Best of LinkedIn: Venture Capital CW 37/ 38

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00:00:26: Oh, so today we are really getting into it.

00:00:29: We're dissecting the absolute top venture capital trends moving across LinkedIn right now.

00:00:34: Yeah and we've got a lot of ground to cover!

00:00:36: We're going look at this honestly violent shift in capital away from sauce straight into physical infrastructure.

00:00:42: Right plus were diving into crazy math behind these current AI valuations which is just well

00:00:48: you'll see Totally.

00:00:49: And then we'll get into the changing map of global returns, and finally wrap up with the actual evolving tactical mechanics.

00:00:55: Of how founders and investors are getting deals done in this environment?

00:00:58: Exactly it's a very weird market right now.

00:01:00: so We're going to unpack exactly what The smartest money is doing.

00:01:04: Well

00:01:04: let's start With that massive capital migration Right because the landscape Is just seeing This huge shift from software over To the physical world.

00:01:11: It

00:01:11: really is.

00:01:12: I mean for A decade we've been told you know Software is eating the World.

00:01:15: That was the mantra.

00:01:16: But looking at these numbers i Just have to ask is the physical world finally eating software?

00:01:22: I mean, the macro data definitely says yes.

00:01:25: So Alex Choprin's brought up this data point that really stuck with me.

00:01:28: nine of the eleven largest VC rounds in August went to hardware companies.

00:01:33: wait nine out of eleven.

00:01:34: yeah

00:01:35: nine totaling nine.

00:01:36: point two five billion dollars.

00:01:38: wow right and we're talking AI infrastructure, advanced manufacturing nuclear defense.

00:01:45: That's

00:01:45: a massive pivot!

00:01:46: It is.

00:01:47: I mean Databricks did raise five billion but honestly that was the software exception not the rule.

00:01:52: and then Evelina Dynava noted that August saw ten point five billion dollars raised across thirty four funds and the focus was incredibly narrow

00:02:00: just strictly on physical infrastructure in defense exactly

00:02:03: heavy-heavy focused on the physical world

00:02:05: which is fascinating because you know there are some funds have been capitalizing this for years.

00:02:10: Molly O'Shea highlighted Eclipse for example.

00:02:13: Oh yeah, Eclipse is a great example!

00:02:14: Right like they spent eight years backing physical industries while literally everyone else was doing zero marginal cost CS and people thought they were crazy.

00:02:25: but the math definitely works.

00:02:27: it totally worked.

00:02:27: I mean they now manage twelve point five billion dollars.

00:02:31: just one of their bets there's series A into cerebras returned Two point five billion dollars.

00:02:37: That is just an astronomical return for hard tech.

00:02:39: and you see new funds doing the exact same thing now.

00:02:42: Brock Sierra highlighted matter venture partners, And they'd just closed a four hundred and fifty million dollar fund to Dedicated entirely to heart tech.

00:02:51: it makes sense.

00:02:52: I mean that's where The massive bottlenecks are yeah in this specific startups tackling This or wild?

00:02:56: Yeah tell me about rune.

00:02:58: So, William Layton and Rachel Saknoff shared this.

00:03:00: Rune just raised a forty million dollar.

00:03:02: series A. They installed these things called RE-ELIC data centers.

00:03:06: Okay what is that exactly?

00:03:08: Well they're basically solar sided data centers...they drop them directly between rows of solar panels And then install one in under sixty minutes.

00:03:16: Under sixty

00:03:16: minutes?!

00:03:17: That's insane!

00:03:18: Yeah the crazy part it requires zero new grid connection Like, none.

00:03:23: They just turn clean energy straight into compute!

00:03:26: Oh

00:03:26: wow because the grid is the biggest delay right now

00:03:29: Exactly and they already have over forty operational units.

00:03:32: That's

00:03:32: brilliant.

00:03:33: And then you've got start-ups solving like The most hyper specific administrative bottlenecks in that physical space.

00:03:40: Oh write the finance side.

00:03:41: Yeah Tonnage Thapoleol highlighted COS Which raised twelve million dollars Just to solve AI data center finance.

00:03:49: How does that even...

00:03:50: Well, basically they automate the approval of these things called pay apps which in commercial construction can be like eight hundred page documents.

00:03:58: Eight

00:03:58: hundred pages.

00:03:58: Yeah manually audited.

00:04:00: so Coase uses AI to clear that log gem instantly.

00:04:04: I mean That's a perfect example of traditional industries getting a much needed tech facelift.

00:04:09: Ben Johnson actually shared a similar one, Scaffold raised a fifteen million dollar seed round for residential construction coordination.

00:04:16: nice

00:04:17: yeah and they're already deployed on two hundred thousand homes.

00:04:20: but you know getting VCs to actually fund this stuff historically has been brutal.

00:04:24: oh totally because it's not sexy

00:04:26: right.

00:04:27: Henrik Shimoni share this super gritty story about his hotel procurement startup Rico.

00:04:33: he got fifty VC rejections.

00:04:36: Let me guess, they didn't understand the back of house.

00:04:39: hospitality chaos.

00:04:40: Exactly!

00:04:41: They said it wasn't sexy enough.

00:04:43: It took jewel ventures actually picking up the phone, speaking to a hotelier and validating that yes.

00:04:49: The basement of a hotel is complete chaos before they finally got funded.

00:04:53: That validation is everything.

00:04:55: And we're seeing this capital support fragment geographically too.

00:04:58: Udkarsh Mishra mapped out thirty Indian funds that are just sitting on fresh capital right now.

00:05:03: Thirty funds?

00:05:03: Just in India Yeah!

00:05:05: And Salina Alhulu and Ben Kahan separately tracked over forty active US funds deploying across SEED AI

00:05:12: defense.

00:05:13: That's a lot of dry powder!

00:05:14: It is, I mean it includes a one point-one billion dollar A-sixteen machine age fund and then a One Point-One Billion Dollar Layer Global Fund.

00:05:23: Huge

00:05:23: numbers but you know.

00:05:25: Karen Hot and Joanne Thompson highlighted something really critical here regarding funds backing women.

00:05:30: What

00:05:30: did they point out?

00:05:31: Well, their point is that the future of VC actually depends on women holding decision-making power over the capital itself.

00:05:39: Like it's not just about getting access to funding.

00:05:40: It's about who actually has the power To write the checks and set the priorities.

00:05:45: That is such a vital distinction Power Over Capital versus Just Access to it.

00:05:49: Exactly So okay If infrastructure so hot.

00:05:52: right now We have talk.

00:05:53: what happening with software?

00:05:55: Ah yes The AI Software Paradox

00:05:58: Because the valuations are absolutely astronomical, but the fundamentals seem to be getting completely squeezed.

00:06:05: So I have to ask you... Are we actually buying scalable businesses here?

00:06:09: Right?

00:06:09: Or are VCs just paying massive multi-billion dollar premiums To basically fund corporate R&D departments?

00:06:17: I mean look at them mega rounds!

00:06:19: Sebastian Vessen noted Mistral's three point five billion dollar series D And that was at a twenty-four billion dollar valuation.

00:06:27: That's

00:06:27: wild!

00:06:27: It is the largest VC round ever in Europe, and then Atan Gringberg and Saurav D pointed out factory.

00:06:34: they raised two hundred million at five billion valuations just for AI coded.

00:06:38: Five

00:06:38: Billion for Coded?

00:06:39: Yeah...and James Cadwallader shared Profound's one hundred eighty million dollars series d which gave them a one point eight billion dollar valueation for AI marketing agents.

00:06:48: See thats what I mean.

00:06:49: But to be fair, some of these practical enterprise applications are raising big and actually showing results.

00:06:55: True

00:06:56: like what?

00:06:56: Well Chris Ellis noted thatch raising a one hundred eight million dollar series C for health benefits.

00:07:02: Aaron Barack highlighted mine taking seventy two million To reinvent data loss prevention.

00:07:07: Oh!

00:07:08: That's huge

00:07:08: space It is.

00:07:10: And Shaw McCarthy shared backups which raised the forty-two million dollars Series B For supply chain.

00:07:15: AI And their metrics are crazy.

00:07:18: Their automated resolution improved from eighty-seven percent to ninety nine percent even as our volume jumped one hundred and fifty times.

00:07:25: Okay, so the operational leverage is real there but The financial math behind the broader AI hype is honestly scary.

00:07:32: walk me through it.

00:07:34: So David Elkington pointed out that sales forces reportedly paying sixty seven times ARR for listen labs

00:07:40: wait sixty seven Times.

00:07:41: they're annual recurring revenue.

00:07:43: yep

00:07:43: two billion dollars.

00:07:44: That is just, I mean that breaks all historical sauce multiples completely.

00:07:48: and Zane Jeffers shared this iconic hue benchmark chart that's apparently circulating among VCs right now.

00:07:54: AI startups under ten million in ARR are growing incredibly fast like Ten

00:07:58: X. okay so the growth is there?

00:08:00: The growth is their but they're early margins or a brutal fifty-five percent.

00:08:05: ah because of the inference costs

00:08:07: exactly every time someone hits generated cost real money in compute

00:08:11: which leads right into the defensibility crisis that Melissa Fragman talks about.

00:08:15: Her argument is, if AI compresses the cost of building software basically down to zero it also destroys defensibility.

00:08:23: Right

00:08:23: because anyone can copy it overnight?

00:08:25: Exactly!

00:08:26: Features that used to be foundation for a fifty million dollar ARR business could now just be shipped by competitor in single quarter.

00:08:33: So The

00:08:35: Moat Is Gone And Brock Paled warns Standard seed rounds are basically going extinct.

00:08:42: Really?

00:08:42: Extinct!

00:08:43: Yeah, he says if you're a non-elite startup and hit one million AR the hard way... You just being ignored.

00:08:49: VCs bypassing real traction in favor of founder pedigree

00:08:53: Which is wild because Trace Cohen points out the huge psychological irony in all this.

00:08:58: Vcs constantly claim they want proprietary deal flow.

00:09:01: They wanna be contrarian But really, they just want the psychological safety of consensus.

00:09:06: Oh

00:09:07: one hundred percent!

00:09:08: They just wanna invest in whoever everyone else is investing it.

00:09:11: Exactly.

00:09:11: By

00:09:11: the way if you're listening to this and you wanna stay ahead these wild market shifts You should definitely make sure to subscribe so that we can catch our future deep dives.

00:09:19: We get into stuff all the time.

00:09:20: Yeah...you

00:09:21: don't wanna miss it.

00:09:22: Because this consensus behavior It leads massive power concentration.

00:09:27: Hosun Chung analyzed private AI stakes pretty staggering.

00:09:32: Who's holding the bag?

00:09:33: Well, Founders Fun holds one point nine-nine trillion dollars in AI value.

00:09:38: Trillion with a T!

00:09:40: With

00:09:40: a t they are the only major firm holding stakes and both enthropic and open ai

00:09:45: talk about hedging your bets

00:09:46: exactly.

00:09:47: They own The foundational layer.

00:09:49: okay so paper valuations at the top were great but let shift gears A bit.

00:09:54: The broader ecosystem seems to be absolutely choking on a lack of actual liquidity right now.

00:10:00: Right, because liquidity is the cardiovascular system of venture capital.

00:10:04: So I'm looking at these numbers and wondering are we looking at a minor blockage here or A full-blown heart attack for the twenty twenty one fund vintage?

00:10:13: Definitely a heart attack.

00:10:14: Ilya Stribuleev brought some incredibly heavy data on this, look at the distributions to paid in capital DTI for funds in their prime years.

00:10:23: Okay.

00:10:24: Historically that hovered around twenty percent.

00:10:26: it has plummeted just twelve percent.

00:10:28: Yikes?

00:10:28: Yeah!

00:10:29: Since twenty-twenty two US venture funds have drawn net one hundred and ninety six point nine billion dollars more from investors than they've actually returned.

00:10:38: That is terrifying.

00:10:39: for LPs The money Trapped

00:10:42: completely trapped

00:10:43: and it's interesting how this impacts geography too because Oliver cost gave us brilliant mechanical explanation for why European VC returns Trail the US so badly.

00:10:53: Oh, The sevenths costs thing

00:10:54: Yes.

00:10:55: So european return sit around six percent while the u.s Is Around fourteen percent?

00:11:00: And It essentially comes down to the cost of failure.

00:11:02: right like when a big tech company buys A startup they have To factor in the risk Of it failing

00:11:06: Exactly.

00:11:07: If it fails and they have to restructure, severance in the U S costs about seven months of salary

00:11:12: which is manageable

00:11:13: right but In France It cost thirty eight months of salaries.

00:11:16: Wow And in Italy its forty nine months.

00:11:18: so

00:11:18: forty-nine months of severance

00:11:20: Yeah.

00:11:20: So buyers just price this massive regulatory risk into their M&A offers Which leads directly?

00:11:27: much lower exit prices for European startups.

00:11:30: That

00:11:30: is a brutal structural disadvantage,

00:11:32: it really is.

00:11:33: and you know Michael Burr noted on North American perspective on structural squeeze too.

00:11:38: US funds injected eight hundred and eight million dollars into Canadian start-ups in the first half of twenty twenty six.

00:11:44: okay that sounds good for Canada now.

00:11:46: Well, they actually outspent all Canadian funds combined who only raised nine hundred and seventeen million locally.

00:11:52: Oh I see

00:11:52: right.

00:11:53: so the structural risk is that U.S.

00:11:54: lead investors end up dictating board control and forcing IP locations south of border although RBC stepping with a one point four billion dollar growth fund just to try keep equity at home.

00:12:07: They have do.

00:12:08: but the squeeze isn't on exit or growth stage.

00:12:11: early stages are getting hit too.

00:12:14: Kevin Dowd highlighted that in Q-two, the median preseed post money safe caps spiked forty percent year over year.

00:12:22: To what?

00:12:23: Thirty five million dollars.

00:12:24: thirty five million for a preceeds per a precede

00:12:27: round.

00:12:27: That makes no sense.

00:12:29: Why are they so high?

00:12:30: well Emily M Zeng shared some pitchbook data explaining it basically multi stage funds or moving down market and writing much bigger early stage checks to secure ownership.

00:12:40: but It just means fewer total winners In The End

00:12:43: Because the math is completely broken.

00:12:45: at that entry price, Neil Dennehy actually compiled FinTech benchmarks showing this massive disconnect between those seed valuations and the actual revenue.

00:12:53: you need to raise a series A.

00:12:55: Right!

00:12:55: You can't grow into valuation fast enough though.

00:12:57: Pavel Givay did identify twenty highly active funds specifically willing to lead tiny rounds under one million dollars.

00:13:04: Thank goodness someone's still doing that

00:13:06: Seriously.

00:13:07: But despite all these capital squeezes The execution talent continues to concentrate.

00:13:13: Alexander Farr mapped out what he calls the Ramp Mafia.

00:13:16: Like, The PayPal mafia?

00:13:17: Exactly!

00:13:18: It's six former ramp employees who have founded new startups like Unify and Silna And they've already raised over one hundred ten million dollars combined.

00:13:29: That network effect is insane

00:13:30: it IS.

00:13:31: Matthew Dickerson outlined how top accelerator tiers like YC and A-sixteen speedrun really capture this.

00:13:38: But Marcus Lema had a great realization about that.

00:13:41: What did he say

00:13:42: After presenting at YC Demo Day, he realized that getting access to billionaire investors actually matters far less than just building a product your customers love.

00:13:55: Oh, it's so much human behavior.

00:14:14: And preparation!

00:14:15: PsiHLS advises founders to physically split their beta rooms into two stages.

00:14:21: Well you have a pre-turn sheet room which just has the deck and high level metrics.

00:14:25: then You have a post term sheetroom with the cap table in IP

00:14:29: To protect sensitive data.

00:14:30: before you actually have a deal Exactly

00:14:33: don't show them everything on our first date

00:14:35: Smart!

00:14:36: And regarding those initial materials, Janice M argues that people stress way too much over the format of a pre-read like deck versus one pager.

00:14:45: But all it actually matters is raw traction.

00:14:48: Traction cures ALL.

00:14:49: Yep Alana Golde uses a nine question framework covering what why now moat?

00:14:55: and she feeds into AI tools to just automatically build perfect structure.

00:14:59: That's a great hack.

00:15:00: Yeah, but you still have to pass the human filters.

00:15:02: Kelly Lyons does three specific story checks on portfolio decks before she'll ever forward them.

00:15:07: Oh what are they first?

00:15:09: can?

00:15:09: A generalist paraphrase it in one sentence.

00:15:12: second is The why now actually specific to this year?

00:15:16: and third Does he ask connect to a real milestone rather than just buying generic runway?

00:15:22: if your just buying time You're dead.

00:15:24: and the outreach dynamics themselves are fascinating.

00:15:27: Rain Carby points out that when perfectly matched investors pass on you, it's usually just portfolio overallocation not a lack of fit.

00:15:34: That is reassuring.

00:15:35: honestly

00:15:36: It IS!

00:15:37: But Francis Santora has major warning for founders Never bypassed the junior VCs

00:15:42: NEVER Right.

00:15:43: They're actually those who escalate deals internally.

00:15:46: If you ignore them You're done.

00:15:48: And then when do get in room Michelle Kwok notes that generalist VCs purposely ask dumb questions Like what?

00:15:55: Why does the customer actually pay for this.

00:15:57: Just to test if a founder can explain their business simply without hiding behind jargon.

00:16:01: I love that!

00:16:02: Sandy Corey has good psychological tests too, he looks for founders who are intellectually curious about their competitors rather than just being obsessively dismissive of them.

00:16:11: That shows real maturity.

00:16:13: But there's red flags founders throw up all time.

00:16:16: Yeah Stefan Nasser warns telling a VC Hey we won't need funding after thirty thousand MRR is a massive red flag.

00:16:24: Oh, completely it shows.

00:16:25: you completely misunderstand the hyper growth venture model.

00:16:28: they want to burn cash to capture market not build safe little lifestyle business

00:16:34: exactly.

00:16:34: and Halina Fogarty warns of well resourced founder bias where investors implicitly favor founders who already have personal financial safety net

00:16:44: because they can afford take massive risks Right.

00:16:47: Well, let's talk about the actual close because David Simsmith and Paige Sawyer both heavily stress that headline valuation is just a vanity metric.

00:16:55: It's

00:16:55: just for the press release.

00:16:56: One hundred percent.

00:16:57: what actually matters are the liquidation preferences The anti-dilution clauses And the true ownership percentages.

00:17:03: That determines your real exit outcome

00:17:06: Because if the preferences Are stacked against you You could sell For hundreds of millions and walk away with nothing

00:17:11: Exactly!

00:17:12: And Gonzalo Martinez Diaz Agra shares A brutal reminder A deal is never closed until the money is wired.

00:17:19: He's seen sign term sheets just fall through at the absolute last

00:17:23: minute.".

00:17:24: That IS heartbreaking, and even after the money clears, Abdul Qadirwai points out a huge shift in power dynamics.

00:17:32: Founders fought hard to win board control over that last decade right?

00:17:35: They did!

00:17:36: But VCs adapted — they replaced absolute voting-power with what he calls operational scaffolding.

00:17:43: Operational scaffolding?

00:17:44: Yeah, meaning the VC provides your lead recruiter Your PR firm.

00:17:47: You go to market strategy So if things goes wrong They don't even need board control.

00:17:51: they already have immense leverage because they manage The vital infrastructure of your business.

00:17:55: That is a brilliant way to exert control and you know VCs are playing their own psychological games on the LP side too.

00:18:00: Oh for sure!

00:18:01: Mike S advises emerging managers To secure hard LP commitments before they Go and spend a tonne Of money on lawyers Makes

00:18:08: sense Although Nathan Bucci did highlight this amazing free platform built by the guy who invented this safe note, and it lets you launch a VC fund with literally zero upfront cost.

00:18:18: That's game changing for new managers but Adeo Resi insists your very first LT meeting should never actually be a pitch.

00:18:25: It has to be pure rapport building.

00:18:27: Just feeling out of vibes

00:18:28: Basically And those trying break in, Nathan Beckard listed twenty five distinct fund-to-funds specifically designed back first time managers.

00:18:38: That's a huge resource.

00:18:40: Because ultimately, Camila Ho realized that venture isn't a rigid formula.

00:18:44: it is really just vibes and long-term trust.

00:18:47: It Is!

00:18:48: Nico Rosbury emphasized that ninety percent of a VC value is matchmaking.

00:18:53: He cited this one startup that found a hundred million dollars in savings for a buyer just because the VC made the right introduction.

00:18:59: That's wild, and Alan Cruz and Sasha Kayward highlighted it.

00:19:03: despite the greed narrative we always hear the ecosystems are actually full of really generous advisors and angels.

00:19:08: Yeah!

00:19:09: And tech is making that easier.

00:19:10: Sefi Shapira and Alexander Novodovsky using platforms on AI to democratize introductions without those crazy broker fees.

00:19:21: Max Pog hosted a massive virtual VC pitch conference.

00:19:25: Stephanie Rich spoke at Twin Cities Startup Week, and Stefan Rich analyzed the whole community first approach over it to London Venture Capital Network.

00:19:33: There's so much noise though I think Sarah Jordan provided best grounding reminder of all this.

00:19:37: What was that?

00:19:38: While VC-backed companies blast PR about their funding rounds The bootstrapped companies are just quietly focusing on building business.

00:19:45: That is truth right there.

00:19:47: Well, we have gone on quite a journey today.

00:19:49: We went from the macro shift of capital pouring into physical infrastructure to the dizzying math of AI valuations all The way down to the tactical realities of split data rooms and the true cost of European restructuring.

00:20:02: It's A lot To process it

00:20:03: is.

00:20:04: so here Is something to mull over before?

00:20:06: We go if ai makes software cheap to build And All the venture Capital is rushing to fund the Physical Infrastructure to support that Ai.

00:20:15: What happens to the value chain once data centers are fully built?

00:20:18: Who captures?