The Ledger
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Kayden: VC managers will face significant LP turnover after the boom
“You're going to see a lot of turnover in the LP base for managers broadly, as people see who really performed well, and what was a very promiscuous environment, and those people who stayed at the party too long”
Kayden: Later-stage venture is most vulnerable to market correction
“We don't tend to like larger funds, and we don't like later stage investing, largely because we think that is an area that is sort of more correlated to the public markets, you know, and an arbitrage opportunity, and so at a period of Massive, great inflation.…”
Kayden: Venture capitalists are painfully naive about their LP base
“I think venture capitalists are painfully naive about who is their investor base and putting themselves in the shoes of the LP and what some of the issues that the LP has when they go to their investment committee making recommendation”
Kayden: Venture debt is a disastrous idea for startups during downturns
“I philosophically think that debt on any venture company is a disastrous idea, particularly in times like this, because the banks are not going to be patient.”
Kayden: A leading endowment put 75% of VC allocation into three managers
“I was talking to a leading endowment yesterday that said that 75% of their venture allocation was to three managers. That's a problem. Well, it's to three managers, each of whom has eight underlying products, and I can tell you, Mathematically, that not all of…”
Kayden: Tiger Global and Coatue win via fast checks without board seats
“One, we've seen the emergence of firms that write checks really quickly and are extremely aggressive, whether it's Tiger Global, D-One, CO-Two, name your favorite firm. That's just a very different strategy. They don't take board seats, but they're extremely k…”
Kayden: Growth equity offers superior risk-reward and liquidity over late-stage venture
“We think on a risk reward basis, and our data shows this in our funds over the past five funds, that investing in growth equity on a risk return basis is a far more compelling Opportunity and attractive opportunity, particularly given its liquidity profile tha…”
Kayden: Late-stage VCs are bringing poor pricing discipline down to seed
“A lot of the later stage investors have now decided to move into seed, and so some of the promiscuity that you've alluded to comes from the lack of discipline that they had in late stage now being applied to early stage.”
Kayden: Successful venture investing requires securing ownership early at Series A
“We don't like investing in later stage venture. We believe in venture, you need to be early, or you need to be a series A brand name manager and early, whereby you secure your ownership and knowledge of the businesses very early.”
Kayden: Allocations to diverse managers remain experimental, not core for institutions
“There's been no data on that, and so it is very much of an early days in terms of trying to prove that out, and so I think people are separating out a small pool of capital to sort of run an experiment and see what happens with it, but it's not core to their p…”
Kayden: Accolade does not require an attributable track record to back managers
“For us, we don't need a referenceable track record and attributable track record, which I know is very important to certain institutions, but We can sort of gauge how good is this person in terms of being a deal partner, in terms of sourcing, in terms of reall…”
Kayden: Lawyers are responsible for pushing aggressive terms onto early VC funds
“I think the lawyers are at fault for pushing some very aggressive terms for first or early funds.”
Kayden: Blockchain is a fundamental technology disruptive to venture capital
“One, we thought about it offensively in the sense that we thought this was a sector where our limited partners could make a lot of money, but we also thought about it defensively, that if this was in fact a fundamental technology, which we think it is, that it…”
Kayden: Mid-stage VC firms competing with massive fast capital face severe pressure
“I think the firms that are at risk or those are sort of in no man's land that are still continue to want to do diligence and feel their value add, but yet They're not investing at the early stage and they're competing against massive pools of capital with a ve…”
Kayden: Market Correction Will Kill Many Startups But Few VC Funds
“Attrition happens very slowly in our business. So I'm not sure it's that much different from what it is today. I mean, obviously we're going through a very significant correction here. And I think there will be a lot more companies that disappear than farms or…”
Kayden: Mental Health and Telehealth Startups Face Major Industry Shakeout
“How many mental health, telehealth firms does the world need? I don't know the answer to that, but I can tell you, There'll probably be a couple that survive, but we have dozens of those and each one serves a different niche market. So I think there's going to…”
Kayden: Funds lack real returns until their portfolios are fully liquidated
“Until you have a fully liquidated portfolio, you really don't have returns.”
Kayden: Post-dot-com and GFC downturns produced the best venture vintages
“The last time we had a significant correction in venture post the collapse of the internet bubble and people stopped investing in venture, those ended up being the best vintages, particularly, you know, some of the investments that were made during the global …”
Kayden: Startups need 24 months of runway because fundraising starts at month 18
“You're on the right side of the angels if you have 24 months of cash, because you got to realize you got to start fundraising at 18 months, not at month 24.”
Kayden: Enterprise startup success is far easier to predict than consumer
“We skew very heavily towards enterprise versus consumer because we think it's easier to predict success when someone's writing a check versus how individuals respond to a product or to a new social media engagement, etc.”
Kayden: Crypto represents 2% of portfolios but dominates 110% of IC discussions
“Every single investment committee is asking its staff What is our exposure to crypto? And so two percent of the portfolio is now consuming 110% of the discussion at the IC.”
Kayden: Venture Capital Funds Allegedly Last 10 Years but Really Last 15
“You know, we invest in funds. They last 10 years, allegedly, but really they last 15 years, and they're not liquid, so we better make the right decision a priori.”
Kayden: Early sector specialists win in fintech and healthcare via regulatory expertise
“Then we believe sector specialists, particularly early on in the lives of companies, have a reason to win, whether that's in fintech firms like Ribbit, QED, firm like Transformation Capital and Healthcare. These are Each huge industries, fintech, healthcare, w…”
Kayden: Cap table diversity and diverse recruiting increasingly win startup founders
“And then maybe this is somewhat self-serving, but we are hearing this a lot, particularly from young founders that diversity on the cap table really matters. And so I think firms that offer that lens either by having available individuals who can serve as boar…”
Kayden: Public market companies are much cheaper than private venture valuations
“Obviously right now we're experiencing a pretty dramatic correction in the public market where I think the public market companies are much cheaper than what we're seeing done in the private market”
Kayden: Founders favor individual VC partners like Jeff Jordan over firm brands
“And I think founders will tell you that while they do pick firms, they really pick the individual partner. So if you're a marketplace consumer facing company, your number one draft pick is Jeff Jordan at Andreessen Horwitz, and you get a lot of ancillary servi…”
Kayden: Telemedicine consumer behavior shifts will not reverse
“That's also true of healthcare where telemedicine had been something been talked about forever. And all of a sudden overnight, It catalyzed a massive change in consumer behavior, and it's not going to go back the other way going forward.”
Kayden: Diverse VC managers face fundraising inefficiencies that create investment opportunity
“We saw people who were extraordinarily talented who were struggling to raise institutional capital and still struggle today to raise sizable funds, and so recognize that that's really an inefficiency in the market, and we all know that that's where one should …”
Kayden: Meeting only top VC leadership misses internal firm dynamics
“Just meeting with the top people doesn't really necessarily tell you what's going on underneath at the firm, and so we really encourage broad participation by our team with those people who, you know, associates should know associates, and the VPs should know …”
Kayden: Large VC firms raise seed funds to preempt Series A rounds
“Increasingly you're seeing every large firm raise a seed fund because they want to get in sooner to get that ownership and be able to write that big check and preempt the series A.”
Kayden: Missing venture upside harms fund returns more than downside losses
“Because in venture, it's missing the upside, not protecting the downside that's going to lead to not have a successful fund. The most important thing is being in those right companies and owning enough of them.”
Kayden: Venture carry is rising while management fees remain flat
“Carry is going up.
Fees are staying the same regardless of fund size.”
Kayden: Fund size outgrowing opportunity is top reason Accolade passes on re-ups
“It's usually that the fund size over time evolves to be
Too large relative to what we think the opportunity is or what we think the team's capability are.
So sometimes a team that's going to have a great fund at five hundred million is not going to have a grea…”
Kayden: Accolade targets over 5x for seed funds, 3-4x for established VC
“When we invest in an early stage seed focused venture fund, we would like them to do better than five X. For an established venture fund, occasionally you'll get an outlier, but three to four X is still on a consistent basis, not easy to do.”
Kayden: Accolade passed on Emergence Capital Fund II despite early Salesforce win
“We had the opportunity to invest in Emergence too, and I think because we knew so much about software when they said that they were a SaaS-focused fund and they had put two million dollars into Salesforce, we were like, well, that's not that unique, partially …”
Kayden predicts painful lessons ahead for young founders and VCs
“There are a lot of young people within those venture firms that have never experienced a down market, and certainly young founders that have never experienced inflation, rising interest rates, inability to raise capital, etc. So I think there's some painful le…”
Kayden: Accolade closed $114M debut fund in March 2000
“Started raising the fund in the end of 99 and closed on one hundred and fourteen million dollars in March of 2000. Right when the NASDAQ hit the peak of 5000.”
Kayden: Accolade shifted to cash-flow-positive firms after the dot-com crash
“And then when the internet bubble burst, and it became clear that continuing to fund early stage venture capital in the face of a nuclear winter was probably not a great idea, we slowly migrated to funding some firms like Golden Gate that were investing in cas…”
Kayden: Accolade backed Thoma Bravo and Accel-KKR's first software funds
“In that fund, we articulated that 50% of what we did was going to be early stage venture And 50% was going to be growth equity, which is not what we hear about in the growth stage today, but more firms which we backed, like Toma Bravo in their first software-f…”
Kayden: Accolade Has Backed Accel Since 2000 and Andreessen Since Fund II
“We've backed some terrific firms that we've stayed with, Excel since 2000, Andreessen since fund two.”
Accolade divides manager allocations over three years to counter rapid fundraising
“We think of it over three years instead of over one fund cycle, and we sort of divide by three knowing they're going to be back sooner. So you create your own time diversification that way.”