Good morning 👋
And happy hump day.
January has already been one of the busiest months I can remember with no end in sight.
Officially in grind mode like many of you.
Today, we’re breaking down some venture math on fast-deploying funds vs. slow-deploying funds.
Let us know at the bottom which type of fund is more interesting to you.
P.S. We’re hiring a head of newsletter sales.
This person will be responsible for making this newsletter more profitable, and you will run the entire sales process from start to finish.
Today’s highlights
Return data on fast vs slow funds
25 more VC predictions for 2025
The secret to finding your life’s work
Sydecar raises $11m
TOP
“Slow” funds are outperforming 🐢
Four years ago, the venture world was a totally different place.
Lightning fast rounds, outsourcing diligence, ZERO pricing sensitivity, and a dozen other things that would never cut it today.
Capital deployment was the metric to chase, and this iconic piece on Tiger Global gives you an idea on how this line of thinking came into being in the first place.
But that was then, and this is now, and the difference between now and then is that now we have a scoreboard.
The latest Pitchbook report (linked here) does a good job of that.
Spoiler alert: Funds adopting a more measured investment pace have historically outperformed their fast-deploying counterparts.
Why it matters: Historical capital deployment cannot be ignored, and LPs are certainly taking notice of how quickly prior funds were deployed. Here’s what the numbers say:
Superior returns for patient investors: Limited partners investing in slower-deploying funds achieved a net IRR of 11.6%, compared to 10% for those in the fastest-deploying funds.
Market timing considerations: Funds that deployed capital rapidly during market peaks, such as the 2008 financial crisis, often underperformed. Conversely, those accelerating investments during recovery phases, like 2010-2014, experienced significant gains.
Current deployment trends: Recent data indicates a shift towards more cautious deployment. For instance, 2022 vintage funds called an average of 20.9% of total commitments in their first year, a notable decrease from the 36.4% observed in 2021 vintage funds.
What happens next: Fundraising (either as a fund manager or as a founder) is a long game and requires loads of trust.
Spending money too quickly is one of the easiest ways to erode that trust and ruin your label as a curator of good deals.
Here’s what else we expect to come out of this report:
More LP overwatch: LPs should monitor capital call rates closely, especially as market conditions evolve in 2025. A sudden increase in deployment speed may warrant a reassessment of investment strategies.
Potential shift in fund strategies: The findings may prompt VC firms to reevaluate their deployment strategies, potentially favoring a more deliberate investment approach to enhance returns.
The pace of deployment has been a sensitive subject for LPs who experienced record capital call rates in their venture fund investments during the 2020-2021 boom in dealmaking. For LPs evaluating how their VC portfolio will perform, the relative speed of capital deployment may be an important variable to consider.
LINKS
🏃♂️➡️ Tech’s $370B Paradox—Why Cash-Rich Giants Might Not Lead in 2025’s M&A Race: Tech giants are building their AI infrastructure which allows for mid-market companies to emerge as the primary drivers of software M&A
🤫 Social Media Secrets—How to Build Your Presence: web3 with a16z talks with Gaut meme-maker extraordinaire, about how to make social media work for you, rather than overwhelming you
📋 25 Predictions for 2025: Digital Native adds to list of VC predictions for the year
🤔 Something Very Interesting is Happening in the Zoomer Generation: A post that asks more questions than it answers
🎙️ Jensen Huang—Founder of Nvidia: Founders Podcast reveals what is learned from reading The Nvidia Way—Jensen Huang and the Making of a Tech Giant
TWEET
HEADLINES
Venture admin startup Sydecar raises $11M (Axios)
Led By a16z, Active Investors Upped Their Game In 2024 (Crunchbase)
Is corporate America going Maga? (FT)
Why ‘Cost Avoidance’ Became an AI Buzzword for Holding Down Headcount (WSJ)
Venture Capital Needs a New Math. Try This Formula. (WSJ)
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POLL
What type of funds are more interesting to you?
Thanks for reading this far and giving us a little bit of your attention this week.
Feel free to unsubscribe whenever this stops becoming valuable to you.
- Clay
RESULTS
Here are the results from our poll question in yesterday’s piece:
What's a better place to find answers to your questions?
🟨🟨🟨⬜️⬜️⬜️ Google (3)
🟩🟩🟩🟩🟩🟩 Reddit (6)
🟨⬜️⬜️⬜️⬜️⬜️ Somewhere else (1)
