Why Venture Capital Funds Must Grow to Compete
As companies stay private longer, VC funds must scale up.
1Jeff Dean's Departure from Google
Google's chief AI scientist Jeff Dean left the company after 27 years. His departure caused Google to lose approximately $180 billion in market value. Dean is founding Discovery Loop, a public benefit corporation aimed at automating the scientific research process. Alphabet is a founding investor and cloud partner.
2Discovery Loop's Impressive Founding Team
Jeff Dean is co-founding Discovery Loop with Sanjay Ghemawat, Oriol Vinyals, and Quoc Le. This team is considered the most decorated founding team in the history of applied machine learning. Any venture firm on Sand Hill Road would jump at this opportunity at any valuation.
3The Challenge for Small VC Funds
If you run a $100 million or smaller venture fund, participating in an opportunity like Discovery Loop is nearly impossible. Retail investors face a similar hurdle; unless you commit capital to a venture mega-fund ($1+ billion), accessing such deals is unlikely.
4The SpaceX Example and Fund Size Importance
SpaceX was valued at around $150 billion in 2023. At this scale, a company isn't accepting a $1 million check. You need to write $10 million or more. For a $10 million position to represent 5% of your fund, you need at least a $200 million fund.
5The Rising Role of Mega-Funds
Firms like Sequoia, Thrive, ICONIQ, and a16z raise billions because the best deals require large funds. Companies are staying private longer and growing larger, making it harder for small funds to participate in these opportunities.
6Discovery Loop's Record Valuation
Discovery Loop is expected to raise $1 billion at a $10 billion valuation in its first round. This could be the largest seed valuation ever. To lead such a round, your fund would need to invest around $100 million.
7Companies' Preference for Tight Cap Tables
Companies want a tight cap table of investors who can support future funding rounds. They can assess in one meeting whether you can follow on. Five strong investors are preferred over twenty weaker ones.
8The Changing Meaning of Seed Rounds
'Seed' now describes a stage, not a size. Top firms often raise both an early-stage fund and a growth fund in the same year. The early fund finds the diamond, while the growth fund defends ownership as it becomes expensive.
9Two Funds, One Machine
You need two funds to avoid dilution in your best positions. Finding a company at $50 million and watching your 8% ownership shrink to 3% by the time it's worth $10 billion is not ideal. Two funds work as one machine.
10The Advantage of Late-Stage Growth Funds
Late-stage growth funds focus on Series C and beyond. These companies have product-market fit and meaningful revenue. While return multiples are lower, the probability of getting your money back is higher, appealing to risk-averse investors.
11Strategy for FIRE Investors
FIRE (Financial Independence, Retire Early) investors can't afford to be too wrong. Late-stage growth funds offer lower returns but greater certainty. This is especially important for those with family obligations.
12The Future of VC Funds
As companies stay private longer and grow larger, venture capital funds must scale up. Large funds are necessary to access the best deals and support future rounds. This has become a necessity, not just a preference.
Original article: Financial Samurai — Venture Capital Fonlarının Büyümesinin Zorunluluğu