So when I started writing venture checks in 2013, I didn’t know what I was doing, but I had a strong start:
- First was Pipedrive co-leading seed, then acquired for $1.5B cash
- Second was Algolia leading U.S. seed, now at $200m+ ARR and an IPO candidate
- Third was Greenouse/Parklet, acquired for $800m and now at $200m ARR
- Fourth was Salesloft, acquired for $2.5 Billion cash
- Fifth was Logikcull, acquired for $300m cash
So it was a good start. Since then, I’ve made some pretty good other investments as well. But also, I made some that … weren’t.
For a while, the 2021 Go Go Days masked everything. Almost everything looked great and had an up-round. But 2024 unmasked a lot of things.
And now, I’m going to lose money on deals. It’s OK at some level. It’s part of the model. But now I can see clearly why in some deals, I’m going to lose all my money.
So this year I lost the most money I've ever lost on a VC investment
It's OK. The fund will do OK. One loss can't kill a fund.
But what the founder said still rattles in my brain: "What do you care? It's not mostly your money, anyway"
A different world than I grew up in
— Jason ✨Be Kind✨ Lemkin 🇮🇱 (@jasonlk) April 4, 2024
The top reasons an investment has turned out to be a Zero:
#1. Any misrepresentation about the financials, no matter how small
If the financials are misrepresented even a smidge, I’ve lost all my money or almost all. If revenue was overstated a bit. If contracts were claimed to be closed that weren’t quite closed. Does it really matter? I think it turns out that it does. It just gets worse. I’m going to lose all my money here.
#2. If founders hid anything in the round and/or in diligence. Almost no matter how trivial
Related to but not quite the same as #1. If the founders hide churn, or hide a co-founder is leaving, or really anything that much matters — again, it’s just a smoking gun. It gets worse. They’ll hide even more.
#3. If the founders refuse to get the burn rate under control
OK these ones aren’t always zeros. But they’ve been close to it in my experience. I haven’t done better than 3x here. Note this isn’t just a unicorn issue. It can happen after raising just a few million, too.
#4. If I relied on anyone else being in the round or having already invested, unless they said it was clearly the best deal they are in right now
I haven’t done an investment just because a great investor was already in the deal, but I’ve almost done it. I’ve skipped some steps because of it. Here, I will lose all my money. You have to ignore who else is in the deal.
#5. Not Actually SaaS. Pseudo SaaS but Not Actually SaaS.
I won’t do any of these anymore. The SaaS playbook just doesn’t really work in pseudo-SaaS. Or rather, it seems to work at first, but then it doesn’t really scale.
,,,,,…
Now this sounds dramatic, and it is a bit dramatic, but the winners will more than balance out the losses. In aggregate, these total or almost total losses won’t add up to a huge amount when measure against the gains and winners. A real amount, but not a huge amount.
But — these losses were 100% avoidable. That’s what sticks with you.
