Phil Lynch’s Post

An insightful paper from the National Bureau of Economic Research on the decision heuristics of institutional VC asset managers. The authors surveyed 885 institutional venture capitalists at 681 firms to learn how they make decisions across eight areas: deal sourcing, investment selection, valuation, deal structure, post-investment value-added, exits, internal firm organization, relationships with limited partners.

Dive into part 2 of our Masterclass series, where we break down the art of assessing lead investors. Learn how top VC firms consistently outperform and discover our proven strategies for aligning with industry leaders. Don’t miss out on insights that could transform your investment approach.

🔥 Want to know what your Alberta tech startup is REALLY worth? The gap between "it feels right" and what investors will actually pay can sink your fundraising efforts. I just listened to an eye-opening podcast with Bryan Slauko, CFA from Metiquity Ventures and Ayo Aiyeleye, MSc, PMP® from Alberta Innovates every Alberta founder needs to hear. Key takeaways that changed my perspective: 💡 The "Silicon Valley playbook" doesn't work here. Alberta's unique ecosystem means different rules for valuations and fundraising. 💰 Pre-seed stage valuations typically land between $1.5M-$3M. Going too high kills your chances for future rounds. 📈 The magic formula? Aim to double both revenue and valuation between rounds. One portfolio company went from: Pre-seed: $250K revenue → $3M valuation Seed: $1M revenue → $8M valuation Growth: $2M revenue → $18M valuation 🎯 Most crucial insight: In 2023, only $5M was invested across 11 pre-seed rounds in Alberta. The money's here, but accessing it requires a different approach. As Brian says: "Valuation isn't about how it feels right to you - it's about what makes sense to everyone at the table." It's worth a listen if you're building in Alberta's tech ecosystem, but I've left key insights below if you need more info. #AlbertaTech #Startups #VentureCapital #Entrepreneurship Alberta Market Context 1. Alberta has a younger tech ecosystem with limited pre-seed stage capital -In 2023, only $5M was invested across 11 pre-seed rounds in Alberta -Local market dynamics differ significantly from Silicon Valley or Toronto -Fundraising needs to be adapted to local ecosystem limitations 2. Pre-Seed Stage Characteristics -Typically companies with MVP built and less than $250K in revenue -Usually teams of 1-3 founders, often first-time entrepreneurs -Typical raise amount: $250K-$1M -Focus primarily on B2B software companies 3. Valuation Guidelines for Alberta Pre-Seed Companies -Typical valuation range: $1.5M-$3M pre-money -Rule of thumb: Expect 20-25% dilution in pre-seed round -Example: $2.5M pre-money valuation raising $625K = 20% dilution -Need to consider future fundraising implications when setting initial valuation 4. Key Valuation Factors -Team composition and experience -Product development stage -Customer traction and feedback -Go-to-market strategy validation -Overall risk profile 5. Successful Fundraising Path Example - Pre-seed: $250K revenue → $3M valuation raising $1M - Seed: $1M revenue → $8M valuation raising $1.5M - Growth: $2M revenue → Potential $18M valuation raising $5M - Goal is to roughly double revenue and valuation between rounds 6. Important Considerations -Making fundraising "easy" through reasonable valuations -Building relationships with local investors -Understanding that valuation impacts future fundraising ability -Importance of having a lead investor -Need to balance between growth ambitions and local market realities

What can we glean from the Canadian Venture Capital & Private Equity Association (CVCA)'s H1 2024 market report? John Rikhtegar, Director, Capital at RBCx looks at what these investment patterns mean for companies across various growth stages in the tech and innovation ecosystem, and how VC firms are investing in innovation to foster a competitive economy. Read more: https://bit.ly/3U5m12o #RBCxPowersBold #venturecapital #insights #mycompany

It seems like just yesterday that we held our second semi-annual Venture Capital State of the Union, so it's hard to believe it was six months ago. That means however, it's time to do it all again in our third installment! So join me and Allocate Co-Founder & CEO Samir Kaji for this not to be missed webinar. Since then we've definitely seen a shifting of the sands when it comes to venture capital and I can't wait to share what we've been seeing and hearing from our wonderful GPs and broader venture ecosystem! #venturecapital #vc #alternatives

🚀 Thrilled 🚀 Private equity pioneer on the move! With an ambitious goal of reaching $1tn in assets, they are looking to exit more investments to streamline operations and achieve growth. 1. Exciting times ahead as the pioneer paves the way for big developments in the private equity sector. 2. The focus on exiting investments shows a strategic approach to scaling up and achieving their target assets under management. 3. Looking forward to seeing how this move will impact the industry as a whole and what opportunities it will bring for investors and stakeholders. Stay tuned for more updates as this pioneer continues on its growth trajectory towards the $1tn milestone! 🌟 #PrivateEquity #Investments #GrowthGoals

🤖 Below the 𝘼𝙄 𝙎𝙪𝙢𝙢𝙖𝙧𝙮 of this research, which surveyed 885 VCs to understand how they make decisions across 8 areas. Sep. 2016. 𝗗𝗲𝗮𝗹 𝗦𝗼𝘂𝗿𝗰𝗶𝗻𝗴: Most deals come through VCs' networks. Over 30% are generated through professional networks, 20% referred by other investors, and 30% proactively self-generated. Only 10% are inbound from entrepreneurs. 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗦𝗲𝗹𝗲𝗰𝘁𝗶𝗼𝗻: The management team is the most important factor, cited by 95% of VCs and ranked most important by 47%. Business model, product, market and industry are important but secondary to team. 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻: Exit potential is the top factor in setting valuations. Only 20% of VCs use DCF methods; most rely on cash-on-cash return multiples and IRR hurdles. 91% think unicorns are overvalued. 𝗗𝗲𝗮𝗹 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲: VCs are inflexible on pro-rata rights, liquidation preferences, and anti-dilution but will negotiate on option pool, dividends and redemption rights. Syndication is common. 𝗩𝗮𝗹𝘂𝗲-𝗔𝗱𝗱: VCs interact frequently with portfolio companies and provide strategic guidance (87%), hiring help (58%), customer connections (69%), and operational guidance (65%). 𝗘𝘅𝗶𝘁𝘀: Deal selection is viewed as the most important driver of returns (49%), followed by value-added (27%) and deal sourcing (23%). The management team is the top factor in deal success or failure. 𝗩𝗖 𝗙𝗶𝗿𝗺 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁: The average VC firm has 14 employees and 5 senior partners. Partners specialize and are compensated based both on fund and individual success. 𝗟𝗣 𝗥𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀: VCs believe LPs care most about absolute returns (cash-on-cash and IRR). 93% of VCs expect to outperform public markets. 𝘐𝘯 𝘴𝘶𝘮𝘮𝘢𝘳𝘺, 𝘝𝘊𝘴 𝘳𝘦𝘭𝘺 𝘩𝘦𝘢𝘷𝘪𝘭𝘺 𝘰𝘯 𝘵𝘩𝘦𝘪𝘳 𝘯𝘦𝘵𝘸𝘰𝘳𝘬𝘴 𝘧𝘰𝘳 𝘥𝘦𝘢𝘭 𝘴𝘰𝘶𝘳𝘤𝘪𝘯𝘨, 𝘱𝘳𝘪𝘰𝘳𝘪𝘵𝘪𝘻𝘦 𝘵𝘩𝘦 𝘵𝘦𝘢𝘮 𝘪𝘯 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘴𝘦𝘭𝘦𝘤𝘵𝘪𝘰𝘯, 𝘱𝘳𝘰𝘷𝘪𝘥𝘦 𝘴𝘪𝘨𝘯𝘪𝘧𝘪𝘤𝘢𝘯𝘵 𝘱𝘰𝘴𝘵-𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘴𝘶𝘱𝘱𝘰𝘳𝘵, 𝘢𝘯𝘥 𝘴𝘩𝘢𝘳𝘦 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘤𝘴 𝘣𝘢𝘴𝘦𝘥 𝘰𝘯 𝘪𝘯𝘥𝘪𝘷𝘪𝘥𝘶𝘢𝘭 𝘢𝘯𝘥 𝘧𝘪𝘳𝘮 𝘴𝘶𝘤𝘤𝘦𝘴𝘴. #VCs #DecisionMaking #Research

Interesting paper to read

What can we glean from the Canadian Venture Capital & Private Equity Association (CVCA)'s H1 2024 market report? John Rikhtegar, Director, Capital at RBCx looks at what these investment patterns mean for companies across various growth stages in the tech and innovation ecosystem, and how VC firms are investing in innovation to foster a competitive economy. Read more: https://bit.ly/48E5Vmu #RBCxPowersBold #venturecapital #insights #mycompany

What can we glean from the Canadian Venture Capital & Private Equity Association (CVCA)'s H1 2024 market report? John Rikhtegar, Director, Capital at RBCx looks at what these investment patterns mean for companies across various growth stages in the tech and innovation ecosystem, and how VC firms are investing in innovation to foster a competitive economy. Read more: https://bit.ly/4gRhCcY #RBCxPowersBold #venturecapital #insights #mycompany