The paradox of 2020 VC is that the largest funds are doing the smallest rounds
0Reported today on TechCrunch
For the full article visit: https://techcrunch.com/2020/01/17/the-paradox-of-2020-vc-is-that-the-largest-funds-are-doing-the-smallest-rounds/
The paradox of 2020 VC is that the largest funds are doing the smallest rounds
I talked yesterday about how VCs are just tired these days. Too many deals, too little time per deal, and constant hyper-competition with other VCs for the same equity.
VCs are just tired
One founder friend of mine noted to me last night that he has already received inbound requests from more than 90 investors over the past year about his next round - and he's not even (presumably) fundraising. "I may have missed a few," he deadpans - and really, how could one not?
All that frenetic activity, though, leads us to the paradox at the heart of 2020 venture capital: It's the largest funds that are writing the earliest, smallest checks.
That's a paradox because big funds need big rounds to invest in. A billion-dollar fund can't write 800 $1 million seed checks with dollars left over for management fees (well, they could, but that would be obnoxious and impossible to track). Instead, the usual pattern is that as a firm's fund size grows, its managing partners increasingly move to later-stage rounds to be able to efficiently deploy that capital. So the $200 million fund that used to write $8 million Series As transforms into a $1 billion fund writing $40 million Series Bs and Cs.
That's logical. Yet, the real logic is a bit more complicated. Namely, that everyone is raising huge funds.
As this week's big VC report from the National Venture Capital Association made clear, 2019 was in many ways the year of the big fund (and SoftBank didn't even raise!). Twenty-one "mega-funds" launched last year (defined as raising more than $500 million), and that was actually below the numbers in 2018.
All that late-stage capital is scouring for late-stage deals, but there just are