Investing in growth tech with Lead Edge Capital's Evan Skorpen
Summary
Lead Edge’s public strategy is to buy growth winners during valuation “air pockets,” not declining technology merely because its revenue multiple looks cheap. Its model is roughly 10 concentrated positions, three new investments a year, and a three-year average hold. Skorpen’s threshold is demanding: the product must create real customer ROI and the company must be “uniquely capable” of delivering it.
Much of software’s malaise is an awkward maturation problem, not solely an AI verdict. SaaS companies often decelerate from 20–30% growth into the high teens before margins mature, just as capital allocation and public-market scrutiny become harder. Previously, private equity offered an “escape clause”; now more founders must navigate that “awkward adolescent phase” in public.
A lower entry valuation creates strategic options, while a premium multiple can force management into promises of renewed growth. At a modest gross-profit multiple, a company can accelerate profitably, ramp margins, generate free cash flow per share, or repurchase stock. At 14–15x revenue, management may have to forecast acceleration simply to justify trading above Microsoft’s roughly 10x revenue multiple.
Investor days matter less as one-day catalysts than as forcing functions for a multi-year value-creation plan. Skorpen calls the presentation itself “often overhyped and a trap,” but values the preceding two or three months, when management must define its three-to-five-year strategy and measurable scorecard. That lets owners assess progress against free cash flow per share, Rule of 40, or incremental-margin targets instead of quarterly revenue noise.
The recurring beat-and-raise ritual has left software with an unusually brittle shareholder base despite excellent underlying economics. No company can beat and raise for 15 consecutive quarters because consensus eventually catches up; subsequently lowering expectations on roadshows becomes “two steps forward, two steps back.” Skorpen wants companies to recruit durable owners rather than “lower-quality shareholders” or more fickle shareholders.
Small public companies need an explicit destination: become large enough for the S&P 500 or eventually find the right owner. Skorpen sees no virtue in aspiring to “run a Russell 2000 company for the next 10 years.” A potential large-cap compounder should exploit public markets’ roughly 8% cost of capital, while a business without that path should maximize value and consider a strategic or financial sale when operations are strong—not amid turmoil.
AI is likely to remake software’s interface faster than its deepest systems of record, making “layering” the central risk. Workday-like databases may endure because replacement is slow and painful, but another vendor could own the AI interface above them. The best defense is “Oracle-level sticky”—customers remain despite repeated price increases—plus enough time to build the new layer before quarterly pressure produces an “emperor has no clothes” AI narrative.
Deep dive
1. Lead Edge buys growth winners when public markets lose patience.
Skorpen joined Lead Edge in 2018 to build its public arm, bringing a concentrated, behind-the-scenes approach from ValueAct. Lead Edge itself dates to 2011, and more than half the capital of its parent company comes from a network of over 750 individual LPs embedded throughout technology.
The 13F showed eight positions at recording, while Skorpen described the operating model as roughly 10 stocks, three new positions annually, and average holding periods near three years. The target is a “chunky stake” in a strong company whose valuation has hit an “air pocket.”
The strategy focuses on young internet and software businesses, often newly public at only $2–3 billion. Lead Edge seeks excellent businesses, aligned management teams, and enough influence to help management get “the story back on track” without adopting a public activist posture.
Its private-market history supplies context that public investors lack: Lead Edge may have evaluated a company for many years, sometimes decades, rather than only a few public quarters. Its LP network accelerates relationships too; after Clearwater acquired Enfusion, a Boise LP provided a warm introduction to Clearwater’s CFO before Skorpen ever visited Boise.
2. Software’s selloff is partly an adolescence problem, not just an AI verdict.
Early-stage SaaS has one dominant lever: “How hard should I hit the gas pedal on sales and marketing?” Venture investors debate losses versus breakeven, but the underlying task is straightforward—build the product, then decide how aggressively to distribute it.
Complexity arrives when 20–30% growth declines into the high teens while free cash flow or GAAP EPS has not yet matured. Management must suddenly balance growth, linear versus step-change margin expansion, executive turnover, public reporting, and whether the old “rainy day fund” still makes sense once profitability arrives.
Before 2021, exceptional growth sometimes carried businesses through this adolescence. Others could “wave the white flag” and accept a take-private bid because abundant private-equity demand competed for relatively few public software targets.
That escape clause is now harder to exercise, forcing young founders to mature under public scrutiny. Skorpen allows that AI is correlated with SaaS pressure, but says “a fair amount of it” is unrelated: categories are maturing, and teams are learning a fundamentally different operating discipline in public.
3. Valuation determines which value-creation promises are credible.
A company trading near 15x revenue cannot submit a budget that visibly destroys shareholder value. In 2022–23, that pushed many teams to promise future acceleration—not necessarily because they foresaw it, but because trading around 14x revenue while Microsoft traded near 10x made acceleration mathematically necessary.
Skorpen prefers management teams with options. From a lower gross-profit multiple, they can accelerate growth when unit economics support it, ramp margins when the macro weakens, turn the equity into a free-cash-flow-per-share story, or repurchase shares. “I can create value for my shareholders one way or the other.”
Remitly illustrated the narrative mismatch: its shares traded around 9–10x forward EBITDA and roughly 2x gross profit, yet management emphasized a 10-year vision and Remitly for Business potentially increasing TAM tenfold. Walker’s reaction: at nine times EBITDA, “I don’t think anybody cares about 10xing the TAM right now.”
4. Investor days create accountability before they create excitement.
Skorpen loves investor days, but “not because I think it’s a great way to get the share price up tomorrow.” The day itself can be “overhyped and a trap”; the valuable work occurs during the preceding two or three months, when leaders escape quarterly tunnel vision.
The exercise should produce a three-to-five-year shareholder value-creation plan: whom the company wants as owners, which KPIs define success, and what management can credibly deliver. Skorpen starts by asking for the company’s framework rather than imposing “the Lead Edge way.”
Influence begins with trust. Lead Edge had known Remitly’s CEO for over a decade, invested privately in Wise in 2018 and owned Wise publicly from 2022, shared its customer survey with Remitly, and spent time in person before offering advice. “If you come in guns blazing,” management will not listen.
Walker highlighted the accountability benefit: instead of arguing over a five-basis-point quarterly miss, an owner can revisit a promised $4 of free cash flow per share after 18 months and ask why there is not yet a path even to $3. A long-range plan enables a genuine performance review.
5. Beat-and-raise behavior manufactures brittle ownership.
Software should attract unusually patient shareholders: revenue is recurring, cloud migration remains secular, growth consumes little capital, and returns on invested capital can be exceptional. Yet Skorpen calls its shareholder bases among the public market’s “most brittle.”
Investors reward quarterly beats, sell-side analysts keep valuing profitable companies on revenue, and management responds accordingly. But “mathematically it’s impossible” to beat and raise for 15 quarters—the consensus bar eventually becomes unreachable.
Companies then spend the two months after raising guidance privately lowering expectations for the next report. Skorpen calls that “two steps forward, two steps back,” an unwinnable game that recruits “lower-quality shareholders” and more fickle shareholders instead of owners prepared to follow a three-year plan.
6. CEOs may choose their scorecard, but they must accept one.
Skorpen frames governance from ownership first principles: he has a fiduciary duty to Lead Edge’s investors, so he needs a way to evaluate the CEOs effectively working for the portfolio’s owners. Growth alone is inadequate when external shocks can dominate a year.
At Appian, where CEO Matt Calkins owns roughly 50%, government exposure meant DOGE activity or a shutdown could distort revenue beyond management’s control. Skorpen therefore asked Calkins to select a fair framework; Appian chose an adjusted Rule of 40 target that can be reviewed annually.
He is agnostic about the exact scorecard. A company can maximize free cash flow per share in three years, run the best Rule of 40 business, or target more than 30% incremental margins while growing as quickly as possible. The non-negotiable principle is: “You get to choose the metric.”
Management fit remains a gating item alongside business quality. Skorpen asks whether the CEO, CFO, and board would make compatible decisions if another COVID-scale disruption arrived. Disagreement is acceptable; an inability to articulate tradeoffs around compensation or capital allocation is much harder to underwrite.
7. Incentive design must reflect each company’s economic engine.
Walker’s warning was that every metric produces externalities: paying for revenue can encourage uneconomic spending or acquisitions, while rewarding ROIC at a naturally 50%-plus-ROIC software company can cause management to reject projects offering roughly 30% IRRs.
Clearwater Analytics nonetheless bases PSU vesting on revenue-growth targets. Skorpen would probably adjust the plan if he sat on its compensation committee, but accepts the logic: sales and marketing are a relatively small, fixed percentage of the opex budget, the motion is product-driven, profitability is already high, and strong revenue growth should let margins “inevitably come.”
The broader test is thoughtfulness across executive compensation, stock-based compensation, share-count management, minimum cash, and leverage. Lead Edge can tolerate different answers when consequences are understood; notably, Walker observed active repurchases at Yext, Clearwater, and Remitly, three of Lead Edge’s largest disclosed holdings.
8. Filings contain signals, but ownership context matters more than isolated trades.
Asked whether subtle filing changes and insider transactions are intentional, Skorpen answered “both.” Some reflect informed decisions; others occur because a director is “building a beach house.” Investors can mistake ordinary, imperfectly rational life choices for corporate signals.
A venture investor sitting on a 10x return behaves differently from one at 2x. Above roughly 3x is already a private-market home run, so accepting 8x instead of 10x to generate DPI before fundraising may reveal nothing about the next quarter.
Position size matters equally. With about 10 holdings, each Lead Edge investment is roughly 10% of its portfolio and therefore consequential; a 2% holding is different. Walker was especially skeptical of directors whose company stake looks large but represents only 10 basis points of a huge fund.
Building a strong small-company board is genuinely difficult: experienced operators prefer successful large companies, while roughly $150,000 of board compensation may not entice them into a struggling issuer. After an IPO, longtime venture mentors may also withdraw to avoid MNPI, leaving founders lonely amid quarterly reporting and hedge-fund demands.
9. Terminal value—not a fallen multiple—separates opportunity from trap.
Technology has a wide gulf between a seemingly cheap revenue multiple and a genuinely cheap GAAP P/E. A stock falling 50% from an extreme multiple can still be years from earnings-based value, making premature bottom-calling especially dangerous.
Attractive economics invite excessive competition, while rapid product change means a laggard can lose terminal value quickly. Lead Edge’s core test is whether customers receive real ROI and whether the company is “uniquely capable” of supplying it; seven indistinguishable vendors are hard fits for that test.
Skorpen does not describe the strategy as value investing: “We’re getting in at a value price,” but trying to own dominant growth companies in large markets. Cheapness without durable customer value is merely a melting ice cube.
A small issuer then needs a destination. It should either become a large public company or maximize value before finding the right home; remaining indefinitely in the Russell 2000 is not the goal. With S&P 500 capital costing roughly 8% and its smallest company around $20 billion, genuine future members may deserve to remain public unless a strategic buyer offers an extraordinary price.
10. AI threatens the interface before it destroys the system of record.
Walker pressed the bear case with a personal example: he canceled fitness trackers and now puts everything into ChatGPT. Some software could become a terminal zero. Skorpen’s honest answer was, “I don’t know”; this is an early chapter in a multi-decade transition whose effects “will be profound.”
Workday supplied his framework. Its database plugs into countless workflows and is unlikely to disappear quickly because enterprise trust and integration take years to build. What could change profoundly is the user interface—like the mouse once changed computing—creating a risk that an AI vendor builds a new shell above Workday.
Core banking offers the analogy: Fiserv’s underlying systems remained sticky while newer SaaS vendors captured customer-facing layers. Workday may modernize more easily because it is largely single-instance, multitenant software, but the decisive question remains whether it owns the new interface or “gets layered.”
Gross retention alone does not prove durability. Skorpen wants “Oracle-level sticky,” where customers dislike annual price increases yet still do not leave. Skorpen also takes comfort that software CEOs recognize AI as a risk and can increase tech spend without their stocks taking a hit. Walker countered that investors still demand quarterly evidence even though enterprise AI products remain early, creating a lose-lose choice between admitting “we’re not there yet” and promoting an “emperor has no clothes” story every quarter.