Podcast Summary
Discussing mega funds and underrepresented investors: VC is a dynamic field, and mega funds invest in underrepresented managers and founders, focusing on clean tech, health tech, and media.
Inclusive Ventures, led by Eldridge, recently raised a significant $250 million fund to invest in underrepresented fund managers and founders, with a focus on clean tech, health tech, and media. During this week's VC Sunday School episode, the discussion revolved around the dynamics of mega funds and the historical background of the Mark Andreessen and Ben Horowitz "beef." The hosts emphasized that venture capital is an ever-changing field, and what works in one market may not in another. This content, produced by a team of nine people at This Week in Startups, is free for listeners, with just three ads per episode. The team's dedication and hard work have led to their success as a content machine.
Milestone-based funding system for venture capital: A milestone-based funding system allows for more companies to receive funding, while maintaining the potential for significant returns, aiming for a 4-5x fund multiplier.
While larger venture capital funds may have the resources to invest in more companies, they also come with the risk of demanding outsized returns, potentially distorting market valuations and company growth. A more ideal approach, according to the discussion, is a milestone-based funding system, where companies progress through various funding rounds, each with appropriate-sized funds based on the stage and number of potential winners. This approach allows for a higher number of losers but also a greater potential for significant returns, ultimately aiming for a 4-5x fund multiplier. The discussion also touched on the increasing demand for venture capital due to successful companies like Facebook and Google, leading to larger funds and more competition for investments.
Venture Capital Funding on the Rise: The growing wealth of endowments is causing an increase in venture capital funding as investors seek higher returns. New funds are entering the market, but finding the right size and pace is crucial for success.
The growing wealth of endowments and the resulting search for higher returns is leading to an increase in venture capital funding. With traditional investments like bonds and stocks offering lower returns, more money is flowing into venture capital in search of alpha, or higher returns. This trend has led to an influx of new venture funds, each trying to outperform the competition. However, the size of these funds must match the stage of investment. For example, a seed fund cannot be a billion dollars because there aren't enough companies to invest in. Instead, funds must find the right size and pace to effectively help startups reach product-market fit and grow. One example of a company that has helped entrepreneurs build and launch their own products quickly and easily is Bubble, a no-code platform that allows users to design and launch apps without coding skills. This accessible and affordable solution has helped many entrepreneurs, like Seth Brown, who used Bubble to build and launch his own on-demand gift-giving marketplace, Gifting. Bubble is currently offering one month free on any of its paid plans, ranging from $29 to $529 a month.
Pressure to make bigger bets in venture capital: VC funds face pressure to generate higher returns, leading them to invest earlier and potentially overpay for startups
Even with lower returns, venture capital funds can still be attractive due to their alpha, which is the excess return compared to the benchmark. However, the size of these funds and the increasing management fees can lead to pressure to make bigger bets and invest earlier. Some funds, like Andreessen Horowitz, have made large, successful later-stage investments, but there's a risk of overpaying for startups and getting ahead of their skis. Tiger Global, for example, is now committing a billion dollars of its own money to back seed funds as a way to invest earlier on behalf of its LPs. Ultimately, the drive for bigger returns may force funds to go earlier in the investment cycle, creating a multi-level funding landscape.
Navigating Changing Investment Landscape: Investors adapt strategies to market conditions, focusing on earlier stage deals and building relationships with early-stage investors. Effective communication, respect, and following through on commitments are vital for strong business relationships.
The investment landscape is constantly evolving, and what worked in the past may not work in the present or future. Last year, late-stage bets might have been successful, but this year, public market compression of multiples has made late-stage deals less attractive. As a result, investors like Tiger Global are looking to deploy capital earlier in the investment cycle to gain access to promising startups and secure deal flow. Additionally, larger venture funds want to build relationships with early-stage investors to expand their networks and potentially invest in the next big thing together. It's important for investors to be adaptable and flexible in their investment strategies to navigate the ever-changing market conditions. Another key takeaway from the discussion is the importance of communication and respect in business relationships. The speaker shared a personal story about his experience with a prominent investor who failed to follow through on meetings and sent associates instead, leaving a negative impression and causing the speaker to stop sending potential investments their way. Effective communication, respect for each other's time and efforts, and following through on commitments are crucial for building strong business relationships.
Building relationships in venture capital: Relationships are key in venture capital for future opportunities and deal flow. Use tools like CODA for collaboration and take advantage of their startup programs for credits.
Relationships and deal flow are crucial in the venture capital industry. The speaker shared his personal experience with Andreessen Horowitz and how he has chosen not to work with them due to past tensions. However, he acknowledges the importance of building relationships for future opportunities and the role of venture firms like Tiger Global in doing so. Additionally, the speaker highlighted CODA, a productivity tool that helps teams collaborate more efficiently by keeping text and tables together in the same document. He encouraged startups to take advantage of CODA's program for them, which offers $1,000 in credits. Furthermore, the speaker emphasized the importance of understanding that building a venture portfolio is not just about the companies you invest in but also about building relationships for future opportunities. These relationships can lead to deal flow and ultimately contribute to the growth of your portfolio.
Expand your network and discover new deal flow through relationship building: Consistently reach out and offer value to build mutually beneficial relationships, foster connections, and potentially discover new opportunities for growth
Building relationships is crucial in the venture world. Meeting new fund managers, networking with co-investors, and hosting dinners are effective strategies to expand your network and potentially discover new deal flow. By consistently reaching out and offering value to others, you can create mutually beneficial relationships that can lead to opportunities and growth. Whether you're an entrepreneur, journalist, or investor, hosting dinners or events is an excellent way to bring people together, save money, and foster meaningful connections. So, make networking a priority, and watch as your professional and personal growth soar.
LinkedIn Lead Gen Forums: A Valuable Tool for Startups: LinkedIn Lead Gen Forums help startups reach engaged audiences, improve lead quality, and streamline the process with information pulled directly from members' profiles. Supporting and uplifting others in the startup community also leads to meaningful connections and opportunities for growth.
LinkedIn lead gen forums offer a more efficient and effective way for startups to generate high-quality leads. According to Tom Eshbacher, senior sales manager at LinkedIn Marketing Solutions, only 2% of leads convert after all the effort put into creating interest and messaging. By using LinkedIn lead gen forms, startups can ensure they're reaching an engaged audience, and the information is pulled directly from the member's profile. This leads to improved lead quality and a streamlined process, as the lead is sent directly to the company with just two taps in the LinkedIn news feed. For startups looking to generate revenue early and often, LinkedIn lead gen forums are a valuable tool. Additionally, Tom offered a special promotion for listeners, a $100 discount on their first marketing campaign with LinkedIn. Furthermore, Taj Eldridge, founder of Include Ventures, emphasized the importance of supporting and uplifting others in the startup community. He shared his experience of including black and brown fund managers and entrepreneurs in his fund, and the impact of showing up and offering support, even if it's just an hour of your time. This "pay it forward" mentality can lead to meaningful connections and opportunities for growth. Overall, the discussion highlighted the value of utilizing LinkedIn lead gen forums for startups looking to generate high-quality leads, and the importance of supporting and uplifting others in the startup community.
Kano Ahmad's Interconnected Sectors: Climate, Fintech, Edtech, Media, and Digital Health: Kano Ahmad, the GP and co-founder of Include Ventures, manages a fund that invests in sectors including climate, fintech, edtech, media, and digital health, emphasizing their interconnectedness and co-investing in companies like Charger Help (climate and workforce) and Ethocapital (climate and ETFs).
Kano Ahmad, a fan of economics and storytelling with a background in literature and rap, and the GP and co-founder of Include Ventures, sees the interconnectedness of various sectors, including climate, fintech, edtech, media, and digital health. Include Ventures, with a team of nine in LA and California, manages a $125 million fund of funds and a direct investment vehicle. While the fund of funds invests in other funds, the direct investment vehicle co-invests and makes direct investments in these sectors. Ahmad believes that these sectors are not mutually exclusive, as seen in companies like Charger Help (climate and workforce) and Ethocapital (climate and ETFs). Additionally, Ahmad, who wears hats made of sustainable products, emphasizes the intersection of climate and other areas of focus, such as health and media. The IPCC's latest report on climate change serves as a reminder of the urgency and importance of addressing climate issues and their impact on various sectors.
Climate change: A crisis for public health, economy, and social justice: Investments should address climate change, promote health, equity, and extend life for future generations, considering the interconnectedness of all sectors and communities.
Climate change is not just an environmental issue, but a public health, economic, and social justice crisis that requires collective action from all parts of society. The Associated Press report highlights the potential consequences of warming, including sickness, hunger, poverty, and danger. Every investment, no matter the sector, has an impact on communities and people, and addressing climate change cannot be done in isolation. The speaker's personal experience with lead poisoning and its connection to environmental racism underscores the urgency of this issue. The investments we make should not only provide financial returns but also contribute to extending life and creating a healthier, more equitable world for future generations. We are all interconnected, and the climate crisis demands a holistic approach to investing and problem-solving.
Empowering the Next Generation of Diverse Venture Capitalists: Inclusive Ventures invests in funds, startups, and trains emerging fund managers, with a focus on climate and culture, and supports black and brown founders through partnerships with organizations like the Hewlett Foundation.
Inclusive Ventures is a multi-faceted organization that not only invests in funds and startups but also provides training for emerging fund managers through its VC include program. The company, which includes three different parts - Inclusive Ventures, VC include, and government partnerships - aims to democratize access to funding and opportunities in the venture capital industry. With a personal stake in creating a better future for the next generation, Inclusive Ventures focuses on climate and culture, investing in areas such as energy, transportation, smart cities, and supporting black and brown founders. Through its partnerships with organizations like the Hewlett Foundation, it has announced the support of 10 climate funds led by diverse individuals in the US and Europe. The company's founders came from backgrounds in journalism and finance, bringing a unique perspective to their work as investors and capital activists.
Investing in sustainable areas: Collaborate between public and private sectors for impactful investments in intimates, food innovation, transportation, and energy management for personal health and environmental benefits. Embrace geographic diversity to foster innovation and promote equality.
The future of investing lies in collaboration between the public and private sectors, particularly in areas related to intimates, food innovation, transportation, and energy management. The speaker, an investor, emphasizes the importance of investing in these areas due to their potential impact on personal health and the environment. He also highlights the significance of geographic diversity in fostering innovation and promoting racial and gender equality. A personal anecdote about transitioning from viewing sustainability as "tree hugger stuff" to recognizing its profound importance, which occurred through his involvement with a fashion company and later wine industry, underscores the evolving nature of these industries and the need for continued investment and innovation.
Climate change's far-reaching impacts: Climate change affects various industries, causing both challenges and opportunities. It's crucial to broaden our perspective and communicate implications clearly to all ages.
Climate change impacts various industries in unexpected ways, and it's essential to consider the secondary and tertiary effects. The wine industry, for instance, faces challenges due to droughts and other climate-related issues, which in turn affects fashion, film, and music industries. We need to broaden our perspective on climate change and communicate its implications clearly to all age groups. Moreover, it's crucial to discuss not only the negative consequences but also the opportunities, such as job creation and community development through climate initiatives. An example of this is the company Bevy, which reduces greenhouse gas emissions by offering online conferences instead of physical ones. By recognizing the interconnectedness of industries and the potential benefits of climate action, we can create a more comprehensive understanding of the issue.
Debate on focus of new climate venture funds: Investors prioritize climate solutions, regardless of hardware or software focus, and intersection with other industries is growing.
There is a debate in the climate tech industry about the focus of new venture funds, with some prioritizing hardware and software solutions over emissions tracking and tracking-only approaches. However, it's important to note that there is room for all types of investments in the sector. Some investors, like the team at Inclusion, prefer to focus on climate solutions and are not afraid of hardware. The industry is evolving, and there is a growing number of funds that are supporting a diverse range of climate-based companies, regardless of their focus on hardware, software, or emissions tracking. The ultimate goal is to see funds making investments in climate companies based on their merit and potential to make a positive impact, rather than solely based on their focus on a particular aspect of climate tech. The intersection of climate and other sectors is also becoming more prevalent, with funds investing in companies that address climate challenges in industries outside of the traditional clean tech space.
Diverse Investment in Climate Tech: VCs back hardware, PE firms explore project finance, debt financing is cheaper, grants available, govts as follow-on investors, various financial structures needed for climate tech growth
The climate tech industry is attracting a diverse range of investors, including venture capitalists who are willing to take risks on hardware companies, and private equity firms who are exploring project finance. Debt financing can be a cheaper alternative to equity for some climate investments. There's also an increasing availability of grants and other forms of non-dilutive funding for both investors and founders in the climate tech space. Collaboration between private, public, and philanthropic capital is essential to move the industry forward. Governments, as significant buyers, could potentially become follow-on investors to incentivize continued investment in climate tech. Overall, the climate tech industry requires a combination of various financial structures and partnerships to drive innovation and growth.
Shifting Attitudes and Actions in VC for Climate and Diversity: Departments are becoming more engaged, urgency for climate solutions, guard is changing, focus on diversity and fresh perspectives, immediate action and innovative solutions required.
There is a significant shift in attitude and action towards addressing climate change and promoting diversity in the venture capital industry. The Department of Energy, Commerce, and other departments are becoming more engaged, and there is a growing willingness to embrace new ideas and think beyond the status quo. The urgency for climate solutions cannot be overstated, and founders are looking for investments that can bear fruit within the next decade. The guard is changing, with a focus on intellectual and experiential diversity to bring fresh perspectives to the table. The venture capital industry is evolving, and conversations around race, gender, and climate that were relevant 20 years ago still need to be addressed. The need for immediate action and innovative solutions is more critical than ever.
Investing in climate solutions and community involvement: Focus on climate solutions, affordability, and community involvement for positive impact. Connect with Taj Ahmad on Twitter and LinkedIn, join SaaS Syndicate, apply to Remote Demo Day, and learn to invest with Chris Sacca.
Investing in climate solutions and involving communities is crucial for making a positive impact. Taj Ahmad, an investor, emphasized the importance of focusing on the solutions these companies provide rather than just their fundraising announcements. He also highlighted the need for affordable options in the EV market to make sustainability accessible to all economic communities. Ahmad also stressed the importance of community involvement in this space. For those interested in connecting with him, he can be found on Twitter @AkanoAhmad and LinkedIn. Additionally, for founders of SaaS companies looking to raise funds, check out the SaaS Syndicate, and for those with early-stage startups seeking investment, apply to Remote Demo Day. And for those wanting to learn how to invest in startups from the world's greatest angel investor, Chris Sacca, head to angel.university.
