Best of LinkedIn: Venture Capital CW 05/ 06

00:00:00: provided by Thomas Allgaier and Frennis, based on the most relevant LinkedIn posts about venture capital from CW five-and-six.

00:00:07: Frennis 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: so today we're looking at the top venture capital trends that really stood out on linkedin.

00:00:19: this is calendar weeks five six of twenty twenty six

00:00:23: And you know usually when we do these it's a mix of different signals, but this time It feels like the message is incredibly consistent.

00:00:31: The entire industry seems to have moved on from that Adjustment phase.

00:00:34: yeah We're in a new normal now.

00:00:36: It's less about Waiting for the market come back

00:00:39: and more about optimizing for the mark You actually have

00:00:42: exactly?

00:00:42: We're seeing a huge focus on deal discipline A total rethink of fundraising mechanics Pretty surprising geographical shifts.

00:00:50: I think anyone still thinking Silicon Valley is the center of the universe might be in for a shock.

00:00:55: Let's start with money then or maybe more accurately The terms attached to that money this whole cluster of insights we saw around deal discipline.

00:01:04: It honestly reads like a warning label.

00:01:06: it

00:01:06: absolutely Is a warning level?

00:01:08: I mean, the most compelling piece on this came from Itamar Novik.

00:01:11: He framed it around something he calls valuation ego.

00:01:15: The classic trap where a founder thinks the higher valuation equals success, right?

00:01:19: Yeah I'm worth one hundred million.

00:01:21: therefore i've made

00:01:22: it Right.

00:01:23: but Novik just cuts through that with really brutal example.

00:01:26: He lays out this scenario A seed stage founder With two term sheets.

00:01:30: Okay

00:01:31: Offer A is ten million dollar investment at forty million dollar valuation Offer B Is the same Ten Million But At One Hundred Million Valuation.

00:01:41: So on paper B looks like the clear winner.

00:01:44: You take the higher number, you get less dilution.

00:01:46: we're talking ten percent versus what?

00:01:48: twenty-twenty five.

00:01:49: That's

00:01:49: the trap.

00:01:50: that's the valuation ego kicking in.

00:01:52: so The founder and his example took offer be minimize Dilution but then you fast forward say Twenty four months.

00:01:59: the company is doing okay not amazing But ok.

00:02:03: they've hit three million an ARR.

00:02:05: now They need to raise a series

00:02:06: A And this is where the math just completely breaks down.

00:02:09: This Is Where The Valuation Overhang Kills Them.

00:02:11: To Raise A Healthy Series A You Really Need An Up Round, you know?

00:02:15: Evaluation Higher Than Your Last One.

00:02:17: But No One Is Paying Over a Hundred Million For A Company With Only Three Million In Revenue.

00:02:22: in This Market.

00:02:23: That Multiple Just Doesn't Exist

00:02:25: It Doesn'T.

00:02:25: So They're Stuck they Can't Race Flat.

00:02:27: They Definitely Can't Raise Up.

00:02:29: so Their only Real Option Isn't Down

00:02:30: Round Which Feels Embarrassing.

00:02:33: but...is it Fatal?

00:02:34: I mean, does it actually kill the company?

00:02:36: It often does.

00:02:37: And this is part people miss that Novik highlights—it's the anti-dilution clauses.

00:02:42: When you do a down round those clauses from previous rounds kick in to protect early investors.

00:02:47: They get issued tons of additional shares To make them whole

00:02:51: So they can more stock Which has come form somewhere.

00:02:54: It

00:02:54: comes with common stock pool.

00:02:56: The founders and employees In Novik example just wiped out founder & employee equity.

00:03:03: the cap table was destroyed.

00:03:04: And morale collapses because everyone's options are worthless,

00:03:07: The company just spiraled and died so that better deal.

00:03:10: offered B. it was actually a poison pill whereas

00:03:13: if they'd taken offer A the forty million valuation That three million in revenue would have easily supported a healthy upround.

00:03:21: They'd still be alive!

00:03:22: The lesson is so clear survivability Is much more important metric than minimizing dilution.

00:03:28: And speaking of dilutions, scared Maul was talking about this too.

00:03:31: He made the point that founders just look at a headline number and they completely ignore these clauses.

00:03:36: it seemed minor.

00:03:38: You'd have

00:03:38: huge cash implications!

00:03:40: Maul actually did them math Something as simple as the difference between say ten percent versus fifteen percent dilution in a series A

00:03:47: Right

00:03:48: On a forty million euro exit.

00:03:50: That tiny difference translates to two million euros.

00:03:53: Two?

00:03:54: Million Euros.

00:03:56: That's life-changing money you just lost because you didn't model out a clause that took thirty seconds to read.

00:04:00: It really

00:04:01: shows that legal terms are mathematical formulas, they're not just text and you have run the math against what market actually requires.

00:04:09: now We saw some new data on this from Sepsilimi and Jose Escarramero.

00:04:13: This was the SVB report The graduation data.

00:04:16: Yeah it highlights power law in action.

00:04:19: Top one percent of deals is getting third.

00:04:24: The metric that really jumped out at me was the revenue jump needed.

00:04:27: Okay, what are we talking about?

00:04:29: Median Revenue At Seed is about two hundred and twenty thousand dollars To graduate to Series A... ...the median is now two point five million.

00:04:37: Wait!

00:04:38: That's an eleven X increase?

00:04:39: Eleven point three X to be precise.

00:04:42: That feels almost impossible.

00:04:43: If you're a seed founder You have hit grand slam.

00:04:45: just get into next stage

00:04:46: Which explains why failure rate so high.

00:04:49: Peter Walker shared data showing that no seed cohort since the third quarter of twenty-twenty one has seen a graduation rate to series A of thirty percent or higher.

00:04:58: So everyone's getting stuck in that messy middle, a

00:05:00: massive bottleneck

00:05:01: which I guess leads to the question how should founders change their thinking?

00:05:05: I thought Alejandro Crimmins had a really useful framework for this right.

00:05:10: he says you need to shift your mindset away from raising money and towards removing risk.

00:05:15: unpacked out it

00:05:16: well.

00:05:16: instead of just saying i need five million dollars you map the money to a specific risk.

00:05:22: Pre-seed capital is for removing market

00:05:25: risks.".

00:05:25: Is there problem to solve?

00:05:26: Exactly!

00:05:28: Seed Capital is For Removing Usage Risk.

00:05:30: Will Anyone Actually Use My Solution?

00:05:32: And then Series A is for Business Risk.

00:05:34: Can This Thing Actually Make Money

00:05:37: At Scale?

00:05:38: So if You haven't proven people will use your product, don't even bother trying raise a series A.

00:05:42: You got it.

00:05:43: Investors aren't paying for potential anymore.

00:05:45: They are paying for the verified removal of risk.

00:05:47: You try to skip a step, you just hit that wall that Pierre Walker described

00:05:51: Which brings us to how even get in the room To make this case.

00:05:55: We saw whole cluster Of posts on fundraise mechanics And big takeaway seems be The old spray and pray method is dead.

00:06:04: It's worse than dead.

00:06:05: it actually counterproductive.

00:06:06: now Prage Saxena had This brutal statistic.

00:06:09: I saw one

00:06:09: Founders spend about eighty percent of their fundraising time on cold outreach, but only that ten-percent of deals actually come from it.

00:06:16: That's just a staggering inefficiency.

00:06:19: spending eighty percent your energy to chase ten percent the results.

00:06:22: So Sxena advice is to qualify harder.

00:06:25: she suggests A really strict scoring system.

00:06:28: you rate investors On a scale of one two three?

00:06:30: One Is a perfect fit.

00:06:32: they're active.

00:06:33: Your sector no competitors in The portfolio.

00:06:36: A three is a total long shot.

00:06:38: And you only email the ones first?

00:06:40: Exactly, focus on them!

00:06:42: She claims it cuts your outreach volume by half but doubles your response rate.

00:06:46: It's about doing research before you hit send.

00:06:48: But even if that happens there was warning from Kevin Jang.

00:06:52: You need to reset your internal clock.

00:06:55: He said fundraising takes two-three times longer than founders expect.

00:06:58: That's a huge psychological point right?

00:07:00: A long process used be a red flag sign of bad deal.

00:07:04: Now it's just the new timeline.

00:07:05: It's structural, committees are digging deeper LPs have more questions.

00:07:09: So

00:07:09: a six-month process isn't a failure?

00:07:11: It's just The process.

00:07:13: Right.

00:07:14: and while you're in that slog You're pitching constantly.

00:07:18: And Chris Topman brought up this concept That I have to say...it terrified me A little bit..the invisible scorecard!

00:07:24: It is the Scorecard you never get To see.

00:07:26: Topmans point Is that investors aren't Just listening to your story.

00:07:30: They Are mentally checking off specific boxes And he says they'll often tick three boxes that kill the deal before you've even left the room.

00:07:39: What's an example?

00:07:39: Like what kind of box are you failing?

00:07:41: it could be anything cap cables too messy sounder doesn't know their cat market size is just to niche.

00:07:46: and You're still talking about your five-year vision, but in there head They marked you as a no three minutes ago.

00:07:51: Wow So you need to address those invisible objections up front.

00:07:55: But let's whip it around.

00:07:56: we talk a lot about investors judging founders.

00:07:59: Sharon Maroon argues founders need to be judging investors just as harshly, especially on what she calls crisis character.

00:08:06: Ah

00:08:06: the reverse diligence!

00:08:08: I like this.

00:08:08: her argument is that any investor looks good when things are going up and to the right.

00:08:13: The real product you're buying with VC money Is how that partner acts When Things Go Wrong.

00:08:16: So What Does Bad Crisis Character Look Like?

00:08:19: Panic Forcing defensive moves Just To Protect Their Own Optics Blocking Bridge Rounds Unless They Get Predatory Terms.

00:08:26: Maroon's Point Is That Staying Power Just the ability to be stable and supportive in a crisis is the most important value add an investor has.

00:08:34: So you should ask them, tell me about a portfolio company that almost failed?

00:08:37: What do you

00:08:38: do?".

00:08:38: And if they give you some generic vague answer... That's huge red flag!

00:08:43: Definitely Let's shift a bit into tools because AI really starts rewire the actual workflow of VC.

00:08:51: It is moving past the hype and into utility.

00:08:54: Greg Bappy highlighted a tool called Deep Flows that's trying to solve the warm intro problem we were just talking about.

00:08:59: How does it work?

00:09:01: Is is more than just database?

00:09:02: It's deeper, it maps affirms entire network linked in emails calendars and creates live-intro engine.

00:09:10: so instead of guessing who knows who system tells you best path to founder makes relationships a queryable asset.

00:09:16: That smart!

00:09:17: And Val Bikanov is seeing a similar thing with how portfolio companies are reporting back to their investors.

00:09:22: This is fascinating, usually investor updates or just you know a static PDF sitting in an inbox.

00:09:29: Right!

00:09:29: Bikanoff says AI is now parsing those updates to automatically extract the hard data revenue burn runway and structuring it.

00:09:37: So no more manually entering data into a spreadsheet for the VC.

00:09:41: Exactly, and it lets them do instant benchmarking across the whole portfolio.

00:09:45: You can see right away if one company's CAC is spiking compared to others.

00:09:49: It turns narrative in intelligence.

00:09:51: Before we hand keys over to robots Destiny Iguche had an important counterpoint.

00:09:57: She cites data from seven percent ventures showing that eighty percent investments still come from trusted networks.

00:10:03: It's a good reality check.

00:10:04: The tools make the process more efficient, but you can't automate trust.

00:10:08: not yet.

00:10:08: anyway You can use AI to find the path But a human still has to walk it.

00:10:13: and there's another AI angle here.

00:10:15: It's not about the investors It's about the companies they invest in.

00:10:19: Paul Press introduced this term that I think every PE and VC pro needs to know Architectural debt.

00:10:25: This is so critical.

00:10:27: we all know about technical debt.

00:10:28: you know, messy code.

00:10:29: This is different.

00:10:30: Architectural debt today is about being AI embedded versus AI native.

00:10:35: Okay what's the difference?

00:10:37: AI Embedded is when a legacy SaaS company just bolts a co-pilot onto their old software.

00:10:43: AI Native Is A Company Built From The Ground Up With AI As Its Core.

00:10:47: So You're Buying A House That Looks Nice But The Foundation Is Made Of Wood While All The New Houses Are Being Built On Steel.

00:10:54: Perfect analogy and press warns that investors are buying these companies with massive architectural debt not realizing their foundation is obsolete.

00:11:01: The cost to fix.

00:11:02: That it's so high the company might just be a zombie.

00:11:05: Let's move to our last cluster then regional momentum Because the map of where all this capital was flowing is changing really, really fast.

00:11:13: It's a global reshuffling.

00:11:15: I mean look at Europe.

00:11:16: Glen waters pointed out total dominance of the UK.

00:11:19: right now they raised twenty three point six billion dollars in twenty-twenty five

00:11:24: to put that into context.

00:11:25: That's more than Germany, France Switzerland and the Netherlands combined

00:11:29: it is.

00:11:29: but Waheed Raheem notes that Germany is closing that gap fast.

00:11:34: And Sophia C pointed a really specific driver for this European momentum

00:11:38: US immigration policy

00:11:40: the restrictions.

00:11:41: The new U.S.

00:11:42: rules in twenty-twenty six are acting as a repellent for global talent, so founders who would have gone straight to San Francisco or now?

00:11:49: setting up and Berlin or London or Paris was

00:11:51: like a talent donation from us Europe it

00:11:53: is.

00:11:54: but the most aggressive growth we're seeing isn't the meaner region?

00:11:57: absolutely Mohammed Nwido and Jonas anchor both had data on this.

00:12:01: Saudi Arabia captured forty percent of all means easy funding in twenty twenty four.

00:12:05: But they key phrase that stood out to me was deployment urgency.

00:12:09: It's not just that they have the money, it is that they HAVE TO SPEND

00:12:12: IT.

00:12:13: Right.

00:12:13: Jonas Anker says these funds have mandates to deploy sixty-to seventy percent of their capital in three or four years!

00:12:20: They're under pressure to put money into work – this isn't patient capital….

00:12:24: …it's active urgent capital and its going into tech.

00:12:28: Farah El Nalawi noted over eight hundred million went into AI

00:12:32: which tells you there buying future infrastructure.

00:12:36: And speaking of new regions, Viktor Orlovsky put a spotlight on Uzbekistan.

00:12:41: I have to admit i've not been tracking the Uzbek VC market that closely...I

00:12:44: don't think most people have.

00:12:45: That's why it is so interesting.

00:12:46: They went from four funds To eleven funds almost overnight and they got one-point-one billion dollar.

00:12:52: fintech unicorn It just proves model is decentralizing.

00:12:55: You can build a unicorn in Tashkent now.

00:12:57: So let's wrap with structural change to industry itself.

00:13:01: Julie Kynes had this take On.

00:13:03: bifurcation of VC firms feels really important.

00:13:07: The hollowing out of the middle, it's a great observation kind sees the market splitting in two on one end.

00:13:13: you have to big platforms.

00:13:15: your Sequoias Your A-Six Teens is huge funds,

00:13:18: huge teams and On the other hand

00:13:20: media brand investors the solo GPs podcasters operators who Have massive personal brand niche expertise.

00:13:28: so what happens?

00:13:29: To that generic fund?

00:13:30: In the Middle?

00:13:31: we invest in series AB to B SAS Fund with no brand and No huge balance sheet.

00:13:37: They get squeezed out, they can't compete With the big guys on capital And they can' t compete The Brand Guys On deal access.

00:13:42: And Myrtle Alaco says Even angels are reacting to this right?

00:13:45: Yeah she's seeing Angels shift To just becoming LPs in funds.

00:13:49: Because of the math Of doing two or three angel deals a year It doesn't work.

00:13:53: for Hitting those power law returns You need A big portfolio.

00:13:56: So instead of picking stocks Their picking funds.

00:13:58: If we bring This all together if you're Founder Fundraising takes twice as long and you better audit your architectural debt.

00:14:08: And if you're an investor, You need to decide If you are a platform or brand and should probably be looking for deals in Riyadh Or Tashkent Not just San Francisco.

00:14:18: And above all For everyone It comes down to discipline.

00:14:22: The era of easy money covering up mistakes is just over.

00:14:25: That's the clear message, a sobering one but necessary one.

00:14:29: If you enjoyed this episode.

00:14:30: new episodes drop every two weeks.

00:14:32: Also check out our other additions on private equity M&A and strategy in consulting.

00:14:37: Thanks for listening.

00:14:37: don't forget to subscribe.