Best of LinkedIn: Venture Capital CW 39/ 40

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about venture capital.

00:00:05: in CW-Thirty-Nine and Forty, Frennus specializes in BDB market research for venture capital teams, providing landscape screenings and startup segmentations with a strong focus on the tech space.

00:00:16: Welcome back.

00:00:18: Our mission for this deep dive is to really synthesize the top venture capital trends we've seen buzzing across LinkedIn over the last two calendar weeks.

00:00:26: And, well, if you had to capture the mood, it's definitely execution first.

00:00:30: Absolutely.

00:00:30: We're seeing a definite move past just the hype.

00:00:34: You know, we're digging into the mechanics.

00:00:35: Where is the capital actually going?

00:00:36: How are founders adapting their strategies?

00:00:38: Because this environment is incredibly tight.

00:00:41: And then there are these structural shifts happening within the whole BC ecosystem itself.

00:00:45: And all of this, well, it's happening under the massive shadow of AI.

00:00:48: You just can't avoid it.

00:00:49: Okay, let's tackle that shadow first.

00:00:50: then, because AI dominance, it isn't just another trend, is it?

00:00:54: It feels more like a capital concentration event.

00:00:57: I mean, bigger than anything we saw with crypto or mobility tech hype cycles.

00:01:01: Oh, it absolutely dwarfs them.

00:01:03: It's structural.

00:01:04: And the data, well, the data is pretty stunning.

00:01:06: If you look at what SAR of S and Pitchbook shared, it's more than half, fifty three point two percent globally of all VC dollars went into AI startups this year.

00:01:15: Wow,

00:01:16: over half globally.

00:01:17: And get this, in the U.S.

00:01:19: it's an eye-watering sixty-two point seven percent.

00:01:23: That kind of concentration means, well, every other sector is basically fighting over a shrinking slice of the pie.

00:01:28: And that concentration, it creates this huge friction, right?

00:01:31: It's fundamentally reshaping the economics.

00:01:33: Carded data confirms this.

00:01:35: There's a widening valuation gap.

00:01:37: You've got the AI haves and the non AI have nots.

00:01:40: Yeah.

00:01:40: Peter Walker broke it down.

00:01:41: He noted the typical C to series A step up, you know, the multiple is usually around two point five X.

00:01:46: Okay, it's standard enough.

00:01:47: But for non AI companies, their multiples are actually lower than they were before.

00:01:52: Wait, lower.

00:01:53: So even if they're hitting milestones performing well, the market's pushing them back to like, twenty eighteen levels.

00:01:58: Exactly.

00:01:59: It sounds like, honestly, existential pressure if you're a founder outside that AI bubble right now.

00:02:04: It really does.

00:02:05: Now contrast that with the AI multiples.

00:02:07: What are they seeing?

00:02:08: They're seeing three point five acts as a baseline.

00:02:12: and the really hot AI companies, they can command multiples closer to five X. We're talking almost back to those crazy twenty twenty one market heights.

00:02:19: So the leverage is definitely there for AI.

00:02:21: It is.

00:02:22: VCs see these AI solutions, especially B to B, as having, you know, built-in defensibility, incredible speed to market.

00:02:29: But we have to inject a note of caution here.

00:02:32: OK.

00:02:33: Francesco Berticarari offered a strong counter narrative.

00:02:36: He's warning about potential overvaluation, maybe even trillions evaporating down the line.

00:02:40: Trillions?

00:02:41: Why such a stark warning?

00:02:43: Well, he points to this extreme concentration.

00:02:45: Just nine U.S.

00:02:46: firms controlling half of all VC raised created a kind of FOMO driven gold rush.

00:02:51: Plus, concerns about potentially circular revenue models that might not hold up if, you know, the mythical AGI doesn't materialize as promised.

00:03:00: That sustainability question is very real.

00:03:02: That

00:03:02: whole valuation divergence fueled by both massive opportunity and maybe some fear that leads us right to the source of the money.

00:03:08: How are LPs, the limited partners, viewing all this?

00:03:11: How is it shaping where they put their cash?

00:03:13: LP psychology, it seems, has really shifted.

00:03:16: It's all about discipline now.

00:03:17: They're laser focused on entry pricing, controlled pacing, and they want managers who can really prove a differentiated strategy.

00:03:25: It's less about the broad narratives now.

00:03:27: Right.

00:03:27: More brass tacks.

00:03:29: Exactly.

00:03:30: And with liquidity expectations tightening everywhere, secondaries have become, well, a really practical tool for optimizing portfolios.

00:03:37: And when we look at the actual performance, the cash returns, what's the picture there?

00:03:41: It's a bit mixed, but improving.

00:03:44: Chris Harvey and Ruben Dominguez-Ibar reported that median IRRs and TVPIs, that's total value to pay it in capital, basically your cash on cash return, they're trending up for the earlier vintages.

00:03:55: Okay, like which ones?

00:03:56: The twenty seventeen vintage, for example, hit a median TVPI of two point zero X. So that signaling healthier returns are starting to come through.

00:04:03: That's

00:04:03: positive.

00:04:04: It is.

00:04:05: But dry powder overall is thinning out pretty fast.

00:04:08: That suggests aggressive deployment.

00:04:09: mostly by the mega funds.

00:04:11: But here's something fascinating.

00:04:12: The European paradox that Pavel Prada highlighted.

00:04:15: The

00:04:16: European paradox.

00:04:17: Tell me more.

00:04:18: So European VC is actually having its worst year in a decade in terms of total capital raised about six point nine billion across eighty seven funds.

00:04:27: Yet something like a dozen funds just closed in September alone.

00:04:31: OK, so fundraising is down overall, but deals are still closing.

00:04:35: Why that contradiction?

00:04:38: Well, the interpretation is that LP spent the last couple of years concentrating capital with the big established mega brands.

00:04:45: Now they're realizing maybe some of those managers struggled with the high entry prices from twenty twenty one.

00:04:49: So now they seem to be hunting for returns with smaller, perhaps hungrier, more disciplined managers.

00:04:55: Managers who have dry powder now and the ability to capture potentially better enterprises in today's market.

00:05:00: Makes sense.

00:05:01: Yeah, the median European fund size actually dropped from sixty six point six million down to forty eight point seven million.

00:05:08: It feels like a deliberate move by LPs to kind of de-risk and diversify away from that high-cost exposure.

00:05:13: And we're seeing other liquidity mechanisms mature too, right?

00:05:16: Like with corporate venture capital.

00:05:18: Definitely.

00:05:18: George Lange noted that fifty-seven percent of CVCs are either interested in or already using secondaries.

00:05:24: For CVCs, that's a really crucial tool, you know, for managing older assets and keeping the portfolio aligned with the parent company strategy.

00:05:32: And beyond CVCs, there's this push for more access, more democratization.

00:05:36: Exactly.

00:05:37: Kevin Withing pointed out the London Stock Exchange and Crowdcube partnership.

00:05:41: That could potentially open up access for retail investors into later stage private companies.

00:05:46: Which could really reshape liquidity expectations.

00:05:48: Totally.

00:05:49: It might allow VCs to recycle capital sooner.

00:05:51: It feels like another big step towards private market maturity.

00:05:54: Okay, let's flip the perspective now.

00:05:56: Let's talk about the founders, the people actually trying to win a check in this super competitive execution focused world.

00:06:03: Kritika Verma just laid out the stark reality.

00:06:05: Less than one percent of startups actually secure VC funding.

00:06:09: It's brutal.

00:06:10: Less than one percent.

00:06:11: And the fix, as Sutan Yang and Paul Maj pointed out, isn't just about grit or hustle anymore.

00:06:16: It's about process.

00:06:17: Process.

00:06:17: Okay.

00:06:18: Yeah.

00:06:18: How so?

00:06:19: Well, Paul Maj really emphasized the preparation is like, eighty percent of the success here.

00:06:24: He detailed the essential materials.

00:06:26: A sharp pitch deck, obviously, but also a robust financial model, a properly researched investor pipeline.

00:06:32: Right.

00:06:32: The homework has to be done.

00:06:34: Totally.

00:06:35: And Sutan Yang stressed treating fundraising exactly like a BDB sales funnel.

00:06:39: You need to build a long list, tier your targets, and critically start pitching your C-list investors first.

00:06:46: Get the practice reps in.

00:06:47: Okay,

00:06:48: like address rehearsal before the main performance, makes sense.

00:06:51: And what about reaching out?

00:06:52: Cold emails.

00:06:53: Forget about it.

00:06:54: Sophie Shapiro put it really bluntly.

00:06:56: Cold outreach to investors is basically founder failure.

00:07:01: Warm intros are non-negotiable.

00:07:02: They're almost like competency tests.

00:07:04: Can you build the relationships needed?

00:07:06: Got

00:07:06: it.

00:07:06: So assuming you get the meeting, what about ownership?

00:07:08: That's always a huge point of negotiation.

00:07:10: It's the ultimate metric, right?

00:07:11: Nicole de Tomaso gave some median targets to A&M for.

00:07:14: Founders should look to own around fifty-six percent after their seed round and maybe thirty-six percent after series A.

00:07:20: Okay, benchmarks are helpful.

00:07:21: But interestingly, Alejandro Cremades noted that dilution rates are actually declining in AI-driven companies, especially at later stages.

00:07:30: It suggests that AI founders who have traction are managing to command better leverage.

00:07:35: Which brings us nicely to a specific tool for those negotiations.

00:07:39: One that helps protect that founder leverage, the reverse VC method.

00:07:43: Brian Ortiz champions this.

00:07:45: I like the sound of it.

00:07:46: It feels like a necessary counterbalance.

00:07:48: It really is.

00:07:49: The traditional VC method is usually driven entirely by the investor.

00:07:52: They start with their target IRR work backward, justify the valuation.

00:07:56: The reverse VC method flips that script.

00:07:59: It starts with the founder's specific capital needs and their desired ownership retention.

00:08:04: Then you work backward to see if that implied valuation still makes sense for an investor.

00:08:08: So it anchors the negotiation around the founder's needs first.

00:08:11: Exactly.

00:08:12: It's a crucial strategy, especially now, to guard against giving up too much equity too early, particularly when the market is hitting non-AI valuations so hard.

00:08:21: Okay, one more tactical tip on the pitching itself.

00:08:24: James

00:08:24: Hickson shared some pretty startling box-end data.

00:08:28: VC spend, on average, just a hundred and sixty-two seconds reviewing a pre-seed deck.

00:08:34: Wow.

00:08:34: A hundred and sixty-two seconds.

00:08:36: Two

00:08:36: minutes and forty-two seconds.

00:08:39: It completely changes the game, doesn't it?

00:08:40: You basically have those first three slides, maybe four, to land the entire story.

00:08:47: the clarity, the credibility, the conviction.

00:08:49: Absolutely.

00:08:50: No time for a slow buildup.

00:08:51: Yeah.

00:08:51: And how do you hook them instantly?

00:08:53: Leon Eisen has a great recommendation.

00:08:55: Yeah.

00:08:55: Lead with a capital gravity hook.

00:08:56: Capital gravity hook.

00:08:57: Yeah.

00:08:58: Basically, immediately associate your story with big money.

00:09:01: Start with a market size well over a billion dollars right there on slide one.

00:09:04: You need to instantly pull the VC's attention into that big potential return zone.

00:09:08: So

00:09:09: all this focus on execution, discipline, the AI concentration.

00:09:13: It seems to be leading to a bit of a contraction across the wider ecosystem.

00:09:17: Yeah,

00:09:17: Jackie DeMonte pointed out there are roughly half as many active venture firms today compared to five years ago.

00:09:22: Half.

00:09:22: That's significant.

00:09:24: It is.

00:09:24: And that contraction really impacts the non-obvious founders, the earliest stage, maybe non-consensus ideas.

00:09:32: Meanwhile, though, on the CVC side, that maturity we talked about, it's driving serious professionalization.

00:09:38: George Lanch highlighted this again.

00:09:39: How

00:09:40: so beyond secondary?

00:09:41: Well, CVCs are focusing heavily on governance, on decision-making speed.

00:09:45: They're becoming much more sophisticated portfolio managers.

00:09:48: We mentioned the twenty-two percent using secondaries.

00:09:51: But many are also seriously considering moving off the corporate balance sheet entirely.

00:09:55: To gain more independence from the parent company.

00:09:57: Exactly.

00:09:58: Gain independence, maybe attract outside LPs eventually.

00:10:01: And unsurprisingly, AI is dominant there too.

00:10:05: Sixty-nine percent of CVCs are now actively targeting AI investments.

00:10:09: Okay, so CVCs are professionalizing.

00:10:11: What about the traditional VCs?

00:10:13: Any shifts there?

00:10:14: Huge

00:10:14: shifts.

00:10:15: Suzanne Hahn argues that VCs are evolving into what she calls full-stack platforms.

00:10:20: They're increasingly acting more like private equity firms.

00:10:22: How do you mean like PE?

00:10:24: Well,

00:10:24: more firms are registering as RIAs registered investment advisors, which brings stricter financial regulation.

00:10:31: And they're executing more PE style buyouts, aiming for control, not just minority stakes.

00:10:37: Interesting.

00:10:38: So they're moving away from the classic sort of spray and pray model of early stage investing, less about just writing checks.

00:10:45: Precisely.

00:10:45: The focus is shifting towards owning outcomes.

00:10:48: really getting involved, demanding control, acting more like operators.

00:10:53: It signals capital becoming much more strategic, less purely speculative.

00:10:58: It's a move towards institutional maturity.

00:11:00: Definitely.

00:11:00: When

00:11:00: we're seeing regional markets reflect this maturity too, right?

00:11:03: Setting new standards.

00:11:04: Yeah, Maria Mollendorf reported that New York's venture market, for example, now hosts over one hundred active VC firms.

00:11:11: But the key thing is this growth is paired with a really strong demand for financial discipline from those firms.

00:11:17: High growth, but with discipline.

00:11:18: Exactly, which in theory lowers execution risk.

00:11:22: and that dual focus high growth plus operational efficiency that really defines this new execution first era of venture capital we're seeing.

00:11:29: If you enjoyed this deep dive, new episodes drop every two weeks.

00:11:32: Also check out our other editions on private equity, M&A, and strategy and consulting.

00:11:36: And maybe a final thought to leave you with.

00:11:38: As we see this structural move toward professionalism, toward control, like Suzanne Hahn described, It really does raise a key question.

00:11:46: Leslie Finezeg posted it recently.

00:11:48: If VC starts looking and acting more like Wall Street, you know, with large funds chasing consensus A ideals based on discipline, is it still real VC?

00:11:57: Yeah.

00:11:58: She defines real VC as investing in the crazy, non-consensus ideas, the ones that seem too early, too weird, maybe too risky for the mainstream.

00:12:07: So something to consider as you navigate this rapidly professionalizing market.

00:12:10: Thank you for joining us today.