Interview
Inside VC’s Existential Crisis: Jeff Morris Jr. on Surviving & Winning
- The market is predicted to undergo a significant shakeup where 30 to 50 percent of venture firms may cease to exist, a trend expected to be a primary discussion topic throughout 2024 and the subsequent venture capital cycle.
- Institutional limited partners (LPs) face anticipated churn within their bases due to liquidity challenges, while emerging managers relying on endowments, universities, or pension funds are positioned more favorably than those with non-institutional backers.
- Emerging managers utilizing high-net-worth individuals, family offices, or sub-$30 million structures face capital-raising difficulties driven by limited DPI and insufficient dedication through market cycles, potentially causing non-institutional funds to fall by 40 percent.
- Career pressures will intensify for mid-career investors lacking major successes and for partners at large funds, leading to potential departures, while emerging managers must choose between merging, acquiring, or shutting down.
- Consolidation strategies such as partnerships or acquisitions may allow GPs to gain exposure to broader funds, though this often involves sacrificing up to 50 percent of upside and requires precise timing.
- Building a venture franchise is expected to require a 10 to 15-year life cycle, with one-to-three person teams facing challenges in maintaining relevance and managing fees without significant capital cushions.
- Fundraising will become increasingly time-intensive for emerging managers, particularly those in "Fund One" without compelling stories, though a "Fund Two" raise may occur rapidly if early signals of success are evident.
- Founders may need to supplement income through side hustles or media companies to sustain smaller funds or SPVs, especially as the 2019 cohort faces personal life changes like aging and starting families.
- Product iteration will be forced by market conditions, with consumer teams expected to pivot quickly after a few failed attempts, while B2B software teams risk stagnation between $1 million and $3 million in ARR.
- Deep vertical and highly industry-specific software is expected to persist despite AI hype, contrasting with broader market expectations.
- Los Angeles investors can pursue a distinct strategy from the Bay Area, attracting talent in deep tech and gaming who are unwilling to relocate, fostering a low-key ecosystem compared to Miami.
- Geographic location is predicted to be overemphasized in venture debates, with iconic funds successfully built outside the Bay Area by individuals who prioritize productivity and happiness over full-time presence in specific hubs.