The Up Round #23

Hola! Welcome to issue #23 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.

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What I'm Reading

Big Winners and Big Concentration (link) by Jason Shuman at Primary. From StepStone investment data, there's a few interesting points: 1) Great funds have >2x the number of investments returning 10x MOIC; 2) the best funds lose money on nearly 50% of investments; 3) great funds are excellent at concentrating capital in their winners (if good funds did the same, they could improve MOIC by nearly 3x). What this study didn't address was persistence and the ability to ID the "continuation" of "grand slam" returns - hard to do, fund after fund. I'd acknowledge that success tends to compound as one winner tends to bolster a firm's reputation and perpetuate founders seeking out a firm or GP to back their businesses. Compare this to the LP desire for steady and consistent returns (call it a consistent 3-5x net of fees) but hoping for an outlier (10x+ net of fees) in their portfolio of venture funds.

Carta's State of Pre-seed (link). A treasure trove of data from SAFE and convertible note fundraises (before a startup's first priced round raise). A few interesting things stood out to me: 1) Nearly 3/4 of rounds were <$1M; 2) most SAFEs have a cap with 30% including a discount; 3) dilution on a SAFE round matches that of a priced round.

Dear VCs: You're Blowing It (link). While I think there are some good points here, I think Scott Kupor's response is worth reading as a supplement. It's a good reminder that VC is hard.

🎙️ BG2 Podcast: The Great IPO Debate, et al (link). Starting at 01:52, Bill and Brad get into a well-informed and up-to-date discussion about the current state of the IPO market. Sticking to my three-point style, things I'm thinking about related to this: 1) my belief that there is a strong market for companies doing $200M in revenues provided there is strong, predictable growth (30-50% YoY) that some of our growth stage founders/CEOs have heard me comment on. Public market investors used to seek out the $1-5B companies with strong growth prospects roughly 10-12 years ago!; 2) private companies are sitting on relatively clean terms from the last round that create less issues when prepping to go public; 3) there is no lack of demand for new paper; liquidity pressures might not be high enough to push this over the line.

Changing Investor References on Terms: Passing on Pari Passu (link) and the Portfolio Sale Clause (link). While we've seen an increase in structure (non-pari passu and >1x preference) as companies return to market with bloated valuations vs traction, I haven't seen the latter issue that helps with unlocking liquidity at the fund level. Some market intel for ya!

Fund Debuts

Saga Ventures Looking to Raise $125M (link). Confirming a scoop from last year, Max Altman is teaming up with Ben Braverman (ex Flexport) and Thomson Nguyen (ex Block) to raise a new fund. Further details aren't available but this trio brings with it an interesting breadth of experiences and know-how.

Other Fun(d) Stuff

Behind Genius Ventures Closes $8.9M Fund II (link). BGV is led by Paige Finn Doherty and invests $150- $250k in startups with compelling brand stories. LPs in the fund are Cendana Capital, GREE, Mixi, as well as a group of startup founders including Arash Ferdowsi of Dropbox fame.

Front Porch Venture Partners Closes $20M Second Fund (link). The $20M fund is focused on investing in ~20 venture funds and ~25 startups in the southeast. Early investments include Idea Fund Partners and Hatteras Venture Partners as well as CureMint, VitalFlo and Klearly on the startup side.

Hyde Park Venture Partners Closes $98M Fund IV (link). Hyde Park invests in early stage midwest startups and over the years has also added Toronto to its focal. The fourth fund saw repeat backers including the Illinois Growth and Innovation Fund, RK Mellon Foundation, Renaissance Venture Capital, and new LPs including NVNG and Cintrifuse Capital.

Introducing Renegade II at $128M (link). Founded and led by Roseanne Wincek and Renata Quintini, Renegade II will invest $10-20M checks at the Series A across 20 companies from the new fund. It's worth noting that the LP base of pensions, foundations, and endowments either matched or upped their commitment relative to the participation in the $100M Fund I.

Crosslink Launches Fund X with $350M (link). The tenth fund continues Crosslink's focus at the pre-seed through Series A stage. Along with the fresh fund, Crosslink has hired Anduena Zhubi to its team as the Director of Business Development to assist with post-investment support. Anduena was formerly at Microsoft and it's CVC, M12.

Norwest Venture Partners Has $3B of Fresh Capital (link). This is Norwest's 17th fund! They continue to focus on early stage and growth investments in North America, India, and Israel.

ICONIQ Raises $5.75B for Seventh Fund (link). ICONIQ blew their fundraise out of the water, relative to their target of $3.75B. The firm plans to invest in 20-25 companies from the new fund.

Shasta Ventures Doesn't Get LP Approval for Continuation Fund (link). The fund in question is Shasta's final fund that it raised in 2017. The plan was for StepStone to purchase nearly all of the fund's interests at 65% of NAV with a 1% management fee and carry on top. Unfortunately, the firm didn't get 2/3 LP approval to move forward with the plan.

Talent Tracker

Ethan Kurzeil Leaving Bessemer to Join Shen and Goldberg at New Firm (link). Ethan Kurzweil announced earlier in the week that he's leaving Bessemer to start a new firm. Turns out he's teaming up with Kristina Shen (ex-Andreessen Horowitz), and Mark Goldberg (ex-Index Ventures) to make it happen. More to come...

Brian Halligan Joins Sequoia (link) and Eric Newcomer's Handy Sequoia Reference (link). Brian's claim to fame is being a co-founder of Hubspot (and CEO till 2021). Sequoia led Hubspot's Series D and remains a meaningful public investor. Brian will be part of the firm's Growth team and focus on "startup founders who want to turn into scaleup CEOs."

Piyush Gupta Leaving Peak XV to Launch New Firm (link). Piyush led strategic development at Peak XV (fka Sequoia India) where he helped with follow-on fundraising, M&A, etc. He has a team of 5-6 between India and Singapore. Piyush's new firm will focus on the secondary market as liquidity continues to be top of mind.

LP Radar

Amkan Ventures Launches Debut FoF with $10M Target (link). Founded by Raida Daouk, Amkan is focused on connecting Gulf-region families with US emerging managers. After the region saw a surge of managers showing up to raise over the last few years, such a strategy helps identify signal from the noise to the degree that investors are ok with the "double fees" because they can outsource diligence whilst getting improved access. I'd note that several of these strategies appear to be learning from Cendana who trail blazed the philosophy of investing in funds with high ownership and relatively concentrated positions.

Isomer Raising £100M Secondaries Fund (link). Isomer is known for being a prolific FoF investor but the liquidity drought is proving hard to resist for those with cash. Roughly 20% of the target has been closed with several Nordic family offices and a German foundation. 65-75% of the fund will be used to buy LP stakes in VC funds, 15-25% directly in companies, with the balance reserved for "whatever the firm likes."

SVB Capital Sold to Affiliates of Pinegrove Capital Partners for $340M (link). With ~$10B of AUM, SVB Capital will operate independently of Pinegrove that was setup as a JV between Brookfield and Sequoia Heritage to provide VC liquidity solutions. SVB Capital is expected to begin originating new investments and work on restoring its reputation/brand in market. There is a $15M break up fee as well as an earn out based on future fundraises.

Horlsey Bridge Sells ~$1B of VC Assets to Lexington Partners at 40-50% Discount (link). Dubbed a clean up deal, the sale which happened earlier in the year included several LP stakes including Altman Capital, Not Boring Capital, SV Angel Growth, among others. It was also noted that pricing has improved from a low of 63% of NAV up to 68% of NAV as investors feel more bullish about the IPO market.

"Flat is the new up" When Raising a New Venture Fund (link). There are apparently 14k funds with $3T in demand, chasing $1T of LP capital. Let that sink in. In a world where private portfolios are supposed to self-fund, over-time, the current liquidity crunch is creating headaches for GPs raising/planning to raise. Lastly, let's all remember that capital is (relatively) fungible in a portfolio so as an industry, we need to stay competitive with adjacent asset classes like PE.

Continuation Funds Galore (link). Turns out that a lot of the large funds are exploring continuation structures to unlock liquidity for their LPs. Lightspeed is a couple months from closing a plan to contribute 10 investments that are several years from an IPO event into a new vehicle- all with no additional fees. NEA is also exploring a similar opportunity.