So Harry, Jason and Rory are back on 20VC to discuss the latest in tech and B2B, from why OpenAI bought iO for $6 Billion, to why YC is dominating seed, to the real bar to IPO today, and so much more:

The Brutal Math of Venture Capital: What Every SaaS Founder Needs to Know

From power law economics to the harsh realities of late-stage dilution, here’s how the VC game really works in 2025

4 Unexpected Learnings That Will Change How You Think About Venture Capital

1. A $500M Loss Barely Registers at Top-Tier Funds. When Insight Partners lost its share of half a billion dollars on Builder.ai, it represented just 1% of their $12B fund. Nobody gets fired. This isn’t incompetence – it’s the mathematical reality of power law investing where one 20-30% winner carries the entire portfolio.

2. Your VP of Engineering Now Costs $50M in Equity. OpenAI’s $6.5B acquisition of Jony Ive’s design studio signals the new talent economics. Top-tier engineering talent now commands equity packages that would have been unthinkable just three years ago. For SaaS founders, this means rethinking your entire approach to talent acquisition and equity allocation.

3. Only 20% of Unicorns Are Actually Worth $1B. Per the latest SVB data, 80% or so of Zombie unicorns are propped up by inflated valuations. While everyone chases unicorn status, the real opportunity is building one of the 20% that could actually justify a billion-dollar valuation based on revenue fundamentals.

4. $300M ARR Is Now the IPO Minimum. The days of $100M ARR public offerings are over. The new standard requires $200-300M in revenue, 30%+ growth, and clear profitability path. This fundamentally changes how SaaS founders should think about exit timelines and growth trajectories.

The Power Law Reality: Why Your Fund Doesn’t Need You to Succeed

Let’s start with the uncomfortable truth about venture capital that every SaaS founder should understand: your success isn’t required for your fund’s success.

The math is simple and brutal. In venture capital, 20-30% of a fund typically comes from just one investment. That’s the power law in action. When Insight Partners lost $500 million on Builder.ai – half a billion dollars down the drain due to false projections and missing revenue targets – it barely registered as a 1% loss on their $12 billion fund. Nobody got fired. Nobody panicked.

This isn’t callousness; it’s mathematics. Large venture funds operate on a portfolio theory where they make multiple bets knowing most will fail, hoping for a few massive winners to return the entire fund. Your individual company’s failure is already baked into their expected returns.

For SaaS founders, this creates both opportunity and peril. The opportunity? VCs are willing to take big risks on unproven models because they’re playing a different game than you are. The peril? They can afford to let you fail in ways you cannot.

Why Series A Is Where Dreams Go to Die

Here’s what nobody tells you about the funding landscape: seed is easy, Series A is brutal.

At seed stage, everyone loves a good story. Former Google PM with AI experience? Here’s $2 million. Ex-Stripe engineer building fintech infrastructure? Take $3 million. The bar is narratively compelling backgrounds and market timing.

Series A is where the music stops. Now you need to show sustainable, attractive growth – not just hockey stick projections, but actual recurring revenue, net revenue retention above 100%, and clear unit economics. In today’s market, especially in hot sectors like AI SaaS, you’re competing against dozens of other companies for the same partner’s attention.

The math has gotten harder too. Companies are raising at 4x the valuations of similar companies just a few years ago. To maintain their target ownership of 10-15%, VCs are writing larger checks but demanding more proof points. The risk per dollar invested has increased 2-2.5x, meaning the quality bar is correspondingly higher.

Meanwhile, 75% of companies are struggling for capital. The paradox of venture capital: while there’s more money than ever, it’s concentrated in fewer deals. The rich get richer, and everyone else fights for scraps.

The Silent Killer: How Dilution Is Destroying Your Cap Table

Let’s talk about dilution – the slow-motion disaster that most SaaS founders don’t see coming until it’s too late.

Six percent annual dilution doesn’t sound like much. Compound it over seven years, and you’ve lost 30-40% of your ownership. In high-growth SaaS companies, annual dilution of 9-10% isn’t uncommon, especially when you factor in employee stock grants, advisor equity, and follow-on rounds.

The problem compounds when you’re hiring top talent. OpenAI’s $6.5 billion acquisition of Jony Ive’s design studio isn’t just about hardware – it’s about the new reality of talent costs. When your VP of Engineering costs $50 million in equity, your dilution calculations go out the window.

For SaaS founders, this means being ruthless about equity allocation from day one. Every percentage point given away early compounds into massive losses later. The companies that win the dilution game are those that think about their cap table as strategically as their product roadmap.

The IPO Reality Check: $300M ARR Is the New Minimum

Remember when SaaS companies could go public at $100 million ARR? Those days are gone.

The new IPO profile requires $200-300 million in revenue, 30%+ growth, and clear path to profitability. Companies like Hinge Health and MNTN that recently went public represent this new standard – substantial revenue, strong growth metrics, and compelling unit economics.

In 2021, there was an IPO almost every day. That pace isn’t returning anytime soon. The public markets have reset their expectations, and private companies need to adapt accordingly. For SaaS founders, this means planning for longer runway to exit and higher performance bars.

The good news? The IPO window isn’t closed – it’s just more selective. Companies that can demonstrate sustainable SaaS metrics at scale are still finding enthusiastic public market reception.

The YC Phenomenon: Why Platform Businesses Always Win

Y Combinator represents something fascinating in the venture ecosystem – they’ve become both Chanel and Walmart simultaneously. Premium brand perception with massive scale distribution.

The numbers tell the story: accelerators and incubators now account for 24% of all VC deals. YC has created structural economic advantages that compound over time. They provide not just capital but network effects, talent density, and social proof that individual investors can’t match.

For B2B founders, the lesson isn’t necessarily to apply to YC (though it doesn’t hurt). It’s to understand how platform businesses create compounding advantages and think about how to build similar network effects into your own company.

The AI Disruption: Why OpenAI is Going into Hardware

The biggest strategic shift happening right now? Software companies are becoming hardware companies.

OpenAI’s hardware ambitions aren’t about making devices – they’re about controlling the entire user experience. Their goal is to move from 20 minutes of daily usage to 200 minutes. With 200 million potential users, even small per-minute monetization adds up to massive revenue.

For B2B and SaaS companies, this represents both threat and opportunity. The threat is platform risk – what happens when your distribution channel decides to compete with you? The opportunity is in thinking beyond software to create more defensible, integrated experiences.

The Talent War: Why Your Biggest Competition Isn’t Who You Think

Here’s a sobering reality check: your biggest competition for talent isn’t other SaaS companies – it’s OpenAI, Anthropic, and other AI companies with massive war chests.

OpenAI has a 67% retention rate after two years, meaning one-third of their talent churns annually. But they can afford to overpay for replacements in ways that bootstrapped SaaS companies cannot. The best talent gravitates toward the hottest startups, creating a flywheel effect that’s hard to break.

The solution isn’t to compete on compensation – it’s to compete on mission, growth trajectory, and equity upside. The companies that win the talent war are those that can articulate a compelling vision for why their 0.1% equity grant will be worth more than a 0.01% grant at a unicorn.

The Unicorn Mirage: Only 20% Are Real

Here’s the most important insight for SaaS founders: only 20-30% of unicorns are actually worth $1 billion and growing at 20%+ while approaching profitability.

The other 70%? Zombies. Walking dead companies propped up by inflated valuations and patient capital. The overall returns from the $2.7 trillion of private equity will be driven by a small number of genuinely successful companies.

This creates opportunity for clear-eyed SaaS founders. While others chase unicorn valuations, focus on building a business that could actually be worth $1 billion based on fundamentals. Revenue multiples don’t lie, and markets eventually correct for fundamentals.

The 2025 Playbook: What This All Means for SaaS Founders

So what’s the playbook for SaaS founders navigating this landscape?

First, understand the power law and use it to your advantage. VCs need massive winners, not steady performers. Build for breakout potential, not incremental growth.

Second, prepare for Series A brutality early. Your seed metrics need to demonstrate Series A potential. Focus on net revenue retention, gross margins, and payback periods from day one.

Third, manage dilution ruthlessly. Every equity decision compounds over time. Think like a public company CEO about your cap table, not a first-time founder.

Fourth, plan for the new IPO reality. $300 million ARR growing 40%-50% is the new minimum viable exit for a solid IPO. Build your business plan accordingly.

Fifth, think beyond software. Whether it’s hardware integration, services, or platform plays, pure SaaS is increasingly a commodity. What’s your moat?

The venture landscape has fundamentally shifted. The companies that succeed will be those that understand the new rules and build accordingly. The math is brutal, but it’s knowable. And in SaaS, as in venture capital, knowledge is the ultimate competitive advantage.

The venture game has changed. Make sure you’re playing by the new rules.