In conjunction with our Q3 Venture Financing Report, I sat down with Logan Bartlett of Redpoint Ventures to get his take on the state of venture capital investing.
Key insights from Logan Bartlett:
On valuations moving forward: “While the amount of capital in the system is so high, it’s discerning in nature, and some of these rounds that were done based on forward multiples last year are going to be hard to clear if growth expectations aren’t met or customer demand tapers off.”
On late-stage investing: “The 0.01% of these [very high-quality, fast-growing] companies are almost in the ‘I-can-name-the-price-I-want’ mode, and they’ll often get it in the private markets (within reason) if the growth and efficiency are there.”
On evaluating new investments during the pandemic: “The way we’ve gotten comfortable has honestly been scheduling time for unstructured conversations. …Having some dedicated social time makes a difference.”
How does your experience in the market compare with Cooley’s data for Q3? Are you seeing the same resilience in the deal environment?
Yes, resilience in the market has held up.
Principally, what’s driving this is opportunity – the innovation that we’re seeing from entrepreneurs with novel and new ideas is really impressive. Second is the willingness to push forward in spending on the consumer side – and the buying of digital solutions on the enterprise side has not materially changed and, in some cases, has accelerated. Finally, the public markets have held up for a host of reasons, which obviously benefits the return environment.
Now, will that continue to be the case? I have no idea. I think innovation will. I worry about the consumer and enterprise purchasing desire in the near to medium term. It’s unclear what will happen with a stimulus package, and I do think enterprise sales cycles (more than six months) are going to see some stalling. I think the public markets likely will be stable if interest rates stay where they are.
How has COVID-19 changed the way you evaluate new investments? How challenging is it to put money to work right now?
Interestingly, the ability to pursue new investments is better than ever. There’s simply less breakage in everyone’s day related to travel and social events. Instead of needing to fly to a board meeting, find your hotel, go out to dinner with the team and then be unsure what time the board meeting will end the next day, your schedule is much more structured. In some ways, you’re beholden to 30-minute increments, but you’re able to be in so many places over the course of a day with Zoom.
Now the tough part is getting comfortable with people without having spent time with them in person. We’ve still yet to fund an entrepreneur who we didn’t know before COVID-19. We’re prepared to do it and it hasn’t been an inhibitor to pursuing investments, but we just haven’t yet. The way we’ve gotten comfortable has honestly been scheduling time for unstructured conversations. It sounds kind of ridiculous and definitely feels forced when setting it up, but having some dedicated social time makes a difference. Instead of having more free time due to not traveling, we just need to redirect that to more screen time with founders.
We’ve seen a number of blockbuster tech IPOs over recent months, including Snowflake, a Redpoint portfolio company. With the public markets valuing high-growth, venture-backed technology companies so highly, what does that mean for later-stage private investment?
We’re certainly fortunate to be involved in Snowflake, which is a really special company. I take a lot of credit for that one, actually. It happened six years before I joined, but I feel like spiritually I really influenced the decision.
Joking aside, it is a great time to be a late-stage private business, and we’ve been lucky to have a front-row seat to some really exciting growth. Three of the top four companies on Forbes’ Cloud 100 list this year are Redpoint portfolio companies. But both the public and private markets are discerning.
You’re seeing very high-quality, fast-growing businesses valued at extraordinary multiples, and then the so-so businesses valued at much less. The 0.01% of these companies are almost in the “I-can-name-the-price-I-want” mode, and they’ll often get it in the private markets (within reason) if the growth and efficiency is there. But when that starts falling off, the multiples do too, in a huge way.
Any other observations on the VC data worth noting?
The combination of flat and down rounds is only slightly up in Q3, but I’d guess those will continue to go up. While the amount of capital in the system is so high, it’s discerning in nature, and some of these rounds that were done based on forward multiples last year are going to be hard to clear if growth expectations aren’t met or customer demand tapers off. I’d guess structure continues to go up as well for similar reasons.
About Logan Bartlett
Logan is a general partner and managing director at Redpoint. He joined the firm in 2020 and focuses on enterprise investing in the early-growth fund. Logan led the firm’s recent Series B investment in Crossbeam, where he now serves on the board.
Prior to Redpoint, Logan spent nearly six years at Battery Ventures, where he invested in companies including Amplitude, Bitwarden, Braze, Clubhouse, Dataiku, Kustomer, LogRocket, Mattermost, Pendo, Redox and Workato. Prior to Battery, Logan worked in investment banking with Spurrier Capital Partners, a boutique merchant bank focused on the technology sector, and as an investment banking analyst at Deutsche Bank focusing on financial technology.
In 2017, Logan was named to Forbes’ 30 Under 30 list of young venture capitalists. He has also been published in Forbes and TechCrunch discussing the anatomy and growth benchmarks of successful SaaS companies, and he was the co-author of Battery Ventures’ Annual Software Report. Logan graduated with a Bachelor of Science in business administration from Washington and Lee University, where he played varsity men’s lacrosse. He also comments on Twitter more than his family would like @loganbartlett.
About Redpoint Ventures
Redpoint has partnered with visionary founders to create new markets and redefine existing ones since 1999. Redpoint invests in startups across the seed, early and growth phases and is proud to have backed 530+ companies with more than 160 IPOs and M&As, including Snowflake, Looker, Twilio, 2U, Duo Security, Stripe, HomeAway, Heroku, Netflix and Sonos. Redpoint manages $5.7 billion across multiple funds.