to start looking a bit ahead, we've already done it a little bit, right? There, I think there've been some baked in predictions, but what do you think is going to unfold for, for Venture Capital and the company seeking to raise potentially the next year?
[00:33:33] Peter: I think it's a paradise of funding. Everyone gets funded. It's just glory and, and excitement and victory for everybody.
[00:33:43] Mikkel: The boom. Mm
[00:33:44] Peter: I, don't, it's funny how people, people always ask on Twitter which is not a great place, but sometimes you gotta be there. Like, oh, are we so back? We're so back. And it's like, look at what happened in 2021 afterwards.
[00:33:57] We don't want to be back that way. It's not good. It's not healthy for the ecosystem. Fundraising should be hard in some cases. Prediction time. First prediction for me is that 2025 is going to be better, more capital invested into startups than 2024.
[00:34:12] Toni: Mm hmm.
[00:34:13] Peter: A rough guess, like maybe 20 percent better. Not a boom back to 21, but steadily more capital invested, maybe a little bit easier fundraising.
[00:34:23] Two is that, as you mentioned earlier, a lot of companies are going to look at the VC model and say, that's not for us. So there's companies being built right now that would have taken VC in prior years that are going to say, eh, we're going to bootstrap it. And maybe we take VC once we're a real business, but we're not going to start with the assumption that we need funding.
[00:34:46] That is happening a lot more frequently, which is, I think, a good thing. And then the third thing is that I think a lot of companies are going to get bought next year. Some of them are going to get bought for fire sale prices and nobody makes a lot of money, but I hope that more, an increasing percentage of them are actually going to be bought and there's going to be real, real wealth generated from that.
[00:35:07] I know, you know, we serve a lot of private equity funds and companies as well, and there's a real appetite for tech enabled businesses from the private equity groups. So I'm hoping that that translates into more acquisitions.
[00:35:19] Toni: If I look into this crystal ball of yours and this is more of a question for you to kind of maybe comment on this, but we talked about it. We talked about the IPO window. We kind of see it opening again. We see how important it is for the market in 25. Do you, do you expect more technology IPOs than 24?
[00:35:37] Peter: I do. Maybe two or three times as many. Which sounds like a lot, but it actually doesn't get us back up to the average. We've been so low for so long. So like, yeah, I do. I would be shocked if we get through 25 and we had the same number of IPOs that we did this year. That means something went wrong. Yeah.
[00:35:57] Not to say it won't, you know. I know we have a crystal ball, but perhaps I need to
[00:36:03] polish it or something.
[00:36:04] Toni: Yeah.
[00:36:04] Mikkel: No, no, no. I mean, next time we'll try tea leaves if it doesn't work. Let's see.
[00:36:09] Peter: Good one. Nice. Nice.
[00:36:11] Mikkel: Peter, thanks so much for sharing all your insights. If you're the new listener and want to check out any of the research, there's so much dropping, it's hard to keep up. You can either follow Peter Walker on LinkedIn or check out cartel.
[00:36:23] com and all the research happening there. And for folks
[00:36:27] Toni: watching this on YouTube, we're going to try and put a lot of those visuals. You're creating work for me now. Thanks Mikkel. You know, actually for you to kind of see it and otherwise we'll have it in the show notes, right Mikkel? Yeah, that's it.
[00:36:36] Wonderful. Peter,
[00:36:38] Peter: have more jobs for you, Mikkel, actually. If we could just pause for the moment.
[00:36:41] Toni: Yeah. Let's go. Peter, thank you so much for spending the time here and enlightening with your wisdom, which is kind of always led by data, which I think is really, really interesting. And yeah, then I hope everyone listening, figuring out like how this thing is potentially impacting them because guess what it totally will be.
[00:36:59] So I'll be taking some of this away, Peter. Thanks.
[00:37:02] Peter: Call your friends. Let's get some IPOs next year, guys. Let's do
[00:37:04] Toni: There you go. Have a good one. Bye bye. Bye.