Best of LinkedIn: Venture Capital CW 35/ 36

00:00:00: Welcome to The Deep Dive, provided by Thomas Al Gair and Frennis, based on the most relevant LinkedIn posts about venture capital in CW- three-five-three-six.

00:00:10: Frennus specializes in B to B market research for venture capital teams, providing landscape screenings and startup segmentations with a strong focus on the tech

00:00:18: space.

00:00:19: Exactly.

00:00:20: And today, we're cutting through all that noise for you, bringing you the absolute top VC trends and insights from those two weeks.

00:00:27: Think of it as a shortcut, really.

00:00:28: We're distilling the crucial shifts, the strategies, basically giving you an insider's view on what's driving the market.

00:00:35: And... maybe more importantly, what founders and investors actually need to know right now to navigate all this successfully.

00:00:41: Absolutely.

00:00:42: So let's jump right in.

00:00:43: Our first big theme feels like it's all about the founder's playbook, navigating the fundraising journey.

00:00:48: Yeah, this covers, you know, everything from mindset for the raise through to the nitty-gritty of term sheets.

00:00:53: Okay, so what's the foundational advice here?

00:00:55: What are people saying founders need to focus on in this environment?

00:00:59: Well, a key insight, this one from Leon Eisen, is that fundraising really needs to be led and not chased.

00:01:05: Lead, not chased.

00:01:06: What does that mean in practice?

00:01:08: It means being proactive, not just, you know, reacting when the cash is running low.

00:01:13: It's about consistently sharing your traction, making it super easy for investors to see your progress and, crucially, talking to investors all at once.

00:01:24: That way you get clarity, you get choice, it flips the dynamic from desperation to, well, leverage.

00:01:30: That proactive approach sounds vital, but even if you nail the process, those term sheet negotiations, they can still feel pretty intense, right?

00:01:39: Oh,

00:01:39: definitely.

00:01:40: And Glenn Waters offers some great advice here.

00:01:42: He flags three critical areas founders need to really dig into.

00:01:46: Okay, what are they?

00:01:47: First, the exit waterfall.

00:01:49: This is all about how the money gets split when the company eventually sells.

00:01:53: you have to understand the mechanics

00:01:54: You mean like liquidation preferences who gets paid first and how much

00:01:57: exactly liquidation preferences participation rights do investors get their money back and a piece of the rest and Even how the option pool impacts your final take.

00:02:06: It's often not just about the headline valuation.

00:02:08: That's a huge point.

00:02:09: What's the second area?

00:02:11: control so board composition voting rights vetoes.

00:02:16: You need to know what levers you still have to actually run your business.

00:02:19: Right.

00:02:20: Maintaining operational freedom.

00:02:21: For sure.

00:02:22: And third,

00:02:23: just

00:02:24: adopting a negotiation mindset.

00:02:26: Not trying to win every single point, but focusing on fairness.

00:02:29: Building trust for a long-term partnership.

00:02:31: And

00:02:31: building that trust.

00:02:33: Chris Topman really hammers this home, doesn't he?

00:02:35: He does.

00:02:36: It's about transparency, even about the challenges.

00:02:39: Clearly communicating the business model, showing real traction, and having a strong team.

00:02:43: It really sounds like investors are betting on people just as much as the idea.

00:02:47: Absolutely.

00:02:47: That's the bedrock of credibility.

00:02:49: And look, it's clear.

00:02:51: the landscape shifted in terms of what VCs even prioritize for funding now.

00:02:54: How so?

00:02:55: Well, Tobias Booker argues, raising VC isn't really the first milestone anymore.

00:03:01: Founders should be focusing on proving traction first, generating actual revenue.

00:03:05: Maybe

00:03:05: even bootstrapping for a while.

00:03:06: Yeah, exactly.

00:03:07: Build some leverage.

00:03:08: Gerald Durant echoes this, warning against what he calls startup porn.

00:03:12: You know, those flashy funding announcements based on just an idea.

00:03:15: Right,

00:03:16: the height.

00:03:16: He

00:03:16: stresses that customer acquisition, actual revenue, that's what really de-risks the venture for investors.

00:03:25: It's interesting, he notes repeat founders often build significant wealth before even thinking about VC.

00:03:30: They get it.

00:03:31: That

00:03:31: makes a lot of sense.

00:03:32: Prioritize revenue first.

00:03:34: But as Scott Stanford points out, not all revenue is created equal.

00:03:39: What's the difference investors are looking for?

00:03:41: That's a great question.

00:03:42: Investors are getting much sharper at distinguishing between revenue.

00:03:46: that genuinely proves the model scales.

00:03:48: Meaning customers are buying.

00:03:50: They're engaging, renewing, even referring others without the founder holding their hand through the whole process.

00:03:56: That's scalable.

00:03:57: Okay.

00:03:57: Versus.

00:03:58: Versus one-time wins.

00:04:00: Things like initial design partners, pilot projects, maybe some grant money.

00:04:03: They look good on paper, but don't prove repeatable success.

00:04:07: The metrics mirage.

00:04:08: I think AY called it that.

00:04:09: Exactly.

00:04:10: Vanity metrics like massive GNV or millions of downloads can create this illusion of success, but it is a mirage.

00:04:17: if it doesn't translate into real investor conviction.

00:04:19: Which comes from?

00:04:20: Which comes from linking those metrics directly to fundamentals.

00:04:23: Cash flow, customer retention, healthy margins.

00:04:26: It really begs the question, are founders chasing the right scoreboard or just applause?

00:04:33: That's powerful.

00:04:34: And it feeds right into long-term strategy, doesn't it?

00:04:36: Patrick Molyneux advises thinking beyond just the next round.

00:04:40: Yeah, he says optimize for a decade of capital.

00:04:42: Wow.

00:04:43: What does that involve?

00:04:45: It means understanding what those future investors, the series B or C folks, actually care about now.

00:04:50: And starting to build those relationships early, it's strategic capital planning, not just short-term survival sprints.

00:04:57: Okay, so we've really unpacked how founders can position themselves better.

00:05:00: But what about the other side?

00:05:01: How are investors thinking?

00:05:03: Let's flip this, the investor's lens.

00:05:05: VC strategies and market realities.

00:05:07: Yeah, let's look at their playbook.

00:05:09: Because VCs definitely operate with very structured strategies.

00:05:12: Understanding how they build portfolios is key.

00:05:14: Sherwin Geiswald describes it almost like a chessboard, right?

00:05:17: Yeah.

00:05:17: Toculated moves.

00:05:18: Pretty much.

00:05:19: Take a, say, a hundred million dollar fund.

00:05:21: They don't just splash cash around.

00:05:22: They plan meticulously.

00:05:24: How many startups?

00:05:25: Average check size.

00:05:26: And, crucially, how much to keep back for follow-ons?

00:05:30: Reserves are key.

00:05:31: And they think in terms of buckets of risk, I gather.

00:05:34: Exactly.

00:05:36: You've got your anchor bets in big known markets, optional bets in emerging areas, maybe some hedges in safer plays, and then the moonshots, the ones with potential, one hundred X upside.

00:05:46: And they usually back founders over several rounds, small check first, then bigger ones if things work out.

00:05:51: That's the common model, yeah.

00:05:53: Test the waters, then double down on traction.

00:05:55: But what's really interesting is how fun strategies are adapting regionally.

00:06:00: How so?

00:06:01: Curit made us suggest that in the UK, given the typically smaller exits compared to the US, maybe a strategy focused only on single round pre-seed deals makes more sense.

00:06:10: No follow on capital reserve.

00:06:11: Really

00:06:12: just pre-seed.

00:06:13: Yeah.

00:06:13: The thinking is you might get higher potential multiples, ten X maybe even forty X on those very early one pound free amount of valuations.

00:06:21: It's harder to get those kinds of venture returns later stage in that market.

00:06:24: That is a fascinating regional tweak.

00:06:26: Now, speaking of top VCs, Natalie Schau shared some insights on index ventures criteria.

00:06:31: It seems very people focused.

00:06:34: Very much so.

00:06:35: Team first.

00:06:36: They look for that outlier mentality, prove an excellence somewhere, real tech depth, but also things like a steep learning curve, resilience.

00:06:44: And a long-term view.

00:06:45: A long-term focus on actually building a company, not just flipping it.

00:06:48: And they actively avoid contradictory statements, hype over substance, and any whiff of... lack of trust.

00:06:54: So character and vision are non-negotiable.

00:06:57: Absolutely.

00:06:58: And Ruben Dominguez-Ebar adds another layer of the VC math.

00:07:01: Every fund has its magic number.

00:07:03: Meaning their target ownership percentage.

00:07:05: Exactly.

00:07:06: A sweet spot for ownership, maybe ten-thirty percent for seed, fifteen-twenty-five percent for Series A, and a specific check size that makes their fund economics work.

00:07:14: If a startup doesn't fit that model, even a great company might get a pass.

00:07:18: So as a founder, knowing a VC's target model is critical.

00:07:21: It really is.

00:07:22: And Guillermo Flor underlines the core VC truth.

00:07:26: It's a game of outliers.

00:07:27: Usually just one or two startups in a fund drive the vast majority of returns.

00:07:31: That makes strategic betting and finding a unique angle.

00:07:34: absolutely vital for the VC.

00:07:36: It puts the pressure on finding those huge winners.

00:07:38: Kevin Zhang shared some of Mike Maples

00:07:40: Jr.'s

00:07:41: seed strategies.

00:07:42: Yeah, Maples stuff is always insightful.

00:07:44: He points out that for a fund to return ten X, you often need about five percent of your first checks to become a hundred X winners and maybe ten, fifteen percent to hit twenty X. High bar.

00:07:53: Definitely.

00:07:55: His rules.

00:07:56: Get paid for the risk you take.

00:07:57: Always play offense.

00:07:59: And interestingly, he cautions that too large a seed round can actually hurt founders by diluting their focus.

00:08:05: That's counterintuitive, and he uses the Buffett analogy.

00:08:07: Buffett's baseball analogy, yeah.

00:08:09: Be patient, wait for the perfect pitch in your sweet spot, and then swing hard.

00:08:13: Don't just swing at everything.

00:08:15: Disciplined investing.

00:08:16: It's not just internal strategy, though, is it?

00:08:18: External timing seems huge.

00:08:19: Katrina Rogers talked about seasonal patterns.

00:08:22: All right, drawing on Amir Avguri's insights.

00:08:25: is this kind of unsaid force in fundraising.

00:08:28: There are definite hot windows.

00:08:30: Like when?

00:08:31: Generally, January through to spring break, and then again from Labor Day through Thanksgiving.

00:08:36: Summer and late December tend to be quieter.

00:08:39: How should founders use that?

00:08:40: Just know when to pitch.

00:08:42: It's more strategic than that.

00:08:44: The key is designing your fundraising funnel around those windows.

00:08:48: Plan your outreach, your key meetings to hit when investors are most active.

00:08:52: Treat it almost like a product launch.

00:08:53: Plan in the off season, execute in the on season.

00:08:56: Exactly.

00:08:57: Don't just start scrambling when the bank balance looks low.

00:08:59: Proactive timing.

00:09:00: Timing really can be everything.

00:09:02: Okay, these investor strategies are clear, but what about the broader market?

00:09:05: Where's the money actually flowing?

00:09:07: Let's shift to our third theme, shifting sands.

00:09:10: Key market trends and sector spotlights.

00:09:13: This is where things get really interesting.

00:09:14: Maybe you've been concerning too.

00:09:16: One massive trend is capital concentration.

00:09:19: Meaning?

00:09:20: Steven Klein and Josie Lopez highlight this starkly.

00:09:23: Generative AI alone snagged fifty-three percent of global VC funding in the first half of twenty-twenty-five.

00:09:30: Wow,

00:09:30: over half.

00:09:31: Yeah.

00:09:31: And most of that went to just a handful of giants like OpenAI and Anthropic.

00:09:35: Regionally in the US, California pulled in sixty-five percent of all VC dollars.

00:09:39: Sixty-five percent.

00:09:40: That leads to venture scarcity elsewhere, as they put it.

00:09:42: It does.

00:09:43: And it raises a big question.

00:09:44: Is this smart investing in broad innovation?

00:09:48: Or is it more like momentum investing?

00:09:50: Everyone piling into the same few hot things.

00:09:53: What happens if those big bets wobble?

00:09:55: That's a worrying concentration, but there are bright spots regionally.

00:09:59: You mentioned the UK earlier.

00:10:00: Yes, Debbie Waschauer reported UK VC funding bounced back strong in Q two twenty twenty four after a seven year low in Q one.

00:10:08: It more than doubled, accounting for forty percent of Europe's total VC investment in that quarter.

00:10:13: Okay, a significant recovery there.

00:10:14: Any specific sectors surging?

00:10:16: MedTech's having a moment.

00:10:18: Brent Laban and Tanya Ritting noted it's on track for its strongest year since twenty twenty one, but a caveat.

00:10:24: It's heavily skewed towards later stage deals.

00:10:26: So early stage MedTech startups are still finding it tough to get that initial funding.

00:10:30: Got it.

00:10:31: What other sectors are active?

00:10:33: Cybersecurity saw a big jump in deal value in Q two twenty twenty five over four billion dollars, according to Dimitri Zabelin.

00:10:40: Driven largely by AI innovation within security and also M&A.

00:10:45: Capital seems to be flowing towards more mature platforms there.

00:10:48: Makes sense.

00:10:48: What about biotech?

00:10:50: Mark J. Brem points out North America is still leading, Europe's lagging a bit, but Asia Pacific is emerging as a stronger player.

00:10:56: An aerospace and defense that feels like a newer VC focus.

00:11:00: Definitely becoming more mainstream.

00:11:01: deep tech.

00:11:02: Paul Mage highlights a significant surge in European A&D VC directly linked to geopolitical tensions and, frankly, remilitarization.

00:11:11: A sobering driver.

00:11:13: But not all regions are seeing surges.

00:11:15: Africa seems to be facing headwinds.

00:11:17: Yeah, Warwick Hyode shared a pretty brutal reanalysis of African VC data, a fifty-two percent drop in deals, and a huge reliance, eighty percent on foreign funding.

00:11:26: Which creates fragility.

00:11:27: Exactly.

00:11:27: Structural fragility, she calls it.

00:11:29: When downturns hit, foreign investors tend to pull back first, causing capital flight.

00:11:33: Plus, sometimes their priorities don't align perfectly with local market needs.

00:11:37: That's tough.

00:11:38: Beyond funding flows, there's a big shift in how investors are getting liquidity too, right?

00:11:42: The secondary market.

00:11:43: Huge

00:11:43: shift.

00:11:44: Palvo Prada shared data showing that for the first time ever in the US, VC secondary sales, that's investors or employees selling shares before an IPO actually exceeded IPO exit value over the last year.

00:11:58: Sixty-one billion dollars versus fifty-nine billion dollars.

00:12:01: Why is that happening?

00:12:02: Several reasons.

00:12:03: Companies are staying private much longer.

00:12:04: There's been an explosion in SPV's special-purchase vehicles set up just to buy secondary shares.

00:12:10: And more companies are doing routine tender offers to let early stakeholders cash out.

00:12:15: So liquidity without going public.

00:12:17: Right.

00:12:18: But while it provides that liquidity, some question if this closed loop is generating real wealth for the broader economy in the same way IPOs historically did.

00:12:27: An important question.

00:12:28: Tomas Tunger's ads context, though, noting VC generates way more exits annually in software than PE ten times more.

00:12:35: He suggests it's scale, not just companies staying private longer, driving that secondary potential.

00:12:40: Interesting perspective.

00:12:41: Scale matters.

00:12:42: And finally, on market impact, Janak Joshi raised a really provocative point about health care.

00:12:47: Ah, yes, the seventy billion dollar question.

00:12:49: Right.

00:12:50: Seventy billion dollars poured into health care delivery via VC since twenty nineteen.

00:12:55: Yet during that same time, health insurance premiums, out-of-pocket costs, drug prices, they've all gone up significantly.

00:13:02: So he asks, did the investment actually work in terms of improving things for patients or lowering costs?

00:13:09: It's a critical question about the real world impact beyond just the financial returns for VCs.

00:13:14: It absolutely is.

00:13:15: And these dynamics, these questions about impact and structure lead us nicely into our final theme.

00:13:20: ecosystem evolution and diverse perspectives.

00:13:23: How is the VC world itself changing?

00:13:25: Yeah, it's not static.

00:13:26: You have to look at the infrastructure supporting VC and also the crucial discussions around who gets to participate.

00:13:32: Okay, maybe start with the basics.

00:13:34: Nicole de Tomaso clarified the different players in the ecosystem seems important for founders to know who does what.

00:13:39: Totally.

00:13:40: You've got venture studios, they build companies internally, often from scratch.

00:13:44: Incubators tend to nurture very early idea stage concepts.

00:13:48: Accelerators take companies with some early traction and try to speed them up.

00:13:51: And then VC funds themselves provide the capital to scale.

00:13:55: Right.

00:13:55: Knowing the difference helps founders find the right support and helps people wanting to get into VC understand the landscape.

00:14:02: But are all these models like accelerators really delivering?

00:14:06: Well, Alberto Annetti offers a pretty critical take.

00:14:09: He argues many accelerators fail the fundamental tests of VC readiness.

00:14:14: What do they mean by that?

00:14:15: He talks about a lot of startup theater, flashy demo days, endless panels, but often shallow deal flow.

00:14:21: Maybe not enough focus on real market needs, too much superficial pitch coaching, and crucially no meaningful capital leverage.

00:14:29: They don't necessarily signal to VCs that a startup is truly venture-backable.

00:14:33: It can sometimes be the opposite.

00:14:35: Okay, so navigating that is key.

00:14:37: Given these complexities, how does someone actually break into VC?

00:14:40: Revives appear, laid out some steps.

00:14:42: Yeah, five key things.

00:14:43: First, network effectively.

00:14:45: warm intros are still gold.

00:14:47: Second, Reverse engineer the role, understand deal-sourcing, diligence, market analysis.

00:14:51: What's a VC actually do day to day?

00:14:53: Makes

00:14:53: sense.

00:14:54: What else?

00:14:54: Third, borrow credibility, maybe volunteer at an accelerator or help a fund part-time.

00:15:00: Fourth, nail your personal narrative, that crisp, thirty-second pitch about why you fit.

00:15:06: And fifth, build proof of work.

00:15:08: Like writing investment memos or market analysis.

00:15:10: Exactly.

00:15:11: Show.

00:15:11: Don't just tell that you can do the job.

00:15:13: These steps seem even more vital when you consider the ongoing diversity challenges in VC.

00:15:18: Absolutely critical.

00:15:19: Scott McDonald shared some positive news.

00:15:21: Women now hold about eighteen point six percent of partner or higher roles in VC.

00:15:25: That's progress.

00:15:27: But as Lil Smiths and Claire Baney forcefully remind us, there's a huge way to go.

00:15:32: Still, only about two percent of VC funding goes to all female founding teams in the US and EU.

00:15:37: And nine out of ten VC partners in the US are still men.

00:15:40: Two percent?

00:15:41: That's incredibly low.

00:15:42: It is.

00:15:43: They frame it not just as representation being off, but as a serious problem, and frankly, a massive missed opportunity for innovation and returns.

00:15:50: A stark reminder, there were some other interesting findings from that founder files white paper, Alex McDonald's share too, right?

00:15:57: Some surprising things.

00:15:58: Yeah, a few counterintuitive points like UK startups apparently outperforming US ones in deck and overall startup quality.

00:16:07: according to their data.

00:16:08: Ukraine and Israel had the highest scoring decks.

00:16:12: Crucial investor info often gets left out of decks.

00:16:15: Oh, and statistically, name dropping investors actually boosts funding rates.

00:16:20: Really?

00:16:21: Seems so.

00:16:22: And no surprise, technically strong experienced teams, especially those with PhDs or MBAs, are significantly more likely to get funded.

00:16:30: Signals matter.

00:16:31: They certainly do.

00:16:32: So, wrapping this theme up, how is VC itself evolving as an industry?

00:16:36: Well, your bulb it goes and suggests becoming less of an old school elite club and more of a service craft.

00:16:41: A

00:16:41: service craft, meaning...

00:16:43: Meaning things like smaller minimum investments required from LPs, unfund investors.

00:16:47: More funds popping up in more cities, not just the traditional hubs, and cheaper, faster ways to set up a fund.

00:16:53: So becoming more accessible.

00:16:54: Potentially, yes.

00:16:56: More accessible to a wider range of participants, maybe more diverse managers, and spreading beyond the usual geographic centers, moving towards a more open ecosystem.

00:17:06: Okay, we've covered a huge amount of ground founder strategies, investor lenses, market shifts, ecosystem changes.

00:17:13: So the final question for you, our listener, to think about.

00:17:16: What does this all add up to?

00:17:17: Exactly.

00:17:18: With capital getting more concentrated in fewer hands and sectors and secondary sales becoming the main way out instead of IPOs, it makes you wonder, is the venture capital industry truly driving a broad, diverse wave of innovation?

00:17:31: Or is it perhaps unintentionally building a more closed self-referential system, one where generating real wealth for the wider economy becomes, well, more of a rare outlier than the norm?

00:17:43: Something to ponder.

00:17:44: Indeed.

00:17:45: If you enjoyed this deep dive, new episodes drop every two weeks.

00:17:48: Also check out our other editions on private equity, M&A, and strategy and consulting.

00:17:53: Thanks for tuning in.

00:17:54: Thank you for joining us today.

00:17:55: Don't forget to subscribe for more insights.