The Up Round #18

Hello and welcome to the 18th issue of The Up Round! As a reminder, this is a summary of relevant news and firm-building resources for VCs. Expect us to land in your inbox every other weekend.

It's been a while since I did an actual memo which a few of you have called me out on. So it's time to give the people what they want...

I've been on the road for the better part of the last month and have had the opportunity to chat with several LPs specifically across endowments and family offices. The buzz is that several pools might have more capital for VC than originally forecast. Here's why...

1. A lot of funds will not be re-upped. Almost every LP I spoke to mentioned that they're expecting to not reup on several relationships. When I pushed on the reasons, it came down to trust vis a vis marks/valuation, the thesis having played itself out, and a general misalignment on approach to firm management. Note that performance wasn't in the forefront but reasonable to assume none of the funds in question were putting up top returns (let's be real, there's a tolerance for "things" when someone is doing great).
2. Funds are slowing deployment. Funds are deploying slower than forecast (or historical pace) which is leaving gaps in the current year's reup cycle. There's also a cohort of funds who "pre-raised" their successor fund in late '22 and early '23 but haven't called capital as yet.
3. Perception around who's allocating vs not. Especially notable amongst family offices, a couple said that they have capacity for one or two new funds but have seen a slow down in opportunities from quality firms. One described it as "GPs think we aren't allocating" when it's actually the opposite. Some of it might also be that people want larger checks than those deployed by some of the smaller family offices... perhaps desperation hasn't sunk in yet amongst GPs?

All this to say that while things aren't getting magically easier, there is capital out there and with enough grit, GPs can certainly land an audience with decision makers still keen on capitalizing on the promise of the 2024 vintage.

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X’s & O’s of Firm Building

PitchBook: Nearly 40% of VCs May Not Be Able to Raise A Second Fund (link). This bucks the trend from the prior decade where 63% of first time fund managers were able to close a sophomore fund. The more recent Fund I vintages deployed at the peak of the market with limited time to show progress to LPs. Add to that the general lack of liquidity amongst LPs, there's a lot of hope in 2024 amongst emerging managers.

DPI vs RVPI Across North American and EU Funds (link) via Deb Sahoo. A few observations/questions of my own: 1) Reminder of how long a game this is with the '11 -'14 vintages in NA still holding on to a lot unrealized gains; 2) EU performance is much less consistent vs NA- why?; 3) The '16 vintage in EU could be amazing and so it might be prudent for VCs to try to "shave" if the secondary price is right.

The Two Types of Venture Investors (link). Sam Lessin raises the question to FOUNDERS on whether they want a "Fee Optimizer" or "Return Optimizer" when deciding who to take money from in early rounds of funding. It's a question worthwhile for VCs to ask ourselves too- how do you construct a portfolio/underwrite so that LPs can earn a 3x net on your fund? For long-time readers you know my sentiment is that "small is beautiful" when it comes to fund sizes 😁.

WSGR: 2023 Private Market/Financing Trends Report (link). An easy one to share with your portcos who want to know "what's happening in the market?" BTW- we use WSGR for fund formation at Dynamo, couldn't speak more highly of them.

⚡ Field Notes: Governance at Pre-seed (link). Written by yours truly a couple weeks ago after spending a few days with my peers reflecting on the post-COVID highs and what that means for various aspects of being a VC and running a firm. the TLDR is that governance was lacking during the heat of the '20-22 era and it's important to recognize and fix that as early as pre-seed.

Fund Debuts

Overture VC Raises Debut $60M Climate Fund (link). The fund was raised through 2023 on the back of the Partners' long-standing relationship and expertise in government which is important for their sector focus. LPs include WovenEarth Ventures, and Schneider Electric’s corporate venture arm, SE Ventures, among others. Perhaps what is interesting in this article that others might employ- "specific niche and strategy has helped the new firm find a path in an environment where so much is still unclear. "

Other Fun(d) Stuff

BlueStein Ventures Closes Third Fund at $45M (link). The fund will continue to focus on food technology and deploy $1.5M investments at the pre-seed and seed stage. As part of the new fund, Lindsay Levin (former CMO of RXBar) will join as a Venture Partner to support the portfolio with operations and marketing.

Homebrew is Raising a $50M Fund (link). Yes, that's right. Two years after saying they're effectively turning into a family office, Homebrew is raising outside capital. The rumor is this is to support pro rata in winners... an opportunity fund of sorts.

Golden Ventures Closes Fifth Fund at $100M (link). The Canadian fund takes a generalist approach to leading/co-leading pre-seed/seed rounds with check sizes of $500k-$3M in North American startups. Partners noted interests in AI, climate, blockchain, and quantum. LPs include BDC Capital, ECMC Group, Foundry, HarbourVest Partners, Kensington Capital Partners, Northleaf Capital Partners, RBC, Teralys Capital, the University of Chicago, and Vintage Investment Partners, as well as new backer Deloitte Ventures.

Equal Ventures Announces Pair of Funds Totaling $175M (link). The capital is split between Fund 2 that is a $100M seed fund focused on opportunities in climate, insurance, retail and supply chain whilst the balance of $75M is in an opportunity fund to double down on winners. The seed fund writes initial checks of $2-3M. Equal also announced that Richard Kerby will transition to a Venture Partner role.

AIX Ventures Raises $202M Fund II (link). The new fund will focus on the future of work and AI opportunities at the early stage (I'd guess seed/Series A with this fund size).

.406 Ventures Closes $265M for Fifth Fund (link). While this fund is down from the 2019 vintage that clocked in at $295M, the team still got it done in a tough fundraising environment. The firm focuses on early stage (I'd all it Series A) investments in digital health, AI, and cybersecurity.

Partech Closes Africa Fund II at $300M (link). Hitting their hard cap a year after kicking off the raise, the fund will write $1-15M checks at Seed through Series C. LPs range from development banks, family offices, SWFs, and more. As part of the close, the firm will also open an office in Lagos, Nigeria to complement their other outposts in Dakar, Nairobi, and Dubai.

Molten Purchases 19% of Seedcamp III for €8.5M (link). This implies a NAV of ~€45M which one has to assume reflects some discount (call it 20% so really something closer to €55M). This is relative to the ~€27M raised in 2014 for the vintage. Also, the secondary is the third for both Molten and Seedcamp.

Talent Tracker

Matt Bellows Joined Grit Capital Partners as GP (link). Matt was Co-founder and CEO of Yesware and was most recently at AmEx. He'll be investing in fintech, martech, commerce, and media startups.

Lydia Jett Departs Softbank Vision Fund Americas (link). Jett was promoted to Partner in 2019 and invested across eCommerce, fintech, and robotics. She was involved with ByteDance (TikTok), Weee!, Fanatics, Flipkart and Coupang, among others.

GV Promotes Anthony Philippakis as General Partner (link). Anthony was most recently co-founder of Verve Therapeutics and a Venture Partner with the firm. He is dubbed a “physician, genomicist, cardiologist, longtime collaborator, and colleague" by GV Managing Partner, Krishna Yeshwant who runs point on the life sciences effort.

Siri Srinivas Joins Gradient Ventures as Partner from Draper (link). Siri will maintain her focus on enterprise companies using AI which aligns to the broader Gradient thesis.

FTV Promotes Eight Team Members (link). Principal promotions included Arun Singh, Tommy Tighe, and Shoma Nishikawa. Additionally, Justin Levine, Brandon Spierto, Max Weber, and Bree Williams were promoted to Vice President. Additionally Shannon Hanney was promoted to analyst on the talent team.

LP Radar

WovenEarth Raises $152M FoF to Deploy into Climate Funds (link). The fund is led by Jane Woodward (Stanford faculty with a track record in energy investing), Mauricia Geissler (former CIO of Amherst College), and Denise Miller, an energy transition strategist. The novelty of WovenEarth according to the team is that they allow investors to gain exposure to 300-400 companies rather than 20-30 with endowments such as BU, Penn State, among others committing to the debut fund. To date, it has invested in 13 US-based climate funds with a handful of others with a domain-focus but still in the realm of climate.

Screendoor Welcomes Layne Johnson and Jaime Rhode as Partners (link). Layne was most recently at TRS and Jaime joins from Verdis Investment Management. It's safe to say that Screendoor has kick-ass leadership along with Lisa Cawley who joined the firm last year.

KKR: Family Offices Boosting Allocations to Alts in 2024 (link) via Peter Ackerson at Audere Capital. A survey of 75 family office CIOs who oversee an average AUM of $3B suggests that these pools of capital are keen on capturing the promise of the 2024 vintage of PE and VC funds. It's expected that 52% of portfolios will shift into "alts" vs 42% in 2022. This cohort is playing the long game that acknowledges the benefit of the illiquidity premium despite the current high(er) rate environment.

The Pros/Cons of a Data-Driven Approach in VC (link). "Data-driven approaches will help allocators get to the “right” funds for the right reasons (and hopefully at the right time). From there, it will be up to their internal underwriting processes and (GP-facing) products to determine whether or not they can be granted access to the best funds."

🎙️ 10x Capital: What Do Pensions Look for in VCs? (link). Chris Prestigiacomo, Portfolio Manager at the State of Wisconsin Investment Board (SWIB manages $140B of assets) discusses his approach to firm and GP evaluation. I'd guide you to three specific areas: 1) the criteria at minute 4:00; 2) VC's role in SWIB's asset allocation at minute 8:00; and 3) referencing managers at minute 16:00.