The Memo

👋🏽 Welcome to issue #28 of The Up Round published on August 18, 2024. 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.

With the kids back in school, I’m back! I know it’s been four weeks since our last update so we cover some major ground this week.

Separately, the Carta report that dropped on Friday really threw folks for a loop going into the weekend. I looked through it yesterday and while appreciative of some of the intermediary data points, felt largely “meh.” Let me unbundle this:

1. It’s hard to read into a particular vintage on a IRR and DPI basis if it was raised over the last five years. As a reminder, the most impactful investments take north of ten years to really get liquid (I’ve seen data suggest it’s roughly 13 years from first check to exit for such startups) - perhaps this is a reminder of how patient one must be in VC.
2. Now TVPI is a worthwhile “intermediary” metric for newer funds. Most people “knew” it would be challenging for the 2020-2022 vintages given the part of the cycle those funds both invested as well as got markups in. It takes six to eight years to really get a read on the success of a fund. If I had to guess, we’ll see benchmarks come down meaningfully this year given that 30% of VC rounds are down or flat - overall a healthy thing for the venture markets.
3. I was also curious on whether there’s a return to “pace” and the data on the 2022 vintage suggests VCs have slowed down and valuing time diversity as part of their portfolio construction. This will have an impact on fundraising - signs increasingly point to a busy 2025.

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What I’m Reading

Can Roelof Botha Keep Sequoia Ahead in the AI Future? (link). “That stellar reputation is precisely what makes Botha’s job so hard. The task isn’t so much to fix what’s broken as it is to keep what works from breaking—and not to be the guy who ends a five-decade winning streak. And what’s kept Sequoia at the top in the past won’t necessarily keep it there—especially in a VC industry that’s scrambling to adapt.”

Cooley: Pay to Play Provisions at a Record Number (link). Pay to play provisions are at an all-time high with 8.7% of Q2 investments including such language (the last high was 8% in Q1 ‘17).

Nearly 30% of VC Rounds Are Down or Flat (link). This big question is whether this is the beginning or end of a correction? Given 9/10 investors would say that companies were over valued through COVID and that we’re still grappling with the overhang. As such, this shouldn’t be a massive surprise and encouraging to see the glut work it’s way through the system.

The State of Startup Creation in Europe (link). After experiencing a massive drop off in startup creation between 2020 and 2021 (which continued into 2022), Europe seems to be coming out of it’s slump. There’s some truth that the higher interest rate environment has forced capital to leave VC but generational founders don’t care, they’ll build either way.

VC’s New Reality Check (link). I don’t agree with all the sentiments shared but it’s interesting to hear how others in the industry perceive the venture industry, today. I will say that reduced fundraising is healthy for the asset class - just like a burn is good for the long-term health of one’s fields.

Fund Debuts

Create Health Ventures Raises $21M for Debut Fund (link). Led by Emma Cartmell and Amit Aysola, the new fund will focus on early stage “technologies that payers can leverage to improve access to care for everyone, enhance the patient experience and facilitate better health outcomes” as well as “ technologies that pharmaceutical companies can tap to recruit and retain patients for clinical trials, as later-stage trial needs swell in the industry.”

Jeff Bezo’s Brother is Launching $100M VC, “Hipstr” (link). The younger brother, Mark Bezos doesn’t seem like a hipster given that he runs PE firm, HighPost Capital but is in the midst of launching a new VC with such name sake. The fund will focus on early stage (appears Series A) consumer companies and has made six investments including Wild Common, a liquor company started by Kylie Jenner and After.com who provide cremation services.

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Other Fun(d) Stuff

Antler Closing $72M Fund Two for Southeast Asian Startups (link). The fresh funds will continue investing in pre-launch, pre-seed, and seed startups in Southeast Asia to build a portfoli of 45 companies.

Moxxie Ventures Closes $95M Fund III (link). The new fund continue’s Moxxie’s focus on seeding startups in health tech, climate tech, SaaS, AI, and robotics. The firm will deploy $1.5M for roughly 10% ownership. LPs include Cendana, Accolade, the Nature Conservancy, Global Endowment Management, and several universities.

Siddhi Capital Scores $135M For Second CPG Fund (link). The new fund will invest $5-10M into CPG startups doing $25-100M in revenues. Net, net, the second fund will invest in less companies that it’s predecessor fund (40 startups).

Flint Capital Raises $160M For Third Fund (link). The new fund is 4x the size of the initial 2013 fund and will invest 50/50 in early/late stage investments. The firm invests in IT, cybersecurity, fintech and digital health startups, worldwide.

Kenet Raises $287M European Growth Fund (link). The fresh fund makes this Europe’s largest growth fund that will invest $10-20M per company with a focus on SaaS, fintech, and healthcare.

Radical Ventures Raising $800M Fund for Late Stage AI Companies (link). The Canadian fund is backed by Fei-Fei Li, Geoffrey Hinton, Temasek, and a pair of Canadian pensions including CPP and PSP, among others.

Breakthrough Energy Ventures Closing $839M as Part of $1B Fund 3 (link). The third fund is on track to be one of the largest climate funds raised this year and will grow the BEV portfolio by 40%.

Balderton Amasses $1.3B in New Funds (link). The new funds are split- $615M for the Early Stage Fund IX and $685M for the Growth Fund II.

Maverick Capital Seeding Maverick Silicon to Focus on Mid-to-Late Stage AI Investments (link). Maverick is a stalwart of the hedge fund industry as well as an early backer of Nvidia (holding for 20 years now!). It’s putting it’s own money into establishing it’s first sector-specific vehicle for growth stage private investments associated with AI. It appears that existing and new LPs can invest in subsequent closes.

Talent Tracker

Maria Palma Joins Freestyle VC as GP (link). Maria joins from Kindred Capital in London and prior to that was at RRE Ventures in NYC. She will lead new investments, support the existing portfolio, and contribute to growing the firm’s thesis.

Molly Alter Promoted to Partner at Northzone (link). Molly is a caesar salad tastemaker (which I’m good with because I think it’s the best salad out there) and even runs a blog reviewing each one she’s had at various restaurants. Perhaps more relevant (but not as fun as salads), she brings nearly a decade worth of experience in venture from Insight, Index, and joined Northzone last year.

Techstars Continuing to Right-Size Organization (link). With David Cohen back in the CEO role, Techstars is reducing headcount by 17% as it becomes more obvious the organization has “overbuilt and overhired.” Related, Techstars and JPM will not renew their joint program that deploys and manages $80M with the goal of backing more diverse founders.

Alex Cook Leaving Tiger Global (link). In what appears to be a surprised move, Alex Cook is leaving the firm after seven years and anchoring several fintech deals for Tiger. It’s unclear what Alex plans to do next.

Lauri Moore Joins Bessemer as Partner (link). Lauri will focus on investments in data science, developer tools, and related infrastructure. She is a former founder and led product at LinkedIn for the enterprise jobs marketplace. Prior to which, she was at the NY FRB before a prolific career as a PM across several startups.

LP Radar

First Look: Things We Think Q2 2024 (link). A few interesting statements: 1) “Most institutional LPs are hesitant to move too far out on the risk spectrum. To beat this analogy to death, you don’t get fired for investing in Thrive Capital VII, but you might get fired for investing in Rackhouse I, if it doesn’t work.” 2) “We expect fund cycles to extend. If folks were deploying and coming back to market in 1 – 2 years, we expect that to stretch out to 3 – 4 years. Be wary of managers that deployed capital rather than invested it thoughtfully.” and 3) “Fund Is are becoming more and more attractive as they don’t carry the baggage of 2021 vintages where managers are forced to devote time and energy to support their portfolio companies from those funds that are racing against time to grow into inflated valuations.” 

SVB: H2 2024 State of the Markets (link). Some interesting slides: Slide 4 on VC sentiment (look how dissimilar they are!); Slide 8 on the rate outlook (interestingly no mention of the election?); Slide 9-10 on the AI era and corporate buyer sentiment (still a focus on managing costs); Slide 15 on the VC fund return environment (I think this is a better look at returns/liquidity than the recent Carta report mentioned above). Note that funds 8-10 yrs older are slow to drive liquidity given the chilly M&A backdrop and that smaller funds outperform larger ones albiet their greater volatility till that final liquidity event.

📽️ Superclusters: Lisa Cawley at Screendoor (link). Lisa is great if you don’t know her (in fact, I texted her for advice this week and within a hour, got some solid perspective). I’d draw your attention to how Lisa draws perspective from her time as a collegiate swimmer in her role as a LP (03:30); LP-GP fit (35:00); reference checking a fund’s unique value-add (49:00).