What Does the Post Crash VC Market Look Like?

We believe that investors in any market need “edge” … knowing something (thesis) or somebody (access) better than almost any other investor. We also focus heavily on geographies.

But here’s the magic few people ever talk about …We’ve created more than $1.5 billion in value to Upfront from just 6 deals that WERE NOT immediately up and to the right.The beauty of these businesses that weren’t immediate momentum is that they didn’t raise as much capital (so neither we nor the founders had to take the extra dilution), they took ... See more

But I thought a better way of thinking about how we manage our portfolios is to think about it as a funnel. If we do 36–40 deals in a Seed Fund, somewhere between 25–40% would likely see big up-rounds within the first 12–24 months. This translates to about 12–15 investments.

And reset they must. When you look at how much median valuations were driven up in the past 5 years alone it’s bananas. Median valuations for early-stage companies tripled from around $20m pre-money valuations to $60m with plenty of deals being prices above $100m.

Valuations will get reset. First in late-stage tech companies and then it will filter back to Growth and then A and ultimately Seed Rounds.

Of these companies that become well financed we only need 15–25% of those to pan out to return 2–3x the fund. But this is all driven on the assumption that we didn’t write a $20 million check out of the gate, that we didn’t pay a $100 million pre-money valuation and that we took a meaningful ownership stake by making a very early bet on founders an... See more

I do already see a return of normalcy on the amount of time investors have to conduct due diligence and make sure there is not only a compelling business case but also good chemistry between the founders and investors.

Our conclusion was that this isn’t a temporary blip that will swiftly trend-back up in a V-shaped recovery of valuations but rather represented a new normal on how the market will price these companies somewhat permanently. We drew this conclusion after a meeting we had with Morgan Stanley where they showed us historical 15 & 20 year valuation ... See more

The last 12 years were "up and to the right". It’s easy to make IRRs work really well in a 12-year bull market but VCs have to make money in good markets and bad.