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Good morning 👋
Happy Thursday to those of you who celebrate.
I have several opinions on where venture is heading - here are a few things that have shaped those opinions:
And now this article by Jordan Nel (@jordsnel).
I’m breaking down what stood out to me in today’s piece - let’s get into it.
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Today’s highlights
Venture unbundling and who is positioned to win
Some math on the shifting venture model
a16z is looking to raise the largest VC fund ever
TOP
The unbundling of venture ➡️
I’ve read this article three times now, and I’ve bookmarked it because I’ll inevitably read it again.
I like love thinking through macro trends affecting venture as an asset class, and this is one of the better pieces I’ve read on what is going on and where things are heading.
Here are my notes:
The current state of venture “unbundling”: The long-tail of emerging managers to pick better, win deals more, and outperform the larger B-tier venture funds. These are access to knowledge, better tooling, the importance of individual brands, and a shift from public to private.
Because the investor picks the asset and the asset picks the investor, venture managers often find themselves having to sell their money. When money is worth little, it’s easier to get it from LPs, and tougher to sell it to founders. Here, GPs who “win” will win.
VCs have eight jobs (most only do 2-3 well):
Source companies to invest in.
Pick companies which outperform.
Win access to those companies.
Value a company well and enter at an appropriate valuation
Construct a portfolio of these companies sized to maximise LP reward and minimise LP risk.
King-make their portfolio companies.
Raise capital for subsequent funds.
Sell positions to return capital to LPs
Different LPs assign different weights to each of these jobs. Some LPs will place zero importance on a few of these, and others will vary their weightings depending on the macro. Some may heavily weight the ability to co-invest or join on SPVs. Certain funds will sell their fund-of-funds product as subservient to their co-investment strategy. Endowments or institutional LPs will more heavily weight traits that help the GP stay in the game (e.g. capital raising) than a family office.
Founders place different weightings on these factors too. A founder doesn’t care much about your track record. Founders care about the signalling that track record brings. Founders care big time about your ability to king-make, what value you will put on their business, and how easily you’ll be able to raise capital to support them for the long run. Your network, your “value add”, your portfolio involvement - these are all elements in how you’re going to make them royalty. But your portfolio composition or ability to return capital? Doesn’t really effect them.
Productised capital can come in many forms. It can come through media and storytelling, or distribution power through existing portfolio companies, or brand, or structured networks (think YC’s book face), or a bunch of other things.
Today, because of the internet, the tech underpinning the capital markets is evolving at a pace we’ve not seen prior. This evolution includes the fact that know-how is easy to come by, the importance of personal branding, better tooling, an influx of capital and talent to private markets.
Knowledge is easy: Trade secrets once reserved for multi-year apprenticeships (like blacksmithing techniques) are now a YouTube search away. For industrious wannabe GPs, the problem is now more with filtering information than with finding it. The information edge VCs of the past relied on is rapidly shrinking.
“The idea of a media-first investment firm is pretty new. Not many people have thought about what it’ll look like in five or ten years. It’s a really powerful thing - controlling a story. If you can write about a company in a way that shapes their hiring, fundraising, and acquisition, you can really do quite a lot to put them on the map… But more than that, [The Generalist] is a compounding advantage. It gets more valuable over time with each reader and each piece of content. It’s a distribution channel not everyone can access, and a way for me to reach more people than a traditional investor could.”
“You can carry a hero brand within a firm (such as Chris Dixon in a16z crypto), or you can carry a firm on your hero brand.”
The current meta (if you’re not born white, rich, and willing to slug through an Ivy League + pod shop combo): Build a following through a combination of shitposting, podcasting and writing substacks, create some private communities of LPs, GPs, and successful founders who can help source for you, seed a fund and then use your platform to plug your portfolio companies and brand-build your fund.
Good founders will always pick a suite of VCs for their cap table. They’ll optimise for a variety of domains here, with brand or distribution only being one of them. They may pick a VC who gets them publicity, one who can open distribution channels into a specific region, and one who may help them rope in the best people in a particular industry.
Massive institutional allocators moving into riskier investments to find returns in a low-yield market to satisfy a widening liabilities and assets gap. More companies stay private, and more money goes to private, so more people want to invest in private companies.
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TWEET
HEADLINES
a16z in talks to raise $20B—more capital than VCs have raised so far this year (Pitchbook)
Unlocking the future: AI adoption in private capital markets versus other industries (FC)
Lerer Hippeau raised another $200M (TechCrunch)
Artisan, the ‘stop hiring humans’ AI agent startup, raises $25M — and is still hiring humans (TechCrunch)
COMMUNITY
Tired of being outside the inner VC circle?
Here’s a list of things tier-one investors have access to:
Good background knowledge and an understanding of how venture dynamics work
A source of good deal flow so that you see founders first
An elite investor network that you can share notes, deals, and other information with
Mental frameworks to understand company building, scale, and what makes a good vs. great investment
Connections to other high-quality people that become future co-workers or portfolio company employees
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2,500 other investors from places like Bessemer, Insight, Accel, and Founders Fund already use it, and we think you should too.
LINKS
🛤️ Habits vs Goals—A Look at the Benefits of a Systematic Approach to Life: Nothing will change your future trajectory like your habits
↪️ A Brief Guide to Startup Pivots: Elad Gil describes the 4 types of pivots for small, early stage companies
⓻ 7 Winning A/B Tests that feel illegal to know: Marketing Ideas brings more split-testing ideas
☢️ “If Only…”: Andrew Huberman believes that is the most dangerous thought in life
👊 So you wanna work in venture…?: Here’s what you should actually do
MEMOS
Chima: Interoperability for AI agents
Superpower: The all-in-one health membership for elite performers
Documenso: The DocuSign killer
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)
