Mitchell Greene held various positions in investment banking, as an analyst at Bessemer Venture Partners, and at a hedge fund backed by Tiger Management before going independent in 2011. Mr. Green currently manages the funds of more than 700 individuals who have committed $5 billion to his firm, Lead Edge Capital.
How did he convince so many people to join, including such luminaries as former Xerox CEO Anne Mulcahy, former Charles Schwab CEO David Pottruck, and former PayPal CEO Dan Schulman? Acquiring stakes in Alibaba, Bumble, and Duo Security certainly helped. But Mitchell suggested the appeal also pertains to an all-weather strategy. His strategy is to increasingly steer people away from “overvalued” venture capital deals and into “control deals” like buyouts of companies that many venture capitalists might overlook. A company in Sarasota, Florida that develops heart monitoring software and a tax planning software company in College Station, Texas.
LeadEdge, a long-time investor in major Chinese companies, continues to invest money in ByteDance, despite assumptions that TikTok could go to “zero” if it is eventually banned in the US. Naturally, we foresee a huge withdrawal.
To get the latest perspective on the market, we spoke to Mr. Green, a former nationally ranked alpine ski racer who lives primarily in the city of Santa Barbara, during a recent F1 racing event in Las Vegas. I spoke to him from my hotel room in Las Vegas. Excerpts from the chat follow, edited for length. You can also listen to the interview on TechCrunch's StrictlyVC Download podcast.
When we last spoke, you were really leaning towards Ant Group [the Alibaba affiliate that was expected to become the world’s largest IPO in the fall of 2020 before that offering was completely derailed by China’s securities regulator].
I think it was around the time of the General Atlantic. [became] large investors. Invested by Silver Lake. Invested by GIC. We put some money into the deal. Yes, it was only three days away from release, but the Chinese government stopped it from being released. If you look back to today, it's still a huge business, but it's still not public. I'm aware of the financial situation, but I can't talk about things like that.
Can't you tell me whether to buy or sell?
We are not buying or selling Ant Financial. We're invested in it, we're holding it, and we'll see what happens.
Do you have any plans to invest in other Chinese companies at this time?
The only other Chinese company we own is ByteDance.
we invest in many things [other] companies. Similarly, we are the first institutional investor in nearly two-thirds of the companies we invest in. A while back, we invested in a company called Pacemate in Sarasota, Florida, which is a hotbed of technology. Only 9% of companies are actually located in the Bay Area. We were its first investors. It's a large business and growing well. We went in and bought 54% of the company.
How did you procure it?
Our team is made up of 18-year-old analysts and associates, all of whom are in their 0-2 years of college. And that group of people talks to about 10,000 companies a year. We have eight criteria for creating the perfect lead edge company, and if you called 10,000 companies, chances are 1,000 would meet five or more of those criteria. [you do] We are working hard on about 150 of them. [after counting out those that] You may not want to raise funds, you may not want to sell your business, [maybe be in a] Because the market size is too small, [or whose] Maybe the founders are crazy. [These analysts] You have to be smart and persistent in calling these companies and asking the right questions. . . I'm sure I won't be able to get a job here now.
It looks like it will be transformed into a PE shop.
we always [done control deals]. Approximately one-third of our trades are control trades. But for us, it doesn't really matter whether you own 21% or 75% of the company. We are growth investors. [If] If you have a company with $20 million in sales, we'd be happy to be a 20% shareholder or we'd be a 60% shareholder. But let's take that company's revenue from $20 million to $100 million, it doesn't matter. We literally don't think about percentage ownership.
Returning to ByteDance, what do you expect under the Trump administration?
Our theme at ByteDance is very simple. Your business is growing about 30% a year. [and] It trades at around 5 times earnings. And we can reduce our U.S. business to zero. [still] I think I can make 3 to 4 times more money in the next few years. [I have] I don't know when it's going to be released, and no one else, absolutely no one, knows. do not have [Coatue founder] Philippe LaFond, Bill Ford of General Atlantic, not the guys who own a lot of money in Susquehanna. [of its equity]not all funds in China. The founders intend to go public when they want and at the right time. But it's huge business. So, giant is an understatement. It is one of the largest companies in the world. And while our basic assumption is that U.S. businesses will be shut down, Donald Trump said during his campaign that he had no intention of banning it, so who knows? Your guess would be as good as mine.
What is your cash-on-cash return so far?
We are not allowed to discuss returns at all. We are registered with the SEC. I can't speak to returns.
We've talked about platform companies in the past. Have you had a chance to invest in large language modeling companies like OpenAI or Mistral?
I'm pretty negative about first-generation AI companies. I believe that many of these AI companies will become donuts and many will lose a lot of money. . . Because the cost will be significantly lower. In 1997, building a website cost Sun Microsystem servers $30 million. With GoDaddy, you can now build a website that's better than that for $20.
The same thing will happen with AI. AI is about to revolutionize the world, but it will take longer than people think. I'm tired of seeing companies that are growing at an insane rate with 50%, 60%+ gross dollar retention. And why do they have them? Because every company on the planet talks about experimenting with AI, and when they try their software, sometimes it's great, often it's okay, and most of the time it does exactly what it says it does. Because I don't. We also refuse to invest in companies that are 100x, 200x, or 500x earnings. The match will end badly.
Many business ventures are now using non-traditional products to generate revenue. you?
We're bored. We invest in the company. We call it capital. We quit the company and give the money back to the LP. We do not use navigation loans or debt at all. . .
One of the biggest deals in our fifth fund is an acquisition called Safesend, which develops tax accounting software.
What do deals like this say about your view of the venture market?
[There’s] Too much money chasing a few overvalued companies. that's it. So why did we start looking for more bootstrapped businesses? We thought valuations were completely ridiculous. The problem with the venture ecosystem is that [VCs] Even though we sit and listen to each other, Twitter and social media only make things worse.
Thanks to some venture funds [because] They go out and do completely different things – like what Chris Sacca is doing with Lowercarbon or what Josh is doing. [Wolfe] I'll do it at Lux Capital. And I think there are some funds like Benchmark, Sequoia, Index, etc. that have an unfair competitive advantage in early stage ventures. And when you try to compete with these companies, it's like wishing you luck. But there's too much money for that space.