The Up Round #21

Hola! Welcome to Issue #21 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.

I caught up with a long-time friend that runs a large fund with a focus on "between the coast" startups. He shared with me the perspective that one of his large institutional LPs shared- roughly 50% of midwest VC firms won't be around next year. It was interesting to hear as this particular LP pointed out that most midwest VC firms raising Fund I - III tend to have fickle LP bases traditionally made up of HNW and small family offices with limited ability to re-up fund-after-fund in the absence of meaningful liquidity events. I'd also add that this region has largely been skeptical of VC for income generating assets that are perceived to be "safer" such as real estate. Sadly, this contingent might take the last 24 months of turbulence in venture as justification or proof of their preconceived belief. All said, there's a lot of wealth in the midwest that's seeking access to venture having been "shut out" in the prior decade. Venture to where no one else is willing to go in order to raise that fund.

Lastly, I'm experimenting with a few new tools so I can open up some of the resources that I'm working on (hint: fund tracking database, LP lists, and more). Expect changes in the coming months to your reading experience as well as much more beyond "write ups".

🙏 Do me a favor, if you find this content valuable, forward this on to a friend or share it on social media.

What I'm Reading

⚡ The Seven Miracles of Venture Research (link). If you read one thing this week, make it this. Last fall, I was on the road with our Associates where the question came up as to whether we're thesis driven or not. The question stemmed from our rigorous and on-going research we do (or at the time, misappropriately called thesis). We recognize that great founders will show us to magic but to recognize that, we need to be prepared and well-versed on the subject matter in our domain. I think more investors subscribe to this approach and mistakenly call themselves "thesis-driven" investors.

📊 Venture Round Dilution: Pre-Seed to IPO (link) via Peter at Carta. Some handy reference material from Carta on the latest per-round dilution/valuation benchmarks.

The Changing Nature of Pre-seed Syndication (link). At Dynamo, we've been leaning into the "gap" at pre-seed for the last several years as competition and valuation stay unreasonable at seed. It interesting to hear the challenges it brings founders who are increasingly facing the issues of fewer funds and less capital availability at pre-seed.

The Lindy Effect in VC (link). "The Lindy Effect offers a valuable lens through which to view the potential longevity and resilience of venture-backed startups. Those who have navigated the early stages of growth successfully, mainly through significant funding (or bootstrapping) and adaptation, are better positioned to continue thriving."

🎙️ B2G Podcast: Stock Compensation, AI Cold War, Valuations for LLM (link). I'd point you towards the end of the podcast at (01:18) where Brad and Bill discuss the durability of AI/LLM-driven businesses in the context of valuations currently in market. This is something all venture investors are grappling with and the interesting points made come down to: 1) is ARR real? or are customers still experimenting and we're at risk of a massive renewal cliff? and 2) it will be a lot easier to swap out LLMs overtime which furthers concerns around defensibility and high multiples for might not truly be ARR.

Fund Debuts

1991 Ventures Launches with £15M Fund (link). "1991 Ventures aims to invest in over 40 companies across the fund's lifecycle and will build on the incubation and accelerator programmes the Gurskys have been running from Kyiv and now London, which have seen a third successfully secure funding."

Laton Ventures Launches $35M Gaming Fund (link). The Turkey-based fund will focus on gaming opportunities around the world and not be biased towards mobile, PC, or console opportunities.

Sunna Ventures Raises $40M Fund I Focused On ClimateTech (link). With backing from Wildsur, the family office of the Leria Luksic family, Sunna will focus on leading and following seed stage climatetech investments. It appears to also have a limited capability to write LP checks related to sourcing more direct investments. Sunna is led by Luis Arbulu who brings nearly a decade of seed investment experience across the US and LatAm.

Autism Impact Fund's $60M First Fund (link). Led by Chris Male and a group of investors who each have kids on the autism spectrum, AIF investments in startups that have a link back to helping better understand and manage autism. The fund has deployed 60% of it's capital across 12 companies. LPs include Dara Khosrowshahi (Uber); Brian Jacobs (Emergence Capital); Bob Nelsen (Arch Venture Partners); as well as other institutions such as Fairfield-Maxwell and Ferd.

Matter Venture Partners Debuts with $300M Hard-Tech Fund (link). What I would dub a spin-out from Kleiner Perkins, Matter Venture Partners is led by long-time partner, Wen Hsieh and Haomiao Huang who left last year to focus on their new Hard-Tech fund. With backing from KP as well as TSMC, Matter was oversubscribed by 50% vs it's original $200M target. The fund will invest in large seed through Series B rounds.

Seaplane Ventures Announces Maiden Fund (link). Seaplane did not disclose the size of its fund but it appears to also have an affiliated AngelList syndicate. The fund is led by Joe Magyer who previously founded Lakehouse Capital in Australia who focused on growth equity investments. The pre-seed and seed fund has made six investments thus far with capacity for nine more.

Next Wave NYC Launches with Backing From Flybridge Capital (link) via Jesse at Flybridge. Dubbed as a new pre-seed fund led by NYC's leading voices in the startup ecosystem including Shai Goldman, Andrew Yeung, and Julia Maltby, among 15 others. I think of it as a spin on normal scout programs but don't know the details so that might be an unfair statement.

Other Fun(d) Stuff

GGV Splits into Granite Asia and Notable Capital in the US (link). Following in the footsteps of other US venture firms trying to manage the geopolitical tension around large Chinese-centric funds, GGV announced their split. Jenny Lee and Jixun Foo will lead Singapore-based Granite whilst the US, Europe, and LatAm fund is now called Notable Capital and will be led by Hans Tung, Jeff Richards, Glenn Solomon, and Oren Yunger.

1kx Raises $75M Second Fund (link). 1kx is focused on crypto VC with a focus on consumer applications. Accolade Partners anchored this fund with Marc Andreessen, Chris Dixon, and Galaxy Digital also noted as LPs. The fund has made five investments so far.

super{set} Closes $90M Fund II for Startup Studio Strategy (link). Coming off a $200M exit of marketing startup, Habu to LiveRamp, super{set}'s new funds will extend it's original strategy in creating and building enterprise startups. The firm is led by Tom Chavez and Vivek Vaidya who sold their last startup, Krux to Salesforce and a prior company, Rapt to Microsoft for a cumulative deal value of $1.2B.

Audacious 2.0's $150M Focused On "Force of Nature" Founders (link) via Hunter at StepStone. "My biggest learning in the decade before founding Audacious was simple: Ultimately, startup success comes down to A+ teams and large markets. As VCs, we overestimate our ability to predict where the world is heading and underestimate how much it comes down to outlier people doing outlier things." Audacious raised 1.0 about 36 months ago with a focus on seed stage investments paired with their recruiting capabilities.

Tiger Global Raises $2.2B Fund - 63% Below Goal (link). It appears the reset at Tiger has happened. The newest fund at $2.2B vs the $6B target and the prior $12.7B fund. This new fund, PIP 16, will invest in enterprise technology with a focus on the US and India. Tiger partners accounted for 20% of the amount raise (vs 10% in prior funds) which is a great sign IMHO.

How DCVC Navigated 2023 Looking to Raise a $500M Climate Fund (link). "The Silicon Valley VC firm launched the fund in December 2022 with a $500 million target, according to an SEC filing. A year later, it lowered its target to $300 million after its year of fundraising brought in only $157 million of commitments by then, according to a December 2023 SEC filing. Now, a source familiar with the matter tells TechCrunch that things have started to fall into place and $400 million may be a more accurate reflection of where the fund is headed."

Talent Tracker

Kristina Shen Leaving a16z to Launch New Fund (link). After four years with a16z, Kristina announced her intent to step back and prepare to launch her own venture fund. From her departing message, it certainly looks like she will continue to retain a heavy focus on SaaS, cloud, and AI.

Ian Hathaway Now Oversees the OpenAI Fund (link). According to SEC disclosures, OpenAI has cleaned up the control structure of the fund with Ian now overseeing and controlling the firm's activities. Sam Altman was originally the controlling party but after last year's events, came under scrutiny. Ian has has been involved with the fund since it's 2021 launch and was previously at Haystack.

LP Radar

What Managers Don't See (link). "New investment relationships start when the manager fits into the allocator’s playbook, not the other way around. Managers often only see the game from their perspective. What happens on the other side of the field significantly influences the likelihood of a new allocation."

🎙️ 20VC: David Clark Shares 32 Years of Lessons from LP Investing (link). I'd especially draw your attention to the discourse around: 1) Only 1 in 50 funds historically generating 5x DPI; 2) why fund sizes should be higher amongst the largest firms; 3) fund returns for billion-dollar funds.

CalPERS Boosting Growth and Venture Allocation (link). According to fellow-Kauffman Fellow, Anton Orlich who oversees CalPERS' PE investments, the pension will reduce buyout exposure from 75-80% to 60% with the balance being in growth and venture capital. When it comes to liquidity, CalPERS will shift to a model where 50% of the pool will be earmarked for co-investments that are funded by distributions from existing investments.