All Things VC - April 23' Edition

The doomsday scenarios that first rattled around the Valley’s podcasts and group chats—in which the cash reserves of thousands of startups and investment firms simply evaporated, leading to a cascade of shuttered businesses and a generation of lost innovation—wouldn’t come to pass. But reverberations from the crisis will continue for the foreseeable future.

As clichéd as it may be, it's still relevant to remember that 90% of startups fail. But regardless of whether a founder’s first business was a success or a flop, VCs know they’ll have picked up firsthand knowledge that can’t be beat. Indeed, its estimated that

65% of Europe’s unicorn founders

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have started at least one company before.

There is an entire generation of entrepreneurs who are ambitious and highly qualified who can’t receive venture dollars because they look or act a little differently. Even for those founders who are building a “world-changing” company, this push to enormous outcomes forces them to embrace an insane amount of risk.

Micro-funds mainly raise capital from family offices and wealthy individuals, such as GPs in VC funds and successful startup founders. Because of this, their LP base tends to be more fickle than that of larger firms, which is more geared towards institutional capital.

Forty-seven percent of VC firms surveyed by Deloitte said LPs had requested DEI information in the last 12 months, up from 41 percent in 2020 and 36 percent in 2018.

This rising demand for diversity data suggests that VC firms that lag their peers in DEI efforts may face more obstacles in what is expected to be a difficult fundraising environment, according to the report.

Over the past six months, family offices have slowed their direct investing or halted it entirely with the intention of turning that responsibility over to asset managers.

When technology investments were surging, family offices felt they could invest on their own. Now they are suffering losses across their portfolios, and capital is either tied up in other investments or they are choosing to steer away from direct deals

The belief that there is a VC shortage because so many “deserving” entrepreneurs are rejected, and the assumption that everyone can succeed as a VC just by starting a fund, has led to the launch of many targeted VC funds. Few seem to be asking the right question: if there was such a shortage, why do so few VCs succeed and so many VC-funded ventures fail?

There are also ways to win in purely competitive scenarios where VCs have material information that their peers don’t, but I wouldn’t bet on the vast majority of firms getting much more than the marginal allocation left over by a16z, Sequoia and other large, sophisticated firms.

In any case, it seems clear that the winners in venture over the next decade will be full-stack firms that continue to financialize the industry and boutique firms that successfully leverage specific networks or knowledge bases. Looking deep to the vision and initiative of each founder is the only way forward.

The public market rebounded in early 2023, even as the venture market continued to slump.

According to AngelList data, there's no immediate correlation between the public market and the private market.

However, AngelList data suggests there is a positive correlation between lagged public markets (9-18 months) and the private market.

This lagged correlation suggests the venture market will continue to slump in 2023, even if the public markets rebound.

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The Nasdaq dropped significantly in the first half of 2022, followed by a choppy recovery. Meanwhile, the most recent three-month block of AngelList data (December - February) indicates a continued slump in the venture markets, with a positive activity rate of just 64%.

German pension funds invest significantly less in European future technologies compared to US pension funds.

US pension funds account for actively invest in German VC funds, where they account for about 15% of the capital. In contrast, German pension funds account for less than 1% of the investor base in German VCs.

The larger your fund, the fewer levers you generally have to tinker with to generate great returns.

The larger your fund, the larger absolute scale of outcomes you need and the more of those outcomes you need to acheive to make your math work.

All the investors asked to remain anonymous, citing concerns that speaking out about mental health might affect their prospects of raising money for their funds or winning deals.

Much of this stress is the result of intense pressure from a fund's investors — limited partners — to produce good returns.

Venture Unlocked - Fundraising best practices for managers with Meghan Reynolds of Altimeter

Venture Unlocked - Satya Patel and Hunter Walk on launching Screendoor VC to back underrepresented fund managers

TLDR: The overall impression you get is that the program has turned into a conveyor, pushing everyone through the same pipeline, which doesn't allow it to give a decent value to each individual company. It’s hardly surprising given a) a lot of companies, b) all at different stages, c) all in different industries. At the same time, the same theory is given to everyone, and the partner, on average, is one for 20 companies.