The Up Round #4

The Memo

Welcome to the fourth issue of The Up Round coming to you from Charleston, SC. As a reminder, this is a "round-up" of relevant news and resources for fund managers building a best-in-class firm. Expect us to land in your inbox every other weekend.

Check out the interview with Krishna Visvanathan at Crane VP discussing hiring, development, and promotion of Associates (link). As a reminder, Five Points will be an ongoing series that highlights investors and their perspectives on a specific topic. If there's someone you want to suggest we interview, send us an email and please specify the topic of their specific "zone of genius".

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Heather Hartnett of Human Ventures argues that the term “Emerging Manager” does not help LPs distinguish the promise of new firms as the field has become increasingly crowded. Instead, Hartnett suggests “the Alpha Generator: The manager who exists at the intersection of the unique circumstances of the current VC landscape and the shifting needs and priorities of founders and LPs.” (link)

Other Reads, Listens, Watches

The Changing Role of FoFs (link). The changing venture market is forcing innovation among FoFs that historically pool capital to invest into venture funds. While the fee intensity is one criticism, as fundraising is becoming more challenging even for the highly sought-after funds, the promise of access that FoFs promised is not considered to be enough. And so there is an increasing focus on finding “the next great fund” with more recent FoF closings at Recast Capital and Levels Ventures emphasizing this aspect of their offering.

Tiger Global Rejects Hundreds of Offers for Its Stakes in Private Companies (link). Following up on prior issues, Tiger has turned down hundreds of individual bids for the venture assets as the firm felt that the offers were insufficient. It’s worth noting that a significant number of its VC investments were bought in recent years at significantly higher valuations. Closing the loop on The Up Round #3, Tiger’s Partners appear to have closed a deal with Lexington Partners to sell their personal uncalled LP commitments in other seed firms at a significant discount.

Pitchbook Data Suggests that LP Demand for Liquidity Driving Secondary Markets for High Quality Assets (link) as Venture Markets Continue to Reset Through Q2 (link). LPs at public pension funds are expressing disappointment with venture investments, saying there has been hasty fund deployment, inflation of valuations, and low cash distributions. What’s interesting is that cash distributions of pre-2016 vintages outpaced where post-2016 vintages of the same age were. It’s a worthy reminder that DPI is the Northstar metric of seed-stage firms. While the market might be stabilizing given the hype from generative AI and the performance of large tech stocks, investor sentiment has not fully recovered. Preliminary numbers suggest that dollars raised by US venture-backed startups are down just shy of 50% YoY. While early-stage startup valuations have declined, they still remain elevated compared to pre-2021 levels.

Sequoia China and India Courting LPs in Advance of the Split (link). The duo are approaching investor relations in their own style as they showcase the vision for the future of their respective firms to current and prospective LPs. Sequoia China or HongShan will host a three-day investor event in Shanghai in November. On the other hand, Sequoia India, now called Peak XV, plans to open a US office and has been reported to meet with LPs and VCs in the US over the last few weeks. It’s important not to look too into the success of the spinouts given Sequoia operates outside of the venture norms due to its track record.

Fund Debuts, Talent & More

Marketplace Capital Announces $10M Fund I (link). The new fund will focus on marketplace businesses (surprise!) writing $50k-$250k+ checks, primarily at the Pre-Seed to Series A stages. LPs include Craft Ventures, FJ Labs, and Andrew Chen from a16z as well as operators from marketplaces like Airbnb, Outdoorsy, eBay, DoorDash, Belong, Convoy, SeatGeek, and Facebook Marketplace.

Public Ventures Launches Debut $100M Fund (link). Zoey Dash McKenzie, Founding Partner at Public Ventures, has launched a $100M impact fund aimed at supporting Canadian companies fighting climate change and health equity. Climate change affects women and communities of color much more than other groups. Increased exposure to heat, pollution, flooding, and wildfires can cause many health problems and pregnancy complications. In support of this thesis, Public noted that over 1.3B people in low and middle-income countries across the world live below the poverty line, with ~70% of those people being women.

Prithvi Ventures Raising $50M for Second Fund (link). Through it’s first fund, Prithvi is reported to be the fifth most active climate seed investor. The firm is already well on its way to raising the second fund having invested in three startups already. It’s interesting to note that Prithvi is helping portfolio companies work on developing a life cycle analysis and a path for their climate tech products to eventually be priced competitively instead of having a green premium.

Frst 3 Closes €72M to Continue Seed Investing (link). Paris-based seed firm, Frst, is raising its second fund with a first one closing of €72M. Focused on AI, Frst plans to invest between €1M and €3M in ~30 different companies. Frst has already received investments from notable funds including the European Investment Fund and Axa Venture Partners.

Unshackled Closes $35M Fund III (link). Unshackled is continuing its focus on pre-seed investments in immigrant founders. Also, Unshackled will reveal Eighteen150, a founder-in-residence program dedicating $5M of Fund III for complete immigration and employment support, offering founders $150,000 or 18 months of runway, for 10% ownership. Immigrant entrepreneurs from anywhere in the US. are encouraged to apply, regardless of status or number of ideas. Unshackled Fund III LPs include Cambridge Associates, Cendana, Emerson Collective, California Infrastructure and Economic Development Bank (IBank), and Sorenson Impact Advisory.

Techstars Raising $150M Accelerator Fund (link). Techstars is raising $150M for its new fund, as it is seeking new capital ahead of the end of the deployment period of its third institutionally-backed fund. The firm declined to comment on how it intends to use its funding; however, like its funds previously, Techstars Accelerator 2024, is expected to be used for accelerator-stage and/or post-accelerator investments. So far, Techstars has backed over 3,500 early-stage startups in a wide variety of sectors.

Notion Capital Closes Fund V at €300M (link). Notion Capital has closed its fifth fund at €300M, doubling its size in comparison to previous funds. The fund supports early-stage business software and fintech companies across Europe and has invested previously in companies such as CurrencyCloud, GoCardless, Paddle, and HeyJobs. Notion Capital emphasizes that its fundraising success is due to its extensive platform team which supports companies in areas like product, go-to-market strategy, talent, and pricing.

Hillary Tyree Joins Cendana as Head of Platform and Operations (link). Hillary Tyree has been named as Cendana Capital’s new Head of Platform and Operations. Hillary previously worked at Silicon Valley Bank where she held a similar role for the bank’s emerging managers practice. Cendana has built it’s reputation as a different kind of LP by working closely with GPs and LPs as success is tied to collaboration.