Interview
Sonali De Rycker | How I Became a Partner at Accel; Type 1 vs. Type 2 Mistakes | 20VC #902
- The market environment is expected to resemble the year 2000 with mainstream technologies at the epicenter, where valuations will likely remain at deep discounts for an extended period while the market determines if contraction stems from multiple compression or fundamental business risks.
- Capital is predicted to migrate from growth rounds to super-early stages, causing significant price inflation at the seed stage (e.g., funds paying $50 instead of $25 to deploy $5 million) while the number of companies receiving $500 million to $1 billion growth rounds will decrease significantly.
- A strategic reversion toward high enterprise SaaS investing is anticipated, accompanied by a retrenchment away from emerging markets and capital-intensive businesses due to a focus on unit economics and capital efficiency.
- The firm plans to "buy up" ownership positions in follow-on rounds for companies they believe in, driven by the expectation that ownership will never again be acquired at current early-stage pricing.
- Investment decisions will prioritize "first principle thinking" and enduring business models, which may result in missing opportunities in highly capital-intensive sectors that previously succeeded on cheap capital, while avoiding "false positives" to protect fund returns.
- The firm will maintain a "boots on the ground" structure with local decision-making in diverse locations including Russia and Vilnius to honor commitments to global founders, despite the challenges of building "capillary networks" without decades of local groundwork.
- Organizational culture will continue to emphasize "authenticity," "vulnerability," and a "we" culture involving collective decision-making and heated debates, using written rules like shared bonuses to enforce collaboration and avoid "sharp elbows."
- Talent acquisition will prioritize resilience, self-awareness, and the ability to "reboot" after bad news, while empowering younger team members to make decisions early based on trusted "pattern recognition."
- The "cheerleading" market dynamic of fragmented cap tables and party rounds is expected to disappear, replaced by open discussions regarding founder trust and more honest assessments of business viability.
- Large US players moving to London are predicted to struggle without deep local networks, whereas the downturn there is not expected to change the fundamental nature of entrepreneurs building great businesses in the region.
- Significant opportunity costs are associated with deploying capital at 2021 pricing levels; deploying capital into depressed pricing over the next year is expected to yield better returns than maintaining current valuation levels.
- The sector faces a risk of missing "false negatives" (outlier growth stories) due to an overemphasis on unit economics, as the pain of missing exceptional businesses is anticipated to be greater than the pain of failed investments.
- Despite the macro environment, secular trends regarding digitization, AI, and the cloud are expected to persist, ensuring a vibrant future for founders who can build "uncapped" potential businesses.
- Passive funding offers are expected to decline in favor of partnerships with active, "ground zero" venture capital firms that provide stability and support during downturns, as founders increasingly value relationship-based investing.
- The firm anticipates a "drought" of investment activity in the US for certain growth rounds will continue, pushing more capital toward the seed stage and leading to a concentration of capital and talent in surviving sectors.
- The firm expects to continue allocating resources to mentorship and talent development, including maintaining dedicated personnel for talent, as inherent desire for the work cannot be convinced into existence.
- Learning will continue to occur through steep, never-declining curves, with the firm encouraging "real vulnerability" and admitting mistakes, such as past fixations on market size, to facilitate growth.
- The firm plans to avoid blindly supporting companies in follow-on rounds if conviction is lost, recognizing that recognizing "what good looks like" via a "prepared mind" is more critical than complex outcome scenario planning.
- The "drought" of investment activity in the US for certain growth rounds will continue, pushing more capital toward the seed stage, creating a shift away from the fragmentation seen in the recent cycle.
- The firm will continue to face challenges in "honoring commitments" to global founders, requiring the firm to be "first" in many markets despite the difficulty of maintaining a "first investor" role in difficult markets like Europe.