Venture capital faces a reckoning: overcapitalization and poor liquidity threaten returns unless funds prioritize exits.
Mid-market private equity offers a lifeline for SaaS companies stuck at $50-200M in revenue.
ByteDance’s global resilience underscores China’s underestimated AI prowess, despite U.S. regulatory risks.
1.AI Revolution: Hype vs. Reality
AI is reshaping venture capital, but not as the lone genius narrative suggests. Mitchell Green, founder of Lead Edge Capital, sees it as a tool amplifying existing players rather than birthing solo billion-dollar firms.
Incumbents Rule: “The incumbents usually win. It’s customer distribution”. Green argues established firms like Salesforce and Workday will leverage AI (e.g., Cursor, Copilot) to boost efficiency—10 engineers acting like 30—solidifying their dominance.
Solo AI Myth: “The idea of a single-person AI company, I think, is like comical at best”. Success hinges on sales, distribution, and go-to-market, not just tech wizardry.
Long-Term Optimism: Green predicts AI will “completely revolutionize the world over the next 10 to 20 years”, but not through obvious plays like call center software—rather, via novel, yet-to-emerge applications.
“The idea of a single-person AI company, I think, is like comical at best”
2. Spreadsheet Investing: Old School, New Wins
Green’s Lead Edge thrives on a disciplined, metrics-driven approach, scouting $10-20M revenue companies growing 40-50% annually with high margins—often overlooked by Silicon Valley.
The Lead Edge Eight: A rigid framework filters 10,000 companies yearly, targeting 100 that hit all eight criteria (e.g., $10M+ revenue, 50%+ growth, 70%+ margins). “It defines everything we do”.
Beyond the Bay: Less than 10% of investments are Bay Area-based, avoiding inflated valuations (e.g., 100x revenues). Instead, they snag deals like Gravity, a $10M budget software firm in Toronto, bought for $50M.
AI Counterpoint: Critics call this “spreadsheet investing” outdated in an AI-driven era. Green counters: “70% of the stuff we invest in, the guys at Spark have never heard of”, proving niche viability.
3. SaaS Shakeout: The Living Dead Dilemma
SaaS firms with $50-200M revenue and 10-20% growth face a crisis—too small for IPOs, too unprofitable for private equity. Green sees a path forward.
Rule of 40 Fix: “You have to get to rule of 40 because that’s the only way you’re getting out”. High retention (90%+) and profitability are key to mid-market PE exits.
PE Lifeline: Mid-market private equity now buys software, coveting 15% growth as “fast” compared to their 6-7% industrial portfolios. SafeSend, sold to Thomson Reuters, grew from $13M to $47M in 3.5 years.
Overcapitalization Woes: “Don’t overcapitalize companies”. Excess cash from 2020-21 bloated valuations (e.g., $3B rounds), leaving firms stranded as multiples crashed.
“Don’t overcapitalize companies”
4. Liquidity Lessons: Sell Smart, Sell Fast
Lead Edge’s obsession with liquidity—via a “disposition committee”—sets it apart in a venture world clinging to paper gains.
Relentless Exits: “We’re relentless in our focus of trying to make 2 to 5x in three to seven years”. Exits like SafeSend and WorkHuman (90% cash back via dividends, showcase this.
Secondary Savvy: Green buys old fund stakes (e.g., WorkHuman at 5x earnings from a 17-year-old fund, or sells early (e.g., 30% stakes to hedge funds, dodging long hold periods.
IPO Skepticism: “I do not think in five years the majority of companies that could go public will go public”. Private markets and secondaries must mature to save VC returns.
“I do not think in five years the majority of companies that could go public will go public”
5.ByteDance Bet: China’s AI Dark Horse
Green’s contrarian ByteDance investment highlights China’s underappreciated AI strength, even amidst U.S. TikTok bans.
Zero U.S. Value: “We assumed the U.S. business is worth zero”. North America’s single-digit revenue share and unprofitability make it expendable.
China’s Core: ByteDance’s monster domestic business—e-commerce and content—drives growth at 25-30%, eyeing a Hong Kong listing.
AI Edge: “They’re going to be one of the foremost AI companies on the planet”. Embedded AI and global reach outpace Western rivals, despite regulatory noise.
6. Venture’s Reckoning: Tourists Beware
Green warns of a venture bubble, fueled by AI hype and 2020-21 excess, with tourists—undisciplined funds—facing a washout.
Bubble Echoes: “What’s going on in AI looks very similar to the internet bubble”. Overpaying (e.g., 100x revenues) repeats past mistakes.
Tourist Purge: “Will the tourists get washed out of venture? 100%”. Timing’s unclear, but poor DPI will sink the undisciplined.
Stay the Course: “Define what you’re going to do and do exactly that”. Consistency, not trend-chasing, wins.