AGM Alts Weekly | 6.11.23
AGM Alts Weekly #5: Making private markets more public, every week.
👋 Hi, I’m Michael and welcome to my weekly newsletter, the AGM Alts Weekly. Every Sunday, I cover news, trends, and insights on the continuing evolution and innovation in private markets. I share relevant news articles, commentary, an Index of publicly traded alternative asset managers, job openings at private markets firms, and recent podcasts and thought pieces from Alt Goes Mainstream.
Join us to understand what’s going on in alts so you and your firm can stay up to date on the latest trends and navigate this rapidly changing landscape.
Good morning from Washington, D.C., where I’ve just returned from a two week trip in Europe, spending time with founders and funds across London, Berlin, and Madrid at SuperVenture, South Summit, a GP / LP event hosted by Equation, and doing a fun podcast episode with EUVC.
Today’s newsletter will be a “European edition.” There’s so much activity going on in Europe and plenty of observations and takeaways from two weeks on the ground (as well as in the articles below!).
I’ve always believed that it’s important to be on the ground in an ecosystem to truly understand it and forge collaborative relationships with local investors and founders. Relationships of trust are best built in person — and the two weeks in Europe reinforced that sentiment.
“Work is love made visible” and it was an inspiring two weeks in London, Berlin, and Madrid spending time with people who love what they do and do what they love. Look forward to seeing you again soon.
AGM Index
AGM has created an Index to track the leading publicly traded alternative asset managers.
Some of the industry’s largest alternative asset managers are publicly traded — and their net inflows can serve as a window into how private markets are being perceived by investors and allocators who are allocating capital into alternative investments.
AGM News of the Week
Articles we are reading
📝 Reporter's notebook: Optimism reigns supreme among VCs at SuperVenture | Leah Hogdson, PitchBook
💡PitchBook’s Leah Hogdson provides a rather sunny recap of SuperVenture’s conference in Berlin last week. Despite a downturn in VC dealmaking, optimism appears to be shining through the market clouds, particularly around the European VC ecosystem. Adams Street Partners’ Ross Morrison kicked off the conference highlighting that innovation does not always mirror financial cycles. Balderton Capital General Partner Suranga Chandratillake echoed Ross’s sentiments on Europe on the panel “Snap back to reality: Being bullish in a bear market.” Suranga called the general health of the tech market in Europe “underhyped” and noted, “I’m overall very enthusiastic and optimistic about where we find ourselves in Europe. It’s easy to get caught up with cyclical financial realities and macroeconomic trends, which obviously are having an impact, we’re still seeing a lot of new companies being started, and investments are at a very high level compared to any year prior to 2020.” Other topics that are on the minds of GPs and LPs included: the future of fundraising, ESG practices and falling valuations / how GPs are marking their portfolios.
AGM’s 2/20: Data, anecdotal evidence, and conversations with a number of VCs and LPs at SuperVenture would suggest that Europe should have some exciting venture capital vintages ahead. European VC appears poised to take a leap in its next phase of maturation. There’s a thriving talent ecosystem that only seems to be getting more experienced and better, there’s plenty of dry powder available from many of the top funds in Europe, and there’s still ample room for innovation across categories like fintech, climate tech, deeptech / hardtech, AI, and enterprise. Adams Street Partners’ Ross Morrison’s shared an illuminating chart that highlighted Europe’s performance in VC from 2006-2022 vs the US and Asia, showing that Europe’s performance bested that of the US and Asia on a multiple basis (~4.5x for Europe vs ~3.6x for US and ~2.2x for Asia) while also having a capital weighted loss rate in between the US and Asia. To hear Suranga emphatically share his optimism for Europe on the panel I moderated at SuperVenture also speaks volumes — he built and scaled blinkx to IPO and spent ample time in the US in the early 2000s. So for him to call Europe’s tech ecosystem “underhyped” is a signal that shouldn’t be ignored.
📝 Private Equity Grapples With Downturn at SuperReturn Conference | Jan-Erik Forster, Bloomberg
💡Bloomberg’s Jan-Erik Forster painted a less optimistic picture from Berlin’s SuperReturn International conference, just down the road from SuperVenture and more focused on private equity than venture capital. Forster cites that macro economic shifts such as rising rates, inflationary pressures, and geopolitical tensions have had an impact on private equity. Anuj Ranjan, president of private equity at Brookfield, the Canadian asset manager remarked: “You can’t bet on multiple expansion, high leverage and growth forever, you need to make the growth happen through operations.” LPs have either paused or become more judicious with allocations, in some cases severing decades-long relationships with PE funds. This shift has forced even some of the biggest funds to recalibrate fundraising targets. There are some signs of optimism for deal-making. There’s ample dry powder and deals are starting to get done, particularly with take-privates.
AGM’s 2/20: In contrast to the optimistic VC outlook on innovation occurring in any cycle, there’s a more sober sentiment from the private equity sector. And it’s not entirely far off. Interest rate increases have impacted the ability for funds to access cheap financing for deals and for portfolio companies to grow with debt. Add in inflationary pressures, real geopolitical concerns, and looming debt refinancings at higher cost and it makes for a challenging environment in private equity. This doesn’t mean that there won’t be opportunity — private equity, like venture, is a long game and markets may very well look different in 5-10 years, but funds will certainly face headwinds in fundraising and dealing with current portfolio companies. Fundraising challenges certainly bring up questions for the publicly traded alternative asset managers, who are privy to public market investors who keep a watchful eye on asset inflows, which drives management fee revenues. But let’s not forget that generally the best vintages in private markets occur following economic and financial market downturns.
📝 Isomer Capital — backer of many of Europe’s top VCs — does first close of new €250M fund | Amy Lewin, Sifted
💡Isomer Capital, an investor in some of the top European VCs like Seedcamp and Hoxton Ventures, completed its first close of a new €250M fund. Isomer has raised 1/3 of its fund thus far, with institutional LPs reupping, including British Business Investments, the European Commission, a “well-known US endowment,” “one of the largest foundations in Germany,” and Italmobiliare, reports Sifted’s Amy Lewin. Isomer will invest between €5M-10M in 20 early-stage funds in the UK and Europe, across all sectors, and will also invest into a number of “micro VCs.” Isomer has been raising a fund of funds in a time when there’s unquestionably fundraising headwinds, but Managing Partner Joe Schorge is optimistic about future vintages of European VC, remarking that “Europe’s maturing talent base and prudent valuations” could result in “some of the best vintage years in the VC sector.” Isomer Partner Thomas Schneider also highlighted that VCs are “realising that liquidity is important,” and that VCs are actively trying to find exits through M&A deals or secondaries as some growth-stage funds are moving to invest earlier.
AGM’s 2/20: Isomer’s progress on their largest fund to date is a positive signal for Europe’s venture capital ecosystem. Fund of funds are critical components for a thriving fund ecosystem, as it enables LPs to gain broad exposure to a number of strategies and / or geographies and helps GPs institutionalize their LP base as they grow for future funds. Diversified venture capital, over the long run, has often outperformed all other mainstream equity strategies. Furthermore, fund of funds, and VC fund of funds in particular, when done right can generate outperformance for LPs with reduced volatility compared to investing into a single fund or a handful of funds on a more ad hoc basis. Interquartile return dispersion is amplified in VC, where a small number of funds generally drive meaningful outperformance, so access to the right managers is critical. Europe’s geographic fragmentation presents both challenges and opportunities — high-quality fund managers can generate outperformance in all corners of Europe (UiPath is a Romanian unicorn, as an example with both Eastern European VC funds (Earlybird Digital East and Credo Ventures) and London-based fund Seedcamp investing in the seed). But it can be challenging for LPs to independently canvas early-stage funds, do so systematically across geographies, and right size their investment allocation into funds that are either too small for large checks or hard to access. This is where a fund of funds like Isomer and others emerging in Europe like Equation, Multiple, and VC funds who have set up fund of funds programs like Phoenix Court Group, Speedinvest, Molten Ventures, Earlybird, and others.
📝 Solo GP Sarah Drinkwater raises fund to back 'community' startups like Monzo and Depop | Eleanor Warnock, Sifted
💡Angel investor and ex-Googler Sarah Drinkwater has raised a third of her target for her first fund, a £10m fund, Common Magic. Sarah’s background in community building as Google’s Head of Campus London, Google for Entrepreneurs, and working as a community manager drive her investment thesis of investing into European and US startups at pre-seed and seed building “products with community at their core.” Sarah believes that “for certain companies, community can replace that as a mechanism to build trust.” Drinkwater has 19 LPs thus far, including Atomico (where she went through Atomico’s angel programme), Phoenix Court Group’s fund of funds’ programme Basecamp, Taavet+Sten, Hugging Face CTO Juline Chaumond, and Stripe CTO David Singleton.
AGM’s 2/20: Sarah is part of a broader trend of solo GPs, micro fund managers who are starting and running their own funds. The rise in solo GPs is indicative of a trend in venture — the rise of the individual brand and how that can translate into a single GP fund. Some LPs are reticent to back single GP funds due to risk, but others see a first-time fund / first-time team with multiple partners as a risk as well. Founders have shown evidence to gravitate towards an individual investor’s brand, even when working with a larger firm, so there’s reason to believe that a solo GP fund can carve out a spot on a cap table at early-stage either as a lead investor or as a follower if they have a brand and track record as either an operator, investor, or angel that resonates with the founder. As fundraising becomes more challenging for GPs, it will be interesting to see the fallout for solo GPs. Fundraising will become longer, fund size targets may have to decrease, all of which leads to the question for many new solo GPs: what’s the minimum viable fund size to get started?
Reports we are reading
📝 Inside the Minds of European VCs | Andreas Schwarzenbrunner, Speedinvest
💡Speedinvest, a €1B AUM European VC fund, partnered with Professor Reiner Braun, Chair of Entrepreneurial Finance at Technical University Munich, on a survey of 430 European VCs to gather their thoughts on the strengths and weaknesses of the European startup ecosystem. The report found that the European ecosystem is still young, less mature than its US counterpart, with the average VC in Europe investing on its third fund generation and in business for just over a decade. This pales in contrast to the US, where the average founding year for a VC firm is 1998. Europe’s VC firms are growing and maturing in size and scale. The average European fund size in the most recent fund generation was, on average, €120M with the largest quartile starting at €267.5M. This is significantly lower than the US, where a number of funds have raised $B funds, but it reflects an emerging and growing ecosystem.
Speedinvest lists the strengths and weaknesses of the European ecosystem. Amongst the strengths highlighted in the data:
Educational system and universities.
Access to great talent.
Technological know-how and IP.
Public funding environment (LP and grants).
Weaknesses of the ecosystem highlighted in the report include:
Current state of European capital markets and exit environment, with 75% citing functioning European capital and exit markets, or lack thereof, as a long, consistent, and considerable barrier for the European ecosystem.
Immaturity of the ecosystem, with a dearth of executives in Europe with experience in scaling a company, especially compared to the US.
59 percent of respondents highlighted that the private LP market is less mature and significantly smaller in Europe compared to the US. As one participant said, “We are very far away from having a stable and available private institutional investors base in the venture capital asset class in Europe.”
AGM’s 2/20: Speedinvest and Professor Braun’s report on the state of the European startup ecosystem reflects many accurate realities of an ecosystem ready for the next phase of its development. Talent and a thriving educational system are at the stage where Europe is ready to make the next jump as an ecosystem. Seeing the data on the average age of VC funds in Europe is a good reminder that European tech and VC is still very much in the relative early innings of its development and maturity. I continue to believe that more talent will continue to flock to Europe, in part because of the promise of its tech ecosystem and in part because it’s generally a good place to live.A thriving capital markets and exit environment appears to be the big barrier to unbridled growth, which certainly has a knock-on effect on the LP market. The private LP market seemingly needs continued maturation in Europe. Perhaps data around investment performance and the upcoming vintages appearing to have promise shifts LP views over the next few years.
📝 Emerging Fund Manager Report - Q1 2023 | Signature Block
💡Signature Block shared a report on emerging fund managers, surveying 195 emerging managers. Fundraising has become more difficult for managers of all sizes, but particularly so for emerging managers. LPs appear to be passing on emerging managers for more established managers in many cases. Data shows that it’s a difficult time to raise a fund: 91% of fund managers reported that it was difficult or very difficult to close their fund in less than 6 months, with over half citing that it has taken them 12 months or more. Solo GP funds are less common than it may seem, as many emerging managers are “breaking out” from existing firms. Almost 60% of the managers see themselves as specialists rather than generalists and despite the buzz around AI, fund managers are most excited to invest into fintech and SaaS.
AGM’s 2/20: Signature Block’s report provides data to back up some anecdotal observations in the emerging manager ecosystem. Fundraising is certainly a tall task in the current environment, with LPs focusing on experience and established managers. The past few years may very well have just been an aberration. Fundraising used to take 12-18 months in many cases, particularly for first-time managers. So perhaps the current environment is less of a departure from the past and more a reversion to the pre-2020 reality. This data also suggests that prior VC or investing experience may be favorable in LPs eyes. In some respects, this certainly makes sense. Investing is more than just having a great network and having access to high-quality dealflow. Investing is also portfolio management, risk management, understanding portfolio construction / fund sizing, deal structuring, and having an awareness of macro environments and how it may impact companies and valuations. Certainly, a thriving angel investing and micro VC ecosystem is a net positive for a startup ecosystem, but this data suggests that a healthy shakeout may be occurring. Running a fund is running a business too — and generally any business is a challenge to build. It was also interesting to see that many fund managers view themselves as specialists. Commonfund CIO Mark Anson said on Alt Goes Mainstream that he favors specialists over generalists, which is something we too agree with.
Who is hiring?
In order for alts to continue to go mainstream, we need the best talent to go into the space. Here are some openings at private markets firms. If you’d like to connect with any of these teams, let me know and I’m happy to facilitate an introduction if appropriate. If you’re a company or fund in private markets, feel free to reach out to share a job description you’d like to be listed here to highlight for the Alt Goes Mainstream community.
🔍 Goodwater Capital ($4B AUM consumer tech VC) - Director, Seed Investments. Click here to learn more.
🔍 iCapital (Private markets infrastructure investment platform) - West, Regional Director, Vice President / Senior Vice President. Click here to learn more.
🔍 Allocate (VC infrastructure investment platform) - Managing Director, Alternatives (Sales). Click here to learn more.
🔍 Republic (Multi-strategy alternative investment platform) - Chief Technology Officer. Click here to learn more.
🔍 73Strings (Valuation and portfolio monitoring for alternatives funds) - Senior Associate, Portfolio Monitoring. Click here to learn more.
🔍 bunch (SPV and investment infrastructure platform for VCs and startups) - VP Commercial. Click here to learn more.
The latest on Alt Goes Mainstream
Recent episodes and blog posts on Alt Goes Mainstream:
🎙 Hear Avlok Kohli, AngelList’s CEO, talk about how they are building the company of companies that is powering private markets. Listen here.
🎙 Hear John Avery, VP Digital Assets, Tokenization, Web3 at fintech giant FIS talk about how evolutionary changes can lead to revolutionary changes in private markets. Listen here.
🎥 Watch Lawrence Calcano, Chairman & CEO at iCapital, and I take the pulse of private markets on the first episode of our monthly show, the Monthly Alts Pulse. Watch here.
🎙 Hear Seyonne Kang, Partner and member of the private equity team at $134B AUM StepStone, discuss how the VC industry is dealing with today’s venture market. Listen here.
🎙 Hear Chris Ailman, the CIO of $307B CalSTRS, discuss how he manages a portfolio with ~40% exposure to private markets. Listen here.
🎙 Hear 44th Vice President of the United States and Chairman of Cerberus Global Investments Dan Quayle share his insights on geopolitics and investing. Listen here.
🎙 Hear Mark Anson, the CIO of $28B Commonfund, discuss why he thinks size discipline and sector focus lead to outperformance in VC. Listen here.
🎙 Hear Filip Dames, Founding Partner at leading European Seed VC Cherry Ventures, share why he’s so excited about the European venture ecosystem right now. Listen here.
🎙 Hear Graham Elton, Partner & Chairman of EMEA Private Equity at Bain & Company discuss how the $3.7 trillion in dry powder in private equity will get put to work. Listen here.
Thank you for reading. If you like the Alts Weekly, please share it with your friends, colleagues, and anyone interested in private markets.
Subscribe below and follow me on LinkedIn or Twitter (@michaelsidgmore) to stay up to date on all things private markets.
If you have any suggestions, would like me to feature an article, research, or would like to recommend a guest or topic for the Alt Goes Mainstream podcast, reach out! I’d love to include it in my next post or on a future podcast.
Special thanks to Riley Robinette for his contribution to the newsletter.