The State of Venture Today | Roundup Clip

Transcript

Maybe we could close on just venture in general. I know we've talked about it a good amount, but you know, it seems like it's a relatively challenged like Philipe Lefant was talking about it in this so he's one of the uh the co-founders of KOTU um large asset manager hedge fund. Uh they do a lot of VC as well, but it was just describing the challenge that VC is going through um as an asset class. A lot of it is because um there was some pretty irresponsible investing that happened in 2021 and 2022 that we're still working through. A lot of it is because companies are choosing to stay private longer. Um, but either way, it's more and more difficult. Um, and you know, I'm curious. Uh, okay. So, maybe believe doesn't solve and you know, maybe it

still doesn't necessarily make sense for this kind of funding gap for smaller companies that might not be venture scale on the outcome side of things, but I am curious. Do you think something has to break in venture if companies are just staying private forever or no? Well, first off, I don't think things break in venture. I think firms kind of like live much longer than like you you could be a venture firm that is still technically active for a very very long time before you literally have to shut your doors just because these are 10-year funds. You're you're keeping the lights on with management fees if you have them. And maybe you can't raise your next fund, but maybe you're also just like not going to be able to raise your next fund for the next few years and you're going to ride it out to see if you can raise

again in two or three years from now. That's a long period of time. And so I think the the balloons don't pop. They very very slowly dissipate in venture. And I think that that's what we're seeing. We're seeing a lot of the bad deals, a lot of the bad firms slowly dissipate, not to be able to raise more. They're letting go of people. They're kind of, you know, like slowly trying to land the plane, get capital back to LPS so that maybe in a couple years they can raise another fund. But in the crypto space, I think things happen a lot faster. And I think you're going to start to see a lot of funds um you know make announcements or maybe not even make announcements on their fundraises that are much much smaller than their previous funds just because there haven't been returns. There haven't been

there there may be TVPI but there's not DPI um which is like value in the fund but not distributions to investors. Um or um there may be kind of like an institutional bias to wait uh to Vance's point on some of these bills getting actually passed before they commit to the next fund. Um, like I think that could that could very much help from an LP perspective. Um, but you know, one one thing that um I don't think we've talked about yet, but is kind of going on in the endowment world is there's there's two things. Number one, seems like there's going to be an endowment tax. Um, now is this 8%, is it 14%, is it 20%. They don't exactly know, but there will be some sort of

foundation and endowment tax. Um, and endowments, you know, historically like the Ivy Leagues have the biggest endowments because they've been around the longest. And what they do is they fund the university from net investment returns from the endowments. They've also been probably the biggest um LPs in many of the hedge fund, private equity, and venture fund ecosystems. And so, you know, when you when you get to a certain size or a certain level, you know, the thing is to go to the endowments to to raise funds for your fund. And uh Yale I think two weeks ago announced that they are selling their $6 billion private equity interests um which includes venture capital and they're selling six

billion of it uh to get liquidity in preparation for this tax and potentially some of the other liquidity issues that they they might be running into. And historically Yale is the first to do anything in the endowment world. They were the first to go heavy into private equity and and venture capital in the '90s. um actually in the late 80s. Um they were the first to kind of do crypto uh from an endowment perspective and everybody looks at them because of the you know the guy who ran the the endowment for the longest time David Swenson he he literally wrote on endowment management and so everybody kind of looks to Yale as to what is going on. I I would imagine just based on the fact that they are selling that there will be tens of other endowments that are also looking to do this and

anecdotally we've heard murmurss of this actually being the case. So I I think there's going to be kind of a sea change from an LP standpoint. In a lot of ways this probably affects private equity and hedge funds more so than venture just because those industries are just much much larger than venture. But I I think venture and and more of the traditional venture will will take the brunt of this as well. It's interesting because venture is also happening. This is also happening in the venture ecosystem at the same time as AI is really booming. And so I think what will probably be the case is there's just it will extend and um accelerate the dispersion that was already happening. If you're one of the top five or maybe 10 firms in in the

traditional venture space, if you're, you know, founders fund, Sequoia, um, you know, you're going to be able to raise and you're probably going to raise more because there will be less investors, but there will be more dollars flowing to you because they're just they won't want to give to the like tier 2, tier three or etc. uh, funds. they just want to give to the the main ones because there's only a certain number of deals that are going to become open AI type opportunities and that I think will more quickly kill a lot of the tier 2 firms that are probably struggling to raise. Um and and so this I think will happen in the traditional venture space faster than people expect. But I think this is already happening in the crypto space as well. And um yeah, it's just it's been interesting to see and obviously we have

you know a lot of LPs that we have these conversations with. So a lot of this is kind of direct from source. Um but it is uh it's an amazing time to be in the US. It's also an amazing time to be in the fund management space because everything is changing week to week. Yeah, those types of uh, you know, very fast-paced environments are really fun and there's a lot of opportunity. Well, sometimes they're fun for some people, but there's also a lot of opportunity um if you're hungry and competent. So, nice bullish framework. Um yeah dis dispersion is is something very