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> One Midwest LP who represents a family office and began receiving invitations to these affairs last year – one year after he began investing in privately held
by 7Figures2Commas 11y ago
> One Midwest LP who represents a family office and began receiving invitations to these affairs last year – one year after he began investing in privately held tech companies – has already backed a dozen startups out of YC. They represent one-third of his current portfolio of direct stakes.
> “I find [YC’s] batches are always the best of any accelerator class or demo day that I attend,” says the LP, who asked not to be named. “I’ve found a number of opportunities that were as exciting as any we’ve pursued.” YC’s endorsement, he says, is “a very important signal to us.”
An admittedly more cynical reading of this:
* Family office LP has very limited experience investing in privately-held tech companies.
* LP relies heavily on signals like "YC participant" because LP brings no unique investing insight to the table in this area.
The vast majority of LPs have no business investing directly in startups because they have no ability to add value to the individuals and institutions they represent, are incapable of performing adequate due diligence, and don't have the bandwidth or experience necessary to manage these kinds of investments.
Whether or not the current turmoil in the public markets is the start of something bigger or not, LPs itching to make direct investments strongly suggests that we are at or close to the peak in the current tech investment cycle.
- danieltillett 11y agoYes but the LPs can hold the bag. Misquoting Joseph Kennedy when the shoe shine boy gives you stock advice then it is time to sell. On this topic I spoke to my agent in China about the Chinese stock market back in May when it was going straight up. He told me that all the waiters were talking amongst themselves about what stock to buy, etc.
- nosuchthing 11y agoIsn't an LP just some person with a lot of cash but not enough cash to hire a VC firm..? Wouldn't this just indicate that VC firms are charging too much for LP's to invest in a VC, or that there's some rich investors out there (LP's) who are willing to risk direct investments in small businesses, rather than investing blindly in the stock market? Why would more direct LP investments indicate a peak in an "investment cycle"?
- 7Figures2Commas 11y agoNo, I don't think that's the primary driver here. I personally believe: 1. There's a broader trend of LPs moving to invest directly in alternative asset classes. There are a number of reasons for this. FOMO is one in this particular market. 2. Because the market is so hot, folks are more interested in ground-floor (seed stage) investments that are harder to get exposure to in traditional venture funds. You must also realize that optimizing these direct investments is a PITA. Newbie direct investors are going to learn a lot of harsh lessons when it comes to pro rata rights in this market, assuming they even ask for and get them.