Jason Lemkin, Woody Marshall and Deven Parekh Debate Growth Investing and IPOs

Harry Stebbings hosts a 2023 growth-investing roundtable with Insight Partners managing director Deven Parekh, TCV general partner Woody Marshall and SaaStr founder and seed investor Jason Lemkin. They discuss financing, valuation resets and recent IPOs from the perspective of investors whose firms own or seek similar assets.

Parekh says growth in underlying businesses has not disappeared even though the pace of growth investment fell sharply from 2021 and 2022. He cites 180 Insight portfolio companies growing more than 50% in the second quarter of 2023 versus a year earlier. That is a portfolio-specific observation, not a representative market statistic.

He expects some companies funded in earlier rounds to need capital as their runway runs down, with well-performing businesses able to raise at prices they may not like. Parekh welcomes a slower pace that lets investors build relationships and evaluate management, while not expecting a quick return to 2021 deal volume.

Marshall agrees that transactions continue but says the gap between buyer and seller expectations has reduced opportunistic fundraising. He cites strategic acquisitions, refinancing expensive debt and partial secondary liquidity as possible reasons for deals. He describes a recent investment involving TCV and Insight, a relationship relevant to both speakers' views.

Parekh notes that some portfolio companies raised $300 million to $500 million when capital was inexpensive and do not need to raise immediately, even if they cannot repeat their last valuation. Stebbings asks whether those businesses can grow into the price and how employees will remain motivated.

Parekh says investors may have preferred-share protections that employees lack. He expects some companies to reset equity incentives to keep their teams engaged, while investors may have to wait longer for returns. The interests of employees, founders and different investors do not always coincide.

Marshall favors resetting expectations rather than holding on to an outdated private valuation. He argues that a lower employee option valuation can help incentives, and that clinging to a high mark can push management toward poor risk-taking. He acknowledges that investors in expensive 2021 rounds may need more time to earn their returns.

Parekh warns that using heavily structured securities to preserve an old headline valuation can make the problem worse: the company may obscure its actual value and complicate employee incentives. Lemkin asks whether some structure can be acceptable when founders and investors expect a much larger eventual outcome.

Marshall says structured terms can work when the outcome is strong, but can create different incentives in a weaker outcome. He prefers a fair price with stakeholders on the same side. Parekh gives a hypothetical acquisition where investors and founders might disagree because a preferred security only converts above a particular value; he acknowledges his firm has also done structured deals.

Stebbings asks whether fund managers have an incentive to delay marking down investments while raising from limited partners. Marshall agrees misalignment can arise and says large firms use processes reviewed by auditors. The speakers do not establish how any particular fund has marked an investment.

Parekh expects a market for some sizeable software companies that are not ideal IPO or strategic-acquisition candidates, including purchases by financial sponsors. He is less enthusiastic about businesses with both weak growth and high burn. He says investors are paying more attention to profitability and cash flow than during the peak growth-at-all-costs period.

Lemkin asks whether today's emphasis on efficiency will persist or whether growth will regain a larger premium. Parekh says his firm already assumed multiple contraction when making 2021 investments, and personally sees possible upside from 2023 multiples without expecting a return to peak levels. That is his underwriting view, not a market forecast with guaranteed results.

Marshall uses the rule of 40 to illustrate changing expectations: companies can combine growth and profitability in different proportions, and investors increasingly want to see a path to earnings. He says a revenue multiple may be an output rather than the primary analysis as mature businesses move toward cash flow and net income.

Parekh resists a universal answer on accepting lower growth today. A consumer business may have been buying unprofitable customers, while an enterprise company may be dealing with temporary over-purchasing and later reaccelerate. The right judgment depends on unit economics, the market and what caused the slowdown.

Marshall emphasizes product quality and the ability to expand a customer relationship. Retention and new features matter, but he wants to understand why customers value the product and whether the company can build useful new offerings over time. A spreadsheet alone cannot establish that position.

The panel asks whether low public SaaS revenue multiples make growth investing untenable. Parekh identifies late-stage, pre-IPO financing as especially slow because private valuation expectations can exceed public comparables. Earlier investments are different bets over a longer period, he says, and cannot be judged by one current multiple alone.

Stebbings predicts IPO activity will take longer to recover; Parekh is more optimistic about the second half of 2024 while explicitly acknowledging that he cannot predict the economy. He argues that a company with a sound model can go public without first raising another late-stage private round. These were competing 2023 forecasts.

Marshall says recent IPOs sold relatively small portions of their shares and describes going public as putting the business in play. He believes companies should not remain tied to peak private valuations: public trading can offer liquidity and a currency for acquisitions, with long-term results depending on execution. His view reflects a growth investor's interest in exits.

Lemkin asks what late-stage investors discuss when a company lists below its last private valuation. Parekh says some companies may seek private financing primarily to give long-serving management partial liquidity before an IPO. He also describes public-market managers potentially using a late round to build a position when a small IPO would offer limited allocation.

The investors say venture involves risk and that punishing every individual mistake could make teams excessively risk-averse. Parekh says some of his firm's 2021 investments had already been marked down substantially by the time of the discussion; he does not claim knowledge of the valuation process for the particular companies raised by Lemkin.

Stebbings relays a skeptical asset manager's view that recent IPOs were disappointing. Marshall attributes some weak trading to macro conditions, small floats and possible short interest, while saying it is too early to judge the businesses. His remarks about trading are hypotheses, not verified measurements of short positions.

Parekh takes a glass-half-full view: after a long quiet period, several substantial companies had listed and Cisco had announced a Splunk acquisition. He sees signs of progress without claiming an immediate return to the earlier market. Lemkin asks whether a lower IPO price might have produced stronger aftermarket performance and encouraged more listings.

Parekh agrees that strong aftermarket performance could improve buyer confidence, but notes the trade-off with money left on the table and uncertain macro conditions. Marshall urges companies to focus on execution and reporting rather than short-term trading noise. Both are expressing their own investment perspectives.

On AI, Marshall says TCV had not made AI-specific investments but its portfolio companies were using the technology in different ways. He believes the trend could be significant while acknowledging that some investments might disappoint. Parekh says Insight had invested a portion of a fund in AI, mostly earlier infrastructure investments, and was cautious about elevated 2023 valuations.

Lemkin presents a hypothetical SaaS company with $50 million in annual recurring revenue, 50% growth, no burn and over 100% net retention from small customers. The others say valuation depends on market size, durability of growth and business quality, not just these numbers. They discuss public comparables as reference points, not a firm offer.

The episode closes with a playful wager about Klaviyo's share price over the following year. Lemkin says he owns shares, which is relevant to his optimism; the others frame their guesses with different degrees of confidence. These are 2023 predictions, not evidence of later performance or investment advice.

Asked about Arm, Parekh says he lacks enough knowledge to make a bet and mentions demand for AI-related chips as a possible factor. Marshall adds that a limited public float and later share releases could affect trading. Neither establishes what will happen to the stock.