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6. We need to challenge the "old purist" venture capital mindset..
The VC industry has undergone a massive transformation, fragmenting from a monolithic structure, into a barbell model with distinct strategies for different-sized firms.
So it is high time we revisit the old purist way of thinking about VC and challenge the demonization of big firms by acknowledging their fundamentally different risk profiles and product offerings.
On one end of the barbell, we have the mega-shops and large, established VC firms, such as Andreessen Horowitz, Lightspeed, General Catalyst. These are often described as playing a game of “innovation capital” (Forbes has a great article about that, see in comments) with a very different strategy than smaller, early-stage investors.
Their risk profile is just fundamentally different, and they offer different products. While they may not achieve the 50x or 1000x multiples seen in early-stage deals, they offer greater consistency and aim for significant total capital returns, often through blended checks over time, targeting 5-10x on individual companies.
These large funds can raise capital at a time speed that we have rarely seen before, and are frequently multiple times over subscribed due to a perception of real quality.
On the other end, we have the small funds and the new and emerging pre/seed managers, which embody what VC used to be, investing in two people “in a garage”. These funds have the potential for really high return, with some seed funds achieving returns of 250x (ping Lowercase Capital Fund I), 30x, or 40x.
However, this comes with significant volatility and intense competition. It is not uncommon to see fundraising for an new/emerging VC fund to be two years, and leading to a high mortality rate, with 50% of firms that start a Fund I even get to a Fund II.. and only 20% get to a Fund IV.
Understanding these fundamental differences in strategy, and risk management is crucial for all stakeholders in the VC industry as this space continues to evolve into a mainstream asset class.
Both types of VC firms are essential for a healthy VC ecosystem.
We must challenge the “old purist” venture capital mindset and understand the divergent, yet complementary paths of big and small VC firms.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit verticescapital.substack.com
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By Vertices CapitalThe VC industry has undergone a massive transformation, fragmenting from a monolithic structure, into a barbell model with distinct strategies for different-sized firms.
So it is high time we revisit the old purist way of thinking about VC and challenge the demonization of big firms by acknowledging their fundamentally different risk profiles and product offerings.
On one end of the barbell, we have the mega-shops and large, established VC firms, such as Andreessen Horowitz, Lightspeed, General Catalyst. These are often described as playing a game of “innovation capital” (Forbes has a great article about that, see in comments) with a very different strategy than smaller, early-stage investors.
Their risk profile is just fundamentally different, and they offer different products. While they may not achieve the 50x or 1000x multiples seen in early-stage deals, they offer greater consistency and aim for significant total capital returns, often through blended checks over time, targeting 5-10x on individual companies.
These large funds can raise capital at a time speed that we have rarely seen before, and are frequently multiple times over subscribed due to a perception of real quality.
On the other end, we have the small funds and the new and emerging pre/seed managers, which embody what VC used to be, investing in two people “in a garage”. These funds have the potential for really high return, with some seed funds achieving returns of 250x (ping Lowercase Capital Fund I), 30x, or 40x.
However, this comes with significant volatility and intense competition. It is not uncommon to see fundraising for an new/emerging VC fund to be two years, and leading to a high mortality rate, with 50% of firms that start a Fund I even get to a Fund II.. and only 20% get to a Fund IV.
Understanding these fundamental differences in strategy, and risk management is crucial for all stakeholders in the VC industry as this space continues to evolve into a mainstream asset class.
Both types of VC firms are essential for a healthy VC ecosystem.
We must challenge the “old purist” venture capital mindset and understand the divergent, yet complementary paths of big and small VC firms.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit verticescapital.substack.com