David Zhou’s Post

It’s interesting to go up the food chain and see how funds compete for LP dollars, especially when VC isn’t their usual pick. It mkes you more humble next time you hear - you are too early for us. 1. It’s a fight for LP cash. LPs spread their money across different investments— hedge funds, private equity, real estate and more. VC has to beat these. LPs use something called Public Market Equivalent to check if VCs give better returns than regular options like stocks which they can sell easily if whenever they want. 2. Early-stage VC is super risky and takes time. LPs can’t touch their money for a long time so they expect a premium. Basically, they want extra return to make up for the wait. 3. It’s harder – If you’re running a new or small fund, you’ve got more to prove. LPs don’t know you yet, no track record. So they want the complexity premium. LPs want more return because the whole thing’s harder to figure out.

Another reason we've run into especially when chatting to European LPs is: Average returns in PE / buyout are not that different to VC but distribution of returns is closer to a bell curve vs power law in VC. This makes manager selection a lot more important - "which we don't have the bandwidth + know how for." Hard to overcome - especially for FOs that are more risk averse / focused on wealth preservation (vs wealth creation) which is much more prevalent in Europe vs the US. Even if they find the asset class per se interesting. The main (only?) way to overcome this is a strong relationship with the principal.

#160 VC Fund Math: "Maximum Convexity" Leads to 10x+ Funds What game are you playing in VC? Are you going for 10x+ funds or 3x+ funds? If you're going for 10x+, you need "maximum convexity." More in our latest! #VC #VentureCapital #OpenLP https://lnkd.in/gXgvK2kE

Interesting perspective for fund managers as VC deal making starts to recover. If you are fund manager or LP, take a look. "With VC dealmaking starting to bounce back, LPs should keep a watchful eye on the pace their managers are putting capital to work."

Great article by Partners Group pointing out advantages of our quarterly semi-liquid venture fund, Loyal VC, that I didn't even realise we had. Loyal deploys, and gives returns on, all your capital all the time. Other VC funds force you to hold capital for future deployment in low-yielding assets, and don't count that forced low yield in reporting your returns. To add insult to injury, they still charge you management fees on that low-yielding committed capital!! To us the Loyal way is just more sensible, and better for LPs. It is good to see others agreeing with us. Claudia Zeisberger https://lnkd.in/gbint4Jt

The VC term sheet is an essential component of every VC investment. The three most important elements of the term sheet are liquidation rights, management participation and control, and exit rights. Whether you are a fund manager or investor, you should understand the basic structure of the VC term sheet. Check out the complete overview here: https://lnkd.in/dxtr-GJk #venturecapital #VC #Fund #VCFund #capital #investing #finance #VCtermsheet

A few years ago I came up with an idea, which wasn't new by any means, just worded differently I guess. I called them Fund Pods, which were basically 5 $1 million dollar funds for accredited investors only that all invested in the same deals. The term for those funds are called sister funds, but I thought Fund Pods was better for marketing purposes. What was the point of doing a Fund Pod? Opening up access to private alternatives funds with extremely low minimums due to the 99 LP limit to smaller check writers. My thought was, if the average Angel check is $10k, why not keep that amount the same but for a managed fund? Open up more access to more people and for those who wanted to go bigger, they could with no limit. This would also increase your LP base from 100 up to 500 and if you do your job, they'll be loyal, repeat and potentially bigger investors over time. Sure, the costs of setting up and running 5 funds is more expensive and time consuming, but I think it's worth it as it's a long game strategy that's 100% mission driven. We started but never pulled the trigger on the first Fund Pod, so it's still on my list of things that I still want to try. ***These were not VC funds and required an ERA designation/filing.

Keith at SignalRank picks up on an interesting perspective why "it seems like almost every day at the moment that an asset manager is announcing a new partnership to make alternatives go mainstream". https://lnkd.in/e_QKDutB BlackRock’s acquisition of Preqin in the summer fired the starting gun on this rush to alternatives, by signalling an intention to index private markets, he noted. More recently, Cerity Partners has merged with VC-as-a-service provider Touchdown Partners https://lnkd.in/eSP4e7Vj and Italy's Intesa has expanded its VC funds to $500m. https://lnkd.in/eXeasJBF This could be somewhat surprising given most VCs are struggling to invest and raise money - Noah talks about a VC winter in his blog that could worsen if the AI frenzy fails to deliver internet-style returns https://lnkd.in/e5BiBbNW So why the consolidation or expansion by mainstream asset managers now? First, transparency is improving somewhat and, second, the winners in venture are powering up with good fees available and ability to invest proper amounts. From a cottage industry run by lifestyle entrepreneurs (ironically the very thing VCs claim to hate in their portfolio companies) the corporatisation of venture is now happening to more efficiently and effectively allocate capital and resources to those that can use them best. The mom-and-pop VC shops could be - finally - on their way out apart from in niche or novel areas of course. Go to www.globalventuring.com to see where innovation meets capital

Want to grasp the VC term sheet essentials? It's a game-changer for fund managers and investors alike! Learn about the three crucial elements: liquidation rights, management participation, and exit rights. Enhance your understanding and make informed decisions. Check out the full overview here: https://lnkd.in/dxtr-GJk https://lnkd.in/gT4-tPUE

The article highlights that the 2 and 20 structure is not always the standard and while it is the most common for funds managing $100M, he management fee structures vary. For those of you who are working for VC firms, I would love to learn if your firm uses the 2 and 20 structure. If not, then what structure for the management fee and carry does your firm use, if you feel comfortable sharing? Please share!!!