VC Funds Warehousing Investments: Traps for the Unwary

One of the challenges facing venture capital firms is how to handle investments in portfolio companies prior to the initial close (“Initial Close”) of a new fund (“New Fund”). Typically, the investment advisor (“VC Advisor”), or a person wholly owned or controlled by the VC Advisor, will make such investment, “warehouse” it, and then transfer such investment to the New Fund promptly after the Initial Close. This strategy has been very effective for many fund managers as it enables them to commence the creation of a diversified portfolio of interesting companies for its future limited partners prior to the time of the Initial Close. While this is an effective strategy for fund raising purposes, VC Advisors should be aware of some of the pitfalls with warehousing investments. READ MORE

The AI craze is distorting the VC market

Big Tech has broken into the private market, leaving venture capital (VC) firms stuck outside.

What does this mean?

Microsoft, Amazon, Alphabet, and Nvidia have enough cash to fill more than a few super-powered data centers – and they’re using it to play VC. In writing checks for private AI startups like OpenAI, Anthropic, Scale AI, and CoreWeave, Big Tech is lining the little guys’ coffers so well that they have no reason to even think about a stock market listing. That’s a problem for the real VCs out there. See, they make “exit money” by cashing out when the startups they’ve invested in go public. Without those listings, VC firms are left holding company stakes instead of cold, hard cash. READ MORE

Why VCs Should Use Net Promoter Scores with Founders

Every business is defined by its customers — but it’s not always obvious who an organization’s customers really are. When it comes to VC firms, investors have historically and unsurprisingly viewed their limited partners (LPs) — the source of VCs’ funding — as their customers.

But in recent years, investors have begun to rethink this traditional mindset. In the early 2000s, some VCs began suggesting that the entrepreneurs in whom they invested were their true customers. Today, this narrative has grown increasingly widespread, with more and more VCs claiming that they view their founders (not their LPs) as the customer. READ MORE

The 12 biggest take-private PE acquisitions so far this year in tech

The private equity realm has been pretty active so far in 2024, serving as a powerful “alternative” source of liquidity for technology startups and scale-ups in search of an exit. Just this month, TechCrunch reported that EQT had picked up a majority stake in cybersecurity firm Acronis at a valuation of around $4 billion, following in the footsteps of another exit, in which EQT snapped up enterprise middleware company WSO2 for $600 million. READ MORE

Top private equity firms put brakes on China dealmaking

Most of the world’s biggest private equity firms, including Blackstone, KKR and Carlyle, have put the brakes on deals in China this year as geopolitical tensions rise and Beijing exerts tighter control over business. Dealmaking in the world’s second-largest economy has slowed significantly, with just five new investments — mostly small — by the 10 largest global buyout firms this year. READ MORE

US maintains robust lead over peers with 2.4% YoY growth in VC funding during January-July 2024, reveals GlobalData

The total venture capital (VC) funding raised by the US-based startups improved by 2.4% year-on-year (YoY) during January-July 2024 despite a 41% decline in VC deal volume. The country continues to lead the global VC landscape with a significant gap over its peers, leading both in deal count and funding value, driven by a surge in ≥ $100m deals, reveals GlobalData, publishers of RBI.

An analysis of GlobalData’s Deals Database revealed that the US saw the announcement of a total of 4,675 VC deals of worth $70.6bn during January-July 2023 compared to 2,759 VC deals of worth $72.3bn during January-July 2024. READ MORE

The VC Guide To AI’s Transformation Of Traditional Business Services

As venture capitalists (VCs), our role extends beyond merely funding startups; we actively help shape the trajectories of emerging technologies and industries. With venture capitalists backing one-fifth of the companies that went public in the U.S. in the 21st century, this impact is profound, even as venture capital represents a modest fraction of the financial markets—less than $1 trillion in active investments compared to over $200 trillion in public and fixed income markets. READ MORE

Who helped Musk acquire Twitter? There’s a Russian connection

The Wall Street Journal has already called Musk’s $44 billion Twitter takeover one of the worst ever for the banks that the billionaire borrowed money from.

Still, Musk also enlisted the aid of multiple investors, who are now all shareholders in X Holdings Corp. Because a federal judge ordered X to unseal the list of the shareholders, we now know who has invested in the social media platform. READ MORE

After Slowing In 2023, US Median Round Size Again Growing

For  a decade, U.S. seed and early-stage round sizes consistently saw an increase until early 2023 when typical round sizes began to come down and the venture market was three quarters into a funding slowdown.

The first half of this year, however, has reversed that trend as the median round size for funding at seed through Series C has picked up again, an analysis of Crunchbase data shows. READ MORE

This Private-Markets Slog? It Too Shall Pass and Another Boom Will Follow

In early 2023, private-equity executives were stressing over falling private-asset valuations, a tough fundraising environment, and the outlook for the rest of the year.

They were right to worry. In 2023, private equity’s capital flywheel malfunctioned, setting the stage for a brutal 2024 during which the fundraising skid has continued and general partners are fighting fires in portfolios. READ MORE

For Women In Tech, 'Failure Is Not An Option': Addressing The Double Standard

“Women can’t afford to fail.”

I once heard this from a venture capitalist with a women-led mandate. The implication was clear: While funding was allocated to women-led companies, there was zero tolerance for anything but success. Failure would only validate the belief that women didn't deserve investment.

And yet, the historical rate at which venture capital (VC) backed businesses fail is well-documented. It has been an acceptable risk for men to fail not just regularly, but with such splashing bravado that it’s actually celebrated. The tech world’s passion for failure–promoting a culture of “embracing failure” and mantras of “failing fast” to spur innovation hasn’t just been a Silicon Valley trend but one of its primary exports. READ MORE

Early-stage VC valuations are more reasonable than they appear

Investors hoping for a steep drop in early-stage startup valuations have so far been disappointed, but prices for these companies are cheaper than they first appear—signaling an era for better returns may be on the horizon.

Early-stage startup valuations have remained sticky despite a steep downturn in venture capital investment. The median US VC early-stage pre-money valuation was $45 million in the first half of 2024, about the same as in 2022. READ MORE

3 Reasons Why A Lack of Funding Could Become Your Startups' Secret Weapon

Every startup begins with a vision. But to make that vision a reality, entrepreneurs and aspiring leaders need more than a dream — they need money. This typically leads to a chase after what many consider the holy grail: funding. However, with venture capital (VC) funding hitting a decade-low in 2023, funding has become more scarce and especially hard to secure for those companies in their early stages.

Many young companies don't realize that funding is not the only path to success. In fact, a lack of funding can be a company's secret weapon. READ MORE

7 questions founders should ask when choosing their first investor board member

I’m a VC and a common question I get from early stage founders is how to set up a board. Should it include all of the founders?  How large should it be at each round?  And in particular: Who should be the first investor to join?  Choosing the right first investor board member is crucial for the long-term success of your startup.

In the frothy zero-interest-rate days of 2020/2021, startup capital flowed freely.  Many early-stage companies raised seed through series A rounds, often opting for party rounds with no meaningful lead investor, while sometimes altogether avoiding adding an investor board member. This approach may have some merits, though as markets shift and things get rocky, here’s my advice for founders: It’s more important than ever to have someone on your cap table (and your board) who is deeply committed to your company over the long term. READ MORE

Hardware as a service will be the next big venture capital trend

The technological landscape is constantly evolving, and with it, the business models that drive innovation. While Software as a Service (SaaS) has already transformed industries, a new paradigm is emerging: Hardware as a Service (HaaS). This model has been widely adopted by major public companies such as Amazon and Microsoft and the market has given a resounding stamp of approval.

The next big wave of opportunity in the venture landscape is HaaS with a public market primed to welcome venture-backed HaaS companies with open arms into the public markets for years to come. READ MORE