Evergreen Funding: Accelerating Social Impact and the AI Technological Transition

Tribe Capital just dropped a bombshell with their latest Weather Report, and if you're a founder seeking funding or a venture capitalist, you cannot afford to ignore this wake-up call.

We're braving a fundraising desert shaking up the global venture ecosystems. Supply and demand dynamics are undergoing seismic shifts, and it's high time we prepare for a major restructuring in the months ahead.

According to Tribe Capital's meticulous analysis, the supply of venture capital is falling short by over $100 billion annually in the USA alone and a jaw-dropping 5 times that globally for Series A-C funding. Clearly, the demand for capital has skyrocketed, surpassing the available dry powder in the market. Brace yourselves because we've only crossed one-third of this desert, and a storm of restructuring is brewing!

But here's the exhilarating twist: despite capital scarcity, founders' failure rates are not as bleak as you might imagine. Historical data paints a picture where failure rates during funding deserts typically increase by a mere 4-5% compared to normal times. Entrepreneurs are a tenacious bunch, adept at adapting and flourishing despite limited capital resources.

So, what does this mean for you as a founder or a VC? It's high time to challenge your conventional investment strategies and seize the opportunities that arise in these turbulent times. The ongoing restructuring process will impact LPs, venture funds, and startups alike, giving birth to innovative approaches and potential breakthroughs. As a VC, it's crucial to align your execution with the shifting paradigms and capitalize on emerging trends.

Tribe Capital's Weather Gauge serves as a compass, offering an all-encompassing view of the capital landscape across diverse ecosystems. Staying updated on the evolving dynamics and identifying the ecosystems grappling with the most significant capital constraints is paramount. This knowledge empowers you to make well-informed investment decisions and discover promising startups that have the mettle to weather the desert and emerge stronger than ever.

Remember, the venture game is a marathon, and financial shocks are merely passing storms. While fundraising deserts may present short-term challenges, they are integral to the broader investment landscape. As a VC, you have a unique chance to support entrepreneurs during these arduous times and position yourself for long-term success.

Founders embrace the challenge with unwavering determination, and VCs, adapt and seize the opportunity within the desert. The journey may be arid but also a breeding ground for innovation and transformation. Stand tall, pitch your vision, and find those investors who believe in your potential.

Venture capital fundraising has long adhered to the maxim of "if it ain't broke, don't fix it," relying on the established practice of raising capital through closed-ended vehicles. But innovation requires a willingness to challenge the status quo. In venture capital, this means exploring alternative fundraising vehicles that better align with the needs of our founders and LPs.

The landscape of venture capital is at a pivotal moment in its history, where embracing new approaches and fostering sustainable support can unlock unprecedented opportunities. Despite operating in industries known for disruption and innovation, the structure of VC funds has shown resistance to change over time. Today marks the emergence of open-ended Funds: a new path for Venture Capital.

Surviving the Fundraising Desert: Unleashing the Power of Evergreen Capital

Evergreen funds and decade-long funding horizons can be smart plans for family offices due to several reasons:

• Long-Term Wealth Preservation: Family offices often aim to preserve and grow wealth across generations. Evergreen funds have no fixed lifespan and align well with this goal. They allow family offices to maintain their investment positions for an extended period, taking advantage of compounding returns and weathering short-term market fluctuations.
• Stable Income Generation: Evergreen funds typically focus on generating regular income through a diversified portfolio of investments. This can be particularly appealing for family offices seeking a steady cash flow to meet their ongoing financial obligations and support the needs of multiple generations.
• Flexibility and Agility: Family offices can take a long-term view of investments by adopting a decade long investment horizon. This allows them to be more patient, opportunistic, and flexible in their decision-making without being constrained by the shorter-term pressures that traditional fund structures often impose. It enables them to invest in illiquid assets, such as private equity or real estate, which may require longer holding periods to realize their value fully.
• Alignment with Family Values and Legacy: Family offices often strongly focus on preserving their values and leaving a lasting legacy. Evergreen funds and long-term horizons provide a stable investment framework that can be passed down through generations, ensuring continuity and adherence to the family's investment philosophy and principles.
• Access to Alternative Investments: Evergreen funds with long horizons are well-suited for investing in alternative asset classes, such as venture capital, private equity, or real estate. These asset classes often require patient capital and have longer investment cycles. Family offices can leverage their long-term perspective to capture the potential high returns of these investments.
• Reduced Costs and Greater Control: By establishing an evergreen fund structure, family offices can potentially reduce costs associated with fund formation, fundraising, and management fees. Additionally, they have more control over their investment decisions, as they are not bound by predetermined fund lifecycles or the pressures of regular fundraising cycles.
• Alignment with Family Office Structure: Family offices are often established with a multi-generational focus, and their investment strategies should reflect this long-term outlook. Evergreen funds and decade horizons align closely with the objectives of family offices, allowing them to build and manage their investment portfolios with a generational perspective.

In summary, evergreen funds and decade-long horizons can benefit family offices by providing long-term wealth preservation, stable income generation, flexibility, alignment with family values, access to alternative investments, reduced costs, and greater control. These factors make them smart plans for family offices seeking to create sustainable wealth and manage their assets across multiple generations.

Why we need Deeptech to address global challenges

Deep tech matters to the future of our generations due to its transformative potential and its ability to address complex global challenges.

Here's why:

1. Solving Global Challenges: Deep tech encompasses cutting-edge technologies such as artificial intelligence, quantum computing, biotechnology, and more. These technologies have the potential to revolutionize industries, improve human well-being, and address critical global challenges such as climate change, healthcare, energy, and food security. By investing in and supporting deeptech advancements, we can create a sustainable future for generations to come.
2. Economic Growth and Competitiveness: Deep tech is a catalyst for economic growth and enhances a nation's competitiveness on a global scale. By fostering innovation and entrepreneurship in deeptech sectors, we can drive job creation, attract top talent, and stimulate economic development. Deeptech advancements also open up new markets, create disruptive business models, and drive productivity gains, contributing to long-term prosperity.
3. Scientific and Technological Advancements: Deep tech pushes the boundaries of scientific discovery and technological advancements. By investing in research and development, we can unlock new frontiers of knowledge, expand our understanding of the universe, and pioneer breakthrough solutions. These advancements benefit specific industries and have ripple effects across various sectors, leading to new discoveries, inventions, and possibilities.
4. Social Impact and Human Well-being: Deep tech has the potential to impact society and improve human well-being greatly. From personalized medicine and advanced diagnostics to smart cities and sustainable energy solutions, deeptech innovations can enhance the quality of life, increase access to critical services, and address societal inequalities. By embracing deeptech, we can create a more inclusive, sustainable, and equitable future for future generations.
5. Technological Sovereignty and Ethical Considerations: As technology plays an increasingly integral role in our lives, it is crucial to shape its development and ensure ethical considerations are at the forefront. By actively engaging in deeptech advancements, we can influence the direction of technology, promote responsible AI, and safeguard privacy and security. Deep tech matters to future generations because it allows us to shape a technological landscape that aligns with our values and ethical frameworks.

In summary, deeptech matters to the future of our generations because it holds the key to solving global challenges, driving economic growth, advancing scientific discoveries, improving human well-being, and shaping a responsible and ethical technological landscape. By embracing deeptech, we can create a sustainable, prosperous, and inclusive future for generations to come.

"Change is the only constant in the world of venture capital. To stay ahead, we must be willing to break the mold and explore innovative approaches to fundraising."

About the Author

Leesa Soulodre?is the General Partner of R3i Capital,?investing in disruptive AI companies, climate change adaptation, and the transition to value-based healthcare.

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