Given how much money VCs are pouring into AI startups these days, it may seem like VCs have decided: If it’s not AI, they won’t write a big check.

But that’s not exactly what’s happening. Dealmaking at the moment is more nuanced, said VC Insight Partners managing director Ryan Hinkle during a recent Equity podcast.

With $90 billion in assets under management, Insight Partners invests at all stages. It’s known to both write huge checks itself and pile into huge rounds. For instance, Insight co-led Databricks’ $10 billion deal in December; participated in Abnormal Security $250 million series D in August (led by Wellington Management); and co-led the $4.4 billion PE take-private deal for Alteryx at the end of 2023 with Clearlake.

Hinkle, who started as an intern in 2003 when the company was 10 years old, explained how the firm’s check-writing pace has grown.

“When I joined Insight, we had raised a cumulative $1.2 billion ever, across four funds. We had put only $750 million of capital into investments at that point. We do more than a billion dollars per quarter today,” he said.

“In all of those 10 years, $750 million invested, which is like a good month for us today,” he joked. (Insight just raised $12.5 billion for its XIII flagship fund.)

Good, growing companies that are not selling AI as their core technology (for example, last cycle’s darling, SaaS companies) can still raise healthy checks, he said. But the multiples they can expect — value compared to revenue — won’t be as high.

Funding rounds are still “30% lower on a multiple of ARR basis than 2019. Forget the 2021 bubble times,” he said. “The stocks are up because the companies’ revenues are up a lot, but the multiples are still lower.”

Hinkle likes to call these current times “the ‘great reset’” and says “it’s a super healthy thing.”

But there is one big thing founders can do to maximize the deal that growth VCs will offer, and it doesn’t involve just stamping AI all over the company’s marketing materials. It’s much more important and much more mundane: financial infrastructure.

While startups entering their growth rounds (Series B and beyond) don’t necessarily need a CIO, they do need systems that show the details beyond recent customer acquisition and its cousin, annual recurring revenue — which has become something of a joke these days. 

That number came into vogue with the rise of SaaS, when startups would sign multi-year contracts with customers but could only recognize the revenue after it was billed — not allowing them to show their true growth. Today, startups like to take their most recent month of revenue, multiple it by 12 and voila, ARR.

What financiers like Hinkle want is for the startup’s leadership to be able to answer everything about the business the way they can about the product: influences on margin, customer retention rates, all the steps from “quote to cash,” meaning from giving customers a quote to being paid.

“Can you produce for me an anonymized customer record of all transactions with each customer?” Hinkle asks. This should include both the invoices and some contract details. 

“And if that takes more than a button push, the question is, ‘OK, where is it all stored? And why is it potentially scattered?’” he said.

Often young startups start with a kluged system where invoicing data is in one place, contract specifics somewhere else. Booking data and duration of contracts might even be somewhere else. And no one is reconciling it all.

For many, especially those with impressive growth rates, working on these mundane financial systems just never takes priority over adding product features that lead to more contracts.

“I totally get it when you’re growing 100% like, spoiler alert, the metrics are good,” Hinkle said. But at some point, he warned, growth will hit the skids, maybe from competitors. 

“All of a sudden, you’ve got to refine the sales math, the unit math,” he said. ”And if you can’t see it, it’s hard to know which levers you’re affecting.”

Founders who haven’t documented the financial minutiae will hurt themselves during the VC’s diligence process — and that will almost certainly result in a hit on check size or valuation.

“We’re still in this hangover aftermath of the great reset, post COVID comedown,” he said. “A lot of us were badly burned.”

Where once a founder could walk away with a big check from just a good revenue growth chart and well articulated vision of the future, today, “If I can’t see it with my own eyes, it doesn’t exist,” Hinkle said. “So the emphasis on these metrics is heightened.”

It’s true that some VCs will overlook that level of diligence and invest anyway, because VCs still get “intoxicated” by fast-growth numbers too, Hinkle admitted. 

But, he warned, the problem won’t go away. As the company grows and accrues more customers with more transactions, financial governance will get more unwieldy if systems to track and reconcile are not in place. The sooner a founder deals with it, the better the business will be later, he said.

Here’s the full interview, where he discusses this, as well as other topics like:

• Why startup success isn’t tied to a single location but rather to access to skilled, loyal, and affordable talent
• How Silicon Valley’s abundance of opportunities creates a “mercenary” hiring culture, making employee retention difficult
• The key differences between building in New York versus Silicon Valley, including financial management and access to venture capital