Best of LinkedIn: Venture Capital CW 29/ 30

00:00:00: provided by Thomas Allgaier and Frenis, based on the most relevant LinkedIn posts about venture capital in calendar weeks twenty-nine and thirty.

00:00:08: Frenes supports general partners at identifying relevant limited partners across multiple sources researching connection strategies coordinating event attendance an running structured outreach campaigns that turn cold lists into scheduled conversations and committed capital.

00:00:23: you can find more info.

00:00:28: Our mission for this deep dive is really just to cut straight through the noise.

00:00:32: We're unpacking the top venture capital trends circulating right now across the ecosystem, you know?

00:00:37: Right we want to separate the headline hype from the actual underlying mechanics of capital deployment and fund structures in basically the raw reality for operators on the ground today.

00:00:47: Yeah exactly I mean if your sitting at a strategy meeting or analyzing M&A targets are managing capital allocation You need to know how the machinery's actually operating.

00:00:58: So let's start with the macro picture.

00:01:00: If you just glance at the top line data, twenty-twenty six looks like a record year.

00:01:05: I mean the headline numbers are just phenomenal.

00:01:07: oh yeah they look incredible on paper.

00:01:08: right but if you talk to almost any early sage founder Right now They will tell You this market feels completely frozen.

00:01:17: It is the absolute definition of a bifurcated market.

00:01:22: You're looking at a tale of two completely different realities playing out on the exact same cap tables, and it's entirely driven by this historical concentration of capital.

00:01:31: there is a data set circulating from Emily M. Zeng that anchors this perfectly.

00:01:35: actually...

00:01:35: I don't know what about the deal value?

00:01:36: Yeah exactly so.

00:01:38: global deal value hit roughly four hundred and thirteen billion dollars.

00:01:42: an exit value touched.

00:01:47: But when you look at the distribution, fifty-seven percent of that twenty-twenty six deal value which is about two hundred and thirty seven billion dollars went to exactly three companies.

00:01:56: Open AI, Anthropic & XAI.

00:01:59: That's just staggering!

00:02:00: I mean over half the capital in entire asset class was absorbed by three entities.

00:02:04: It's wild.

00:02:05: And uh... The LP side mirrors this concentration too.

00:02:09: Over seventy five percent all fund raising capitol were swallowed up by just twelve firms.

00:02:14: Just

00:02:14: twelve firms?

00:02:15: Yep

00:02:15: The capital is aggressively aggregating at the very, very top.

00:02:19: Which

00:02:19: really gives crucial context to the numbers Greg Dean pulled together.

00:02:22: because yes, five hundred and ten billion dollars was raised globally in just six months but beneath that surface seed funding actually fell twenty-seven percent.

00:02:33: so the pie for non AI early stage deals while the overall market is out here shattering records.

00:02:40: And

00:02:40: what's really critical for you to understand, Is that traditional venture firms aren't The only ones driving this distortion?

00:02:46: You know?

00:02:47: yeah That's a good point.

00:02:48: Tabi Gao highlighted that corporate venture capital or CVC now accounts For record eighty seven point nine percent of us AI VC deal value.

00:02:56: Wow almost eighty eight percent.

00:02:58: Yeah and This isn't just standard equity investing.

00:03:00: you have Hyperscalers and chip makers writing these massive checks But those checks are structurally designed To lock in cloud computing Right,

00:03:08: or to keep the ecosystem running on specific hardware.

00:03:11: Wait I need push back there a little bit.

00:03:12: If eighty-eight percent of the capital in the hottest sector is coming from strategic who are essentially like round tripping their R&D and customer acquisition costs through venture vehicles aren't we just inflating evaluations artificially?

00:03:28: Oh absolutely!

00:03:29: Because it's not a true free market price if the investment comes with a mandate to spend that exact money back on the investor zone servers.

00:03:36: That is exactly The structural risk we're seeing.

00:03:39: you are looking at a closed-loop economy At the top end of the market.

00:03:42: yeah, and as Christy neo points out This isn't isolated to the u.s.. At all.

00:03:46: ai Is driving?

00:03:47: The largest pe in vc deals across the entire apac region As well.

00:03:52: oh really yes spanning everything from the foundational models themselves All the way down to the physical power grids required to run them.

00:03:59: The R&D costs for these Frontier models are so astronomically high that only this specific hybrid of corporate and venture capital can even sedate

00:04:07: them.".

00:04:08: Okay, let's unpack this... If all the oxygen in a room is being sucked up by Frontier AI labs or Corporate Hyperscalers….

00:04:14: This is effectively a barbell market!

00:04:16: On one end you're raising a hundred million dollar A.I.

00:04:20: mega round And on other side your fighting over a shrinking pool of scraps at seed stage.

00:04:27: There is basically no middle class left in venture right now.

00:04:30: That barbell dynamic is very real, but what's fascinating here?

00:04:37: Well, look at the example Michael Schneider surfaced regarding passion fruit.

00:04:43: They raised a fifteen million dollar series A but it was backed by an anthropic lead investor.

00:04:48: Oh interesting!

00:04:49: Yeah they aren't a foundational model-they've positioned themselves as the infrastructure selling distribution back to the AI industry itself.

00:04:56: Ah

00:04:56: picking in shovels?

00:04:57: Exactly.

00:04:57: and even the legacy blue chip firms are changing their architecture.

00:05:02: Idlina Deneva noted that Greylock just closed exclusively dedicated to AI native founders.

00:05:10: So the dry powder absolutely exists, but the thesis has radically narrowed which I guess brings us to the next logical consequence because traditional VCs are concentrating their chips on these massive AI bets.

00:05:23: Founders and late-stage companies who don't fit that narrow thesis Are having to look elsewhere for liquidity?

00:05:28: Yeah they have too

00:05:30: And that dynamic is bringing Entirely new pools of money onto the cap table.

00:05:34: It really is.

00:05:35: if we connect this to the bigger picture We are witnessing the broader financialization Of private markets.

00:05:41: John Colescott flagged a massive shift here.

00:05:44: all the interval funds Yeah,

00:05:45: interval and tender offer funds have quietly scaled into A three hundred billion dollar backdoor for retail capital To access VC and PE.

00:05:55: Three hundred billion that And

00:05:57: private equity is now the largest asset subgroup in this universe, sitting at about fifty-one point five billion.

00:06:03: Yeah and when you see Stepstone's Private Venture Fund posting a forty four percent one year return it is clear proof that retail investors are aggressively chasing these illiquid private market yields.

00:06:14: That

00:06:15: test that logic though I mean venture is inherently highly illiquide.

00:06:18: an interval fund offers periodic limited redemption windows right?

00:06:22: So our retail investors actually prepared to lock up their capital for cycle of a venture fund?

00:06:28: Or is this like, a ticking time bomb when the market turns and a flood of retail investors suddenly want to cash out of assets that fundamentally cannot be liquidated.

00:06:37: That liquidity mismatch is the exact systemic risk keeping structural analysts awake at night right now.

00:06:44: Yeah I'd imagine so.

00:06:46: You are matching semi-liquid vehicles with deeply illiquid assets.

00:06:50: And the complexity doesn't even stop there.

00:06:53: Mark Flickinger pointed out that wealth managers are evolving their role, too.

00:06:57: RIAs are shifting from simply referring they're high net worth clients to established funds To actually standing up their own GP style vehicles and co-leading deals themselves.

00:07:06: That raises some massive fiduciary red flags.

00:07:09: I

00:07:10: mean if an advisor is acting as a general partner taking carry on a deal They are advising their clients to invest in.

00:07:16: Their incentives were entirely blurred.

00:07:19: The visor's primary duty is supposed to be objective asset allocation, right?

00:07:22: Exactly.

00:07:23: But now they're financially incentivized to drive capital into their own vehicles

00:07:27: Precisely.

00:07:28: and this massive influx of alternative capital whether it's from interval funds RIAs or sovereign wealth It changes the exit math for everyone.

00:07:37: Abhas Tandon And Alberta Mateos Provided a stark contrast on what this alternative liquidity actually does To the life cycle of a company.

00:07:45: Right because the best companies can stay private longer

00:07:48: Almost indefinitely, yeah.

00:07:50: Revolute just hit a hundred and fifteen billion dollar valuation via secondary sale.

00:07:55: No IPO required at all.

00:07:56: They achieved public market scale entirely within the private ecosystem.

00:07:59: But when they bypassed the IPO The eventual public listing dynamics changed completely.

00:08:04: Take SpaceX's recent record IPO.

00:08:06: Yeah!

00:08:07: They entered the public markets with tiny four to five percent free float.

00:08:11: It honestly feels like the VIP section of private markets Just opened side door for retail and RIAs but they're keeping the actual public markets starved of equity.

00:08:19: That's a great analogy!

00:08:20: And by the way, if you are finding this breakdown of market structure is valuable make sure to subscribe to The Deep Dive so that we don't miss our future strategic insights.

00:08:29: But yeah going back to the free float If You Only Float Five Percent Any slight shift in demand creates immense price volatility especially once those insider lockups eventually expire and flood the market with shares.

00:08:42: It absolutely distorts Public Market Price Discovery.

00:08:45: And by the way, how these cap tables are constructed depends heavily on where you're operating.

00:08:49: Right.

00:08:50: Geography matters?

00:08:51: Yeah.

00:08:51: Dilip Maria broke down the fun-sized math in Germany which perfectly illustrates why the European cap table operates under completely different constraints.

00:09:00: How so?

00:09:01: So if a German startup is raising a thirty million Euro Series B The lead investor typically needs to write a fifteen million euro check.

00:09:08: Okay pretty standard

00:09:09: Right, but to maintain standard portfolio concentration risk a fund rating.

00:09:13: that size check needs the total AUM of around seven hundred fifty million euros.

00:09:18: But eighty percent German funds are under three-hundred million euros!

00:09:22: Oh wow so structural math just straight up prevents local VCs from leading those growth rounds?

00:09:27: Exactly!!

00:09:28: So if the local private markets can't mathematically support the growth round who is stepping in to fill that vacuum over there?

00:09:35: Governments Governments are taking on the role of The Megafund.

00:09:39: Really?

00:09:40: Yeah, Heathnakin and Natalie Sough discussed how Germany is solving this gap...and they're doing it with surprising structural discipline actually!

00:09:55: they invest on the exact same terms.

00:09:57: Exactly, their acting as true co-investors contrast that with US government which operates more like a messy hybrid of customer and owner.

00:10:05: They heavily utilize complex warrants Frankly, severely complicate a cap table down the line.

00:10:13: Yeah

00:10:13: that sounds like a nightmare for future funding rounds.

00:10:15: so we have this landscape where retail money is pouring in through interval funds.

00:10:19: RIEs are acting as GPs.

00:10:21: governments were taking direct equity and hyperscalars or skewing top-line valuations.

00:10:26: it is which raises an important question with all of these new complex capital entering market how our investors actually evaluating underwriting these bets today?

00:10:37: It's tough Because if you look at the recent performance data, it is a brutal reality check.

00:10:43: Yeah I saw the numbers Tess Han Fox posted right.

00:10:46: she highlighted that The twenty-twenty one fun vintage Is tracking at a median IRR of just three percent after roughly four years?

00:10:53: Three percent.

00:10:54: ouch yeah

00:10:55: That vintage is heavily weighed down by the era specific markdowns from the zero interest rate peak where valuations were Just completely detached From fundamentals obviously but If You compare that to the twenty fifteen and twenty sixteen ventures, those funds were hitting twenty six in twenty four percent IRR at this exact same point their life cycles.

00:11:13: So what does all mean?

00:11:15: The playbook from twenty-twenty one is clearly broken And finding that actually drive these twenty fifteen level returns requires ignoring a lot of standard consensus metrics we've been taught to rely on.

00:11:26: Sandy Corey brought up brilliant points regarding The dominant narrative, which is heavily pushed by incubators like Y Combinator and Paul Graham.

00:11:34: Is that founders must show a relentless quote?

00:11:37: unquote gross rate from day zero?

00:11:40: right the classic hockey stick graph expectation

00:11:43: exactly.

00:11:45: but if you actually apply that metric retroactively it would have totally disqualified Palantir canva open AI and figma in their early years.

00:11:54: That is a critical insight.

00:11:56: For companies building deep technology or fundamentally new infrastructure, Forcing revenue growth from day zero is actively destructive.

00:12:04: Yeah, it forces premature scaling before the core technical risk has actually solved.

00:12:08: exactly The real outliers spend years in the wilderness just building the foundation

00:12:13: right.

00:12:13: I mean canva took years Just to build the core graphics engine Before they even worried about user acquisition.

00:12:18: if you try to force a day-zero Growth metric onto a deep tech play You just end up funding superficial sauce wrappers instead of generational companies.

00:12:26: Which is really the power law in action?

00:12:29: Ariya Kotiku and Leslie Ann Keeler emphasized that you do not win in this asset class by underwriting consensus.

00:12:35: Yeah, look at Furvo Energy.

00:12:37: they recently IPO'd valuing the geothermal company.

00:12:40: yet seven point six five billion dollars.

00:12:43: That exit came from investors who were willing to back a highly capital intensive Hardware heavy sector that almost the entire venture community had completely dismissed as too slow And too expensive.

00:12:54: Wow it mirrors sequoze legendary twenty eleven investment into WhatsApp.

00:12:59: They wrote an eight million dollar check into a space everyone thought was saturated, and it returned more than double their entire one point three billion dollars fund.

00:13:06: but if consensus is wrong early growth metrics are bad predictor of breakout success.

00:13:12: how do you actually underwrite in really stage deal today Without revenue metrics to fall back on, what is the actual framework?

00:13:19: You have to underwrite people.

00:13:20: But specifically you have to write non-obvious

00:13:23: ones.

00:13:24: Yeah!

00:13:24: Mike Lingel noted that Devolution Capital uses a six dimension founder power metric to evaluate deals.

00:13:31: They look explicitly at team cohesion and they bypass all theoretical stuff by asking very raw practical question Who here has actually sold anything?

00:13:40: I love that.

00:13:41: Right, and Anastasia Olenek connected this directly to Blue Ocean Strategy.

00:13:46: if you look at the history of this industry George's Doriot an Arthur Rock built venture capital by funding The exact operators that traditional corporate finance rejected out-of hand right.

00:13:57: they funded the non customers of Traditional Banking.

00:14:00: exactly in a market That is just awash with algorithmic screening the ability To identify non consensus talent remains the purest underwriting edge.

00:14:09: So let's take all of this the macro data distortion, the shifting cap tables.

00:14:12: The underwriting reality checks and Let's land it in the trenches.

00:14:16: What does is actually mean for you whether?

00:14:18: You're a founder trying to survive or GP deploying capital on this highly scrutinized market?

00:14:23: The primary tactical lesson right now Is that founders need To completely abandon the expectation That fundraising isn't objective Or quote-unquote.

00:14:30: fair process.

00:14:31: Yeah fairs out the window.

00:14:33: Peter Walker pointed out that pre-seed safe valuation caps are currently swinging wildly anywhere from five million to thirty million dollars for companies presenting the exact same objective metrics.

00:14:44: That's

00:14:44: a massive spread, it proves the cap on a safe.

00:14:46: isn't evaluation of businesses intrinsic worth at all.

00:14:50: It is just metric investor excitement and FOMO.

00:14:53: One hundred percent.

00:14:54: I mean, if you're a team spinning out of a major AI lab your cap is thirty million.

00:14:58: If you are building B-to-B saws in the Midwest with exact same early traction Your Cap Is Five Million

00:15:03: Exactly!

00:15:04: The cap reflects leverage not revenue and founders need to deeply understand the true structural cost Of capital they were fighting for.

00:15:12: Sarah Romanko And Jack Dempsey shared a dilution simulator that should really make any operator pause.

00:15:18: Oh...I Saw That Brutal Math.

00:15:20: They ran the math showing how a founder drops from sixty percent ownership down to just thirty eight percent by series A. And here is the kicker that dilution happened without a single hostile term, down round or bad deal?

00:15:33: Wow!

00:15:33: That's

00:15:36: like taking out of high interest commercial mortgage where you have to pay massive points up front Just To Get The Loan.

00:15:41: You think your own in house but by time close.

00:15:43: this Series A bank owns majority equity And it perfectly aligns with the data from tech stars showing that bootstrap companies actually survive at three times the rate of VC-backed ones.

00:15:56: They hit profitability in eighteen months compared to four plus years.

00:16:00: it takes venture back startups.

00:16:03: Venture capital is rocket fuel, but its toxic if you don't need go into space.

00:16:08: That's

00:16:08: a great way.

00:16:09: frame and margin for tactical error deploying that rocket fuel currently zero.

00:16:14: Itamar Novik highlighted a fatal mistake founders are making right now regarding pivots.

00:16:19: If a founder realizes their initial thesis is dead and they need to pivot, They must kill the old valuation And raise an honest clean round for this new idea.

00:16:28: Right!

00:16:28: if they try to protect The outdated high-valuation of the debt idea To avoid it downround that will trigger anti-dilution clauses.

00:16:35: Right, because if you stubbornly hold on to a twenty million dollar cap from twenty-twenty one for new idea that's objectively worth four million today.

00:16:44: Yeah those broad based weighted average ratchets kick in.

00:16:47: yeah the investors get made whole and the founders get entirely wiped off their own cap table.

00:16:52: It is unforgiving mathematics and it's not just valuation mechanics where founders are tripping up either.

00:16:57: What else?

00:16:58: Well, Yuri and Hoover noted that operators trying to extend their runway by cheeping out on legal counsel at the seed stage you know hiring non-specialized firms to draft their docs or ending up with six figure repair bills during series A diligence

00:17:11: Oh man

00:17:12: The incoming lead investors force them to clean up the messy governance before they will wire a single dollar.

00:17:18: That hurts.

00:17:19: and timing.

00:17:19: your outreach is just as critical as you're legal hygiene.

00:17:23: Kevin Jang explained a mechanism that a lot of founders misunderstand the commitment period of fund.

00:17:28: Oh, this is huge!

00:17:30: Yeah... A standard venture fund has a ten-year lifespan but they only actively write new checks during first three to five years.

00:17:37: If you are pitching a GP who was in year four of their committment period The bar for investment is brutally high because A handful of checks left to deploy.

00:17:48: Yes,

00:17:48: pitch them in year one and they have fresh capital on a mandate to deploy it quickly... ...to start showing paper markups to their LPs.

00:17:54: Thanks, Hank!

00:17:55: But pitch them into Year Four and you are competing against the opportunity cost of every remaining dollar in that fund.

00:18:01: Here's where it gets really interesting though.

00:18:03: Despite all this structural friction The massive valuation gaps, the anti-dilution ratchets, the strict commitment periods The data shows Deals are actively closing right now.

00:18:14: They

00:18:15: definitely

00:18:15: are.

00:18:15: David Wagner shared card of data that completely debunked the old myth at VCs.

00:18:20: just like take The summer off and the market pauses July, June And August were actually among the highest volume months for deal closures in all Of twenty-twenty four.

00:18:29: the

00:18:30: capital has not vanished.

00:18:31: it hasn't retreated to the sidelines at All.

00:18:33: It is Just demanding absolute precision from the operators asking For it.

00:18:37: yeah if we synthesize the entire landscape We've explored today.

00:18:41: At the top end The headline numbers are being wildly distorted by AI mega rounds fueled by corporate hyperscalers locking in compute revenue.

00:18:49: And beneath that surface, the cap table is undergoing a fundamental restructuring as retail capital internal funds and government equity step into fill the gaps left by traditional venture.

00:19:01: through all of this structural chaos.

00:19:03: The power law remains the only absolute truth governing returns.

00:19:08: You cannot rely on twenty-twenty one playbooks in a twenty, twenty six reality whether you are a GP raising your next vehicle and LP trying to balance your alternative allocation or an operator defending your equity through a pivot.

00:19:22: The underlying mechanics of the market have fundamentally changed.

00:19:25: they have And that really leaves us with a final provocative thought.

00:19:29: Well, we spend the vast majority of our time analyzing the disruptive technologies that venture capital funds.

00:19:34: Right?

00:19:35: The frontier AI models...the geothermal energy grids..the defense decacorns.

00:19:39: but when you look at retail capital pouring into interval funds to chase yields wealth managers acting as general partners to co-lead rounds and governments taking direct party passu equity stakes on cap tables perhaps the most significant disruption happening in venture capital right now isn't.

00:19:59: Perhaps the biggest disruption is the complete transformation of the venture capital asset class itself.

00:20:05: It's rapidly shifting away from an exclusive ill-liquid private club and evolving into a complex structure that increasingly resembles heavily scrutinized public

00:20:25: market.".