#102 Top VC CFO Posts of Q3 2023

Hi everyone! đź‘‹ We’ve published >100 posts - appreciate the support/ sharing w/ friends! Welcome to our new members of @TheFundCFO crew! We recently launched a paid tier and released our VC Fund Playbook + Models @ Streamlined.Fund! Re-linking top posts: #96 The Case for 30+ Co.'s Per VC Fund, #88 Latest Takes on the State of VC, #86 VC Fund Stacks, and Full CFO Archive.

Every Tuesday/Thursday, we bring you actionable tools, real-world experiences, and insider insights for #VC CFOs/Finance Pros and fund managers, #LP investors, and industry enthusiasts/people who want to learn :). As a reminder:

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Top Posts by Engagement in Q3 2023

We’ve aggregated our top posts from Q3 2023 - these ones really resonated with thousands of views, shares, and feedback! Please do us a favor and like/share if you haven’t already (or forward to a friend). In the meantime, enjoy!

There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet. Here, we’re focused on pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever.

Portfolio construction is a hot topic for VC funds and LP investors. Before investing, almost every LP will ask a VC: what is your portfolio construction strategy? There’s a lot of data, conventional wisdom, and strong thoughts on this. Some say concentrate. Others say diversify. What’s the right approach?

We’ve talked to a lot of VCs. Even though a lot of VCs talk about the benefits of concentration, if you look deeper, almost all of them are getting >30 investments in a fund. They may say something like “we’re concentrated - our top 10 positions make up >50% of our fund.”

The right emerging VC managers can drive real outperformance in investment portfolios and will continue to do so for decades to come. Every manager in the market today was emerging at one point, and behemoths like a16z just ~15 years ago. While we find ourselves in a slower VC fundraising environment today, capital allocators are still investing in emerging managers…

Insights on DPI from Fred Wilson (USV), David Zhou (Alchemist Accelerator), Beezer Clarkson (Sapphire), and David Clark (VenCap). When does DPI really matter? The job of a venture capitalist is simple in theory. Invest in a group of early-stage companies (often 20-30) over ~3-5 years.

If the VC sources, selects, and supports at a high level, a few “winners” will emerge over a 10-year fund life (sometimes extended to 12-15 years). Ultimately, the VC fund must “distribute” cash back to its investors, driven most by the winners in the portfolio (DPI). VCs typically target >3x TVPI/DPI and >30% IRRs…

“Emerging VC back-office complexity is a hell of a thing. The problem for most new managers is that there is an absence of what 'good' looks like when selecting fund admin, tax, and audit partners.” -Eric Bahn, The Hustle Fund

We’ve written a lot (and have a lot of experience implementing) different VC fund stacks. What works well? What would we never do again? You can read more in #60 Emerging VC Fund Tech Stacks & #61 VC CFO Data & Efficiency Stack. Recently, we participated in a VC fund stack survey with our friends at Weekend Fund where they wrote the following about fund managers…

Venture capital firms and industry providers have reported Q2’23 valuations and portfolio updates at this point. Pitchbook released the Q2’23 Venture Monitor. CB Insights shared the State of Venture Q2’23. Carta released the State of Private Markets: Q2 2023 report.

Industry participants such as Tom Tunguz shared Surprising Data Points about the VC Market. Notable VC investor Bill Gurley and Brad Gerstner joined the The All-In Podcast, E141 to discuss Q2 in detail with David Sacks. Notable topics covered included the State of Series A’s, Dry Powder Misconceptions, VC Market Update, the IPO Window Opening, Incentives to Go Public Soon, and Macro. Highly recommend checking this episode out for great insights.

What’s the CFO take on the State of Private Markets: Q2 2023 and how it relates to VC? Here are some of our top takes in the context of updating your valuations, fund models, and adjusting your go-forward investment strategy. First, key data points:

This is one of the most common questions we get as LP investors and VC CFOs for hundreds of funds over the past three decades (collectively w/ Eddie Duszlak). There’s no one right answer here! We think it’s best to simplify by asking yourself a question. What is the most valuable place to spend my time? How much time am I spending on the “other stuff?” VC investors (and investors of all types, including PE/VC, public) can follow this simple framework to arrive at the right answer. For VC funds, the most common times we see funds hire a VC fund CFO are when they hit some combination of the following milestones, although it’s not a hard and fast rule:

  1. Portfolio: >50 companies

  2. AUM: $20m - $200m

  3. Growth: planning to raise their next fund in +/- 1 year and want to have great data, materials, and processes in place

Your Third Quarter (Q3) Checklist

That’s all for today folks! Thanks for your support and spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”