We mean that only a small percentage of returns is responsible for a large percentage of overall return value, either for a specific fund or the industry as a whole.
TL;DR: Both enterprise and consumer exits can produce power law returns, but the nature of them vary considerably.
3 Key Points 🔽 🔽 🔽
1️⃣ Portfolio value creation in enterprise tech is often driven by a cohort of exits, while consumer exit outperformance is highly concentrated and dependent on the top deals.
2️⃣ There are more B💲enterprise exits than B💲consumer exits, so there may be more opportunities for a 🦄 outcome in the enterprise space than consumer.
3️⃣ How (IPO vs M&A) as well as when a company (and then the VC) exits contributes significantly to value creation.
To dive into the data (plus more findings and awesome charts), download the full report here:
1/👑 Once upon a time, today's legendary venture funds were emerging managers…
Which is why today I’m excited to share that @SapphirePrtnrs is launching a new program to invest in emerging venture managers with a sole LP, @CalSTRS, the world's largest educator-only pension fund!
Why we are excited about this next chapter👇 🧵
As part of this new program, we are taking over the management of five existing CalSTRS “New and Next Generation Manager Funds,” representing $1.4B AUM.* Collectively, we have invested in 300+ emerging managers.
Our plan going forward is to invest ~$100M/year into emerging venture managers.🙌
@SapphirePrtnrs @CalSTRS @natewcl @LauraLPThompson @isabel_bloch @EvanTarzian 2/ Since we started Sapphire Partners more than a decade ago, we’ve had conviction in EMs as a critical part of the venture ecosystem and a successful LP portfolio. We built our investment program to reflect and support this.
@SapphirePrtnrs @CalSTRS @natewcl @LauraLPThompson @isabel_bloch @EvanTarzian 3/ 80% of the US EMs we've invested in (Vintages I - III) have successfully raised subsequent funds, defying the industry average of 24%. Big shout out to what they've accomplished (Pitchbook data, U.S.venture funds 2012 - 2014).
As we enter the new year, I wanted to share a bit of LP perspective.
We all know the venture market was on 🔥 in 2021, but how is that actually manifesting and what does that mean for how the proverbial table is being set for 2022?
Here’s what us LPs are seeing and some of the questions LPs are asking themselves going into 2022.
1 - The average capital called in the 1st year of a fund is accelerating rapidly.
In 2021, our portfolio averaged 33% in terms of capital called in a fund’s first year, which implies an initial investment period well below two years.
It’s September - time for the annual run to raise/close out #VC funds before the end of the year. For many #GPs - this means reaching out to an LP who passed on a previous fund.
This thread deep dives into what to keep in mind as you circle back and reach out to #LPs that passed in the past (which I *do* recommend doing btw)👇
Lots of ink is spilled parsing differences b/w pre-seed vs seed vs early stage (etc…) investing. But some truths hold across all stages of venture investing! @alexiskold digs in here: startuphacks.vc/blog/7-truths-…#OpenLP
Truth 1. Venture outcomes are driven by a power law.
Power law is an immutable law of the universe, and that extends to #VC too. Most startups fail, but the biggest winners, when they happen, tend to be huge.
VC’s NEED 🦄’s (and decacorns!) to succeed.
Truth 2. Your Fund Size is Your Strategy
A fund's portfolio construction will depend on how much capital is under management.
This is why funds often specialize at a specific stage of investing (ie. <$50M fund = pre-seed/seed, $150-$300M fund = seed/series A, etc...).