Best of LinkedIn: Venture Capital CW 49/ 50

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

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

00:00:16: Welcome to the deep dive.

00:00:18: Today, we're cutting straight through all the end-of-year noise to really focus on the strongest signals coming out of the VC world.

00:00:25: We're looking at a market that's... Well, it's tightening.

00:00:28: Fundraising discipline is everything.

00:00:29: The pressure from LPs is intense.

00:00:32: And AI is shifting really fast from just a story

00:00:36: to

00:00:36: a cool workflow engine.

00:00:38: That's the heart of it.

00:00:38: We've distilled all these LinkedIn threads into a few key areas for you, whether you're a founder or an investor.

00:00:43: OK,

00:00:44: so what are we covering?

00:00:45: First, what real institutional great execution looks like right now.

00:00:48: Second, the incredible pressure LPs are putting on fund managers.

00:00:52: And finally, how AI is genuinely rewriting the rules of the game.

00:00:56: Let's jump right in then.

00:00:57: First up, fundraising execution.

00:01:00: It sounds like founders need ruthless discipline.

00:01:02: That's the word for it.

00:01:03: In this market, discipline isn't a bonus.

00:01:05: It's cop.

00:01:06: It's just the baseline.

00:01:08: It's about process, not just a big idea.

00:01:10: And

00:01:10: it starts with something as basic as year end prep.

00:01:13: Patrick Casey was very clear on this.

00:01:15: He said, if you're raising in Q one, twenty twenty six, your data room needs to be cleaned now.

00:01:21: Exactly.

00:01:22: He called it disorganized chaos and said, it kills deals faster than a weak pitch.

00:01:27: Wow.

00:01:28: Yeah.

00:01:29: And VCs see it as a signal.

00:01:31: Your financials have to match your bank statements perfectly.

00:01:34: Your cap table can't have any missing signatures or, you know, fuzzy ownership.

00:01:38: All the customer contracts have to be there signed.

00:01:41: No final V two real final documents.

00:01:43: None of that.

00:01:44: It just signals operational risk.

00:01:46: And no one has an appetite for that right

00:01:48: now.

00:01:48: And that discipline goes beyond just the documents, right?

00:01:50: It's the messaging, too.

00:01:51: For sure.

00:01:53: Melanie Platt, who sees hundreds of these decks, pointed out two massive pitfalls.

00:01:57: The first is a lack of urgency.

00:01:58: The

00:01:58: why now.

00:01:59: Exactly.

00:01:59: And the second is just complexity.

00:02:02: Her rule is simple.

00:02:03: If an LP can't explain your fund to their investment committee in one sentence, your story is too complicated.

00:02:08: It's

00:02:08: dead on arrival.

00:02:09: Pretty much.

00:02:10: And Itamar Novik had a great framework for this.

00:02:14: He said stop being product first problem.

00:02:16: Never

00:02:17: I've seen that pitch a hundred times.

00:02:18: We all have.

00:02:19: he says you lead with the specific painful problem.

00:02:23: Show who pays to solve it show your traction and then a five-minute demo

00:02:28: max.

00:02:29: that Structure that clarity at least right to conviction.

00:02:32: I saw a post from abdicator Y on this.

00:02:35: Oh, that was a great point.

00:02:36: He argued that the best founders recognize when they have alignment and they just they stop fundraising just

00:02:43: They don't keep the process going just to test the valuation.

00:02:46: Right, which just adds noise and drains focus from, you know, actually building the company.

00:02:51: It's a huge signal of maturity.

00:02:52: And speaking of valuation, Doogoo Dolder put it so bluntly, she said, your valuation is basically fake until a lead investor makes it real.

00:03:00: It's just a number on a slide otherwise.

00:03:02: Exactly.

00:03:02: The lead brings the signal, that social proof.

00:03:05: Without it, everyone just sits on their hands waiting for someone else to move.

00:03:08: Which is a perfect bridge to the other side of the table.

00:03:11: that demand for substance and discipline.

00:03:13: It's not just for founders.

00:03:15: Okay, so let's shift to our second theme.

00:03:17: GP and LP Dynamics.

00:03:19: The pressure from limited partners is

00:03:21: on.

00:03:22: It's immense.

00:03:23: LPs are applying the exact same ruthless audit to the fund managers they back.

00:03:28: The selection pressure is profound.

00:03:31: So what are they looking for?

00:03:31: What are the key filters now?

00:03:33: Shelly, Felix, and Brannislav Zagorsek laid it out.

00:03:36: They're looking way beyond the deck.

00:03:37: The first filter is... track record, obviously, but across multiple cycles.

00:03:42: Not just a bull market hero.

00:03:43: No.

00:03:44: And then team stability.

00:03:46: People issues are a huge red flag.

00:03:48: And finally, operational maturity, clean compliance, strong governance.

00:03:53: And they find this out how?

00:03:54: Just from references.

00:03:55: Well, not just the ones you give them.

00:03:57: Felix made the point that the most important feedback comes from off list references.

00:04:01: Oh,

00:04:01: interesting.

00:04:01: Yeah, they'll go talk to founders from portfolio companies that failed or competing co investors.

00:04:07: If you've burned bridges, LPs will find out.

00:04:09: So a GP's messy governance is just as much of a deal killer as a founder's messy cap table.

00:04:14: It's a fun killer.

00:04:16: And this applies even to new managers.

00:04:18: Promise Phelan had a great take on this.

00:04:20: She'd said we should retire the term emerging manager.

00:04:23: In favor of what?

00:04:24: Challenger manager.

00:04:25: I like that.

00:04:26: Her point is that you have to be institutionally ready from day one.

00:04:30: The data from CARTA shows sixty percent of small sub ten million dollar funds have an institutional anchor.

00:04:37: The whole friends and family fund eye story is basically dead.

00:04:40: So how do you get institutionally ready without a huge back office team?

00:04:44: Outsourced fund administration.

00:04:46: Maria Melendorf calls it credibility infrastructure.

00:04:50: It lets the GP focus purely on investing while ensuring the reporting and accounting is, you know, institutional grade.

00:04:55: It's about de-risking the fund for the LPs.

00:04:58: Exactly.

00:04:58: And that trust isn't built overnight.

00:05:00: Harry Stepping shared his strategy on this and it's brilliant.

00:05:02: The line's not dots idea.

00:05:04: Yeah.

00:05:05: He says VCs fail because they treat fundraising like an on-off switch.

00:05:09: He meets three new LPs every single week, even when he's not raising.

00:05:14: Just building trust, providing value over time.

00:05:16: That's a powerful approach.

00:05:18: It is.

00:05:18: Now let's shift gears and look at the numbers that are driving this whole narrative.

00:05:22: TVPI, DPI, IRR, the metrics that really matter.

00:05:26: Okay, let's start with TVPI.

00:05:28: Yeah.

00:05:28: The data from CARTA that Kevin Dowd shared shows that hitting a three X net TVPI is, it's a really high bar.

00:05:35: It's exceptional.

00:05:36: And just to clarify, TVPI is total value to paid in.

00:05:39: It's the paper return.

00:05:40: For every dollar in, you've created three dollars in value, at least on paper.

00:05:43: Right.

00:05:44: And for the twenty seventeen vintage, the top ten percent of funds hit about three point five X, which is great.

00:05:49: But for the twenty twenty vintage,

00:05:52: it's a different story.

00:05:53: Yeah.

00:05:53: The median is only one point one X. Even the ninety percentile is just under two X. They have a very long climb ahead to get LPs excited for the next fund,

00:06:02: which just shows the lack of big exits lately.

00:06:04: But there are some.

00:06:05: Yeah.

00:06:06: Let's call them green shoots.

00:06:08: Simran Aurora mentioned about fourteen percent of those twenty-twenty funds made their first distributions last year.

00:06:13: So

00:06:13: cash is starting to move back to LPs.

00:06:15: Slowly.

00:06:16: Yeah.

00:06:16: But it's moving.

00:06:17: And forty-two percent now have a DPI greater than zero.

00:06:20: And DPI distributed to paid in, that's the one LPs really care about.

00:06:23: That's actual cash back in their pockets.

00:06:25: That's the real return.

00:06:26: And regionally, we're seeing some interesting performance.

00:06:29: Dr.

00:06:29: Teddy Amberg and Thomas Dubendorfer cited a study on Swiss VC funds.

00:06:34: I saw that.

00:06:34: What did it find?

00:06:35: A strong, fourteen percent IRR and a one point five X multiple for vintages from twenty fourteen to twenty twenty.

00:06:42: They're positioning it as clear outperformance versus European benchmarks.

00:06:47: OK, so some pockets are doing well, but the global picture is one of the concentration, massive concentration.

00:06:53: Trace Cohen said, twenty twenty five is shaping up to be one of the quietest years for new fund formation.

00:06:58: Capital is just pooling into fewer discipline managers.

00:07:01: And D.D.

00:07:01: Daz put some terrifying numbers on that.

00:07:03: He

00:07:03: really did.

00:07:04: He pointed out that while three hundred thirty billion dollars was deployed in the last year, VCs only raised about forty five billion dollars this year.

00:07:11: Wait,

00:07:11: let's say that again.

00:07:12: A seventy five percent drop from the twenty twenty two peak.

00:07:14: A seventy five percent drop.

00:07:15: Wow.

00:07:16: So what does that actually mean for a founder?

00:07:18: What's the impact?

00:07:19: It means the dry powder for new checks is shrinking fast.

00:07:22: You need to plan for a longer fundraising cycle, maybe eighteen months of runway instead of twelve.

00:07:27: Valuations are getting hit and that pre-seed money from smaller newer funds is the hardest to get.

00:07:32: But!

00:07:33: This kind of contraction also creates opportunities,

00:07:35: right?

00:07:36: It always does.

00:07:37: Brett Calhoun pointed out that smaller early stage funds that were disciplined are seeing really strong liquidity now through secondary markets.

00:07:44: They got into good valuations and are seeing that hyper growth pricing later on.

00:07:48: A classic counter cyclical reward.

00:07:51: Absolutely.

00:07:51: Okay, so speaking of hyper growth, we have to talk about the biggest driver in the market.

00:07:55: Our fourth and final theme.

00:07:57: AI.

00:07:58: Yes.

00:07:59: AI is a real workflow engine, not just hype.

00:08:02: The European market in particular is just on fire.

00:08:05: The numbers are pretty wild.

00:08:06: They are.

00:08:07: Laura Raggle confirmed that European AI startups are seeing huge valuation premiums.

00:08:12: Like, twenty percent at seed, all the way up to a hundred and sixty percent in later stages.

00:08:16: One hundred and sixty percent.

00:08:18: And Agathaerie's data backs that up.

00:08:20: Over forty-five percent of recent European rounds were AI related.

00:08:23: It's fueling what Peter Walker called an existential crisis for investors.

00:08:27: They feel like they have to find their AI hit.

00:08:29: They do.

00:08:30: To prove their relevance to LPs for the next fund cycle.

00:08:33: And AI isn't just about the startups, it's changing VC itself.

00:08:37: The tools are getting smarter.

00:08:39: You mean like, boardy?

00:08:41: Murdolla Co's detailed their story.

00:08:43: Exactly.

00:08:43: An AI super connector for matching founders in VCs.

00:08:46: And it was so good at sourcing proprietary deal flow that it just launched its own fund.

00:08:52: And got a hundred and seventy million dollars in interest in the first twenty four hours.

00:08:56: That's institutional credibility baked right into the algorithm.

00:08:59: Incredible.

00:09:00: We're also seeing AI actually drive down founder delusion.

00:09:03: Right.

00:09:03: Alejandro Cremades showed that.

00:09:05: Especially in AI, founders are selling less of their company at every stage.

00:09:10: Series C dilution is getting close to just ten percent.

00:09:12: Hold

00:09:13: on.

00:09:13: Ten percent at Series C is incredibly low.

00:09:15: Is that just because the AI models are so efficient?

00:09:18: or is that the existential crisis effect where VCs are overpaying just to get into the hot deal?

00:09:24: It's probably a bit of both.

00:09:25: You have efficient growth models commanding leverage, but the intense competition among VCs definitely strengthens the founder's hand.

00:09:32: And beyond AI, we are seeing other alternative financing paths gain a lot more credibility.

00:09:37: For sure.

00:09:38: Nicole de Tomaso explained angel syndicates really well.

00:09:41: It lets individuals get into deals for as little as a thousand dollars.

00:09:44: It's like a micro VC without the overhead.

00:09:46: And VCs are actually starting to pay attention to crowdfunding now.

00:09:50: Yeah, Jamie V made the point that they're seeing it as a valuable screening tool.

00:09:55: If a company can rally a community, improve traction publicly, that de-risks it for a later stage institutional

00:10:01: round.

00:10:02: But do these models really support that huge, one hundred X venture outcome?

00:10:07: Not always.

00:10:08: And that's the point.

00:10:09: Jacob Miller highlighted the Valancy Fund, which focuses on things like revenue based financing for solid companies that just don't fit that ten year venture model.

00:10:17: Right.

00:10:18: His point is simple.

00:10:19: The capital should fit the business you're building, not the other way around.

00:10:22: So that was a fast but really deep look at how capital is concentrating, discipline is being demanded, and AI is just rewriting the playbook.

00:10:31: I think our key takeaway for you, the listener, has to be that focus on disciplined execution.

00:10:37: It doesn't matter if you're a founder cleaning up your cap table or a GP, making sure your reporting is institutional grade.

00:10:44: The market is rewarding substance over noise.

00:10:47: And here's a final thought to leave you with.

00:10:49: Given how hard it is to hit that three-act TVPI with recent vintages and with all these alternative funding options like syndicates becoming more accessible, how many great profitable businesses that default to seeking VC funding would actually be better off with one of these other models?

00:11:05: Something to

00:11:06: think about.

00:11:06: Don't forget to subscribe so you don't miss our next deep dive.

00:11:09: If you enjoyed this deep dive, new episodes drop every two weeks.

00:11:12: Also, check out our other editions on private equity, M&A, and strategy and consulting.

00:11:17: Thank you for diving in with us, and we look forward to having you back next time.