Sri Muppidi’s Post

Are you paying attention to what’s going on in VC? "Continuation Funds are attractive for GPs. They might lose a little bit on the fund being restructured with a purchase discount to NAV, but they should make it back on the continuation because their carry will get calculated on the reset value of the portfolio." Secondaries are on the rise. If you’re in VC and you don’t know secondaries, now is the time.  👇 Learn more from my conversation with Hans Swildens from Industry Ventures published on OpenVC

https://lnkd.in/gytt7YTF A great read on valuations in the Venture Capital space. LPs are yearning for GPs to show downward trending marks, realistic assessments of valuations relative to prior financings or other data points prior to exits, and coincidentally for us as auditors to push for change/sign off on those realistic marks. VC valuations of portfolio companies change as the market/conditions do and in a reputational business like the VC space is, being forthright with marks as a GP or as auditors signing the reports only furthers that trustworthy reputation!

Good point, Alfredo Capote. The problem is that 85-95% of the tech M&A globally is connected to Silicon Valley. And, the barriers to successful IPOs on US exchanges keep climbing. Talk to Chris Mayo, CFA about the LSEG (London Stock Exchange Group) has innovated on the IPO process to make it simpler. Secondary buyers take on the exact same liquidity risk that primary investors do, we just reset the clock, so we can be patient for another 7 years, where as primary buyers that invested 7 years ago, have a hard time waiting another 7 for liquidity. re: Secondary discounts... Nobody we buy secondaries from likes the discount, but even primary rounds in Silicon Valley for non-AI companies are down 50% over 2021 and 2022. Softbank and Tiger Global are not jumping into deals and frothing valuations. We pay market for these equities if you compare prices to platforms like Forge or Nasdaq Private Market. re: not being buy / hold investors... Convincing LP's to double or triple down in funds 3 and 4 is very difficult to do when you have made zero distributions as a fund manager. The cost of selling a small % of your winners is often < not raising the next fund. Finally, a lot of secondary sales are also due to cash needs of LP's, early employees or GP's, not just because GPs are not buying and holding. Not everyone can wait 12-14 years for personal liquidity. YMMV

Man for those of us who have invested in VC funds for 11+ years (and counting) we are really looking forward to get some liquidity. The lowest venture capital fund distribution environment since the global financial crisis is driving some investors to knowingly leave money on the table. To return cash to their LPs, these early-stage VCs are selling secondary stakes in their best portfolio companies to later-stage investors at significant discounts. The tactic is an about-face for an industry that preaches patience in the face of market swings. It shows how the multiyear drought of IPOs and M&A is forcing the hands of venture firms.

Two weeks back, we posted about how the current LP market would result in some VC firms exiting altogether. 🔚 A new survey from Pitchbook shows that 13% of (about 1 in 7) managers do not plan to raise another fund. Some other interesting angles to this: 📉 Many of the GPs planning not to raise are newer fund managers who jumped into the market in 2019 and 2020. With 4-5 years hindsight, it's become clear that that period was an extreme aberration of deal appetite, not the start of a new trend. 👻 this is on the heels of a report last year that just 62% of VCs are active (making at least 2 deals per year). So 38% of firms are technically alive but not actively deploying. We expect to see continued consolidation in the VC industry, both as the volume and concentration of managers continues to correct, and as early-stage valuations in a post-ZIRP world find an equilibrium. #venturecapital #venturebuilding

a word of #Caution for #VCs (especially new funds): "In most industries, a crisis that threatens to eliminate many of its weaker companies would create an opportunity for the stronger players to grow their revenues by acquiring middling ones at very attractive prices. But that's not the case for VC. Few in the VC industry would deny the industry had become bloated to unsustainable levels during the later years of the boom cycle. A decade ago, there were about 850 active VC firms, according to PitchBook data. By 2023, that number swelled to over 2,500. Josh Wolfe, the co-founder of Lux Capital, told me last year that the number of VC funds would be cut in half during the downturn as many firms struggle to hit fund size targets or raise capital altogether." Source: PitchBook Data https://lnkd.in/d9-rziw6

Says this will provide investors exclusive access to companies from previous funds that are leaders in their respective markets, thus allowing co-investment with growth-stage funds in Series B, C and D rounds

There's pressure for liquidity everywhere, as a UK-based fund targets raising a new $100m fund for secondaries in growth-stage start-ups. The future of private markets may be more active management of investments, rather than a sit-and-wait strategy. Read the full Sifted article (£): https://lnkd.in/e_ag9a2e

They analyzed the performance of 1,824 VC funds with vintages between 2000 and 2020 to see if one of these types outperforms the other. For this we have used the median internal rate of return—showing the expected annualized return a fund will generate—and the total value to paid-in capital to demonstrate the multiple of capital returned to LPs compared to their initial commitments.