Welcome to Emerge Club for Investors
Acrobator Ventures' Founding Partner Bas Godska on why honeymoon days for VC are over
Dear Investors!
This is the first Emerge Club’s Newsletter on Substack which takes you inside the fast-paced world of venture capital and tech startups. What is EMERGE Club?
Emerge Club — is an exclusive open online membership for venture capitalists and startups from all over the world from Emerge Conference. As a member of this club, you will be entitled to a range of exciting secret benefits and exclusive access to great stories, events and experiences. All members gain access to exclusive investment opportunities, emerging startups, new technologies, special events, 1-1 meetings with advisors and stories on what's coming next for startup founders and investors in the times of massive changes. Learn, grow and invest with us.
My name is Anastasia, and I'm the head of Emerge Club for investors. I’m an award-winning journalist, ex-Forbes deputy editor-in-chief and ex-head of the Forbes 30 Under 30 project. Venture capital has been my obsession for nine years already. I wrote hundreds of stories about VCs and tech founders from all over the world. And now, I avidly devour tons of blogs, articles, books and other sources about venture capital on a daily basis to get valuable insights.
As venture capital is at a crossroads and in flux, selected information on the topic can help you navigate this turbulent period. For these bi-weekly newsletters, I’ll handpick great founders’ and investors’ stories, global VC trends and news over the past two weeks, as well as investment opportunities and invitations for online discussions. Our first one on THE STATE OF VC MARKETS: what's coming next for founders and investors will be announced shortly.
For every single issue of the newsletter, I’ll talk to the most successful and influential investors and angels. My first speaker and guest is Bas Godska, Founding Partner at Acrobator Ventures, Netherlands. Bas is a great friend of Emerge, so I’m very proud to have him as the first speaker and guest to chat about the state of the VC market, raising a new fund in turbulent times and investor’s fuckups.
Firstly, I want to share some hot VC news and global trends of the past two weeks.
Five partners from Sequoia Capital have left the firm. Among them — Michael Moritz, a longtime partner and former journalist. After almost 40 years at the firm, Moritz decided to focus on Sequoia’s independent wealth management business, Sequoia Heritage. Their departure reduced the number of the firm’s investment staff by 15% to 28, according to its website. Why does it matter? Sequoia Capital is one of the most influential players in the VC market. I’m sure this is a sign of further changes for the industry.
Following the news about five partners exiting, more lay-offs from Sequoia were revealed this week. Forbes reports that the firm is set to cut one-third of its talent staff helping with recruitment for portfolio startups.
Another big player, Andreessen Horowitz (a16z), has hired Anjney Midha, an ex-Discord VP, a16z’s Martin Casado wrote in a blogpost. According to Kate Clark from The Information, this hire also comes during a shake-up in the VC industry. Midha will be joining a16z as a general partner to lead the firm’s growing AI efforts.
An interesting story that attracted my attention in terms of possible investor fraud is the story of Bolt and its founder and former CEO Ryan Breslow. The Information reports that Bolt is probed by the SEC. The SEC suspects that Breslow misled investors when he raised a $355 million round. The round was announced in January 2022, when the project was valued at $11 billion. Moreover, Breslow was sued by one of the investors for the latter’s expulsion from the board of directors. According to the investor, he reminded Breslow to repay a $30 million loan, after which the Bolt founder removed him and two other members from the board.
And the last one for now is an absolutely stunning story. Getting my popcorn at the ready for the second part of Bad Blood. OpenAI CEO Sam Altman and a group of investors from Silicon Valley put $48 million into a biotechnology company Vital Biosciences Inc. with a technology similar to the one that Theranos had. Just a reminder: Liz Holmes, Theranos’s founder and CEO, was sentenced to nine years in prison for fraud. So we’ll see how this new story will develop.
As I announced earlier, for this issue I spoke to Bas Godska, Founding Partner at Acrobator Ventures, The Netherlands.
Here are the latest VC market trends according to Bas:
Honeymoon days are over
VCs waiting for the better. By the second half of the year, investors had been expecting some sort of upswing — an increase in deals, valuations and exits. However, by the end of Q2 people across boards, LPs and VCs, keep kicking the ball forward: “Let’s look at the end of the year”. It’s still a wait for the better.
3X is the new 10X. On the startup fundraising side I see more activity, likely because there's a more urgent need for capital. The institutional investors are generally fairly careful, and now a bit slower in decision-making, being more picky than in the past, considering now that exit-wise “3X is the new 10X”.
Community-driven funds and investments. I notice that there are more and more angels. They are the bridge between entrepreneurs and institutional capital. They are joining and forming community-driven funds. I see more and more clustering of expertise, aiming to become an emerging mini-VC. In the sense that they will just be an angel syndicate or a group of LPs with smaller tickets setting up a more loosely-structured VC fund.
The rise of crowdfunding platforms. Personally, I’m a big fan of them, but it seems to me that in Europe the market of such platforms is a bit fragmented. I’m a little positively biased because we also invested in one; it operates in the Netherlands, Germany, and Switzerland.
Contradicting information about the state of the VC market. I see contradicting data points from different sources. Some people say that valuations are going up a little again, and that exit multiplier levels are slowly getting back on track, or that the venture capital sector is reviving. Everybody, of course, wants things to be back to normal. I’d love to see my private portfolio valuations back to the levels of December 2021; yet our current venture fund’s portfolio has luckily not shown much decrease in value. But the truth in general is this: things are not back on track, whether it used to be normal or not.
About valuation correction and non-prof investors
“At the core of things I’m an angel investor, I always remain optimistic, but I expect that for the group of people who probably did not have any exits yet it's now very hard to raise for their emerging VC funds. The results of emerging funds are often better because the GPs are very devoted; certain investors love to only invest in emerging funds.
Founders are getting more realistic about fundraising at market-conform valuation, slowly but steadily... To be frank, I’m a little bit annoyed sometimes when I still see people coming with no revenue, just a nice idea, and thinking their project costs ten million. Guys, come on! Realize that those hyped honeymoon days are over.”
How to run a VC firm during this turbulence? An opinion
“The startup valuations are now undergoing a healthy market correction, meaning that VCs who invest now can usually expect to exit in 5, 6 or even 10 years. So now you’re at least not investing in companies at the very peak of the market. I would say that what’s happening is a normal, cyclical period. It may take us ten years to get back on track, or maybe only 3 or 5 years. VCs that raised just before valuations started plummeting now sit on dry powder. We at Acrobator got lucky in that sense. We had a tough time raising our fund because of Covid-19 — everybody was afraid and it took us a bit longer to raise our EUR 26 million fund. So far we have spent and reserved roughly half of the money, and we now do see that deals are, valuation-wise, more reasonably priced – and we have a bit more time to work on proper due diligence, whereas, in the past, you could have all this frantic urgent dealmaking pressure which from an investor perspective was not so nice.
We are pretty careful as a fund, in the sense that we thoroughly research and talk to clients, founders and suppliers. We do a thorough due diligence. Our current fund portfolio of around 12 companies did not drop in value. That seems to prove that it's possible to stay away from those market fluctuations.”
A fuck-up story from Bas
“Onсe, I got offered to invest in a company in Ukraine but they got away in a sense. For some reason then, probably 10 years ago, the valuation of this company was already a little bit at Silicon Valley levels, too expensive I thought.
Obviously, you can’t read the future, but compared to other companies this one was one, two or even three times overpriced. I like to compare two investments, one from my angel portfolio company Miro from the very start, and the other, Ukrainian, company. I remember Miro had about 5 times higher sales but had roughly the same valuation price, which I found a bit too high for me to invest in the Ukrainian company. They’re on track becoming a unicorn. Glad I did not miss out on decacorn Miro! So what, if you make 200X and not a thousand X. Still great.
I have a house in Tuscany. Whenever we pick up guests, it's an over an hour long ride to the airport. My assistant and I have this fun exercise on my way to the airport. On the phone, we’re going step by step through all of our 50 investments. I look at them like a Rubic’s cube from all sides: what made me invest, what was the fuck-up, what is my lesson from it, what should I do again to achieve the same success? Or even on a very intuitive level like: “Okay, was I maybe naive, did I get distracted through flattery or irrelevant facts, what to learn from this failure?”
Or: founders that have been generous and fair equity-wise to their investors (like me) in negotiations — is this, maybe, the pattern of successful founders we should explore? So I’ve done this exercise over the last 20 years in investing with a kind of meta goal to find patterns that nobody really thinks about. Everybody’s chasing the same white rabbits, not the ones that are under the surface. And I do find some interesting patterns. It’s hard to quantify because it's a small data set. I’m working a little bit with the data from a business university in The Netherlands, so far we’ve had 271 deep interviews with angels trying to find insights in the motives and barriers they have. Comparing the insights with my own, I think investors in the end are not as individual and unique as we like to think.
We are already raising our new special purpose vehicle series A fund, mostly internally for our existing LPs. Either the LPs will close this fundraising round or we’ll open a bit of the round for new external smart money to come in on top if possible. This fund will also be compact — we're targeting around EUR 25 million so far because we noticed that from our fund's 14 pre-seed/seed investments, around 5 have already reached several million in sales. They will need capital and we sit in the front row now with our dry powder. It will only be good to allow our LPs to benefit from our pro rata and super pro ratas fully.
So all in all there is still space for innovation in the venture sector. I like exploring and validating non-linear contrarian approaches, a bit less of the extremely structured institutional “one size fits all” approach. Technocratic thinking separated from intuitive input may sometimes hug startups to death by conveying due diligence for too long, or by being indecisive, being way too careful. I mean, this is the venture sector we’re talking about, which itself belongs to the highest risk category. That's why one of the mantras of our fund is “do one thing a day that scares you”, noticing how sometimes that dualistic approach seems a little bit missing in the whole thing”.
Thanks for reading! Feel free to express your interest in specific topics you'd like to see covered in the Emerge Club’s newsletter. Share your thoughts through the EMERGE Club newsletter survey. Check it out, I’ll be happy to hear from you.