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Venture Capital 2022 - Up or Down?

Venture Capital 2022 - Up or Down?
By Keith Teare • Issue #295 • View online
This Week @Beezer232 Clarkson leads the way in analyzing 2022 venture capital trends. As the public markets remain in a frenzy of volatility the venture ecosystem seems predictable. or is it? @Bryce, @SamirKaji, and @MylesDanielsen all have opinions. Plus @AleResnik, @HPierreJacques, and @MillicastRTC

Content
Editorial
The volatility in the public markets is driving much of the conversation among venture capitalists in Silicon Valley this week. How will it impact me is the question on everybody’s lips. We covered some of this in issue #293, A Tale of Two Markets. But with Facebook falling 25% overnight and PayPal also losing significant value, the subject will just not go away.
Luckily we have some wonderful people weighing in this week, not least of which is Beezer (Elizabeth) Clarkson of Sapphire Ventures. Sapphire is an investors investor I would say. It publishes OpenLP, a site devoted to surveying the venture scene and particularly the early-stage investment landscape.
Beezer published a Twitter thread this week that included such nuggets as:
A Tweet from Bryce Roberts:
Bryce Roberts
This pullback likely to have very real impact on available ‘22 LP dollars.

Respect to anyone trying to raise a new fund in this year.
And one from Myles Danielsen:
Myles Danielsen
@Samirkaji If this is true, hit us (HCP) up

Would love to deploy more in 2022 (which will be a better vintage) than we did in 2021

Happy to fill the place of LPs who don’t want pro rata in great firms
To which she responds:
Elizabeth Clarkson
In this dynamic market with so many variables at play, specific outcomes are impossible to predict. But given how much $ was raised last year, VCs have plenty of $ to invest in the next gen of entrepreneurs.

We’ll keep our eyes on the LP trend lines. Stay tuned.

#OpenLP
If that feels a bit open-ended and meaningless it is, but not all is lost. In January Beezer published a long thread (below) that is a lot more detailed on the subject. It leads this week’s curated articles:
Elizabeth Clarkson
Here’s what us LPs are seeing and some of the questions LPs are asking themselves going into 2022.

#OpenLP https://t.co/pFaXjBr2lQ
Highlights include the observation that early stage funds are allocating capital faster than ever, meaning that some are becoming 2 year funds. That LPs are not drying up and are still allocating. That there is over $900 billion of money on the sidelines.
She explains that this is driven by returns. Looking only at 2019 vintage funds she reports that Cambridge benchmarks show the following:
- 2019 US VC top quartile TVPI is 1.56x, median is 1.26x, and top 5% is 2.12x 
- 2018 US VC top quartile TVPI is 1.87x, median is 1.59x and top 5% is 2.50x 
(all net to LPs)
And then she acknowledges that:
*particularly* right now (but also always), the competitive landscape for LP $ is fierce.
The bottom line is that in 2021 more than 832 billion dollar companies were minted (unicorns, exited unicorns, and exits over $1 billion). The value creation from seed stage through Series A, B, C, D through to exit is staggering. And the earlier one invests in a winning company the higher the multiples returned. Tiger and its lookalikes are investing earlier for a reason. It produces returns.
So, the public market correction is definitely real. And the multiple of revenue public investors will pay for a stock is shrinking. This will have an impact on later-stage valuations. But for seed investors and those in early-stage venture, it is all systems go. 
Ths is all driven by the scale of the market and the almost free distribution channels to reach people. More than 4 billion people are on smart phones worldwide and accessible through the web and on dev ices through two app stores. Web3 (much more below) is driving that scale even further and faster and making more facets of life available to developers.
Sadly regular folk cannot invest in early-stage venture. So the value growth experienced is not available directly to anybody who is not already wealthy. They cannot even invest via ETFs or indexes as these too are not allowed to hold and make available private company assets.
As venture capital flourishes this will need to change.
More in the video.
Video
Venture Capital 2022 - Up or Down?
Venture Capital 2022 - Up or Down?
Taking the Venture Temperature
We all know the venture market was on 🔥 in 2021, but how is that actually manifesting and what does that mean for how the proverbial table is being set for 2022?
Hey GPs - In the last few weeks I’ve had multiple asks about emerging manager benchmarks/what we are seeing for 2019 (and other recent) vintages. So here’s a quick 🧵 breaking down what we see in the case of 2019 venture funds and the greater LP context
Releasing a redacted Lux quarterly letter to LPs. Some strong views of -a catalog of an excess of excesses -what catalysts cause the current market frenzy to end (preview: LP indigestion) -what we are advising our Lux family companies
The $900 Billion Cash Pile Inflating Startup Valuations - WSJ
Ale Resnik
The difference between a top-tier VC and a second-tier VC is so massive that I'd go as far as saying that I'd choose to bootstrap if I couldn't raise from the good ones.
🧵How does Seed stage fund math work? 

Now that I invest in funds, I’ve seen dozens of emerging manager decks and the fund model is one of the biggest decisions and misses that I see. VC is as much math as gut/luck. 

Let’s get into it
Understanding Trends in Web3
The Inevitability of Trusted Third Parties
A look at the numbers behind the emerging Web3 economy
FTX Reaches $32B Valuation With $400M Fundraise
Diem Confirms Shutdown as Silvergate Acquires the Project's Assets
Meta's crypto project has been officially sold
Web3: Wallets Needed
Jack Dorsey’s backing Lightning as a bitcoin payments solution
Coinbase Says Web3 Projects Led Record Venture-Arm Investments - Bloomberg
Crypto, Web3 and the Global Unleashing Part Deux
The New York Times
Wordle, the game everyone's obsessed with, gets bought by the New York Times
Investing in Africa
TLcom a venture capital firm has secured Ksh. 8 Billion for its Pan-African tech fund - HapaKenya - HapaKenya
Tiger Global and Greycroft back Nigerian investment app Bamboo in $15M round - TechCrunch
Buying Games
Gaming the Smiling Curve
Startup of the Week
Phantom raises $109 million in new funding, launches iOS app
Tweet of the Week
Millicast
We are extremely proud to announce that we are now a part of @Dolby and the @DolbyIO team: https://t.co/hXvS4mrVdX
Dolby acquires low-latency streaming platform Millicast – TechCrunch
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Keith Teare, Palo Alto, California