Insights into the Evolving Venture Capital Landscape with Richard Rimer
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In today’s dynamic investment landscape, allocating to the Venture Capital (VC) asset class requires a nuanced approach. It’s crucial to understand what makes a great venture fund, develop strategies to navigate a challenging IPO market, and cut through the overwhelming noise surrounding AI for informed decision-making.
To delve deeper into these topics, Richard Rimer, Chief Executive Officer at TOP Ventures – our technology opportunity partners – shares his insights on current trends and strategies shaping this space.
Tech companies are staying private for longer
How has the ability to raise substantial amounts of capital in private markets influenced the growth and success of modern era-defining tech companies?
In the early days, because the only way to raise substantial amounts of capital was to go public, many of today’s bellwethers went public at relatively low valuations. For instance both Amazon (1997) and Netflix (2002), went out at around $300M. Despite having amazing business models, many great companies died or took forever to succeed because of the rigorous quarterly reporting requirements imposed on public companies. By making large financing available to private companies, industry disrupting technology could mature outside of the public company regulations. Today, the era-defining players in many segments are private. SpaceX is 90% of the global launch business and 50% of the satellites, with no public aerospace company coming close. Neo-banks such as Revolut have 45M customers and are acquiring 30-50k new customers per day, vastly more than any of the incumbent traditional banks. The strategy of building world-beating companies in the private markets means that the bulk of tech returns occurs in the private markets.
The strategy of building world-beating companies in the private markets means that the bulk of tech returns occurs in the private markets.
The best tech companies will continue to be VC-backed
What role do you see VC playing in era-defining tech companies going forward?
Technology is going to continue being at the centre of GDP growth. These disrupters will continue beginning their journey as start-ups that capitalize on a technology unlock that allows for a vast user need to be met. The founders of these era-defining start-ups will seek out the support and partnership of top-tier VC’s. Beyond providing founders with unique experience and insight, these VC’s open doors to lucrative business development opportunities, as well as help recruit key candidates. Additionally, successful VCs have the track record that allows them to take more risk than the rest and take the contrarian bets at the heart of venture.
The Next Frontier: The Growing Role of Endowments
How have top US endowments adapted their investment strategies in Private Markets and Venture Capital?
Top US endowments have been the most professional investors in Private Markets and VC. The top 5 performing endowments have allocated 40% to Private Markets for many decades. Until recently the emphasis has been on Private Equity. Due to market dynamics and the resulting performance reversion to the mean, VC now represents c. 50% of the total Private Markets allocation to early-stage venture. Aside from ensuring a material exposure to technology start-ups by securing allocations to the world’s best venture managers, endowments invest in programs thus ensuring that they maintain comparable exposure across vintages. World-beating companies are created in every cycle in tandem with unique technology unlocks. Anecdotally, private investors tend to over-allocate during hype cycles and under-allocate when markets correct and opportunities are less expensive.
Unlocking the Power of Relationships
What key factors contribute to building a successful franchise VC?
Investing in technology requires a deep knowledge and network. Having relationships with key stakeholders (founders and executives, top-decile VCs, angel investors, and board members) is critical to identifying the best Venture managers and era-defining companies. The difficulty is building sufficient conviction to pull the trigger on the winners. Making sense of all the noise is essential. Out of the 1,000+ unicorns, 90%+ will go nowhere despite all of these companies looking amazing. You need to leverage unique relationships to gather enough insights to determine which of these companies will make it. Working backwards, only a handful of era-defining companies get created per vintage, thus reinforcing the need for concentration so as to avoid diluting returns with companies and managers that go nowhere.
Backing a massive success once is not sufficient to build a franchise VC, but being able to replicate success, fund after fund. To do this, VCs need a philosophy of always leveling up to ensure the team is backing the next great company. Academic research supports the concepts of persistence and dispersion whereby the top-quartile managers consistently outperform the rest by orders of magnitude and over long periods of time.
Backing a massive success once is not sufficient to build a franchise VC, but being able to replicate success, fund after fund.
Positioning for Success in an Era of AI
How has AI changed the game?
AI will impact every company. The next 10 years may unleash more innovation than any other past tech wave (microprocessor, mobile, cloud) and fundamentally redraw the landscape of incumbents. The Scaling Laws which link input data to model performance predict orders of magnitude jumps in AI intelligence. Underpinning this phenomenon is the fact that the amounts being spent on training and fine-tuning these models go from hundreds of millions of dollars to billion and now with GPT-5 – tens of billions of dollars. Only the best venture funds are in these foundational plays early and have material ownership. This will likely be true for the cohort of critical infrastructure and application start-ups exploiting the models. The best venture funds despite being generalists have been building their AI expert-investors bench for years and are therefore best positioned to win going forward.
The best venture funds despite being generalists have been building their AI expert-investors bench for years and are therefore best positioned to win going forward.
If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.ch
Authored by:
Richard Rimer Director at TOP Ventures
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