Best of LinkedIn: Venture Capital CW 51 - 02

00:00:00: Welcome to the Deep Dive.

00:00:01: This analysis is provided by Thomas Allgaier and Frennus based on the most relevant LinkedIn posts about venture capital from calendar weeks fifty one and oh two.

00:00:10: And for those unfamiliar, Frennus specializes in B to B market research for venture capital teams.

00:00:16: That's right, they do landscape screenings, startup segmentations with a really strong focus on the tech space.

00:00:21: And this was a crucial two-week period.

00:00:23: we're looking at, right?

00:00:24: The transition to the new year.

00:00:25: Yes,

00:00:25: CW-Fifty-One and O-Two.

00:00:27: And what we saw was this clear trend.

00:00:31: There was renewed fundraising momentum, for sure.

00:00:34: What would it catch?

00:00:34: A big one.

00:00:36: an intense, almost unforgiving focus on operational maturity, both for founders looking for capital and, you know, for fund managers looking for LP commitments.

00:00:44: And hanging over all of it was AI.

00:00:46: It's just the central narrative now, from sourcing all the way to strategy.

00:00:50: Absolutely.

00:00:51: So our mission today is to really distill the top VC trends from that period.

00:00:55: We're cutting straight to the actionable knowledge for you, whether you're in M&A, private equity or consulting.

00:01:00: Exactly.

00:01:01: If you can understand the calculus, the incentives driving these venture decisions, You can structure your own deals better.

00:01:07: You can assess your targets better, advise your clients on capital strategy.

00:01:12: It all connects.

00:01:13: So where shall we start?

00:01:15: Let's jump into our first theme, the Founder's Blueprint.

00:01:18: We're talking traction, psychology, and alignment.

00:01:22: For years, it felt like the playbook was all about having the perfect deck.

00:01:26: Right.

00:01:26: But the whole discussion has shifted.

00:01:28: Now it's about investor psychology, founder perception, and all those non-financial signals of credibility.

00:01:35: That shift is profound, and the sources we looked at really confirm it.

00:01:39: Customer momentum is the primary signal now.

00:01:41: It trumps a perfect pitch deck.

00:01:43: Every single time.

00:01:44: Vigil Singh shared this fascinating story about his funding journey in India.

00:01:48: Oh,

00:01:48: I remember this one.

00:01:49: He got

00:01:49: hard rejections at first, even had a drone demonstration, literally crash.

00:01:54: You can't make that

00:01:55: up.

00:01:55: But he was persistent, he had strong references, and he got these crucial introductions that eventually turned those rejections into real conviction for a successful round.

00:02:05: That story really says it all, doesn't it?

00:02:07: Sheer tenacity can outweigh a few early flaws.

00:02:10: It does.

00:02:11: And it reinforces what Alejandro Cremides was saying, that the pitch starts before the pitch.

00:02:16: Right.

00:02:16: They're judging you before you even open the laptop.

00:02:19: Your presence, your clarity.

00:02:20: Which, if you're in M&A doing early diligence, that's a key thing to watch.

00:02:25: You're assessing the nonverbal risk signals of the leadership team just as much as the numbers.

00:02:30: And that leaves right into the intense scrutiny on the founder themselves.

00:02:34: Henry, she noted that most deals are won or lost before the first slide even goes up.

00:02:39: It boils down to one simple question in that investment committee meeting.

00:02:43: Is this founder special?

00:02:44: Okay, but what does special actually mean in a diligence process?

00:02:48: It sounds a little bit fluffy.

00:02:49: It's not fluff at all.

00:02:50: It's the core of the VC portfolio strategy.

00:02:53: She defines it pretty clearly.

00:02:55: Okay.

00:02:55: It's conviction that comes from seeing world-class execution or, you know, unique technical expertise or maybe some proprietary insight they gained from living the problem.

00:03:06: So for a PE operating partner, you're looking past growth rates to find that thing that makes them unique, the thing that lets them solve problems.

00:03:14: no one else can.

00:03:15: Exactly.

00:03:15: It's that core belief that says, even if the market goes sideways, this person will figure it out.

00:03:21: But that belief is necessary because of the structural tension between the VC and the founder.

00:03:26: It's enormous.

00:03:28: Gil Mubishu highlighted this.

00:03:31: VCs are playing a numbers game.

00:03:33: a portfolio game.

00:03:35: They're okay with seven out of ten investments failing.

00:03:37: But the founder is playing all in.

00:03:39: It's their entire career.

00:03:41: Precisely.

00:03:42: And because of that difference, you have founders like Among Goal advising a much more disciplined approach.

00:03:47: Stay cash flow positive.

00:03:48: Stay cash flow positive and only raise capital when it unlocks a very specific strategic goal, not just because the money is there.

00:03:56: Right.

00:03:57: Maintaining profitability gives you leverage in those future negotiations.

00:04:00: M&A teams should really note that.

00:04:02: Definitely.

00:04:02: And we also saw this reframing of failure as a strategic tool.

00:04:06: I liked this one.

00:04:07: Roy Samuel shared an anecdote about a term sheet that just completely fell apart.

00:04:11: which feels devastating of

00:04:12: course but that setback forced his team to fix critical flaws they've been ignoring

00:04:19: and it led to a much better deal later on.

00:04:21: it's the difference between seeing a setback as a failure versus seeing it as a mandatory learning loop to sharpen your positioning.

00:04:30: For consultants, that's a huge insight.

00:04:33: Being transparent about past struggles can actually build credibility as long as you can show you

00:04:37: fix them.

00:04:38: Okay, so let's switch gears completely.

00:04:39: Let's do it.

00:04:40: Moving from founder psychology to the cold, hard mechanics of VC fund strategy, dilution, and alternative capital.

00:04:49: This is where the math of the industry gets, well, brutal.

00:04:52: It really

00:04:52: does.

00:04:52: It dictates everything.

00:04:54: Both Thomas Pagali and Yen Tran Hai confirm the reality of the power law.

00:04:58: Which

00:04:58: just doesn't go away.

00:04:59: Never.

00:05:00: VCs need one or two percent of their portfolio to deliver returns of, like, a hundred X or more.

00:05:05: Just to compensate for the eighty percent or more of bets that return less than one X.

00:05:09: Which is why there's this obsessive focus on massive market size.

00:05:13: So, for the PE and MNA analysts listening, this means that VC-backed targets aren't optimized for steady growth.

00:05:20: No, not at all.

00:05:21: They're optimized for massive structural asymmetry.

00:05:25: And if that outlier trajectory stalls, The VC might just lose interest pretty quickly.

00:05:31: Exactly.

00:05:32: And that pressure leads us right into the mechanics of early stage funding.

00:05:36: Okay.

00:05:37: Peter Dimof noted that pre-season seed capital is now increasingly driven by these niche micro VCs.

00:05:43: Not the big brand name mega funds.

00:05:47: Right.

00:05:47: They often just lack the bandwidth or conviction for those really early risky stages.

00:05:51: And Remain B had a pretty concerning data point on this.

00:05:54: Yeah.

00:05:55: That pre-seed valuations are rising.

00:05:57: which

00:05:57: is driven by higher entry standards, bigger initial rounds.

00:06:00: But if you increase the entry valuation while the exit environment is still tight, you're compressing that critical multiple.

00:06:06: You're squeezing the exit over entry ratio, which fundamentally impacts every investor that comes in later.

00:06:11: Right.

00:06:11: So if the seat is priced higher, the Series A and B investors have less room to hit their own target MOIC.

00:06:18: And that forces stricter performance metrics much earlier in the company's life.

00:06:23: You just mentioned MOIC multiple on invested capital.

00:06:26: Let's just unpack that for a second.

00:06:28: Sure.

00:06:28: For a founder or an M&A team looking at a cap table, what does that metric practically mean, especially with dilution?

00:06:36: It is the true measure of success.

00:06:39: As Chris Topman's analysis showed, dilution is sort of the silent killer that rewrites the final outcome.

00:06:45: A headline exit of, say, a hundred million pounds might sound amazing.

00:06:49: Of

00:06:49: course.

00:06:50: But if a founder is anchored on that number, instead of their final ownership percentage and the MOIC, they might be deeply disappointed.

00:06:58: And the key mechanism there is liquidation preference, right?

00:07:01: The VC gets paid back first.

00:07:03: First.

00:07:04: Often one, two, even three times their money back before the founder sees a dime of their own equity.

00:07:09: So the headline is just a headline.

00:07:11: The cash you walk away with is all about ownership discipline.

00:07:14: Which brings us to alternative capital stack.

00:07:16: Yeah.

00:07:16: Ron Bauer's capital stack strategy is getting a lot of traction.

00:07:19: His advice is pretty simple.

00:07:20: Use equity only for strategic partners.

00:07:23: The ones who open doors.

00:07:25: And then use non-dilutive debt like term loans or revenue-based financing for predictable operational expenses.

00:07:32: It just lowers your cost of capital and you maintain control.

00:07:36: And Inamar Novik even argued that many founders actually end up wealthier by bootstrapping.

00:07:41: Yeah, because VC forces you into that growth at all costs mindset, sacrificing profitability for scale.

00:07:47: whereas a bootstrap company that sells for a smaller amount to a PE firm, but the founder has high ownership.

00:07:53: They

00:07:53: can often have a much, much larger personal payout.

00:07:56: It's a huge incentive for profitable M&A targets.

00:07:59: All

00:07:59: right, let's pivot hard.

00:08:00: now to the operational shift.

00:08:03: AI do diligence and fund management.

00:08:05: The whole investment process is becoming, well, intensely institutionalized.

00:08:09: It's being driven by tech and higher demands from LPs.

00:08:12: And AI is really moving VC from what was in art to more of a science.

00:08:17: That phrase moving from art to science.

00:08:19: that came directly from Dr.

00:08:20: Andre Redarath's work, right?

00:08:22: It did.

00:08:22: His VC investor tool stack, twenty twenty six.

00:08:26: He showed how AI is reshaping every workflow.

00:08:30: from sourcing and screening tens of thousands of documents to the initial diligence.

00:08:34: Which creates unprecedented speed.

00:08:36: It does.

00:08:37: But, and this is a big but, Adeo Resi emphasized that while AI handles the work,

00:08:42: the processing, summarizing, humans

00:08:44: still make the decisions.

00:08:45: You still need human conviction.

00:08:47: You need trust.

00:08:48: You need that final call on a founder.

00:08:50: And this actually increases the pressure on founders, doesn't it?

00:08:53: The diligence gets more rigorous.

00:08:54: It

00:08:54: does.

00:08:55: Nina Redd pointed out that founder materials matter more than ever.

00:08:59: Not just for the analysts who's reading them.

00:09:00: But for the AI they're feeding.

00:09:02: Exactly.

00:09:03: If your documents are disorganized, the AI flags it instantly.

00:09:06: It speeds up the rejection process just as much as the approval process.

00:09:10: So in a market saturated with AI where the tech is easy to copy, what becomes the real differentiator for a startup?

00:09:16: Sebastian Mueller argued that the focus is shifting away from the tech itself.

00:09:21: To things like accountability, operational outcomes, and liability, trust and a repeatable process now beat pure technical novelty.

00:09:31: That's a huge insight for M&A teams.

00:09:33: If you have two startups with similar tech, the one with better operations and governance becomes the safer, more valuable acquisition.

00:09:40: Absolutely.

00:09:41: So let's talk about the internal operations of the VC fund itself, where LPs are driving this change.

00:09:48: Murtilalacos's research shows LP diligence on first time.

00:09:52: fund managers is getting much more intense around process and repeatability.

00:09:56: And the biggest threat to a new fund isn't a bad deal market.

00:09:59: No, it's poor.

00:10:00: vendor selection during the setup phase.

00:10:02: It's

00:10:02: surprisingly simple things, right?

00:10:03: Yeah, like using general corporate lawyers who've never handled fund formation or using QuickBooks for fund accounting.

00:10:09: Which can botch capital calls or mess up the waterfall calculation?

00:10:13: Wait,

00:10:13: let's stop there.

00:10:14: If the waterfall calculation is messed up, what's a practical consequence for, say, a PE firm looking at that fund as a partner?

00:10:21: It just signals a massive lack of operational maturity.

00:10:25: A sophisticated LP, like a pension fund, will see that immediately as a huge governance risk.

00:10:30: Right.

00:10:31: And Mark Kleiner noted that setting up a fund is about building a proper operating system, not just filing paperwork.

00:10:37: It's an operating system that assures LPs you can handle the complex fiduciary duties.

00:10:42: Finally, Alec Ferguson added this fascinating nuance on alignment.

00:10:46: GP commitment, you know, skin in the game is critical.

00:10:50: Of course.

00:10:50: But the data suggests performance actually drops off beyond the ten to thirteen percent commitment range.

00:10:56: That is counterintuitive.

00:10:58: Why?

00:10:58: Excessive personal commitments, say twenty or thirty percent, might actually make the GPs too risk averse.

00:11:04: They start focusing on capital preservation instead of going for those huge power law returns.

00:11:09: So for Elkies, it's about finding that sweet spot.

00:11:12: Enough commitment, but without paralyzing fear.

00:11:15: All right, final segment.

00:11:16: Let's look at the macro picture.

00:11:18: Global capital flows and liquidity dynamics.

00:11:20: The market structure feels like a barbell now, right?

00:11:22: Totally.

00:11:23: You have the massive scale of US mega funds on one end and these specialized niche micro funds on the other.

00:11:29: And the scale of US concentration is other.

00:11:33: It's just hard to comprehend.

00:11:34: It really is.

00:11:36: Ria Mamazzata and Peter Osco highlighted that a single major Silicon Valley firm might raise a fifteen billion dollar fund,

00:11:44: which is a figure that nearly doubles the entire VC funding raised in some large European countries in a year.

00:11:50: It just ensures US dominance, especially in strategic sectors like AI, defense and energy.

00:11:55: And

00:11:55: Pavel Prada pointed out that firms like Lightspeed, with their nine billion dollar raise across six different vehicles,

00:12:01: they're treating fund architecture as a competitive weapon.

00:12:04: They're creating a full product shelf for LPs, giving them diversified access across stages and geographies.

00:12:09: Which just makes the scaling cap in Europe look even more acute.

00:12:12: Oliver

00:12:12: Mollender said Europe struggles because its big enterprises are just less willing to acquire startups early.

00:12:18: Compared to the US counterparts, yeah.

00:12:20: That lack of an early M&A exit stars the ecosystem.

00:12:23: And Aipepoe Verda went even further.

00:12:25: He argued it's not a funding problem, but a training problem.

00:12:29: A training

00:12:29: problem.

00:12:30: Yeah,

00:12:30: that investors and institutions in Europe often like the ability to recognize and scale deep tech breakthroughs, leaving billions in value on the table.

00:12:39: Wow.

00:12:39: Okay, so turning to exits, liquidity is starting to build up again, which is good.

00:12:43: It's crucial.

00:12:45: Mikhail Sklyarov confirmed the IPO market is building momentum.

00:12:49: And Thomas Zeleny provided some great context there.

00:12:52: He noted that while VC backing increases the probability of a big IPO,

00:12:56: the better predictor of long-term success is real company revenue,

00:13:00: specifically over a hundred million dollars at the time of the listing.

00:13:04: That's the metric.

00:13:05: M&A and PE teams should be tracking.

00:13:07: And beyond IPOs, the secondary market is accelerating.

00:13:10: Materially, Morgan Duranda reported this and it's driven by high private valuations and the need for earlier liquidity.

00:13:17: That acceleration opens a huge opportunity for private equity.

00:13:20: Krista Morgan noted that the window to acquire and reposition that post-COVID overfunded cohort is expanding.

00:13:27: You mean the startups that raised too much at inflated valuations?

00:13:31: Exactly.

00:13:32: But it requires restructuring expertise that really understands VC dynamics, not just traditional corporate restructuring.

00:13:38: Right.

00:13:38: You have to understand the liquidation preferences, the control rights.

00:13:42: It's a different game.

00:13:43: And finally, let's not forget the regional bright spots.

00:13:47: Pankaj Singh confirmed India is seeing this disciplined re-acceleration with fresh funds and faster decisions, especially in AI and fintech.

00:13:55: And Jabid Hossain and Sam Marchant highlighted Dubai as a rapidly growing global startup hub.

00:14:01: So

00:14:01: the capital might be concentrating in the

00:14:03: U.S.,

00:14:04: but the operational hubs are definitely diversifying.

00:14:07: So what does this all mean for you if you're operating in M&A, private equity, or consulting?

00:14:12: I think the core message from this period, from CW-Fifty-One to O-Two, is really about unforgiving rigor.

00:14:19: Unforgiving rigor, I like that.

00:14:20: VC today demands intense discipline from everyone.

00:14:24: From

00:14:24: founders in capital efficiency and defining their special edge.

00:14:27: And from investors in operational maturity and institutionalizing their diligence with AI.

00:14:32: You're operating in a bifurcated market.

00:14:34: You have to know if your target is positioned for that one hundred X outlier growth or if it's built for a disciplined cash flow positive acquisition.

00:14:42: Which raises a pretty important question for you the listener to think about as you plan your strategy.

00:14:48: Given that extreme concentration of capital in US mega funds and this split in the market, what is the new competitive edge for a niche non-consensus fund manager in?

00:15:00: Is it purely proprietary access to deals the big players miss?

00:15:04: Or can specialized verifiable operating expertise truly outweigh sheer financial scale in the

00:15:10: long run?

00:15:10: That's something critical to mull over.

00:15:12: If you enjoyed this deep dive, new additions drop every two weeks.

00:15:15: Also check out our other additions focusing on private equity, M&A, and strategy and consulting.

00:15:20: Thanks for tuning in.

00:15:20: And remember to subscribe!