The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
why aren't all 61 resolved? a statement only gets an assessment when the public record can support or contradict it. opinions and what-ifs never can, and 1 checkable ones are still open, waiting for their date. predictions held up or didn't; assertions are supported or contradicted. on every card: ▮▮▮▮▮ certainty · ▮▮▮▮▮ debate potential. speakers are clickable
Somerville: VC managers with most aggressive TVPI valuations need capital most
“And the ones that are the most aggressive in TVPI carrying value Are the ones that need the capital the most versus the ones that have been more conservative.”
Somerville: Generational Friction Will Cause Increased Infighting in VC Partnerships
“I think what you're gonna end up having happen is increased infighting in a lot of groups, because you have older GPs that have done very well that are staying on longer than they ever expected just because they're going to be needed to get funds raised in the…”
Somerville: Mark down VCs with under two years of runway, not long-runway growers
“I would look at the companies that are shorter on runway that are going to need to raise within the next 18 to 24 months, and if those companies have hit a growth phase and a price that's too high, then I would take a discretionary markdown on it. If instead i…”
Somerville: Mainstream generalist growth funds are absent from crypto
“I mean, specific to the crypto side, the only potentially interesting thing there is no mainstream generalist money at the growth stage investing in that category. So the people that will be coming in and supporting those companies are the crypto native folks.”
Somerville: VC Managers Lacking DPI After Four Funds Face Organizational Risk
“I think if you wait around and have four or five funds and have returned no capital, you're actually introducing organizational risk from an LP standpoint.”
Somerville: Company secondary buyers lacking management relationships will get burned
“A lot of people that look at company secondaries Don't have a relationship with the management of these companies and don't get full information. So they're actually buying in a very imperfect way with not a lot of granularity on what actually the company is d…”
Somerville: VC Funds with 3x-4x TVPI Can Accept 50% Secondary Discounts
“Now, if a fund is at a three to a four X and you're asking them to take a 50% discount, they're still going back to their board with a two X return and the ability from an opportunity cost standpoint to then deploy it. Into what we all expect to be very good v…”
Somerville: No Tech IPOs Will Occur in the Next Two Years
“Company side, people, I think, think of a little bit differently philosophically, but at the same time, they know that there's not going to be an IPO in the next two years, and A lot of those constituents are smaller, they're high net worths, they're individua…”
Somerville: International and Middle East LPs Will Increasingly Fund Growth Venture
“I do. I think there will be a lot higher level of international participation and particularly in the growth funds just because on the growth side, you know, if you want to write a 50 to a hundred million dollar check, I mean, even in the early stage funds, if…”
Somerville: Emerging VC managers should avoid selling management company GP stakes
“I don't think they should take it unless that's the only option. And if it's that hard to fundraise, and they don't have, like, a natural group of family offices or high net worths to support them maybe they should wait and find a different way to generate a t…”
Somerville: VC Asset Valuation Methodology Is Permanently Changed
“I never thought valuation policy would change as much as it did have public comp reliance option pricing modeling inserted, broad scale discretionary markdowns. I just think how people will value these assets has probably been forever changed on a go forward b…”
Somerville: Rapid 2020-2021 VC Deployments Face Multi-Vintage Returns Crisis
“You're not going to provide any vintage or diversification, and those funds will probably end up being challenged if they were concentrated in, in parts of, like, 20, 21, and you didn't smooth it out enough, and if you manage to do two or three funds within a …”
Somerville: Structured equity downside protections often evaporate prior to exit
“Structure doesn't necessarily stay when a company exits. It gets negotiated out by management or the rest of the board, and so you can think that you've protected yourself with structure, and it ends up absolutely evaporating.”
Somerville: Micro VC funds will face harder fundraising as LP market saturates
“It will increasingly become harder to raise subsequent iterations or to scale, and I think you've started to see that with even some groups that have a track record now and have done a pretty decent job struggling to find new LPs on the institutional side to c…”
Somerville: Fund managers selling into secondaries is a negative signal for LPs
“For us as a direct secondary buyer, just for our model, we're more interested in buying typically from employees or departed employees just because for us as an investor in funds, if your fund manager is selling out into a secondary, it's not a great sign for …”
Somerville: Micro VCs should sell majority stakes into mega growth rounds
“Yeah, I mean, I think definitely on the micro side, it's something that people should be actively doing, and I would even consider selling majority positions, not full positions, into these mega growth rounds. I think it makes sense as a seed investor, you're …”
Somerville: Venture capital firms retain non-performing partners for too long
“I think people keep non-performing partners for too long, and there's not as much of a focus on transitioning those folks out or giving them the ability to fix a portfolio rather than continue to deploy at the same clip.”
StepStone: Venture funds have marked down portfolios by 15% to 20%
“I think we looked on average funds have come down around 19% on the venture side somewhere between 15 and 20, I would say, is, is what we've typically seen.”
Somerville: DPI will become crucial as LPs struggle to evaluate true TVPI
“Showing DPI is going to become more and more important. Mostly because LPs will struggle to evaluate what true TVPI is”
Somerville: Buying secondaries off current TVPI risks paying for overinflated valuations
“You could argue in some scenarios, if you're buying off of current TVPI, it's already overinflated, and in order to actually get to that TVPI at the end of the day, it might not make sense from a duration standpoint to even consider that.”
Somerville: LP interest secondary discounts range 30-45%, company secondaries 20-35%
“On LP interest, a lot of what we're seeing is in the 30 to 45% range. A lot of what we're seeing on the company secondaries is in, like, the 20 to 35% range.”
Somerville: Many secondary funds rely on cold calls to former employees
“What many other direct secondary funds are doing are cold calling departed employees or reaching out to people that they know need to sell and are really relying on their own point of view of the company instead of ongoing information and monitoring.”
Somerville: LPs Face Rampant Adverse Selection in SPV Direct Investments
“That they get rampant adverse selection and oftentimes pushed into fee bearing SPVs that even further dilute their end of day return.”
Somerville: Secondaries Will Be Essential for Early-Stage VC Liquidity
“And as a result of that, and as a result of the limited liquidity options, the secondary part of venture is going to be very significant for a long period of time. And I think pretty interesting and also a compliment from a duration standpoint If you're doing …”
Somerville: Lateral partner hires can disrupt firm chemistry and create organizational risk
“I think on the fun side, just underestimating the human element with people that join on a lateral basis that have great pedigrees that you think will be additive, it's not always that way. You can have someone join and it completely messes up the chemistry of…”
Somerville: LPs target 3x net returns, which becomes mathematically harder at scale
“Because at the end of the day, an LP that's deciding whether to invest in venture wants outsized multiple performance, I think generally above a three X net, and the math is just harder in order to get there, particularly as fund size increases.”
Somerville: Late-stage funds sourcing new deals are less interesting than select growth funds
“Where I become more skeptical is groups that add later stage focused funds or other vehicles like that that aren't actually playing off of the inherent advantage that they have being in companies already. If they're just sourcing late stage companies they thin…”
Somerville: Series A funds increasingly preempt Series B rounds for top winners
“And while you're not seeing a proliferation of new B round focus groups, Back to our discussion five minutes ago, you're seeing the A round groups increasingly look to preempt and build bigger positions in their winners, or look for flexible partners that allo…”
Somerville: Median fund performance across the venture capital industry is bad
“And we all know that the median performance within venture is not good. It's actually bad.”
Somerville: Depressed IPO and M&A markets force creative secondary liquidity
“And particularly in an environment like the one we have now, where other liquidity options are more limited. You're not seeing companies go public, you're not seeing strategic M&A as a robust of a clip, and so they need to think more creatively about getting l…”
Somerville: VC managers are taking proactive discretionary markdowns for the first time
“I have been surprised and happily so that people have taken discretionary markdowns more proactively for the first time in, in my history of doing this.”
Somerville: Family offices and corporate pensions are seeking secondary market sales
“I mean, we're seeing family offices that were overly adventurous in this category need to sell we're seeing corporate pensions similarly looking to sell, so it's not just specific to them.”
Somerville: LPs will downsize fund commitments rather than abandon top managers
“I think what you'll see is smaller investment sizes in the managers that they like. In the ones they really like, they'll just stay the same instead of growing. And in the ones that are on the fringe or in their, you know, respective penalty boxes, as you may …”
Somerville: Growth Funds with Capital Are Currently Not Deploying It
“Most of what I've seen from growth funds and late stage funds, or even if they have the capital, they're not actually deploying it.”
Somerville: LP Patience Depends on Management Fees Being Charged on Invested Capital
“If it truly is on invested capital for some of these growth funds, then I think LPs are fine being patient and respecting the discipline of the manager. If it's on committed, that becomes a more problematic scenario”
Somerville: Massive venture valuation step-ups won't return near-term
“I don't think you're going to see massive upticks like we saw before where companies were raising it, you know, two X last round after six to nine months. I think we're not close to that environment nor will be in the near to medium term, but”
Somerville: VC Will See More GP-Led Restructurings Through 2025
“Venture is always slower to adopt some of these structures and I think we'll see a lot more of it in the second half of this year and the following two years.”
Somerville: Missing deep-pocketed investors increases venture down round risk
“Deep pocketed investors that actually know how to do reserve management that will be there to support the companies in the future. If you don't have that, you're going to be more susceptible to down rounds or complete wipeouts.”
Somerville: Sell Secondary Stakes in 1.5-2x Assets, Hold 3-5x Growth Assets
“For me, I would look at the portfolio If there are assets that you really like, but you feel like are higher priced and offer maybe you know, one and a half to two X kind of arbitrage off of whatever last round prices, I would think about pruning some level of…”
Somerville: LPs will demand fees on invested, not committed, growth capital
“For more branded, more established groups, I think there'll be more of a focus, particularly in the growth funds around invested capital instead of committed just because of the uncertainty of deployment and when that capital goes out the door, I think that wi…”
Somerville: Carry performance kickers in venture funds require at least 3x net returns
“I don't like when it's less than three X and people start doing, like, kickers at two X or two and a half. I mean, that's just not high enough for a venture fund. I think it really needs, at a minimum, to be a kicker of three X net, net or above”
Somerville: GP commitments should be judged on net worth percentage, not dollars
“I like to see a decent level of GP commit, but there's no reason to, like, push it to an extreme kind of percentage level, and I do think that the net worth percentage is much more important than whatever the absolute dollar value is”
Somerville: Picking category winners in weak sectors yields poor growth-stage returns
“You can pick a winner in a bad category, and you can still really not do well if you're entering in at a growth phase. I think we've picked some companies that have proven to be the category leader, but if it's in an area like InsureTech, or areas of PropTech,…”
Somerville: Venture capital will re-concentrate focus on the US over emerging markets
“I think it depends on the region, but yes, I think there will be more of a re-emphasis on the US but certain, certain areas like people are much more excited about India and there continues to be interest in investing there.”
Somerville: First-time micro VC fund raising barriers are relatively low
“It's not that hard to raise a micro fund being that typically a first time fund would be looking to raise 25 to fifty million in size and that really requires that you have an aligned set of high net worths that believe in you that you've worked with for a whi…”
Somerville: Senior VC spin-out funds raise under the radar and are highly competitive
“I think if you have someone that's been a partner or a senior member at an established brand who decides to leave and start something smaller, more focused on their own, those are generally highly competitive to get into. There's a big access premium. Most peo…”
Somerville: Junior VC spin-outs struggle to raise due to unclear deal attribution
“If it is more of a variety of spin out where it's someone who's junior or mid-level at a firm that Maybe has mixed attribution or has been responsible for sourcing, but not monitoring or carrying something through end to end. That can be a more challenging fun…”