Lior Tibon

Great episode for early stage VC's and capital allocators to check out. https://lnkd.in/ekz7JHJd #vc #fundraising #venturecapital

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I posted last week about the shift in sentiment from LP's regarding secondaries. It used to be that GP's were told to hold their winners forever but more recently a lot of LP's are recommending pre-seed & seed stage VC's get good at navigating secondary transactions as early as Series B rounds. Obviously a lot of factors go into these decisions such as where you are in the life of the fund, how the rest of the portfolio is performing and the performance of the underlying company in question. But in this new reality, entry price and ownership relative to fund size really matter in order to still generate top decile funds by selling into later stage rounds; and that tends to be at odds with many seed fund strategies I see out there today. According to Carta, the average seed round valuation is $15M and I see some seed funds doing seed deals at $20M - $30M valuations. Many seed funds between $40M - $75M in size (avg of $50M) write seed checks at $15M valuations and probably invest $1.5M into each company to get 10%. The portfolio construction in this scenario is probably 20-25 companies given the check size. Assuming 50% dilution (probably low), you need a company to get to a $1B valuation to return your fund and you have less shots on goal to do that at a time where I think the probability of hitting a winner at seed for any single seed fund is going to go down per my post last week. It also means the opportunities to sell secondaries in later rounds in order to drive meaningful DPI is harder because it likely won't get to that sort of valuation until Series C or later; and you probably don't want to consider selling until the position is worth even more than your entire fund. Alternatively, if you write a $1M check into a deal at a $8M valuation out of a $50M fund, you are getting 12.5% ownership and probably investing in more like 30-35 companies given the initial check size. Higher ownership and more shots on goal. Assuming 50% dilution again, you get there with a $800M valuation. At even lower valuations, $1B outcomes would return multiples on the fund and it really opens up the options when it comes to selling in secondaries in order to manufacture liquidity. Given the current dynamics in the market, I wonder if more funds will start to focus on sub $10M valuation rounds.

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I've seen NO ONE read this correctly; the headline is pure clickbait. More GPs are planning to fundraise now (as they say "nearer") than last year. This is the largest YoY jump, instead of not planning another raise. Why? The data here suggests those who pushed a decision further out have decided. • Not decided: from 44% to 27% • No plan to raise: 6% to 13% = 2x increase • Deciding to fundraising now: 4% to 12% = 3x increase https://lnkd.in/gkAC6GGr

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🚨 Fundraising Alert 🚨 Top tier companies raising Pre-Seed to Series A in the next 6 months should apply to Focal where they can pitch almost all their prospective investors at once. Demo day is on May 16th. ✅ Applying takes 7 mins ✅ Previous applicants raised from funds like Sequoia, Balderton, Episode 1, Lightspeed and GV. ✅ Even if you find fundraising easy, this is a way to build added momentum. You can apply here: https://lnkd.in/eTdTtSw7

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Maternity in VC in the spotlight. Well done Rachel Drapper, Sophie Winwood & the WVC:E team on getting this important report out there. In VC we’re dealing often with small firms, network & event heavy schedules and FOMO of being left behind if we take time out (I refuse to use the word off as anyone who’s had a child knows that’s the furthest from how it feels). If you’re thinking about having a child or in the throes of the early-stages, navigating how to even try and get some semblance or balance, then hopefully this report can provide some useful tips. Most importantly showcasing that you’re not alone.

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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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Liquidity or exit planning is often taboo leading to many companies being ill prepared. Successful outcomes are years in the making - they start and end with proactive prep (e.g. getting your house in order, developing strong relationships with strategic partners, potential investors and advisors). With Scott Colvin & Paul Perrett we lay out some key actions you should embed now that can set you up for exit success and also make you a better run business today Big thanks to Bree Fedele 🖋

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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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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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Random Thought - I told a founder today to ask a potential VC investor in their pre-seed to get the overview deck / memo they raised their fund with / have recently sent to the LPs (their customer/clients) - or at least understand where they are in their fund deployment, talk to the other port cos, ask to talk to one of their LPs, and gain a better understanding of what they have told / suggested to their LPs what success looks like for them. Most founders never know what business their investors are in…. I didnt ….. What they are truly “promising” to their customers etc. I had no clue what equity in my company meant in the larger “game”. The first institutions on your cap-table are of the MOST importance! You are allowed to ask. They are allowed to say no. Create a relationship built on mutual goals …. Should you Set OKRs with your investors and the board……. Why not??!??

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Taavet Hinrikus and I made the Financial Times Due Diligence email. https://lnkd.in/ez2AuGQx One 'unintended consequence' is that if there is a 45% tax on carry and CGT (raising £40m per year, remember) it for all intents and purposes closes the door on new VCs in the UK. Especially started by teams from non-traditional backgrounds. To meet the GP commit, you need to be already part of the 'wealthy' as you cannot rely on the value you create - nearly half of it will disappear - to fund it. We have both had extremely successful startups which are few and far between. The smaller number of new VCs will therefore more likely increasingly be for people who have inherited the capital or can draw it from their already rich family. Probably not want they have in mind with this policy.

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TLDR: EIS should be scrapped as a fund structure but retained for Angel investments by individuals. Alex Chalmers has done all the work which in 10 years I've never got around to doing: why 95% of EIS/VCT funds are bad for our tech ecosystem, rip #startups off, and why as a Founder you should push back against their stupid fees or not take their money. https://lnkd.in/dnq9ZScS

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2H24 VC: Slow and Furious Race… We are racing to the election and then will likely crawl to a decision. The nasty rhetoric likely contributed to the slight down tick in consumer sentiment last month, the first time since the beginning of the summer. Headline inflation came in a touch hotter than expected at 2.4% in September. The paradox is that the Conference Board just increased its 3Q24 real GDP growth to 1.8%, up from 0.8% in its prior forecast. Conditions are quite good, but the world feels very chaotic. Obviously, the macro-economic conditions directly affect the venture capital industry as liquidity informs returns and the pace of new investments. The velocity of capital is critical and now the system feels stuck. According to a recent report from Pitchbook, both the number of investments and amount of capital invested significantly declined in 3Q24.  For the quarter, $37.5 billion was invested in 2,794 deals as compared to $55.5 billion in 3,661 deals and $35.0 billion in 3,365 deals in 2Q24 and 3Q23, respectively. Notwithstanding the obvious demand for innovative solutions, the healthcare technology sector also saw continued softness in investment activity. According to Rock Health, 3Q24 investment was $2.4 billion across 110 deals suggesting an annual pace between $10 - $11 billion, consistent with 2023. The data do not lie. Thoughts for the rest of year below…https://lnkd.in/ewBQceMk Flare Capital Partners #digitalhealth #venturecapital

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"Bryce Roberts of Indie VC first highlighted the trend of “one-and-done” rounds back in 2017. Back then, it was something of a rarity, but these days a considerable number of founders are intentionally pursuing that path. At a broader level, the best founders today are raising fewer rounds with less dilution and/or skipping rounds altogether. And many VCs are struggling to come to terms with this. Firms with mediocre returns that don’t have much of a differentiator or positioning beyond “solid, inoffensive fund that’s a good fallback if you can’t raise from a top tier VC” are struggling to raise new funds or closing up shop entirely. Many individual investors who are later in their careers or who don’t have the inclination to reinvent themselves are opting out of venture capital as a career. Others who are refusing to adapt are being managed out by their firms." https://lnkd.in/gcNxKdzF

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"There are always multiple ways to win – In our second session, you can see the diversity of different approaches to winning. Dave Yuan from Tidemark and Adam Bain have VERY different styles to growth investing and Matt Auxier from University of Chicago has invested across the landscape of growth and early stage. This serves as a reminder that there is no single way to win and the importance of owning your own playbook, rather than following those of others." https://lnkd.in/g3JH6-aQ

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Very proud to see the WVC:E dream team - Anisah Osman Britton MBE & Rachel Drapper - alongside long time friend and rockstar Ekaterina Gianelli on stage at TechBBQ discussing "Fixing the Talent Exodus in VC". Key Takeaways: 💰Impact of Consolidation on Culture and Talent: The ongoing consolidation in the VC industry is reshaping company culture, affecting morale, and influencing talent. 🚀Emerging Managers Aren’t Diversifying VC: Despite the rise of emerging managers, the industry remains largely homogenous, with many new managers still coming from the same traditional, non-diverse backgrounds. ⚠️Perceptions of Diversity as High Risk: Many in the VC industry continue to view diverse hires, investments, and business models as "high risk," "too time-consuming," or "too costly," perpetuating a cycle of exclusion. 🚼 Parental Leave Inequality: Inequities in parental leave policies are disproportionately affecting women in venture, creating additional barriers to progression. But there are funds, investors, LPs and organisations (like us!) that are trying to change this!

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Just a quick note on Term Sheets… A founder has just reached out to me asking for advice on some ‘interesting’ clauses in a TS they had just received from a VC… As a reminder you can download the Playfair standard TS here: https://lnkd.in/exM25Ugf If any entrepreneur has a question around term sheets - I know they can sometimes be a bit daunting - then please feel free to reach out and I will do my best to help! #termsheets #investing

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About a year ago, in September 2023, I left full-time employment to start working on Openseed VC 💜 This decision came during what is arguably the toughest --- fundraising environment for emerging managers since 2015. It was a leap of faith, driven by conviction and supported by an army of backers who, through their capital 💰, well-wishes 🤗, and goodwill, made this venture a reality. A LOT can happen in a year. As I reflect and journal co-incidentally on today, my birthday, I’m struck by how much we have achieved so much in just twelve months: In the spirit of counting my blessings, I spelt it out; - Built a compelling fund brand and strategy 📈 - Fundraised from LPs 🤝 - Structured and incorporated the fund - Received regulatory approval and incorporated - Reached the first close of the fund 🔒 - Had a strong public launch 🎉 - Built a lean team and onboarded advisors 🧑‍🤝‍🧑 - Recruited 60+ operators for the operator network 👥 - Received 850+ founder applications 📑 - Conducted 200+ founder calls 📞 - Made two investments in Europe 🌍 & Africa 🌍 Just a year ago, Openseed VC as a fund didn't exist, and I am so excited for what's to come! We aren't just building a fund; we are creating an innovative financial institution that is the first investor in talented, experienced, and diverse operators from day zero. This is just the beginning; it's day zero for us too. ✨ If you're hesitant to take the leap to pursue something you know you were born to do. Something you realise has a high opportunity cost and high upside, yes- high risk of failure, but if not pursued you know you’ll regret it—maybe this is a sign. A year from now, a year will have passed anyway. A LOT can happen in one year. It’s also coincidentally my birthday today, so I will be celebrating on two fronts! :) Grateful, and thanks again to every single person who contributed to my journey🎊 #openseedvc #operators #founders #europe #africa #futureofcommerce #futureofwork #futureofhealth #oneyear

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The state of venture capital is wild right now. We are witnessing a surge of innovation across the spectrum: - Funds merging - VC doing PE - PE doing VC - Secondary funds - Buyout funds - Spin-out funds - Debt funds - Continuation funds - Infrastructure funds - GP turnover - Hard Tech surging - Family Office uptick

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