Aaron Neil

LP Tip #20 out of #50: To re-up or not to re-up A re-up refers to an LP making an additional investment in a fund where they previously invested. Before we dive in I want to share that there are reasons an LP may not to re-up which are not in your control. Here is a short list: ➡️ The LP may have evolved their strategy and needs to scale back the #️⃣ of funds they invested in.   ➡️ The LP was never set up to re-up in the first place. ➡️ The LP could be an individual that found themselves in a cash crunch and overly exposed to venture.  I'm assuming that when you got your investment that the LP explicitly told you they do re-ups. Please do not assume they do. My expectation is also that the LP dug in to properly underwrite the fund. 🏴 Re-ups are not automatic. An LP will have to re-underwrite each fund. The speed of the re-up also depends on how much work was done in the initial investment, who led the investment, level of confidence there existed when that investment was done, and current pipeline of funds. There are 4 flags that may cause an LP to walk away. 1️⃣ Partner Breakups/Changes and Team Turnover:  The biggest risk in Partnerships are whether the Partners will stay together. One LP gave me a framework on how to think through this issue that has stuck with me. Partnership is like a marriage. If one feels there is potential for a breakup, does one believe it will be an amicable breakup? Or, does one believe the spouses will never talk again? If it is an amicable split that is manageable. The Partners can find a way to support the fund. Then the question becomes whether the LP wants to back the Partner/s that remain.  If there is high team turnover. The LP will want to investigate because team stability is used as a proxy for firm sustainability and ability to scale. 2️⃣ Fund Does not Execute on what they Sold the LP:  The LP “bought” something specific and typically it is because they were missing this strategy or wanted exposure to a strategy for the portfolio they were constructing. An institutional LP will invest and write a detailed investment memo flagging all the things you said you were going to do and then go back and compare when you come back to ask for money. If for example you pitched a generalist seed stage fund and you show up asking for money sharing that you invested in deeptech at A that will cause alarm. The same can be said for the number of companies you promised to invest in or check sizes you wrote. If there are big differences LPs will want to know why. 3️⃣ Bad Actions  The fund manager/s does something that is unethical. This is a no go for an LP.  What if the situation is not clearcut? This is different for everyone and requires discussions b/w GP and LP, but most LPs don't want headline risk. 4️⃣ Continuous Underperformance  If it's early days an LP will look at some key indicators to see how you are progressing over time.

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Q3 is out and Q4 is in!  This is a great read about Base10's strategic switch showcasing how Carta is simplifying fund administration for emerging managers, which is especially important now rolling into the year-end busy season. 

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Late-stage VC funds are earning dismal returns relative to the S&P 500 and take little risk. So why are LPs continuing to fund them? What the heck is happening in VC and can we fix it? In his three-part series on why VC is dead, Joe Merrill condenses conversations he's had from leading money managers all over the world into what's happening in VC today. Read the first part here and stay tuned for part 2: https://lnkd.in/gmCMx6wR #vc #article #latestage #earlystage #learning

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In the season finale of Brex's Controllers Classified podcast, BCV partner Sarah Hinkfuss spoke with Erik Zhou to discuss the VC investment landscape and how BCV approaches due diligence for growth-stage companies. For founders, there are three things that are important to share with investors: 1. Your unit economics, or how you think about your business drivers. It’s by far the most important thing today and those inputs (e.g. customer cohort data, gross margin, sales and marketing costs) give you a complete picture of the business. 2. Your business model, or how you think about your future. It doesn’t have to be a huge, complicated spreadsheet. Rather, it’s an important instrument to show people how you think about the business. What is your view of the future and what do you believe are the most important drivers of the business? 3. Your memo, or your narrative. A popular format today is to tell your story in a memo, not a deck, and it’s great because the writing process forces more complete thoughts to give investors a full view of your business and vision.

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This is quite interesting advice and also quite a non-consensus view in the B2B software world. Cross-border founders who are considering the US vs International incorporation question should consider this as valuable input.

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We mapped out the biggest software PE investors of the last decade!🚀 📊Leading the pack are TA Associates, Vista Equity Partners, Thoma Bravo, Hg, and Battery Ventures. 👉They are not just backing companies but are helping founders scale their software business to new heights. 🌟 For founders in the software space looking for PE investment, we have covered detailed profiles of these PE funds that include their investment criteria such as investment size, geographical focus, revenue requirements, and board seat preferences. 👉The strategies of these funds range from growth equity to full buyouts, impacting software companies at various stages. 🔥Read the full article here: https://lnkd.in/dXzrEG2B #software #privateequity #softwareinvestor #mergersandacquisitions

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Another very interesting piece of Thought Leadership by our Polish Globalscope Partners Ltd partner, Aventis Advisors, regarding the biggest PE investors in the Global Software vertical in the last decade. Congratulations Marcin Majewski and the rest of the team for such an insightful research. 🔥Read the full article here: https://lnkd.in/dXzrEG2B #LiberdadeCapital #AventisAdvisors #GlobalscopePartners #GlobalTeam #ThoughtLeadership

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LP Tip #7: Decision-making is the product I buy Why do I believe the tip above? As an LP I am always assessing how you make decisions. 1️⃣ Repeatability matters - The decision-making process you build can be repeatable and you can be consistent with your investment strategy.   2️⃣ A great decision-making process can have different outcomes - It can result in a great outcome or a bad outcome. How you make your decisions consistently over time may also lead to better outcomes.    3️⃣ Managers make decisions all the time - A fund manager is making decisions on investments and follow-ons. They are making decisions on hiring. And, they make decisions on how they spend their time to do things that move the needle for their firm.

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The state of venture capital is wild right now. We are witnessing a surge of innovation across the spectrum: - Funds merging - VC doing PE - PE doing VC - Secondary funds - Buyout funds - Spin-out funds - Debt funds - Continuation funds - Infrastructure funds - GP turnover - Hard Tech surging - Family Office uptick

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Big things on the horizon, we are motivated and blessed to be at the dawn of a new age for the internet. Read more about our journey below or listen to the podcast: https://lnkd.in/eJeNhvVa

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Insightful breakdown from my great Partner Omri Amirav-Drory on the simple factors that really separate the top 1% of investors from the rest, and how more operators should become investors! https://lnkd.in/gEiZdT2h

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Interesting data and good work from Carta in their inaugural VC fund performance report analyzing benchmarks for more than 1800 funds across six recent vintages - https://lnkd.in/e5R_dhXp Take a look at the pace of investments. As expected, capital deployment has slowed since the 2020 peak, with 2022 funds only using 43% of their capital after 24 months, down from 60% in 2020. This trend seems broadly consistent across private company and fund investing, with GPs and their LPs being more cautious and selective with capital allocation. Raising capital is tough today. Full stop. It's easy to focus on that, but I'd encourage us all to instead consider and focus on what is less talked about - that this cautious approach has created a large amount of available capital aka "dry powder," dedicated and ready to support special founders. The best founders are aware of private market dynamics, which impact the time needed to raise rounds and the milestones they must hit to successfully do that, but their primary focus is always the mission and the customers they serve. They are committed to building products to solve their customers' problems regardless of what us investors think. Building generational companies is never easy, but many have been and will continue to be built in tough markets. I try to take a similar approach in supporting founders. That doesn't mean ignoring market conditions, which can greatly impact my investment decisions and outcomes, but like focused founders, I know it makes more sense to dedicate my limited daily energy to what I can control. That means finding and supporting founders who are transforming or creating markets and doing everything I can to help them win, no matter what the market is doing. I hope to collaborate with many doing the same. Have a great week and see you out there! Note: These thoughts and opinions are solely mine and and mine alone. They do not reflect and are not associated with any company I am part of.

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As we approach year-end, here's a helpful guide for General Partners and Limited Partners explaining: - What gets taxed? - What isn't taxed? - Scheduling K-1s - How venture fund earnings are taxed - VC fund write-offs - How Carta can help Check it out below (it's a quick read)!

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A huge congrats to the Tactyc by Carta team!! You've built an amazing product and have been great partners to those using the platform. I routinely hear from users that are impressed with the speed and quality of help that Tactyc provides to their partners. VC is changing (slowly) and managers need to build better data-driven decision making systems. The market operates on 'pirate rules' - fall behind, left behind. If you're Tactyc Curious, I'd be happy to share how I integrate it into Fund workflows. #VC #emergingmanagers Coolwater Capital #datadriven #VentureFinance #VCfundmanagement #Venturecapital

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A quick summary of considerations / thoughts for LPs investing in VC today. *Not Investment Advice* - Smaller funds provide higher return potential, but come with much more volatility (as a whole).  - Emerging Managers typically have the best alignment (smaller funds, hungry-to-succeed GPs, fees) but many have to go through a steep learning curves regarding operational governance, culture building, portfolio management, and LP relations).  -Beware of overweighting performance benchmarks as they often don’t go granular enough across fund sizes/types and sample sizes can be limited.  -Understand a manager’s valuation methodology. Careful review of marks may reveal an overally aggresive or conservative valuation policy. Know the marks of the top companies when assessing track records.  -Track records offer headlines. What you are looking for is the repeatability of outperformance, which need to factor in fund size changes, team changes, competitive shifts, and details around the "how" of past winners as it relates to potential systems the GP has for sourcing, picking, and winning.  -Median performance will not be enough. PE buyout is better if you are generating median returns.  -VC cannot be characterized as a good or bad asset class but a “Depends” asset class. It depends on the LP's ability to find and gain access to managers with the highest probability of outperformance. This isn’t easy and takes time. It's why I've spoken about the 90/10 issue in VC. While VC for many investors is often only 10% of a portfolio, it can easily take 90% of your time to appropriately build relationships, diligence managers, and make sense of evolving dynamics. -For new LPs, starting with directs is usually not the way to go; Adverse selection runs rampant, and you do not want to be the last call to invest after everyone else has passed (yes, there are times this works, but history hasn’t been kind). Most emerging LPs should probably start with funds to learn / de-risk.  -While it was gone in 2021, The J-curve is back. Expect the first 2-3 years of a fund to show negative net returns as times between rounds increase (mark-ups), deployment has slowed, and graduation rates of companies for the next round have decreased. -Technology breakthroughs like AI follow patterns where investment activity and excitement outpaces infrastructure and adoption. The top AI companies will be some of the most valuable companies of the future, but the vast majority will underperform significantly. During the Internet hype, for every Amazon/Google, there was an eToys or Webvan. -Liquidity is a real problem, but two potential outlets are coming - 1) VC GP-led secondaries are rising in prominence, and 2) Rate environment should start to unlock organic IPO / M&A activity as multiples start expanding. - The market is definitely a Tale of Two Cities. Strong funds/companies are well oversubscribed, but VERY hard for everyone else. The oversubscribed camp is<10%

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Summary: Trucks Venture Capital has announced a new $70 million fund to support early-stage startups in the transportation industry. Led by co-founder Reilly Brennan, the firm plans to invest in a diverse range of companies, including those working on autonomous vehicle tech, electric air taxis, and mobility data platforms. This is the firm's largest fund to date and its investment strategy has evolved to focus on great founders rather than specific sectors or ideas. Key takeaways: Trucks VC has a new $70 million fund to invest in early-stage transportation startups. The firm's investment strategy has shifted to focus on great founders rather than specific sectors or ideas. Previous investments from the new fund include charger installation-as-a-service startup Treehouse and zero-emissions jet aircraft company JetZero. Counter arguments: Some may argue that focusing on great founders rather than specific sectors or ideas may limit the firm's potential for success. The transportation industry is constantly changing and evolving, making it a risky investment for any venture capital firm. #startups #venturecapital #transportation

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Well-written and sourced article describing what's going in seed-stage venture market. At 9point8 Collective we tend to orbit the seed-stage (both ideating and developing companies to reach seed and helping post-seed companies refactor and scale in anticipation of A) and for many companies it's a critical inflection point which determines their long term success or failure. The main takeaways I was able to gather: 1️⃣ Many startups that raised seed rounds in 2021-2022 are struggling to secure Series A funding due to tighter market conditions and increased investor expectations. 2️⃣ Seed investors are becoming more cautious, leading to longer diligence processes and a preference for startups with strong traction or experienced founders. As a result, valuations have stayed relatively high even as deal flow reduces. 3️⃣ Startups are adopting various strategies to navigate this challenging environment, including cutting costs, raising bridge rounds or convertible notes, and M&A/acqui-hires. 4️⃣ Despite the challenges, there are opportunities for both startups and investors in this new landscape, particularly for those who can adapt to the changing market conditions. Investors are accumulating dry powder -- and with rates on the decline -- will be looking to deploy into companies with stronger fundamentals than their 2021-2022 counterparts.

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