Jason Lemkin and Rick Zullo Debate Venture Fund Size, Paper Marks and Founder Relationships

Harry Stebbings opens with Rick Zullo's call for a “Jerry Maguire moment” in venture capital. Zullo compares the film's overextended sports agency with venture firms that have shifted from close founder relationships toward scaling assets under management. He wants fewer companies and more hands-on work; management fees, he notes, are more predictable than carried interest.

Zullo recalls two nine-figure exits early in his career that changed founders' lives but were dismissed by larger investors as too small to matter to their funds. He says Equal Ventures has 15 companies and sees an opportunity to return to a closer, more selective model. His comments reflect the economics and interests of his own fund.

Jason Lemkin says large funds increasingly need outcomes far beyond a $1 billion valuation. He recalls an LP reporting that Founders Fund had aimed for a $100 billion outcome per fund, and argues that a 10% stake in a billion-dollar exit returns only $100 million to a billion-dollar fund. A meaningful founder outcome may therefore barely move a very large fund.

Zullo argues that identifying a future $10 billion company at seed is exceptionally difficult. He prefers backing great companies that might reach that size without making such an outcome mandatory for the fund's economics. Later-stage investors have more information, while early-stage funds that require a huge outcome have less room for error.

Stebbings asks what happens to the wave of multibillion-dollar funds. Lemkin predicts a resurgence of mega-funds in late 2024 and 2025 as liquidity and public offerings return, warning against extrapolating a difficult fundraising period forever. This is his forecast from 2023, not a verified later result.

Zullo also expects large firms to keep growing, but thinks some will develop distinct strategies and dedicated teams as they evolve into asset managers. He suggests matching the size of each fund to its strategy could produce more rational return math, since very few companies can support a single enormous fund's required outcomes.

Lemkin turns to large multistage funds investing at seed. He accepts that an expensive initial round can make the next round harder and that a large fund may treat a small investment as an option. Nevertheless, he argues that founders who raise unusually large sums should preserve cash instead of assuming they must spend it all.

Zullo says he would welcome a founder putting most of an oversized round aside, but has rarely seen it happen. Stebbings points to the temptation to hire engineers, expand sales and test several markets at once. Lemkin insists that founders must calculate their cash-out date and adjust spending; Zullo adds that investors encouraged growth on the assumption that capital would remain abundant.

Lemkin says investors share substantial responsibility for overspending, while arguing that founders should have responded sooner when business conditions weakened. He recalls taking no salary for 18 months and investing his own limited savings in his startups. The experience informs his strong view that a founder must avoid running out of cash.

Asked about layoffs, Lemkin argues that a strong B2B SaaS CEO should generally be able to plan around recurring revenue and avoid a reduction in force. Zullo responds that investors see many more companies and sometimes see a reduction as part of resizing a business. These are contrasting judgments, not a finding that any particular layoff was avoidable.

Zullo wants a more candid founder-investor relationship, where a board member can challenge a founder without destroying trust. He argues that fundraising incentives and a desire for good founder references have encouraged investors to avoid difficult conversations. An investor who has seen many companies should help a founder recognize dangers before they become acute.

Lemkin recounts an unnamed portfolio company where he was the third-largest investor and not on the board. He says its high burn had not been discussed by a larger investor who feared damaging the relationship, so Lemkin raised it himself. This is his account of one company, not an independently verified claim about its board.

Zullo says investors should be clear about whether they are acting as helpers or offering tough pushback and should establish that relationship with founders in advance. Lemkin questions how much influence ownership really gives an investor when founders run the business every day. Both see founder-board dynamics as having changed, though they differ about how much they may shift back.

Zullo says board influence depends partly on whether the founder wants to engage and partly on formal control. He predicts bridge and down rounds could increase board leverage. Lemkin doubts many founders will anticipate that change until they are close to needing cash; their claims about future behavior are opinions, not rules.

Stebbings worries that companies in the middle—neither fast-growing nor fashionable—could slip through the financing market. Zullo expects more failures than down rounds or bridges and says boards should prepare early for a possible loss. In his view, a large fund may have less incentive to preserve a modest residual value than a smaller fund with a substantial stake.

Zullo also sees a need for experienced directors willing to discuss burn and sustainability. Some younger investors, he says, have had fewer chances to learn these lessons and may be reluctant to push back. These are observations from his own board experience, not a claim about every venture investor.

Stebbings asks whether the new focus on efficiency will last. Lemkin says public software companies faced pressure to improve margins and points to examples including monday.com and Toast. He describes changes over roughly a year, while acknowledging that operating margins and GAAP profitability are different measures; his figures are observations from the 2023 discussion.

Lemkin wonders whether founders will need to operate much more efficiently for five to ten years, though he does not know whether the market will swing back. Zullo says investors need to understand business-model quality and the path to free cash flow, rather than treating revenue multiples as the whole analysis. He contrasts software examples with consumer and fintech businesses he says struggled after cutting growth spending.

Stebbings describes portfolio companies that improved efficiency but saw growth slow. Lemkin says many founders were given a temporary pass on weaker growth while investors dealt with other problems. He believes venture-backed B2B companies must ultimately return to strong growth; he presents that as a venture-return standard, not a claim that a slower business has no value.

Zullo emphasizes the value of controlling one's own financing needs. A company that can sustain itself has the option to raise when capital markets are attractive rather than needing a round or an IPO at a bad time. He says roughly half his portfolio could reach that position, and that many of those companies were still growing quickly; this is his account of his own holdings.

Stebbings asks how LPs should discount venture books containing companies that raised at high valuations and subsequently slowed. Zullo says the answer depends on each company. He reports hearing secondary offers that could sharply change some funds' returns, and says managers who raised special-purpose vehicles on the way up without generating liquidity may face difficult conversations with LPs.

Lemkin describes his own rough review: he treated valuations above 15 times annual recurring revenue as suspect relative to public-market comparisons, then listed revenue, last-round values and exceptions. He says this approach is less useful for very early businesses and took two markdowns after reviewing his portfolio. The multiple is his heuristic at that time, not an appraisal rule.

He says he also looks at company health and the probability of eventual outcomes. Two of his LPs told him they preferred directionally reasonable valuations to dramatic blanket markdowns, according to his account. The discussion turns to an illustrative company with $50 million in ARR and a much higher previous valuation; Lemkin suggests a substantial markdown using his heuristic.

Lemkin argues that markups have distorted venture behavior by rewarding frequent rounds and high paper valuations. He would prefer no markups or a conservative valuation method, even if a fund appeared to remain at a low multiple for years. He acknowledges that market-based marks carry information, but says their incentives have had damaging effects.

He argues that some LP staff as well as fund managers were rewarded for paper gains, encouraging a chain of optimistic marks and additional financing. Lemkin recalls his own fund showing 140% IRR in its first year and calls that level unsustainable. The figure is an early paper performance measure he describes, not a realized long-term return.

Zullo says trusted managers can earn the patience to let investments compound. He acknowledges feeling pressure as an emerging manager to show markups, and says Equal Ventures' LPs supported a potentially slower fundraising pace and more focus on existing companies. He prefers spending time building companies to repeatedly raising rounds.

Stebbings notes that different managers can assign very different values to the same private company. Zullo says trust varies by relationship and prefers to underpromise and surprise positively. He expects his own portfolio to encounter setbacks too, and argues that transparency about process is especially important when revenue does not support a high private valuation.

Lemkin says smaller funds often rely on a handful of anchor LP relationships, while other fundraising can be more transactional. He warns that managers may overstate their role or connections when raising capital and describes the long feedback loop that makes LP selection difficult. These are his observations, not allegations about named managers.

Zullo criticizes what he sees as excessive salesmanship throughout the ecosystem. He says he has not taken a conventional pitch in eight years, preferring to understand how a founder thinks and works. He recalls that his own first fund's pitch was poor but LPs who invested took time to understand the process behind it.

Lemkin disagrees in part: he likes a concise, persuasive first email and founders who can sell their vision. He acknowledges missing monday.com when its early outreach did not impress him. For him, the efficiency of a strong pitch matters because founders eventually have to persuade customers, employees and investors.

Zullo says two leading companies in his fund had difficult early pitches but later raised significant capital, and his team helped them improve. He argues that selling to a customer in a particular industry is different from pitching venture investors. In his experience, early fundraising polish has not consistently predicted the ability to build a business.

Stebbings adds that an effective pitch need not be relentlessly positive: a founder who can explain the three strongest reasons not to invest and how to address them may demonstrate self-awareness. Zullo cautions that rehearsed answers can be gamed, so he prefers to ask a few questions specific to the business and see how well the founder understands it.

Lemkin concedes that founders can learn to pitch and that selecting by a polished email risks missing strong builders. He describes his own preference for screening many emails but holding few meetings. Zullo says he also takes roughly one new founder meeting a week, reflecting a different, highly thesis-driven filter.

Zullo's framework asks whether a company could produce an exceptional outcome, fits one of his team's most developed investment theses, or has a founder he considers extraordinary. He acknowledges that this approach misses many good businesses and says it lets him spend more time winning and helping companies suited to his fund.

Stebbings challenges the claim that huge outcomes can be recognized so early. He recalls interviewing investors in breakout companies who consistently underestimated their ultimate size. A company that becomes enormous may initially look like a modest acquisition candidate, so screening for a visibly huge outcome can miss the largest successes.

Lemkin recalls a heuristic from his early investing: ask whether the next round is likely to be at three times the current valuation. He says it forced him to consider both price and evidence of progress without pretending to know the ultimate exit. He regrets moving away from that discipline during the period of inflated valuations.

Stebbings argues that there are few very large outcomes and investors need broad coverage to encounter them. Zullo responds that some excellent funds have produced high returns without a $10 billion company. He wants transformational opportunities but warns that a fund whose economics require one particular rare outcome is taking a difficult bet.

Zullo says forcing every company toward an unrealistic mega-outcome can waste capital. If a business has a credible path to a smaller exit and the fund owns a meaningful stake, that result may still be valuable. He notes that his firm has a unicorn and other promising companies, so his analysis is linked to his own portfolio interests.

Lemkin distinguishes trying to identify a huge market from the beginning and “stair-stepping” through financing rounds at prices a company can plausibly grow into. He says he has personally done better with the latter. His threefold target is a decision heuristic, not a guarantee of either the next round or an eventual fund return.

When Zullo asks about expensive seed rounds and lower Series A prices, Lemkin says fears of adverse selection can go too far: they may cause investors to overlook undiscovered founders and markets. He gives his own investments in European founders as examples he might have missed had he accepted a prejudice against them.

Zullo says preserving options takes discipline and hard work, giving a company time to reach product-market fit and earn a chance to scale. He also argues that investors should manage the rest of a portfolio thoughtfully instead of abandoning companies that are unlikely to become $10 billion businesses. Patience is central to both strategies.

The discussion turns to deal flow. Stebbings says he personally holds about three new founder meetings a week, supported by a partner, so he can research each one. He tries not to let a referral or previous experience with a sector determine his judgment before meeting a founder.

Stebbings says that, as his fund has grown, he increasingly competes with other investors and cannot rely on them for referrals. He finds operators and personal relationships more useful. He also says very small checks can create expectations of support that are difficult to meet relative to the investment size.

Zullo says Equal Ventures set out to lead most rounds and take board seats, rather than beginning with a collaborative small-check strategy. As funds become larger, he sees an often unspoken competition for ownership and founder attention. Investors can be friends while still competing to win a deal for their LPs.

He cautions against copying a firm such as Sequoia without its particular advantages. Equal Ventures, he says, needs to execute its own strategy and demonstrate its process to LPs; judging the results will take many years. This is a statement of his fund's approach, not evidence of future performance.

In the quick-fire round, Zullo warns that some investors at multistage funds may not remain in their roles over the next three to five years. He thinks founders should consider continuity when assembling a board and planning later financing. The claim is a prediction made in 2023.

Lemkin says the common reason a company fails to progress from seed to Series A is good but not exceptional growth. He recalls using roughly 8% monthly growth as a mid-seed rule of thumb and says a real business can still fall off a venture-growth track. The threshold is his investing filter, not a universal standard for all companies.

Asked about an investing mistake, Zullo says he was so committed to his thesis that he missed a company started by founders he knew; he identifies it as Archer Aviation. The experience made him more open to exceptional founders outside his established themes. This is his retrospective account of a missed opportunity, not a statement about subsequent investment returns.

The group considers a bet on venture dollars invested in AI in 2024 compared with 2023. Lemkin predicts a doubling, arguing that large pools of capital will seek large AI opportunities even if some investments turn out poorly. Zullo ultimately leans toward the same forecast, expecting capital to concentrate in the largest model companies. Neither prediction is presented as an actual outcome.

The attempted bet runs into a problem when the guests converge on the same side. Stebbings thanks Lemkin and Zullo for the discussion, and they close the conversation.