André Berg Edvardsen’s Post

Great report on VC fund performance just released by Peter Walker and Carta. However, investors need to be careful about how they interpret the data it contains. Some of the key points are discussed below: 1. Median IRR for vintage years 2021 and 2022 below zero. Investors who only started committing to VC in the last five years may be alarmed by this. Don't be. It's the J-Curve. It just means that the market is getting back to normal after the ZIRP era of easy money and instant writeups. 2. Median IRR in vintage year 2021 trails earlier vintages. See #1 above. 2017-2020 vintages had no J-Curve and were abnormal. Also, IRR metrics can be very misleading, particularly in the first few years of a fund's life. We don't pay any attention to IRRs until at least year five. 3. Median TVPI is below 1.5x for 5 vintages. Building a world-class company takes time and there are no shortcuts. Typically it's 8-10 years between a company being founded and going public. This means that value creation usually develops over time, with much of the value coming in the last few years of a fund's life. The TVPI after 5 years is not an indication of where the fund will ultimately end up. 4. Fewer funds in recent vintages have DPI. Within the VC industry, exits come in waves. There are long periods where nothing seems to happen, punctuated by short periods of intense liquidity and value creation. The IPO window has been shut since 2021 and it has been a struggle for large M&As to get approved. As such, it's no surprise that DPI has slowed for recent vintages. Again, this is not a good indicator of how funds might eventually perform. The key is to have companies that can ride the next liquidity wave, whenever it emerges. 5. Q1 had the highest share of down rounds in the last 5 years. Around 60% of early-stage VC investments lose money, with 25% being complete write-offs. Loss ratios for 2012-2020 vintage funds had been running well below the long-term averages due to the weight of capital available. We are now seeing a reversion to the mean and there will be more write-offs and write-downs to come over the next few quarters. While painful for all concerned, this is healthy for the long-term prospects of the VC industry. 6. Graduation rates for Seed to Series A have fallen. See #5. Again, this is just a reversion to the long-term mean. Ultimately, this report is telling us that the VC market is moving back to a more normal state. This will be positive for long-term returns as long as investors can access the top 1% of companies that typically drive the majority of the performance generated by the VC industry globally.  Full report available at https://lnkd.in/eRsmtNnr

More and more VC funds struggle not only to generate returns, but even to return capital Carta published VC Fund Performance (Data as of Q1 2024). The report is based on data from 1,803 venture funds, ranging in vintage year from 2017 to 2022. The most important data from the perspective of current and future LPs (limited partners) - DPI, which stands for distribution to paid-in capital (the ratio of capital returned to investors to the amount they’ve paid into a fund to date). What DPI data tells us? 👉 VC funds struggle not only to generate returns, but even to return capital 👉 the younger the vintage year, the harder (less probable) for a VC fund to return ANY capital to its investors (not to mention profits) 👉 for example, after 3 years since inception - 25% of VC funds established in 2017 returned some capital to its investors, 19% of VCs vintage 2018, 24% of VCs vintage 2019 (the increase is due to the peak of the tech bubble), 16% of VCs vintage 2020, and only 9% of VCs vintage 2021 👉 the same pattern we see after 5 years since inception - 59% of VC funds established in 2017 returned some capital to its investors, 50% of VCs vintage 2018, and only 39% of VCs vintage 2019 👉 significant decrease of tech IPOs, decreased M&A activity and falling valuations impacted the most falling DPI for younger vintage VCs Link to the full report https://lnkd.in/dNUFR5KM Peter Walker, Alex Lester, Kevin Dowd, Michael Young great work and please consider to update the report at least once a year. Thank you on the behalf of the whole ecosystem. ___________________________________ Did you like this post? Connect or Follow 🎯 Pawel Maj Want to see all my posts? Ring that 🔔 Image by: Carta

Getting an Investment Scaled Back... Getting an SPV scaled back sucks. Essentially, you raised capital for a deal you got an allocation into, but due to it being a competitive round, you now cannot commit the original allocation requested (got sized down) and therefore LPs commitments are going to result in getting scaled back too, given the syndicate allocation got scaled back.  This is definitely another “part-of-the-game” scenario with syndicates as it happens here and there. It’s also why in some scenarios where you foresee this, well then once you have the capital committed you want to sign & wire before the round could get more competitive. There are nuances here like whether it's a SAFE/note vs. priced round as this might be out of your hands, but the point is that the quicker you hard confirm the allocation, the less likely of getting scaled back, which is best for you (the GP) and your LPs. It’s not a good feeling but, comparatively, it’s way better than getting cut out of the deal, so as a syndicate lead, you live with it. Sometimes LPs might express frustration here because they did not want their LP commitment to get cut back, which I can understand, but this is also a “we’re all in this together” scenario. Definitely part of the game for syndicate leads and syndicate LPs. It’s also important for LPs to understand this before investing in SPVs. -- Powered by Sydecar, Last Money In Media is the most actionable venture capital newsletter. Written by Zachary Ginsburg and Alex Pattis, who have deployed >$200M across 750+ SPVs.

The venture capital landscape has faced significant challenges since interest rates began rising in early 2022. Fundraising has slowed, and liquidity is scarce due to fewer IPOs and weak M&A activity. As competition for LP dollars intensifies, especially for small funds, better data can make a difference. 💥 We're excited to introduce Carta's first VC Fund Performance report, featuring insights from 1,803 U.S. venture funds using Carta Fund Administration. This analysis focuses on direct venture investors with vintage years 2017-2022. More details on our methodology are available in the report. #vc #venturecapital #benchmarks

Fund sizing is a critical #strategy in #venturecapital, where bigger isn't always better. As seen in recent moves by firms like Balderton Capital, Index Ventures, and Accel, raising large funds has become more common in 2024 (Sifted, 2024). But what exactly drives fund sizing, and how should VCs approach it? For those unfamiliar, fund sizing involves determining the amount of capital a venture fund should manage, which impacts the number of companies they can invest in, the ownership stakes they can maintain, and the reserves needed for follow-on investments. While a larger fund might suggest more opportunities, it also requires larger or more frequent successful exits to generate significant returns. For instance, to return a $100 million fund, you might need a billion-dollar exit if you hold a 10% stake in a company. However, the recent trend of increasing round sizes has led some #VCs to raise larger funds. This is not without its challenges; larger funds often mean lower returns, as it becomes mathematically tougher to achieve outsized gains. There's also a growing contrast between mega-funds that can absorb risk without significant impact and smaller funds that must carefully manage each investment to ensure high returns (Sifted, 2024). But ofcourse, larger funds have their own advantages. So, what's the strategy? While some firms are raising bigger funds to keep up with larger rounds, others are sticking to smaller funds, focusing on high-impact investments in early-stage companies. The choice between scaling up or maintaining a leaner fund depends on the firm's goals, market positioning, and investor expectations. Key Takeaways: 1. Fund Sizing Balance: Bigger isn't always better. The strategy behind fund sizing should be aligned with the firm’s goals and the market environment. 2. Market Dynamics: Rising round sizes and the bifurcation between mega-funds and smaller funds are shaping how VCs approach fundraising. 3. Focus on Returns: Larger funds may dilute the focus on individual investments, potentially leading to lower returns compared to more targeted, smaller funds. (But more experienced VC's might have a different take on this). 4. Future Outlook: Successful VCs might continue to grow, but the market could see fewer new funds and more firms struggling to raise subsequent funds. As the #VC landscape continues to evolve, the question remains: will your next fund be bigger, or is there wisdom in staying small and focused? Thanks to Anne Sraders and the team at Sifted for putting together this interesting piece. Happy reading below...

There are a lot of unknowns about investing in Venture Capital . Whether its your career or your money. We tackled some questions on the former in recent posts on " VC Careers". I am glad it was useful to many of you. There are more coming ! We have just taken a pause for the LP Series. ✅ What is the LP Series ? So, there is a similar opacity about being a " Limited Partner" or an investor in a VC Fund. This asset class came in about 10 years ago and most domestic funds raised money from HNIs ( High Net Worth Individuals) and Family Offices (FOs) who were brought in "indirectly" by Wealth firms who help them manage their wealth Today, 10 years later, many of them are searching for answers to how there is a big difference between what was pitched to them and what they have gotten so far. Many entered, as late adopters, in the second wave in 2016-2018 and even they are wondering how their money is being managed. Could the results have been different ?  Did the Fund manager ( VC ) do all that it could have ? In public markets, you have access to all information that moves pricing on stocks purchased by your Fund manager ( Mutual Fund) and can ask piercing questions on their daily actions, if you wish. The regulator Securities and Exchange Board of India (SEBI) keeps a tight oversight. In other words, it is fully "transparent". In private markets, it is all "confidential" and a veil of secrecy exists between the VC and the LP. There is no way ( or it seems so) to evaluate : ✅ How the VC firm goes about its daily actions and what is the basis for those actions ? ✅ What % of their time do the "Partners" spend on managing the funds ? ( Remember, usu more than 95% of funds managed by a typical VC do not belong to it) ✅ What does the VC do with the 2% fee it earns per annum, on every Rupee it manages ? and more Being a new asset class and a smaller % of their wealth, many LPs may have taken a "trial-and-error" approach or a "passive" one 10 years ago. But, no one wants less than 100% from the VC when it comes to intent, competence and efforts. Else, why pay the 2% pa ? Many I have met, have been disappointed by evasive and incomplete information on why things are where they are and why they couldn't have been better. Things don't happen just like that. There is a method and there are principles in each sphere of VC activity. When those are compromised, results will be below par. We will talk about these in the LP series. By asking some questions, you will discover that you have a choice today between really #transparent firms and those purely projecting it If you are an existing LP or proposing to be one and wish to be making better decisions or asking questions you didn't know you could ask, LP series is for you. Please feel free to share your doubts in DM and I will cover those off in the LP Series. #transparency #venturecapital #india

More musings about #thecraft: Running a venture fund (or any type of investment fund) is VERY different from managing your personal investing I think this is what many aspiring fund managers miss, especially those who come from a track record of good personal investment. Whether it was investing in stock market, crypto, startups, property, or any asset class you can think of. Investing your own money (and being damn good at it) is a great foundation, but there are a lot other aspects an aspiring fund manager need to consider. I won't go into everything as that can be a whole book of its own, but one aspect that I've been thinking hard about is the investing timeframe. This came from a recent discussion with a potential investor who asked, "from your personal angel investments, how many have you exited within a hypothetical fund timeframe?" My best personal portfolios were companies I initially invested back in 2011 and 2012. It's been 13 and 14 years respectively since I started investing in them. It's only now that they start to achieve "escape velocity" and getting to a respectable business size. Not coincidentally, both are in the B2B space of different industries where the sales cycles are long and unpredictable. To make it even harder, both are selling products that are considered new, so their clients need to go through multiple bureaucratic hoops before even issuing the initial purchase order. Only after 10 years they start to get big names as customers, which brought extra credibility to attract other customers. Even after 13 & 14 years, it will probably take another 3-5 years before I can see meaningful exits for my investment. As rightly pointed out above, this may (emphasis on MAY as nothing is for certain) be a good outcome for me personally, but this for sure won't cut it as fund investments. Most venture funds have 10 year fund life (with a possible 2 year extension). Some funds even promise only 8 year fund life to be able to attract LPs. Managing investments with this time constraint (and return target) needs a totally different strategy from investing your personal money for fun. There are plenty other aspects to think about managing OPM (other people's money), and I'm always happy to exchange notes and brainstorm with others about this, so feel free to ping me! These discussions about #thecraft are probably the 3rd most interesting topic for me at this point, after discussions about how Liverpool is going to approach the summer transfer market, and the ongoing NBA trade and free agency during this offseason

New PitchBook data reveals that the journey from a first to a sophomore fund has never been more daunting. Historically (2006-2018), 63% of first-time managers were able to raise a second fund, but the current environment suggests a much tougher road ahead. Let’s dig into why👇 A mix of factors, including a surge in first-time funds, volatile valuations and a tough fundraising environment, are expected to decrease the success rates for managers seeking to raise a Fund II. In 2021, total capital committed to U.S. first-time fund managers totaled $14.7B across 318 funds. Over the past 2 years, those numbers hit a sharp decline, with 2023 finishing the year with only 97 first-time funds raised & less than ½ the capital of ‘21 at $6.5B. This aligns with overall VC fundraising efforts as ‘23 was the second consecutive year established managers (funds 4+) took more than 70% of total committed capital in the ecosystem. 🚨Concerning trend alert: Over 247 of the 667 first-time managers (2019-2021) that closed funds might not secure a second fund. As we look ahead to 2024, it appears to be a busy fundraising year, with funds that had planned to return in '24, along with those who chose not to raise funds in the previous year's challenging conditions. Competition for capital will be tough, and on top of that, the lack of liquidity for the venture market has led many LPs to reconsider their allocations to venture, even with existing manager relationships. This could potentially wipe out nearly a year and a half of new VC manager entries.    The ongoing fundraising slowdown is not just a numbers game – it represents a potential shift in the VC ecosystem. We may see a notable impact on emerging managers and the markets they serve as many LPs are forced to favor established managers with proven DPI. Considering scenarios where success rates drop 5-15% from historical averages, we could see up to 347 first-time managers exit the market. This challenge underscores the need for adaptability and resilience in today's VC landscape. LPs - What are some ways to creatively underwrite emerging managers so folks can continue funding them, as well as established managers with proven track records? For a deeper dive into the challenges and projections for first-time VC managers, read the full PitchBook Analyst Note: https://lnkd.in/gcwaZyK3 #fundraising #emergingmanagers

New data from PitchBook highlights outcomes of first-time VC managers.👇 And while it’s not great news, those of us who have navigated multiple market cycles know that funds (and companies) born in challenging vintages can bear some of the most compelling returns. It’s going to be a tough road ahead, but we could very well see the next big venture platform come from this class. Case in point USV was born just past the 2001 dot com crash and A16Z was founded in 2009 during the Great Recession. If you’re not already, be sure to follow @OpenLP for more data-driven insights from top venture voices. #OpenLP #Fundraising

NFX has shared a detailed guide by Omri Amirav-Drory, on how individuals can start their own VC fund. Drory explains the intricacies of raising capital, building a strong fund strategy, and becoming a top 1% investor through added value to startups. With his experience as a scientist and founder, Drory offers a unique perspective on the steps necessary to thrive as a new VC. For those looking to break into the world of venture capital, this post offers strategic insights and practical advice. https://lnkd.in/eTqEJzVv #Venture #VentureCapital #VC