Victor Orlovski

🤖 I asked Claude by Anthropic for analysis of how many venture capital firms are needed worldwide, and here is the answer. Wow. 🤯 To estimate the need for new venture capital firms worldwide, let's approach it from both a top-down and bottom-up perspective, considering the expansion of the model to more cities, regions, and industries. ⬇️ Top-down perspective: Global coverage: Aim to cover not only the major cities but also smaller cities and regions with potential for innovation and entrepreneurship. Assume a target of 1,000 cities and regions worldwide. Diversification across industries: Expand the focus to include a wide range of industries such as technology, healthcare, energy, agriculture, education, and more. Assume an average of 10 key industries per city or region. Venture capital firms per industry per location: Estimate that each industry in each city or region would need an average of 5 venture capital firms to support startups across various stages and specializations. Calculation: 1,000 cities/regions × 10 industries × 5 firms per industry = 50,000 venture capital firms needed globally. Existing firms: Assuming there are currently around 10,000 venture capital firms worldwide, this leaves a need for 40,000 new firms. ⬆️ Bottom-up perspective: Startup density: Consider the number of startups per capita in thriving startup ecosystems like Silicon Valley, which has approximately 1 startup per 1,000 people. Assume a global population of 8 billion and a target of 1 startup per 10,000 people in the expanded model. Number of startups: With a global population of 8 billion and a target ratio of 1 startup per 10,000 people, the goal would be to support 800,000 startups worldwide. Venture capital firms per startup: Estimate that each startup would need support from an average of 2 venture capital firms throughout its lifecycle, considering different stages and specializations. Calculation: 800,000 startups × 2 firms per startup = 1,600,000 venture capital engagements needed. Venture capital firm capacity: Assume that each venture capital firm can effectively manage an average of 40 engagements at a time. Calculation: 1,600,000 engagements ÷ 40 engagements per firm = 40,000 venture capital firms needed globally. Existing firms: Assuming there are currently around 10,000 venture capital firms worldwide, this leaves a need for 30,000 new firms. Combining the perspectives: The top-down approach suggests a need for 40,000 new venture capital firms, while the bottom-up approach suggests 30,000. As a middle ground, we can estimate a need for approximately 35,000 new venture capital firms. Adjusting for potential overlap and inefficiencies, a more conservative estimate would be around 25,000 to 30,000 new venture capital firms needed worldwide to expand the model to more cities, regions, and industries.

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📝 FOUNDER fundraising hack = write an investment memo for VCs (template linked below). Raising VC is a multi-step sales process. First you need to convince a single partner to invest, and then that partner needs to bring your deal to Investment Committee (IC) to convince the other partners. The initial VC partner (aka deal champion) will write an investment memo to convince the other partners to vote for your deal during IC. If a VC will write their own memo, why write one for them? Three reasons: 1. Control the frame = dictate how your story is told 2. Signal insider status = show you understand how VCs think 3. Reduce friction to $$$ = VCs will copy/paste from your memo to theirs 😂 🪟 Control the frame There are good ways and bad ways to frame your startup. It's possible that a well-meaning VC will write a memo that frames your startup in sub-optimal ways. The less experience and domain knowledge a VC has, the higher the risk. You want to arm your deal champion with ammo to tell a bullet-proof investment story. Don't leave this up to chance. Write a memo and share it with the VC to make sure they hit the right talking points in their own memo. 🥼 Signal insider status I love when founders provide a written memo alongside the usual pitch deck and financial model. It shows they're clued in to the game. They understand how VC firms work. They're an insider. VCs want to invest in insiders, because insiders are more likely to raise subsequent financing and get to an exit. Outsiders are learning how the game works for the first time and will make rookie mistakes on the VC's dollar. Don't be an outsider. 💵 Reduce friction to $$$ You know how great product companies obsessively reduce the # of clicks a customer needs to make before paying for the product? Speed matters. A 2006 Amazon study found that every 100ms in added page load time cost them 1% in sales. VC is no different. The faster you can make the diligence process, the more likely you'll be able to raise capital. Your fundraising collateral is your product, and a memo is a key way to reduce time to funding (TTF). Every VC will have a set of questions during diligence. Answer them up front in a memo, and watch your prospective investors eyes light up. Deals can be a grueling process involving several late/all-nighters, so the deal team will be thankful if you save them work and make their lives easier. Here is a link to the investment memo template I use. Feel free to repurpose for your own needs: https://lnkd.in/ekGBjGWs

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Interesting post, Frank Rotman . I'd argue that rather than try to use your markups as traction for raising funds 2, 3 and 4 , emerging managers should consider helping their startups get earlier liquidity via suggesting listing on growth exchanges like the Toronto Stock Exchange, the LSEG (London Stock Exchange Group) or the ASX . DPI > IRR or TVPI when it comes to LPs. A VC that returns >2x in 7 years to LPs is going to have a much easier time raising the next fund than a fund with an IRR or TVPI of whatever. The entire vc industry has drank the kool aid that companies should be doing >$300m in ARR before listing. The LP community needs / wants liquidity before the 12 to 14 years its currently taking to IPO in the US, however. Startups can list on the above exchanges doing $20m in revenue with 30% YoY growth, they don't have to deal with Sarb Ox compliance and follow on raises are orders of magnitude easier for a listed company. Why? There's so many more public market investors than private market investors. The only other option for Emerging managers to stand out is by getting DPI via selling secondaries to a fund like Practical Venture Capital Chris Mayo, CFA Neil Shah Delilah Panio Amit Verma Dave McClure Aman Verjee, CFA Karin Tenenboim

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“Venture distribution cycles have elongated to the point that LPs now risk a decade of negative cash-flow on many of their VC relationships. That's not sustainable for institutions with large spend requirements, such as a university endowment.” A lack of liquidity in VC is proving to be a major issue for some endowments. There are plenty of medium sized endowments who went full in on the Yale model, but have a lot more concentration risk due to size. That’s a tough game to play when you have required outflows. https://lnkd.in/ewkhEDSi

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How Do Venture Capitalists Make Decisions A foundational 64-Page study that surveyed 850+ VCs at 681 firms to learn how they make decisions across eight key areas: • Deal Sourcing • Investment Selection • Valuation • Deal Structure • Post-Investment Value-Add • Exits • Internal Organization of Firms • Relationships with Limited Partners "In this paper, we seek to better understand what Venture Capitalists (VCs) do and, potentially, why they have been successful. We do so by surveying almost 900 VCs and asking how they make decisions about their investments and portfolios. We also explore cross-sectional variation in VC practices across industry, stage, geography and past success." Credit: Paul Gompers, Will Gornall, Steven Kaplan, Ilya Strebulaev, Brian Ortiz Join 80,000+ founders and VCs who receive these insights in my weekly newsletter: https://lnkd.in/dCpgAYjt

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🔥 🔥 🙌 🙌 🎆 🎆 I'm *fired up* to share this. #VentureIQ by the 9point8 Collective is officially live. We've heard from investors of every size and type that it takes too long and costs too much to evaluate deal flow; this limits the scale and speed at which these capital allocators can operate. To address this problem, we've created an innovative solution which delivers high fidelity diligence information near instantaneously. From a time and cost perspective, VentureIQ immediately creates leverage to look at more deals - and creates space to focus deeply on the most meaningful opportunities. To learn more, you can reach out to me directly or visit VentureIQ.ai. I'll close with some thoughts on my team, to whom I'm so grateful. Blair Merlino, Neal Ghosh and Evan Allen don't just talk about interesting concepts, point out problems or pontificate on what could be. Instead, they identify a problem, frame and validate the solution, and do the work to bring it to reality. VentureIQ is the best example I've seen of this, to date. #VentureCapital, #FamilyOffice, #PrivateEquity #CorporateDevelopment #Startups

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What Research Do Analysts/Associates Conduct for a VC Fund? In the realm of Venture Capital, the term "research" is frequently mentioned, often referring to the examination of secondary sources and the synthesis of insights from platforms like CBInsights, Pitchbook, Crunchbase, and others. If this were the extent of it, VC funds could conceivably rely solely on tools like ChatGPT or other AI technologies instead of employing Analysts or Associates. Drawing on my 15 years of experience in global market research and nearly a decade focused on VC research, here are the research tasks typically undertaken by Analysts and Associates: - Industry Market Research (i.e. assessing market size, funding trends, key players, etc.) - Company Analysis (ie. evaluating pipeline and portfolio companies) - VC Trends (i.e. tracking exits, fund news, tracking funding) - News Monitoring (i.e. staying up to date on geopolitical shifts, stock market movements, industry developments, portfolio news, etc.) - Due Diligence (i.e. examining exit scenarios, analyzing competitors, etc.) In essence, the research conducted by Analysts/Associates should offer actionable insights that demonstrate its relevance to the fund's objectives and provide guidance on how the fund can leverage such information effectively. #research #Analyst #VC #VentureCapital #Associate

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VC’s Biggest Issue Altimeter’s Jamin Ball discusses what may be one of venture capital's most pressing challenges: the shifting alignment between VCs and founders. As funds grow from millions to billions, the dynamics that once drove shared success are evolving—and not always for the better. 1️⃣ How VCs Make Money: • 2% Management Fee: Covers operational costs like salaries and rent, providing steady income regardless of fund performance. • 20% Carry: A performance-based profit share that rewards VCs only when investments achieve major exits. 2️⃣ The Historic Power of Alignment: • Smaller funds in the past meant lean management fees, pushing VCs to rely on carry for wealth creation. • This created mutual goals: both VCs and founders needed big exits to achieve success. 3️⃣ The Billion-Dollar Shift: • Massive funds today generate lucrative management fees, reducing dependence on carry. • Raises questions: Is fund size prioritized over driving transformative exits, potentially misaligning long-term goals? 4️⃣ A Growing Concern: • Despite venture’s expansion, the "2 and 20" model remains unchanged. • Larger funds risk weakening the founder-VC alignment, impacting the future of startup innovation and wealth creation. How do you think the evolution of VC economics will impact startups and innovation in the future?

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What Dave McClure is building resonates well what we are doing with our Siena Secondary Fund. Although one focuses on fund stakes and the other company positions, the journey is the same - need to educate the market about what is #VC #secondary and how to benefit from it...

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🌟 𝗩𝗖 𝗜𝗻𝘁𝗲𝗿𝘃𝗶𝗲𝘄 𝗘𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹𝘀 𝗳𝗼𝗿 𝗙𝗼𝘂𝗻𝗱𝗲𝗿𝘀 🌟 Preparation can make all the difference in a venture capital interview. Here’s a guide to nail it: 📝 Prepare Your Answers: Common questions include your company’s mission, market size, and competitors. 📊 Highlight Metrics: Share key metrics like user growth and revenue to demonstrate traction and success. ⭐ Express Future Vision: Outline your short-term and long-term goals for your company’s growth. Equipped with detailed responses, you can approach your VC interview with confidence. #StartupPreparation #EntrepreneurAdvice #VCSuccess

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VC Metrics Cheat Sheet If you're involved in venture capital, understanding key fund metrics is crucial. Here’s a distilled cheat sheet with some essential metrics to keep at your fingertips: Internal Rate of Return (IRR) - Measures the profitability and efficiency of investments. Multiple on Invested Capital (MOIC) - Assesses how much value is created per dollar invested. Cash-on-Cash Return - Shows the actual cash return on investments. Distribution to Paid-In (DPI) - Tracks the cash profits returned to investors. Total Value to Paid-In (TVPI) - Offers a comprehensive look at fund performance, combining DPI and remaining value. Net Asset Value (NAV) - Indicates the current value of the fund’s assets minus its liabilities. Capital Called - Tracks the total amount of committed capital that has been requested from investors. Capital Distributed - Measures the total distributions made to investors to date. 🌟 Why It Matters: These metrics not only reflect the health and performance of a VC fund but also guide strategic decision-making and investor communications. 📈 Elevate Your VC Knowledge: Familiarize yourself with these metrics to navigate the venture landscape more effectively. Share this with your network to spread the knowledge! ------ 🔔 Follow me for insightful and entertaining posts about #Startups #VentureCapital #Entrepreneurship. ------ 🎁 Get investor lists, free resources, and services for your fundraising:  https://lnkd.in/g4ygxG6i ------ 🤝 Find your co-founder: https://lnkd.in/e9DyVmkE  ------

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How do we master metrics for fund success? We'll find out together in a new deep-dive masterclass on VC Fund Terms & KPIs on November 26th, together with Marc Penkala, Founding GP of āltitude. What can you expect? 👉 the fundamentals of VC fund terms and KPIs 👉 key metrics to measure & when to track them 👉 what LPs prioritise & what GPs track internally 👉 how to set up a dashboard to track fund performance 👉 practical examples of fund portfolio dashboard in action Join EUVC community to access the full masterclass and get early access to the next live masterclass on this topic! More details below. https://lnkd.in/dduVq4tb #venturecapital #fundsuccess #fundmetrics #portfoliomanagement

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Why First-Time VC Managers Can Outperform Experienced Ones Institutional investors, and most of the Limited Partners (LPs) investors to the VC Funds, often prefer seasoned managers who have a proven track record of success and strong returns. While experience can be valuable, this principle doesn't always hold true in the VC industry. Experienced managers often operate based on mental models constructed from previous facts and information. While these models can provide valuable insights, they can also create flawed perceptions of new products or technologies. For instance, an experienced VC manager might dismiss an innovative idea by thinking, "It won't work because previously it didn't work." This reliance on past experiences can prevent them from recognizing groundbreaking opportunities. Before Elon Musk's success with Tesla, many investors were skeptical about electric cars. Venture capital investing is heavily influenced by mathematics and statistics, particularly the power law distribution. Success often depends on a small percentage of investments that yield significant returns. Therefore, having a well-diversified portfolio is crucial. A VC fund investing in, say, 40 startups can manage risk effectively because even if only 5% of those startups succeed, the returns can cover all fees and generate substantial profits. The returns might more higher if the fund operates in Emerging markets where operation costs for startups are low compared to more developed countries. Well-structured VC fund mitigates this risk through diversification and the statistical probability of success. While experience is valuable, it's not the sole determinant of success in venture capital investing. First-time managers can achieve results comparable to or even surpassing those of experienced managers if they avoid being limited by outdated mental models, employ sound statistical principles, and maintain a diversified portfolio also adding smart VC fund principles. Future Laboratory Ventures

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That’s very accurate. PE Buyout Funds. Publicly traded parent companies with corporate VC arms scooping up the most profitable sector-specific subsidiaries. Fund of Funds get more popular and much more strategic. Family Offices dominate the landscape. Not investment advice.

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Well done, Frank. Would you consider posting these as articles on LInkedIn too? I lost access to Twitter (X) and have not been able to get any help from their support desk - I know a few others who have had the same experience. This is a topic Lisa Morales-Hellebo and I think about a lot as we build REFASHIOND Ventures: The Industrial Transformation Fund.

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Pragmatism wins. China is emerging as the global leader in #AI by focusing on execution, applications and affordability over breakthrough scientific innovations. Without those principles, massive R&D and venture investments directed towards infrastructure can yield negative ROI. This dynamic could also impact emerging technologies like #Web3, where infrastructure is outpacing actual use cases. More about this phenomenon from a review of two global ecosystems on different trajectories of AI adoption, from Jen Zhu Scott of IN. Capital in an op-ed in the Financial Times: “Such restraints mean Chinese companies have more incentives to produce AI services built on smaller large language models, instead of training them on the entire internet. They may lack the brute strength of their larger counterparts but they are cheaper to create and run. China’s tech ecosystem is grounded in such pragmatism. Research that cannot be turned into a product within the foreseeable future, such as artificial general intelligence, struggles to attract funding. This means that while the US ecosystem has the edge in groundbreaking innovations, China excels in execution: finding product-market fit, scale, and making applications highly affordable.”

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