The AI Gold Rush: How Startups Can Stake Their Claim In A Competitive Frontier

Following the debut of ChatGPT, it didn’t take long for AI companies to flood the business landscape. But while AI startups successfully raised $50 billion worth of investment in 2023, there was a clear decline in investments by the end of the year, indicating the initial investment buzz was wearing off.

Rather than casting wide nets of investments over the space, investors are now seeking stronger market fits. To succeed in this new age of AI maturation, entrepreneurs need to focus on building moats — finding unique ways to build a defense perimeter around their offering to fend off competitors or, at the very least, make it difficult to compete with them. READ MORE

The Difference Between Startup Valuation And Round Pricing

On Aug. 20, 2011, Marc Andreessen published the definitive manifesto for a generation of technologists and investors, with “Why Software Is Eating the World.” It kicked off an era of immense enthusiasm for software startups, coinciding with a period of historically low interest rates.

The pace of investment accelerated over the next decade, and without sifting too finely through recent history we can reflect back on a quote from Andreessen’s essay:

“Too much of the debate is still around financial valuation, as opposed to the underlying intrinsic value of the best of Silicon Valley’s new companies.” READ MORE

States With the Largest Growth in Venture Capital Investment Over the Past Decade

The U.S. economy has continued to defy pessimistic expectations in recent months, with employment, wages, and consumer spending remaining resilient amid high inflation and rising interest rates. But one part of the economy that has retracted is venture capital investment.

Venture capital financing has been a major catalyst for business growth in recent years, particularly through innovations in fields like technology and software. Now-ubiquitous tech companies like Uber and Airbnb got their starts as venture-backed startups within the last 15 years, but the impact of VC investment has flowed into every corner of the economy. As of late, however, high interest rates have pushed venture investors to be more conservative, making it harder for new startups to raise funding and leading to widespread layoffs in many venture-backed companies. READ MORE

Europe remains hard to crack for North American GPs

A few years ago, setting up shop in Europe was the soup du jour for North American VCs. From OMERs and Lightspeed to Bessemer Venture Partners, the market attracted firms of all sizes, and the Spotify IPO seemed to wake up North American VCs to Europe’s potential to create outsized exits. VCs wanted to make sure they didn’t miss out on the next wave.

But it’s unclear that they were able to catch it. Trends haven’t fully reversed since the happy days of 2021, but they’ve come pretty close. READ MORE

As venture capital funds pull back on consumer, more private equity firms look to play a bigger role in startup investing

Private equity funding is playing a greater role in consumer startup funding, particularly as venture capital funding dipped last year.

Among startup brands, venture capitalists typically make early investments in promising companies — or sometimes even concepts — predominately based on the potential for big growth. But private equity involves making controlling investments in more established companies and helping sustain profitability. READ MORE

VC Returns Revealed

It’s a rare treat to peak behind the curtain and see how venture capital funds are performing for their investors. 

Last year, Eric made a public records request to UTIMCO, the Texas public investment fund for the University of Texas and Texas A&M systems. He wrote about those returns here.  READ MORE

Reddit hasn’t turned a profit in nearly 20 years, but it just filed to go public anyway

Reddit, the message board site known for its chronically online userbase and for originating much internet discourse, filed for its long-anticipated initial public offering on Thursday.

The move would make Reddit the first major social media company to go public since Snapchat in 2017. And the offering will come with a twist that could allow some of the most fervent of its more than 70 million daily users to buy shares in the IPO — an opportunity typically reserved for institutional investors. READ MORE

Want More Runway? Consider Your Infrastructure Costs

As a founder going into a fundraising meeting, the best story you can tell is about growth — ideally exploding user figures with a credible path to revenue or exit.

If you haven’t figured out product-market fit yet, you need more time. Until you figure it out, it’s unlikely you’re going to be able to raise. The first place you should look is the place you have the most control: cash going out the door. READ MORE

Eye On AI: So Much For That Funding Slowdown

Before the year started, we pontificated there might be a slowdown in venture dollars and for the first few weeks it was looking like that prediction might be borne out.

While the first half of January saw some nice-sized funding rounds for AI startups, extremely big rounds were nonexistent. In fact, there were no rounds of $100 million or more until the month’s waning days (both Rebellions.ai and Kore.ai announced big raises on Jan. 30). READ MORE

Investors Have Got Your Number: Navigating The Data-Driven Shift In Venture Capital

The venture capital (VC) sector is undergoing a transformative shift towards data-, analytics-, and AI-driven methodologies, profoundly altering the traditional paradigms of sourcing, evaluating, and managing startup investments. While not necessarily incipient, this movement, reminiscent of the algorithmic trading revolution that redefined public markets, is set to revolutionize venture capital. By 2025, data, analytics and AI expected to inform over 75% of VC deal analyses according to a report by Data-driven VC. READ MORE

Why VCs Should Set Up An Entrepreneur Collective

Despite 2023 being labeled a “bloodbath” for venture capitalists, the industry remains optimistic with more than half of VCs reporting they plan to raise in the next 12 months. But to gain the confidence of LPs, VCs need to set themselves up for success beyond cash reserves. Although it takes a lot of time and energy, setting up an entrepreneur collective should be on a VC’s 2024 to-do list.

Obviously, a network of entrepreneurs offering mentorship to portfolio companies will give venture investors a better chance of success, but it’s also hugely advantageous to a fund’s reputation and financial standing. READ MORE

What can private equity firms do to re-incentivise management if the management incentive plan (MIP) is underwater?

There are a variety of options; and which might work depends upon the circumstances. There are a number of issues to consider, such as the level of consent required to make changes to the structure. There are likely significant tax implications to consider for many routes.

The solutions that might work in one jurisdiction do not necessarily work in another jurisdiction. For example, in the US it is often easier to restructure an underwater MIP. This is because incentive equity is typically structured as profits interests, with no purchase price or taxation on issue. This makes it relatively easy to issue a new series with a threshold or hurdle at a new, lower value, resetting the economics and providing a continued incentive to management. READ MORE

Private equity turns to new fundraising tactics in tough market

Private equity firms are increasingly raising money to buy individual companies on a deal-by-deal basis, as they struggle with a downturn in the market and investors look for ways to cut management fees.

A record $31bn was deployed by “deal-by-deal” investors last year, according to data provided by private equity advisory firm Triago, defying a broader dealmaking and fundraising slump in the industry. READ MORE

A Change Is Gonna Come. Right?

In 2017, the #MeToo movement took down some of the most powerful men in entertainment, business and politics, as women everywhere emerged from the shadows to bravely share their stories. A few years later, the murder of George Floyd galvanized millions of people to organize and march for racial justice.

Amid the unrest was the hope that a change was going to come. It was this sense of hope that motivated me to quit my suit-and-tie job and take the reins at Chicago:Blend, a nonprofit founded by local venture capitalists to diversify the region’s VC and startup ecosystem. READ MORE

5 VC Insights For Greater Resilience

We’re a quarter of the way through the 2020s and for a lot of VCs and startups, it has been a period of intense ups and downs. The digital acceleration and sky-high valuations of the pandemic years were quickly replaced by the geopolitical unrest, economic uncertainty, and repricing, which has defined the last 18 to 24 months, and looks set to continue this year. Many VCs and founders have never experienced such a rapid shift, and it has sparked numerous challenges, as well as soul searching and a reassessment of how to build great businesses. READ MORE

Mastering The Art Of VC Engagement: A Founder’s Guide To Strategic Fundraising

Securing venture capital funding is a nuanced art form, critical to the success of any startup. The key to unlocking this gateway lies in identifying and engaging the right individuals within a venture capital (VC) firm. This article delves into the intricacies of venture capital hierarchies and offers strategic insights for founders aiming to navigate these waters with precision and effectiveness. READ MORE

Silicon Valley Venture Capitalists Are Breaking Up With China

DCM Ventures, a Silicon Valley venture capital firm, began investing in China’s start-ups in 1999. The move reaped such blockbuster returns that in 2021, DCM said it planned to “double down” on its strategy of investing in China, the United States and Japan.

Yet when DCM set out to raise money last fall for a new fund focused on very young companies and promoted its “cross-Pacific” expertise, the firm described plans to invest in the United States, Japan and South Korea, according to a fund-raising memo that was viewed by The New York Times.

China was not mentioned. READ MORE