September Rundown

‘All Things VC’ focuses on topics relevant to Founders, GPs, and LPs in the venture capital world on a strategic level, i.e., valuations, market dynamics, fundraising, D&I, portfolio construction, and more. Individual investment areas (ClimateTech, SaaS, HealthTech, etc.) and their dynamics are not covered.

For an extended version of this newsletter, check out Coda Link.

Valuations & Performance

Ali A Liaqat wrote a post on secondaries pricing (Link)

• VC investors have also become a bigger share of sellers in the secondary market.
• VCs looking to sell some of their investments may be selling into an increasingly unfavorable market with QoQ declines in both common and pref prices.

Analyzing the anti-portfolio (refers to deals VCs “seen” but turned down, which have gone on to do extraordinarily well).

• Ryan Hoover complies a list of misses from different VCs (Link)
• Akhil Paul published a post on some famous misses like Twitter, Carta and more (Link).

Fundraising, M&A & Exits

CB Insights produced an excellent report on tech M&A in Q2. Some highlights

• Global tech M&A deal volume falls to its lowest level since 2020's Covid lockdowns as risk-off strategic acquirers pull back.
• 96% of tech M&A is <$100 milion
• Europe has led global tech M&A since surpassing the US in Q1’22. However, the US is still the undisputed champion of M&A deals worth $100M+

Venture Capital as a sector

Samir Kaji wrote on benchmarks being overrated in venture capital manager selection (Link). As quoted - "While benchmarks can provide an excellent comparative measure, too often, they are significantly overweighted for manager selection, and many don't account for the inherent flaws of VC benchmarks (especially recent vintages)."

Endeavor published 'Unicorn Founder Pathways' report (Link) based on 200 founders from emerging and developed countries. Few highlights.

• 80% of the founders previously worked for or founded an entrepreneurial company.
• Most founders had 10 years of work experience before launching their unicorn company.
• 61% of founders majored in a science or engineering field in undergrad.

Peter Walker published a critical insight focused on startup employee tenure. 64% of startup employees have been at their current company for less than two years (Link). Also, 90%+ of employees in startups on Carta receive a 4-year vest, 1-year cliff.

Peter Walker from Carta published another critical insight on the startup compensation trends. Equity packages are down 26% from November 2022 (i.e., the percentage of the company given to each new employee has fallen, for entry-level through VPs). Startup salaries across the US have drifted closer to SF rates. (Link).

Steve Kim published an excellent analysis of portfolio construction and mentioned two different paradigms of the 'concentrated manager approach' and the 'diversified managers approach.' Key takeaway: Both approaches arrive at similar expected returns, but the paths are very different. (Link)

Aumni wrote a venture report focused on H1 2023 (Link). Few highlights.

• Pre-seed deal sizes increased, but convertible notes executed at higher interest rates and with higher discounts.
• Fund investment velocity and lead investor check sizes remained muted but experienced mild recoveries from recent lows.
• Across deal stages, these dynamics paint a venture landscape that may be starting to normalize toward historical trends but is nonetheless a market that remains challenged.

Marc Penkala posted on the topic of 'Do FoFs have a secret sauce?' (Link). As mentioned - "Data indicates that top-performing?VC?funds have a strong likelihood of consistently surpassing market benchmarks.?FoFs?are piggybacking on that knowledge (mainly), which leads to impressive and moreover constant top quartile and median net multiples / IRRs....Consequently, access to the best VC funds is highly restricted.."

Yair Reem talks about, why Extantia shy's away from investing the first ticket as a SAFE or CLA? (Link). Must read!

Generalists vs. Specialists VCs. PitchBook wrote an analysis piece on this critical topic and was full of tangible insights (Link). Few highlights.

• Specialist vehicles have accounted for a larger share of the overall VC fund count in recent years.
• The difference between the two styles is not significant in terms of overall performance. Specialist funds are the clear winners when it comes to vehicles under $250 million both in terms of IRR and TVPI.
• Specialist funds tend to have a longer investment horizon. Generalist funds have the benefit of diversification

Adam Shuaib, PhD analysed the founders of every seed-stage startup in Europe over the last 10yrs (Link). A few key highlights

• A technical degree doubles your chances of raising future funding
• Work experience across multiple countries and industries notably increases your chances of raising a Series-A.?However, sector-specific founder expertise wasn’t a strong predictor
• The size of the raise matters. A $2m seed round maximises your chances of raising a good Series-A (on average)

Meka Asonye writes a short post on what HASN'T changed in the VC world (Link). Highlights (a) Investors HAVEN’T stopped caring about founder-market fit; (b) The best companies HAVEN’T stopped putting their customers first; (c) Hair-on-fire problems HAVEN’T stopped mattering.

Chris Harvey wrote an excellent post and compiled essential items for LP transfers for emerging managers (Link). Especially relevant because there is an - uptick in Limited Partner (LP) transfer requests either because Seller (1) cannot meet capital call obligations or (2) needs liquidity to fund new opportunities

Podcasts and Videos

Turner Novak 's interview with Semil Shah on how he built Haystack (Link)

Advice for emerging venture managers: 1) Fund size: Start small. 2) Check sizes: Be disciplined. Prove you can consistently get the appropriate allocation for your fund size. 3) Track record: Think long-term. Even if a round is hot, consider how your decision today will look in 2-3 years. Be able to talk through and defend your thesis, strategy, and decision making. 4) Be you: Stick to a strategy that’s authentic to who you are as an investor.

Creandum VC fund deep-dive (Link)

Staffan Helgesson on making investment decisions, fund liquidity, riding winners, recycling early exits, and much more.

Michael Kim of Cendana Capital on how small VC funds can return 200X+ (Link). A few discussion points.

• (17:55) Economic tradeoffs for different fund sizes
• (19:20) Management fees as non-recourse loans
• (33:11) The LP reset and the current VC landscape
• (34:00) The denominator effect and dry powder in the market
• (41:00) The paradox of VC success and importance of fund selection
• (44:57) Portfolio construction

EUVC 's episode with Niels Fritze from Scale Invest (Link)

A few discussion points.

• 00:11:18 - Family Offices and VC Investment
• 00:16:54 - The Benefits of Slow and Steady Growth in Startups
• 00:22:17 - The Role of Fees in VC Fund Investing
• 00:28:23 - Commitment to Impact Investments
• 00:36:57 - Co-investment Opportunities and the LP Perspective

End.