The venture hangover

Author

Alex Wilhelm
August 16, 2024 • Estimated Reading Time: 6 minutes

Top News

  • California’s AI bill gets cut (partially) down: California’s SB 1047 is about as popular in Silicon Valley as rate hikes, with critics arguing that if passed in its prior form, the bill could directly harm AI development in the state. Now, TechCrunch reports, the bill has been remolded, removing the ability of “California’s attorney general to sue AI companies for negligent safety practices before a catastrophic event has occurred.” Anthropic suggested some of the accepted changes.

  • Surgical software is maturing: Caresyntax has locked down $180 million in new capital, including what Sifted reports is $80 million worth of equity capital and $100 million in debt. The company uses AI to help operating rooms function and has a software suite that works with third-party hardware to greatly digitize surgery itself (video and sound recording, etc.) We’re still a ways off from AI-powered robot surgeons, but the work to bring more tech and even AI into the OR is accelerating.

  • Drone deliveries still need work: Drone delivery company DroneUp is laying off staff, ending its work in some cities, and doubling down on the Dallas market. Using drones to deliver goods is not a new idea, and it is one that has yet to reach anything like commercial viability, let alone ubiquity. But DroneUp, partially owned by Walmart, is not giving up. That’s good news for all of us who would rather interact with a drone than other people.

The venture hangover, in data

To close out the week here at TWiST, I wanted to bring you the latest dataset that is driving conversation in Silicon Valley. A recent report entitled “VC Fund Performance” from Carta’s data team sheds light on the current state of venture fund performance.

What can we learn? A few things:

  • Venture capital fund performance has seemingly deteriorated in recent years. Looking at a host of venture funds at 12 quarters after their inception, 2018-vintage venture funds had median IRR — internal rate of return — of 1.4%. Don’t let that number shock you; venture capital funds tend to post middling results early on and better returns as time passes. This is called the J-Curve. Or, as venture investor Hunter Walk recently put it, your lemons ripen faster than your cherries.

  • For 2019 funds, IRR at 12 quarters came to 19.4%. 2020 funds managed just 7.2% IRR at the three-year mark, while 2021 funds have median IRR of -1.5% through their first 12 quarters, per Carta.

  • 2018 vintage funds have improved to IRR of 17.2% now 20 quarters deep. 2019-era funds, at the same 20 quarter mark have posted median IRR of 8.1%. Not scorching by any means.

What to make of all that data? That periods of pervasive markups on private companies can make funds that were invested ahead of the boom look incredible for a time. Funds that are raised and invested at least in part during the boom times can wind up less than stunningly impressive from a returns perspective. Of course, we need to give the fund vintages listed above more time to fully mature, but all the same, it’s fascinating to watch a period of exuberance work its way through generation after generation of both startup and backer. — Alex

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This Week in Startups

E1993: James Hicks from Final Boss Sour and Rae Lambert from River swung by the podcast to chat with Jason about what they are building. Final Boss Sour is a CPG company that makes incredibly sour pieces of fruit, akin to a candy. We’ve tasted them. They are indeed very sour, but in a good way. Lambert’s River startup is one that we’re a fan of. The service helps people connect IRL, and we use it for Founder Fridays!

E1992: Jason and Alex were back for another news roundtable, digging into the recent Trump-X conversation, WeRide’s upcoming self-driving IPO (Alex notes here), Polymarket and Perplexity teaming up, and European venture capital.

E1991: Jason sat down with founders from four different Founder University companies, listening and responding to their pitches live. Pablo Fernandez of Big Rentals, Brittany Peregoff of Where2Wheel, Ardalan Mirshani of MyLens, and Mariano Apodaca of Prosperous AI shared what they were building and detailed their current traction. If you love startups, this is a must-watch episode.

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