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It turns out it actually takes time to build a high-growth business with differentiated intellectual property and roll out large, enterprise-class marketing solutions. I remember a few years ago people (LPs mostly) used to ask me why I didn’t have any realized returns to show. 5 years ago. Sourcing high-quality leads : 9/10.
At the other end of the spectrum large funds have gotten even larger in the past few years which has massively increased the amount of consolidation in our industry as 66% of LP money into venture is now concentrated in late-stage or full-cycle VCs. The “big boom” in startup financing started around March 2009?—?more Why is this?
In this period (less than 2 years) he has brought on incredibly talented senior execs is sales, marketing, product management, client services, finance, vp engineering and more. He sets goals for MRR (monthly recurring revenue) to differentiate from one-time revenue, license revenue, services revenue and other.
Unlike a startup that might raise equity financing across several rounds all combined in a single balance sheet, VC’s do not simply commingle these funds into a single bucket to be allocated across all the companies in that firm’s portfolio. Or public policy changes may force GPs or LPs to end longstanding relationships.
As a side note, another thing I wish people (especially women and other underrepresented talent) understood is that while venture is a money-management and investment business, it doesn’t require a deep finance background to do it (at early stages). Having a strong POV also helps with finding… LP/GP fit.
Obvious caveats to my POV here, most specifically: exposure is limited to largely the US/SiliconValley ecosystem, driven by our own portfolio, my friends and co-investors, the funds I’m a LP in, and our institutional LP relationships. Lower performing VCs will disappear faster and new entrants will differentiate themselves.
This is what brings us to the second big difference: the cost of Applied Venture is too large to finance from a standard VC management fee. . Different funds finance the cost of these teams with a differing weighting of asking portfolio companies to pay for services, larger than normal management fees, and reduced compensation for partners.
These include building products, recruiting, managing your finances, marketing, selling, getting feedback from customers and … fund raising. Well if the “why buy anything” is testing whether you’re even compatible with a VC, the “why buy me” has got to be extreme differentiation. why buy me?
While non bank business financing is currently miniscule by comparison, the numbers from kickstarter.com tell us something is brewing. Residents are collaborating to start, finance and manage public works projects and proving they can bootstrap a better job themselves. It was anti-social in nature.
So LPs are looking for a combination of “established top tier” and “new managers with differentiation.” This is key because in a permanently low-interest-rate environment parking large pools of capital in assets that benefit from interest is not possible so LPs seek “higher yield.”
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