Jason Lemkin: Predictions for 2024 - What Does a Trump Administration do for Startups? | E1099

2023 Venture Capital Market Review

• Market Sentiment: Jason Lemkin describes 2023 as a year where he "didn't see enough greed in the markets," noting a lack of aggressive deal-making despite public claims of increased activity.
• Unicorn Count: Lemkin humorously notes that while 1,800 new unicorns were announced in 2023, approximately 6 of the top 13 he tracks remain, suggesting high failure rates among recent "unicorns."
• OpenAI Performance: The company grew from a hypothetical $100M start to a $1.4B annual run rate in one year, driven by massive user adoption (e.g., consumers paying $20/month despite economic headwinds).
• MidJourney Success: Lemkin identifies MidJourney as a standout for achieving ~$200M ARR with minimal external funding and no traditional VC raises.
• HubSpot Dominance: The company executed a "second act" expansion into CRM, reaching $700M ARR and challenging the low-end of Salesforce, attributed to the founders' "going long" strategy and patience.
• Founder Behavior Critique: Lemkin critiques the 2021 Hoppin secondary sale, labeling the founder's decision to take $150M-$200M while the company needed capital as unethical and damaging to investor trust.
• VC Conservatism Shock: Large multi-billion dollar funds paused their pro-rata follow-on investments for profitable portfolio companies, a deviation from traditional behavior Lemkin attributes to fear of running out of reserves due to overvalued middle-tier unicorns.
• Public SaaS Efficiency: Public SaaS companies grew only 16% (an all-time low) yet saw stock prices rise 51%, driven by efficiency cuts, hiring freezes, and price increases rather than new logo growth.
• CAC Compression: Customer Acquisition Costs (CAC) reached lifetime highs for new customers as companies prioritized retaining existing revenue over acquiring new business.

2024 Predictions and Strategic Outlook

• IPO Timeline: Lemkin predicts 2024 will be the year companies "grow up" and go public regardless of valuation multiples, citing ServiceTitan (600M ARR, cash-flow positive) as a primary candidate.
• SaaS Saturation Concern: There is a risk that SaaS growth deceleration may be permanent, as software spend cannot indefinitely exceed global GDP growth.
• IPO Window Shift: While Lemkin previously predicted H2 2024 for IPOs, he now anticipates the wave will shift to 2025 due to the lag in CFO preparation and the "dud" nature of 2023 IPOs (e.g., Klaviyo, Instacart).
• Decacorn Hunting: The venture capital industry has permanently shifted from hunting unicorns to hunting decacorns (companies valued at $10B+), driven by the need for outsized returns to sustain large funds.
• M&A Strategy: Expect a surge in M&A activity, particularly for adjacent bolt-on acquisitions in the $100M-$400M range, as companies seek growth without building from scratch.
• AI Budget Reality: Enterprise CIOs currently have zero allocated AI budgets; AI adoption will likely come from functional budgets rather than IT lines, limiting immediate scale until budgets shift.
• Figma Acquisition: While Adobe's acquisition of Figma may face regulatory hurdles, Lemkin predicts alternative acquirers (e.g., Microsoft) could eventually step in, as the deal is too strategically valuable to fail entirely.
• Geopolitical Risks: Lemkin warns that political shifts, such as a potential Trump presidency, could alter tax structures (Qualified Small Business Stock) and impact Silicon Valley's tax environment.
• LP Capital Sources: Despite liquidity freezes for some traditional LPs, sovereign wealth funds, family offices, and Asian/Arab capital remain eager to deploy, providing a floor for fundraising.
• Fundraising Dynamics: VCs will continue to deploy capital every 12-18 months, but the "one-day dog" (immediate decision-making) will be the primary differentiator for new funds.

Founder and Investor Behavior Insights

• Investor Selection Criteria: Lemkin has changed his stance to only invest in founders who are "much better than me," rejecting "good but not great" founders due to the high failure rate of marginal companies.
• Urgency Signal: He emphasizes "smelling urgency" in founders; repeat founders who appear comfortable or lack "maniacal" drive are often poor investments.
• The "Nudge" Failure: Lemkin admits he is not a "nudge" investor (aggressively pushing deals) and regrets missed opportunities where a lack of personal pressure would have secured a seat at the table.
• Investor Performance: Lemkin believes he is a "worse" investor today than at the start of his career because he takes outcomes too personally and is slower to act due to emotional involvement.
• VC Industry Consolidation: A generation of VCs may leave the industry; Lemkin states that if 50% of non-GPs and 25% of GPs lose their jobs for failing to deliver numbers, that would be a healthy market correction.
• DPI and Differentiation: Successful fundraising now requires Demonstrable Portfolio Interest (DPI) cash returns and a clearly differentiated investment thesis to attract new LPs.
• Founder Entitlement: Lemkin notes that 2021 saw founders become abusive and entitled toward VCs, which has caused VCs to reciprocate with stricter terms and reduced support in 2023-2024.

Business Strategy for Sastra

• Revenue Goal: Lemkin aims for the fastest investment pace since 2014 in 2024, seeking to accelerate capital deployment.
• Revenue Scaling: Sastra currently generates ~$27M; the goal is to scale to $100M by transforming into an IRL marketplace connecting software buyers and sellers, similar to the models of Money20/20 and Shop Talk.
• Marketplace Logic: Lemkin views events and media as a "marketplace" mechanism; increasing connections by 10x requires a shift from community-building to active transaction facilitation.
• Competitive Positioning: While Sastra is growing, Lemkin notes they are losing share relative to competitors like Gartner and specialized media outlets that are already at $100M+ revenue with leaner teams.
• Content Model: Lemkin prefers a low-overhead content model (calls, ads) over high-cost investigative journalism to maintain margin efficiency, contrasting with traditional media structures.