In this podcast, Beezer Clarkson of Sapphire Partners discusses the current state of the VC and LP markets, the impact of liquidity on budget setting for LPs, the challenges faced by GPs in reflecting reality and facing valuation challenges, the cyclical nature of the venture market and the impact of COVID-19, and the future outlook for the market.
Increased fundraising by venture funds in 2022 driven by large funds like Tiger, while newer funds may face challenges in fundraising.
LPs are taking the time to evaluate the health and performance of their portfolios and considering the impact of liquidity constraints on investment decisions.
LPs anticipate a tougher fundraising environment in the next six to twelve months due to macro pressures and uncertainties, leading to a slower investment pace and focus on portfolio health.
Deep dives
The current state of the LP and venture ecosystem
The podcast episode discusses the current state of the market across the LP and venture ecosystem. Despite the world slowing down and the stock market experiencing difficulties, more money has been raised by venture funds in 2022 so far than in 2021. However, this increased fundraising is mostly driven by very large funds, such as Tiger, and newer funds may face challenges in fundraising. LPs are reflecting on their portfolios, recalibrating, and being more selective in their investments. Liquidity considerations and the impact of macro factors on budgets are also influencing investment decisions.
LPs reflecting and recalibrating their investment strategies
LPs are taking the time to evaluate the health and performance of their portfolios and consider the effectiveness of their investment strategies. They are focusing on names they know and have invested in before, as well as managers who have proven track records during downturns. There may be challenges for newer funds and funds that have not returned significant capital during previous bull markets. LPs are also considering the impact of liquidity constraints and taking a more cautious and slower approach to investment in the coming months.
Impact on fundraising and investment pace
LPs anticipate a tougher fundraising environment in the next six to twelve months due to macro pressures and uncertainties. The market slowdown and liquidity constraints are influencing investment decisions and slowing down the pace of investments. LPs are adjusting their portfolio allocations and considering how market conditions and valuations may affect their investment strategies. However, LPs are still supportive of funds that demonstrate effective communication, alignment with investment strategies, and a proven ability to distribute returns to their LPs.
Challenges for newer funds and impact on competition
Newer funds and managers may face challenges in fundraising and may struggle to keep up with the investment pace of more established funds. While it is difficult to determine the overall impact on the composition of competitors and co-investors in the market, there may be some funds that decide not to raise new capital or shift their focus. The competitive landscape at the seed stage is still relatively active, although late-stage funds may reduce their seed investments. The market slowdown and macro factors are contributing to a more cautious approach among investors.
Predictions for the market and future trends
The next six months are expected to be challenging for fundraising, with a slower investment pace and a focus on portfolio health. However, the market is viewed as a healthy reset that will bring more rationality to valuations and investment decisions. Fundraising may take longer and require more thorough communication and alignment with LPs. In the long term, the market may experience some consolidation as funds face succession planning and prove their continued ability to generate returns. Overall, the market is expected to offer opportunities for rational investments and disciplined growth.
On this episode of Origins, we sit down with Beezer Clarkson of Sapphire Partners to discuss the current state of the VC and LP markets, given recent dislocations. We cover what Beezer is seeing on the ground, where we might be in the current cycle / downturn, how VCs can respond both strategically and tactically, as well as her outlook for what's to come.
Beezer leads Sapphire Partners‘ investments in venture funds domestically and internationally. Prior to joining Sapphire in 2012, Beezer managed the day-to-day operations of the Draper Fisher Jurvetson Global Network, which then had $7 billion under management across 16 venture funds worldwide. In 2016, Beezer led the launch of OpenLP, an effort to help foster greater understanding in the entrepreneur-to-LP tech ecosystem.
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