In this episode of "20 Minutes VC," host Harry Stebbings interviews Beezer Clarkson, Managing Director at Sapphire Ventures, for a quarterly analysis of venture market performance. Clarkson, with experience from DFJ's global network, Omidyar Network, Hewlett Packard, and Morgan Stanley, also founded OpenLP to foster understanding in the entrepreneur-to-LP tech ecosystem. They discuss the current state of venture fundraising, comparing it to the previous year's "bananas" levels, and note a significant increase in first-time funds and a return to normal for $100-250 million fund sizes. Clarkson emphasizes the importance of differentiation and conviction for VCs in a competitive market and predicts fewer mega funds this year. The conversation also covers the reactivation of the IPO market, the sustainability of private IPOs, and the institutionalization of the seed round. Stebbings also shares insights on bridging the communication gap between European and US VCs, the potential of AR over VR, and the importance of building a personal brand in venture capital.
Welcome back to another week in the world of the 20 minutes VC with me, your host Harry Stebbings, and you can find me on Snapchat at h stepbings with two b's.
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However, to the show today. I'm one of my very favorite types.
Harry Stebbings is indicating his enthusiasm for the type of show they are about to record, which is one he particularly enjoys.
Now, you might remember we had Beezer Clarkson, managing director at Sapphire Ventures, on the show in the past, and now every quarter we're thrilled to welcome Beezer back to break down the market performance and activity.
Harry Stebbings is reintroducing Beezer Clarkson and explaining the purpose of her recurring visits to the podcast.
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You have now arrived at your destination. My word, Beezer, it's always absolutely wonderful to have you back on the show for this very special episode of Beezer's Breakdown.
The host is setting the stage for Beezer Clarkson's analysis segment, highlighting its importance and regularity.
So I'll keep it short and sweet and just say what I'm doing now. I'm a managing director of Sapphire Ventures... And I manage the latter, which is the LP vehicle, and I oversee our fund investing.
Beezer Clarkson provides a concise overview of her role at Sapphire Ventures, focusing on her management of the LP vehicle.
2017 is off to what I'd call a decently strong start... there's been almost $7 billion raised, and these are all us numbers by 51 funds and about 50 and a half billion raised by venture-backed companies.
Beezer Clarkson provides an assessment of the venture market's performance at the start of 2017, offering specific figures on funds raised and capital invested in venture-backed companies.
The total amount raised by funds is down from last year because last year was bananas and eleven and a half billion was raised in Q one just of last year because of all the huge funds that were doing the raising.
Beezer Clarkson compares the venture capital fundraising in Q1 2017 to the exceptionally high fundraising activity in Q1 2016, noting a decrease in funds raised.
A couple of funds raised, and there was a big concern that winter was coming... And so, especially if you have a brand name and you've got a track record, and this is off the back of 14 and 15, when there was a lot of markups in companies.
Beezer Clarkson discusses the rationale behind the fundraising by mega funds in the previous year, highlighting the anticipation of a tougher market and the advantages held by established funds.
Correct. Yes. So we are seeing more new managers this year so far, and we are also seeing fewer 500 million plus the mega fund.
Beezer Clarkson confirms that there is an increase in new managers entering the market and fewer mega funds compared to the previous year, suggesting a shift in the fundraising landscape.
"Both. So what we saw last year, which was a bit of an anomalous year, was that funds, almost regardless of size, were coming back in about a two year pattern."
This quote explains that funds, regardless of size, were returning for fundraising on a two-year cycle, which is quicker than usual. This anomaly is significant because it relates to the pace at which capital is deployed and the fundraising cycle's length.
"Well, Harry, you are going to be happy. So there are more first time funds this year than last year by more than double."
Beezer Clarkson indicates that the number of first-time funds has significantly increased, which is a positive trend for those interested in this market segment. This growth reflects a dynamic shift in the venture capital landscape.
"Yes, I do think as far as nomenclature and expectation for their persistence in the market, they've arrived."
Beezer Clarkson affirms that micro funds have become a recognized and expected part of the venture market, indicating their solidified presence and influence within the industry.
"We're advocates of a three year at least investing term for a couple of reasons."
This quote underscores the rationale for preferring a minimum three-year investment term, which includes portfolio diversification over time and manageable workloads for GPs.
"There's certainly a factor, as you said, and as Chris is just the king of coining terms, the end of the day, the cash on cash speaks very loudly."
Beezer Clarkson emphasizes the importance of actual cash returns over paper valuations, indicating that while uprounds can be positive signals, actual cash returns hold more weight in LPs' assessments.
"Maybe we know what's interesting about this year is, I wouldn't necessarily call it explosive, but back to normal."
Beezer Clarkson suggests that while there isn't explosive growth in all segments, there is a return to normalcy in the $100 to $250 million fund range, indicating a stabilization in the market.
"raise this. It's a disciplined size, it tends to perform well. I mean, there's no guarantees of anything in venture, but that's sort of a good denominator."
This quote emphasizes the idea that while there are no guarantees in venture capital, funds of a disciplined size have historically performed well, and the increase in such funds this year is a positive sign.
"I have a hard time believing that we're going to raise as much money this year as we did last year."
This quote expresses skepticism about the possibility of matching the previous year's fundraising total, given the historical context and patterns observed in venture capital fundraising.
"a healthy exit market is critical, and I cannot underscore that enough because it's an incredibly risky area."
This quote underscores the importance of a robust IPO market for realizing returns and the inherent risks involved in the venture capital sector.
"Well, certainly the multiples paid in the private markets at one point in time were exceeded that in the public markets, and that was caused for a lot of concern late 15 into 16."
This quote addresses the concern over the sustainability of high valuations in private IPOs and the market's reaction to such discrepancies.
"I think there's two. I think one of it is the practical, while it's the source of growth and returns, and in a low interest rate environment that we've been in for the last few years, it becomes that much more of a signal of where you can make money."
This quote highlights the practical reasons for LP optimism in venture capital, including growth potential and favorable conditions due to low-interest rates.
"I would like to see more differentiation and conviction."
This quote calls for venture capitalists to stand out through strong conviction in their investment choices and strategies, emphasizing the need for differentiation in a crowded market.
"But if people just price up rounds but they don't do it intelligently, then you're just going to have a bubble."
This quote expresses the concern that without careful and intelligent investment practices, the venture capital market risks inflating a bubble, which would be detrimental in the long run.
"I think the advice for a young person is really the same whether you're already in or looking to get into the industry, because essentially you've got to build a personal brand for yourself in today."
This quote emphasizes the importance of personal branding for young individuals either already in or aspiring to enter the venture industry.
"Speak to everyone you know within that space and then they'll refer people with everyone you speak to. Ask for three more people within the space that they'd most recommend."
Networking is highlighted as a key strategy in this quote, suggesting a systematic approach to expanding one's professional circle in the venture industry.
"The likes of Jason Lamkin have done incredibly well with Quora because it is immortal. You can search for it seven years after he's posted it and still get those conversions back to him."
The speaker underlines the value of using content platforms that have longevity and are searchable, using Jason Lamkin's success with Quora as an example.
"It's this kind of fundamental communication delta between Europe and the US."
This quote identifies a surprising communication divide between European and US venture capitalists, which can be leveraged as a differentiator.
"If you can bridge that communication gap, much to my delight. It offers both deal flow and follow on funding opportunities."
The speaker points out the advantages of overcoming the transatlantic communication barrier in venture capital.
"We're beginning to see a massive rise in the amount of corporates entering the space for me, both in the investing and the acquisition market, which is super interesting for me."
The speaker discusses the increasing involvement of corporations in the European venture market, which could lead to more acquisitions and investments.
"Spotify will, to me, undoubtedly be a $50 billion company. And this will create that inspiration and determination within european entrepreneurs."
This quote suggests that the success of companies like Spotify can serve as a catalyst for the European venture ecosystem and inspire entrepreneurs.
"VR for me, is an isolated experience that detracts from a feeling of social togetherness."
The speaker expresses a negative view on VR, considering it to be antisocial and therefore less appealing.
"AR, on the other hand, being super interesting, essentially the ability to make us even more superhuman than the iPhone made us."
AR is highlighted as a promising technology that could significantly enhance human interaction and capabilities.
"Essentially a domain expert is to me, heavily connected and intellectually rigorous in an aspect."
The speaker defines a domain expert as someone who is well-connected and has a deep understanding of their field, which is demonstrated through content creation and networking.
"And then the content element helps to show your rigor and then expand the brand beyond the closed circles that you speak to, therefore generating the deal flow that you'll need once in VC."
Content creation is presented as a means to showcase expertise, expand one's brand beyond immediate networks, and generate deal flow necessary for success in venture capital.
"We've got more engineers in Europe than the US by 700,000."
This quote highlights Europe's abundant engineering talent, which is a strength of the European venture ecosystem.
"I think we need a mega company from Europe again, and this is happening."
The speaker expresses optimism for the European venture market, indicating that the emergence of large companies is a sign of its maturation and influence.
"I'm doing my 10,000 hours quite literally."
The speaker alludes to the concept of mastery through extensive experience, suggesting a deep engagement with the venture capital industry.
"It offers both deal flow and follow on funding opportunities."
The speaker identifies the practical benefits of understanding and connecting different venture capital markets, such as improved deal flow and funding opportunities.