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/ It's that time of year - my LP EOY analysis on the state of venture in a few simple charts & color commentary
Valuations are shifting, fundraising is slowing & LPs face tough calls. But this isn’t the first time we’ve been here—and there’s opportunity amidst turbulence 🧵
2/ The intersection of @PeterJ_Walker’s recent @Carta analysis, GP @ed_sim & LP @Samirkaji combined insights + the latest @PitchBook data (& a helpful illustration via @nytimes) paints a nuanced picture of the early-stage landscape.
🔻🔻🔻
3/ Early-stage activity by the #s, courtesy of @PeterJ_Walker
🔹Early-stage venture activity is stabilizing post-2021 frenzy
🔹2024 funding ($76.6B thru Nov) shows a slight improvement over ‘23 ($74.2B thru year-end), but the recovery remains slow & well below ‘21’s peak.
🧵1/ We've seen a ton of spirited discussion around @cartainc's recent VC fund performance report.
We compared @SapphirePrtnrs early DPI analysis against Carta's corresponding cohorts & wanted to share lessons learned.
TLDR: As LPs - we don’t think cause for any 🚨s. Here's why👇
2/ First, it’s important to remember that interim marks are just that - interim.
They can give an indication of how things are going in a fund at a high level, but do not necessarily predict final outcomes or speak to nuances within portfolio companies.
3/ For example: Per @cartainc's data, only 9% of funds in vintage yr 2021 have returned any capital to LPs at the 3 year mark, but 25% of the 2017 vintage has distributed at least some.
This sparked some heated discussion, but again - we see it as quite typical.
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.