1/For Emerging VC’s raising, the headline of “fundraising is tough as it’s been since 2009” is accurate, but obvious, and not overly helpful for those in process.
It’s hard to predict exactly when the faucet opens to pre-COVID levels, however here are some random observations:
It’s hard to predict exactly when the faucet opens to pre-COVID levels, however here are some random observations:
2/ 1st, it important to bifurcate between FO/HNW & Institutional. On FO/HNW side, emotional anxiety remains high, particularly with those that started investing in VC post 2009. I’m seeing soft commitments from this group dissipate VERY quickly with GPs I’ve talked to.
3/However, larger family offices are taking institutional mindset, and while not “open for business” in the classic sense, and are simply taking inventory and plan to resume fund investments with some modifications to strategy.
4/Institutional investors have asset allocation targets to deal with, and are generally unlikely to make any 2020 investments outside of A)Existing managers B)Those they have been tracking for some time C) NO Brainer funds (i.e. top GP from a good firm, or top .1% operator, etc.)
5/When capital markets open, expect LPs to ask questions about how you handled COVID with your existing LPs (I.e. what was cadence of communication,how balanced was tone,etc. The more you can evidence this through emails, the better. Gives LPs a peek into future relationship
6/Also, with valuations of existing port, have thoughtful approach on markdowns. Talk to CFO and/or fund admin. If you wait too long and you are in middle of fundraise, it will not play well if huge markdowns on prior funds are shown after that LP has committed. Get in front of.
7/As can be expected, many LPs also want to see seed fund portfolios get tested for the first time in a down market. How will 2013-2018 vintages fare?
8/ Fortunately, many LPs do agree that 21/22’ will be very good investment years; valuation resets unlikely to revert to pre-COVID immediately, better macro visibility, less competition, and more innovation opps. Stay patient, it will get better for those that continue to play.
