MDSV Capital

We recently posted about the trend of startups with newfound AI-driven operating leverage and capital efficiency shunning traditional later-stage venture investment. Is the latest announcement by CRV more evidence of this happening in the market?  CRV (formerly Charles River Ventures) just decided to return $275M in uninvested capital to LPs from its $500M Select fund for mature companies, citing the overvaluation of late-stage deals as the deciding factor. In the last two years, we’ve seen a series of start-ups scale to $20M, $40M, and even $60M+ on seed financing of less than $10M (the #SoloSeed phenomenon). All through utilizing advanced AI & automation technologies in their internal operations to scale to unprecedented revenue levels with very low headcount. Simultaneously, we have seen later-stage Series-B, Series-C companies re-tool their internal operations with AI similarly to drastically cut costs and increase efficiency.  The common thread is that all these companies opted 𝗻𝗼𝘁 to take traditional later-stage VC dollars from the usual suspects. Is this a sign of what’s to come in VC? Is AI actually disrupting VC? What will the impact be for large, later-stage venture funds? And what is the impact on LPs who want to be in the outlier companies of tomorrow? #VCInvesting #InvestInVentureCapital #AI #InvestmentStrategy

Word.

Approximately half of the top-performing venture capital managers by vintage cohort since 2001 have been emerging manager funds (EMFs), defined as firms that have raised up to three funds. This data from Preqin, reported by the StepStone Group, aligns with their own findings from proprietary data – that smaller funds tend to outperform larger ones. What does this mean for LPs looking to invest in venture capital? Venture is no longer an ‘access class’ where long-time stalwarts drive all returns. Armed with agility, fresh perspectives and the ability to tap into early-stage opportunities, new EMF talent is generating Alpha, and more LPs are looking for ways to navigate the emerging manager ecosystem. At MDSV Capital, we are tapped into the emerging manager network in several ways - through LP commitments in EMF funds, co-investments in EMFs’ top-performing outliers and our curated online EMF community, The Promontory. Learn how we deploy our 𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗠𝗮𝗻𝗮𝗴𝗲𝗿 𝗔𝗹𝗽𝗵𝗮 𝗮𝘁 𝗦𝗰𝗮𝗹𝗲 strategy in the MDSV Emerging Outliers Fund: https://lnkd.in/dtYu6sMv #VentureCapital #InvestInVC #EmergingManagers #EMFs

Our Managing Partner, Michael Downing, discusses emerging manager hunger with fellow panelists Seyonne Kang of the Stepstone Group and Ben Choi of Next Legacy Ventures on a Fund of Funds panel moderated by Jason Calacanis at the Liquidity Summit 2024. Listen to the fascinating panel discussion on ‘This Week in Startups’: https://lnkd.in/gPYM7N5E Learn how we help institutional LPs identify and invest in a portfolio of top-1% emerging managers to achieve 𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗠𝗮𝗻𝗮𝗴𝗲𝗿 𝗔𝗹𝗽𝗵𝗮 𝗮𝘁 𝗦𝗰𝗮𝗹𝗲: https://lnkd.in/gM6pAKza

“Smaller funds typically have higher TVPI than larger funds of the same vintage,” concludes Carta based on hard data. This fresh analysis recognizes the impact of emerging manager funds (EMFs) on driving venture returns and corroborates our own investment thesis. Learn more about our Emerging Manager Alpha at Scale strategy: https://lnkd.in/gD86jESm #EmergingManagerFunds #VentureInvesting #VentureCapital #InvestInVC

Late-stage mega funds are no longer the default way institutions invest in venture. The preference is turning towards early-stage funds that can generate the >5x returns most institutional investors need to justify locking up capital. In contrast, late-stage funds have been returning S&P 500-type returns with notable disruption during the 2021 time period. This insightful analysis is by Renee Hanna, Managing Director of Investments at Baylor University in a recent 10X Capital podcast. Hanna shared with David Weisburd how the Baylor endowment strategy has migrated to investing in smaller funds earlier in their fund lifecycle to harness their potential to generate the outsized returns expected in the venture asset class. Baylor’s endowment has outperformed the Ivy Leagues as a result of this and other investment decisions afforded by the nimbleness of their $2B fund.   Where is alpha in venture? The same place it has been for the last two decades – in sub-$100M emerging manager funds (EMFs) that continue to outperform in terms of TVPI, IRR and frequency of outliers, according to data from Cambridge Associates, Prequin and Pitchbook. How can institutional investors with a large average check size tap into the early-stage market at scale? MDSV Capital addresses this need through its  𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗠𝗮𝗻𝗮𝗴𝗲𝗿 𝗔𝗹𝗽𝗵𝗮 𝗮𝘁 𝗦𝗰𝗮𝗹𝗲 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆 that provides LPs exposure to the top 1% of emerging manager funds and direct investment access to the outliers from their portfolios. Connect with us to learn more about our strategy: https://lnkd.in/gM7j_2TS Listen to Hanna and Weisburd discuss the Baylor endowment investing strategy on the 10X Capital podcast: https://lnkd.in/gExnjfE3 #investmentstrategy #ventureinvesting #emergingmanagerfunds #investors

2024 has witnessed the birth of 38 unicorns, according to TechCrunch, and 84% of them had an emerging manager fund (EMF) on their cap table at the earliest financing. This ability of emerging managers to back future outliers has stood the test of multiple innovation cycles. Going back to Silicon Valley’s 2008-2012 boom, EMFs have consistently been the first capital into outliers, outperforming larger funds in terms of returns and frequency of returning capital, according to data from Prequin, Pitchbook, and Cambridge Associates. 92% of the 1,400+ unicorns emerging from the last 18 years were first backed by EMFs. A large number of the EMFs who backed the 2024 unicorns are part of MDSV’s curated network of top-performing EMFs. We partner with our community of EMFs to source and invest early in high-velocity companies to generate alpha for our LPs across the lifecycle of these exceptional outliers. Reach out to us to learn more about our strategy: https://lnkd.in/gF9242DA Read the TechCrunch article about 2024 unicorns: https://lnkd.in/gMDbdE6m #unicorns2024 #investmentstrategy #emergingmanagersfund #financing

We had a great turnout at the MDSV and VC Nest co-hosted Emerging Managers and LPs Happy Hour yesterday! Our Managing Partner, Michael Downing, launched a spirited discussion on how emerging manager funds can distinguish themselves and attract LPs, alongside Alex Tonelli and Joo-Lee Lim. The event was attended by leading emerging manager funds and some of the most active family offices and fund-of-funds investing in emerging managers, such as Makena Capital Management, LLC, Gopher Asset, High Water Venture Partners, Hanwa, Lionheart Ventures, Next Legacy Partners, Fiat Ventures and Cantos Ventures.   Subscribe to our newsletter for invitations to future events as well as exclusive content and investment opportunities: https://lnkd.in/gQsD6s6q #EmergingManagers #Investing #HappyHour #MDSVEvents

Change is afoot…

𝗔𝗻𝘀𝘄𝗲𝗿: They both turned down $100M+ checks from competing growth-stage VCs Why would they do that? 𝗕𝗲𝗰𝗮𝘂𝘀𝗲 𝗔𝗜 𝗶𝘀 𝗱𝗶𝘀𝗿𝘂𝗽𝘁𝗶𝗻𝗴 𝘃𝗲𝗻𝘁𝘂𝗿𝗲   The very AI technologies that define this new innovation supercycle are empowering high-velocity companies to avoid traditional venture growth investment. Company A: $80M revenue with 16 employees and only pre-seed funding (aka a ‘Solo Seed’ company) Company B: $200M+ revenue and 80% YoY growth with Series C funding What do these two companies have in common? 1. They both implemented internal operational AI and automation technologies to scale their businesses with unprecedented efficiency and low headcount 2. They both turned down traditional growth equity VCs competing to write them $100M+ checks - 𝗛𝗼𝘄 𝘄𝗶𝗹𝗹 𝘁𝗵𝗶𝘀 𝗶𝗺𝗽𝗮𝗰𝘁 𝗹𝗮𝘁𝗲𝗿-𝘀𝘁𝗮𝗴𝗲 𝘃𝗲𝗻𝘁𝘂𝗿𝗲 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗳𝘂𝗻𝗱𝘀? Are they no longer needed in this new AI driven market? Where will those billions in raised capital be invested? - 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗱𝗶𝘀𝗿𝘂𝗽𝘁𝗶𝗼𝗻 𝗶𝗺𝗽𝗹𝘆 𝗳𝗼𝗿 𝗜𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻𝗮𝗹 𝗟𝗣𝘀 𝘄𝗵𝗼 𝗼𝗻𝗹𝘆 𝗶𝗻𝘃𝗲𝘀𝘁 𝗶𝗻 𝗹𝗮𝘁𝗲𝗿-𝘀𝘁𝗮𝗴𝗲 𝗴𝗿𝗼𝘄𝘁𝗵 𝗳𝘂𝗻𝗱𝘀? Will they miss out on the companies defining this new innovation cycle and see a drop in investment returns? Connect with us to understand how to adapt as LPs to this new reality: https://lnkd.in/gJT_B9aR #AIInnovation #InvestinginAI #VentureInvesting #VentureCapital #VCFunds