Graham Ober

Earlier this year, we surveyed our fellow Los Angeles-based GPs to get a pulse check on the LA venture ecosystem. Here’s what we found: 💗 Deal flow is healthy, and most LA venture investors (68%) are seeing the same or more deal flow YoY. ✈ LA investors are spending time in a variety of markets, with NYC, Austin, and SF following closely on LA’s heels. 🔍 Innovation is concentrated in AI and machine learning, space, and commerce. 💸 Funding is happening, but it’s barbell-shaped, with deals concentrated at the early and late stages. Funding post-Series A has been challenging. 🚩 LA is differentiated, but not without its challenges. Key difficulties include not attracting enough AI talent (despite having the largest number of engineers graduating from our region over any other in the United States); talent relocated to more tax-friendly or less expensive locations; and the great SoCal / NoCal divide 🙏 Thank you to all our many respondents! I’m so glad to be part of a venture ecosystem that includes great minds like Anna Barber, Brent Murri, W. Christine Choi, Sarah Tomolonius, Rob Smith, Win Chevapravatdumrong, John Tabis, Jill Royster, Jesse Draper, Ashley Balla, Britt Danneman, Tram Lai, Carmen Palafox, Elaine Russell, Deborah Benton Amanda Schutzbank, Brian Lee, Petra Griffith, Minnie Ingersoll, Shamin Walsh, Gabe Greenbaum...wow, this list could go on forever...plus too many other exceptional humans to name. You know who you are! Explore our findings more deeply with our survey dashboard: https://bit.ly/3JsaLaB

80

4 Comments

🌟Innovative VC Firm Overcomes Exits Drought with Secondary Sales🌟 ⛵Navigating a challenging landscape where exits are scarce, Santa Barbara Venture Partners (SBVP) has pioneered a novel approach to sustain its growth and attract investors for its second fund: secondary sales. Instead of waiting for traditional exits like IPOs or acquisitions, SBVP opted to sell shares of its portfolio companies, demonstrating its ability to generate returns for investors and stand out in a competitive market. 🎤According to Dan Engel, founder and managing partner of SBVP, these secondary transactions have been a game-changer, sparking investor interest and bolstering the firm's credibility. By leveraging its recent successes, including a lucrative stake in sports-betting company DraftKings Inc.' acquisition of digital lottery app Jackpocket, SBVP seized the opportunity to return profits to its limited partners (LPs) and pave the way for its second fund. 💡Engel highlighted the challenges faced by young VC firms in raising subsequent funds, particularly amid a downturn in exit activity and heightened investor scrutiny. With traditional exit routes becoming increasingly elusive, the pressure is on for firms to demonstrate tangible returns and establish a track record of success. ✨"For us, secondary sales have been a game-changer. They've helped us return profits to our LPs and attract investors for our second fund," said Dan Engel. 💰For SBVP, the decision to pursue secondary sales was driven by the need to provide liquidity to LPs and validate its investment thesis in the eyes of prospective investors. By strategically offloading portions of its holdings in high-performing portfolio companies like Bark Technologies and Rad AI, SBVP not only generated substantial returns but also bolstered investor confidence in its ability to deliver results. ⚠Despite the complexities and potential stigma associated with early share sales, Engel emphasized the importance of prioritizing investor returns and seizing opportunities to unlock value for stakeholders. With a focus on profitability and transparency, SBVP remains committed to its mission of delivering sustainable growth and maximizing returns for its LPs. 🔍 "Returning profits to our investors is our top priority. By strategically selling shares, we're proving our commitment to delivering results and driving value for our stakeholders," added Engel. As SBVP continues to explore secondary transactions and expand its investor base, the firm stands as a testament to innovation and resilience in the face of market challenges. 🚀 ✅ Looking to raise capital for your #fund and increase the international pool of your LP #investors?   🤝 Need warm #LP introductions?   📝 Selling #secondaries to increase liquidity?   🧐 Looking for co-investments?   ▶ G+QUANT's link for inquiries and fund decks: https://lnkd.in/gjC_EuTE #VCInnovation #SecondarySalesSuccess #InvestorReturns #ValueCreation 

2

Why does Employee Ownership work? Ellen Frank-Miller, PhD's recent Op-Ed at ImpactAlpha sums up the Employee Ownership "playbook" perfectly. And now that the top-secret EO "playbook" is out there, I might as well amplify Ellen's prescription for all to see: - Award meaningful ownership stakes to employees; - Transform operational practices to give employees more control over decisions that affect them and more autonomy to do their jobs the best way they know how; - Upskill frontline supervisors to help them manage their teams collaboratively and shed the command-and-control style that’s so counterproductive to achieving shared goals; - Activate the above-and-beyond employee behaviors that power better financial results; and - Enjoy superior returns for investors, wealth-building for employees, and all the community benefits that come from healthier businesses, workers, and families. Employee Ownership is nothing more but nothing less. This is the "playbook" that we are following at Southeast Acquisition Capital, along with a select few emerging and established managers, with surely many more to come. -- At its most basic level, employee equity is just a deal term or a part of an HR benefits package. True Employee Ownership happens when equity is paired with fundamental changes in the way that employee owners perceive their relationship to their employers (developing "organizational identification"), as well as changes to their actual work output (through a "social exchange obligation"). Or in non-academic terms, we refer to this simply as "employee owners thinking, acting, and feeling like owners." I've always said that I can't wait for the day that Southeast Acquisition Capital loses a deal to another firm pursuing Employee Ownership buyouts, because from then on we can just call them "buyouts", and Employee Ownership -- both the equity piece and the quality jobs piece -- will have truly become "market" and many more millions of employee owners will be better off for it. Thanks for the shout out, Ellen Frank-Miller, PhD, and I look forward to working more with the Ownership Impact Index by WORC (Workforce & Organizational Research Center)! Apis & Heritage Capital Partners KKR Ownership Works Mosaic Capital Partners Teamshares American Working Capital, LLC Verit Advisors https://lnkd.in/eremKFj5

17

1 Comment

Here’s a question investors are often asked: When evaluating early stage companies, how much time do you spend on due diligence around future exits? It’s not surprising we hear this question a lot. Also not surprising: it’s got a wide range of answers depending on the firm. Some don’t spend much time here at all. Others make it a point to put meaningful time in as part of their process. Our current thinking: take the time to do the work on public market comps. At Alpaca VC, we spend significant time understanding how public market investors will  realistically value a business based on margin profile, product, business model & TAM. In short, we want to know: how will this company be valued at scale when we get taken out? Yes, we can acknowledge that the journey toward exit is a windy road and that there may be pivots along the way, but there are still public market companies that have a business model similar to the early stage company you're evaluating. And you can always look at gross profit multiples if you think the margin profile will change over time. So we still do the work on the comps. Quantitative metrics we look at when making the comparison to public market comps include EBITDA multiple, revenue multiple, Gross Profit multiple or all of the above. As part of this process, it’s also important to factor in the public market company’s year-over-year revenue growth as this will also significantly impact the multiple it trades at. Simple example: if you have two public market companies with similar business models and similar margin profiles, but one's growing 100% year over year, and one's growing 50% year over year, then obviously the DCF (discounted cash flow) analysis is going to spit out a very different valuation for the one that's growing faster. Why this matters: When you take all of that information into account as you evaluate an early stage business, you can begin to create a realistic picture of how this company will be valued in the public markets at exit - or how an acquirer will value the company for an acquisition. Strategic acquirers may, of course, pay a premium, but we won’t underwrite for that. This allows us, for example, to form conviction around valuation based on revenue and gross profit predictions. If we think they can do $100M of revenue five years from now, we use this diligence process to form a thesis about whether the characteristics above (product, margin, business model, etc.) will cause the company to be valued at $200M vs. $500M vs. $1B at exit. Curious how other early stage investors think about underwriting an exit and how much time they’re spending on public market comps even though these companies are in their infancy.

39

3 Comments

I’m a strong believer in the idea that leading is largely about building empathy. The job isn’t just helping others understand the mission - it’s helping them complete the mission and building alignment through personal context. To take it a step further, you can’t be empathetic if you aren’t curious. Curiosity drives us to ask deeper questions - those questions build empathy and, then, we become more aligned.

6

Learning moment for Founders/CEO's of real estate operating companies. Compelling milestone for Industrious. I remember the BOD meeting in 2017 when Jamie (founder/CEO) said we were testing management deals (think revenue share similar to hotel flags). Jamie/team were in growth mode and recognized two major constraints a. capital intensive business model b. longterm lease liabilities lead to high fixed charges during a recession. Initially the goal was 15%+ of future deals via mgmt deals and by the following year it was 80%+ of new deals. No one saw the COVID office recession coming... Jamie's conviction/leadership saved the business. @WeWork was grabbing all the headlines and raising billions at 80%+ higher investment metrics... Fast forward, Industrious is owned 40% by CBRE and continues to be in growth mode. Methodical growth in 65+ cities globally. Let's see how many more WeWork locations they take over. Key takeaways: 1. Validate unit economics, KPIs, and brand value propositions. 2. Embrace a capital-light model (when possible) through management deals, licensing, or franchising 3. Enhance ROE, strengthen balance sheets, and boost free cash flow with a strategic approach.

11

1 Comment

He may have a checkered past but WeWork’s Adam Neumann and his investor’s Andreessen Horowitz may be onto something here. In building Neighbourgood, there are a lot of parallels in our respecitve businesses (barring a $350m investment from one of the worlds best known VCs). I have no doubt that the brand experience will play a significant role in the future of multi family living. Thats something Adam understands well. Combining best in class multi family and hospitality technology designed with community in mind together with fundimentally solid real estate investment principles provides for a very investable story. Yielding Propco/Opco economics if applied correctly can be very rewarding if executed well. And I guess the proof of the pudding will be in the eating. Will using Flow as a branded property manager generate 20-30% better NOI then a standard property manager in the multi family space? Only time will tell. Property and or hospitalty management (with our without technology) is a people heavy business. They are going to have to look closely at their operating costs, to build unit economics that make sense. Assuming their fees are market related, margins will be thin. Ask any of the large co-living operators who no longer exist or who have had to do m&a’s to survive. Adam’s play for WeWork is also a clever move and whether he gets it or not shows where his thinking is at. The future is of brand and product in the built environment is so much more then just the four walls of physical space. I think he understands that. My gut says this is not a blitzscale or one winner wins all opportunity. The multi family industry is the worlds biggest asset class. It is a behemoth that Greystar and BlackRock themselves could not gobble up all their own. So that leaves space for other companies to compete! And I think there will be a few. I’m excited to watch the development of the branded residence space. It’s entry is long overdue and the timing couldn’t be better. Watch this space! I think there is lots of GOOD to come! Ps: Andreessen Horowitz DM should you be interested in backing another horse as a wild card 😉😘🚀 South African entrepreneurs are always in for a shot!

60

11 Comments

For some insight into what I look for in companies, check out Good Revenue's recent podcast!

56

Cost-effective geothermal energy has the ability to fully transition and decarbonize our grids and industrial systems - in the near term! We believe the team and technology at XGS Energy will realize this vision and we couldn't be happier to be working with them on a geothermal-powered reality.

23

"The majority of venture capital today is in the hands of men, specifically those from Caucasian or Asian backgrounds." This is on a Limited Partner website that explicitly excludes funding Asian male emerging managers. It is a false and harmfully inaccurate narrative. Despite the perception that there are many Asians in venture capital, the reality is that most are not in GP or fund ownership positions. Many are the workhorses that are associates and principals at funds, that may or may not ever get promoted to partnership. Here is some eye-opening research from AAAIM with the facts about Asians in venture capital: Only 3.3% of VC funds are AAPI owned. This low, single-digit percentage of representation is extremely lower than the common perception. Of these 3.3% AAPI-managed VC funds, it represents only 2.9% of total AUM. This mismatch makes even less sense when you look at the performance of AAPI-owned funds, which have a higher proportion of being top-performing funds: 52.6% of all AAPI-owned funds have been ranked in the top quartile for fund performance. AAPIs are often left out of DEI initiatives by LPs. Among the top 100 limited partners (LPs) that allocate to venture, we found an alarming fact: 19% explicitly exclude AAPIs from these critical DEI initiatives. Clearly, the incorrect perception that AAPI professionals are doing well in VC is resulting in AAPIs being excluded. Only 9% specifically include AAPIs in DEI initiatives and goals. The path to promotion and becoming an investing partner takes 41% longer for AAPIs. Before rising to become an investment partner, AAPI professionals worked in junior roles for an average of 3 years, 10 months. Non-AAPI professionals were able to be promoted in 2 years, 9 months. Even though AAPIs are more likely to have additional work experience before joining a VC (coming from prior roles as operators, in finance, or in consulting). More AAPIs with junior VC experience end up starting their own funds. Rather than waiting to be recognized inside their current firms, it appears that a difficult path to promotion could be leading more AAPIs with junior VC experience to start their own funds. Proportionally more AAPI partners with junior VC experience started their own fund (16.6%) compared to their non-AAPI (13.7%) counterparts. Despite proven track records of successful investments, the lack of AAPIs in investment partner roles means that future returns are capped. Previous AAAIM research quantified the excellent performance of AAPI-owned VC funds. In fact, 52.6% of these AAPI-owned funds delivered top-quartile performance, compared to 24.1% for non-AAPI funds of the same vintage year and strategy.

236

25 Comments

Super helpful article and accompanying doc with a #Startup #Equity Calculator to determine the equity for early hires, thanks to Pear VC head of talent Matt Birnbaum! Thanks for sharing Pejman Nozad! 🙏🏼 You can read more here How to structure startup equity for early hires: https://lnkd.in/ggmpT5-Y Google Doc: https://lnkd.in/gjsvths6

30

1 Comment

Ordinarily I like to write my own posts about our Tangent 💚 Proptech podcast. But Edward Cohen's (below) really says it all. I'll just add that I enjoyed this conversation with Alon Gorbonos....though I did miss having my brother from another mother, Zach Aarons, by my virtual side. Link in comments. #proptech #podcast #angelinvesting #ventureinvesting #venturecapital

16

2 Comments

Always great content from our friends at leading San Francisco-based growth equity fund manager Meritech Capital, one of the most disciplined and proven fund managers over the past 3 decades. Thank you Alex C. and team. Given continued slowness in the IPO markets and resulting tightening of capital distributions from #fundmanagers to limited partners, I find this section in IPOs particularly of interest. Qualitative Factors to Consider for an IPO: Regardless of scale, there are other factors companies should consider. The below is not exhaustive but includes some key questions that companies should ask themselves as they prepare for an IPO in today’s market: Clear Story What’s your story? Is it easy to get excited about?  Can you become a multi-product platform? Is the market big enough, or are you making it big through your product offerings? Are there proof points to support your vision? Do you have a compelling AI story? Fast Growth + Some Scale + Strong Efficiency Be mindful that the public markets want fast (and durable) growth rates, improving margins, and a path to profitability (not just free cash flow positive but GAAP operating profit eventually) i.e.“Can you make money?” Don’t get “stuck” with slower growth, smaller scale, and mediocre unit economics. This can be a desert While companies don’t need to be at $1B of ARR or revenue, you should have at least $250M of ARR or $200M in trailing revenue Are you growing revenue 30-40%+ year-over-year with improving free cash flow margins? Is your growth rate durable?  Are you a Rule of 40 business? Operational Excellence You need to have excellent offense (product & engineering, sales, marketing/comms, success) and defense (strategic finance / FP&A, compliance, legal, people) Predictability = Mission Critical Can you consistently “beat and raise” on both the top and bottom lines? Around 70% of reported quarters for SaaS companies beat Wall Street guidance  A Reason to Go Public You need a valid business reason. This can include: Capital to support growth / expansion or #M&A Validation for enterprise accounts Coming out party (marketing) for customers / hiring #Liquidity for shareholders #capitalmarkets #publiccompanies #valuations #distributions #limitedpartners #alternativeinvestments #privatemarkets #saas #softwarecompanies #ipo https://lnkd.in/g6tyhWMb

19

Are we witnessing the first signs of a resurgence in private equity-driven M&A activity? After an extended lull over the past two years, an intriguing leading indicator is showing an uptick – job postings at expert networks, which often presage an increase in deal flow. During my tenure in the M&A practice at McKinsey & Company, I found that expert network job postings were a good indicator of forthcoming activity. The chart below illustrates three quarters in a row of rising job postings through Q1 of this year. While it's premature to declare a revival, this data point could signal the green shoots of a recovery in private equity M&A. I'm cautiously optimistic and will continue tracking this metric as a potential bellwether. Date Source: Inex One #mergersandacquisitions #PrivateEquity

37

1 Comment

This article by Forbes encapsulates the vision and drive of Shally Shanker and what we as a team at AiiM Partners are driving to solve. We focus on the untapped opportunities where capital remains scarce, the ‘missing middle’, the unclaimed territory between the early seed funds and the larger, institutional funds investing at later stages. As Shally highlights, "We invest in companies that are building products that solve a critical climate problem and are scaling through rapid commercial traction. Solving meaningful climate issues often requires deep or hard tech solutions. It has not been easy for such companies to raise capital recently as most climate investors prefer ‘asset-lite’ solutions to climate, particularly those centered around software. Climate is not only a software problem". Read the full article to learn more. https://lnkd.in/diW9VBaU Get in touch if you want to be part of the solution. #climate #startups #venturecapital #impactinvesting

25

1 Comment

Summary: The article discusses the perspective of Notable Capital's managing partner, Hans Tung, on down rounds in investments. He believes that down rounds can still be beneficial in the long run and reveals his continued enthusiasm for the fintech sector. The article also delves into recent changes at the firm and other shifts in the world of venture capital. Key takeaways: Hans Tung believes that down rounds can lead to a successful outcome in the long run and views an IPO as just one milestone in a company's journey. Nearly 11% of the year's VC deals were down rounds, indicating their prevalence in the current market. Hans shares his optimism for the fintech sector and discusses the specific areas within fintech that excite him. Counter arguments: Some investors may still view down rounds as negative and prefer to avoid them in their investments. The article does not provide any potential drawbacks or criticisms of Hans's perspective on down rounds. #venturecapital #economy #startups

2

1 Comment

Very interesting to see the National Football League (NFL) hired our friends at leading global investment bank PJT Partners to serve as a liaison between the league and private equity firms interested in buying stakes in teams, as a step towards attracting institutional capital which can further increase deal flow and valuations. The average NFL team is worth $5.14 billion, according to Sportico, by far the highest of any U.S. league. To buy the hypothetical average team under current league rules, a buyer would need at least $1.54 billion in cash, could add $1.2 billion in debt, and would still need to fund the other $2.4 billion from themselves or a set number of individuals who often get little of tangible value for their minority stakes. As franchise valuations continue to rise, that becomes a harder and harder financial proposition. Expanding the pool of potential buyers for minority stakes would likely increase valuations across the league. In addition to the ban on institutional money, the National Football League (NFL)’s ownership rules include a $1.2 billion debt limit for new buyers, a limit to how many minority owners a team can have, and a set amount that a team’s lead owner can hold (30% for incoming buyers). A new committee has been formed to discuss the loosening of some of those rules to make room for institutional investors ie private markets fund managers. Will the National Football League (NFL) partner with a private markets fund manager to establish a stakes platform similar to what the National Basketball Association (NBA) has established with Blue Owl Capital? I love the business of sports and I am very interested to see next steps here. #alternativeinvestments #sportsbusiness #privatemarkets #nfl #capitalmarkets #institutionalinvestors #fundmanagers #privateequity #sports

77

1 Comment

Chicago-based GCM Grosvenor's emerging manager seeding program, Elevate,  focused on lower and middle-market buyout strategies, continues to be active and partnering with best-in-class private markets leadership talent, participating in the launch of #healthcare investment firm Invidia Capital Management, founded by former Goldman Sachs Global Head of Private Healthcare Investing, Jo N. GP seeding can be one of the more exciting and economically-rewarding investment strategies for LPs to access the outsized GP management company economics potential beyond just LP commitments as well as the opportunity to back #entrepreneurship in the private markets fund management industry by funding managers at the earlier innings of their fund management journey. This is a strategy with annual yield plus upside that I recommend all limited partners to consider as a portion of their portfolio. I know many #insurancecompanies, #familyoffices both multi and single, #privatebanks and #asian investors seem to appreciate the seeding and #gpstaking investment strategies. GCM Grosvenor's multi-decade experience in middle-market private equity enables the team to find and access emerging managers with the strongest attributes for success to deliver best-in-class net returns to limited partners. Invidia Capital Management will focus on upper-middle market investment opportunities where it believes cost containment, quality, access, and innovation are well-positioned to address some of the most pressing global healthcare challenges and, consequently, where such assets are best poised for sustained and long-term growth. As of March 31, 2024, GCM Grosvenor had about $20 billion of assets under management (“AUM”) invested with small and emerging managers and roughly $16 billion of AUM with #diverse managers. GCM Grosvenor's Elevate strategy has also backed Los Angeles-based Excolere Equity Partners – a leading buyout investor in the #education and human capital management sectors. Congratulations to all! #alternativeinvestments #privatemarkets #privateequity #seeding #fundmanagers #middlemarket #chicago #midwest #capitalmarkets #fundraising #limitedpartners #capitalmarkets #institutionalinvestors #womenled #emergingmanagers

35