Best of LinkedIn: Venture Capital CW 43/ 44

00:00:00: Provided by Thomas Allgaier and Franus, based on the most relevant LinkedIn posts about venture capital in calendar weeks.

00:00:05: forty-one and forty two.

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00:00:23: So if you're working in M&A strategy or investments right now this deep dive is for you.

00:00:30: We're cutting through all that noise of the top venture capital trends going around on LinkedIn to figure out what's actually

00:00:36: actionable.

00:00:37: Yeah, exactly.

00:00:38: our mission today is really to unpack this brutal paradox of twenty-twenty six venture capital.

00:00:44: we are seeing record breaking highs but they completely masking this ruthless concentration of capital and we need look at what it means for valuations or founders.

00:00:56: honestly for funds themselves.

00:00:58: I mean, we have to start with the macro numbers that are defining twenty-twenty six because if you don't understand those You can see how they're warping.

00:01:07: The rest of the market Yeah

00:01:09: That headline is just wild.

00:01:11: it's a record smashing five hundred fifteen point eight billion dollars Invested in us startups through Q three alone

00:01:18: which sounds amazing right yeah But that headline is a total illusion.

00:01:22: Oh completely

00:01:23: There was a great post from Fockit Fock breaking this down.

00:01:26: Five AI giants, I'm talking open AI, Anthropic XAI Waymo and Databricks.

00:01:33: they absorbed a hundred ninety five point six billion of that total.

00:01:37: Wow just five companies

00:01:38: there's five.

00:01:39: so ai is taking like eighty two point seven percent of US VC dollars even though it only makes up four point five percent of the deals.

00:01:47: That is, I mean that's incredibly top-heavy and it's not even just a U.S thing.

00:01:51: Nicola Silyanovsky posted the European view And It Is The Exact Same Story Over There

00:01:58: Really?

00:01:58: Yeah!

00:01:59: Sixty Percent Of European VC Deal Value Went Straight To AI In The First Half of Twenty-Twenty Six Creating This Tiny Tiny Cluster Of Winners

00:02:07: Right Which Totally Shifts How Governments And Huge Entities Strategize.

00:02:12: Dallas Price Actually Shared This Striking Example From Canada.

00:02:15: Oh...The Coheer Round?

00:02:17: The Canadian government took a one point six billion canadian dollar direct equity stake and coheres record seven billion dollar round

00:02:25: Which?

00:02:25: okay?

00:02:26: I have to push back on that kind of government move because this entire concentration It acts like an hourglass.

00:02:32: right.

00:02:32: how

00:02:32: do you mean

00:02:33: we've got this massive heavy capital at the top A huge wide base of early startups at the bottom, but the middle is just completely squeezed.

00:02:41: Oh definitely

00:02:41: And if a government owns a massive piece of the biggest player, doesn't that effectively make them kingmaker?

00:02:48: Yeah.

00:02:48: It's huge conflict.

00:02:49: like If you're a future domestic competitor in Canada How do you ever sell your software to the Government if The government literally sits on Your rivals cap table?

00:02:58: Are we building an ecosystem here or just locking In a leaderboard?

00:03:01: That is the big question.

00:03:03: and because so much Of capital is trapped at very top it Is totally warping how Software companies are being valued right now.

00:03:10: Oh The valuation data is jaw-dropping.

00:03:14: L ExclusionCov shared this, and it's wild.

00:03:16: AI native companies are commanding twenty one point two X. revenue multiples in VC deals

00:03:22: which is astronomical

00:03:23: right?

00:03:23: And legacy SAS just five point five x. yeah

00:03:27: There's a reason for that Which is she's Chopra explained really well.

00:03:29: It's a fundamental shift In the whole economic model.

00:03:33: how so

00:03:33: Well think about traditional sass Right itself software to help people work But agentic AI it sells the work itself.

00:03:41: Ah, I see.

00:03:42: So the addressable budget totally shifts from just the IT software budget to like software plus actual labor budgets?

00:03:48: That makes a lot of sense but building that out is not cheap.

00:03:52: Dimitri Zabelan shared data for my pitchbook.

00:03:54: note on inference.

00:03:55: AI and it's crazy median deal sizes exploded from twenty two point two million in twenty three to one hundred thirty million in Twenty

00:04:06: twenty six.

00:04:06: well Just to cover the infrastructure.

00:04:08: Yeah, because these agentic AI workloads demand purpose-built silicon.

00:04:12: You can't just run this stuff on cheap cloud instances anymore.

00:04:15: Right

00:04:16: right.

00:04:17: and hey Just a quick aside.

00:04:18: if you are enjoying us geeking out over these crazy twenty one point two x multiples?

00:04:22: You should definitely subscribe so you catch our future deep dives.

00:04:25: highly recommend it.

00:04:27: but you know going back to those multiples I Kind of compare this to valuing the factory that builds its own automated workforce Versus valuing the traditional hand tools those workers used.

00:04:39: Yeah, The ceiling is way higher

00:04:41: it Is but I have to push back using Chopra's own framework Because AI intrinsically makes software cheaper to build right?

00:04:47: yeah

00:04:47: almost instantly.

00:04:49: But if its cheaper to Build It's Way Harder To Defend.

00:04:52: i mean are these investors just blindly paying twenty one point two x multiples while totally ignoring you know integration costs cyber risks and retention Risks?

00:05:01: that's exactly the blind spot.

00:05:02: the motor evaporating And this hyper fixation on AI mega rounds and massive valuations, it's leaving the rest of market completely stranded.

00:05:10: The

00:05:10: squeezed middle

00:05:12: Exactly.

00:05:13: It is forcing founders to totally rethink the venture capital path.

00:05:16: Yeah

00:05:17: Jason M. Lemken noted that there is actually a record, eight thousand six hundred twenty-five first time financings right now.

00:05:24: but the median seed check shrank to just three point.

00:05:26: oh million dollars.

00:05:27: so There are lot of deals But the cashes

00:05:30: super tight Right.

00:05:31: and Ginny Fielding pointed out That these seed rounds Are quietly Just turning into bridge rounds.

00:05:35: And if you're A non AI founder Even If You Have Solid Traction You Can't even Get a Series A Meeting Right Now.

00:05:41: It's Brutal Out There.

00:05:43: And there's a really harsh reality check that Greg Head and John Cowan shared.

00:05:47: They studied ninety-six thousand startups, and get this... Eighty eight percent of VC funded founders receive absolutely zero dollars at exit.

00:05:56: Zero dollars?

00:05:57: Yeah I mean you pour years your life into the company.

00:06:00: You finally exit ...and you get nothing.

00:06:02: Nothing.

00:06:03: The liquidation preferences just wipe them out entirely

00:06:06: Exactly!

00:06:06: And you contrast with what Sefi Shapiro shared about bootstrap founders.

00:06:11: they actually earn two point six x larger exits on average.

00:06:14: Really?

00:06:15: What are the actual numbers on that?

00:06:16: It's

00:06:17: around fifteen million for bootstrapped versus five point eight million four VC backed and they survived to point four X more often.

00:06:25: That is I mean, that's a massive difference.

00:06:28: Yeah, but Guillermo floor brought up some recent advice from our Cuban which honestly makes perfect sense He said.

00:06:35: an AI-enabled consulting business doing like a hundred K a month is vastly superior to chasing that point one percent VC lottery ticket.

00:06:43: Oh, absolutely.

00:06:44: Which reminds me of Zane Jaffer's cautionary tale?

00:06:47: It's the perfect example Of this.

00:06:49: what happened there?

00:06:50: so his company Vungal had incredible traction in gaming But the vcs forced them to pivot entirely out of the gaming sector

00:06:57: when we guess To chase a bigger narrative

00:07:01: exactly.

00:07:02: Meanwhile, a competitor called Applovin completely ignored the VCs went all in on gaming and eventually became of one hundred billion dollar company.

00:07:10: Oh

00:07:10: man that hurts

00:07:12: right.

00:07:13: it really makes you wonder is venture capital actually destroying value?

00:07:17: In some cases by forcing this unnatural growth on companies That already have strong product market fit?

00:07:23: I think in a lot of cases absolutely yes.

00:07:25: And this whole survival of the fittest environment isn't just impacting founders Right.

00:07:29: It's fundamentally altering the funds themselves.

00:07:32: Oh, the power dynamics are shifting so fast.

00:07:34: Yeah

00:07:34: how they behave with their leverage right now is wild.

00:07:37: Ryan Baird shared a staggering stat on this.

00:07:39: Andreessen Horowitz took over twenty percent of all US VC fund raising this year.

00:07:44: Twenty percent?

00:07:44: Of whole market.

00:07:45: yeah They closed twenty three point eight billion dollars.

00:07:49: The middle is literally disappearing for emerging managers

00:07:52: and then shifting leverage.

00:07:53: it manifests in some pretty ugly ways for founders.

00:07:56: Nick Moran shared Crazy anecdote where an investor quietly reinserted a control clause, one that had already been negotiated out back into a founder's docusigned financing documents right before closing.

00:08:08: Are you kidding me?

00:08:08: Yeah they just tried to slip it in.

00:08:10: yeah

00:08:11: Just bank down the founder being too desperate or too tired to read The Final PDF.

00:08:15: That is incredibly cynical It

00:08:17: Is.

00:08:17: But You know despite this mega fund dominance small funds still remain A massive strategic opportunity.

00:08:24: How so

00:08:25: Well, Gale Wilkinson Champions funds under fifty million dollars for this exact reason.

00:08:30: They're the ones actually finding the breakouts before they become totally obvious.

00:08:35: Oh that makes sense and you have to hustle harder

00:08:37: Exactly.

00:08:38: And DD Doss ran an analysis showing That The Strongest Signal For A Founder Actually Getting Top Tier Backing Is Having Prior Top Tier Fund Experience.

00:08:47: Interesting Yeah Proximity really matters in This Environment.

00:08:49: It's An Insiders Game.

00:08:51: it Really is.

00:08:52: But I have to say looking at the LP, that limited partner market right now.

00:08:55: They're acting like a frightened herd

00:08:58: just rushing to the safety of big brands.

00:09:00: Right

00:09:00: exactly.

00:09:01: but you have to ask does a ten billion dollar fund really?

00:09:04: Have the same alignment with early-stage grit as a ten million dollar fund.

00:09:09: mathematically they can't write.

00:09:11: A ten million dollars check doesn't even move the needle for them

00:09:13: all right.

00:09:14: so when the math doesn't scale Are LPs actually buying alpha and safety?

00:09:18: Or are they just buying a brand name that they can defend in an investment committee.

00:09:23: Nobody gets fired for buying IBM, right?

00:09:25: Precisely!

00:09:26: It's career preservation disguised as strategy.

00:09:29: That is...a phenomenal point.

00:09:32: So to wrap this up I want leave you with the final slightly provocative thought to chew

00:09:37: on.

00:09:38: Let us hear it.

00:09:38: If agentic AI truly does democratize building of software driving cost code Basically zero.

00:09:47: Will the ultimate scarce resource in the future even be code or venture capital?

00:09:52: That's a great question, right?

00:09:54: I'd argue it's going to be proprietary customer data and physical world integration.

00:09:58: that's where The Real Modes will Be.

00:10:01: If you enjoyed this episode new episodes drop every two weeks.

00:10:04: also check out our other editions on PE fundraising PE exit strategies PE value creation strategy and consulting and m&a.

00:10:13: Thanks for hanging out with us through this deep dive.

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