Thought Leadership Threads

The Evolving Landscape of Venture Capital: Are Emerging Managers DOA?
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There’s been a lot of debate lately around whether the VC ecosystem is being negatively impacted by the largest firms hoovering up LP money at the expense of Emerging Managers. The observation is real and it’s becoming increasingly clear that the venture capital industry is at a critical inflection point.
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But the phenomenon isn’t new. It’s been unfolding for years and was easy to spot. I wrote about it a few years back in a presentation titled “The Three Body Problem: Finding The New Stable Points In Venture Capital” and I’ll add a link in the replies if you’re interested in learning more.

Each startup is a unique beast. Until it “cracks the code”, it's just a representation of a Founder’s vision embodied in a business plan.
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And a typical VC Investor will review hundreds (maybe thousands) of these unique pitches every year. Each VC has their own underwriting process, but it's not as formulaic as one would expect given the volume of work moving through the machine.


Because of the unique nature of each startup, company specific underwriting questions need to be answered for any given VC to build conviction around what the Founder believes can be built.

The past few years in the VC space have been brutal. Darwin has returned from vacation and the frothy gold rush of the 2018-2021 startup ecosystem has vanished.

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The ZIRP environment caused valuations to soar and VCs threw money at any startup with a pulse. The money was put to work by Founders quickly, many of whom chased shiny objects and undisciplined growth because their bank accounts were flush with cash.

It's been a tough funding environment for the past 2 years, but even in this brutal environment great startups have been able to successfully raise the capital they need.

And even for the best startups, the fundraising process proves to be exhausting and time consuming. So once a raise is "done and dusted" there's always an amazing feeling of relief.
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But what happens "Day 1" after a raise? Here are a few thoughts for Founders and VCs about shifting from a “need to raise” to a “need to prove” mindset.

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It's been a tough funding environment for the past 2 years, but even in this brutal environment great startups have been able to successfully raise the capital they need.

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And even for the best startups, the fundraising process proves to be exhausting and time consuming. So once a raise is "done and dusted" there's always an amazing feeling of relief.

Right now, "mistakes were made" is a hot topic of discussion in the startup ecosystem.
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Here are a few common learnings I'm hearing from Investors who don't want to repeat the mistakes they made during "peak madness".

The past 2 years have been brutal to the Startup ecosystem.
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Darwin is back and capital has become less available and more expensive.
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Many startups haven’t gotten “far enough fast enough” and can’t raise the capital they need to survive.
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So it shouldn’t come as a surprise that M&A is a topic that’s coming up more and more frequently in Board rooms as a way of “landing the plane”.
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A few thoughts:

It used to be common for a startup to de-risk in distinct phases that aligned with capital raises.

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Discipline disappeared and the number of rounds a typical startup raised exploded into “alphabet soup”.

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The market is returning to “normal”. Here’s what you need to know: 🧵👇

There’s a major structural flaw in how the VC ecosystem works that we don’t talk about enough.

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It’s a flaw that creates confusion and bad advice for Founders.

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And it’s a flaw that makes no sense when you dissect it. 🧵👇

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