Latest / Best of LinkedIn: Strategy, M&A & Investments / Best of LinkedIn: Venture Capital CW 09/ 10

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Best of LinkedIn: Venture Capital CW 09/ 10 · Best of LinkedIn: Strategy, M&A & Investments

• 0:00
  Speaker 0: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about venture capital from CW nine to ten.
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  Speaker 0: Frenness specializes in BDB market research for venture capital teams providing landscape screenings and startup segmentations with a strong focus
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  Speaker 1: Right.
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  Speaker 1: And for today's deep dive, we are really getting into the top venture capital trends seen across LinkedIn over the past couple of weeks.
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  Speaker 0: Okay let's unpack this because if you're an LP a GP founder or even a consultant right now You were navigating a landscape that is just shifting incredibly fast.
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  Speaker 1: Oh absolutely.
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  Speaker 1: and If you just skimmed the recent headlines you might think Hey!
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  Speaker 1: Venture Capital Is Back
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  Speaker 0: Because deployment numbers are up.
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  Speaker 1: Exactly The Top Line Numbers Look Great.
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  Speaker 1: When you look at the actual data we pulled for this deep dive, that optimistic headline is totally masking what's actually happening underneath.
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  Speaker 1: Yeah
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  Speaker 0: which brings us to our first big theme.
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  Speaker 0: capital is definitely flowing but it is flowing into way way fewer hands.
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  Speaker 1: It really is.
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  Speaker 1: I mean like a John and Kieran Mehta shared some insights that just paint a stark picture.
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  Speaker 1: Ananth called The Current Environment A Power Law on Steroids
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  Speaker 0: A power law on steroids.
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  Speaker 0: wow yeah
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  Speaker 1: I mean, fifty percent of all US VC deal value went into just point zero five percent of completed deals.
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  Speaker 0: Wait half the money into a fraction over percent of deals?
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  Speaker 1: Yes it's extreme concentration and Mether pointed out that over forty percent of VC money is now being deployed to mega rounds of one hundred million dollars or more.
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  Speaker 0: So if you're not in that tiny elite tier Fundraising isn't getting easier It actually gets harder Exactly!
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  Speaker 0: Its like venture capital is an ocean.
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  Speaker 0: The water level is rising, but all the waters rushing into just a handful of massive pools.
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  Speaker 0: That's
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  Speaker 1: a perfect way to look at it.
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  Speaker 1: But
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  Speaker 0: what does this look like on the fund?
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  Speaker 0: Level I mean our LPs doing the exact same thing.
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  Speaker 1: Oh hundred percent.
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  Speaker 1: LPs are totally fleeing-to-safety.
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  Speaker 1: Evelina Dineva shared data from February that proves This VC fundraising hit twenty billion dollars for the month which sounds amazing.
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  Speaker 1: right right
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  Speaker 0: sound super healthy,
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  Speaker 1: but A staggering seventy three percent of It was swallowed by Just Three
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  Speaker 0: mega funds.
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  Speaker 0: just three.
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  Speaker 1: three.
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  Speaker 1: you had Thrive Capital raising ten billion battery ventures at three point two five billion and peak xv At one point.
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  Speaker 1: Three billion
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  Speaker 0: that is wild Yeah, but you know Nathan Beckard brought up a really interesting strategic point for LPs about this.
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  Speaker 1: Oh About the app performance of smaller funds?
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  Speaker 1: yeah
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  Speaker 0: because capital Is flocking to these established managers.
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  Speaker 0: okay A fund for v just for perceived safety.
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  Speaker 0: But betcord showed data Fund Eye vehicles, so first-time funds consistently outperform those mega funds.
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  Speaker 1: Which makes sense right?
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  Speaker 1: I mean they're smaller.
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  Speaker 0: Right there's smaller and the managers have massive skin in the game.
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  Speaker 0: They literally can't afford to pass on unconventional bets.
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  Speaker 0: Yeah,
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  Speaker 1: they don't have a giant management fee to fall back on.
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  Speaker 1: So for you listening if you're working on portfolio construction right now You really ask yourself Are you sacrificing alpha just for the comfort of a big brand name?
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  Speaker 0: that is The million dollar question.
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  Speaker 0: or well ten billion dollar questions thrives case
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  Speaker 1: Exactly, and all of this extreme concentration ties directly into our next theme which is that AI Is just completely dominating the venture investment narrative.
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  Speaker 0: Oh it really does.
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  Speaker 1: It's not even just a sector anymore as you and Lee noted recently Ai essentially is the market right now.
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  Speaker 0: Yeah And the geographic data on this is just mind-blowing As Gratideman highlighted that the SF Bay area captured fifty-two percent of total US VC deal value in twenty-twenty five.
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  Speaker 0: Over
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  Speaker 1: half the country's deal value is one city, right?
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  Speaker 0: But it gets crazier!
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  Speaker 0: Astonishingly, twenty-one of the twenty-five largest USAI deals are headquartered within a five to ten minute driverless ride at each other.
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  Speaker 0: That
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  Speaker 1: isn't same.
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  Speaker 1: Proximity really is destiny.
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  Speaker 1: now It
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  Speaker 0: IS.
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  Speaker 0: But inside that tiny radius, the AI thesis itself is actually splintering isn't
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  Speaker 1: it?
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  Speaker 1: It is.
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  Speaker 1: The smart money knows its not just about LLMs anymore.
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  Speaker 1: Guillermo Floor broke down Jan Lacoon's new startup AMI which just raised.
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  Speaker 1: get this one point zero.
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  Speaker 1: three billion dollars at a three-point five billion dollar valuation.
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  Speaker 0: A billion dollars At the seed stage.
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  Speaker 1: Yes.
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  Speaker 1: And they aren't even building large language models.
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  Speaker 1: They're building world models.
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  Speaker 1: So the industry has heavily hedging That LLM alone Aren't end game.
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  Speaker 0: Right, and then you have the application layer.
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  Speaker 0: Zach Posner pointed out that in vertical software like legal tech The real multiple drivers aren't the underlying models.
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  Speaker 1: No they're commoditized.
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  Speaker 1: now
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  Speaker 0: Exactly Posner says the real value is companies embedding AI deep into these boring, highly proprietary workflows.
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  Speaker 0: Which
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  Speaker 1: is where the actual moat is!
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  Speaker 0: But I have to ask are these seed valuations actually justifiable?
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  Speaker 0: Are funds pricing in a perfect future that might never
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  Speaker 1: arrive?!
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  Speaker 1: The fun math on this is incredibly unforgiving.
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  Speaker 1: Reveed's apir broke down one deal- A sixty million dollar seed round at three hundred million valuation for dev tool startup called Entire.
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  Speaker 0: Okay...three hundred million at seed.
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  Speaker 1: And to return a standard two hundred fifty million dollar fund at those entry prices, accounting for future dilution.
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  Speaker 1: That startup needs a fifteen billion dollar exit.
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  Speaker 0: Fifteen billion wait...for a DevTool company?
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  Speaker 0: Yes!
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  Speaker 0: That's basically hoping Microsoft buys you and regulators just look the other way.
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  Speaker 1: Exactly, And this is exactly why Peter Walker argues that VCs really need to consider selling on the secondary market early.
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  Speaker 0: Oh taking chips off of table?
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  Speaker 1: Right he pointed a case where accompanies valuation jumped ninety two point five X in just twenty-two months.
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  Speaker 1: if You see that you have to sell you can't Just hold forever anymore.
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  Speaker 1: yeah
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  Speaker 0: that totally makes sense.
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  Speaker 0: but outside of This massive AI bubble The rest of the venture world is facing a totally different reality.
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  Speaker 1: A brutal reality check,
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  Speaker 0: which brings us to our third theme.
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  Speaker 0: Venture capital is returning to fundamentals.
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  Speaker 0: we are officially out of the growth at all costs era
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  Speaker 1: We really are.
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  Speaker 0: Rob
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  Speaker 1: McKay observed this shift perfectly.
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  Speaker 1: he pointed that back in twenty-twenty one startups were immediately hiring interim CFOs to prep for hypergrowth right
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  Speaker 0: racing toward an IPO.
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  Speaker 1: But in twenty-twenty six, it's all about cash runway extension and bridge rounds.
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  Speaker 1: The timeline between a Series A and a series B is now stretching to nearly three years...
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  Speaker 0: Three years between rounds?
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  Speaker 0: That is a lifetime of start up years!
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  Speaker 0: And its leading into some really questionable behavior on the fundraising trail.
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  Speaker 1: Absolutely.
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  Speaker 0: Victor Zakharchenko had this incredibly sharp critique Of THE THEATRE of fundraising.
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  Speaker 0: Founders are literally pitching what he calls Vibe Revenue.
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  Speaker 0: Vibe
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  Speaker 1: revenue, I love that term but it is so dangerous!
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  Speaker 0: It's when a founder takes like two-week pilot program and then just annualizes on paper to call it ARR
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  Speaker 1: Which completely falls apart in diligence.
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  Speaker 1: And this exactly why Harry Stebbings & Mitchell Green are pushing the ultimate reality check.
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  Speaker 1: Green said DPI is math while Marx are just opinions.
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  Speaker 1: Yes
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  Speaker 0: distributed to pay it in capital.
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  Speaker 0: Real cash returned.
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  Speaker 1: Exactly, because if a software company has no earnings or EBITDA green notes there's fundamentally No floor to the valuation.
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  Speaker 1: it can just go to zero right.
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  Speaker 1: he even noted that fifty percent of VCs probably add negative value Right now.
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  Speaker 1: ouch Yeah He says gross dollar retention is the only true north star.
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  Speaker 0: It sounds like the industry is waking up from a day trading bender and realizing they have to actually be value investors again.
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  Speaker 1: That's exactly what it is,
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  Speaker 0: And you know Scott Stanford had data on this vintage year effect.
• 7:24
  Speaker 0: if You try to time the market your returns drop to like four point one percent But If you stay consistently invested through The cycles it yields twenty point six percent.
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  Speaker 0: You win by staying on the water.
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  Speaker 1: You really do, but to actually execute.
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  Speaker 1: that returned fundamentals.
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  Speaker 1: The internal mechanics of VC firms are totally changing which is our final theme.
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  Speaker 1: professionalizing the deal process and infrastructure.
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  Speaker 0: Oh yeah a deoresi had A great point On this.
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  Speaker 0: the generalist VC fund Is basically going extinct?
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  Speaker 0: Totally in twenty-twenty one In five new funds was a generalist.
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  Speaker 0: today it's one in twenty.
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  Speaker 0: The era of the specialist is absolutely here.
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  Speaker 1: It has to be.
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  Speaker 1: and internally, you know just sourcing a deal isn't enough anymore.
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  Speaker 1: Nicole de Tomaso pointed out that junior VCs now have to perfectly package information
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  Speaker 0: right because they're pitching To their own partners
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  Speaker 1: exactly partners who are traumatized by the last few years And our starting there evaluation from absolute zero.
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  Speaker 0: Yeah Zoujiang echoed that too complex financial models are out.
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  Speaker 0: They're being replaced by these super simple brutal reality checks like does the idea work in the real world?
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  Speaker 1: And will customers actually pay for it today.
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  Speaker 0: Right, not in five years but today.
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  Speaker 0: and this professionalization is hitting the back office too.
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  Speaker 0: Maria Mullendorf pointed out that if a VC isn't using top tier end-to-end Back Office tech The partners just ended up becoming project managers.
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  Speaker 1: Yeah managing their own shadow books instead of investing
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  Speaker 0: Exactly!
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  Speaker 0: It's massive operational shift.
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  Speaker 1: So we've talked about extreme capital concentration
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  Speaker 1: A.I.'s
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  Speaker 1: massive dominance and this painful return to fundamentals, but here's a final thought for you to chew on as you navigate this.
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  Speaker 1: Let's hear it.
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  Speaker 1: As you and Lee noted AI agents are allowing founders to build unicorns with tiny-tiny teams.
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  Speaker 1: Now since the entire venture capital business model is predicated on owning a percentage of massive capital requirements Right What happens to the VC industry when the world's best companies simply don't need one hundred million dollar mega rounds?
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  Speaker 0: To scale?
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  Speaker 0: Wow that is definitely something to think about.
• 9:26
  Speaker 0: If you enjoyed this episode, new episodes drop every two weeks.
• 9:29
  Speaker 0: also check out our other editions on private equity M&A and strategy in consulting.
• 9:34
  Speaker 0: thank you so much for joining us.