A more personal editorial this week.
Back in the day, Venture Capital was simple. Raise a fund, pick the best startups and invest in the A round, follow on at the B and C, when revenue gets to a certain point (a variable) go and do an IPO, possibly preceded by a mezzanine round. Exit and go again. Not any more.
There was one type of entity at the time, a venture capital fund. And startups had one place to go, Sandhill Road in Menlo Park, California.
I did it myself, more than once.
But in 2021 there is a far more complex board that the game of venture is played on, and it is evolving all of the time. To really grasp it you have to go back to the year 2000 and the 5 years following. The bubble burst in early 2000. The one size fits all venture capital ecosystem imploded and stopped investing almost instantly.
Known as the “nuclear winter” among insiders, this period lasted until 2005. At that point, as web 2.0 began to take shape, several trends were born. These include incubators and accelerators, super angels, and Micro VC funds.
By 2007 all three of these were well established. Y Combinator was founded in 2005 by Paul Graham
, Jessica Livingston
, Trevor Blackwell
, and Robert Tappan Morris
. Ron Conway and SV Angel became very active in that period. Jeff Clavier formed his first fund - SoftTech VC (now UnCork) in 2004 and was actively investing. TechCrunch was born in 2005.
Roll the clock forward to today and Crunchbase numbers over 1250 Micro VC funds, over 900 Accelerators or Incubators, and over 8000 Angels that have made investments in the last 2 years.
Today there are three distinct asset classes in venture. The seed, the venture, and the growth asset class. And the landscape of funding now embraces a sequence of events very different from the A, B, and C round sequence of the 1994-2005 era. Startups do Pre-Seed, Seed, and even Seed Extension rounds before reaching an A round.
- Pre-Seed Funding $9334m
- Seed Funding $12.5 bn
- Series A-B Funding $86 bn
- Series C an After Funding $109 bn
This week we include two articles pointing to further changes in the venture ecosystem. Firstly Tiger Global is covered by Everett Randle
in his Substack newsletter. It is a lengthy and substantive look at Tiger global’s business model and the ability to deploy large sums of capital rapidly while making venture returns for its LPs. That is supplemented by Softbank Vision Fund coverage from Barron’s describing its report of $46 bn profit from its $100bn fund.
Growth investing is now a habit that PE firms and Hedge Funds specialize in. Later in this week’s newsletter, we cover SPACs, which are simply another form of growth investing.
My own preoccupation is with the seed stage asset class. Two weeks ago when UI Path
did its public offering I was an interested insider. My UK fund ADV
is an investor in SeedCamp
, the original seed investor in UI Path. And as part of its partnership with Seedcamp, ADV invested in a Special Purpose Vehicle, injecting capital into UI Path’s Series B round. Today that investment is worth close to 40x the series B price, and it is only 30 months later. I have seen even better results from my portfolio company InFarm
, where, since LocalGlobe
and Cherry VC
(two excellent seed investors) invested, my investment has increased 136x in 48 months.
Seed-stage VCs are, when they perform well, making fabulous returns for their investors. The top-performing seed funds account for a very large % of the unicorns we see around us today. This represents a huge opportunity that was commented on, by Delian Asparouhov from Founders Fund, in response to the Tiger Global piece below: