Thread by @Beezer232

Hey GPs - In the last few weeks I’ve had multiple asks about emerging manager benchmarks/what we are seeing for 2019 (and other recent) vintages.

So here’s a quick 🧵 breaking down what we see in the case of 2019 venture funds and the greater LP context…

#OpenLP

Key point: 2019 funds, emerging or otherwise, are *really* new.

Stating the obvious here, but it’s worth reiterating.

In the olden days of venture, asking about benchmarks on funds <2 years old wasn’t a thing.

Cambridge specifically caveats that “research shows that most funds take at least six years to settle into their final quartile ranking.”

But what the heck...welcome to 2021! 😂

Why are folks asking?

Many firms (emerging + established) who raised 2019 funds are back raising again.

It seems the new 2 year fundraising cycle has mostly replaced the traditional 3-4 year fundraise time frame.

Naturally people want to know how they stack up against other #VCs, as well as the context within which LPs are making decisions. Makes sense.

Good news – Cambridge just came out with their latest benchmarks and offer us this to consider:

- 2019 US VC top quartile TVPI is 1.56x, median is 1.26x, and top 5% is 2.12x

- 2018 US VC top quartile TVPI is 1.87x, median is 1.59x and top 5% is 2.50x

(all net to LPs)

⭐Important caveat⭐

Cambridge venture benchmarks pool funds ranging from early to growth (and everything btwn).

The 2019 funds in their study can include growth investors w/ co's about to IPO... and pre-seed investments into co's that haven’t even launched a beta product yet.

✅ Also important – unless an LP is building a new portfolio from scratch or has a dedicated pool of $ set aside to make new emerging manager investments every year – new funds must compete against existing venture relationships.

In this bonkers market where crypto is driving fast liquidity (like 2-3 years to return a fund fast) and other co's have raised multiple rounds in the last 12 months alone (pushing TVPI sky high even in funds with 100s of millions of dollars of AUM)... that can be a tall order...

*Especially* when venture funds with strong returns are coming back faster and raising multiple (often stapled) funds at once.

And for reasons I can never explain (but seems to be true every year), Q4 is always a very busy quarter for existing managers to raise funds.

So the bummer news is... *particularly* right now (but also always), the competitive landscape for LP $ is fierce.

It includes other emerging managers, existing funds, and the whole suite of what an LP’s mandate allows: hedge funds, PE, real estate, publics… the whole world of investable assets - including digital ones.

That’s the ‘why it might be really hard to get an LP’s attention right now’.

But on the other hand - not all TVPI and DPI are created equal...

Read this great thread by @fintechjunkie ➡️

It shares the LP perspective on the durability of returns and how “all VCs should assume their LPs have great BS detectors. They want to back managers with repeatable strategies over lucky managers.”

https://twitter.com/fintechjunkie/status/1455216028481466375

For these and other reasons (GP turnover at existing managers, the need for new perspectives/networks, and hustle... to name a few) despite some pretty crazy sounding returns from existing venture managers...

⭐LPs are open to adding some new names to their portfolios.⭐

So shout out to emerging managers. 😄

I just read a great post by @HunterWalk w/ very helpful guidance.

My fave piece of advice: A VC’s first fund is about proving you can pick (aka ‘investment judgement’) and have access w/in your target investing area.
hunterwalk.com/2021/10/31/wha…

Here is another great tweet thread discussing what the most important metric for a Fund I is in the early years of the fund (year 3) ➡️

https://twitter.com/jcorsello/status/1453367437240508419?s=20

And as always, check out the Emerging Manager section of #OpenLP for more awesome and useful content for the community, by the community. ✅

openlp.sapphireventures.com/emerging-manag…