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Venture Capital Deep Dive

Venture Capital Deep Dive
By Keith Teare • Issue #274 • View online
This week a far deeper dive into the changing world of venture capital, and a video essay by @kteare to accompany a great selection of writers from across the venture ecosystem

Contents
Editorial
Let’s go on a journey into the obscure world of venture capital. This has been bubbling under for quite some time now in That Was The Week. With Andrew Keen traveling it seemed like a perfect week to pull things together and do a face-to-camera video essay on the topic. The catalyst was the wide range of exceptional writing by Jack Abramowitz from NextView Ventures, Mark Suster from Upfront (a reprint of a story in last week’s newsletter because it really belongs in this collection), Alex Wilhelm formerly of Crunchbase, now at TechCrunch, Berber Jin and Martin Peers from The Information, Natascha Mascerenhas of TechCrunch and Dror Poleg.
So, let us deep dive. A good starting point is this broad set of statements:
  • There has never been more venture capital placed into startups than is the case in 2021
  • The pace of deals has never been faster
  • The structure of the investing landscape has changed significantly as shown by these two slides from Mark Suster’s piece
Before
How it used to be
How it used to be
After
How it is
How it is
I wrote about the same trend in my “This is Not Silicon Valley” essay in 2013, by which time the trend to multiple seed rounds was beginning. I even did a joke cartoon about it in 2015:
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.
Video
Venture Capital Deep Dive
Venture Capital Deep Dive
Venture Capital Deep Dive
State of VC 2.0
The Changing Venture Landscape. The world around us is being disrupted…
A Dragon is a 12x Unicorn
A Dragon is a 12x Unicorn
Startup Founders Use Record-High Valuations to Cash Out Earlier — The Information
Andreessen Pulls a Bezos
500 Startups Closes Largest Fund Raised To Date, Announces Rebrand to "500 Global" - Yahoo Finance
The next big startup may just help venture back more startups - TechCrunch
Mammoth Funding Deal Signals Frothiness of VC Funding Market
China versus Billionaires... continued
Apple in Focus
Did Apple's iPhone 13 ‘Cinematic Mode’ just revolutionize mobile cinematography?
The Apple v. Epic Decision
The future of the App Store depends on the difference between a ‘button’ and an ‘external link’
Startup of the Week
GPT-4 Will Have 100 Trillion Parameters — 500x the Size of GPT-3
Tweet of the Week
NFX
Can your company be a Billion-dollar business? @JamesCurrier and @eladgil examine the counterintuitive - and often contrarian - patterns of some of world’s best known Billion-dollar companies and their decision frameworks along the way.
https://t.co/w8dE4xhvTs https://t.co/Bsoy2YxoHl
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Keith Teare, Palo Alto, California