venturecapital
The home for Farcasters to discuss all things venture capital and early stage finance.
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Private banking plays an important role in the "Wheel of Wealth", but thriving across generations requires more than just preservation.
For most families, significant wealth starts with entrepreneurship, building, growing, and, sometimes, exiting industrial businesses. This is the FOUNDATION of the "Wheel of Wealth": long-term focus, hands-on commitment, and highly illiquid assets.
Over time, as the family grows, generations expand, governance becomes complex, and risk profiles diversify, attention tends to shift toward the left side of the "Wheel of Wealth": Private Banking and Cash Management. These liquid assets offer "more safety", but they mainly serve to preserve wealth, not grow it. Real, sustainable performance does not come from this quadrant.
When the strength of foundational assets fades, families must look to new sources of growth. Venture capital, when "done right", can fill this gap, providing real, compounding returns and contributing to the family's legacy of wealth creation. Of course, some families continue to create new foundational assets over generations, driven by continuous entrepreneurship. But for many, the challenge is moving beyond past success and embracing the opportunities ahead.
This is what I've observed first-hand is my nearly two decades at the intersection of private banking and venture capital. I call it the "Wheel of Wealth". 0 reply
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As an LP in Venture Capital, consistently committing capital across all vintages is key.
In VC, there is a common misconception by "rookie" LPs that it is possible to time the market when "hot" years of innovation arise, and that it is the best strategy to get high returns from this, what they believe, "momentum" asset class.
However, especially within early stage VC (<$150 million tech VC funds), 42 years of fund data reveals* the truth: consistent, diversified investment across all vintage years and cycles is paramount for maximizing returns.
Unlike other private asset classes like Buyout, Credit, or Real Estate, where DPI (aka "distributed to paid-in capital") plateaus around Year 7, VC's DPI continues to grow deep into Years 12 through 15. This highlights the long-term compounding nature of this asset class.
The cumulative multiple for consistently investing in early-stage VC across every single vintage year over 42 years is a 1'154x. Compare this to Real Estate (26x) or Buyout (9x) over the same period.
BUT, to really understand why consistency is paramount, let's look at the impact of missing top-performing vintages: missing just the best three vintages in VC reduces cumulative multiple by 65% (from 1'154x to 421x). In contrast, missing the best three vintages in Real Estate causes only a 6% reduction, and in Buyout, it is 4%.
This data demonstrates that VC is a power law asset class**, where 80% of returns often come from just 20% of managers. Missing key vintage years means missing out on the critical winners that drive outsized returns.
For LPs, this means structurally diversified exposure is not just an advantage, but a necessity to capture those winners and mitigate vintage timing risk. Whether through a fund of funds or a dedicated, well-resourced in-house program, ensuring continuous exposure to high-quality managers across cycles is the path to truly compounding capital.
As an LP in Venture Capital, consistently committing capital across all vintages is key.
* and **: sources under. 1 reply
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We need to challenge the "old purist" venture capital mindset and understand the divergent, yet complementary paths of big and small, new VC firms.
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. 1 reply
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The "minimum viable fund size" is the smallest capital to execute a GP's fund strategy. Let's understand that for Venture Capital.
In today's incredibly challenging VC fundraising environment, in particular for new and emerging VC GPs (raising from Fund Is to Fund IIIs), every manager needs to truly understand this concept of "MVFS". This is not about hitting an exact number, but rather identifying a range representing the minimum amount a GP needs to raise, to be able to execute their business model and thesis.
It is more critical than ever due to several things:
This is arguably the hardest fund raise environment we have seen for VC funds maybe ever, according to the industry. For first-time managers, raising any significant capital can take 12 to 18 months. Managers must be realistic about what is genuinely possible.
It can be tempting to abandon a portfolio strategy if ideal fundraising targets are not met. However, focusing on the MVFS ensures GPs can adhere to their proposed strategy. It is about strategy integrity.
Small, on-the-margin adjustments are acceptable, but radical shifts are not accepted by LPs who may call you out because of strategy drift. For instance, the "follow-on reserves" are not your fund buffer. As a GP, you cannot for instance say "if I raise my target size of $35m, I'll have a 50% reserve strategy, but if I raise only $20m, I won't set aside any reserves".
Such significant deviations, as drastically reducing reserves from 50% to zero, fundamentally change the business model.
This minimum viable fund size must allow the GP to generate enough proof points to demonstrate proficiency in at least two of the three core components of VC fund management: sourcing, picking, and winning. This is foundational for a successful subsequent fundraise, like moving from Fund I to Fund II.
For new and emerging VC GPs, the "minimum viable fund size" is the smallest capital to execute a fund strategy and is the best "on paper" demonstration of being cognizant about their industry dynamics. 0 reply
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