As we start 2023, the infamous phrase “software is eating the world” turns 12 and fast approaches its teenage years. After a glorious decade-plus run, I believe the typical angst, awkwardness and entitlement awaits many parts of the industry in its teenage phase. As the VC cloud ecosystem evolves from being a “do no wrong” innocent child into a mature adult that has to deal with the realities of the outside world, I believe the industry (and its returns) are likely to have its Peter Pan moment where it fights mean reversion while still trying to fly around in Neverland. The emerging consensus view that “now is the best time to invest in venture” is unlikely to materialize — although that doesn’t mean those at top need to worry much (at least for the next decade) or that some savvy firms can’t do more than deliver market beta.
‘hey, we think our fund size is actually too big, we need to rightsize this to deliver the returns that we promised you.’ Algorithmic hedge funds went through this a decade ago when they discovered specific strategies maxed out returns at a certain fund size.
Thank you!! Amazing article, exactly what I've seen as well... My belief is that there is a huge opportunity to invest in first time founders / non-hype founders in today's market, because some of them actually do go and build billion dollar companies. It's higher risk but also higher return. Long live the power law!
‘hey, we think our fund size is actually too big, we need to rightsize this to deliver the returns that we promised you.’ Algorithmic hedge funds went through this a decade ago when they discovered specific strategies maxed out returns at a certain fund size.
Good point, I'd imagine its functionally easier to scale down when youre not dealing with illiquid private securities.
Great analysis. The FTX/Sequoia fiasco is the deal that shattered the illusions of Peter Pans and Neverland: https://yuribezmenov.substack.com/p/how-to-lose-214-million-in-one-year
Thank you!! Amazing article, exactly what I've seen as well... My belief is that there is a huge opportunity to invest in first time founders / non-hype founders in today's market, because some of them actually do go and build billion dollar companies. It's higher risk but also higher return. Long live the power law!