What does venture-capital look like post reset?

SC Moatti is the Founding Managing Partner of Mighty Capital, a Silicon Valley venture firm, and chairs the Board of Products That Count, a 501(c)3 nonprofit that helps everyone build great products and inspires 500,000+ product managers. SC earned her reputation as a product visionary and technology investor during the mobile era, when she built products that billions of people use at Meta/Facebook and Nokia, won industry awards and nominations from the Wall Street Journal and the Emmy's, and wrote an award-winning bestseller on what makes a great product. She has been called “a genius at making products people love” and named a Top Voice in venture capital on LinkedIn. SC frequently speaks to product and investing trends, including a recent keynote at TheNextWeb, a fireside chat at Fortune Most Powerful Women Summit, featured articles in the Harvard Business Review and TechCrunch, and interviews on NPR (Tech Nation) and CNBC (Closing Bell.) She serves on the boards of public and private companies, lectured on product and investing at the executive programs of Stanford and Columbia Universities, earned a master’s in electrical engineering and a Stanford MBA, and is a Kauffman Fellow and member of YPO. 

With the current reset in venture capital, the times ahead will be radically different from those we've seen.  

Earlier this month, senior LPs and top VCs gathered in Los Angeles for SuperVenture US West event. The insights shared on stage and between peers were incredibly enlightening, so I wanted to recap a roundup of my top takeaways from the event. 

Asaf Horesh, Managing Partner of Vintage Investment Partners, gave an insightful presentation on current VC trends, sharing his perspectives on the state of venture: 

- Cautious optimism: We're still in the early stages of rectifying the downturn, however quarterly trends suggest early stabilization in VC and start-up investments, with funding levels approaching pre-2020 rates.

- Series A crunch: Late and venture-growth stage valuations peaked in 2021, dipped in 2022, and worsened in 2023, now trickling down to Series A despite strong seed investments. Traditionally, 2.5 times more capital was invested in Series A over Seed, a ratio that has dwindled to less than 2x recently.

- Lukewarm exit activity: The IPO market has cooled, with a 90% drop in VC-backed IPOs' value in 2022-2023. M&A activity faces challenges, with average deal values declining. Acquirers are cautious but eye take-privates. As private market valuations align with public market realities, M&A should pick up.

Why M&A activity has yet to recover (source: Vintage Investment Partners, 2024)

To generate alpha, investors need to back strategies suited for the new order of things, where it has been proven that inclusion generates superior performance.  

Moving forward, the resilience and adaptability of the venture market will be pivotal in unlocking new avenues for growth. We stand at the threshold of a new era, one where inclusion is not just a moral imperative but a strategic advantage, proven to generate superior performance.

I was privileged to share the stage with some of the brightest allocators in the industry and found myself inspired by the collective wisdom shared amongst the group. Each perspective underscores essential principles that will shape the future of investing:

Firstly, diversification emerges as more than a mere strategy—it's a cornerstone for success. Jasmine N. Richards, CFA, Managing Director and Head of Diverse Manager Research from Cambridge Associates emphasized the significance of portfolio diversification, highlighting how the most successful investors thrive by uncovering opportunities overlooked by others. In a landscape where innovation drives progress, a diversified approach is essential to capture alpha.

Secondly, discipline is non-negotiable. Laura Thompson, Partner at Sapphire Partners emphasized the importance of maintaining focus on core strategies and incorporating learnings during the past couple years in areas like pricing, liquidity, and pacing. In venture capital, where uncertainty is inherent, adherence to rigorous underwriting processes is paramount. It's these disciplined practices that underpin sustainable success amidst fluctuating market conditions. 

Thirdly, intentionality stands out as a guiding principle. Octavio Sandoval, CFA, CAIA, Director of Investments at Illumen Capital encouraged us to challenge biases and embrace diversity of thought. In a world inundated with data and opinions, cultivating a culture of intentionality can foster innovation and drive superior performance. It's about transcending conventional wisdom and embracing the power of varied perspectives.

Lastly, community emerges as a force for progress. Derrick Tang, Deputy Director of Venture Capital at the State of California advocated for collaboration among LPs, reflecting a vital paradigm shift. The future of venture capital hinges on our ability to forge strong partnerships, pooling resources and wisdom to nurture the next generation of managers. In an interconnected world, collective action propels us towards greater heights.

By embracing these tenets, we position ourselves not just to thrive but to lead in this dynamic landscape of opportunity.

Panel of institutional LPs discussing where they find alpha post-reset

What this means for the short-term and beyond

Another insightful panel led by Michael Ashley Schulman from Running Point Capital steered a conversation on seed-stage investing amidst a new tech wave. A critical insight highlighted was the differentiation between mere technological features and the foundation of sustainable businesses: not every appealing company guarantees a profitable investment. Key to this investment strategy is identifying entrepreneurs who exhibit a blend of vision and adaptability, ready to absorb wisdom from seasoned mentors. 

Those conversations weren’t just invigorating—they reinforced my conviction in our trajectory here at Mighty Capital. We’re building one of the major franchises of this new era, anchored in our culture of respect, grit and adaptability.

My heartfelt thanks to the SuperVenture team for orchestrating such a thought-provoking conference. Here's to the journey ahead! 

Want to hear more? Head over to SuperVenture and register your place!