Summary

Startup valuations were down (especially for late-stage) (
). 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 (
).
VC fundraising also went through a down phase (
). Dry-powder remains in the system (
). Governments are taking action by building Fund-of-Funds or injecting directly into startups (
).
Even if a big-brand institutional investor has underperformed in their VC investments, the truth can lie far beyond performance of ‘VC as an asset class’ (
)
VC world needs more diversity - in terms of founding teams, in terms of money flowing to startups, and also in terms of VCs who are getting funded by LPs (
)
VCs need to watch out for who they accept as LPs (
), 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 (
)

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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

Samir Kaji - on LPs moving to risk-off in VC

Mike Walsh - on importance of VC operating experience


Gil Dibner - Huge explosion coming

Few snippets from the tweet
First, a lot of VCs have gotten really big.
VCs have been deploying capital very fast.
But even worse, the face pace of deployment has meant: little due diligence, higher prices, low ownerships relative to fund sizes, and - often overlooked - very bad time diversification.

VC bias and herding

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!

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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:
At the late- and mid-stage, median valuations dropped significantly in the last quarter of the year, with decreases of 24% to 50% since the previous year.
What was unexpected was that seed and angel investments showed greater strength, rising 3% in Q4’22 over Q4’21.
Additionally, 44% of US late-stage deals in 2022 (and 50% in Q4’22) were structured with seniority or tiered payout plans, higher than the established norm of the last two years.
Lastly, globally there was a 36% decline in late-stage deal volume in 2022, forcing it back to 2019 and 2020 levels.

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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.

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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


Median valuations at all stages have declined, with Series E+ valuations falling 72% YoY—the lowest point since 2010.
Founders are facing longer waits between venture rounds. The average interval between a Series A and B round climbed to 893 days, or two years and five months. Companies need more runway than ever.
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For four consecutive quarters, the pattern has remained the same: Rounds of over $50 million have become less common, while rounds of less than $5 million have increased. close to half of all money raised in Q4 was in deals that were worth below $5 million, which is the highest number since Q2 2020.

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Pre-money valuations at early stages of startup lifecycle only slightly decreased in Q4 (investors at these stages think long-term and are less swayed by public valuations, buffering seed and Series A deals from venture downturn effects). While Series A stabilized after a large dip in Q3.
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VC Lab - NextGen Manager Report


Snippets from the article
These three prominent trends emerged from the data on next generation managers:
IMPACT 29.7% of all VC firms in this report have incorporated a positive societal impact into their investment thesis, including Sustainability, CleanTech, and Diversity. This represents the most prominent focus of the firms in this report.
DIVERSITY The next generation managers come from an increasingly diverse range of backgrounds, specialties and geographies. The focus on diversity also extends to their investments: 9.8% of the funds are set up to back diverse teams, including women and minorities.
EMERGING MARKETS Next generation managers are focusing on markets both inside and outside of the traditional innovation hubs in North America and Europe. 14.4% of managers are focusing on Africa, and 8.3% are focused on South America, with multiple countries having the first venture capital firms started.

J.P. Morgan - 2023 Long-Term Capital Market Assumptions


Venture Capital focused text is starting on page 82. Snippets from the report:
Our 2023 return forecast calls for venture capital to deliver annual returns of 8.50% over our 10–15 year investment horizon.
A return to a low interest rate environment, as seen in the expansion following the financial crisis, would support venture capital returns – a scenario that is implicit in our macroeconomic forecast.
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NGP Capital - Nordics VC Funding


Snippet from the report:
Nordic startups raised the second highest year ever for VC funding, despite the economic downturn. Nordic startups raised $11.7B total in 2022. This figure represents a 36% decrease from the all-time high in 2021 but is still over 50% higher than pre-pandemic numbers.


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Articles


WSJ - Venture Fundraising Hits Nine-Year Low

Venture firms raised $20.6 billion in the fourth quarter of 2022, a 65% drop from the year-earlier quarter and the lowest since 2013, according to Preqin Ltd. It was less than half of the amount in the preceding three months and the fewest funds backed since 2012. Limited partners invested in 226 venture-capital funds, compared to 620 in the last three months of 2021 when tech stocks peaked.
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Europe - Funding to Fund of Funds and DeepTech


Snippet from the article
European Tech Champions Initiative (ETCI) will back high-tech companies in their late-stage growth phase.
ETCI will help plug financing gaps and thus reinforce Europe’s strategic autonomy and competitiveness.
The new Fund of Funds has secured initial commitments of €3.75 billion from EIB Group, Spain, Germany, France, Italy and Belgium.
The size of the fund is expected to grow further with future commitments.
Snippet from the article
Since the appointment of an external fund manager in September 2022, the EIC Fund has taken a total of 77 investment decisions for deep-tech companies, worth over €521 million, supporting high-risk start-ups to bring their innovative technologies to market and scale up in strategic areas for Europe.
The EIC Fund, the investment component of the , is an important source of funding for start-ups and small businesses in Europe. The equity investments, ranging from €500,000 to €15 million per company (more in justified cases), complement EIC Accelerator grant financing of up to €2.5 million.

TechCrunch - Dry powder versus wet powder: The numbers have spoken


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