Redpoint Ventures managing director Logan Bartlett laid out the nightmare scenario for many venture capitalists in a series of private text messages: “There’s a whole world of firms with generational returns in the rear view mirror, but are dead looking forward.”
That is to say, a crop of old school venture firms could have amazing returns, propped up by the rise of Tiger Global, Coatue, SoftBank, and others. But those stellar returns could be the evidence that those VC firms are getting disrupted. The same forces that are marking up those old school VCs’ portfolios are going to make it nearly impossible for them to compete in future deals.
“The disconnect between what LPs want and what entrepreneurs want is so far apart,” Bartlett messaged me.
I asked Bartlett if he’d be willing to share this thesis on the record with my newsletter readers and warned him “if you take too long, I might write this thesis as my own thought.”
He came back with one better. Bartlett agreed to let me publish a PowerPoint presentation he shared with some of Redpoint’s limited partners, articulating the disruptive forces ripping through venture capital.
If you know Bartlett only a little, it’s probably from his persistent tweets. That’s how I first crossed his path.
Many of the tweets seem to undermine the value of venture capitalists.
But that’s kind of the point.
Founders are rolling their eyes at VCs anyway — better to be in on the joke or better yet, to give founders something to chuckle about. As I was talking to Bartlett, 33, for this story, he was headed to watch the New York Knicks with the CEOs of two of Bartlett’s investments — Eric Glyman, the CEO at Ramp, and Bill Magnuson, the CEO at Braze. He’s also an investor in Amplitude and Workato. So while his tweets might be silly, he’s winning deals.
In the beginning, venture capitalists had all the leverage and they could move slowly and operate in small teams of elite partners who thought they could be experts in everything.
Andreessen Horowitz started shaking up the game. Suddenly, founders wanted VCs to meet them in San Francisco and started asking what services a venture firm planned to offer them. Marc Andreessen tweeted constantly.
Now, we’re in a world where solo capitalists can offer a bureaucracy-free process. They don’t need to get their partners’ signoff since they don’t have any. Or founders opt for a venture firm that promises services to help their company grow. Or a founder might prefer a specialized investor. There are plenty of options.
There used to be a virtuous feedback loop: Picking good winners created signal that allowed you to win future deals.
That feedback loop started breaking down as publishing and star power became key factors in deciding which VCs won deals.
These days, it’s better to drive some founders crazy but to have other founders love you than to be well liked by everyone. For VCs to have the power to pick the best deals, they need to be able to source and win deals in the first place.
Bartlett messaged me to sum up his point of view:
I’ve heard some VCs be like, “Oh we don’t compete really with Tiger,” which is bullshit. Everyone competes with Tiger in some way right now if you have a pulse and invest in companies at Series A and later.
But who is getting hit hardest by Tiger are mostly older, and frankly lazier, VCs that rode SaaS in particular over the last decade to great wealth but maybe weren’t the best partners to companies.
Tiger and others have shown that in a lot of cases, the emperor has no clothes there. And those folks are also the ones saying, “Oh prices are crazy” and they’re pouting and taking their ball and going home.
But frankly I don’t think most founders today actually want to work with them anyway. So maybe they’re right on pricing?
I don’t know.
These are the same people that said the Snowflake, Stripe, GitHub, and Slack rounds were all crazy. And I think more than anything else, these VCs have bruised egos because founders aren’t seeking them out. The VCs don’t want to evolve to the pace of play right now and what founders actually want. They look at their returns and the admiration from LPs and say, “Why don’t people want to work with me?” and founders are like “first off.. who are you? and second.. shut up grandpa” lol
Of course, Redpoint faces the same challenges that Barlett is describing.
I do have reservations as to whether Bartlett’s lively tweets and free-wheeling, authentic public persona are enough to compete against competitive pricing from Tiger, Greenoaks, Coatue and others. Clearly the firm is going to have to keep innovating in this “streaming wars” era and is cooking up new ideas to follow through on Bartlett’s thinking.
Still, I have to agree with Bartlett’s broader takeaway here: being boring doesn’t pay anymore. “It’s better to be Donald Trump than the Jeb Bush.”
And most troublingly for incumbent VCs, just because your venture capital firm is in the money right now with big markups and even exits, that doesn’t mean your firm is well-positioned for what comes next.
Yes, we talk about Facebook's metaverse announcement. And yes, Eric takes the techno-optimist point of view while Katie and Tom are completely befuddled why anyone would want to spend their time there. But also, we discuss whether the announcement actually buried all the Facebook paper scandals, why Frances Haugen's turn to release her documents to multiple outlets was a jolting move for any reporter, and how whistleblowers are now just another version of influencer culture.