Some thoughts for the new year on the early stage funding market :)

I think a big question facing early stage investors is: are you a hammer? Or are you a pair of hands? In the prior era of early stage investing, pre-seeds and seeds "fit" into neat buckets slotted in ahead of the neat buckets of series A's and B's. But as the market as grown and gotten more efficient, everything has gotten much more blurry.

Thinking out loud about investing in generative AI.

TLDR, there are lots of challenges, but I'm overall very bullish.

Quick thread The current wave of generative AI feels similar to the surge in interest in Web 3.0 a few years ago. Irrespective of what one thinks of Web 3, you can't deny that a huge share of talent moved towards that opportunity. The same is happening in AI, perhaps even faster.

During much of last year, growth investing ground to a halt. Firms were not sure how the markets were going to settle and massively slowed their pace.

In some ways, I think this will change in 2023. But founders beware - these aren't the growth investors of 2021. Quick 🧵 There are actually two fairly distinct versions of growth investing.

1. Growth Equity
2. Venture Growth

Unfortunately, during the recent bull market, growth investing got incredibly muddled. But typically, these two styles of investing are completely different animals.

During an 18 hour flight to Singapore, I wrote about my 4 predictions for 2023. During my jet-lagged induced stupor, I forgot all about it until now. So, we few weeks delayed, here are four thoughts and predictions about the VC and tech market in 2023 #1a Hot take: For early stage companies, 2023 will NOT be a year where profitability trumps growth. That is only true for later stage businesses.

This will be a year where the cream rises to the top. And for early stage startups, that still means very very fast growth.

I was speaking to a founder that I've known for nearly a decade yesterday. We shared some personal struggles with each other, and it got me thinking about the nature of founder and investor relationships and how that changed over the last several years. I believe that the exuberance of the last few years coupled with the change in work styles due to the pandemic has led to the most fragile and perhaps toxic investor/founder relationships that we've ever seen.

I started in VC in 2007. When I learned the business, there were a lot of rules of thumb that I found arbitrary.

Looking back, I realize that many of these made sense because they were formed during a much tougher market environment. Long 🧵 Below are few of these old "rules of thumb" that I've been thinking about recently. I personally hate overly dogmatic thinking, but there are some lessons to be learned.

In some ways, I think what's old will be new again. But some things are old and should just stay old :)

The last six months has been really rough for venture backed startups. It has been the toughest funding environment since the GEC, outside of the first couple months post Covid. I hate to say it, but the next 6-9 months will likely be worse. Most companies had a tough time fundraising this year, but didn't see significant business headwinds.

But demand is going to be soft for most companies, and the fundraising market will still be very tough.

I've probably talked to 100+ YC founders over the years. A lot of VC's get frustrated when speaking to YC companies, but I generally admire them. There are clearly some best practices that are inculcated into YC companies. Here are a few that I think are worth learning from: 1. YC founders go broad and hard when fundraising. They move with a massive sense of urgency to find true believers. They assume that most investors aren't interested unless proven otherwise, and thus, their funnels are larger than >80% of other founders at the same stage.

Should you "test the waters" for a VC fundraise?

TLDR: Don't

Quick thread: One fundraising approach that is often suggested is to "test the waters" when a founder is on the fence about a fundraise.

The idea is to speak to a handful of potential investors to get some feedback with the hope that someone bites.

You always hear about startups being vitamins or painkillers. But I think there is an important third option that is often neglected.

The third option is to be a recreational drug. Quick🧵 For startups, you are a painkiller if you solve an urgent need🤕. You are a vitamin if you provide value, but are something your customers feel they can live without.

In either case, a startup can also be recreational drug. Something that is fun and addictive to use 🤩.

Is early stage investing really all about the people? A quick thread: I've seen multiple tweets over the last few months that say something like this:

When I started in VC, I thought it was all about the people.

When I got experience, I focused on XYZ as well.

But now that I am wise, I think it's all about the people.

Huh?

VC references inherently suck. Here are some thoughts on why, why it matters, and how to do them better. 🧵 VC references tend to happen in two circumstances. First, when founders are considering taking investment from a VC. Second, when an LP is considering an investment in a fund. Both are problematic for many reasons.😢

Some founders are fundraising wizards that “defy gravity” as my partner @davidbeisel likes to say.

But we haven’t backed that many of them. It's not our style. I also probably hurts short term markups. But assuming average fundraising skill and exceptional grit (which we do look for), I don't think there is much correlation between fundraising skill and outcomes. If anything, it's probably negatively correlated.

I’ve noticed an interesting trend among early stage VC funds: A heightened focus on fast markups and early fund performance metrics. It got me thinking – is this a good or bad thing? 🧵 First, definitions📔 A fund marks-up an investment when another firm invests in one of their portfolio companies at a higher price. This increases the holding value of this investment, and improves the IRR and TVPI of the fund.

/1

We are pleased to announce that we are opening up applications for our third @NextViewVC Accelerator Program 🚀

Applications are open today through Feb 14. Apply here: nextview.vc/accelerator/

Three thing to highlight ⬇️ 1. What makes this different🤡? Most accelerators are a numbers game. A tournament culminating in a demo day death match⚔️. Ours is the opposite. Tight knit group, very hands-on work with NextView parters, and no artificial fundraising deadline. Totally different ethos.