But Mark has nailed the current situation very well. This is not the same “Silicon Valley” as before. So let’s continue with the statements:
- The number of companies making unicorn status in 2021 is now over 400.
- The pace of unicorn creation is accelerating - both in terms of how many companies are graduating to the status and how fast they achieve it.
- The majority of unicorns are still private companies. This creates liquidity issues that are covered well in Jack Abromowitz’s essay where he reviews the gap between largely illiquid TVPI (total value to paid-in capital) and liquid DPI (distributions to paid-in capital) in leading VC funds. He does a great job of differentiating the top 5% of funds from the top 25% and then the rest while showing the vast ocean of illiquidity in the ecosystem.
- Venture funds have two challenges. Finding future unicorns and becoming liquid in them. Neither has an obvious solution. Forge Global announced a SPAC merger this week and claims to have a partial solution to liquidity. Alex Wilhelm - who is consistently excellent - unpacks that.
- The Venture Model surely has to change. Dror Poleg writes a wonderful piece about Andressen Horowitz’s transformation from a Venture Fund into a Venture Corporation:
The firm is on a hiring spree, recruiting new partners and former government officials, writers, editors, and more. A16Z is no longer building a venture capital firm; it is building a new type of company
with a thick management layer that helps support its multiple portfolio companies with marketing, legal, lobbying, and technical resources. It’s no longer venture capital; it’s a venture corporation.
He stops short of seeing this also as a liquidity solution, but it seems clear that publicly traded venture funds will emerge as a solution in this area of need. When there are valuable private assets, a public stock that owns those assets will clearly be beneficial.
That leads to the final statement:
- Venture Capital will seek to combine strategies that can allocate capital into the best startups while at the same time enabling liquidity methods for their LPs to benefit from the TVPI of their portfolio.
My interest in this is not a secret. SignalRank Co, where I am CEO and one of the founding team, is combining large-scale capital allocation into early-stage venture, data-driven decision making about where to place that capital, and a publicly listed “venturetech” company bringing Fintech, Data Science, and liquidity to the venture ecosystem. Our seed round is close to being announced.
More when it is.
The Pitchbook Q2 2021 US VC
report amplifies all of these trends.
Meanwhile, enjoy this week’s video essay.