VC is a challenging asset class for many investors (LPs)
While you can identify the ‘best’ firms, access is more often than not constrained. VC is less than transparent. It’s somewhat of a ‘closed’ club. Many LPs have dabbled a little and failed. Most institutional LPs do not have the DNA for VC. See also my previous posts.
Add to this: 'catchy' headlines about unicorns, many seemingly with no actual business model, and poor post IPO underperformance – Snap, Lyft, Xiaomi etc.
Then it is not odd then that many investors are skeptics.
And there are quite a few misconceptions about VC
A new ‘tech bubble’ – technology can seemingly disrupt every industry in winner take all markets
Too much money – exemplified by the USD100bn Vision fund
Crazy valuations – Bytedance USD 75bn, WeWork USD 47bn, Airbnb USD 29bn
Particularly seed and early stage venture is attractive
But when taking a closer look, which Mark Suster of Upfront Ventures does in this well written and insightful post, it is clear that they are just that – misconceptions.
Further, for those investors who take the leap, spend the time, and stay the course the above challenges can be overcome.
I have long been positive on VC, not least early stage, and find that I share most of Mark’s views. And have over time backed these views with commitments.
A deep dive into what has really changed in venture capital
Here’s a quick summary of Mark’s post. But I would still encourage you to read the post in full and download Mark’s presentation.
VC funding is up, but mostly driven by late-stage mega-rounds
Today’s very large late-stage rounds are really ‘private IPOs” allowing especially early-stage VC investors to capture more value
If you can get into the best deals early, VC has never been better
Today everything and everybody is online at 400x the speed
Mark’s summary: “So yeah, venture is still a thing :)”.
Couldn’t agree more!
But remember, investing in venture requires a specialist skills.