Alex Apple Sullivan

Seed VCs are turning to new ‘pro rata’ funds that help them compete with the big firms Alpha Partners, SignalRank and now SaaS Ventures help seed VCs pay for shares when big VCs try to price — or push — them out Lee Edwards, partner at Root VC, has a saying at his firm that “pro rata rights are earned, not given.” That may be a bit of a stretch since pro rata refers to a term that VCs put in their term sheets that gives them the right to buy more shares in a portfolio company during consequent funding rounds to maintain an ownership percentage and avoid dilution. Still, while these rights are not exactly “earned,” they can be expensive. One of the latest trends in VC investing these days are funds dedicated to helping seed VCs exercise their pro rata rights. https://lnkd.in/dRM3RvdA By Christine Hall

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A new era of deep tech has emerged. First time funds will raise “unheard of” amounts of capital to fuel next gen deep tech startups - producing outsized, superior returns for LP’s compared to the rest. Prudent investors will act on this data and shift investment strategy as LP’s or risk being left behind savvy wealth managers and CIO’s / FO’s who saw this trend begin 4 years ago.

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Interesting data and good work from Carta in their inaugural VC fund performance report analyzing benchmarks for more than 1800 funds across six recent vintages - https://lnkd.in/e5R_dhXp Take a look at the pace of investments. As expected, capital deployment has slowed since the 2020 peak, with 2022 funds only using 43% of their capital after 24 months, down from 60% in 2020. This trend seems broadly consistent across private company and fund investing, with GPs and their LPs being more cautious and selective with capital allocation. Raising capital is tough today. Full stop. It's easy to focus on that, but I'd encourage us all to instead consider and focus on what is less talked about - that this cautious approach has created a large amount of available capital aka "dry powder," dedicated and ready to support special founders. The best founders are aware of private market dynamics, which impact the time needed to raise rounds and the milestones they must hit to successfully do that, but their primary focus is always the mission and the customers they serve. They are committed to building products to solve their customers' problems regardless of what us investors think. Building generational companies is never easy, but many have been and will continue to be built in tough markets. I try to take a similar approach in supporting founders. That doesn't mean ignoring market conditions, which can greatly impact my investment decisions and outcomes, but like focused founders, I know it makes more sense to dedicate my limited daily energy to what I can control. That means finding and supporting founders who are transforming or creating markets and doing everything I can to help them win, no matter what the market is doing. I hope to collaborate with many doing the same. Have a great week and see you out there! Note: These thoughts and opinions are solely mine and and mine alone. They do not reflect and are not associated with any company I am part of.

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Last week Peak Energy announced its $55M oversubscribed series A, which Xora Innovation led, joined by lead seed investor Eclipse (Greg Reichow, Ryan Gibson), as well as TDK Ventures (Anil Achyuta), TechEnergy Ventures (Alejandro Solé), Doral Energy-Tech Ventures (Roee Furman), Lachy Groom, and Tishman Speyer (David Aron). Special thanks to 🌱🤝🌍 Anil Achyuta for the original introduction.   Peak is commercializing a new standard in grid-scale energy storage systems based on sodium-ion batteries. Peak’s market is benefiting from the twin tailwinds of renewables and AI, and the company has just the right founding team to scale at "ludicrous speed".   Landon Mossburg, Co-Founder and CEO, is one of the most phenomenal team builders we have had the privilege of backing. He brings deep experience in building battery gigafactories from his prior role as Chief Automation Officer of Northvolt, where he didn’t shy away from sleeping on factory floors for months in Northern Europe.   We have a special place in our hearts for entrepreneurs who have the grit to spend 10 years building deep tech startups from the foundational stage to commercialization. Cameron Dales, Co-Founder, President and Chief Commercial Officer, has done it not only once, but twice, at Symyx Technologies and Enovix (current market cap $2.65B).   Liam O'Connor O’Connor, Co-Founder and COO, previously scaled major portions of Tesla’s and Apple’s supply chains, flying over 500,000 miles a year when required. Liam has a deep understanding of what it takes to build resilient supply chains in hypergrowth mode, having previously scaled from <$5B to $40B in spend over a matter of a few years.   The climate tech sector is in need of more entrepreneurs who truly understand what building on a massive industrial scale means. We couldn’t be more excited that Landon, Cam and Liam have decided to apply their talents to enabling grid-scale energy storage.

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Let’s talk about exits in fintech. Although recent memory has been defined more by the lack of exits, we wanted to go back and look at the data from the most recent class of fintech exits to provide better context for founders and investors. The big takeaway: fintech as an industry has been defined by relatively consistent, large M&A transactions (approaching 20 per year) at an average value of $403M, and a few IPOs per year (2021 aside) at an average current market cap of $5.1B (as of March 2024). While it’s important to be ambitious and aim for those $1B outcomes, we also believe that founders and investors should take advantage of these unique M&A dynamics. For example, fintech represented about 1/3 of the top 100 IT software acquisitions. What does this mean? Practice valuation discipline. As companies approach $300M- $400M in company valuation, they risk (potentially unintentionally) getting cut off from the M&A market. Similarly, valuations over $2B should be for exceptional companies where the underlying fundamentals line up with public comps. The math around valuation can be the difference between a successful exit and one that is underwater. Fintech funds should not rely on IPOs alone to drive returns. This consistent and robust M&A cycle is a compelling aspect of the fintech market, and one where funds can get liquidity earlier for LPs. We expect the M&A path to become even more attractive to lean teams that don’t need to take on much outside capital, can grow efficiently, and achieve an outsized return. Much more is covered in the full report linked in the comments! And thanks to Axios for previewing the data in this Saturday’s newsletter. #venturecapital #fintech

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Great analysis by the AGC team on SaaS public company comps. It's worth a look as we recalibrate mid-way through earnings season. The analysis aligns with the broader Nasdaq equity performance, where the Mag 7 (or fab 4 now :-)) have shown more resilience than the rest of the market. #AGC #SaaS #EarningsSeason #Nasdaq #EquityPerformance

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