Airstream Alpha Newsletter Archive

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Every Tuesday/Thursday, @TheFundCFO publishes VC/CFO insights that matter – highlights from notable VC GPs, LPs, and CFOs/finance pros. Love what we’re doing? Consider upgrading to paid for deeper dives on Thursdays (most paid subscribers expense these insights!)

#169 VC Market Update (Q2'24) & Exit Predictions (DPI)

Highlights: PitchBook-NVCA Venture Monitor (Q2 2024) Every quarter, we highly recommend reading the PitchBook-NVCA Venture Monitor. In the report, they provide great market data on what’s going on in VC. From there, we can take that data and make some predictions about the future! Here are some of our favorite highlights from the 50-page report (we pulled out the best insights so you don’t have to). We’ll also share takeaways and predictions.

#162 VCs Closing Q2 w/ Playbook, Model, Valuation Updates

The Quarterly Closeout Happy last week of Q2 - time to close it out! At the end of each quarter, we look back at the past three months, professionally and personally. What worked well (celebrate the wins!) and what didn’t? What can we change to make the next three months even better?! Revisiting The Year-End CFO/Finance Checklists at Q2 Our year-end process can easily be applied to the end of Q2. We’ve seen a lot of different frameworks over the years to keep track of all the requirements for funds at year-end. One of our favorites is breaking things down into four buckets: portfolio companies, investor reporting, compliance/legal, and operations/HR. Here’s some of the top items in each bucket for year-end…

#161 The 2024 VC Vintage & Power Law - Time to Invest?

“When the going gets tough, the tough keep allocating” “Is now a good time to allocate to VC?” That’s a common questions LPs are asking GPs these days. Today, we dive into a recent report from Stepstone that examines what returns looked like for VC investors in various vintage years. “We believe 2024 very well could be a power law vintage.” Read more here (full report linked below): “In VC, we often observe two behavioral phenomena hindering successful outcomes that are closely linked: recency bias and the fear of missing out. Quite simply, investors tend to allocate more heavily to the asset class during periods in which recent performance has been strongest. Concerns over not capturing upside when the stars seem to be aligned can further exacerbate aggressive investing at market peaks.”

#160 VC Fund Math: "Maximum Convexity" Leads to 10x+ Funds

VC Fund Math: "Maximum Convexity" = 10x+ Funds What game are you playing in VC? Are you going for 10x+ funds or 3x+ funds? Established VC funds with large AUM can lower their return targets to 3x+. A $1b fund generating a 3x = $3b of returns, $2b of profits. That’s at least $400m of carry for the team at 20%. Not bad. I would argue (and believe most LPs would agree) that most early-stage emerging managers need to be shooting for 10x+ funds. But how do you do that? Today, we share insights from Roger Ehrenberg (Eberg Capital, formerly IA Ventures). Roger shares the following (linked here): “As I've written on numerous occasions, markets, portfolios and, in fact, many systems in life take the shape of barbells.”

#159 VC CFO Q3 Capital Call Template (Free)

VC CFO Q3 Capital Call Template We’re approaching the end of the quarter again - that means it’s time to start planning ahead for Q3 and the second half of the year! Most VC funds call capital from LPs at the end of each quarter, so later this week. LP’s often appreciate a regular capital call cadence so that they can plan cash flow. There are a number of different pieces that go into a capital call forecast. Good news, we’ve seen almost all of them! Here’s a link to a simple capital call template you can use for Q3, pictured below. Enjoy!

#158 VC Breakout Companies (Ch.1) - What Does it Take?

Venture Capital Insights - YTD 2024 We’ve made it to Memorial Day Breakout Company Founders: Highlights from Devin Wenig (Symbolic.ai) and Mike Silagadze (ether.fi) We talk a lot here about what it takes to build great VC funds and firms! The catch is, none of it matters if you aren’t accessing and investing in founders that can build breakout companies! Today, we share some insights from two of those founders. In a recent Chapter One ‘Breakout Companies’ call, we had the privilege of conversing with two industry leaders: Devin Wenig, co-founder and CEO of Symbolic.ai, and Mike Silagadze, co-founder and CEO of ether.fi. Here are the key takeaways from the discussions.

#157 VC Fund Budgets & Models, Unpacked

Fund Budgeting and Portfolio Construction (Vector) We’ve been really impressed with recent thought leadership pieces from Vector. Here are some of our favorite takes on fund budgeting and portfolio construction: “Effective fund management requires an understanding of the various expenses involved. Fund expenses and management company expenses are two primary categories that every fund manager must plan for over the lifetime of the vehicle. Fund expenses are typically borne by the fund/investors and these expenses are paid directly from the fund’s assets. Management fees, paid by investors as a part of their capital commitment to the fund, are typically a percentage of the committed capital (or invested capital, though generally that strategy is less common in VC and utilized in the latter half of a fund’s life) and are paid to the fund managers.

#156 Top VC CFO Insights of May 2024

Key Themes at Allocate Summit From GPs & LPs (Samir Kaji) AI App Layer Wins. Most believe that LLMs are not where investments return will be had, but rather much more excitement for the app layer. Feeling is LLMs will be commoditized, and large incumbents will be the winners. Sentiment: Optimism for tech is sky-high, but investment sentiment is still tempered given the AI hype & continued deterioration of portfolios that were propped up during the ZIRP period. Liquidity: Everyone agreed liquidity market is broken. IPOs are now reserved for companies that have $200MM-$300MM+ in revs and large cap M&A is really tough given regulatory environment. Lots of discussion about continuation funds, PE led acquisition ($500MM-$2B).

#155 Venture Insights & Small VC Fund Outperformance

Venture Capital Insights - YTD 2024 We’ve made it to Memorial Day Weekend 2024 - congrats! We’ve been inspired recently by a number of insights and wanted to share some highlights here: Aumni Venture Beacon Year End 2023 Report: The prevailing narrative since the end of 2021 has been one of stress feeding through venture markets owing to a combination of a higher rates environment, banking market volatility, and subdued IPO markets. Median post-money valuations fell ~50% from 2022 to 2023. These developments were accompanied by steady increases in the prevalence of down rounds through last year.

#154 VC Fund Math: The Path to 10x+

“Making 10X in Venture is complicated…” A recent X post from Martin Tobias on VC fund math inspired us while also reminded us that VC is hard! You have to worry about things like dilution, protecting your ownership, etc. to hit a 10x return on just one investment. Then to have a great fund, you really need a 100x fund driver. That’s hard to get! We’ve written about this topic extensively (more below). In the meantime, we’ll pass the mic to Martin to share more on his 15.6x mark-up that was really a 5.5x after accounting for dilution (spreadsheet linked in thread): “Making 10X in Venture is more complicated than most people think. I recently invested in a $16M post, and the company just raised a $250M post. Up 15.6X? No, only up 5.5X. Here is the math. For early investors to make 10X, the valuation has to be over 40X higher than our entry price. It is much harder for VCs to get outlier returns than most understand.”

#151 Top CFO Takes for VC GPs & LPs

Top CFO Takes for VC GPs & LPs Revenue multiples matter! It’s wild to look back at peak EV/NTM revenue multiples in late 2021. The top companies peaked at 62.5x! Applying that math to private companies, if you had $16m of revenue forecasted (and investors believed it), you were worth $1 billion (unicorn)! Today, things have come back to reality. Most companies are lucky to get a 10x multiple. That means you have to build a $100m revenue business to be worth $1 billion in the public markets. Times have changed!

#150 Primack's Letter To VCs & CFO Takes

Letter to VCs (Dan Primack) & CFO Takes Earlier today, Dan Primack shared a letter to VCs that you can read here. Dan is known for his daily newsletter and often spicy takes on VC. The letter does capture a lot of what VCs and LPs are talking about in today’s market environment. While I don’t agree w/ all of it, here are some of my favorite takes: The basic VC model is cyclical. Raise money, invest that money, exit via IPOs or strategic sales, and then use those exits to raise more money. But it doesn't work if you stop exiting companies. A whopping 37% of "unicorns" are being held for at least nine years by VC funds, including 13% that are past the 12-year mark LPs need to believe they’ll see distributions within a certain timeframe. The VCs that can balance distributions with holding their winners will gain credibility with LPs and thrive going forward.

Paid Newsletter- #149 VC Fundraising in 2024 - Execute!

Top VC Fundraising Reads & Lessons (Timeless) Previously, we shared posts with lessons learned from VCs such as Fred Wilson @ Union Square Ventures, Jeff Morris Jr. @ Chapter One, Elizabeth Yin @ The Hustle Fund, Winter Mead @ Oper8r, and Mark Suster @ Upfront Ventures. All have had different fundraise journeys and share unique insights. The background posts are linked here: #134 VC Investor Relations, LP Communication Best Practices #94 VC Fundraising Basics & Bear Market Strategies #30 VC Fundraising in 2023 #21 VC Fundraising 101: Track Record & Data Room #9 Opportunity Fund Insights #8 Fundraising - Show Me the Money!

#148 a16z Closes $7B: What It Means Emerging VC Managers & LPs

a16z closes $7.2 billion → what does it mean for emerging managers (“venture alpha”)? As reported by Axios, Andreessen Horowitz (a16z) has closed on $7.2 billion for its newest set of funds. CFO take: a16z raises capital from large investors looking to access venture capital and is a barometer for how LPs feel about the asset class. Many LPs take a “barbell approach” to venture capital. They invest in large fund vehicles like a16z to get “venture beta” (2x-3x target returns). The other side of the barbell is “venture alpha” (5x+ target returns), often represented by emerging managers.

#147 Navigating the VC Landscape in 2024

Outperformance & Fundraise Insights from Cendana & Sapphire Navigating VC Landscape in 2024 - What’s Going On? PitchBook-NVCA Venture Monitor (Q1 2024) Law of VC: #32 Episode - YC's Secret SAFE (Chris Harvey) In the Q1’24, the US VC stayed slow but is maybe finding a bottom?! Key stats: $36.6 billion invested across 3,925 deals, remaining steady compared to previous years $300 billion in dry powder available Defensive investment climate, where investors are focusing on existing portfolios rather than new ventures Insider-led rounds are prevalent, while first-time financings are at multiyear lows.

#146 Best CFO Reads for VC GPs & LPs

Top Reads of Recent History, VC CFO Style #142 VC Market Maps & Useful Data #141 VC is the Best (Asset Class) if You Choose Wisely #140 RTF (Return The Fund) Math for VCs #137 The Ides of March -> VC CFO Deadlines #135 Regulatory for VC Funds, CFO Edition #130 Top Takes of 2024 (So Far) & Takeaways #123 Q4 Valuations + Real Policy Examples (Download) #119 The Ultimate PE/VC Fund Checklist for Year-End Finance & Compliance A Crowdsourced List of Books and Resources for New Venture Capitalists

#98 Emerging VC Outperformance: Insights & New Capital From Cendana, Sapphire

Outperformance & Fundraise Insights from Cendana & Sapphire The right emerging VC managers can drive real outperformance in investment portfolios and will continue to do so for decades to come. Every manager in the market today was emerging at one point, and behemoths like a16z just ~15 years ago. While we find ourselves in a slower VC fundraising environment today, capital allocators are still investing in emerging managers.

Paid Newsletter- #95 VC Deep Dive: Footwork + 20VC

There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet. Here, we’re focused on pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever. Today, we’ll share some insights from the recent conversation with Nikhil Basu Trivedi (Footwork) and Harry Stebbings (20VC).

Paid Newsletter- #91 VC Deep Dive: Fresh Takes From Top VCs

VC Deep Dive: Fresh Takes From Top VCs Dear readers, thanks for all the great feedback on our recent VC deep dive posts! We’ve gone deep on some notable VCs & unpacked some insights around building generational firms (#89 VC Deep Dive: Brad Gurley (Benchmark) + David Sacks (Craft) & #87 VC Deep Dives & Building Generational Firms). “Now more than ever, VC firms need to think strategically about their business model.”

#83 Q2 LP Updates - Best VC Insights from GPs & LPs

Q2 LP Updates - Best VC Insights from GPs & LPs If you’re a VC GP or CFO/Finance Pro, you’ve likely finalized (or are close to finalizing) your Q2 report and financials. At the end of each quarter, “The Playbook” requires VC funds to review and update their financial performance to investors. That means working with fund administrators / accountants to review portfolios and update company valuations based on your Valuation Policy.

#79 VC Insights in London, UK, Europe

Headlines Remind us London, Europe is a Big Deal for Venture Capital It’s been an exciting year thus far for London, the UK, and Europe more broadly. As increased regulation and scrutiny builds in the United States, we’ve seen a different approach to technology (including AI and web3) in London and Europe. Major VCs such as Sequoia and a16z have opened offices and made major investments. Here are some recent headlines that give context:

#56 LP Email Updates, Insights: Getting Hit By The AI Lucky Truck @ Chapter One

LP, Investor Email Updates Matter - Tips, Tricks, Insights for VCs & CFOs The email update is arguably the most important form of professional communication today! VC’s / fund finance pro’s request them from their portfolio. LP’s request them from VCs. If you master the email update, it can be highly efficient! You can message 10, 100, 1000 people all at once and let them know what's going on.