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Podcast

20VC- Why the SaaS Apocalypse Is BS | Why China Will Win the AI War | Why 50% of VCs Should Not Exist and Are Tourists | Why Stock-Based Comp Is the Hidden Sin of the Valley With Mitchell Green, Lead Edge Capital

Startup Funding | The Pitch

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  • Incumbents Have Durable Moats
    • Incumbent enterprise software won’t vanish overnight despite AI disruption.
    • Mitchell Green cites distribution, data, and strong balance sheets at companies like Workday and Toast as durable moats. Transcript: Mitchell Green Be invested in public equities. So we’re buying companies like Procore, Workday, Appian. We love Clearwater Analytics, but it’s in the process of being taken private, so the stock doesn’t move. We’re big investors in Toast, which we’ve been buying back. We were early investors in it and sold and are rebuying. These companies aren’t going anywhere. The incumbents have distribution, data, and balance sheets. It’s a fool’s errand to think all these companies are going to go away. Not being said, in any period (Time 0:04:10)
  • Buy Volatile Software Stocks Gradually
    • Dollar-cost average into volatile public software names by buying on down days over weeks.
    • Mitchell recommends buying a target position in tranches (e.g., buy $50k each dip) rather than trying to time a bottom. Transcript: Mitchell Green There is no floor in a lot of these things. What we tell people is if you want to own them, just buy them over a month-long period or buy them on down days. But just like if you’re an individual and you think you want to own a million bucks, $200,000 of some name, buy $50,000 every time it dips and sells off hard. And maybe you’ll never get fully filled, but you just, you won’t catch a bottom. (Time 0:07:10)
  • ByteDance Is The Most Advanced AI Company
    • ByteDance is viewed as the world’s most advanced AI company with high growth and profitability.
    • Green argues Western investors underappreciate how much AI ByteDance already uses and invests in. Transcript: Mitchell Green Look I mean our view is that ByteDance is the most advanced AI company in the world. You know, it’s very underappreciated by the Western world, like how much AI they use and how much they’re investing in it. Our view, AI is going to change the world. It’s an incredible thing. Now, again, though, we sat here in 99, the word social media doesn’t show up. Who would never have talked about Facebook or anything, right? It’s $3 trillion of value now. AI is not going to be about the next call center company or the next like work day. I truly believe what we’re seeing right now. And like people invest in a lot of these AI companies across the board. Look, some of them are going to be gigantic. (Time 0:10:24)
  • Next Wave Of AI Startups Will Surprise Us
    • The first wave of AI companies won’t be the only winners; many new business categories will emerge over 2–5 years.
    • Green expects the next generation of AI startups (unknown today) to create massive businesses. Transcript: Mitchell Green And I don’t even know what it is. We’re going to go back to bite dance. But then do you agree with the play the game on the field analogy? Harry Stebbings Or do you actually think there is such moving sands that actually an optimal strategy is to be conservative, not invest a ton right now, given the transience of markets, and (Time 0:11:06)
  • Match Strategy To Fund Return Targets
    • Align investment strategy to fund type: early-stage funds should keep hunting for 100x winners, growth funds should target 2–5x in 3–7 years.
    • Green re-underwrites deals to check if they’re ‘in the money’ 18 months out under reasonable multiples. Transcript: Mitchell Green Depends on what business you’re in. If you are an early stage venture fund where returns are made 100x’s or zeros, you should be investing in stuff. We like to always ask, if I make an investment and it grows for like 18 months and it hits my numbers, am I like now in the money? The problem is when you invest it 100 times revenues or something, you can go at some crazy rate for 18 months and you’re like, well, I’m still nowhere near in the money. So we always like to ask ourselves for that. But if you’re trying, like we’re in the business of trying to make two to five times our money in three to seven years for like a 25 IRR, we don’t drive zeros. We also don’t have 20 Xs. I think we’ve had like two 10 X’s ever or something like that. But we’ve only had like, you know, one or two zeros ever. This environment for us is just kind of weird. It’s just, it’s different. (Time 0:11:30)
  • Cold Calls Led To Grafana Investment
    • Lead Edge found Grafana when it was a bootstrapped $12m company by cold-calling the CEO.
    • Green credits a team of young analysts pounding the phones as a repeatable sourcing engine. Transcript: Mitchell Green How did you find it? Cold calling. Cold calling the CEO. Cold calling. So we have a team of 18, 22 to 24-year like, pounding the phones, calling companies all day long. Learned from inside. Learned from inside. Yeah. So, by the way, and they just replicate it with Summit and TA’d it. (Time 0:13:18)
  • AI Amplifies Sales And Support Productivity
    • AI will boost productivity across sales, support, and operations more than R&D for most software companies.
    • Green notes typical software spend skews to sales/marketing; AI amplifies those functions’ efficiency. Transcript: Mitchell Green I think there’s two things one this is going to lead to a giant productivity boom two software companies have never been about like r&d this is not semiconductor investing like it’s Very different so if you were to look at your average software company that goes public you know if you look at cumulative spend since inception it’s usually around like 30 is r&d. So a huge amount of these businesses are about like sales and marketing, distribution, customer support, things like that. (Time 0:14:42)
  • Prioritize Earnings And Watch SBC Dilution
    • Focus on free cash flow and be skeptical of companies without earnings because ‘there is no floor’.
    • Also scrutinize stock-based compensation dilution, which Green calls a hidden scandal in Silicon Valley. Transcript: Mitchell Green Buy good businesses at multiples of fundamental… If you don’t have earnings, there is no floor. But if you have earnings, like in free cash flow, the reason a lot of these stock or stocks and internet stocks are actually still not cheap is because the stock-based count. The stock-based count in a lot of these companies is totally nuts. The amount of equity compensation and dilution of shareholders is very high. And I’m actually surprised more people don’t talk about it. (Time 0:21:04)
  • Privates Should Reflect Public Multiples
    • Private valuations should track public market multiples; Chinese internet comparables (Alibaba, Tencent) imply ByteDance is underpriced.
    • Green uses earnings multiples to argue for a much higher implicit ByteDance valuation. Transcript: Mitchell Green For the discount chasm to shrink? I think it already, to some degree, already is. So private market implied valuation multiples should be determined by public market investments. You should argue a software company today should be getting down in the private markets cheaper than public markets. It definitely doesn’t always occur like that. So Alibaba and Tencent should be two giant Chinese companies, should represent roughly how ByteDance should trade. (Time 0:24:00)
  • China Has Structural AI Advantages
    • China has structural advantages to win in AI: scale, rapid infrastructure build, many STEM graduates, and state industrial capacity.
    • Green explicitly states he bets China will win the AI world given these factors. Transcript: Mitchell Green Don’t count China out. I bet they win the AI world. I bet they win it. Look, the great thing in China is you can build a nuclear power plant in a couple of years. You can build power plants. No problem. In the US, we are going to run into major issues around power. Why do you think they win the AI world? Just because of the power? Because of the power, resources, consumption, number of PhDs, how much they value science and technology. (Time 0:25:47)
  • Reunderwrite Regularly And Monetize Liquidity Windows
    • Continuously re-underwrite positions and sell into liquidity windows to return capital to LPs.
    • Green asks if a holding will be ‘in the money’ 18 months out as a sell/hold decision framework. Transcript: Mitchell Green Constantly re-underwrite that is actually what it really is and we’re trying to make two to five X in three to seven years. If you put that on a curve at the 25 IRR curve, put it into a fund to make it two to two and a half X net fund. That’s what we’re trying to do. That’s what we tell our investors. So we’re constantly just re-underwriting to saying like, okay, if we were going to sell a bunch of Pite Dance today at 550, which is where it’s been reported that General Atlantic is Selling a bunch and there’s other people and we’ve been offered higher than that. I think it’s always like, what is the probability it can double? And then to ByteDance, we look at what fundamental earnings are and be like, okay, this is doubling no problem. Now, if somebody came to us today and said, hey, I’ll offer you $1.3 trillion, we’d sell a bunch. Because it’s not that I don’t think the company will do $100 billion of earnings in the next five years. And that’s 20 times. That’s worth $2 trillion. But there’s a risk. Harry Stebbings What does it trade out on a multiple basis? What would we be on our total investment at that price? Sure. And how far ahead are you paying for growth? And at the point, there’s a really valuable moment to go, yes, you’re paying four years out. Mitchell Green Oh, yes, correct. What we like to say is, I think this has actually kept us out of a lot of trouble too, which is like, are we in the money 18 months out? Like, that’s what we think. With a reasonable multiple, are we in the money 18 months out? (Time 0:29:20)
  • Sell Some Winners To Protect Fund Returns
    • Take chips off the table periodically even in winners to preserve fund economics and deliver DPI to LPs.
    • Green recommends selling 20–30% (or smaller amounts) when liquidity opens to maintain track record. Transcript: Mitchell Green If you weren’t selling, when are you going to sell? That’s actually the best advice I would give to young fund managers and like people starting funds is liquidity windows open and close. And when they are open, take advantage of them. You should be selling, even if you’re winners, sell 20%, sell 30%, sell 5%. Your job is to return money. Companies are bought, not sold. Yeah, I guess marks are opinions. DPI is math. And so, like, no, companies are bought, not sold. That’s not true. But you don’t have to sell the whole company. If there’s a round being done in a company that you’re investors in, especially if you’re a small new fund, you can go to the founder and be like, oh, founder, you’ve taken some money off The table. Like, I won’t be in business in five years if I can’t get some liquidity back to your company. And by the way, you can do the math. If you build the next giant company and you sell some at 500 million or a billion, like, who cares? Like, you still own 80, 90% of your whole thing. But like, LPs want money back. (Time 0:34:43)
  • LPs Are Demanding DPI Over Paper Gains
    • LPs are increasingly focused on DPI (distributions to paid-in) and liquidity, shifting expectations for fund managers.
    • Green says funds that don’t return cash risk losing future fundraising ability. Transcript: Mitchell Green I think you’ve started already seeing it. So we’ve always cared about DPI, but I think that we’ve always been really disciplined. Two to five X, three to seven years, like hit it, move on. Probably a third of our deals have been secondary sales. So people have accused us of being traders. That’s fine. I guess I’m a trader, but you know what? I give money back to my investors. And guess what? The investor is my client. I have two clients, entrepreneurs and investors. Without investors, I don’t have any money. I don’t have a business. And so I think people need to remember who pays the bills. Investors are very, very, very focused on DPI now. (Time 0:35:51)
  • Help Founders Recruit Operators Not Opinions
    • Provide founders practical help: recruit experienced operators and connect relevant executives rather than pontificate.
    • Green urges VCs to assemble leaders who’ve scaled from $20m to $200m and then get out of the way. Transcript: Mitchell Green Like, it’s like, great. By the way, great. You helped me make like five times my money. Nobody else in the cap table is liquid. We sold all of our stock. Keep helping you, please. Harry Stebbings What are the most common ways you see investors provide negative value to companies for founders listening that they should watch out for? Burn money at all costs, recruiting. They actually just act like they know how to run the business. Mitchell Green I’ve never run a company in my life, but I know I have like 98% of venture investors or private equity investors. Get people around the table that have done what the entrepreneur is trying to do. So if like you’re a $20 million AI company or a $20 million software company, find entrepreneurs around the table, help the founder recruit people that have built businesses from 20 Million to 200 million and get them around the table and get out of the way. It’s truly the advice that I think. And like, I just think there’s too many knuckleheads. You know, the worst is somebody, you know, who went to Stanford Business School, worked for 18 months at a startup, and now comes in as a venture investor, and now they’re experts. Be humble. Don’t act like you know. Because most of these, probably myself included, have never actually run. (Time 0:38:10)
  • Gross Dollar Retention Is The Key SaaS Metric
    • Gross dollar retention (GDR) is the single most important metric in SaaS investing.
    • Green sets thresholds: ~90% GDR is good, 95% great, 98% amazing; sub-85% at scale signals a broken growth model. Transcript: Mitchell Green It’s the most important number in tech companies, gross dollar retention. What I mean by gross dollar retention too, because everybody wants to quote Nets, is gross dollar. You ended 2024 20 million in revenue. What did you end at 2025 with just those same customers? No upsells, just downsells. You know, 18 is good. Like you want like 90%, anything less than 18, we won’t touch. Great is 19. Incredible is 19.5. Like you’re looking for 90% gross is good. 95% is great. 98 is amazing. And by the way, the reason why there’s so much dead wood in venture and like all these living dead, there are so many companies like 60, 70, 80% gross dollar retention. Yeah, good luck. I don’t get in the problem. It’s not when you’re 10 million revenue. That’s the problem. It’s when you get to like 150 million in revenue and you’re like have 70% gross dollar attention. You’re just like churning through. And so that’s why like the company that’s got 95 gross dollar attention can grow really fast and not burn much money. Because they’re not spending money on sales marketing to fill up the bucket. (Time 0:41:55)
  • Avoid Investing In Highly Levered Incumbents
    • Watch leverage when technological disruption hits: highly levered incumbents can’t invest to innovate.
    • Green compares 1999 retail failures like Sears (levered) versus Walmart (unlevered and able to invest). Transcript: Mitchell Green I think growth equity and buyouts are very different. I think even buyouts are very good. I think people like Hellman and Friedman, if you want to go to the large cap, people like Hellman and Friedman and people like Primera are probably slightly more growth-oriented. And there are other firms that are probably more like margin focused. I think it’s probably a function of how much debt they have on their companies. To be honest, I have not looked and spent tons of time like studying the financials of Coupa Software or Anaplan and things like that. If I was them, like I know that all these companies, they drive EBITDA margins from 5% to 40%. And the question is, how are they doing it? I would hope that they’ve done it mainly through like cutting really inefficient go-to and sales marketing and GNA. I would hope they haven’t taken the engineering sales headcount from 200 to 20. I suspect they have not, but like that would worry me if they had done that. But I suspect they have not. Like, by the way, these people are really smart people. Like, and the question is, if those companies have been bought with no debt, then they would be investing hugely, I’m sure, in AI, stuff like that. They probably already are. But for me, that’s what I said at the beginning. We worry about any company and any big technological disruption that is levered with a lot of debt on it. (Time 0:43:10)
  • Fund Size Forces Dependence On Mega Winners
    • Mega-sized venture funds must find multiple outsized winners for returns to work; fund math demands huge outcomes.
    • Green warns many large funds require several $100B+ winners for their economics to make sense. Transcript: Mitchell Green And just do the math, the fund math on how they’re clearly… You have to have the next Google, effectively, or the math doesn’t work, I don’t think. And by the way, I’ve even heard people say, you don’t even have to have one of them. You have to have two or three of them. The amount of money being thrown at some of these funds and, like, the size of the funds is astonishing to me. I hope they prove me wrong because it’s, like, good for me, too. If these funds get so big, these companies get so big, then they can buy a bunch of our companies like that. But, you know, I respect people like Benchmark or Index. Like, Index has grown, but it’s still, I mean, Index can raise as much money as it wants yeah and it’s actually relative a billion five or whatever i mean index is tiny compared to these Harry Stebbings Other funds like those guys are the best in the world and so you know it’s just i think it just gets really hard like it’s crazy okay well why let me push back on you there there’s nine billion In thrives growth fund if they are able to put two three billion into cursor or into databricks, you can very much- Yeah, but you have to run to write like $150 billion companies. Like that’s really freaking big. Mitchell Green But it’s steady state. Companies trade at 10 times earnings. Like, I mean, that’s just historically, you know, we can argue is it 12, is it eight? Like it’s steady state when they don’t really grow, they trade at 10 times earnings. Are you investing in something that’s worth $100 billion? You’re effectively saying to make a double with dil it’s probably $250 billion. That’s making the bet it’s going to do $25 billion of earnings. There aren’t that many companies that do $25 billion of earnings. It’s freaking hard. (Time 0:51:30)
  • Nat Friedman Meeting Whiteboarded Airline Points
    • Green’s most memorable first founder meeting with Nat Friedman involved whiteboarding travel points optimization.
    • He recalls Nat as humble and relatable, illustrating how great founders can be down-to-earth. Transcript: Mitchell Green Would be. It’s going to change the world in so many more areas that we’re not even thinking about. What’s the single most memorable first founder meeting you’ve had? Nat Friedman, founder of Xamarin. We whiteboarded how to save money with Starwood Hotel points and Delta Airline points. He’s just a great, humble guy, normal guy. (Time 0:55:00)
  • A Big Downturn Will Create The Next AI Winners
    • Green expects a major downturn within the next decade and views it as the best time to invest alongside AI-driven productivity gains.
    • He advises avoiding Gen‑1 AI traps, paralleling internet 1.0 lessons. Transcript: Mitchell Green What I’m the most excited about is there’s going to be a really bad downturn. It’s different than 99 and 2000, but there’s going to be a really big downturn. Markets just don’t go up forever. Economies just don’t go up forever. I think there’s a lot of policies in the government, in the world, like right now that might end really bad. And I think it’s going to happen in the next 10 years. That’ll be the best time ever to invest. And with combined the productivity booms that you’re going to have with AI. It’s like you avoid the Gen 1 AI companies, just like if you had avoided the internet 1.0 companies, and then think about all the internet companies that were started in like 03 to like 06. (Time 0:57:16)