Brad Schneider

One of the things we see quite often at Grit Capital Partners, is a newly minted CEO. We see a big difference in the transition to CEO based upon the historical lane the CEO is coming from. There are different new muscles if you are coming from Product, Engineering, Finance, etc. In this article, we go deep on the CRO to CEO transition, which includes some thoughts from Rosie O'Meara, a particularly fine example of someone who has made the transition quite well. What were your biggest transition moments? https://lnkd.in/eEB-K2ZU

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"The big debate at Milken was whether PE firms that are solving this problem with N.A.V.s are risking their future to buy some time with investors" “We’re having unprecedented pressure from our L.P.s to send them cash,” Jonathan Sokoloff, the founder Leonard Green, said onstage at the Milken conference. “We’ll send you cash any way we can.” "LPs have limited recourse. Many of their agreements with PE firms were written before NAV loans were in vogue, which means these loans may be technically allowed, if not explicitly". "There is about $150 billion in N.A.V. facilities on the market today, according to the ratings agency S&P Global. It expects that figure to double in the next two years. Investor liquidity is only one use of the loans, which are often invested back into portfolio companies." https://lnkd.in/g3yxuvqA

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This is quite interesting advice and also quite a non-consensus view in the B2B software world. Cross-border founders who are considering the US vs International incorporation question should consider this as valuable input.

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Key takeaways from VC Goat - Vinod Khosla podcast. - The firm cares more about working on interesting problems with large technical solutions rather than just maximizing IRR. The team is there because they believe in the mission. - Khosla assumes they've lost the money the day they invest, and then maximizes for the upside opportunity. He calls it "option value investing" rather than IRR investing. - Khosla has contrarian bets in AI (neuro-symbolic computing, probabilistic approaches), biotech, robotics, crypto, and more. - He believes aviation fuels, fusion energy, new transit systems, and other contrarian areas ignored by most investors will be huge opportunities. - Most large innovations come from outsiders, not industry insiders. Khosla looks for founders who can learn a business rapidly rather than have deep domain expertise. The Future Impact of AI - AI will be deflationary and increase productivity growth to 4% annually vs the typical 2% forecast. This will cause great abundance but also increasing income inequality. - Bipedal robots will take over most manufacturing and manual labor jobs within 20-25 years. This will free humans to be more creative and pursue their passions. - Education will shift from job training to creativity. Uniquely human elements like taste and curation will be most valued in an AI-enabled world. https://lnkd.in/gqBsmbks

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How can investors beat currency depreciation in emerging markets? The answer lies in venture capital (VC). While investment options in these markets may deliver mediocre returns when adjusted for currency depreciation, VC can ride the macro tailwinds while delivering compelling returns. According to Rubén D. and Timothy Motte "EMs have struggled to gain investors’ sustained trust. Even for the shrewd operators navigating political risk, inadequate infrastructure and low buying power, one stubborn issue remains: currency depreciation." Investors, it's time to take a risk on emerging markets. With VC, you can beat currency depreciation and reap the benefits of vigorous economic growth, young populations, and a hunger for technology. Let's galvanize these markets and unlock their full potential. https://lnkd.in/dhqEpQk Repost by Salem Bagami Chief Executive Officer Digital Transformation Company & Managing Director 2080 Ventures Email: [email protected] Website: www.2080.ventures Sun Choi 최성안 Timur Daudpota #VentureCapital #EmergingMarkets #InvestmentOpportunities

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💡Benchmarks in the investment industry serve as a standard for measuring the performance of securities, mutual funds, or investment managers. They provide a reference point for analyzing allocation, risk, and return of a portfolio, enabling investors to make informed decisions. Thanks Peter Walker for keeping us all informed!! Can’t wait for this!! Follow and get on the waitlist for this one! #benchmarks #fundraising #Capitalraise #founders #womenshealth #femhealth #medtech #wellness

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What do you do when a radical new technology puts your main product right in the crosshairs of disruption? Listen to David Okuniev — co-founder of Typeform | Ask awesomely — discuss the challenges of innovation within existing structures. David shared a game-changing insight: Radical innovation is really, really difficult to do inside your own product. He emphasized the need to break free from the constraints of familiarity and embrace change from outside the box. Henrik Werdelin and I have both seen our fair share of this in our respective careers. What struck us most was how David leveraged structure to overcome the innovator’s dilemma. By creating a culture of experimentation and providing space for bold ideas, he propelled Typeform beyond incremental improvements. What other hacks have you seen or employed to help your organization overcome the innovator’s dilemma? Share your stories below! 👇 And if you want to dive deeper into our conversation, click the link in the comments to catch the full podcast episode!

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How do investors price pre-seed rounds?  This is perhaps one of the most misunderstood aspects of fundraising.  Oftentimes, founders want some framework to better understand what market value is when raising capital into their business.  Public equities and later stage privates have a well defined matrix of revenue/margin profiles that dictate valuation, surely there must be some framework for arriving at a pre-seed valuation. So how do investors price startups that are pre-revenue, or have maybe one of two early customers? In reality, pricing is more a byproduct of a VC fund’s portfolio construction model than any metric of the underlying business.  VCs model out portfolios to include a certain number of companies with an ownership target in each startup.  There are variations to portfolio construction, and the chosen strategy will have a direct impact on the types of rounds a fund will participate in. For example, an early stage fund might raise a $60M fund to lead investments in 30 companies and target 12.5% ownership.   After management fees, there is ~$48M in investable capital.  Assuming a fund holds back ~30% for reserves(this number varies across funds) that leaves ~$30M to invest in initial checks.   In this case a fund must average $1M checks at $8M valuations to reach their intended ownership target of 12.5%.   When you are in diligence with a fund, they are first and foremost trying to get to a yes on the investment opportunity.  When arriving at a valuation though, the math outlined above is the determining factor, more so than any multiple of revenue on the business, or the stated desires of where a founder wants to raise capital.  At the end of the day, a VC is trying to arrive at a valuation that works within their portfolio strategy. This means they are very unlikely to price a deal at $15M cap given the aforementioned portfolio construction, as they would either not own enough($1M = 6.67% ownership) or have to cut too large a check( $1.875M = 12.5%). The thing that is most likely to move an investor off their target valuation is another investor in the picture that is driving the price higher, but even then there are upward bound limits of how high an investor is willing to price a deal. I always advise our port cos to ask an investor early in conversations what their ideal check size/valuation is to make sure there is alignment with the founder's objectives.    

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Here’s a question investors are often asked: When evaluating early stage companies, how much time do you spend on due diligence around future exits? It’s not surprising we hear this question a lot. Also not surprising: it’s got a wide range of answers depending on the firm. Some don’t spend much time here at all. Others make it a point to put meaningful time in as part of their process. Our current thinking: take the time to do the work on public market comps. At Alpaca VC, we spend significant time understanding how public market investors will  realistically value a business based on margin profile, product, business model & TAM. In short, we want to know: how will this company be valued at scale when we get taken out? Yes, we can acknowledge that the journey toward exit is a windy road and that there may be pivots along the way, but there are still public market companies that have a business model similar to the early stage company you're evaluating. And you can always look at gross profit multiples if you think the margin profile will change over time. So we still do the work on the comps. Quantitative metrics we look at when making the comparison to public market comps include EBITDA multiple, revenue multiple, Gross Profit multiple or all of the above. As part of this process, it’s also important to factor in the public market company’s year-over-year revenue growth as this will also significantly impact the multiple it trades at. Simple example: if you have two public market companies with similar business models and similar margin profiles, but one's growing 100% year over year, and one's growing 50% year over year, then obviously the DCF (discounted cash flow) analysis is going to spit out a very different valuation for the one that's growing faster. Why this matters: When you take all of that information into account as you evaluate an early stage business, you can begin to create a realistic picture of how this company will be valued in the public markets at exit - or how an acquirer will value the company for an acquisition. Strategic acquirers may, of course, pay a premium, but we won’t underwrite for that. This allows us, for example, to form conviction around valuation based on revenue and gross profit predictions. If we think they can do $100M of revenue five years from now, we use this diligence process to form a thesis about whether the characteristics above (product, margin, business model, etc.) will cause the company to be valued at $200M vs. $500M vs. $1B at exit. Curious how other early stage investors think about underwriting an exit and how much time they’re spending on public market comps even though these companies are in their infancy.

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Interesting new surrvey about the VC industry by PitchBook: 13% of VC firms are not planning to raise a new fund and 27% of VC firms have been pushed further thier plans to raise a new fund. That means a 40% decline. No wonder that startups are haveing tough time to raise funds. See article below. https://lnkd.in/exYYyCPu

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On my way to London to work with a portfolio company at their QBR and annual planning process. Another example where having investors on your cap table that understand how to build companies vs just show up and pontificate at your board meetings will help you to build world class outcomes. Remember why we do this - build world class organizations that drive meaningful economic outcomes for employees, customers, shareholders, and investors. Lead from the Front!!! #vc #growth #venturecapital

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“…DPI for the sake of DPI can be detrimental to overall returns as the asset class is power law driven, and selling too early can have enormous adverse effects on overall return of the fund (especially since selling too early typically only involves the very best companies in a portfolio). VCs need to have a structure and mental model on when to take money of the table, but doing it for the sake of appeasing LPs (and helping to raise a new fund) as the main driver isn't the right path….” “…Liquidity markets in VC are very cyclical….As an LP, consistency of investing through cycles is important to ensure you get the benefit of the high periods to offset the lower periods…” Great post by Samir Kaji from Allocate and the Venture Unlocked podcast.

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Within the venture industry, illiquidity in is sometimes viewed as a feature rather than a bug, as it protects investors from selling at the worst times (which as seen throughout history is commonplace in the public markets). However there are limits, and the problem of illiquidity will have to be solved in a more systematic way. LP driven secondaries are inefficient and opaque, large M&A comes with major regulatory hurdles, selling in traditional secondary rounds is limited given the focus on efficiency and the departure of crossover funds, and the IPO bar is expected to remain very high (don't see <$1B market cap IPOs). Meghan Reynolds and I talked a few weeks ago about this (see link in comments) as has Mark Suster in many recent pods. Agree that over the next decade, we should see more of the following to solve for the liquidity problem. 1) PE funds serving as an exit for VC backed companies, meaning companies that are near or at EBITDA positive. 2) Continuation funds that provide LPs with an option to rollover or get liquid (single asset or all assets). I'm spending a lot of time here. 3) A more efficient liquidity marketplace for LP sales/buys. 4) Strip sale of a set of assets. Planning a special roundtable pod with some secondary and primary managers to discuss the growing liquidity problem in VC.

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🔎 A graph every VC manager should be following right now. PE's exit to investment ratio has hit a ten year low Most LPs invest a multiple of their VC allocation in PE. The less liquidity coming from larger buckets, the less divestments that can be made into the asset class 🔮 Similarly if this starts picking up, the allocation doors could start to re-open... #VC #venturecapital

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Impactful Biz, Ops & Investment Roles at Early Startups & VCs: • Chief of Staff to Ex. Head of Product at Google • Founding GTM at the most YC product used by other YC companies in the past four years • Chief of Staff to a Partner at a Top-Tier VC Fund • Head of Platform of a NY State Backed Accelerator • Investment Associate at a Seed Stage Fund Investing in Category-Defining Companies • Partner at a Defense-Focused VC Fund • Chief Revenue Officer of a New Space Company in El Segundo • Venture Capital Analyst at a fund investing in overlooked geographies • Investment Associate at a Spirit-Focused Fund • Strategy & Ops Lead at a Company Focused on Helping Improve Autism • Senior Product Manager at a Company Focused on Building Shopify for Content Creators • Program Manager for a Space Security Company • Open-ended Investment Position at a Top-Tier Accelerator • Biz & Ops Lead for One of the Most Loved Digital Consumer Products 💸 All companies are well-funded and backed by top-tier investors. ⬇ You can find links to the roles above, plus many more, in the comments.

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The secret—if it ever was one—is out on private equity fondness for vertical software. While PE-backed acquisitions were down 50%+ from a peak in 2021, vertical buyouts have continued to grow, and the fervor seems to be gaining steam. In today’s essay, we will pose an answer to one question: is PE a viable path to exit for a venture-backed startup?

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Excited to be a contributing part of Family Office as an asset class continuing to not only grow 300% since 2019, but also now accounting for a larger share of capital markets than Hedge Funds, Private Equity or VC. One of the interesting trends discussed is Family Offices moving away from publics and into privates - specifically Private Credit, Real Estate and Private Equity - and particulary loving Bio-tech, AI and Healthcare industry sectors https://lnkd.in/eZjNKEjU

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The success of a Fund boils down to DPI (distributions back to LPs in relation to how much capital was deployed). The industry often gets infatuated with TVPI, which accounts for paper gains. However, these numbers are frequently not worth the paper they are printed on. Knowing when to stick or twist is always a challenge, so I favor a balanced approach: the third-third-third strategy. Sell a third of the investment at the first opportunity. Gradually sell the second third. Hold onto the final third for potential upside. Even this model needs adjustments based on market conditions, requiring a mix of aggressive selling or patience. The real issue for LPs is the industry's recent obsession with maximizing TVPI without enough attention to DPI. This can lead to portfolio imbalances and potentially disappointing (or zero) cash returns. 🎙 Listen to my full episode of Fintech Leaders with good friend Miguel Armaza for more on data as the new gold, secrets behind successful VCs, and the importance of founder-market fit: Spotify: https://spoti.fi/3KitB4b Apple: https://apple.co/4bXmmuC Youtube: https://bit.ly/3Vh4HIz

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