Sam Abrika

For anyone working in VC, I highly recommend taking a look at the Progress Map from Fifty Years. The map calculates a 'Competition Ratio' representing a market segment's relative level of saturation. This ratio is calculated by dividing a sector's TAM by the dollars invested in Series A startups from that sector over the last 10 years. In doing so, 50Y not only sheds light on the markets where there is outsized opportunity for disruption, but also the areas where outperformance is likely to be more challenged and the resulting impact on innovation & the economy comparatively small. Interestingly, what can be seen is that traditional software verticals like SaaS and CRM are among the most over concentrated markets, while industrial manufacturing segments like petrochem and paper are the most ripe for change. What's fascinating to me is that we as VCs are often focused on fostering growth within the same few areas. That's not to say that investing in software isn't critical. It certainly has streamlined how enterprises operate and changed how enterprises and customers interact. It also provides a certain scalability to VCs that make it attractive from a potential returns perspective. On the flip side, hard technologies and manufacturing processes are extremely hard to build, have much longer timelines to achieve revenue traction, and face stiff competition from legacy incumbents. But this makes me think that perhaps these areas are the most worth venturing into if progress is our ultimate objective. We are fortunate at Harpoon to be partners with companies like Solugen that are proving this day in and day out. They have fundamentally revolutionized the chemicals industry by proving that a traditionally carbon intensive industry can be decarbonized in a price competitive way. I hope we continue to see change and investment in every industry, but I think VCs should also not shy away from the challenge of investing in those technologies where rapid revenue expansion is not immediate.

91

15 Comments

Taavet Hinrikus and I made the Financial Times Due Diligence email. https://lnkd.in/ez2AuGQx One 'unintended consequence' is that if there is a 45% tax on carry and CGT (raising £40m per year, remember) it for all intents and purposes closes the door on new VCs in the UK. Especially started by teams from non-traditional backgrounds. To meet the GP commit, you need to be already part of the 'wealthy' as you cannot rely on the value you create - nearly half of it will disappear - to fund it. We have both had extremely successful startups which are few and far between. The smaller number of new VCs will therefore more likely increasingly be for people who have inherited the capital or can draw it from their already rich family. Probably not want they have in mind with this policy.

32

2 Comments

What should investors expect from the VC industry over the next 3-5 years when it comes to exits and performance? Rick Zullo, on X, has argued that there will be a greater divergence between VC funds, with the most successful ones producing even stronger performance, while the median fund return will reduce. I would agree with this as we are likely to see fewer, but typically larger, exits. It will become more important than ever to have meaningful exposure to the small number of winners that drive VC performance. We saw this divergence in VC fund performance very clearly after the 2008/09 financial crisis. As you can see from the chart below, it was the top-tier, established managers who make up our Core Manager cohort that massively outperformed as the market recovered. We have identified three key factors that we believe materially contributed to this outperformance: 1. Quality of portfolio companies. We know that VC is a power law asset class, but the distribution of returns is even more concentrated after a correction. The number of successful exits falls significantly and the small number of VCs able to back these companies will materially outperform. We usually see the best companies actually improve their competitive positioning during a correction. They become more capital efficient, increase market share and benefit from many of their competitors being unable to survive. 2. Availability of capital. In a downturn, even the very best companies will usually need to raise additional capital. As a VC, if you don't have the capital to support these companies and protect your ownership, then you are in trouble. The best VCs can still raise new funds even in the worst of markets and will have the capital to ensure their best companies survive. 3. Willingness to continue to invest during the most challenging periods. The best managers have the experience of managing through prior downturns as well as the confidence (and the capital) to take advantage of the opportunities that a correction creates. This means that they can double down on their best companies, often at attractive valuations, and also access market leaders they may have missed in prior rounds. We have seen a major flight to quality from LPs to date in 2024, with a small number of VCs responsible for the vast majority of capital raised. Unfortunately, this is shutting the stable door after the horse has bolted. Venture capital is a cyclical asset class - corrections are a feature, not a bug. This means that LPs need to construct a portfolio that not only captures the upside as the market rises, but is also resilient during a downturn.

76

3 Comments

Small VC funds vs. Large VC funds by the numbers:‍ By now, most people have definitely concluded that in VC, small funds outperform their larger fund counterparts. Our view, both heuristically and backed by our own data, is that small funds can materially outperform, but there is a clear added dimension of risk that shouldn't be ignored. First, what does our data say by fund size? Keep in mind that the data below is from 253 funds, with only pre-2019 vintage years being included (to eliminate the J-curve effect and our belief that 4-5 years need to pass before a directional stance can be taken on a fund). Also, the mean performance numbers may look inflated, but they include some large outliers and have mainly (by our measure) very high quality fund managers. Also, we expect final DPI will show a softening of perhaps 20-40% in these numbers over time as markdowns continue. TLDR: Small funds (0-100MM) definitely can outperform when successful, but come with a much higher level of volatility (and even this data set has survivorship bias). The challenge for risk mitigation for small funds is discovery, diligence, and building an appropriate level of diversification through picking multiple of these funds. This can be very time intensive and laborious for most investors (given nearly 70% of current VC managers raised funs that fall in this range) Large VC funds can be fundamentally different products when it comes to risk/return through the inherent characteristics they possess, including 1)More Series B and later exposure given the higher % of reserves these funds hold for follow-on relative to seed funds 2) more portfolio companies 3) typically larger teams and brands. Also, many larger brands staple offerings of early stage + growth, which by definition will provide lower volatility and should provide liquidity sooner (in theory). However, the tradeoff for less manager risk/lower vol is a tighter band of potential outcomes, with top-end DPI outliers being very rare given the basic math of venture (especially when premium carry is taken into account). At the end of the day, each investor needs to assess their own constraints of time, risk, and return expectations to develop a portfolio of VC funds that makes sense for them. Here is the data: Small Funds (0-100MM): Mean TVPI: 4.3 Standard Deviation: 2.4 Median Portfolio Companies: 26 Mid-Sized Funds (100-250MM): Mean TVPI: 3.6 Standard Deviation: 2.0 Median Portfolio Companies: 24 Mid-Large (250-500MM): MeanTVPI: 3.0 Standard Deviation: 1.2 Median Portfolio Companies: 35 Large (500MM+): Mean TVPI: 2.7 Standard Deviation: 0.9   Median Portfolio Companies: 43  #VentureCapital #InvestmentStrategy #PrivateMarkets #VCInsights #RiskManagement #PortfolioManagement #Allocate

320

30 Comments

How investors grade your startup? A sample VC memo on a $5M seed round ⬇ Shared by John Hu who’s worked for top VC firms like Goldman Sachs and Norwest Venture Partners, funding companies like Uber and Spotify. The goal is to get straight As, grading startups fairly the same with a few exceptions: - Team: A for taking market feedback over theory. C for having outside commitments at play. - Market Size: A for evidence to support target market cap. C for overestimating the accessible market. - Competition: A for having a key competitive advantage. C for failing to acknowledge key competitors. - Differentiation: A for building strong moats like proprietary technology. C for differentiation based on easily replicable factors. - Metrics: A for balancing growth and profitability metrics. C for focusing on vanity metrics like sign-ups. - Exit Potential: A for considering options like M&A. C for hyperfocusing on one path. How would you grade your startup? Check John’s original post here: https://lnkd.in/gjNptXnR #founders #investors #venturecapital #privateequity #startups #i5invest

438

46 Comments

The below is a good analysis. Fund size small = good and large fund size = bad is too simplistic and lacks necessary nuance. The other factor that people often miss is risk. Big funds and small funds are different financial products. Fund size is a good proxy for business model and likely stage exposure on a look through basis. A large vc fund is likely going to have 60-70pct of capital in B and later (cost dollar averaging up per follow-on, but more visibility into compny prospects. I realize 2021 is a violation to this general rule). Small seed funds that succeed will generally be top performers each year, but requires high level picking and discovery. Larger successful funds are more access driven. Both can be important in a well balanced portfolio.

106

11 Comments

Thinking 🤔 out loud - one of the biggest beneficiaries of GenAI in the enterprise and agentic worfklows will be software PE firms There are so many beaten down SaaS 🦄 they can buy on the cheap and with a GenAI playbook can now reduce costs even more dramatically And as the AI gets better and moves from just the easy stuff like support and code to more complex workflows, the profitability created is going to be 📈 We are going to see a ton of PE buyouts in the months ahead...

83

17 Comments

So turns out I screwed up... I made a modelling error when looking at the timing of each round relative to the venture scale curve 🤦🏻‍♂️ As a background - I've taken Carta's Q1 2024 valuation data added their time between rounds and then mapped both to the definition of venture scale to get (an estimate of) Venture Multiples at each stage 😃 But initially I was using the latest Q1 2024 data for every round 😞 → when I should have been using it only for the latest round... So if we look at Series C as an example, I was saying... → Seed to Series A in 26 months (Q1'24 data) → Series A to B in 27 months (Q1'24 data) → Series B to C in 27 months (Q1'24 data) For a total of 80 months from Seed to Series C Historically the time between rounds didn't change much year over year and this wasn't really an issue. But they've grown dramatically over the last few years and that creates a huge issue in the way I'm modelling things here So if I want to map a Series C to the venture scale model, I'll need to work backwards... Which just means I need to use WAY more vlookups in gsheets 😂 So let's look at the Series C again... → Series C was raised in Q1 2024 → Based on Q1'24 data, that took 27 months → So their Series B was raised in Q4 2021 → Based on Q4'21 data, that took 19 months → So their Series A was raised in Q2 2020 → Based on Q2'20 data, that took 19 months → So their Seed was raised in Q3 2018 For a total of 65 months from Seed to Series C Fortunately Peter Walker's data goes back in time so I can do these look backs 🙏 This issue didn't really impact the Seed/Series A multiples, but really compounded to make things worse for the later B/C/D/E rounds - I've taken down the previous posts with the errors Hope this helps ❤️ and let me know if you find any more big errors 💪 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market

182

19 Comments

"Platform" in VCs often feels undefined, and different at every firm. But one thing is clear: firms with dedicated platform teams are seeing higher investment returns. What is 'Platform' in VC? Think of it as a support engine for portfolio companies. Platform teams accelerate growth by providing: 1) Strategy & Growth 2) Talent Partner 3) Marketing & Brand Partner 4) Business Development & Partnerships Lead 5) Community Manager 6) Operations & Scaling Partner 7) Fundraising & Capital Advisor Platform in Venture Studios vs. VC Funds: The big difference? Timeframe. Venture Studio Platform: Involved from concept to exit, guiding startups from the very first spark of an idea. VC Platform: Steps in after the startup is funded, focusing on scaling and growth but not the initial concept phase. Both play critical roles—but understanding these distinctions helps founders and investors make the most of their platform relationships.

21

6 Comments

POV: VC who disappeared after the FTX crash convincing their portfolio companies to start meme-coins But on a serious note, most big captable projects I've spoken to say VCs barely communicated after investing, only showing up to claim tokens If you standup for nothing, you tolerate everything Stay informed! P.S - please share (if any) good stories on how VCs have helped you, curious to know #vcfunding #startups #founders

64

24 Comments

🔥Here's why micro-VC funds are going to overtake larger GPs ($50mil+) in the next 12 months (and why I believe this is a great play for LPs).🔥 1. Early access= outsized returns. Small checks equals super early access, great upside and outsized returns and a much better and rights for everyone, LPs included. 2. Pro-rata rights. Smart micro-VCs will include this and be able to maintain a stake in their best-performing portfolio companies- giving them the option to continue investing at a later stage. 3. Better operators. Micro-VCs are going to invest early and get their hands dirty and tinker. Case in point, one micro-VC I know are successful entrepreneurs (3x IPOs)- having taken a product from the garage to the stock exchange. Think part investor, part mentor, part CTO. This is invaluable for any founder. 4. More creative. A micro-VC doesn't do it for the management fees- these are negligeable and cover fund expenses and that's about it (see my next point). Therefore it requires being more creative with how and where capital is allocated. 5. Performance over AUM. Given that management fees are not an incentive, micro-VCs focus on portfolio performance rather than assets under management. This creates a much stronger alignment with LPs, especially professional investors and family offices. 6. A bigger portfolio. Imagine writing an average check of $250k for a $10m fund. That's potentially 30-40 startups depending on how much capital is going to be required. So imagine as an LP what a $250K check can get you- a pool of 30 startups versus 1 seed? 7. Democratizes access. Based of the last point, some smaller LPs and professional investors can't access investments in larger VCs- or not on great terms. Smaller micro-funds target a different, more entrepreneurial pool of investors that is truly democratizing, creates co-investment opportunities and much less risk than investing in solely one pre-seed startup for more or less the same ticket size. I'd love to here thoughts from LPs and family offices, as well as micro-VC managers on what your experiences have been!

39

10 Comments

Agree with Victor Haghani “We estimate the probability of the leveraged MicroStrategy ETFs going bust in the next year at between 20% to 50%,” said Victor Haghani This Fund Manager Raised Billions in a Bet on MicroStrategy. Can He Keep It Going? Matthew Tuttle was a bit player. Now he runs a red hot fund—but there are signs the T-Rex 2X Long MSTR Daily Target ETF isn’t ready for prime time. Both strategies typically produce their juiced returns through the use of financial contracts known as total return swaps. In exchange for a fee, a market maker will pay a swap holder the exact daily return of an asset, allowing a fund to double the daily performance of a stock or index with precision. Neither asset manager has relationships with the prime brokerages at major Wall Street banks that would have the capacity to write the swaps they need. That has left the firms to turn to the options market for leverage, both Tuttle and Defiance CEO Sylvia Jablonski said. The use of options—which wasn’t a strategy described in Tuttle’s original fund prospectus—introduces a new set of risks. Prices fluctuate, and options on a volatile stock can be costly, eating into a fund’s returns. Both MSTU and Defiance’s competing fund, MSTX, have had substantial “tracking errors” in the days since they began using options, at times leaving their investors with larger-than-expected losses on down days and smaller-than-expected gains on up days. Both “2X” MicroStrategy funds have recently posted daily losses greater than three times the underlying stock, while posting gains of less than double. Tuttle says he isn’t concerned that the leveraged fund hasn’t always been providing twice the return of MicroStrategy, despite the fund’s name and stated goal. “The prospectus says it targets twice the return, it says ‘targets’ for a reason,” he says. “We’re going to try every day to get two times, some days we won’t quite get there.” (This is actually an inept comment from him since he doesn't seem to have ANY background managing an options portfolio.) Tuttle says it is feasible for him to keep running the fund with options, despite the challenges of that strategy. “You can do it, if you know how to manage an options portfolio,” he says.

3

Fusion has critics. There’s lots to debate, but it is far from “scientific bull sh*t” and “deeply intellectually dishonest”, as argued by Chamath Palihapitiya on the All-In Podcast. Strong opinion. Not a lot of substance. Here’s why: His argument: ☀️ Solar + storage will be available at $30/MWh so we don’t need fusion. 💻 Fusion is different from other large technical innovations (like the computer) because those technologies had no alternatives. 💰 Capital is being diverted to fusion that could be better spent on furthering American interests and energy independence. The truth: ☀️ Solar is amazing and we should build a lot of it where we can. But, #solar can't be deployed everywhere. Many places have a poor solar resource or can’t use solar period due to land constraints. Plus, we don’t have the capacity to store solar economically at scale over long periods of time (known as seasonal storage). The assertion that the world (or even the USA) has superabundant, low-cost solar + storage is untrue. 💻 He makes the argument that we won’t run down the cost curve with fusion because fusion already exists in the form of solar PV. This is equivalent to saying: don’t develop computers because we can do calculations by hand. Solar is orders of magnitude less efficient than what fusion could be - same as how calculating everything by hand was orders of magnitude less efficient than what computers could be. 💻 The point missed is that fusion is not a modest improvement over energy today. It can (1) be 7,000,000x more efficient than fossil fuels, (2) safely operate all day everyday, and importantly (3) be deployed ANYWHERE in the world. This energy product doesn’t exist and is 100% a technological improvement equivalent to computers, automotives, or what SpaceX has done for launch. 💰 There’s a healthy debate to be had on how to spend limited capital on the energy transition. However, the US invested ~$500B in #energy in 2023 (ref. IEA). We invested roughly $1.4B in fusion in 2023. Investing 0.28% of "energy capital" in high-potential innovation like fusion is wildly low. A healthy investment ecosystem should be 5x - 10x that. 💰 Finally, the idea that #fusion is not essential to energy #independence is short sighted. The US already lost renewables to China. Developing countries looking to secure their long-term energy supply will be faced with a choice: dependence on US gas, or independence with Chinese renewable technology. Seceding fusion to our largest economic rival waives the US interest in remaining the energy superpower of the world. Fusion will be the last energy technology we ever need. We can invest in that future, or let others take the lead. Take a listen: https://lnkd.in/gfRACmQE #DeepTech #Investing

73

4 Comments

The fundraising market for VC funds is on track for its worst year since 2015. The shortage of IPOs has meant a lack of liquidity to LPs, causing less appetite for new fund commitments. The last two years have felt a bit like a "venture stalemate." Will it change in 2025? My latest article in Forbes includes predictions from leading Limited Partners (LPs) across the US and Europe, including institutions, fund of funds and family offices. Read below (link in comments) to see what they're expecting for venture capital in the year ahead. 🔮 Aakar Vachhani Fairview Capital Hana Yang Allocate Adam Marchick Akkadian Ventures Anu Adebajo Daryn Dodson Dominic Maier AVP Layne Johnson Screendoor Julie Pulda, CFA Ballentine Partners, LLC Albert Azout Level Ventures Charlotte Palmer Mark Schmitz equation January Ventures

151

12 Comments

Some people want big money so that all eyes are on them; others so that none are. 😎 I collapse time by providing founders and CEOs the capital needed for start-up, scale-up, and M&A opportunities. We engineer an exit strategy designed to create generational wealth through significant exits. Our access to capital accelerates growth and boosts enterprise value, attracting larger investors and buyers to acquire your business. Over $2 trillion of committed capital is currently seeking opportunities. DM me to learn more about building your exit strategy plan and harvesting the wealth from your business! #Stealthwealth #bfrank = Be Frank

39

16 Comments

Every VC claims they have an edge, but from where I sit as an LP, it’s clear: the next generation of fund managers will need stronger arguments than 'working very hard' or 'being helpful for founders' to raise money. The best fund managers will set themselves apart with these three non-obvious skills: 1. Cultural fluency - Some of the best startups come from immigrant founders, but they’re navigating a system that isn’t always built for them. VCs who know how to build trust, understand their challenges, and support them where it matters will unlock incredible opportunities. 2. Downstream sales: There’s more money than ever chasing top founders, and the best deals are going to the VCs who founders actively want to work with. It’s not just about pitching; it’s about being the one they call first because they know you’ll add real value. 3. Value-add 2.0: Founders don’t need more generic advice. The best VCs create real pull by building opportunities—whether that’s connecting the right dots in their portfolio or unlocking new markets—that founders actually want and can’t find anywhere else. This is what LPs should focus on when backing funds—it’s what separates good from great. ---- Interested in investing in VCs & startups? let's connect.

382

99 Comments

How do investors price pre-seed rounds?  This is perhaps one of the most misunderstood aspects of fundraising.  Oftentimes, founders want some framework to better understand what market value is when raising capital into their business.  Public equities and later stage privates have a well defined matrix of revenue/margin profiles that dictate valuation, surely there must be some framework for arriving at a pre-seed valuation. So how do investors price startups that are pre-revenue, or have maybe one of two early customers? In reality, pricing is more a byproduct of a VC fund’s portfolio construction model than any metric of the underlying business.  VCs model out portfolios to include a certain number of companies with an ownership target in each startup.  There are variations to portfolio construction, and the chosen strategy will have a direct impact on the types of rounds a fund will participate in. For example, an early stage fund might raise a $60M fund to lead investments in 30 companies and target 12.5% ownership.   After management fees, there is ~$48M in investable capital.  Assuming a fund holds back ~30% for reserves(this number varies across funds) that leaves ~$30M to invest in initial checks.   In this case a fund must average $1M checks at $8M valuations to reach their intended ownership target of 12.5%.   When you are in diligence with a fund, they are first and foremost trying to get to a yes on the investment opportunity.  When arriving at a valuation though, the math outlined above is the determining factor, more so than any multiple of revenue on the business, or the stated desires of where a founder wants to raise capital.  At the end of the day, a VC is trying to arrive at a valuation that works within their portfolio strategy. This means they are very unlikely to price a deal at $15M cap given the aforementioned portfolio construction, as they would either not own enough($1M = 6.67% ownership) or have to cut too large a check( $1.875M = 12.5%). The thing that is most likely to move an investor off their target valuation is another investor in the picture that is driving the price higher, but even then there are upward bound limits of how high an investor is willing to price a deal. I always advise our port cos to ask an investor early in conversations what their ideal check size/valuation is to make sure there is alignment with the founder's objectives.    

56

4 Comments

99% of VC will pitch to their investment committee. This is why knowing this is a game-changer: When you get to a later stage in the fundraising process. An investor will have to pitch internally to their IC. All to decide if they want to give you a term sheet. Now... Not everyone in the IC will have seen you before. So a VC has to create an "IC paper" to give a run-down of their thoughts on you and your company. This will have thoughts on why they are excited. And also why they are anxious. This can be a game-changer for how you pitch yourself to investors. Because having a IC paper example to look at before your fundraise allows you to see how an investor: - Analyses you - Gets excited to invest into you - Speaks about your company internally Luckily for you: I am giving an example away for free! All you have to do is: → Like this post → Comment "Memo" → Connect with me And i'll send you 100+ examples of it! Let me know what you think.

75

96 Comments

VCs: 'shareholder promote' is a cap table modeling cheat code. I used to struggle to follow the calculations required to model pro forma cap tables. I would constantly run into circular logic that was hard to reason about. That circular logic required the 'iterative calculation' setting in Excel, which would break the model if it wasn't turned on. Then I read a 2017 article by Jeffrey Bussgang at Flybridge, in which he introduced the concept of 'founder promote.' Jeff tells the story of losing a deal because a founder chose another VC firm's term sheet offer with a higher pre-money valuation. Jeff's offer was more favorable to the founder despite having a lower pre-money valuation. The reason was that Jeff's offer had a smaller option pool. Jeff realized that if the founder had calculated the $ value of the founder's ownership (the 'founder promote') for both deals, the founder promote would have been higher for Jeff's deal. At Flybridge, founder promote became the standard way he and his colleagues communicated the economics of their term sheet offers to founders. After reading this article, I realized that founder promote was also a more effective way to model cap tables. However, I needed to expand the concept beyond the promote for founders to also include earlier investors. So, I came up with the concept of "shareholder promote". Shareholder promote = the existing shareholder's % ownership of the startup after an investment round, including expansions to the option pool, the conversion of SAFEs/notes, and the assumption of warrant exercise. Let's say existing shareholders would own 60% of the company after a Series A round because the new money would own 25%, the option pool would be expanded to 10%, and prior SAFEs/notes would own 5% after the conversion (1 - 25% - 10% - 5%). If there are 10m shares on the cap table before the investment, you now know there will be 10m shares / 60% shares on the cap table after the investment. Dividing 10m / 60% = 16.67m "post-money" shares on the cap table after the investment. Now you can calculate the # of shares to issue to all stakeholders by multiplying 16.67m by each stakeholder's ownership %. Series A investors = 16.67m * 25% = 4.17m shares Target option pool = 16.67m * 10% = 1.67m shares SAFE/note holders = 16.67m * 5% = 833k shares No hard-to-reason about circular logic and no iterative calculations in your spreadsheet are needed. Once I started modeling cap tables by first figuring out the 'shareholder promote' and then using it to calculate the post-money shares, then working backward from the post-money shares to determine the # of shares to issue to each stakeholder, modeling cap tables became WAY easier. -- Do you want to level up your ability to do VC mental math? I host a weekly 1-hour free webinar every Friday at 4 pm EST on another tricky term sheet valuation concept, the 'option pool shuffle.' Apply here: https://lu.ma/f35acifg 

58

3 Comments