So Harry Stebbings was kind enough to invite us back to 20VC to do a another deep dive together with OG SaaS investor Rory O’Driscoll of Scale. Rory and his partners have been early investors in HubSpot, DocuSign, Box and so many other B2B leaders.
It was truly a great deep dive on what’s really happening in deals right now, this minute:
5 Top Learnings:
- The 1% Rule in M&A: OpenAI’s potential $3B acquisition of Windsurf represents roughly 1% of OpenAI’s estimated $300B valuation – a strategic “SVP-level bet” that allows market leaders to quickly shore up weaknesses without betting the company.
- Multi-Stage Funds Crushing Seed: Traditional seed firms are being outcompeted by multi-stage funds like Green Oaks, who can lead seed rounds, follow-on at A rounds, and leverage lower capital costs to dominate early-stage investing.
- The 100% Conviction Rule: Any investment opportunity where you have 100% conviction of a 5x return is worth doing regardless of ownership percentage or valuation – but implementation differs between solo GPs vs. institutional firms.
- The Endowment Liquidity Crisis: Ivy League and other major endowments are experiencing severe liquidity challenges, with some reportedly selling billions in private assets – driven by distribution planning errors and extended PE/VC illiquidity.
- The Return of High Valuations: 100x revenue multiples are back, with several examples of companies valued at 700M+ with just 7M in revenue (~100x), suggesting a significant appetite for growth once again.
Breaking Down the $3BN Potential Windsurf Acquisition
The recent news of OpenAI’s potential $3 billion acquisition of AI coding assistant Windsurf has sent ripples through the venture capital world. What does this signal for the market?
The acquisition represents approximately 1% of OpenAI’s estimated $300B market cap – what Jason Lemkin calls an “SVP-level bet.” As he explains, “10% is bet the farm,” like Adobe buying Figma, but “1% is like an SVP deal…betting their BU.” This represents a calculated risk where OpenAI addresses a weakness compared to Anthropic in the coding space.
As Rory O’Driscoll points out, this is classic strategic positioning: “If you’re OpenAI…there’s two or three huge use cases for your product and you probably want to be relevant in those cases.” Coding is one of those critical use cases, and acquiring a leading player for 1% of your market cap is “a sensible bet.”
The consensus among the panelists is that this acquisition demonstrates a pragmatic “bias to action” by Sam Altman. In a rapidly evolving market where “no one knows nothing,” making strategic bets like this is essential even if the outcomes remain uncertain.
Why Multi-Stage Funds are Destroying Seed Managers
The venture landscape is increasingly challenging for pure seed-stage managers. The panel highlighted how multi-stage funds like Green Oaks are effectively pushing out dedicated seed firms with their superior economics and ability to double down on winners.
Harry Stebbings notes that when talking to LPs: “They said ‘Harry, tell me a seed manager in San Francisco to back.’ I said ‘I wouldn’t touch it.'” The multi-stage fund product at Seed is “so good, so efficient, and their cost of capital is so low that they’re just crushing everyone at Seed.”
The economics are brutal. Even when a seed investment like Windsurf returns 600M on a reported 10% ownership stake, for a fund between $1.5B-3B, that still only represents less than a third of the fund. As Jason points out, you need “15 Windsurfs per fund” to generate strong returns.
This creates compounding risk pressures for seed managers who are now fighting for smaller ownership stakes while their fund sizes have grown. Harry questions whether “a billion dollar outcome can even return the fund anymore for a seed manager.”
Why Revenue Multiples are BS & What You Need to Know
The conversation shifted to valuation methodologies, with the panel critiquing the fixation on revenue multiples without considering growth rates.
Rory O’Driscoll emphasizes that “the entire venture business starts off with an infinite revenue multiple and gradually comes down.” What matters is whether “the growth rate stays higher long enough to de-risk the multiple before you intersect the public markets.”
This explains why some companies are commanding valuations at 100x revenue. As Jason points out, a company doing $7M in revenue valued at $700M might seem excessive, but if it’s growing 3x annually with “high growth persistence,” within two years “you’re out of the risk zone.”
The panel agrees that what’s different in today’s market compared to traditional SaaS is how quickly companies can scale once they achieve product-market fit. Rory notes that now “in 90 days you go from this company is not going to make it to ‘oh my god I think I’m going to turn down three billion dollars.'”
Are Endowment Funds in Crisis?
One of the most revealing discussions centered on the reported liquidity challenges facing major university endowments. Yale’s reported plans to sell approximately $6 billion in private assets signals potential systemic issues.
Rory is blunt: “If I was the CFO of an Ivy League university, my cash planning for this year would be dramatically different than my cash planning normally.” The combination of down public markets, extended illiquidity in private markets, and potential threats to tax-exempt status creates a perfect storm.
The panel identified three escalating levels of severity in the endowment crisis:
- Cash planning gone wrong, forcing asset sales
- Potential reassessment of whether private markets will deliver expected returns
- Most catastrophically: immediate cash needs forcing fire sales
Jason adds that many endowments had over 30% of their assets in private investments, including some with 30% in venture alone—far exceeding traditional allocation models. This extreme exposure creates vulnerability when distributions don’t materialize as expected.
Why If You Can Guarantee 5x, You Should Always Do the Deal
The panel shared a fascinating insight about investment conviction that cuts against traditional venture wisdom: any deal with 100% conviction of a 5x return should be done regardless of ownership percentage, valuation, or fund strategy.
Jason states emphatically: “Any deal where you have 100% conviction you’ll 5x…you should do it irrespective of ownership or valuation.” He notes that while it may not return the fund, “you’ll never look back when you’re in carry mode” and regret making a guaranteed 5x.
However, Rory highlights an important distinction between solo GPs and institutional firms: “When you’re trying to build a peer team…you stick to what you’re doing and you have a plan and a strategy.” Breaking the model for exceptional opportunities works for a standalone investor but can be “corrosive to your entire culture” in a larger firm.
This creates a natural advantage for solo GPs who can make opportunistic bets without worrying about maintaining consistency across a team of partners.
The Rise of AI Rollup Plays & Are They Good Businesses
The conversation explored the trend of AI-powered rollup strategies targeting fragmented industries like legal services, accounting, and real estate. The panel was divided on whether these represent compelling venture opportunities.
Rory expressed skepticism: “You buy a set of customers that weren’t picked by you because they are suited for your product…and maybe your AI is so good it can address all the needs of all 10 of the customers, but…more likely three or four are perfect sweet spot…the other five or six…the needs are slightly different.”
Jason concurred, adding that the fundamental challenge is these customers “didn’t pick you…they’re not going to…it’s not durable revenue in any way shape or form.”
However, Harry provided a counterexample of a portfolio company that grew from 0 to $30M in two years through a real estate management rollup strategy. The key factor? “The customers are all pretty much identical…there is zero ambiguity.” This uniformity allows for efficient integration and consistent margin improvement, “from five to 40% in six weeks.”
Is SF The Only Place to Be Building Today?
The discussion concluded with Jason making a compelling case for San Francisco’s continued dominance as the epicenter for technology entrepreneurship. With 82 tech billionaires in the Bay Area and increasing, the network density creates unparalleled opportunities.
Jason recounts, “I just got a DM yesterday from a new generation tech billionaire…I’m going to walk to this meeting and it would never have happened if I wasn’t here.”
The high concentration of talent, capital, and successful companies creates a virtuous cycle that reinforces San Francisco’s primacy despite the post-pandemic dispersal of tech talent. For Jason’s highly selective investment approach—focusing exclusively on companies with “top 0.1% growth”—being physically present in the ecosystem is invaluable.
This density allows for serendipitous connections and a rapid assessment of opportunities that would be difficult to replicate elsewhere, even with today’s remote collaboration tools.
4 Unexpected Learnings:
- The Two-Meeting Investment Strategy: Jason often knows he wants to invest before even meeting founders, based on metrics and market positioning, and claims to have never met a founder with truly exceptional growth metrics who wasn’t also personally compelling.
- The Competitive Blindspot: Despite conventional wisdom emphasizing competitive positioning, Jason revealed he gives up on the “no competition” box in his investment criteria, focusing instead on growth rate and technical leadership.
- The Cash Planning Catastrophe: Even before recent political developments, endowment funds had fundamentally miscalculated their distribution planning, creating liquidity issues that will reshape venture capital allocations for years.
- The 90-Day Transformation: While SaaS companies historically followed predictable “trouble-trouble-double-double” growth patterns over years, today’s AI companies can transform from struggling to acquisition targets in as little as 90 days, creating unprecedented velocity in the market.
