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In Silicon Valley, venture capital faces a generational shift| GuyWhoKnowsThings


Reid HoffmanLinkedIn founder and longtime venture capitalist is no longer the public face of venture firm Greylock. Michael Moritz, a force at Sequoia Capital for 38 years, officially parted ways with the investment firm last summer. And Jeff Jordan, a major investor in Andreessen Horowitz for 12 years, left in May.

They are among the most recognizable of a generation of Silicon Valley investors who are exiting venture capital at the end of a lucrative 15-year boom for the industry.

Many more are leaving. Investors in global tiger, Paradigm, Lightspeed Venture Partners, Emerging capital and spark capital All have announced plans to step back. Foundry Group, a venture firm in Boulder, Colorado, that has backed 200 companies since 2006, said in January that would not raise another fund.

Taken together, the constant number of exits has created the feeling that venture capital – a 1.1 trillion dollars The corner of finance that invests in young private companies, which sometimes spawn companies like Apple, Google and Amazon, is in a moment of transition.

“We are at an inflection point,” said Alan Wink, managing director of capital markets at EisnerAmper, which provides advisory services to venture capital firms. While there have been waves of retirements in the past, he said this one was more pronounced.

The turnover creates an opportunity for new investors to step forward, potentially changing who the powerful players are in Silicon Valley. That can also change the calculus for young companies when deciding which venture firms to seek money from.

However, the latest generation of investors faces an initial investment landscape that has become more challenging. Few venture capital funds are reaping huge windfalls (coming from going public or buying startups) that can secure an investor's reputation. That also makes it harder for venture firms to raise money, as industry fundraising fell 61 percent last year and some big companies cut their goals.

The latest generation of investors, including Moritz, 69; Mr. Hoffman, 56; John Doerr of Kleiner Perkins, 72; Jim Breyer of Accel, 62; and Benchmark's Bill Gurley, 57, rose to fame by placing bets on consumer Internet startups like Google, Facebook, Uber and Airbnb, which became giants.

Today's up-and-coming venture capitalists are waiting for their version of those winners. Some of the most valued startups (like OpenAI, the $86 billion artificial intelligence company) are in no rush to go public or sell. And the frenzy around generative AI It could take years to translate into big victories.

“We're in this reset period, based on where the technology is and where it's going,” said David York, an investor at Top Tier Capital, which invests in other venture capital firms. “These stars will arise.”

Industry stalwarts like Vinod Khosla of Khosla Ventures, Marc Andreessen of Andreessen Horowitz, and Peter Thiel of Founders Fund continue to write checks and exert influence. (All three companies have supported Open AI.)

But many others are quitting as a result of a 15-year winning streak that generated billions in profits for the industry. stuck in a recession. Venture capital firms typically invest over 10-year funding cycles, and some aren't eager to sign up for another decade.

“There's an element of a bull market,” said Mike Volpi, 57, an Index Ventures investor who recently said he would leave the firm's next fund. Mr. Volpi's decision was previously reported by the Newcomer newsletter.

EisnerAmper's Wink says that in some cases, investors backing venture capital funds are eager for new blood. The message, he said: Come out from the top.

“Don't be like many professional athletes who sign the latest contract and their performance on the field was nowhere near what it was in their glory days,” he added.

For years, venture capital could only grow, fueled by low interest rates that enticed investors around the world to take on more risk. Cheap cash, as well as the proliferation of smartphones and abundant cloud storage, allowed many technology startups to thrive, generating extraordinary returns for investors who bet on those companies over the past 15 years.

Investments in U.S. startups grew eightfold to $344 billion between 2012 and 2022, according to PitchBook, which tracks startups. Venture capital firms went from small partnerships to huge asset managers.

The largest venture firms, including Sequoia Capital and Andreessen Horowitz, now manage tens of billions of dollars in investments. They have expanded into more specialized funds focused on assets such as cryptocurrencies, opened offices in Europe and Asia, and ventured into new areas such as wealth management and public equities.

Andreessen Horowitz, Sequoia Capital, Bessemer Venture Partners, General Catalyst and others also became registered investment advisors, which meant they could invest in more than just private companies. Venture capital was briefly the hot job for ambitious young people in finance.

The expansions have contributed to some investors deciding to take a step back. Volpi, who joined Index Ventures in 2009 after 14 years at Cisco, said he entered venture capital to change the pace of the corporate world. He backed startups including work messaging company Slack and artificial intelligence startup Cohere.

But over the years, Index (and the venture industry in general) became larger and more professional.

“Maybe it's someone else who has to fight that battle,” Volpi said.

Many venture funds have also grown so large that owning a stake in a “unicorn,” or a startup valued at $1 billion or more, is no longer enough to make the same profits as before.

“If you want to make three times your fund, then a unicorn is not enough,” said Renata Quintini, an investor at Renegade Partners, a venture capital firm. “It takes a decacorn,” she added, referring to a startup valued at $10 billion or more.

Larger companies have moved from providing their investors with returns from the traditional definition of venture capital (very young, high-risk companies with enormous growth potential) to a more general idea of ​​“tech exposure,” Quintini said.

Manu Kumar, founder of venture firm K9 Ventures, has felt the change. Since 2009, he has written checks of $500,000 or less to invest in very young companies. Some of those investments, including Lyft and Twilio, went public, while others were sold to larger tech companies like LinkedIn, Meta, Google and Twitter.

But starting last year, he said, venture capital investors who would have provided the next round of funding to the startups he backed began demanding to see more progress before investing. (Startups typically raise a series of increasing financings until they go public or sell.) And potential buyers were laying off employees and cutting costs, not acquiring startups.

“Today, companies have only one option,” Kumar said. “They have to build a real business.”

In October, Kumar told investors that the calculations in his investment strategy were no longer working and that he would not create a new venture fund. He plans to watch the market and review the option within a year.

“I want to be convinced of what my strategy will be,” he said. “I don't have that conviction at the moment.”




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