Best of LinkedIn: Venture Capital CW 27/ 28

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about venture capital from CW-Twenty seven and twenty eight.

00:00:07: Frenness supports general partners in identifying relevant limited partners across multiple sources researching connection strategies coordinating event attendance And running structured outreach campaigns that turn cold lists into scheduled conversations and committed capital.

00:00:22: You can find more info in the description.

00:00:25: So welcome to The Deep Dive.

00:00:26: everyone Imagine waking up, right?

00:00:29: And reading a headline that says global wealth has hit an absolute just unprecedented all-time high.

00:00:35: Oh yeah

00:00:35: you'd be thrilled

00:00:36: Right!

00:00:36: You look around your expecting a booming economy only to discover that uh forty three percent of All That Money in the entire world was handed exactly two people.

00:00:45: I mean it sounds totally absurd when frame is personal.

00:00:48: well

00:00:48: Yeah completely

00:00:50: Honestly, that is the precise reality of The Venture Capital landscape we've been watching unfold over the last two weeks.

00:00:55: It really is and our mission today Is to decode those venture capital signals emerging from all the market noise.

00:01:00: We're specifically curating insights From calendar weeks twenty seven And twenty eight

00:01:05: right?

00:01:06: So if you are an allocator or You know an operator navigating strategy M&A private equity Or venture capital This conversation is tailored for you.

00:01:16: We are basically tearing down the headlines to look at the structural mechanics underneath and we

00:01:20: really, really need to look At those mechanics because well if you take The top level data face value right now You're absolutely going To misallocate your capital

00:01:29: totally.

00:01:30: so let's start with that massive wealth concentration I just mentioned.

00:01:33: Because in the first half of twenty-twenty six The global venture market raised an astonishing five hundred and ten billion dollars, which is

00:01:41: just a massive number.

00:01:42: Huge!

00:01:43: I mean that numbers suggests the total market recovery right?

00:01:45: The champagne is flowing...the dry powder has deployed

00:01:48: on paper.

00:01:49: but when you look at the breakdown shared by investors like Nicholas Friendo, Bijan Alizadeh & Adel Capadia..The illusion totally shatters.

00:01:58: it

00:01:59: really does because out of Two hundred and seventeen billion was absorbed by literally just two companies.

00:02:06: Wait, Just two?

00:02:07: Just two!

00:02:09: Open AI & Andropic.

00:02:11: We are looking at a market where five US companies captured seventy-three percent of all VC investment in the single quarter.

00:02:20: That is just a staggering distortion.

00:02:23: And you know, it's creating this brutal environment for the traditional ecosystem.

00:02:27: Frendo pointed out what's happening in markets like Canada, for instance...

00:02:30: De-ghosting

00:02:31: Exactly!

00:02:32: You have these founders with solid recurring revenue active enterprise customers and they're getting completely ghosted by the exact same venture firms that were throwing half a million dollar checks at mere pitch decks two years ago.

00:02:44: Well The Gouples haven't moved They've basically been relocated to an entirely different stadium.

00:02:50: What Devalkapatiya highlighted is the psychological fallout of this concentration.

00:02:54: You have these four or five AI behemoths sucking all the oxygen out of their room.

00:02:58: Oh, completely!

00:02:59: And then there are thousands of other startups operating in their shadow and boards are pressuring those smaller start-ups to hit the growth velocity of an AI giant

00:03:08: but without The Billion Dollar War Chest

00:03:11: Exactly, which just forces this impossible burn rate that you know inevitably breaks the company.

00:03:16: It's wild and it also completely fractures our understanding of regional tech hubs like Jason Sharf posted.

00:03:23: This really fascinating analysis Of The Austin Texas market that proves this exact point.

00:03:28: Oh right?

00:03:28: The denominator effect

00:03:29: yes exactly so.

00:03:31: on paper Austin share of the total US venture market looks Like it Just fell off a cliff.

00:03:36: Right but sharp actually did the math.

00:03:38: He removed the San Francisco Bay Area and those specific frontier AI mega deals from The Denominator.

00:03:45: And once you strip out that statistical anomaly, Austin actually captured a record seven percent of standard U.S.

00:03:52: venture dollars

00:03:52: which is huge.

00:03:54: it basically tells us That the broader non-AI Venture Market Is Actually Decentralizing.

00:03:59: Yeah.

00:04:00: It's moving to places like Texas, while the headline cash is just hyper-concentrated in California.

00:04:04: So okay let's follow that cash because if you're sitting at an M&A or a private equity seat You have be asking yourself why are these specific AI rounds so astronomically large?

00:04:15: Right it doesn't make sense

00:04:17: Exactly.

00:04:18: We aren't talking about standard Series A software metrics anymore, and I think Arjun Devarora hit the nail on the head here.

00:04:24: He argued that we shouldn't even look at these mega rounds as venture capital in the traditional sense.

00:04:29: he is spot-on.

00:04:30: i mean The venture model was built to finance the search for product market fit.

00:04:34: Yeah That it's just not what is happening right?

00:04:38: It feels much closer too like the gold rush

00:04:41: You know, absolutely.

00:04:42: We aren't funding the prospectors panning for gold in the river.

00:04:46: we are basically financing The Transcontinental Railroad required to get them out West In the first place.

00:04:51: It's a heavy infrastructure play

00:04:52: Right?

00:04:53: Aurora noted.

00:04:54: these companies Are financing massive data centers.

00:04:57: They're locking in ten-year compute contracts Building custom silicon

00:05:02: And Carlos Cadena Rico brought up A perfect case study For this structural shift.

00:05:07: Sambinova recently closed A one billion dollar series F Wow.

00:05:11: Yeah, and an eleven billion dollar valuation

00:05:15: I mean a billion dollars for private round is just intense.

00:05:17: but when you look at what they're actually building the price tag starts to make sense

00:05:22: right?

00:05:22: They aren't spinning up a cloud software

00:05:24: app.

00:05:24: No, Kadina Rico pointed out that are deploying what he called disaggregated inference hardware

00:05:30: which sounds incredibly dense.

00:05:32: i know yeah

00:05:33: it does But

00:05:33: It actually solves very physical bottleneck.

00:05:37: so bring That down first because You know, I think a lot of allocators hear the word hardware and they immediately get nervous about capital expenditure.

00:05:43: So how does disaggregated hardware actually work?

00:05:46: Well so in a traditional server The processors uh the GPUs and CPU's They're physically tied to a specific block Of memory.

00:05:55: okay right

00:05:56: but AI models have grown so massive with literally hundreds of billions of parameters That they require a terrifying amount of memory to run.

00:06:04: yeah, so the processors just sit idle waiting for data, which creates this massive traffic jam.

00:06:09: Oh I see!

00:06:10: So disaggregated hardware physically separates the compute from memory into these giant shared pools.

00:06:16: that way AI can pull whatever memory it needs dynamically without crashing.

00:06:21: but you know building and deploying physical architecture in enterprise datacenters alongside partners like Intel and JP Morgan Chase yeah That requires true industrial-scale capital.

00:06:33: And industrial scale electricity too, which brings up this incredible dynamic.

00:06:38: about geography because Bobby Bray analyzed where this physical AI infrastructure is actually being built.

00:06:45: It does not in Silicon Valley.

00:06:46: No it's moving to places like Virginia Ohio and Texas Because

00:06:50: of the grid?

00:06:51: Yeah I mean an AI data center isn't a normal office building.

00:06:54: We were talking facilities pulling a hundred to three hundred megawatts of power constantly.

00:06:59: Which

00:06:59: is insane!

00:07:00: Yeah, the equivalent of powering in mid-size city.

00:07:02: Wow and I want to highlight The Math Bray shared because it honestly blew my mind.

00:07:07: He calculated that data center paying say twelve cents per kilowatt hour on California grid compared just six cents in Texas.

00:07:15: That generates one billion dollar operating cost differential over ten years.

00:07:20: A One

00:07:20: Billion Dollar Penalty just for plugging your servers into the wrong state's grid.

00:07:26: It is when you are operating at the infrastructure layer, You simply cannot ignore an arbitrage opportunity.

00:07:32: that large

00:07:32: right?

00:07:33: So California might keep the venture capitalists who sign the term sheets But the actual tax revenue The physical assets and a long-term economic value of the AI boom it all quietly migrating to energy abundant states.

00:07:48: Okay, so at the top end of the market we obviously have billions flowing into power grids and silicon.

00:07:54: But I want to pivot it to the absolute bloodbath happening in early stages because the mathematical realities for traditional founders right now are just brutal.

00:08:02: Very brutal.

00:08:03: Cyan eBomic recently unpacked some cardidata that every founder or an early stage investor needs Simple agreements for future equity.

00:08:16: Right,

00:08:16: because safes were originally designed to reduce friction.

00:08:19: You just take the money now and you figure out the exact valuation later.

00:08:22: But they have really morphed into this debt trap disguised as equity.

00:08:27: So let's walk through the mechanics of that trap.

00:08:29: Because founders... They often think their only giving away like ten-to-fifteen percent Of their company.

00:08:34: Well The trap springs when those safes finally convert.

00:08:39: A founder might raise three or four uncapped safes over two years just trying to survive.

00:08:45: Yeah,

00:08:46: and when they finally reach a price series around all of those safes convert into actual equity simultaneously.

00:08:53: Oh wow yeah.

00:08:53: suddenly that fifteen percent dilution multiplies And the founders ownership Just collapses overnight.

00:08:59: and Belmick points out That this is compounded by The pre-money option pool too.

00:09:02: yes like if I'm a founder raising two million dollars Almost every term sheet dictates that I have to carve out an employee equity pool of say fifteen percent.

00:09:12: But crucially, that comes out of the pre-money valuation which

00:09:15: basically means The new investors take zero dilution from those future employees shares.

00:09:19: right you with a founder You absorb one hundred percent Of the cost of that equity pool before the new money even hits the table.

00:09:26: It's harsh

00:09:30: Across forty thousand startups shows the median founder ownership

00:09:34: is

00:09:35: plummeting to just thirty six percent by this series around

00:09:38: Thirty-six percent, and you haven't even hit your growth stages yet.

00:09:40: Exactly.

00:09:41: But okay I'll take the other side of this trade for a minute because Dilip Maria And Itamar Novak posted some insights that actually defend the investor's perspective here.

00:09:49: Okay, let's hear it

00:09:51: its easy to call VCs greedy for demanding so much equity up front right?

00:09:56: But they are entirely changed to the mathematical reality of their own asset

00:10:00: class.

00:10:00: That's right.

00:10:01: Maury explained that when a pre-seed investor takes fifteen percent for like, two hundred thousand euro check They're simply underwriting from the venture power

00:10:10: law.

00:10:10: Because yeah, that fifteen percent today is going be diluted down To maybe five percent by time company reaches series D

00:10:15: Exactly The point.

00:10:16: So if that company eventually reaches a one billion dollar valuation, which you know is incredibly rare.

00:10:22: Oh

00:10:22: extremely rare?

00:10:23: That five percent stake is worth fifty million euros!

00:10:33: That single home run pays back the entire fund and generates the carry right.

00:10:38: so Novak runs a pre-seed Fund, And he shared this story where portfolio company sold for an eleven point six X return?

00:10:45: He was genuinely disappointed which

00:10:47: is crazy because most public market investors would spend a decade trying to generate an eleven X return

00:10:52: Totally.

00:10:53: But in Seed Venture, an eleven-X exit just doesn't fix the fund's math.

00:10:57: Novak expects that the vast majority of his forty portfolio companies are going to zero so he literally advises founders turn down a life changing multi million dollar acquisition offer today on the slim statistical chance it might be worth fifty X tomorrow.

00:11:14: It creates this fascinating and honestly concerning psychological mandate for who actually gets funded.

00:11:20: Sid Trevetti touched on this by sharing an interview with Rob Lee.

00:11:23: He's the founder of The Cyber Security firm, Dragos.

00:11:26: Oh I saw this.

00:11:27: Yeah, Lee said point blank.

00:11:28: most founders are psychopaths and he wasn't insulting them...he meant it as a required survival trait.

00:11:33: Right

00:11:34: Like you have to possess this stubborn irrational conviction To reject a guaranteed generational wealth payout because you genuinely believe You were building A one hundred year legacy company.

00:11:46: The structure of venture capital essentially forces allocators to exclusively fund these uncompromising, highly specific personalities.

00:11:55: I

00:11:55: mean i agree with the psychology for sure but there is a massive wrench in that fifty-x mathematical model

00:12:00: right now.

00:12:01: Swinging For A two hundred and fifty X return on paper is entirely useless if the LP never actually sees the cash.

00:12:08: Oh, absolutely!

00:12:09: And this leads us to the most significant shift happening in private markets today...

00:12:13: The death of paper valuations.

00:12:15: Exactly.

00:12:15: Liquidity has aggressively replaced valuation as the ultimate metric of performance.

00:12:20: with last decade GPs sold their LPs on TVPI.

00:12:24: you know total value to paid-in capital.

00:12:26: Basically paper gains right?

00:12:28: Adrian Chaltille and Ryan Barrett had a fantastic phrase for this.

00:12:31: Actually they called TVPI mark to myth.

00:12:34: Oh, that is so good!

00:12:35: Because it really is a myth.

00:12:37: It's gamified.

00:12:38: Baird pointed out that sixty-two percent of venture funds actually failed to beat the basic public market index.

00:12:44: Wow!!

00:12:45: But the standard two and twenty fee structure heavily incentivizes GPs to hold onto assets under management.

00:12:52: Right because writing down a portfolio company hurts your track record for raising the next fund.

00:12:58: Exactly, so valuations just stay artificially high on paper.

00:13:01: And Chaltil brought the receipts too!

00:13:03: He shared data showing a typical twenty seventeen vintage fund.

00:13:07: right now might boast.

00:13:12: So, you know on paper they're slightly in the green.

00:13:15: Barely?

00:13:15: Yeah barely.

00:13:17: but the DPI that distributed to paid-in capital is sitting at point three one

00:13:21: X meaning nine years into a standard ten year fun life cycle.

00:13:24: They have only handed back thirty one cents for every dollar they took from their investors

00:13:28: which means LPs are exhausted completely.

00:13:30: don't want theoretical wealth anymore.

00:13:32: But how are GPs supposed to generate that cash when the IPO window is just glued shut?

00:13:38: Steve Kaiser and Pavel Vinitsk shared data on exit timelines, that explains exactly why the traditional ten-year fund model is fundamentally breaking.

00:13:47: Because Kaiser noted in

00:13:49: U.S.,

00:13:50: The timeline from C to IPO has stretched out to twelve or fourteen years.

00:13:55: So let's pause here.

00:13:57: if you run a ten year venture fund Right Yeah And your primary asset takes fourteen years to exit The math of your firm just collapses.

00:14:04: It does.

00:14:05: Your LPs modeled their own liquidity to get that cash back in ten years, you management fees run out.

00:14:11: You literally can't recycle capital.

00:14:13: And this is exactly why the secondary market has exploded.

00:14:16: The way it has, right?

00:14:17: It has evolved from this desperate workaround into an actual structural pillar of the financial system.

00:14:22: Yeah.

00:14:23: Kaiser highlighted that U.S.

00:14:24: Venture Secondary Market had estimated a hundred and six billion dollars in twenty-twenty five.

00:14:29: Wow!

00:14:30: That's running alongside the one hundred nine nineteen billion dollars raised via public listings.

00:14:34: So secondaries are no longer the emergency exit.

00:14:37: they're literally the main lobby now.

00:14:38: I mean Javier Avalos whose company Caplight just raise sixteen million dollars to build out private market data networks, he made the case that instant capital raising and on-demand secondary liquidity are just becoming table stakes for the industry.

00:14:53: Yeah they have to be.

00:14:54: M&A IPOs and secondaries are now three equal lanes on the

00:14:58: highway.

00:14:59: but Pavel Vinitsk added a really crucial warning about.

00:15:05: Because we keep hearing about these massive impending liquidity unlocks, right?

00:15:10: Right from employees at SpaceX open AI and Stripe caching out.

00:15:13: Yeah

00:15:14: And the assumption is always that those newly wealthy engineers will just take their millions an angel invest it back into early-stage founders

00:15:21: Which sounds great in theory

00:15:22: It does but venice warns then isn't happening really.

00:15:26: no That capital is flowing into three highly concentrated channels instead.

00:15:30: First, it goes back into top tier mega funds that actually have a proven track record of DPI.

00:15:35: Okay?

00:15:35: That makes sense.

00:15:36: second It flows in to secondary markets where investors can buy into dearest late-stage companies with immediate diversification and you know No ten year lockup

00:15:44: right.

00:15:45: and third it hits the public markets through passive index funds.

00:15:50: They're forced to absorb these tech giants when they eventually list

00:15:54: so their rich just get richer.

00:15:56: The capital stays at the top And the early stage founders are left starving.

00:15:59: Basically, yeah.

00:16:00: So if you're a founder staring down a fourteen-year timeline to an exit and capital markets at this concentrated You really have to completely overhaul your operational playbook.

00:16:11: The venture funds have to overhaul theirs too.

00:16:14: Florence he made brilliant observation about this.

00:16:16: He said Venture Capital is currently slamming into exact same operator shortage that private equity faced like A decade ago.

00:16:24: Oh,

00:16:24: for our PE listeners?

00:16:26: You know exactly what this means!

00:16:28: The zero interest rate environment is dead.

00:16:30: you cannot rely on cheap leverage and automatic multiple expansion anymore... ...you actually have to roll up your sleeves and grow the EBITDA

00:16:37: Exactly.

00:16:37: PE realized financial engineering wasn't enough.

00:16:40: so seventy-one percent of GPs now prioritize embedded operational value creation And venture capitalists finally realizing they can just write a check attend a board meeting once a quarter and hope the founder figures it out.

00:16:54: Especially when startups are stalling?

00:16:55: Yeah, VCs need dedicated embedded operational partners at the fund level who can physically drop into a portfolio company and fix a broken commercial engine.

00:17:05: And the founders see this too right which is exactly why they're aggressively pivoting their fundraising strategies toward corporate capital.

00:17:12: Yes Ignacio P recently compiled a list of one hundred fifty Corporate VC's or CVC across the US.

00:17:19: in Europe We are talking about the venture arms of Salesforce, BMW, Santander.

00:17:24: And the value proposition for a founder there is obvious?

00:17:27: Yeah!

00:17:28: I mean traditional VC brings money...a CVC brings money but The Parent Company also becomes massive enterprise customer right?

00:17:35: Exactly

00:17:35: A global distribution channel and instant validation that basically de-risks startup for future investors.

00:17:43: It's

00:17:43: capital with assigned customer contract attached to it..it' s dream

00:17:48: But founders really need to tread carefully here.

00:17:50: Why is that?

00:17:51: Well, Jeppe Hoyer shared a pretty stark reality check about the existential risk of CVCs.

00:17:58: He used the recent shutdown of PayPal ventures as The Ultimate Warning

00:18:01: Which is shocking honestly because PayPal Ventures wasn't failing at all.

00:18:06: No They backed massive industry hits like Plaid and Anchorage Digital.

00:18:10: The venture portfolio literally added ten cents To Paypal's earnings per share in their latest quarter.

00:18:16: So why on earth would a corporate board kill a venture arm that is actively generating returns?

00:18:23: That's

00:18:23: the billion-dollar question.

00:18:25: Because a corporate venture arms survival has almost nothing to do with its venture performance, it has everything.

00:18:37: They faced activist pressure, they announced one point five billion dollars in corporate savings targets and the initiated layoffs.

00:18:44: Ah

00:18:44: I see.

00:18:45: So when a public company goes into a turnaround A venture portfolio with a ten-year horizon is just an immediate target for the chopping block.

00:18:51: The venture arm became collateral damage to save parent companies stock price.

00:18:55: That's just terrifying if you are founder Like If your lead investor Is a CVC and you are banking on them for your follow-on funding next year, Your lifeline could be cut overnight by a corporate boardroom.

00:19:07: You have absolutely zero access to.

00:19:09: it

00:19:09: demands an entirely new level of risk modeling for founders building their cap tables.

00:19:14: For sure

00:19:14: what we've covered?

00:19:15: incredible ground.

00:19:16: today.

00:19:17: We dissected how that five hundred and ten billion dollar headline number is just a mirage hiding a drought for traditional founders.

00:19:24: Yeah, we explored how disaggregated hardware and power grid arbitrage have turned AI into.

00:19:32: We walked through the brutal math of safe dilution and why fourteen-year exit timelines are forcing this massive structural pivot toward the hundred and six billion dollar secondary market.

00:19:43: The entire ecosystem is just shifting from paper valuations to physical cash, demanding a far more rigorous operational playbook for everyone involved.

00:19:50: Yeah definitely well if you enjoyed this episode new episodes drop every two went.

00:19:54: also check out our other additions on private equity M&A and strategy in consulting.

00:19:58: And before we go, I actually want to leave you with one final provocative thought to maul over.

00:20:03: Okay let's hear it!

00:20:04: So we've spent this entire conversation analyzing how allocators are desperately crowding into the exact same five AI mega deals right battling over the exactsame overpriced equity.

00:20:15: yeah but if you look at the research shared by Courtney Russell McCrae and Jenny Stotchovich a massive glaring inefficiency emerges.

00:20:22: The hard data shows that women led gender diverse venture funds consistently outperform their peers by four point five percentage points in net IRR.

00:20:33: Yet firms majority owned by woman or minorities control just one point four percent of industry assets,

00:20:38: That's crazy.

00:20:39: it

00:20:39: is so.

00:20:40: if you are an allocator tasked with hunting for true uncrowded alpha at a market paralyzed by concentration Are you actively ignoring the most statistically mispriced asset and venture capital today?

00:20:51: That is the perfect question to end on.

00:20:53: Thank you for joining us this deep dive, don't forget to subscribe and we'll see ya next time!