Rohit Yadav, CAIA’s Post

Some pleasant news. "The Big Book of Venture Capital" for Q1 2024 was just released. This comprehensive deck spans over 170 pages. 🤯 It’s packed with valuable insights into the VC and startup landscape. Some key highlights: -Global startup investments on the rise, with increased activity expected in 2024 -VC fundraising remains subdued, some indications of potential improvement. -Valuations show signs of recovery after a critical correction in 2023. -More exit options showing promise in 2024 (M&As/IPOs) -Family offices increasingly investing in alternative assets, potential boost for VC asset class in the long run. I, along with other esteemed VC experts, contributed valuable insights to this deck. It provides a complete, holistic view of our landscape today. Sentiment is improving amidst the market pain. A huge shoutout to Rohit Yadav, for spearheading this massive report. Highly recommend everyone check it out! 👇🏻 Which insight was your favorite?

"The Big Book of Venture Capital" is a good collection of industry insights. It is a recommended read to anyone interested in the VC ecosystem. 🙌 Kudos to Rohit Yadav, CAIA for such a work.

Check out this article featuring our Venture135 opening keynote, Rahul Baig!

"I expect that over the next 24 months, we’ll see a washing out in the venture markets. This will be true both for startups and for venture firms. On the startup side, many companies will raise down rounds or not be able to raise at all; they’ll shut down. Most unicorns shouldn’t be valued at $1B+, and we’re going to see a resulting correction. For venture firms, we’ll see the same thing. Over the past few years, we saw a boom in first-time funds. Many of these funds overextended themselves during the market froth, and they’ll struggle to raise a second or third fund. The funds that succeed will fit into one of two buckets—artisans or asset managers. We’re seeing the same thing in venture. You’re either an artisan or you’re a scaled asset manager. Going back to the two resources that founders can allocate—labor and capital—artisans are more focused on assisting with the labor and asset managers are more focused on assisting with the capital. Artisans focus on people; they invest capital, sure, but their value really shines in hands-on partnership around attracting and cultivating talent—making sure the right people are around the table. Asset managers are more about the money—their form of venture is less about craft than about putting dollars to work. Naturally, the latter is a better fit for a late-stage company that has a built-out people function and is more focused on getting dollars in the door to keep the engine humming. The former is better for early-stage—the original ethos of venture capital." https://lnkd.in/gE2knc5X

Venture capital has always been about finding the top 1% of startups, this is the framework behind VenCap’s investment strategy. We believe that over the next couple of years, the gap between the top 1% and the rest of the market will become increasingly wide. Here’s why: Already we see that VC-backed companies are finding it increasingly challenging to raise new capital. According to data from Pitchbook, investment in US VC-backed companies fell from $97.2bn in Q4 2021 to $40.7bn in Q4 2022 – a reduction of 58%. And the number of companies raising capital also fell materially – down 22% during the same period. But just how difficult could things still get for startups over the next year or two? To answer this question, we took a look at data from 250 early stage venture funds raised from 1995 to 2020. Collectively, these funds had backed over 11,600 portfolio companies. From 1995 to 2011, the average loss ratio for these funds (i.e. the percentage of companies valued below cost) was 63%. This means that nearly two out of every three portfolio companies backed by some of the most successful VC firms in the industry failed to return capital. In the worst year of 1999, the loss ratio hit 75%, with only one out of every four companies generating a positive return for their investors. However, since 2012 we have seen a marked reduction in loss ratios. From 2012 to 2020, just 31% of portfolio companies were valued below cost. Does this mean that founders suddenly became twice as good at growing their companies? Have VCs improved their selection capabilities by 100%? Or has the weight of capital coming into the industry over the last decade meant that companies are simply taking longer (and more capital) before they fail? Ultimately, we believe that loss rates for funds raised from 2012 onwards will end up around the historical averages. In some years we may even see these loss rates match the levels seen from 1998 to 2001. This means that LPs need to brace themselves for another significant reduction in fund NAVs as those companies that last raised capital in 2020/21 start to run out of money. Many of these companies will struggle to secure capital at any price, while others will have to accept significantly lower valuations than their prior round. However, there will also be a very small number of companies that can buck this trend and raise uprounds. Ultimately, it’s this small group of companies that can emerge strongly from the current downturn that will drive performance for the entire venture industry over the next few years. However, this performance is not going to be evenly distributed. For a further discussion on the outlook of VC in 2023, check out David Clark’s article "Being Greedy While Others Are Fearful" at https://lnkd.in/embP4Ueu

🚀 The Startup Fundraising Landscape: A VC Capital Crunch🚀 The startup ecosystem is buzzing with anticipation as the IPO window gradually opens and interest rate cuts loom on the horizon. Many hope this will prompt VCs to loosen their purse strings. However, the fundraising journey for startups may not get smoother anytime soon, largely due to the challenges faced by venture capitalists in raising capital themselves. 📊 VC Fundraising Downturn: In Q1 of 2024, U.S. VC funds raised a mere $9.3 billion, according to PitchBook, signaling a potential end-of-year total of just above $37 billion – the lowest since 2013 and a staggering 54% decline from the previous year. 💡 Limited Partners' Caution: Just like startups, VCs are grappling with attracting new capital from their limited partners (LPs) – endowments, foundations, and pension funds. The decline in IPO and M&A activity has left LPs with scant cash distributions, making them hesitant to invest further. “We’re coming out of a 2020 to 2021 period when [LPs] had the fear of missing out and were rushing into venture,” said Kirsten Morin, co-head of venture capital at HighVista Strategies, an asset manager that invests in venture funds. “Now they are licking their wounds and saying, ‘Oh, no, I invested at the top of the market. It will be a while before I see any distributions.'” 🔍 Brand-Name vs. Smaller Firms: While established firms like IVP continue to raise funds, the amounts may be shrinking. However, smaller and newer venture firms face a tougher road ahead in attracting new capital, potentially leading to industry consolidation.  “I think a lot of people may fall out of the business over the next few years,” said Chris Douvos, a managing director at AHOY Capital, which invests in funds and startups. 📈 Dry Powder Dilemma: Despite the challenges, VCs still hold a significant amount of 'dry powder' from previous funds. Yet, this capital reserve is at risk of depletion unless LPs resume investing. 🔮 Future Outlook: While one low fundraising quarter won't spell doom for the VC industry, sustained capital constraints could impact deal-making. The industry remains resilient, but adaptation and innovative strategies will be crucial for both VCs and startups navigating this challenging landscape. ✅ Looking to raise capital for your #fund and increase the international pool of your LP #investors?   🤝 Need warm #LP introductions?   📝 Selling #secondaries to increase liquidity?   🧐 Looking for co-investments?   ▶ G+QUANT's link for inquiries and fund decks: https://lnkd.in/gjC_EuTE #VC #StartupFunding #IPO #CapitalCrunch #VentureCapital #InvestmentTrends #Entrepreneurship #EconomicTrends

A 2021 Stanford paper found that venture-backed companies account for 41% of US market capitalization and 62% of US public company R&D spending. Among public companies founded within the last 50 years, the numbers are even higher: VC-backed companies account for half in number, three-quarters in value, and 92% in R&D spending. If entrepreneurship is the engine of innovation, venture capital is the fuel.

There’s too much misinformation out there about venture capital. I’m debunking the top 10 myths we hear so often: Myth 1: "VCs Always Pick Winners" 👉 Reality: Venture capital is inherently risky. While VCs aim to back successful startups, not every investment turns into a home run. Around 25-30% of VCs still fail to return even 1x. Myth 2: "VCs Only Care About Tech" 👉 Reality: While tech startups get a lot of attention, venture capital spans various industries. VCs look for innovation and growth potential across sectors like healthcare, sustainability, and more. Myth 3: “All VC Money is Equal” 👉 Reality: Not all VCs are the same. Depending on their portfolio and fund life, they might be actively involved in supporting startups or they may be more passive. Typically the more focused, the more attention given. Myth 4: “All VCs are Good Entrepreneurs” 👉 Reality: If all VCs were strong entrepreneurs, they’d be running start-ups, not investing in them. Don’t follow them blindly. Take their advice seriously, but always verify and validate your decision. Myth 5: "VCs Can Predict the Future" 👉 Reality: VCs are human and they don’t have a magical crystal ball! VCs make informed bets based on data and probability. Over the last 20+ years, top decile VC investments have produced an average IRR of 30%. Not too shabby, but not everyone wins. Overall returns for VC is 10%. Myth 6: "VCs Only Invest in Unproven Ideas" 👉 Reality: VCs invest at different stages, from seed to late-stage. Some VCs prefer proven concepts with market traction, while others focus on early-stage innovation. Make sure to align your preferences with the VC's strategy and thesis. We need investors at all stages for a thriving eco-system! Myth 7: "VCs Are Quick to Exit" 👉 Reality: VC investments often require patience. It can take years for a startup to reach maturity or exit through acquisition or IPO. VCs may exit between rounds when more funds are raised, but those with high conviction would usually invest more and do follow-on rounds. Myth 8: "VCs Have Endless Funds" 👉 Reality: VCs manage finite pools of capital with definitive fund life. For LPs, understand the fund's size, and target # of investments, as it affects the ability to support new startups and implies the level of risk and DD. Myth 9: "VCs Only Assess The Idea" 👉 Reality: VCs assess multiple factors with their own unique scorecard. Typically they consider various factors like founders, market, product, metrics, and much more. Myth 10: "VCs Are All Rivals" 👉 Reality: Yes, VCs compete for deals at times. But, most VCs often collaborate with other investors, mentors, and industry experts. It just adds more value to the ecosystem and their portfolio. What've you heard?

Thanks to Rohit Yadav, CAIA for including my posts in the Big Book of Venture Capital - at 170+ pages of VC content, it's obviously a labor of love! 𝐓𝐡𝐞 𝐁𝐢𝐠 𝐁𝐨𝐨𝐤 𝐨𝐟 𝐕𝐞𝐧𝐭𝐮𝐫𝐞 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 - 𝐐𝟏 𝟐𝟎𝟐𝟒 𝐛𝐲 𝐑𝐨𝐡𝐢𝐭 𝐘𝐚𝐝𝐚𝐯 🚀 • Forecast: The startup and VC landscape in early 2024 reflects ongoing uncertainty from 2023 but shows signs of improvement. Despite a 52% drop in global venture funding from 2021 to Q1 2024, early 2024 data indicates a potential rebound, particularly in late-stage deals. • Valuation Trends: There has been a critical correction in valuations across VC rounds, with a median step-up falling to a decade low of 1.68x in 2023. Late-stage valuations suffered most, declining by 56%, but Q1 2024 data suggests a potential rebound. • Investment Dynamics:  53% of VC fund managers expect allocations to increase in 2024. Demand for late-stage capital is high, with a 2.8x demand-to-supply ratio, as investors seek more calculated bets. Deal sizes have increased in Q1 2024, but deal count hasn't—indicating a flight to quality. • Challenges and Market Conditions: Early-stage startups face challenges transitioning from Seed to Series A, with fundraising times exceeding 24 months and increased due diligence from VCs. The Seed to Series A conversion rate has dropped to less than 50%. • Venture Capital Fundraising: VC fundraising saw a 65% decline in 2023 compared to the 5-year average, representing the largest drop within private assets. Slow fundraising activity is expected to continue through 2024. • Exits: Q1 2024 witnessed an uptick in IPO exit values, suggesting a possible resurgence. M&A is expected to be the dominant exit strategy in 2024, despite a 37% decrease in global M&A volume in 2023 (but only small deals, the FTC is not allowing big M&A to push through). Secondary markets are gaining traction, with a median discount of 50% compared to the most recent primary funding rounds. • Limited Partner Landscape: Family offices are emerging as a top LP capital providers (FOs have 3x'd in the number of firms since 2019), and CVC deal participation reached a decade high in the U.S., accounting for 60% of all deal value & 24% of deal count. However, there is a global trend of CVCs scaling back, although they remain focused on hot areas like AI. All credit goes to Rohit Yadav, CAIA and supporting team (Peter Walker, Brandon Hoffman, Jonathan Hollis, Frank Tanner, et al.) #venturecapital #startups #funds