Alexander Bastron’s Post

Value investing works on (somewhat mature) companies. This is undeniable. In public markets you see c. 5% outperformance over the long term by investing in the cheapest 20% of companies via EV/EBITDA. It’s not rocket science. The vast majority of fund managers underperform that significantly. The world is (too slowly) realising that and transferring more and more assets to passive. Slick sales is slowly being overcome by rationality. But should it work in venture? I really don’t think so. Drawing from Soros’s Alchemy, this is due to a reflexivity effect. The share price of a large company shouldn’t meaningfully effect it’s performance. They’re usually not raising capital. Therefore value investing works because competitors are usually somewhat similar, so buying the cheaper one gives you a better return. Startups are raising capital consistently. Under Power Law, a small number of them will take most of the market. If we take two similar companies at similar stages and sizes: Startup X raises 5 @ 50m pre Startup Y raises 1 @ 10m pre For Y to beat X, it must deploy its capital 5 times more efficiently than X. Usually the difference between the top leader and the biggest loser is less than 50%. So it’s almost impossible for Y to win Y will go out of business and the “savvy” investor, who “negotiated a great deal” will get -100% on their investment. If the market is big enough, investors in X will do quite well. It’s somewhat like the observer effect in physics. In this case, the behaviour of the external investor materially effects the results. Therefore if you’ve got “valuation discipline” as a core thesis element, I’d guess underperformance of your fund is intrinsic and inescapable. This is a huge driver of why US beats Europe in venture. (In microcosm, also why London beats rest of UK). This is before even including self selection/hot deal effects. I’d love to see investors writing and thinking about this more. P.S. A simple way to process-ize this is to benchmark a market and look to back those who’ve raised at the highest valuation consistently over multiple rounds. History doesn’t repeat itself but it rhymes. Probably not super easy to explain this to analysts at pension funds… #shipsandshipping #maritime #founder #investing #vc

🚀 Exploring the Spectrum of Private Capital 🚀 In the dynamic world of finance, private capital stands as a cornerstone of innovation and growth. But did you know it encompasses a diverse range of investment types, each serving unique roles in the business lifecycle? Let's dive into the fascinating world of private capital, from Venture Capital to Private Equity, and everything in between. ➡️Venture Capital (VC) - The Fuel for Startups: VC is the lifeblood for early-stage startups, providing not just funding but invaluable mentorship and access to networks. It's about betting on potential and transforming visionary ideas into market-defining realities. ➡️Private Equity (PE) - The Growth Accelerator: PE steps in at a later stage, focusing on established companies with a track record. Through strategic investments and expert guidance, PE firms work to unlock value, streamline operations, and propel companies to new heights. ➡️Angel Investors - The Early Believers: Individual investors who provide capital for startups in exchange for equity or debt. Their early support is often crucial for getting projects off the ground. ➡️Debt Financing - The Strategic Lever: Beyond equity, private debt offers companies a way to finance growth without diluting ownership. It's a strategic tool for businesses at various stages, offering flexibility and fuel for expansion. Each type of private capital plays a pivotal role in the ecosystem of innovation, offering tailored support that aligns with different stages of a company's growth. At Ratchet Capital, we're proud to navigate this diverse landscape, investing in the future and driving transformative growth. 🌐 Dive deeper into our insights on the power of private capital in our upcoming blog. #PrivateCapital #VentureCapital #PrivateEquity #AngelInvestors #DebtFinancing #Innovation #GrowthInvesting #RatchetCapital

When approaching venture capitalists, it's essential to remember that they are inundated with pitches and proposals daily. Standing out requires more than just an innovative idea; it requires a demonstration of deep market understanding and a feasible business model. A realistic valuation is one of the most effective ways to showcase this. Here are some reasons why: 1. Credibility with Investors - Offering a realistic valuation: -Demonstrates market insight and financial acumen. -Shows that the startup is well-prepared and level-headed. -Avoids the pitfalls of overconfidence, which can erode trust. 2. Sustainable Growth - A grounded valuation sets the scene for: -Achievable and exceedable growth targets without extreme pressure. -Long-term business health, especially important in healthcare's complex regulatory landscape. 3. Stronger Negotiations - Realistic figures mean: -More focused discussions on shared growth and partnership. -Less time wasted in back-and-forth over inflated numbers, which can derail deals. 4. Attracting Ideal Investors - Investors drawn to grounded valuations: -Look beyond immediate profits to long-term company success. -Provide guidance, connections, and strategic insight, not just funds. 5. Future Fundraising Success - Consistent valuations without inflation: -Help avoid future funding rounds at lower valuations, which can dilute shares and harm reputation. -Create a positive trajectory for smoother, subsequent fundraising phases. What ever you do, don’t fall into the “TAM is 4 billion and if we get only 1% of market we will have 40 million in revenue and a value of $XX” trap. VC’s hear this everyday and none place any weight on this methodology to determine your valuation. #tam #valuation #venturecapital #venturecapitalist #funding #startupfunding #businessfunding

If it’s locked, can you unlock it? With large amounts of capital locked in traditional investment funds, institutional investors and limited partners (LPs) might start exploring new asset classes and strategies. 🌂 Illiquidity: $1.3 trillion. That’s the amount of unrealized assets residing in venture capital funds raised between 2010 and 2018 (source: Preqin). With so much liquidity tied in existing funds, generating more predictable outcomes from venture portfolios is on every investor’s mind. 🤑 Distributions: over the past 2 years, institutional investors have grappled with the denominator effect due to downturns in public markets, leading to an excessive allocation in private sectors, including VC. Additionally, fewer exits led to a 14-year low in distribution to LPs calculated as a % of net asset value (NAV), limiting their capacity to reinvest cash from VC gains. 2024 could be marginally better though many investors are still facing budget constraints. This might exacerbate competition with more liquid and lower-risk asset classes, such as high-yield Treasuries or other alternative investments. 🌥️ Fundraising: for startups, the liquidity crunch among investors means facing delays in fundraising, distressed sales, or even shutdowns. Less than a third of companies that raised a Series A in 2021 have raised their next round to date. The ongoing adjustment in public markets continues to affect private markets, leading to fewer investment rounds, extended intervals between funding, and an increased likelihood of distressed sales or closures in 2024 and 2025. In short: the current illiquidity overhang in private markets will persist unless there is an improvement in the IPO landscape and unless venture-backed software startups recalibrate for more realistic growth expectations. A vast number of VC-backed startups are operationally misconfigured for high growth, and are candidates for unlocking value and liquidity in the next 24 months. New strategies, such as structured growth equity strategy, can alleviate these issues by providing capital, underwriting revenues with the right retention characteristics, diversification profile and unit economics, and working with founders to steer these companies towards financial sustainability. By aiming for exits within a 3-5 year horizon, such strategies can shorten the duration of investments and create a new and uncorrelated source of returns for allocators.

🌟🚀 Diving into the world of Venture Capital might seem all glamour with 🥂🍾, but there's a lot behind the curtain. After some time in the industry, I've uncovered some insights rarely discussed openly—here's what I wish I knew before I started: 1. The Long Haul: Launching a VC platform is a marathon, not a sprint. Expect 2-3 years of financial insecurity and soul-crushing uncertainty. ⏳🎢 2. Financial Strain: Despite attractive returns on paper, the financial reality can be tough. It takes years and multiple exits to feel financially secure. 📉🤯 3. Patience for Returns: Real financial upside takes patience, often a decade, and that's if the portfolio performs well. 🕰️💸 4. Complex Relationships: Building trust with investors is a slow and sometimes frustrating process. 🤝😕 5. Priorities: Successful VC isn't just about finding great startups; it's about excelling in fundraising. 🌐👥 6. Political Dynamics: Investment committees can get political, affecting decision-making processes. 🗳️🤷 7. Risk Aversion: Especially in European VC, there's a significant aversion to risk, which can stifle innovation. 🚫🌍 Venture Capital is not just about picking winners but navigating complex financial and relational dynamics. It's tough, but for those driven by challenge, it's incredibly rewarding. 🌟 Despite the challenges, I absolutely love what I do. I feel lucky every day to meet bright minds and help fuel the future with Inovexus. It’s a privilege to be part of this dynamic field. 🚀 #VentureCapital #StartupFunding #InvestmentInsights #DiversityInVC

'Irish start-ups raised $100.9 million across 28 deals, representing a 59% drop compared to the $244 million raised in Q3 2023' according to KPMG Irelands latest pulse report presented by Anna Scally Some other interesting insights from the article below 💡 Medtech in the West continues to thrive Platform94 💡 Positive moves in recent budget to supercharge fund availability in 2025 and changes to CGT to incentivise investors to support startup and scaleup companies 💡 Sectors such as AI, health tech, and cybersecurity are likely to remain focal points for investors in 2025 What jumps out for me ...... time !⏰ Business owners already devote a huge amount of their valuable time to preparing for pitching for investment. This time is further impacted in a down market as it takes a lot more pitches and while there is positive sentiment generally, this time away from the business has an impact too. Well worth a read over a coffee this week. #fundingscale #fintech #businessgrowth Financefair

Investing in women led startups would be a double win at this moment in time. Women led startups have the added benefit of being a gender multiplier that has a ripple in our communities as an economic engine and great community citizen by giving back. #gendermultipliereffect

With early stage VC funding picking up steam I hope the next generation of founders are ready for the possibility that unfriendly funding structures will force them to denature their companies into obsolescence. 🚀 🚨 What I mean: 👉 VCs fund companies with the hopes that the success of one company will cover the failures of 10-20 companies 👉 This means that a lot of companies with healthy margins and growth rates still may not be on track for VCs to get the return they are hoping for 👉 So the VC would rather push a company to its limits in order to achieve one of two outcomes: failure or unicorn status 👉 A failure is no big deal for a VC -- their model accounts for it -- but it is a huge deal for founders, employees, and customers There are A LOT of founders who have been pushed to failure despite having perfectly good companies that generated cash, grew at 5-10% year over year, and had an army of loyal customers. Founders, stay vigilant: ✅ Bootstrap if at all possible ✅ Understand the terms of your funding: Ensure you know what you're signing up for and what the expectations are. ✅ Seek alignment with your investors: Look for investors who share your vision and values, not just those offering the largest checks. ✅ Have a plan B: Always have alternative strategies in case the pressure from VCs threatens the core values and mission of your company.

🚀 EIF VC Survey 2024: Market Sentiment & Challenges in Venture Capital 📊 The European Investment Fund (EIF) has released its latest VC Survey 2024, shedding light on the current landscape and key challenges for both fund managers and portfolio companies. Here are the highlights: Fund Managers' Biggest Challenges: 1️⃣ Exit Environment Tops the List: The exit environment has now overtaken fundraising as the biggest challenge for VCs, driven by limited IPO market liquidity and a sluggish M&A market. This is also reflected in the rising occurrence of insolvencies. 2️⃣ Positive Expectations for Exits: While exit challenges persist, 53% of fund managers expect conditions to improve in 2024, signaling optimism for the future. 3️⃣ Fundraising Still Difficult, but Improving Outlook: The fundraising environment remains challenging, but sentiment is turning more positive, with many expecting improvements ahead. 4️⃣ Emerging Opportunities in Key Sectors: Despite current headwinds, fund managers are optimistic about the future, especially in sectors like AI, Deeptech, and Cleantech, which are seen as the most promising for the next 3-5 years. Portfolio Companies' Biggest Challenges: 1️⃣ Securing Financing Remains the Top Concern: The biggest hurdle for portfolio companies continues to be securing financing, followed by challenges in customer acquisition and retention and recruiting high-quality talent. 2️⃣ Scaling in Europe is Difficult: Financing companies to scale up in Europe remains a significant challenge. Structural market weaknesses, including the lack of private domestic LPs and large institutional investors, are major contributing factors. 💡 Key takeaway: The VC landscape is evolving, and while challenges remain, opportunities are on the horizon, especially in transformative sectors. Navigating these dynamics will require agility, strategic financial management, and an eye for emerging trends. 💬 What are your thoughts on the future of VC and scaling startups in Europe? Let’s discuss! #VC #VentureCapital #EIFSurvey #AI #Deeptech #Cleantech #MarketSentiment #Startups #CFOInsights

Is the venture capital glass half full or half empty? As we analyse the latest figures from KPMG's VC Pulse report, there's been a 12% increase in VC investment over the past six months, reaching $1.8 billion. This uptick is certainly encouraging, but as Amanda rightly points out, we're not out of the woods yet. Despite the surge driven by several billion-dollar deals globally, the overall volume of deals is at its lowest since 2016. From our conversations with founders, we know the fundraising environment remains challenging. But there's plenty of reason for optimism. Some sectors, particularly those leveraging AI, are seeing strong interest. We know that innovation is still being rewarded, even in a tighter market. We're seeing some amazing entrepreneurs rise to the challenge and demonstrate solid fundamentals. The capital is out there, but accessing it requires more preparation and persistence than ever. Dive into more of Amanda's insights here: https://lnkd.in/gPNQ5WgE #venturecapital #investment #startups