Read on Twitter
1/ In the startup impact investing space, there is talk about whether VC or ‘Patient Capital’ (e.g., CVC, Venture Debt, Family Offices, Evergreen Funds, PE, IB) are most appropriate, for scaling companies with lower TAMs/SOMs (<$5B/<$1B) and more than 5 competitors, for example.
2/ What’s being lost in discourse, is that some Angels / VCs are more aligned with the same Return / Risk ratio (Sharpe Ratio), yet more risk averse (seeking lower failure rates and lower returns, yet same Sharpe).
3/ If home run unicorns exit at a 10yr IPO average, along with larger TAM, then more risk averse VCs may be looking for doubles and triples (
analogies!). Recently explored the ‘Value VC’ / ‘Growth VC’ distinction similarly. See previous Tweets.
analogies!). Recently explored the ‘Value VC’ / ‘Growth VC’ distinction similarly. See previous Tweets.
4/ The more likely scenario, is aligned with the home-run model or first-base for 90% of those companies in this gray area. In short, VC may be giving away too much value to the ‘Patient Capital’ set, instead of taking a more balanced risk averse hedge, proAquisition vs proIPO.
5/ Average VC backed exits are around $200M and most IPOs are at $1B+ in softtech; for hardtech/medtech/hardware/vice/infrastructure, then yes, Patient Capital or few VCs may be the only current avenues. For Finance-First Impact startups, the above may open up a new opportunity.
6/ Would these alternatives change fundraising or fund dynamics? There is a growing demand for Impact at scale, these Founders are competitively geared; often times Impact is a moat in a traditionally crowded space. They’re 25%+ MoM rev growth, hungry, & proVC. #GreenUnicorn
7/ One reason why profitability has become part of the VC discourse, I believe, may be a shift toward EBITDA for the sake of optionality surrounding value aligned public market acquisitions which are more likely to be on the horizon in the next year or two.
8/ Another reason we’re hearing more about profit, is that slowing growth attracts more Patient Capital. Some people in my circle believe the VC home run model is inherently here to stay. I think this is true, and I also think there will be room for doubles and triples.
9/ As more accredited investors enter the market with upcoming SEC changes, we’ll also see a push for more LP and secondary liquidity channels, direct listings at earlier rounds, and hopefully more opportunities for smaller or more impact focused VCs to play MoneyBall.
