All Things VC - May 23' Edition

Matt Turck writes a good ‘pun’ tweet

Bryce Roberts on fewer Series A’s/B’s leading to less price discovery at the Seed stage

Megan Reynolds on LP’s overallocation-to-few-startups

Samir Kaji on “Responsiveness is a superpower in VC”

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For now, startups don't feel an immediate pressure to sell…But dealmakers and investors agree that by the end of this year or early next year, M&A activity will increase significantly..

While some VC-backed companies may be able to raise capital or venture debt for the purpose of acquiring other startups, most such buyers are very protective of their balance sheets and offer to

pay with their stock instead

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Median tech company valuations grew quarter-over-quarter for Series A (12%), Series B (9%), and Series C (7%) rounds for the first time in at least a year.

Nearly two-thirds (64%) of US late-stage deals were negotiated with seniority or tiered liquidation preferences — the highest level in over 4 years as investors look to insulate themselves from downside risk.

Venture capital showed one of the steepest declines in the 12 months through Q1, dropping 38% year-over-year to $202 billion in commitments. Only one strategy—secondaries—managed to boost fundraising, and that's thanks to one firm's mega-fund closures in January.

A heightened slowdown has materialized in VC fundraising trends. The trailing 12-month capital raised was nearly as low as 2018 levels, while the respective fund count plummeted to what we saw in late 2014

“Racially diverse founding teams outperform their peers, returning 30% more capital to investors when they reach exit by acquisition or IPO.”

Hiring: In aggregate in

#assetmanagement

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, entry-level representation for Black and Latinx populations is 15%, in

#privateequity

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12%, compared to both the U.S. graduate population (20%) and the general U.S. population (35%) ​Belonging: Across all industries (not just in the investment management industry), Black, Latinx and Asian professionals are more likely to feel that they are an “only,” (53%, 35%, 30% respectively), White professionals (2%). ​Turnover: in PE, Latinx and Asian employees have significantly higher turnover (17% and 18% respectively) at the principal level than their White peers (9%). In Asset Management, Black employee turnover at the managing partner level (16%), White peers (9%)

Data from 5,000 VC funds between 1976 - 2023 shows three things

1. Fund TVPI performance is stronger in smaller funds 2. Third quartile performance is equal 3. There is no added risk in allocating to smaller funds

While several investors felt venture debt will remain a cheaper option for founders than equity, all of them agreed that it would get more expensive in the future.

“Increasingly, venture lending will resemble other forms of credit underwriting.”

The biggest problem with treating LTV:CAC as the holy grail of capital efficiency boils down to its oversimplified and often straight-up misleading nature.

CAC payback is one of the focal and most telling metrics you can turn to if you need to understand how efficiently you use your capital.

18 months after closing, a Series A investment that hasn’t been marked up yet is more likely to never be marked up than to be marked up. Seed investments, because of their higher baseline rate of failure, cross this threshold even faster—at just 12 months.

As investors, one of the top things GPs can do is to not let past experience over-bias future decisions.

Generally speaking, we see startup salaries as having plateaued in recent months. However, that slowdown in growth is happening at very different rates across the country. The impacts of pay transparency, remote work, and the other shifting dynamics in startup compensation continue to shake up the ranking of cities by salary.

It is crucial to be honest with yourselves and critically assess whether it is feasible to continue pursuing the work. Closing shop and returning capital aren’t viewed as failures or incompetence. On the contrary, it showcases a high level of self-awareness and the ability to make difficult decisions.

The overwhelming most important thing an LP can ask of a GP is to be transparent and that we can have a trusting relationship. And this act was more affirmation than we ever needed that we were backing the right manager.