Best of LinkedIn: Venture Capital CW 29/ 30

00:00:00: Provided by Thomas Allgeier and Frennus, based on the most relevant LinkedIn posts about strategy in consulting in calendar weeks twenty-nine and thirty.

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00:00:25: Right, so welcome to today's deep dive.

00:00:28: If you work in strategy M&A or investments this conversation is really built specifically for you.

00:00:34: we're setting out today to unpack the top venture capital trends that are currently dominating LinkedIn.

00:00:40: Yeah and our promise to you is keep it sharp fast-paced strictly no fluff.

00:00:45: We are focusing entirely on mechanics of what actually happening right now.

00:00:49: Exactly The first thing I need look at how Capital is concentrating.

00:00:53: I mean, the headline numbers look fantastic but The Cattle is picking some severe favorites.

00:00:58: Okay let's unpack this because if you just glance at the headline number You might think that industry is experiencing a golden age.

00:01:05: Emily M Zeng and Greg Dean recently shared data showing Global VC funding hit five hundred ten billion dollars in first six months of twenty-twenty-six.

00:01:15: That Is Just A Staggering Number Half Trillion Dollars

00:01:19: Right!

00:01:20: And to put it into perspective for everyone That beats the entirety of twenty-twenty five in just two quarters.

00:01:25: Wow, but it is completely distorted.

00:01:28: out of that five hundred and ten billion over Two hundred billion went to just two companies.

00:01:33: open AI an anthropic

00:01:35: wait really

00:01:36: Two hundred billion.

00:01:36: Yeah, and if you look at the total deal value, fifty-seven percent of it is tied up in just open AI Anthropic and XAI.

00:01:43: meanwhile At the exact same time seed funding actually fell by twenty seven percent.

00:01:47: So

00:01:47: I have to ask a quick question.

00:01:48: here i mean If traditional vcs getting squeezed at The seed stage who was Actually writing these massive ai checks?

00:01:54: well Katie goes research points directly at corporate venture capital or cbc's.

00:01:59: Corporate investors currently account for A record eighty seven point nine Percent Of usai Deal Value

00:02:05: which is wild.

00:02:06: So it's mostly hyperscalars locking in cloud commitments, right?

00:02:10: And chip makers like NVIDIA keeping the whole ecosystem running exactly?

00:02:14: I mean are they even venture capital on the traditional sense there masking strategic infrastructure spending as VC?

00:02:21: yeah It's a closed loop economy and Michael Schneider shared this anecdote.

00:02:25: that perfectly shows how this AI ecosystem just feeds itself.

00:02:29: So an antrophic employee made a personal seed investment into a startup called Passion Fruit.

00:02:34: Okay And then, eighteen months later Anthropics' own lead backer stepped in and wrote passion fruits fifteen million dollar series A.

00:02:42: Oh wow so it stays entirely the family

00:02:44: Exactly!

00:02:45: As soon as that happened AI native companies like Figma and Replit suddenly filled out passion fruit's client list.

00:02:51: The capital of talent for customers is all spinning on this same gravity.

00:02:54: well

00:02:54: But if you're outside that well You are starved for oxygen.

00:02:58: Mariana Mamou shared a really sobering stat on this.

00:03:01: Despite the whole AI boom, female founders saw less than six percent of all VC deal count over the last decade.

00:03:09: Less than six per cent?

00:03:10: That's rough!

00:03:10: And it gets worse... Two-thirds of the twenty and twenty five female AI funding went to just two companies.

00:03:16: Wow so the concentration is absolute

00:03:19: right in this massive Concentration of capital at the top Breaks the traditional math for everyone else.

00:03:25: It is leading to a fundamental shift in how funds themselves are being built.

00:03:29: What's fascinating here, Is this structural realities behind those checks?

00:03:33: Because The Math is completely breaking down.

00:03:35: it really is deal at Moria broke Down.

00:03:38: why German VC Funds as an example Struggle To Lead Series B rounds?

00:03:42: the math is simple But its

00:03:43: brutal.

00:03:44: yeah walk us through

00:03:45: it.

00:03:46: so to lead A thirty Million Euro series beat you need to write a fifteen million euro check If you build a standard portfolio of say, fifty companies.

00:03:54: You need a seven hundred and fifty million Euro fund just to sustain that strategy right?

00:03:59: But roughly eighty percent German funds are under three hundred million euros.

00:04:04: They literally do not have the mathematical capacity To play at level

00:04:08: which is terrifying if your founder looking for lead.

00:04:11: And Kate McAndrew pointed out this rousing trend of well emerging manager panic.

00:04:17: Because of this capital concentration, emerging managers are now deploying capital before reaching their minimum viable fund size.

00:04:24: Wait you mean they're signing term sheets without the cash fully secured?

00:04:28: Yes!

00:04:29: Sometimes they sign termsheets with out money in a bank and if the fund never closes

00:04:33: it's

00:04:34: highly risky.

00:04:35: I mean borders on unethical.

00:04:37: That

00:04:37: could literally bankrupt start-up If The Money Doesn't Wire

00:04:40: Exactly, but they're desperate to show momentum because their battling the vintage

00:04:44: trap.

00:04:44: Oh right Tess and Fox shared data on this.

00:04:47: The twenty-twenty one fund vintage is sitting at a dismal three percent IRR after four years.

00:04:53: That's total disaster.

00:04:54: Yeah compare that to the twenty fifteen and twenty sixteen vintages which were tracking it.

00:04:58: twenty six in twenty four percent.

00:05:01: Twenty twenty was just year of sky high valuations.

00:05:03: And now its dragging down everything.

00:05:05: And John Cole Scott noted that to fill the gap, interval and tender offer funds have quietly become a three hundred billion dollar retail on-ramp for VC and private equity.

00:05:18: PE is actually the largest subgroup there at fifty one point five billion dollars.

00:05:22: by the way if you're navigating these structural shifts in real time make sure to hit subscribe so don't miss our future deep dives.

00:05:29: we track this stuff constantly

00:05:31: absolutely And with funds struggling with their own broken math and deployment pressure, the founders on the ground are facing a completely rewritten playbook for raising capital.

00:05:40: Right?

00:05:41: Let's talk about that ground truth reality for founders.

00:05:43: Yeah Kevin Jiang had some great advice on commitment periods.

00:05:47: you know VCs only actively deploy new capital in the first three to five years of a ten year fund.

00:05:52: right

00:05:52: The rest is for follow-ons.

00:05:53: exactly.

00:05:54: so pitching a fund in Year four means the bar is brutally high.

00:05:59: They simply might be out of time.

00:06:00: Yeah, it's not you It's their shot clock.

00:06:02: and pairing with that David Wagner brought in carded data That completely debunks the summer slowdown myth.

00:06:07: Oh I love this one.

00:06:08: right

00:06:09: people say no one funds in July But the data shows deals absolutely do close on Summer.

00:06:15: july June and August were top months In twenty-twenty four.

00:06:18: The real issue is often bad VC communication Not vacations.

00:06:22: yeah they're just ghosting ya.

00:06:24: And speaking of bad situations, Itamar Novik had a stark warning about pivoting.

00:06:29: He says don't protect your dead ideas.

00:06:31: valuation That is

00:06:33: so hard for founders to accept

00:06:35: it Is but raising a flat round signals failure and raising the downround triggers anti-dilution clauses which crushes Your equity.

00:06:43: you have to raise a clean honest around on The new story.

00:06:46: Here's where

00:06:46: it gets really interesting, though.

00:06:47: Because we talk about valuations as if they're objective but Peter Walker pointed out that pre-seed valuation caps are entirely unfair.

00:06:55: They reflect investor excitement not objective value.

00:06:57: That's why caps range wildly like anywhere from five million to thirty million dollars on the exact same one million dollar raise.

00:07:04: It is all FOMO And Sarah Romacco showed a real cost of this at The Seal Accelerator.

00:07:09: Using a dilution simulator, she showed a fictional founder dropping from sixty percent ownership to thirty eight percent after just a seed in series A round.

00:07:17: That's

00:07:18: huge drop!

00:07:19: Yeah and that without single bad deal.

00:07:21: it is the mechanical cost of raising.

00:07:23: So if the cost of capital is twenty-two percent of your company right out of the gate, you have to ask yourself what actually justifies that dilution.

00:07:30: Right and that brings us to the extreme mechanics of power law.

00:07:34: And why VCs take these massive risks in first place?

00:07:37: Ariyakitaku highlighted a perfect case study with Ferbo.

00:07:40: energy Venture assumes that seven to nine out ten bets fail.

00:07:45: Yeah at least.

00:07:46: But Ferbos Geothermal IPO at seven point six five billion dollars shows The Power Law In Real Time.

00:07:53: It was the contrarian vet that sounded like a bad idea but paid off massively.

00:07:58: Exactly, and Leslie Ankeler pointed out Sequoia's eight million dollar bet on WhatsApp That one check returned more than double their entire One point three billion dollar fund in just three years.

00:08:10: If we connect this to the bigger picture everyone is Just chasing The next whatsapp.

00:08:15: But I want To push back On that or question the metrics, really.

00:08:18: Are VCs optimizing for their wrong signals and desperation?

00:08:23: Sandy Corey critiqued this obsession with prioritizing growth rate from

00:08:28: day zero.

00:08:29: Exactly because if you applied that metric historically companies like Palantir, Canva, OpenAI and Figma would have looked hopeless bets in early years.

00:08:39: True outliers often build deep before they scale fast.

00:08:42: This raises an important question though Is there a better way?

00:08:45: Jack Dempsey brought in Techstar's data showing that boost-strapped companies actually survive at three times the rate of VC backed ones over five years.

00:08:53: Wait, three time?

00:08:54: Three times and they reach profitability in eighteen months versus four plus years for VC back startups.

00:09:00: The ultimate lesson for founders is to treat VC as an accelerant not an implementer.

00:09:04: That is such a crucial distinction.

00:09:06: don't take it to build the engine Take It To Put Gas In The Engine You Already Built

00:09:10: Exactly.

00:09:12: Which leaves us with A final thought to mull over today.

00:09:16: If bootstrapped companies survive three times longer and CDCs are eating all the capital at the very top for AI, will next generation of DecaCorns completely bypass traditional VC until they're ready to go public?

00:09:31: Catch you

00:09:43: next

00:09:45: time!