Category: VC
December 16, 2022 David Friedberg on All-In Podcast : State of the Markets
"What happens to the bottom 75% of Venture Firms. It's such a staggering demonstration of what people call the power law, which is how excess returns accumulate to a minority of investments. The market cap of 43% of companies that have gone public since 2020 is $750B. The market cap of the other 300 companies is only $26B. The cash that went into the $750B is $136B, and the cash that went into the $26B is $107B. And so the cash that went in to generate that $26B, that $107B, that's your bottom 50%. And the top 50% put in $136B to make $750B. And I think it gets even narrower as you move into that top quartile. And this is only the companies that went public, so this is only of the top companies and the top funds that were actually able to IPO. So it highlights how much of a power law actually plays through. The bottom 75% or the bottom 50% of various fund vintages is below 1.0. They lose money for their LPs consistently. It's a cycle, and so the next generation comes through and LPs make a portfolio of bets, and they hope that they make enough bets in the right VCs that their portfolio generates greater than market returns, greater than 15-20%." (read more…)
CATEGORY: capital, VC, winner take all
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
September 24, 2022 Bessemer Venture Partners : State of the Cloud 2022
With inflation on the rise, interest rates climbing, and geopolitical uncertainty, 2022 was met by stormy conditions in the form of a dramatic market correction. The BVP Nasdaq Emerging Cloud Index slipped back to 2020 levels, dropping over 40% in value. (As of May 2022, the cumulative market capitalization of the public cloud is approximately $1.4 trillion). However, despite this drop—or what we’ve called “The SaaSacre” at Bessemer—this cohort of cloud companies still exhibits strong fundamentals (e.g., 41% average growth rate, 71% average gross margin, 45% average efficiency score.) (read more…)
September 20, 2022 Pitchbook : Distressed venture is coming to save your orphaned startups
"Our goal is to find companies that are fundamentally good businesses with business models that make sense and are revenue-generating. They just need a second chance so that they can grow profitably and sustainably, and then have a meaningful exit for founders and investors."
(read more…)CATEGORY: alternative financing, profitability, resilience, VC
September 20, 2022 Carta : Early 2022 data shows a drop in median IRR across funds
While all vintages saw median net IRR decline, 2017 and 2020 vintages saw the sharpest drops (of 3.6% and 3.0%, respectively). The lone exception to the decline was 2021 vintage funds, which are still rising from the dip below zero that private-fund IRR usually takes in the initial stages of the fund lifecycle. (read more…)
CATEGORY: resilience, valuation, VC
May 26, 2022 Suraj Gupta via Forbes Business Council : Diversity: The Holy Grail Of Venture Capital
No matter how you slice it, diverse teams outperform homogenous teams, and the numbers back this up. Teams that are diverse by gender and ethnicity generate 30% higher MOIC (multiples on invested capital) compared to homogenous teams. Companies with at least one female or one ethnically diverse founder generate over 60%+ in business value. Ethnically diverse founders enjoy an average exit multiple that is 30% higher than those of solely white founding teams (3.26x vs. 2.5x). This gap becomes even more pronounced when we consider diversity in the C-suite. Ethnically diverse C-level teams have an average exit multiple that is 64% higher than their solely white counterparts (3.31x vs 2.02x). (read more…)
CATEGORY: leadership, resilience, VC
December 1, 2021 Anthropology Today : Towards fully automated investing? How venture capitalists are making the economic future old-fashioned
November 27, 2021 The Economist : Something ventured, something gained The bright new age of venture capital
Why, then, is the model being disrupted? The frenzy is a result of both the entrance of new competitors and greater interest from end-investors. That in turn reflects the fall in interest rates across the rich world, which has pushed investors into riskier but higher-return markets. It has no doubt helped that vc was the highest-performing asset class globally over the past three years, and has performed on a par with bull runs in private equity and public stocks over the past decade. Though rising valuations bolster returns on current portfolios, they dry up future returns. Crossover funds are less price-sensitive than traditional vcs. And for later-stage startups, investors’ money is more fungible, says Mr Giuffrida. It matters less who is investing than how much they are willing to pay. Furthermore, the market for orthodox vc firms is becoming tougher. Despite the venture boom, fundraising by new niche vcs in America has fallen from a peak of $14bn in 2018 to an expected $5.5bn in 2021. (read more…)
CATEGORY: VC
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