📶 the 21 biggest trends affecting venture

👥 Community | 📣 Sponsor | ♟ Boardroom | 📌 Careers | 👀 Fund

Good morning 👋

There is a lot of noise out there about what the future of venture looks like.

I spend more time than most thinking about this asset class, and I have a lot of opinions of my own on where we’re heading.

Earlier this week I wrote this megathread on the 21 most important things that I have taken note of over the past year or so of covering the biggest stories every morning.

Here’s a condensed version of that (see the full thread here) …

MANG is eating VC. Most of the capital commitment from these CVCs is coming via cloud / GPU credits. This allows Microsoft, Amazon, Alphabet, and Nvidia (MANG) to create a circular loop that boosts their top line while making these venture-backed companies more reliant on their own services.

Continuation funds are giving LPs a decision. These allow funds to get liquidity without needing to test public markets, and it gives LP a decision: roll over capital and lock it up for another ~10 years, or take out cash at a discount?

Liquid founders are becoming LPs. HNWIs (especially former founders / current founders with liquidity) are filling the funding gap and becoming a more meaningful part of the AUM for many of the funds that have vintaged over the past 24 months.

Partners are leaving cushy funds to spinout and start their own. In the past, VC talent wars were limited to mostly junior roles. But the past 12 months have shown that the talent wars are not limited to junior investing roles anymore, and we’ve seen dozens of partners and GPs leave too as a result of carry splits, changing mandates, RTO orders, it becoming easier to spin up a fund, and a host of other reasons.

The end of SaaS. SaaS is not dead, but the playbooks that created wealth over the past two decades of software investing have completely changed. How does this change venture dynamics when the majority of VCs are stuck balancing an existing portfolio of software business while looking for new companies to replace them?

Secondaries are eating venture. Anybody in the secondaries business has been killing it over the past few years. Everybody needs liquidity, and if you can provide that liquidity, you are a price maker.

Increased competition for capital + fee-free co-investment opportunities has created quiet fee reduction for some funds. Low-fee asset managers like Vanguard have introduced alternatives products to their clients. SPV leads have offered zero-fee SPVs to HNWIs and family offices.

The seed bubble has created a Series A crunch. Investors are demanding better traction and stronger metrics to justify Series A rounds, but they no longer see Series A as a clear sign of product-market fit.

The creation of evergreen vehicles and the idea of patient capital. Sequoia, Apollo, and others have created these funds to provide private investors liquidity options and allow GPs a continuous capital base.

Fund math is changing. Play around with a portfolio construction sheet to see how many assumptions need to come true in order to return the fund. At the same time, it is becoming easier for companies to get profitable without the need for large amounts of outside capital.

Flight to “quality” = top 30 funds raise 75% of all LP dollars. Allocators are taking the same approach as software buyers who “don’t get fired for choosing IBM”, and familiarity has been prioritized over novel (at least for now).

Junior VC roles are dying. It has become harder to justify an analyst salary, and any investor below the partner-level is either fighting to keep their job or figuring out how to increase their earning potential so they don’t have to be reliant on their existing employer.

Megafunds are buying up networks as LPs. Many of today's megafunds LP into the new era of emerging managers in order get visibility into their underlying portfolio, have ROFR to the breakout companies, + the ability to preempt the best with larger checks into later rounds.

The death of the 10-year fund lifecycle. Unicorns are staying private for nearly a decade on average, and ~40% are taking even longer. As this has played out, fund managers have been forced to deal with liquidity risks, extended returns, and impatient LPs.

Slow paper is better than no paper. Limited partners investing in slower-deploying funds achieved a net IRR of 11.6%, compared to 10% for those in the fastest-deploying funds.

Megafunds are looking at public listings. As AUM swells (Blackstone’s at $1 trillion, Apollo’s pushing $700 billion, GC’s at $30 billion), finding enough deep-pocketed LPs gets tricky. Going public taps a broader pool - retail investors, institutions, and others.

Endowments are facing outside pressure. Endowments play a huge part of the VC equation, and they represent 15-20% of LP capital. That number looks to be going down due to endowment taxes, NIL, DOGE, + a lack of DPI.

Picking up venture “roadkill” is one of the most lucrative opportunities today. There is a severe lack of DPI especially in the middle of the portfolio. There are tons of founders who are stuck (raised too much, not hitting growth targets, bad pref stack), who can’t quit.

Seedstrapping and the reduced need for MVP capital. Capital efficiency is more achievable than ever, product risk has decreased, founders want more control, and it creates better outcomes for investors (only if you're early).

The unicorn factory model is dead. Predictable public demand for the “polished” unicorn is gone. At the same time, the VC factory model created asset managers and eliminated a lot of the venture craft.

‘buy and hold’ is being replaced by ‘buy and maybe sell’. Timelines have moved from 7-10 years to 12-15+ years. The lack of liquidity has also put a higher emphasis on DPI, and new funds are not being raised unless the previous fund(s) have distributions to show.

Read more: https://x.com/ClayNorris10/status/1919809962085138457

More: https://x.com/ClayNorris10/status/1919809962085138457

Here’s a list of things tier-one investors have access to:

Usually that takes 5 years minimum (at least for us), but usually it takes even longer.

That’s why we built this - to speed up the onramp for private investors serious about giving themselves an advantage in the venture game.

2,500 other investors from places like Bessemer, Insight, Accel, and Founders Fund already use it, and we think you should too.

🧐 Pricing Guide for Early-Stage Startups: Data-Driven VC offers a structured look at how young startups should price their products when the primary objective is learning and user adoption rather than immediate profit

❓3 Questions Founders Should Ask Potential Investors: Yes, you should be pitching but if you’re giving up equity, you need to make them earn it

🗣️ Niches are Larger than You’d Think: “When you speak to the core loudly enough, everyone else starts to listen”

🫸 The Ultimate Guide to Negotiating Your Comp: A structured process to increase your compensation and refuse to accept published salary ranges as the final word

📶 Will We See More or Less Venture Money in Five Years?: Thoughts and predictions of what is coming

🤷‍♂️ Scattered portfolio data 🤝 structured insights. Use PortfolioIQ to set up automated data requests and extractions, track and source data points, and help your finance team do more of what they do best. (Get started for free.) **

**Sponsored

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
(Founder @ Confluence.VC | GP @ Outlaw)