Category: capital
October 14, 2022 Sifted : Who are VCs kidding with their phony fund sizes?
I’ve seen everything from funds announced in the media that aren’t even incorporated yet, pre-first close funds announcing the target size of the fund as being raised or, to make it a bit more concrete, firms announcing their fund size when they only have like 0.02% of the capital effectively raised. I love the hustle mindset; truly. But I also love transparency and honesty. And I dare say I love integrity above all. This behaviour has real consequences on our beloved venture ecosystem — most of them negative. LPs should be held accountable because they should reference check before building any type of conviction. VC investors should be held accountable because they just shouldn’t be doing this! Ecosystem builders (accelerators, incubators, tech event organisers, etc) should be held accountable to cross-check before inviting “pseudo” VCs to their events, pitch days, panels and so on. Media should be held accountable because journalists have a responsibility to interrogate news and not just print whatever is fed to them. Founders should be held accountable because they should publicly call out the VCs who do misrepresent themselves, just as much as they should celebrate the VCs who are doing good work. (read more…)
CATEGORY: capital, leadership, VC
July 11, 2022 Institutional Investor : There’s an Easier Way to Win in Alternatives
Given these fundraising dynamics, it’s probably an even more attractive time to be looking toward the smaller end of the market. The vacuum of capital being allocated to small managers portends still better future returns, as fewer and fewer dollars are chasing the same opportunity set. (read more…)
CATEGORY: alternative financing, capital
December 1, 2021 Anthropology Today : Towards fully automated investing? How venture capitalists are making the economic future old-fashioned
November 15, 2021 Fred Wilson : Seed Rounds At $100mm Post Money
So, in a world where we are seeing more and more $100mm valued seed rounds, one has to ask the question what are the investors expecting? A $100 billion outcome? Doubtful. Less dilution, maybe. A different power-law distribution? Don’t count on it. I think they are being delusional, comforted by the likelihood that someone will come along and pay a higher price in the next round. But it seems that person may also be delusional. Because when you model things out, the numbers just don’t add up. The exit values in VC have increased significantly over the last decade leading to escalating entry values. That makes sense. But the two things that have not changed materially over the last decade are the dilution from seed to exit and the power-law distribution of outcomes in an early stage portfolio. (read more…)
CATEGORY: capital, VC, winner take all
November 14, 2021 The Generalist : Tiger Global: How to Win
Tiger's current approach is to invest in the top decile of tech startups. If the tech sector continues to grow and the fund picks reasonably well, Tiger's returns should be strong — but it's less likely to drive the radically anomalous performance that traditional venture funds are seeking. Classic VCs are often looking to clear a 30% internal rate of return (IRR) on investments; Tiger is likely hoping for something closer to 20%. A prospectus for Tiger XV, an upcoming $10 billion vehicle shared by a private source, revealed that the fund is outperforming this threshold. IRR across 14 private entities is 34% gross and 27% net of fees. In essence, traditional venture capitalists are looking to get the best return possible within a specific time frame. Meanwhile, Tiger is looking to put as much money to work as possible at a reasonable IRR. LinkedIn tells us 188 people work at the fund, effectively managing $93 billion. That comes out to almost $500 million in assets per employee. Other leading venture funds can't come near this kind of efficiency. (read more…)
CATEGORY: alternative financing, capital, VC
November 7, 2021 Becker Friedman Institute for Economics at University of Chicago : Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
It has long been conventional wisdom for investors in private equity to choose funds run by managers who have performed well in the past, particularly, so-called top-quartile funds, while avoiding first-time funds. This conventional wisdom is based on the belief that performance in private equity persists across successive funds – typically organized as limited partnerships – with the same manager (the general partner or GP). For buyout funds with post-2000 vintages, performance persistence based on fund quartiles disappears. When funds are sorted by the performance quartile of the GP’s previous fund at the time of fundraising, performance of the current buyout fund is statistically indistinguishable regardless of quartile. First-time funds perform at least as well as any of the groups based on prior fund quartile rankings. Moreover, returns for buyout funds in all previous fund quartiles as well as first-time funds exceed those of public markets as measured by the S&P 500. For VC funds, in contrast, performance persistence still exists, when measured by the final (or most recent) performance of funds: top quartiles tend to repeat such performance nearly 45% of the time. VC funds with previous performance in both the top and second quartiles outperform the S&P 500. This is not consistent with the view that only very few VC funds outperform. In fact, previous funds that are above median appear to do so. (read more…)
October 6, 2021 Institutional Investor : Insurance CIOs Move Further into Alternative Assets
In a survey of its top 50 insurance clients, global investment firm KKR found that respondents moved more money to alternative assets over the period from 2017 to 2021. Allocations to non-traditional investments increased from 20.4 percent in 2017 to 31.8 percent in 2021, according to the survey. Respondents made these changes largely by shifting their portfolios away from investment-grade fixed income, which fell 12.2 percentage points since 2017, and liquid equities, which fell 3.6 percentage points during the same time period. The beneficiaries included non-traditional investments like private credit, real estate credit, infrastructure, and private equity, which collectively increased from 12.1 percent of portfolios in 2017 to 19.2 percent in 2021. (read more…)
August 4, 2021 The Information : The End of Venture Capital as We Know It
The net takeaway is that in the last several years, as software investing has gone from fringe to mainstream, enormous flows of global capital have been unlocked to finance software and the internet at increasingly competitive rates. What this means for investors who focus on Series A investment rounds and beyond is that the market should become more and more efficient while investing becomes less and less profitable. However, if you want to be a venture capitalist leading the next era, you should look for opportunities no one else is funding because they are too weird, too crazy or too small—at least today. There is a truism that as startups mature, they eventually look pretty much exactly like the companies they set out to disrupt. Today’s prominent VC firms will follow the same trajectory. And the boutique investors will move on. (read more…)
February 26, 2021 Wall St Journal : SPAC Frenzy Emboldens Silicon Valley Startups to Forgo Venture Funding
SPACs have flipped the script on the multidecade model of development for early-stage startups, enabling fledgling companies with little or no revenue to tap public markets sooner. The shift lets amateur investors—long excluded from startup wealth creation—get in on the ground floor of disruptive businesses. It is a dynamic that can lead to huge returns but also carries big risks, as young companies are far more vulnerable to going belly up. Jay Ritter, a finance professor at the University of Florida who studies public stock listings, found that the shares of tech companies going public with annual sales under $50 million underperform the market by 28% over the first three years of trading. The median annual sales for tech companies completing a SPAC deal since the start of 2020 is $48 million. (read more…)
CATEGORY: alternative financing, capital, VC
February 9, 2021 Institutional Investor : Private Equity Firms ‘Try to Manipulate Their Performance’ When Raising Money
The researchers found that when private equity firms exhibited high fundraising stress index scores, they were more likely to engage in “upward earnings management” in portfolio companies. A one-unit increase in the stress index resulted in a 10 percent increase in discretionary working capital accruals. The researchers found that a firm’s reputation — as measured by the Private Equity International ranking — did not have an effect on whether or not a firm engaged in this practice. However, the level of dry powder on hand does matter, but only in cases of extreme stress, the research showed. (read more…)