NFC's 2024 Annual Meeting Recap

On October 25th, 2024, Next Frontier Capital (NFC) hosted its annual investor meeting in Bozeman. This year's event marked a significant milestone as we welcomed new Limited Partners and also hosted our inaugural CEO and Founder Summit.??

For the first time, we hosted an event designed to bring our portfolio company founders together for a day of network building and knowledge sharing. The summit was a resounding success, bringing together 68 attendees from 32 portfolio companies. The day was filled with insightful discussions and networking opportunities, highlighted by a keynote presentation from Loran Nordgren , a renowned behavioral scientist from the Kellogg School of Management and author of The Human Element , a book about frictions present in the innovation adoption process. Professor Nordgren shared takeaways from his research which provided valuable takeaways to those present related to taking their respective innovations to market.?Highly recommend reading his book!

We were also honored to host fireside chats with two exceptional business leaders based here in Bozeman: Jeff Trom , former CTO and co-founder of Workiva and Engineering Animation, both which reached the $100M annual revenue milestone. Workiva is a $4+bn public company, with 85% market share, and $700m+ in ARR. Will also interviewed Steve Burke, former CEO of NBCUniversal and board member at JP Morgan and Berkshire Hathaway. Both leaders provided deep insights into scaling businesses, technology organizations from $0 to $100M+ in revenue, and managing and steering large organizations, respectively.

A Year of Resilience and Growth

The past year has been one of resilience and growth for NFC. Despite a challenging fundraising environment, we successfully closed Fund IV with $102M in capital commitments, a testament to the unwavering support of our LPs and the strength of our track record investing in the Mountain West. We have also continued to invest in our team, with Erika Nash recently joining us in our Boulder office. Erika brings a deep network across both the Rockies and broader VC to our firm. After a JD/MBA at BYU, Erika worked for a number of venture firms in Utah, then most recently at OpenView in Boston. Please join us in welcoming Erika back to the Rocky Mountains!

Navigating the Venture Landscape

The venture landscape has undergone a dramatic shift in recent years. Global venture fundraising in the first half of 2024 plummeted to a nine-year low, with U.S. venture firms raising just $55.5 billion in 2023, down from $152.5B in 2021, according to Pitchbook. This trend is particularly pronounced in the Mountain West, where firms raised only $783 million in 2023, the lowest in five years. This challenging fundraising dynamic is driven by several factors, perhaps no more significant than the dearth of fund distributions over the past few years.

After a bonanza of exits in 2021, when according to Pitchbook, U.S. Venture Capital exit value was in excess of $750B, 2024 has so far seen just $35B in M&A and $29B in IPO exits. This has caused Pitchbook’s benchmark for VC distributions (quarterly distributions as a percentage of fund NAV) to drop to 5.1% from a high of greater than 30% in 2021. Net cash flows for venture funds, another metric tracked by Pitchbook, calculates net cash flows (distributions - contributions) for venture funds over 2022 and 2023 as negative $85.9B. It is likely that until the industry is able to drive meaningful distributions, fundraising, especially for emerging managers, will remain challenged. There is optimism the exit environment may be improving. The Federal Reserve is expected by market participants to continue easing as inflation moderates which could lead to more public exits. The new U.S. administration could prove to be less scrutinizing of tech M&A activity, resulting in more exits through acquisition. And the promise of AI could start to be realized as winners are identified and shareholders capture this value creation.

In spite of the challenging fundraising market, deal volume and valuations have surged at the early stages of venture. The median seed-stage pre-money valuation remained high at $14.8 million in the second quarter of this year, according to Carta. While good news for founders, who can expect less dilution and more founder friendly terms, this makes it challenging for venture investors to reach target ownership.?

This disconnect between fundraising difficulty and the still-high valuations and deal activity in early-stage venture is something we discussed at length with our LPs. We believe one of the key drivers of this dynamic is the significant dry powder present in the venture market, which has exploded over the past decade. When NFC Fund I was raised, just $83.5B of venture dry powder existed, according to Pitchbook. By 2023, that number had exploded to nearly $300B of dry powder. With all of this committed but uninvested capital still available as of the first half of 2024, there is significant pressure on venture funds to deploy this capital, which is contributing to the high valuations and deal activity. This capital demands a venture return, which in turn puts additional pressure on firms to drive exits in portfolios, but creating meaningful return remains challenging at high valuations and low exit activity.?

Investing in the Rockies

Despite recent mixed signals in the venture market, we remain steadfast in our commitment to the Rocky Mountains. We believe the Rockies are poised to become an even greater engine of innovation, attracting exceptional entrepreneurs building companies of global impact. In July, the U.S. Economic Development Administration awarded a $41 million grant to the Headwaters Regional Technology and Innovation Hub which will support continued development and innovation of critical technologies in Montana, in particular photonics technologies. Colorado was also awarded $40 million in support of its tech hub , which is focused on quantum technologies. We have continued to see exciting commercializations of technologies from National Labs in our region, including Sandia, Los Alamos, and Idaho. And demographics continue to be a tailwind to the region, bringing exceptionally talented people here to live and work.

The Michael FitzGerald Award

This year, we had the honor of presenting the Michael FitzGerald Entrepreneurial Award to Peter Roos , co-founder and CEO of Bridger Photonics, Inc. . This is the second year we have given this award and it recognizes a Rocky Mountain founder who embodies the values championed by Michael FitzGerald, an early champion of the Montana technology and startup ecosystem. Pete’s dedication to building a sustainable business addressing critical environmental challenges with LiDAR technology is an inspiration. He would also want us to note that much of the credit is due to his exceptional team, most of whom are based right here in Bozeman, MT.?

Community Party

We ended the week with a party at the Elm with over 500 attendees from across the Rocky Mountains and a huge presence of Treasure State techies and community leaders.

Looking to the Future

As we look to the future we are filled with optimism. The Rocky Mountains are attracting a wealth of talent, and we continue to find outstanding entrepreneurs who choose to partner with our firm to build companies of impact, utility, and value right here in the Rocky Mountains.?

We're grateful to our Limited Partners for their continued support and partnership and to the mission-driven entrepreneurs who have chosen us as their capital partners. As we continue to make investments out of our latest fund, if you know of an entrepreneur building an exciting technology company in the Rocky Mountains, please make an introduction!