Episode Summary
Executive Summary: Tom Levero argues the post-2021 venture reset will be painful but healthy: startups funded at extreme valuations will face down rounds, bridge rounds, slower deployment, and tougher LP scrutiny. He urges founders to prioritize survival, raise earlier, cut decisively, and use the downturn to rebuild fundamentals rather than waiting for a return to 2021 pricing.
Main Topics: Post-2021 valuation reset (Priority: 5/5): Tom says private market pricing has normalized after the 2020-21 bubble, and companies that raised on hype are now facing the consequences. Down rounds and zombie companies (Priority: 5/5): He expects more down rounds than many investors admit, but notes some firms will avoid bankruptcy by cutting burn and becoming slower-growth 'zombie' or lifestyle businesses. Fundraising timing and survival strategy for founders (Priority: 5/5): Founders should start fundraising around 12 months of runway and be done by six to seven months left; waiting too long weakens leverage and increases failure risk. Reserve management, bridge rounds, and LP pressure (Priority: 4/5): Venture firms will have to manage reserves more carefully as many portfolio companies need follow-on capital; LPs may push back if funds accelerate deployment too quickly. Operating discipline: cuts, hiring, and offense (Priority: 4/5): Tom recommends cutting toward concrete milestones, not just time, and then going on offense with better hires and more efficient marketing once survival is secured. Liquidity, secondaries, and portfolio construction (Priority: 3/5): Secondary sales are now more accepted as a de-risking tool, and investors should sell in stages rather than trying to time exits perfectly. Venture industry structure and talent (Priority: 3/5): He believes venture remains a strong long-term asset class, but wants the industry to be less hierarchical and to promote younger talent faster.
Key Arguments: The 2020-21 venture environment was irrational; investors need to refocus on fundamentals like revenue quality, unit economics, founder quality, and realistic exit potential. Down rounds are likely to happen this cycle because many 2021 prices were detached from company fundamentals, even if VCs psychologically prefer to avoid them. A company with insufficient product-market fit and too little growth after cuts may survive as a zombie/lifestyle business rather than die immediately. Bridge rounds are often weak solutions unless they clearly bridge to a specific milestone; if a company is good, it should usually raise enough capital rather than rely on a short bridge. Founders should begin fundraising when they still have roughly 12 months of runway and close by 6-7 months remaining to preserve leverage and avoid desperation. If a company needs to cut, the goal should be milestone-based efficiency, not indiscriminate austerity; cut enough to survive and then reassess growth. Marketing dollars can be more efficient in a downturn because competitors pull back, lowering CAC and improving relative returns on spend. Hiring experienced operators can be worth the cost because they reduce waste and can quickly improve execution, especially in functions like marketing and sales. Venture LPs will likely push back on GPs that recycle capital too quickly, forcing funds back toward longer deployment cycles. Secondary sales are a valid and increasingly durable liquidity tool; the best approach is staged de-risking rather than trying to time the top. The industry will not revert to 2021 pricing, and founders who wait for that are making a strategic mistake.
Data Points: IVP partnership start: 2015 - Tom says he joined IVP at the beginning of 2015 as an equal partner. IVP firm age: 43 years - He notes IVP has been around for 43 years and has historically been selective with deployment. Fund deployment in 2021: 9 to 12 months - Tom says some funds deployed capital extremely quickly in 2021, which disrupted LP planning. Typical fund deployment expectation: 2 to 3 years - He says LPs usually expect a fund to deploy over this period before returning for the next fund. Bridge round minimum runway: at least 6 months - Tom says a good bridge round should buy at least six months, not just weeks or a couple of months. Founder fundraising trigger: 12 months of runway - He advises founders to start fundraising when they have about 12 months of cash left. Safe close point: 6 to 7 months of runway left - He says founders should ideally be done raising by this point. Company growth trade-off example: 70% vs 45-50% growth - Tom uses this as an example of deciding whether reducing marketing and burn meaningfully harms the business. Potential customer acquisition budget: $5 million - Used as an example of how a strong executive could allocate and optimize a large marketing budget. Potential executive compensation example: $300,000 to $400,000 - Tom cites this as a plausible cost for a senior marketing executive. Potential runway extension: 10 years - Referenced in the discussion of highly valued startups with large cash cushions and unclear product-market fit. Preferred round pricing example: 10 to 15x forward ARR - Tom says IVP announced deals in 2022 at these levels, which he describes as closer to pre-COVID norms. Public software multiple normalization: 2016-2018 levels - He says public software valuations have reverted to more normal pre-pandemic ranges. LP pushback example: $5 million now, then another $5 million in 3 years - Tom explains how faster-than-expected redeployment can strain an LP's capital planning. Secondary/free credits example: $25,000 - This appears in the ad read for Retool, not the core discussion.
Pivotal Quotes: "The world isn't going back to 2021." — Tom Levero: Tom's core thesis on valuation and fundraising expectations for founders and investors. "Your number one job for a portfolio company is not running out of cash." — Tom Levero: His advice to founders on prioritizing survival over optics or valuation purity. "If it's a good company, give them a lot of capital. And if it's not, zero." — Tom Levero: His framework for deciding whether to support a company with more financing.
Implications: Founders should prepare for a harder fundraising market, raise earlier, and optimize for survival and fundamentals. Investors should mark portfolios realistically, manage reserves carefully, and expect more selective deployment and greater LP scrutiny.