Marc Patterson’s Post

Generalist funds are outpacing specialist funds with returning cash in this market cycle per PitchBook. While the outlook is brighter, we are realistically still in a down cycle for private markets. My guess is that there has not been a lot of cash returned to LPs over the last few years. However, funds and companies with greater exit optionality are currently carrying the day. From the article: "The turnabout in relative positions is a result of specialists being restricted to established exit routes including IPOs and strategic or corporate acquisitions, while generalists have more options for exits and may have exposure to different market regions and sectors, giving a higher probability for distributions." This will be a growing issue as many funds begin to push up against their 10-year mandate. Endeavor Colorado #privateequity #venturecapital #entrepreneurship #founders #startups #investing #innovation https://lnkd.in/ghH9CYhG

I am frequently asked: What do you expect from angel investing money-wise/ROI-wise? I don't know what the future holds, but there is a reliable and AFAIK the most cited study on angel investment returns called "Returns to Angel Investors in Groups" that can be considered a kind of KPI. The Wiltbank/Boeker research analyzed outcomes from 539 accredited angels, covering 1,137 exits across acquisitions, IPOs, and firm closures. Here's what they found: 💸 Average Return: 2.6x investment in 3.5 years – an impressive 27% IRR, rivaling private equity. 🔀 Return Distribution: - 52% of exits returned less than the capital invested. - sad truth. - 7% of exits generated 10x+ returns, accounting for 75% of all returns. Critical success factors for higher returns: 1. Due Diligence: Angels who spent 20-40 hours per deal had better outcomes. 2. Expertise: Having knowledge or access to expertise in the investment area boosted angel returns. 3. Active Involvement: Regular mentoring, coaching, and performance monitoring led to significantly better results. Angel investing is extremely risky, and this is not by any means a financial advice. Still, with the right strategy, the rewards can be substantial. 📈 The link to the source of data is in my first comment below ⬇️ #AngelInvesting #Investment #Returns #IRR #Startups #PrivateEquity

With exits scarce, nimble investors can find plenty of opportunity - as is described today in PitchBook. In order for financial markets to function normally, investors must experience exits. Unfortunately for investors, the last few years have been lacking in this area. From the article: "Mubadala, the investment arm of Abu Dhabi’s sovereign wealth fund, has raked in billions of dollars to capitalize on the exit drought in private equity, where many GPs are drowning in unsold investments and under pressure to return capital to LPs. The fund’s close comes as PE managers contend with a mounting inventory of mature assets and struggle to realize investments and return capital to LPs." There is an investment saying that in challenging markets - "cash is king." If you have access to cash, you have the ability to supply liquidity on terms that you dictate. As this situation continues, expect to see more investors moving to provide this type of liquidity. Endeavor Colorado Zeb King Tegan Stanbach Kathryn Dickson #privateequity #venturecapital #innovation #entrepreneurship #founders #startups #investing https://lnkd.in/gWeiwEMn

Our Portfolio Client Sidekick Secures £8.5m In Debt & Seed Investment To Make Private Wealth Less Private   Sidekick, a wealth management platform for the modern investor that unlocks access to financial products and services typically reserved for high-net-worth individuals, has raised £4.5 million in a seed round and £4 million via a debt facility. The combined £8.5 million will see the startup continue scaling its team and expanding its product lineup while securing a European license. Columbia Lake Partners provided the debt facility. The seed round was led by Pact VC, joined by TheVentureCity, and 1818 Venture Capital alongside previous investors Octopus Ventures, Seedcamp, and Semantic.   Matthew Ford, Co-Founder and CEO of Sidekick explains, "We’re looking to address the growing inequity of wealth creation and let the money of hard-working entrepreneurs and professionals work harder. With over a million people in our target demographic in the UK seeking support for their financial goals, the demand for innovative wealth management solutions tailored to their unique needs is undeniable. Sidekick exists to ensure that it’s not just high-net-worth individuals that have access to the tools and products needed to secure long-term financial prosperity." Recently expanding its product lineup, Sidekick is the only wealth management service of its type in the UK to offer a Portfolio Line of Credit, a Lombard lending product designed to help investors stay invested over the long term while still having access to liquidity when needed. Ford added, “This product has typically been reserved for those with multi-million-pound portfolios and only offered by private banks. Launching this product to a wider client base demonstrates that we can deliver our promise to provide the same financial services once traditionally reserved for the select few.” 👉 Read the full press release here: https://lnkd.in/d6BR6zVY Congratulations to Matthew Ford, Peter Townsend and the Sidekick team! #CLPfunded #CLPgrowthcapital #VentureDebt #GrowthCapital #FundingNews #VCfunding #VentureCapital #Investments #EuropeanTech

We have received feedback that the differences between VC, growth and buy-outs are blurry. Before trying to suggest how to build a balanced portfolio, we hence circle back to three strategies. #privateequity #familyoffices #investment #PE

PitchBook has reported VC's have been feeling the heat from LP's and GP's. But, the 50bps rate reduction is a positive indicator of an end to the dry spell. For a founder's take - VC's may find themselves at a disadvantage as founders bootstrapped for so long out of necessity will now reap the same benefits of reduced loan rates - making debt financing more appealing than equity-based. There are of course always deals to be made, but many high quality founders are seeing the advantage of maintaining company control with some interest payments as the trade off. What's your take on the market? #fundraising #startup

What is true for PE funds is often also true for VC funds and growth-stage companies. Per PitchBook, "the typical private equity fund now takes 1.5 years to close. Private equity’s capital raising process is taking longer than it has in over a decade. Bogged down by a lack of exits and plummeting distributions to LPs, the median time to close across US PE funds climbed to 18.1 months in H1 2024, up from 14.7 months in 2023 and 11.2 months in 2022." As the quote alludes to, the problem is the lack of exits. It is a rather easy decision for large institutional investors to make. If these large investors are not receiving any proceeds (which they are not), they hold back on making new commitments. Think of the financial system as a long conveyer belt. Capital goes in at the beginning of the conveyer, and exits (IPOs, M&A, etc.) come out at the end of the conveyer. If there are no products (exits) coming off the conveyer belt, inputs (funding) will stop going in at the beginning. The good news is that I believe exits and activity will pick up meaningfully in the 3rd and 4th Q of this year. Hopefully, the cycle of tight money has ended, and we are moving back to a cycle of normalcy. Endeavor Colorado Tegan Stanbach Kathryn Dickson Zeb King #privateequity #venturecapital #innovation #entrepreneurship #startups #founders #investing https://lnkd.in/gH54ynSW

Recently, I bumped into an LI message from one of the Soonicorn founders on how companies are built over time (sometimes decades) and how investors wanting to have an exit in 7-8 years. The simple answer: "That's the nature of VC business" Every business has an inherent way of making money, and the VC's way of making money is taking risky bets, converting them into growth stories, and making an exit. Remember VC's don't put their own money, instead, it's their LPs (they have a fiduciary responsibility to their LPs at the end of the day) - Would we give XYZ $ money to a RE developer and say - deliver me a home after 1.5 decades? Would we give money to Public managers and say, "Keep it with you for 15 years without giving me any return?" - Would we invest in a company (as angels or private investors) and say - I don't need the money for the next 15 years? So why is this different in VC as an asset class? VC works under the "Power Law" Concept, and they know only a handful of them will be multi-baggers, which will return the fund. There is a concept of DPI, returns to LPs, and raising a new fund. It's the business cycle of being a VC and running a VC firm. When there are numerous discussions in the Institutional and Family office community around - Iliquidity, returns, DPIs, and Capital calls from GPs, we should really celebrate the exits VCs are making. They are creating liquidity for their LPs and in turn benefitting the entire ecosystem to get some of the capital redeployed in further funds. #vcs #exits #startups #liquidity

LP Tip #20 out of #50: To re-up or not to re-up A re-up refers to an LP making an additional investment in a fund where they previously invested. Before we dive in I want to share that there are reasons an LP may not to re-up which are not in your control. Here is a short list: ➡️ The LP may have evolved their strategy and needs to scale back the #️⃣ of funds they invested in.   ➡️ The LP was never set up to re-up in the first place. ➡️ The LP could be an individual that found themselves in a cash crunch and overly exposed to venture.  I'm assuming that when you got your investment that the LP explicitly told you they do re-ups. Please do not assume they do. My expectation is also that the LP dug in to properly underwrite the fund. 🏴 Re-ups are not automatic. An LP will have to re-underwrite each fund. The speed of the re-up also depends on how much work was done in the initial investment, who led the investment, level of confidence there existed when that investment was done, and current pipeline of funds. There are 4 flags that may cause an LP to walk away. 1️⃣ Partner Breakups/Changes and Team Turnover:  The biggest risk in Partnerships are whether the Partners will stay together. One LP gave me a framework on how to think through this issue that has stuck with me. Partnership is like a marriage. If one feels there is potential for a breakup, does one believe it will be an amicable breakup? Or, does one believe the spouses will never talk again? If it is an amicable split that is manageable. The Partners can find a way to support the fund. Then the question becomes whether the LP wants to back the Partner/s that remain.  If there is high team turnover. The LP will want to investigate because team stability is used as a proxy for firm sustainability and ability to scale. 2️⃣ Fund Does not Execute on what they Sold the LP:  The LP “bought” something specific and typically it is because they were missing this strategy or wanted exposure to a strategy for the portfolio they were constructing. An institutional LP will invest and write a detailed investment memo flagging all the things you said you were going to do and then go back and compare when you come back to ask for money. If for example you pitched a generalist seed stage fund and you show up asking for money sharing that you invested in deeptech at A that will cause alarm. The same can be said for the number of companies you promised to invest in or check sizes you wrote. If there are big differences LPs will want to know why. 3️⃣ Bad Actions  The fund manager/s does something that is unethical. This is a no go for an LP.  What if the situation is not clearcut? This is different for everyone and requires discussions b/w GP and LP, but most LPs don't want headline risk. 4️⃣ Continuous Underperformance  If it's early days an LP will look at some key indicators to see how you are progressing over time.

Deal or No Deal? Something a lot of Founders (friends + personal portfolio) keep asking for my help on. My perspective as an investor is simple. As a VC, I have dual incentives (in this order) 1. To ensure your company succeeds and gets to a large exit 2. To get a great deal for myself 1 is more important to me than 2, since owning 25% of your business, which doesn't scale, raises no more funding and goes into zombie mode (VC term for continuing to operate with no significant scale) is TERRIBLE for my fund returns. Giving a little up on negotiation is significantly better for me. That being said, funds have been built on strategies, which are communicated to OUR investors (called Limited Partners, LPs), when we invest, in a document called PPM (private placement memorandum). Think of the PPM as a rulebook for the fund. If I've told them I aim to take 7-12% of equity per first cheque, for up to 1% of my fund, I'm locked into what I can do. For Founders, fundraising takes time, upwards of 5-6 months in today's market from first meet to money in the bank. Then you have a bunch of funds who either run a follow strategy (or have no backbone), who won't lead your round. When you find someone offering you terms that are in the realm of fair, willing to lead the investment and rally together other investors (if necessary), especially if they have follow-on funds to commit, take the cash. SIGNIFICANTLY speeds up your operations, ability to build and take risk, knowing that your next round will have full support from your existing investor. #venturecapital #funding #fundraising #startups #founder