Insight Partners’ Devin Parekh on why the firm is diversifying while everyone else bets the farm on OpenAI and Anthropic

We’re always having that conversation, though founders listen to me about as much as my kids do. It’s case by case, but when a founder gets an offer at a frothy valuation, I ask them what happens when the market corrects, because it will, even if I can’t tell you when. If I could time it, I’d be on an island managing my portfolio, not talking to you. You don’t have to sell everything; de-risk 10 or 20%.

Right now valuations are rising so fast people assume the trend continues, but you can’t compound $40 billion at 50% every two months for two years without becoming the world economy. That math doesn’t work.

Anthropic will likely file to go public soon, with OpenAI presumably behind it. What does that IPO mean for the industry?

Anthropic is already larger than Salesforce and it’s four years old — the fact that they can go public doesn’t necessarily mean much for everyone else. You’ll have three companies — SpaceX, Anthropic, OpenAI — going public within six to eight months, each north of a trillion dollars in market cap, and the market absorbed SpaceX just fine. The real question is when the next tier of companies goes public, and what bar that sets. If you’re a public-market investor watching something go from zero to $65 billion in four years, “double, double, triple, triple” no longer looks that exciting by comparison. But that 10x growth rate can’t continue forever. Eventually even these companies become normal-growth companies, and you need public markets for that. I think we’ll see more of these IPOs over the next 18 months.

With so much capital locked up, will all this LP money finally flowing back sustain the frenzy?

We all do this in our personal lives — stay out of an expensive market until we can’t stand it anymore, and pile in right when we should be pulling back. LPs do the same thing at a macro level; everyone wanted in before 2021, pulled back after, and now the same LPs are piling back in. That boom-bust cycle is hard to avoid. Venture-growth funds of $6 to $10 billion used to be rare; now they’re common.

How long do you give a company with a bad cap structure before deciding whether to double down or walk away?

It varies enormously. Wonderful was created less than two years ago; we did two rounds and it’s now at a $5 billion valuation — a very fast double-down. On the other hand, some 2021 investments went nowhere for three or four years before finding product-market fit. That’s part of why we do portfolio reviews — we recently went through 300 portfolio companies over three days, checking not just on the big positions but looking for the ones showing an inflection point worth doubling down on, buying secondary in, or in some cases pulling back from.

Our best example is Armis, a security company. We lost the initial deal to Sequoia, but my partner kept the relationship alive with a $5 million check out of an $11 billion fund. Eighteen months later, we bought out the entire cap table, including Sequoia, for a nine-figure check, and sold it to ServiceNow this year for $7 billion. Sometimes you make money with small checks, sometimes with big ones. The goal is finding the best founders in the best markets.