Interview, Fireside Chat
David Frankel, MP @Founder Collective: Investing Lessons from Seeding Coupang, Pillpack & Suno|E1214
- DPI for the 2018 vintage funds is projected to be critically low or non-existent due to a "perfect storm" of capital outflows during 2019 and 2020, whereas the 2020 vintage is expected to perform adequately.
- IPO markets are forecast to remain closed until at least H2 2025, with reopening potentially triggered by a single major exit like Stripe or Starlink.
- Valuation expectations for seed rounds have shifted significantly, where a $4 million pre-money valuation is considered anachronistic, while a $5 million pre-money on a $20 million raise risks being deemed "utter insanity."
- SaaS market multiples have collapsed from 20x to 5-6x, a trend that is trickling down to private valuations and causing later-stage down rounds where expected profits have not materialized.
- Venture capital allocations by LPs face pressure to lower exposure due to low DPI and reduced hit rates, though many may retain minimum allocations to avoid missing generational opportunities.
- Secondary liquidity is increasingly restricted, with "high flyers" seeing activity while access to secondary markets for smaller private companies is described as "almost impossible."
- Future 2020 and 2021 vintages face a risk of permanent capital loss rather than merely delayed distributions.
- AI sector investment expects profound long-term changes, though short-term CapEx spending may disappoint relative to earnings, and commoditization could denigrate margins for vertical SaaS unless data enrichment drives pricing.
- Investment strategies for small funds must target 10x returns, as this threshold is the only viable bar for returning a fund, making broader expectations unrealistic.
- The "pro rata" obligation is becoming "terrible" for entrepreneurs and investors, with terms becoming more restrictive as "Paris-Persu" structures fade in favor of preferred stack dominance.
- Founder dynamics suggest that repeat founders with a "chip on their shoulder" may outperform highly successful founders prone to hubris, while "orphaned" founders represent a non-consensus opportunity.
- Endowments face constraints on replicating the high allocation hit rates of the Swanson model (35-40%) due to lower success rates and illiquidity, while family offices have pulled back more aggressively.
- Board seat economics require a minimum 15% ownership threshold to justify time allocation, and failing to warn founders of imminent cash failure constitutes an abrogation of fiduciary duty.
- Follow-on funding availability is projected to be extremely limited, with 90% of companies potentially unable to secure subsequent capital, deepening the divide between "haves" and "have-nots."
- Historical funding patterns like "20 on 80" and "10 on 40" deals are characterized as casino-like behavior that drove excessive expansion before business models were validated.