Venture bets need durable growth, not just fast growth

Transcript

From the transcript TBPN publishes with the episode.

1. 2:25:16

   How how much more important is it now to think about terminal market structure? Because I'm I I completely agree with you. The growth rates are insane. The risk, I feel like, is is not that the growth isn't real. It's just that there's you you pick a market, and there's one company that goes from 1 to 10,000,000 in ARR to a 100,000,000 in ARR. And the and the and you project that out, and you're like, well, the market's 50,000,000,000. They're gonna get there really fast. But if the market can support 50 companies that all grow really fast and they all take 2% of the market, then you will see some sort of s curve in the growth rate at some point. And I feel like there's some markets that will probably be perfectly competitive, some that will be highly monopolistic and everything in between. And it feels like as a venture capitalist, it's gonna pay to be the type of person that can clock how markets play out.

2. 2:26:09

   Does that map with what you're thinking, what you're trying to do? Look. I think you're getting at a very important point, which is it is not just enough to have high growth, but you need to have durable growth. And we use the examples of Google, Shopify, even, like, more recently, we had companies like Canva. Mhmm. And I think one of the things that people sometimes really underestimate is that that kind of high growth compounded will generate stunning results.

3. 2:26:34

   And one of the things that I learned from both Google and Shopify is that if and when you choose the right markets, you will probably get the sizing wrong. But if you choose a mega mega market, even like at what we think success, there is still so much of the market left. Like, one of the things that I never realized is even when Shopify went IPO, it was less than 1% of that market. And that's what helped it, like, get a 40x growth after that. Same thing happened to Google, and the very best companies can also expand the market.

4. 2:27:03

   So to your question, though, one of the things that we really pay attention is what are the motes of these companies is not just that they have the chance of high growth, but how durable will it be? A lot of times it's the founders. A lot of times it's also different elements. For instance, we very frequently talk about data motes at Felisys. Right? Like, one of the things that helps you differentiate is if you have data that nobody else has since data is the new oil, that's going to be a huge differentiator because at the end of the day, there's a lot of AI tech and that's more pervasive. But if you have data that nobody else has, that's going to be tremendous value. And if you start doing something where you basically become a key part of the process, people are not going to rip you off. So we just recently won a term sheet of a health care AI company. And what was interesting is through AI, they've been able to service a part of the patient market that here too was not possible to be served at a positive return.

5. 2:28:04

   And the moment they fix that part of the market, hospitals are like, why am I only going to give you 35% of the market? You know what? The rest of the market, there are 19 players, but I'm just going to come straight to you. It's too much work. You guys can take 100% of our referrals. So it's yet another good example of if you do a really great job with the hardest part of the market, you can essentially have a much larger portion of the market. Nobody wants like, is interested in, somebody who's only going to win one to 2%. They want people that can do everything together and not just one part of it. And again, that's kind of also the big leap from software is maybe only solving one part of the problem and they want, like, a full solution. I want, like, a full turnkey, not just like, hey, the software can get you the numbers or analyze things or be the system of record.

6. 2:28:51

   Now everything is about system of action and AI can enable that. And if you have a data moat on top of it, obviously that drastically increases chances that not only are you going to have high growth, but the high growth is going to stick with you.

7. 2:29:06

   Did did the venture industry learn its lesson in 2021? Things got a little bit crazy. There was a lot of top signals. We had a crash, but at the same time, you did companies like Supabase at what was then a crazy valuation. And then now it looks like, you know, you bought it.