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- #125 VC Market Data & Lessons - Deeper Dive
#125 VC Market Data & Lessons - Deeper Dive
Hi everyone! 👋 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.
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.
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:
Tuesday: insights + interviews. Free for everybody.
Thursday: deeper dives on VC GPs, CFO/COO strategy, more insights from LPs/GPs, and our take on what it all means (from 15+ yrs. of experience). Exclusive to Paid subscribers (most of whom expense these insights).
“Success doesn’t come from what you do occasionally, it comes from what you do consistently.” -Marie Forleo
In Case You Missed It: The Year-End CFO/Finance Checklists
We’ve seen a lot of different frameworks over the years to keep track of all the requirements for funds at year-end. One of our favorites is breaking things down into four buckets: portfolio companies, investor reporting, compliance/legal, and operations/HR. Here’s some of the top items in each bucket for year-end…
Earlier this week, we shared post #124 on VC Market Data, Predictions in Charts. Key takeaways looking back at 2023 were that exits, valuations, and M&A were all down. Notable 2024 predictions include a macro soft landing, AI and web3 apps, IPO/M&A acceleration in H2. We encourage you to read the full post linked!
Today, we dive deeper into recent VC market data, VC lessons, and how to apply learnings for VC fund GPs and CFOs / finance pros. Read on!
Top 10 EV / NTM Revenue Multiples
Jamin Ball joined Ed Sim (Boldstart) on Harry Stebbings podcast to chat about the state of VC backed co.’s heading into 2024+ (recording here). Jamin and Ed had a tweet exchange that prompted this. Background: there have been increase in startups either shutting down or being acquired / acquihired recently. The big cash piles raised in 2021 are starting to get smaller.
“In 2021 and the first half of 2022 (when most of the 2022 activity happened) we essentially crammed 5 years worth of funding into an 18 month period. Series Bs and Cs were raised when companies were at the typical Series A milestones. Normal round sizes doubled or tripled.”
The challenge with a number of the 2021 rounds, is that if the world ever shifted to more of a risk off attitude, or just less risk on, companies would have to “catch up” on these milestones. Well, we all know this happened. Now, in order to raise an up round from a 2021 round, companies most likely will have to hit a significant number of milestones.
The big challenge facing a number of companies today - as the large cash balances from 2021 start to shrink, what happens if they haven’t hit all the milestones needed to raise another round, or an up round? And what if the path to hitting those milestones even 5+ years out isn’t clear?
Takeaway: how do 2021 round raisers grow into valuations and hit milestones? In many cases, they won’t, so will shut down / find another home. We highly recommend reading the full post as it’s one of the best we’ve seen!
Really enjoyed the latest post from DDVC. In it, he shares the following: “VC feedback cycles are long. Very long. It’s an outlier business and returning cash from early-stage investments can easily take a decade or more. Early-stage venture is hard because you don’t know if you’re any good for long time. Can Limited Partners (LPs) afford to wait decades before committing to a new fund? Can General Partners (GPs) afford to wait decades to promote their junior investors? Of course not. So how can we get more visibility, earlier?”
“In an attempt to professionalize our own organization, we introduced a range of new metrics at Earlybird several years ago. Since then, we continuously added new and improved existing ones. If we didn’t perceive them valuable, we got rid of old ones. I’m happy to share some of them below for other VCs to adopt and start benchmarking, to eventually make our industry more efficient, effective, and transparent. And allow LPs to pick the best GPs.”
Key takeaway: measure what matters in VC. This applies to both investing and finance teams. For investing, track inbound deals, first meetings, diligence, invested. Create ratios for insights. Quantify portfolio company support.
For finance, apply traditional financial metrics. We’ve discussed this at length in prior posts re fund modeling, budgeting, and fund finance.