The Great Bifurcation is coming for us all… And I couldn’t be more excited.
Rex Woodbury has this great piece on the state of Venture Capital as it grows into a more mature asset class and adjusts to an economy contending with a positive interest rate environment.
There were a few observations that really stood out:
- During the post-COVID ZIRP (zero interest rate policy) era, Venture Capital firms raised billions of dollars.
- The ability to raise multi-billion-dollar funds prompted the largest venture firms to begin acting more like established asset management firms.
- This creates a bifurcation into “niche” and “sprawl”.
Rex writes that, as the industry continues to evolve, there are two specializations that the most successful venture firms will adopt:
1. Artisans — A smaller firm with a focus on people. Their greatest value-add comes from the network and expertise of the partners. They have access to the right people to help their portfolio companies succeed.
2. Asset Managers — The largest firms whose primary value-add is the ability to allocate a substantial amount of cash to any given deal. They’re able to put massive dollars to work. Full stop.
This is the perfect description, not just of venture capital, but of what happens as an industry begins to mature.
The largest players consolidate resources and influence, while the smaller players look for opportunities to differentiate.
If you’re a venture firm that’s currently somewhere in the middle, you better move quickly.
- Last year, a16z registered to trade public securities and has also raised several colossal funds.
- Hustle Fund is a great example of an early-stage venture firm that uses their people, their network, and a community as their moat.
Angel investors are experiencing this shift, too. Some are opting to aggregate capital by raising large syndicates and using their size to determine their investment strategy. Others are offering more expansive networks and support to their portfolio founders.
Either way, you’re going to have to make a choice at some point.
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P.S. I highly recommend that everyone check out the whole article from Rex. It’s a fantastic piece on the current state of venture capital.
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