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Summary
). Funding to startups trended downwards, and founders are adjusting to the new realties of longer wait times (
). Valuations at the early stage remained more robust (
).
). Dry-powder remains in the system (
). Governments are taking action by building Fund-of-Funds or injecting directly into startups (
).
)
)
), and on the other hand, LPs need to think about liquidity management (
). VCs need to show off their abilities (
) and can differentiate themselves through their operating experience (
) or by becoming less biased (
)
This month's ‘All Things VC’ edition focuses on topics relevant to VC GPs & LPs on a strategic level, i.e., overall valuations, market dynamics, fundraising, D&I, portfolio construction & more. Individual investment areas like ClimateTech are not covered in this collection.
VC Tweets
Vijen Patel - 2023 will be the best VC seed vintages
Quick Take:
Startups that fall in early-stage category have a chance to deliver outcomes, unlike later stage focused vintage funds which might focus on bridging funding gaps. Chance of best VC vintage derives from two points (a) injecting capital as a lower valuation, and (b) challenging times push for more refined entrepreneurship
Eric Bahn - Top red flags to watch out for in LPs
Quick take:
Eric provides a great list of reasons for saying NO to LPs based on his own experience of Fundraising.
Samir Kaji - on LPs moving to risk-off in VC
Quick take:
Emerging Managers need to figure out how to be more successful in fundraising, which requires the ability to justify their reasons for starting their funds.
Mike Walsh - on importance of VC operating experience
Gil Dibner - Huge explosion coming
Few snippets from the tweet
VC bias and herding
Quick take:
VCs are influenced by 'pattern recognition'. They often back similar startups based on past successes, but replicating previous successes isn't necessarily the way to go. Investing based on past performance entrenches the status quo and narrows vision. To generate alpha, patterns need to be broken and remade.
Henry Pierre-Jacques on how they are seeing the market right now
Pranay Srinivasan - What to ask a VC before they write you a check
Del Johnson on diversity in VC topic and change required in the VC industry
Snippet from the article
Increased competition, greater access to information about business formation and a shift out of high-barrier-to-entry markets like chip manufacturing into lower-barrier markets like software, he wrote, has made it more difficult for venture capitalists to sustain their past level of performance. What’s required is a new approach to investing, one that’s more diversified and less reliant on a small number of big hits.
Snippets from the tweet
Too often, VC reformers push for "community rooted" solutions that inflame the problem rather than solve it.
What's worse is the new data which suggests relationship-based models are themselves holding back the introduction of talented, diverse investors and entrepreneurs from entering the ecosystem.
Maren Bannon - What are founders looking for in an investor in 2023?
Quick Take:
Maren made a point by launching this poll. We talk a lot about PMF, recently of FMF. Though, IMF (Investor-Founder Fit) should also be a thing!
CalPERS performance on VC investments
Well summarised from Michael Jackson
To be fair, this is more on CalPERS than on venture as an asset class. Other large LPs, like Yale and Princeton, have made very good returns in venture over the same period.
CalPERS, once an early pioneer in venture investing, has had a very inconsistent approach the past 10+ years. They got out of the market completely in a very good performing period, before getting back in once the market had overheated. And they overallocated to big brand name firms, and missed out on emerging managers who outperformed. LPs: If you want to make money in venture, be consistent - invest year in, year out - and be sure to reserve some allocation to emerging managers. Easy peasy.
VC focused Reports
CB Insights - Tech Valuations 2022 Report
A few key takeaways:
Juniper Square - Q1 2023: The State of Venture Capital
Snippets from the article
US VC Exit activity: The was down 14%. Deal value dropped 30%. U.S. VC exit activity was valued at just $71.4B, down an astonishing 90% YoY. Indeed, was the least active quarter in the last ten years.
Venture isn’t alone: This decline in VC activity is no exception. Zooming further out, it is clear that 2022 was a challenging year for many asset classes. A land war in Europe, spiraling inflation, an aggressive rise of interest rates, and the ongoing geopolitical and supply chain aftereffects of COVID-19 saw .
Conclusion: .....However, in our conversations with venture GPs, there is an increasing sense of stability. Macro indicators are overall flat or improving, and, relative to the last few months of 2022, we’ve seen a higher pace of venture managers successfully completing their fundraises in January 2023. It’s too soon to call a bottom on these trends, but absent future shocks, we expect activity to begin to rise slowly in the early part of this year.
Carta - State of Private Markets: Q4 and 2022 in review
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