Venture Capital is Changing…Again

That Was The Week 2021, #19

By Keith Teare • Issue #19 • View online

Back in the day, Venture Capital was simple. Raise a fund, pick the best startups and invest in the A round, follow on at the B and C, when revenue gets to a certain point (a variable) go and do an IPO, possibly preceded by a mezzanine round. Exit and go again. Not any more.



A more personal editorial this week.

Back in the day, Venture Capital was simple. Raise a fund, pick the best startups and invest in the A round, follow on at the B and C, when revenue gets to a certain point (a variable) go and do an IPO, possibly preceded by a mezzanine round. Exit and go again. Not any more.

There was one type of entity at the time, a venture capital fund. And startups had one place to go, Sandhill Road in Menlo Park, California.

I did it myself, more than once.

But in 2021 there is a far more complex board that the game of venture is played on, and it is evolving all of the time. To really grasp it you have to go back to the year 2000 and the 5 years following. The bubble burst in early 2000. The one size fits all venture capital ecosystem imploded and stopped investing almost instantly.

Known as the “nuclear winter” among insiders, this period lasted until 2005. At that point, as web 2.0 began to take shape, several trends were born. These include incubators and accelerators, super angels, and Micro VC funds.

By 2007 all three of these were well established. Y Combinator was founded in 2005 by Paul GrahamJessica LivingstonTrevor Blackwell, and Robert Tappan Morris. Ron Conway and SV Angel became very active in that period. Jeff Clavier formed his first fund — SoftTech VC (now UnCork) in 2004 and was actively investing. TechCrunch was born.

Today there are three distinct asset classes in venture. The seed, the venture, and the growth asset class. And the landscape of funding now embraces a sequence of events very different from the A, B, and C round sequence of the 1994–2005 era. Startups do Pre-Seed, Seed, and even Seed Extension rounds before reaching an A round.

Growth investing emerged at scale around 2009 when Yuri Milner’s DST made a $200m investment in Facebook at a $10 bn valuation ( Since that time many private equity players have adopted the strategy of investing large sums, late stage, into proven companies. Crunchbase shows that in 2020 the three asset classes looked like this. Over 1250 Micro VC funds, over 900 Accelerators or Incubators, and over 8000 Angels that have made investments in the last 2 years. In 2020 alone the asset classes behaved like this:

  • Seed Asset Class
    • Pre-Seed Funding $9334m
    • Seed Funding $12.5 bn
  • Venture Asset Class
    • Series A-B Funding $86 bn
  • Growth Asset Class
    • Series C and After Funding $109 bn

The people and funds driving these three asset classes are very different. But this week we include two articles pointing to further changes in the venture ecosystem. Firstly Tiger Global is covered by Everett Randle in his Substack newsletter. It is a lengthy and substantive look at Tiger global’s business model and the ability to deploy large sums of capital rapidly while making venture returns for its LPs. That is supplemented by Softbank Vision Fund coverage from Barron’s describing its report of $46 bn profit from its $100bn fund.

Growth investing is now a habit that PE firms and Hedge Funds specialize in. Later in this week’s newsletter, we cover SPACs, which are simply another form of growth investing.

My own preoccupation is with the seed stage asset class. Two weeks ago when UI Path did its public offering I was an interested insider. My UK fund ADV is an investor in SeedCamp, the original seed investor in UI Path. And as part of its partnership with Seedcamp, ADV invested in a Special Purpose Vehicle, injecting capital into UI Path’s Series B round. Today that investment is worth close to 40x the series B price, and it is only 30 months later. I have seen even better results from my portfolio company InFarm, where, since LocalGlobe and Cherry VC (two excellent seed investors) invested, my investment has increased 136x in 48 months.

Seed-stage VCs are, when they perform well, making fabulous returns for their investors. The top-performing seed funds account for a very large % of the unicorns we see around us today. This represents a huge opportunity that was commented on, by Delian Asparouhov from Founders Fund, in response to the Tiger Global piece below:

For the past 5 years, this is exactly the opportunity I have been working on at ADV in the UK. Today a Silicon Valley team is in stealth at SiganlRank Capital and has developed data analytics (GPRank™ and CompanyRank™ ) that enables ranking of seed investors and their portfolio companies based on data going back to 2000. We strongly believe that we have found a method of injecting capital, at scale, into seed-stage GPs who consistently outperform, and then into their companies as they prove their credentials. For those of you who are in the venture space, this video explaining how GPRank™, CompanyRank™, and SPACs come together to form a new approach to venture will be of interest.

Delian has hit the nail on the head, as it were. 

Also this week, the Steve O’Hear story. Read it, you won’t be disappointed. An update on China from the Harvard Business Review and a significant section of the growing normalization of crypto currencies and blockchain, despite the spat between Elon Musk and Mark Cuban concerning Bitcoin.

More in this week’s video.

How to Play the Venture Game

Playing Different Games — The Valley of Dunning-Kruger

Or why Tiger is eating your lunch (& your deals)

The Tiger Phenomenon

Somewhere, right now, in Silicon Valley…

“So how about these Tiger guys eh?”

“Hah! You’re telling me — I heard they did [Deal X] in 24 hours after only getting a P&L for diligence and came in 25% over the founder’s asking price!”

“I heard they’re doing a new deal every 2 days! It’s completely crazy”

“Totally — good thing we’re sticking to our knitting, these hedge funds are insane”1

If you actively invest in private, high-growth technology businesses, there’s a good chance you’ve had a conversation that looks something like the above in the last 12 months. Or if you haven’t, you’ve almost certainly seen an investor on VC Twitter lamenting the state of the startup fundraising environment or joking about hedge funds’ activity in venture, myself included! • Share

SoftBank Posts Huge Gains on Vision Fund Holdings, Admits ‘Many Regrets’

Since its launch in 2016, SoftBank Group’s Vision Fund, by far the world’s largest venture-capital portfolio, has faced doubters and critics who thought the $100 billion fund was simply too large to manage effectively. And some early stumbles — in particular a large investment in WeWork that resulted in substantial write-offs — provided early evidence that the fund might not succeed as planned.

But the times have changed — and the fund is now delivering substantial returns. While he confesses to “many regrets,” SoftBank founder Masayoshi Son’s vision for the Vision Fund seems to be playing out as planned.

You can see that in SoftBank’s (ticker: SFTBY) financial results for the March 2021 fiscal year, announced on Wednesday in Tokyo. For the year, SoftBank posted net income of about 5 trillion yen, or $45.6 billion, which compares with a loss of $8.8 billion in fiscal 2020. • Share

The Steve O’Hear Story

Steve O’Hear: My decade on the front line of fintech — The Times and The Sunday Times

My rollercoaster career in technology journalism almost ended before it had begun. After doing a work placement at The Guardian while in sixth form, I was set on studying journalism at Bournemouth University but soon discovered that the local newspaper to which students were seconded was up a flight of stairs and not accessible in a wheelchair. So I switched to media production, thinking a move into TV might be my destiny. That didn’t happen either, despite the fact I got my degree. Even in the • Share

Understanding China

“Americans Don’t Know How Capitalist China Is”

An interview with Weijian Shan

Weijian Shan understands the delicate U.S.-China dynamic as well as anyone. He was born in China, and his life was upended during the Cultural Revolution, when he was sent off to do farm labor in the Gobi Desert. Eventually he came to the United States, where he earned a master’s and a PhD at UC Berkeley, worked for the World Bank and J.P. Morgan, and taught at the Wharton School. A candid observer of Asian society and business, Shan is the author of Out of the Gobi: My Story of China and America and the newly published Money Games: The Inside Story of How American Dealmakers Saved Korea’s Most Iconic Bank. Now CEO of the Hong Kong–based $40 billion private-equity firm PAG, Shan spoke with HBR Editor in Chief Adi Ignatius about the economic prospects for China and the United States. • Share

Crypto Currencies and the Blockchain Ecosystem

Legendary Investor Stanley Druckenmiller: USD Will Lose World Reserve Currency Status

In an interview this morning on CNBC’s “Squawk Box,” legendary investor Stanley Druckenmiller gave his view on the dollar’s stance as the world reserve currency and the current U.S. fiscal and monetary policy. Druckenmiller did not hold back his views on what the massive amounts of liquidity meant for the bond market, or the U.S. and its position as the incumbent world reserve currency.

“I am comfortable with it [the dollar losing reserve currency status], that is my central case,” he said.

Druckenmiller referred to the Federal Reserve’s continued monetization of the U.S. Treasury market, and the effects that the yield suppression was having on credit markets and the financial system more broadly.

“Without the Fed buying 60% of debt issued, the bond markets would be totally rejecting this,” Druckenmiller explained. “They are enabling this massive expansion in fiscal policy, and the problem is, if you end up getting inflation, and frankly even if you don’t, the debt is going to be so big…” • Share

Coinbase overtakes TikTok for #1 position on Apple app store

Major cryptocurrency exchange Coinbase’s mobile app now tops the charts for the U.S. Apple App Store.

According to the Top Charts list on the Apple App Store, Coinbase is currently the most popular app in the United States, ahead of TikTok, YouTube, Facebook, Instagram, and trading app Robinhood. Cash App, which allows users to send money and buy Bitcoin (BTC), sits in the #12 position at the time of publication, while Binance’s and Trust’s apps are at #16 and #17, respectively. • Share

Coinbase Profit Surges in Crypto Exchange’s First Report as Public Company

Coinbase Global Inc.’s profit surged in the first quarter, driven by a manic rally in bitcoin and other digital assets, the cryptocurrency exchange said in its first earnings report as a public company.

It earned $771 million, or $3.05 a share, in the quarter, up from $32 million a year earlier. Total revenue surged to $1.8 billion from $191 million. The top and bottom-line figures represent records for the company, which was founded in 2012 and is the largest bitcoin exchange in the U.S.

In early April, the company projected earnings of $730 million to $800 million on revenue of $1.8 billion.

Coinbase’s revenue and profit have largely been driven by the explosion in the popularity of bitcoin and other digital currencies. The price of bitcoin rose to nearly $59,000 by the end of the first quarter, from about $7,300 at the beginning of 2020. It hit a record high of $64,802 on April 14 — the same day Coinbase went public. • Share

Facebook-Backed Diem to Launch USD Stablecoin with Silvergate Bank

The Facebook-led digital currency project has taken another turn as the Diem Association is now launching Diem USD stablecoin in partnership with Silvergate Bank. Additionally, the non-profit is moving its base from Switzerland to the United States.

This is the third time Diem, formerly known as Libra, drastically changed its model of issuing a digital currency. It has gone from plans of issuing an asset basket-backed stablecoin to now just a simple stablecoin backed with only US dollars.

Wednesday’s press release detailed that the Diem Networks US, which is a subsidiary of the Diem Association, will run the Diem Payment Network (DPN) to facilitate the stablecoin transactions, and the USD reserves will be held by California-based Silvergate Bank.

“We believe in the future of US dollar-backed stablecoins and their potential to transform existing payment systems,” Silvergate CEO, Alan Lane said. “We’re inspired by Diem’s technology and commitment to building a regulatory compliant payment system that offers a safe and secure way to move money.” • Share

Bitcoin is durable, says BlackRock’s Rick Rieder

Rick Rieder, chief investment officer at BlackRock Financial Management, is pushing back against Telsa CEO Elon Musk’s decision to drop Bitcoin as a form of payment.

In an interview with CNBC’s Squawk Box on Thursday, Rieder said Bitcoin (BTC) had “not reached maturity yet” and still had some hurdles to overcome, like the public perception of its energy consumption and price volatility. Though he didn’t specifically mention Musk’s claims that the crypto asset comes “at a great cost to the environment,” he said BTC wasn’t “a normal, stable asset” just yet.

“I think it’s durable,” said Rieder, referring to Bitcoin. “I think it will be part of the investment arena for years to come, but some of these challenges and the volatility around it — regulatory dynamics, fiat currency concerns relative to crypto […] — are real. They will be overcome over time.“ • Share

$425bn Wiped Off Crypto Market As Musk Says Bitcoin Is Bad For The Environment

Elon Musk has released a statement saying Tesla will no longer accept Bitcoin as payment for its electric vehicles. The firm said the decision was based on the increasing use of coal in Bitcoin mining. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the […] • Share

Mark Cuban counters Elon Musk, says Mavs will continue to accept Bitcoin

Billionaire investor Mark Cuban will not be following in Tesla CEO Elon Musk’s footsteps in withdrawing support for Bitcoin (BTC) payment.

Tweeting in response to Musk on Wednesday, the Dallas Mavericks owner remarked that the Mavs will continue to accept Bitcoin, Ether (ETH) and Dogecoin (DOGE) as payment means for tickets and merchandise items. • Share

Elon Musk-owned SpaceX gets paid in Dogecoin for new mission

If you said Dogecoin would be accepted by one of the world’s largest private space companies last year….well, no one would have actually said that.

Except that today it became a reality. SpaceX, the Elon Musk-owned space exploration and transportation company will be paid entirely in Dogecoin for a commercial payload to the moon on its Falcon 9 rocket.

“SpaceX launching satellite Doge-1 to the moon next year. Mission paid for in Doge. 1st crypto in space. 1st meme in space,” wrote Musk on Twitter, attaching a “To the Moon” song featuring a Shiba Inu dog.

The post Elon Musk-owned SpaceX gets paid in Dogecoin for new missionappeared first on CryptoSlate. • Share

Sotheby’s crypto-powered auction sells Banksy art for $13M

Major auction house Sotheby’s has completed its cryptocurrency-enabled auction offering Banksy’s iconic protest artwork “Love is in the Air.”

According to the auction results, Sotheby’s sold the physical artwork on Wednesday for $12.9 million, significantly up from the originally estimated $3 million to $5 million. The physical artwork was offered at a Contemporary Art Evening Auction that also featured “Versus Medici” by Jean-Michel Basquiat selling for nearly $51 million.

Sotheby’s announced on Twitter that the auction involved a 14-minute bidding battle among four entities. The auction house emphasized that the sale marks the first time cryptocurrency was accepted as a payment option for a piece of physical artwork.

According to the auction lot page, the bidders were able to pay using two major cryptocurrencies — Bitcoin (BTC) and Ether (ETH) — through Sotheby’s partnership with Coinbase Commerce.

“The funds must be sent from an approved wallet or exchange, including: Coinbase, Coinbase Custody Trust, Fidelity Digital Assets Services, Gemini, or Paxos,” the auction house noted. • Share

EBay has officially opened its platform to NFT sales

The online sales platform eBay is now permitting the sale of non-fungible tokens (NFTs) for digital collectibles. The company told Reuters that beginning Tuesday an “NFT inventory will be provided to sellers who meet eBay’s standards.”

Users can bid on NFTs as they would for a physical item. All payments will be made in U.S. dollars — unlike other prominent NFT platforms, which usually accept ether (ETH) for NFT payments.

Many of the NFTs currently available for sale on eBay appear to be on the WAX blockchain, with sellers stipulating that buyers create a WAX wallet in order to receive their NFT. • Share

SPACs Tested

As SPAC Market Unravels, Startups Seek Alternatives

After the coronavirus pandemic jump-started demand for prescription delivery services, six-year-old Capsule Pharmacy decided to raise money to expand into new cities, hoping to target more customers who don’t want to visit pharmacies in person. One option it considered was to combine with a special purpose acquisition company, which would give it cash and a public listing at the same time. By January, the company had hired investment bank Allen & Co. to find a suitable SPAC, according to a person familiar with the discussions. • Share

Startup of the Week

Coinbase is banning salary negotiations

Coinbase banned all salary and equity negotiations for its future hiring and instead plans to offer identical pay to every employee in the same position and location in an effort to eliminate the lingering effects of early-career pay disparities.

The company announced the new policy as part of a series of steps to make its compensation more competitive and fair, according to a blog post written Monday by L. J. Brock, Coinbase’s chief people officer. “Traditionally people expect they need to negotiate for the best package after being hired in a new job. Those that do this well tend to be rewarded, and those that don’t lose out. These negotiations can disproportionately leave women and underrepresented minorities behind, and a disparity created early in someone’s career can follow them for decades,” Brock wrote. • Share

Tweet of the Week