It will still be another year before the tech/VC world starts to really recover
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Thanks to everyone for sharing and providing a lot of feedback onPart 1of this series a few weeks ago that was really helpful. I’m going to keep emphasizing it though to make sure everyone understands how difficult it is for Emerging Managers to raise a fund right now. It’s really hard!
There will be huge repercussions if the earliest and riskiest investors don't have the money to seed the startup environment - less founders will be able to start companies. Yes yes I know “Trace you don’t have to raise money to start a company!” To which I say you’re right BUT some do; while it’s not for everyone, we the angels and VCs, are only in business because they need to raise capital. The proverbial pendulum has swung back towards investors being in control for everything that isn’t Ai hype.
We also have to consider all the orphaned and zombie startups that have raised a few million to even hundreds of millions that can’t raise anymore and/or exit (there are 1000+ unicorns worth $1B+). It’s really heart wrenching to meet some of these founders who know they’re between a rock and a hard place - they’ve worked years and will never see any liquidity. While the odds were always against them, the reality is starting to set in and they wont just shut down their company because of employees, a sense of failure to themselves, friends/family and their investors. They are their startup.
Paul Griffiths@paul_griffiths
A *third* early-stage fund I'm LP in is winding down. All saw very different writing on the wall in each case, but these were serious investors making a serious decision.
Still bullish on early-stage - so little dry powder, valuations will fall & quality will go up.
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I wanted to share two more charts before we jump into the Q&A to get to know some Emerging Managers and support them. Statistically, smaller funds have a better chance of returning more money. Yes, it’s a bit skewed as smaller funds and earlier, lower valuations make it more likely that an investment will have bigger multiples. However, as I mentioned in the last post, while they have a higher ceiling, they also have a lower floor. Hence, bigger LPs tend to play it a bit safer since those alpha returns are still outliers. This is where numerous Family Offices and high net-worth individual are really starting to step up - I’ll dive into that in a future newsletter.
Are you an Emerging Manager or know of one I should highlight in the next part? Reply back.
What are your thoughts on the Series A crunch right now? What metrics are working / not working?
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