Best of LinkedIn: Venture Capital CW 35/ 36

00:00:00: provided by Thomas Allgaier and Frennus based on the most relevant LinkedIn posts about venture capital in calendar weeks, thirty five and thirty six.

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00:00:25: all right so let's just get into it.

00:00:27: yeah Just to set expectations really quick.

00:00:31: If you're listening, your probably in strategy maybe M&A or investments.

00:00:35: so we are not going sit here and explain what an SPV is?

00:00:38: Or what DPI stands for.

00:00:39: Right no fluff.

00:00:40: today

00:00:41: Exactly We doing a deep dive into the top venture capital trends that hit LinkedIn over last two weeks were just looking high signal insights trying unpack actual mechanical shifts on market right

00:00:52: now.

00:00:53: I mean, i was thinking about this factory analogy earlier because if you think of venture capital as this highly calibrated assembly line right?

00:01:01: You've got raw materials coming in at the loading dock they get processed and eventually a finished product ships out the door.

00:01:07: The

00:01:08: exit!

00:01:08: Right...the exit.

00:01:09: but right now the loading doc is still taking in billions of dollars.

00:01:13: But that outbound shipping door it's basically padlock shut Yeah, and instead of fixing the conveyor belt.

00:01:19: The factory workers are just you know trading half finished products amongst themselves on the floor And calling it a record year.

00:01:25: that is wow.

00:01:27: yeah That perfectly captures the friction we're seeing because we're analyzing a market that's Fundamentally renegotiating its own liquidity rules.

00:01:35: exact the exit has shifted.

00:01:37: but on the input side the deal flow side We're still seeing these just massive astronomical rounds being priced.

00:01:44: Oh Completely disconnected from the exit reality.

00:01:47: Right, like the data Anze Voje posted about Mistral that's the perfect case study here.

00:01:51: They just closed a three billion euro series D.

00:01:54: Three billion?

00:01:55: That's just it

00:01:56: staggered at a twenty four billion Eurovaluation Which by the way officially marks the largest private tech round in European history.

00:02:05: But you know what really demands attention.

00:02:07: and that mistral around isn't just the valuation multiple It's the cap table its the composition of the capital.

00:02:13: right who's writing the checks.

00:02:15: Yeah,

00:02:15: because this round was heavily driven by strategic capital specifically Samsung but also BlackRock ASML Nvidia

00:02:24: wasn't just your standard mega growth fund

00:02:26: exactly.

00:02:26: it is a severe departure from traditional VC model.

00:02:29: you've got these strategic corporate players stepping in.

00:02:33: they want technological independence supply chain security foundational model choice.

00:02:39: So they're basically bypassing the traditional VC ecosystem to secure their own roadmaps?

00:02:44: Yeah, They are playing a completely different game.

00:02:46: and if you sitting in corporate development seat right now this directly impacts your pipeline.

00:02:51: You have these massive private valuations But the traditional mechanism for realizing that value, the IPO is just completely broken.

00:02:59: It

00:02:59: really is.

00:03:00: Alexandra Covello shared some data That puts numbers to this structural break.

00:03:04: The IPO has basically lost its monopoly on venture exits.

00:03:08: Over the last twelve months US Venture Secondaries accounted For roughly a third of all exit value.

00:03:14: Wow Yes sixty one billion dollars in secondaries Which actually edged past public listings, which were at fifty nine billion.

00:03:21: That's

00:03:22: a massive flip.

00:03:23: and if you rewind to like twenty fifteen Secondaries we're hovering around three percent of total exit value.

00:03:29: three percent the thirty-three percent

00:03:31: It says staggering reshuffling of liquidity.

00:03:34: And to understand why that's happening You have to look at the backlog.

00:03:37: public product compiled

00:03:39: The unicorns.

00:03:39: Yeah, the IPO window is just effectively closed.

00:03:42: We've seen fewer than fifty VC backed companies go public per year since twenty-twenty two.

00:03:48: But the pipeline of mature heavily capitalized startups it's just swelling.

00:03:53: There are over nine hundred and fifty unicorn sitting in that backlog right now.

00:03:56: Nine

00:03:56: hundred fifty

00:03:57: And over a hundred net new billion dollar valuations were minted Just this year.

00:04:02: So the pressure is immense

00:04:04: Right.

00:04:04: The pressure inside these funds is building and it has to release somewhere, so that pressure is forcing the secondary market too mature from this like nuisance liquidity tool into the primary exit vehicle?

00:04:16: But you know I want to push back on that sixty one billion dollar secondary figure for a second.

00:04:21: okay because the immediate reaction is to think well isn't this just a high stakes game of private-market hot potato?

00:04:28: oh i see what your saying.

00:04:30: Are VCs just passing their illiquidity risk to family offices and crossover funds?

00:04:35: Yeah.

00:04:35: Taking a slight discount, just so they can show their LPs in paper games.

00:04:40: are we actually seeing net new value realization here?

00:04:44: That's a fair question.

00:04:45: To answer that you have to separate fund level secondary trading from direct single-name stakes.

00:04:50: Okay, break that down!

00:04:51: So in a fun level trade an LP is selling their entire basket of underlying companies usually at a steep discount just to rebalance or escape capital calls...that's your hot potato.

00:05:00: dynamic right.

00:05:01: but what's actually driving that massive sixty one billion dollar surge is single name stakes.

00:05:06: ah so buying specific companies

00:05:08: exactly new institutional buyers are aggressively targeting individual equity blocks directly from early stage VCs it's calculated, they're building a durable private liquidity market.

00:05:21: It's honestly mirroring what we saw in private equity buyouts like... fifteen years ago.

00:05:26: Or secondary buyout became standard instead of sign-of distress?

00:05:30: Precisely Well

00:05:31: that structural delay and liquidity fundamentally alters how LPs behave.

00:05:36: Which kind brings us to our next theme Fund economics And this insane monopolization capital.

00:05:42: Yeah because if exits are delayed by five or seven year Raising new capital becomes incredibly hard.

00:05:47: Yeah, Jelen Vallejo pulled the Q one twenty-twenty six data and it is stark.

00:05:52: in The first quarter of the top fifteen VC firms captured eighty eight point five percent Of all the capital raised across us funds.

00:05:59: eighty

00:06:00: eight percent

00:06:00: Yep They took almost forty two billion out of the forty seven point eight billion raised

00:06:04: leaving what a couple hundred other funds to fight over scraps.

00:06:07: literally

00:06:08: One hundred and fifty-seven funds fighting over less than twelve percent of the capital.

00:06:12: That is brutally Darwinian, And it's a

00:06:14: massive paradox too!

00:06:15: How so?

00:06:16: Aaron Dubin pointed this out First time emerging venture funds historically outperform their established mega fund peers.

00:06:24: The MedianNet IRR premium Is up to fifteen percentage points higher.

00:06:29: Wait really?

00:06:30: Fifteen

00:06:30: point?!

00:06:30: Yeah

00:06:31: The mathematical alpha consistently comes from emerging managers who are specialized in writing smaller checks at lower entry valuations, but right now Funds under fifty million dollars are receiving their smallest share of LP commitments in three decades.

00:06:46: So LPs are actively ignoring the historical alpha just to get the perceived safety of a mega-fund brand name?

00:06:52: Exactly!

00:06:53: Well Iwana Gold actually shared a textbook case study on this outperformance, factorial funds.

00:06:58: have you seen this?

00:06:58: i saw the name.

00:06:59: yeah but what were the numbers?

00:07:00: okay so they're fun.

00:07:01: it was one hundred and thirty five million dollars.

00:07:03: Yeah In just five years they generated an astonishing seven point one XDPI

00:07:07: Seven point one DPI in five years.

00:07:09: Yeah, they returned almost a billion dollars and realized cash to LPs.

00:07:13: And when you compare that to the median dpi for twenty-twenty two vintage funds which is Literally zero point zero x it looks like a completely different asset class.

00:07:22: And the mechanism they used is what matters for the listeners here, because they didn't just deploy a standard pacing model where you blindly write thirty checks and pray one returns to fund.

00:07:33: They utilized early highly concentrated deal-by-deal SPVs special purpose vehicles into companies like SpaceX and Anthropic... They

00:07:43: isolate their risk!

00:07:43: Yeah It lets a micro fund punch way above its weight class.

00:07:47: They syndicate the capital for specific asset and they don't carry deadweight of bloated management fee structure, their prioritizing actual liquidity over vanity markups

00:07:58: Which creates this massive void in middle-of-the market.

00:08:01: You have top fifteen firms hoarding billions And the micro funds generating alpha through SPVs

00:08:07: Leaving generalist funds stranded

00:08:09: Right.

00:08:10: The three hundred million dollar generalists fund is basically the middle child of venture capital right now.

00:08:15: They don't have the gravity to force their way into massive AI rounds, but they aren't nimble enough to win early stage specialized deals.

00:08:22: Yeah Blaine Davis mapped this out.

00:08:24: Middle Market fundraising fell forty percent last year because LPs realized that without proprietary access The three hundred million dollar generalist model Is a dead zone.

00:08:34: you can't justify the fees when exits take twelve years instead of seven.

00:08:38: That

00:08:38: makes total sense.

00:08:39: and Hey, by the way if you are finding this breakdown of market mechanics valuable just make sure your subscribed to The Deep Dive.

00:08:46: We're constantly tracking these structural shifts so that we don't want to miss out

00:08:50: Definitely.

00:08:50: and you know Tracking where those top fifteen mega funds actually deploying their billions is critical Right now it's AI in deep

00:08:58: tech.

00:08:59: Almost exclusively

00:09:00: Yeah but underlying unit economics of two sectors operate on entirely different mechanical principles And the market really struggling price them correctly.

00:09:09: Let's talk about the AI margin squeeze because the traditional saws playbook just completely falls apart here.

00:09:15: Yeah, Antoine Minajer detailed this really well.

00:09:18: he calls it The Hidden Birth Defect of AI startups.

00:09:21: inference costs.

00:09:22: yes inference cop.

00:09:24: It's the most critical misunderstanding in VC right now.

00:09:27: with classic saws your gross margins hover around eighty percent You build at once you distribute it infinitely and the cloud hosting fees are fractional pennies.

00:09:36: Right

00:09:37: but a I pays for compute specifically inference tokens every single time a user interacts with it.

00:09:44: Every prompt, every image generation the meter is running.

00:09:48: so as usage scales your cost of goods sold scales linearly right alongside It compresses gross, and it's down to like fifty percent.

00:09:56: Which is brutal for founders.

00:09:58: Zane Jaffer shared a real-world postmortem on this.

00:10:01: He launched Blazl an AI native agency Revenue wise they were crushing it adding two hundred and fifty K in net new ARR per month

00:10:09: but they couldn't clear those fifty percent margins.

00:10:11: Right, because they were trapped between human-in-the-loop labor costs and scaling inference costs.

00:10:17: If your cost structure is dictated by API burns and human oversight Your LTV to CAC ratio will never reach the VC threshold.

00:10:24: They

00:10:24: actually had to lay off two thirds of their staff And pivot entirely away from services into a productized tool just to survive the margin demands

00:10:31: Which forces a huge re-pricing question, right?

00:10:34: If AI margins are intrinsically capped by compute costs shouldn't the industry stop valuing these startups like high margin SAAS?

00:10:41: Exactly.

00:10:42: They should be valued more like hardware or optimized services firms.

00:10:47: Those fifty X private market multiples Are completely divorced from the unit economics

00:10:53: Completely Meanwhile.

00:10:54: True hardware and deep tech where that capital intensity is actually justified by physics are setting capitalization records.

00:11:02: Yeah, Antoni Sarkairos pointed out that eighteen different quantum computing startups raise rounds over fifty million dollars recently.

00:11:10: That shatters previous records

00:11:12: And Wojtek Smolenski's data on photonics shows exactly why the capital was needed.

00:11:17: Photonics acquisitions carry a median, five point six x multiple on total capital raised.

00:11:22: But to build a billion dollar photonics company you have to raise two-to three hundred million upfront.

00:11:27: You can't bootstrap a quantum computer in your garage

00:11:29: Right!

00:11:30: Your financing physics research fab plants interior science The capitol has underwrite the physics risk before execution even begins.

00:11:37: And when you look at physical AI and robotics, there's this fascinating split.

00:11:42: Shane Neiman observed that physical AI is dividing into two camps—you get defense tech getting all the funding autonomous drones battlefield analytics... ...and

00:11:50: on the complete opposite side You have medtech!

00:11:53: Getting yored?

00:11:54: Yeah surgical robots, AI diagnostics.

00:11:57: The engineering stack is identical to defense tech but the VC community Is practically ghosting them.

00:12:03: But

00:12:03: why if the tech stack is the same and the global health care market is exponentially larger than defense budgets, why avoid it?

00:12:10: It's

00:12:11: historical scar tissue.

00:12:12: Back in the twenty-tens MedTech VCs suffered through a brutal decade!

00:12:17: It took seven years just to navigate clinical trials & FDA approvals before making a

00:12:21: single dollar.

00:12:22: They got burned.

00:12:23: Badly...it yielded bomb like returns.

00:12:26: But what this market is missing today Is that AI is actively compressing those timelines.

00:12:31: Predictive modeling can simulate protein folding or generate synthetic data for trials.

00:12:36: The timeline to market is accelerating, but investors are still applying that outdated ten-year slog

00:12:41: mentality.".

00:12:42: It's a massive mispriced arbitrage opportunity... But because VCs so bound by the rigid ten year clock they're systematically incapable of underwriting time lines.

00:12:52: deep tech needs while simultaneously demanding SAAS margins AI cannot deliver.

00:13:00: Which brings us to our final theme.

00:13:02: Founders strategy and shifting capital sources, founders are waking up to this in seeking out alternative capital structures

00:13:09: like family offices?

00:13:10: Yes.

00:13:11: Anand PV shared numbers out of India.

00:13:13: Family office assets are ballooning to roughly seventy thousand crore And they're moving away from being passive LPs in VC funds.

00:13:20: They want direct investments and co-investment rights on the cap table.

00:13:25: From a founder's perspective This makes sense.

00:13:27: Pitching a family office with the standard ten-year VC fund deck is it's like treating a marriage proposal Like a tinder date.

00:13:35: Wow, okay That's a perfect analogy.

00:13:37: break that down for this strategist listening.

00:13:38: A traditional VC operates on a strict ten year life by your seven.

00:13:43: They're aggressively pushing for an exit ready or not because they need DPI to raise their next fun The ticking

00:13:48: clock.

00:13:49: yeah It forces unnatural growth.

00:13:52: but A family office has no LP committee, no artificial ten-year deadline.

00:13:57: They underwrite for decades.

00:13:59: so they don't negotiate it for raw IRR and then negotiate for durable cash flows board control and long term

00:14:06: rights.".

00:14:06: And that distinction is crucial when founders are looking at traditional VC termsheets right now.

00:14:12: Abdul Qadir why issued a really stark warning about this?

00:14:16: When a VC gives you high headline valuation easily there almost always trading that vanity number for something way more expensive in the fine print.

00:14:24: Yeah, the valuation is just marketing.

00:14:26: The real cost isn't down side protection Full ratchet anti-dilution aggressive liquidation preferences veto rights.

00:14:32: The founder celebrates the extra five million on evaluation completely unaware that investor secured leverage to control entire M&A outcome.

00:14:40: The

00:14:40: fund gets paid first no matter what

00:14:42: And getting to term sheet is burning runway because founders are misinterpreting feedback.

00:14:47: Jacob Kolker highlighted this.

00:14:49: When an investor says come back when you have more traction, founders assume they just need better metrics.

00:14:54: But it's almost always a polite no.

00:14:57: VCs rarely give a hard No because they want option value.

00:15:01: More traction usually masks A lack of internal conviction Or timeline mismatch.

00:15:06: or worst-of all They're taking meetings to show their LPs that deal flow with zero intention Of writing a precede check.

00:15:13: And the founder burns six months of runway chasing and moving goalposts

00:15:17: instead of forcing the investor to define actionable milestones.

00:15:22: So, synthesizing all this?

00:15:23: The loss-of-board control...the unrealistic AI margin demands.. ...the bottlenecked IPO market and that fact that ninety nine point nine percent companies will never reach the exit Omega fund needs I have ask is taking traditional venture capital actually a fiduciary mistake for most founders today?

00:15:39: Honestly!

00:15:40: For rapidly expanding subset of founders?

00:15:42: yes If your goal is to build a highly profitable niche leader or specialized asset for strategic acquisition, injecting hypergrowth VC is toxic.

00:15:51: Because it legally demands multi-billion dollar outcome.

00:15:54: Exactly!

00:15:55: VC isn't inherently evil It's just a mathematically rigid machine.

00:16:00: The moment you take the check.

00:16:01: success no longer defined by profitability and customer retention.

00:16:05: It defines solely by exponential valuation growth And final liquidity event.

00:16:10: The scoreboard completely changes.

00:16:12: And if your products, mechanics don't support that specific game you will lose control of your company

00:16:17: Man... That is a sobering analysis Yeah But it's vital intelligence for anyone structuring deals in this space right now Which brings us to the end our deep dive into insights from weeks thirty-five and thirty

00:16:30: six.

00:16:30: Thanks for having me dissect this

00:16:31: Always!

00:16:33: As AI exponentially compresses the time it takes to build a product and family offices stretch out the time horizon for liquidity, we might be entering an era where the traditional ten-year venture fund cycle is structurally obsolete.

00:16:48: I agree completely.

00:16:49: It's rapidly becoming misaligned with both the blinding speed of modern software innovation And the extreme patience Of real generational deep tech capital.

00:16:58: That VC assembly line We talked about at beginning The conveyor belt isn't just jammed.

00:17:02: The market is slowly realizing we might not need the factory at all anymore.