Listed #12 on the Most Free Economics List by Heritage Foundation, Georgia is fast becoming a dominant tech hub for the Caucasus region.

In Catapult’s last monthly update to investors, we offered recent market data evidencing three important venture trends:

(1) a dramatic acceleration in the amount of capital being deployed into smaller ecosystems outside the ‘big three’ US tech hubs of Silicon Valley, NYC and Boston;

(2) a ten-year low in the percentage of all U.S. venture funding deployed going into Silicon Valley companies; and,

(3) a boom of newly formed venture funds that have a defined geographic focus.

In response to these trends, we ask the overriding question that these data points suggest: Is 2022 the year Emerging Markets-focused VC funds come of age? We believe the answer is yes. Here are reasons why:

1. The Pandemic-fueled Dispersion of Talent is Here to Stay

As capital for credible founders became more accessible in recent years, the battlefield shifted. The fiercest competition between startups today is over talent, not capital. Over the past decade, engineers and operators led a not-so-quiet exodus out of high-priced tech hubs and repotted themselves in smaller markets — the Nashvilles and Miamis of the world — where they could ostensibly enjoy big city salaries while living in low tax (or no tax) states and in housing markets 30–50% less expensive. Pandemic took hold in the spring of 2020 and only accelerated that exodus by an order of magnitude.

While some of that tech talent may indeed return to the high priced, established tech hubs from whence they came, the majority of these new transplants are expected to stay put, thus enriching the tech talent pool in these smaller hubs both now and for years to come.

2. ‘Centers of Excellence’ are manifesting in smaller geos now

Beyond seeding smaller hubs with a deeper bench of talent with which local startups can build teams and achieve scale, this talent dispersion creates another phenomenon that we, at Catapult, call Centers of Excellence. In our nomenclature, a ‘Center of Excellence’ refers to a competitive advantage that a tech hub develops over time around a specific sector.

This competency arises for several reasons. One could be an inherent advantage that that hub has due to its long history in and association with a certain industry. (Think the Midwest and the Consumer Packaged Goods (CPG) industry, or Los Angeles and entertainment.) A second reason could be the presence of university programs with a excellent reputation in a specific technical discipline. (Think Artificial Intelligence and Carnegie-Mellon University in Pittsburgh.) A third reason could be a hub’s history of successful companies focused on a specific domain that then created a diaspora that launched other startups focused on that same domain. Think data storage and Salt Lake City. A quick story about Fusion-io illustrates this third point well.

Fusion-io was one of the biggest tech successes to come out of Salt Lake City. After Fusion-io exited, many employees left to pursue other data storage-related ventures. Having spent years in the community and often with children enrolled in local schools, many ex-Fusion-io employees opted to stay in the area. After all, the cost of living in Utah was so much lower than doing so in the Bay Area, and there was already a robust talent pool of people with the idiosyncratic skills and expertise germane to data storage right there in Salt Lake City.

In short order, new data storage startups founded by the Fusion-io diaspora (i.e., Primary Data, Isilon, Qumulo, et al) emerged from the Salt Lake City ecosystem. Over time, it became widely believed that the brightest minds around data storage were probably living and working in and around Salt Lake City.

3. Domain expertise within tech hubs creates a flywheel effect

This phenomenon becomes self-fulfilling. As more startups focused on a certain sector see positive outcomes, the diaspora from those exited startups tend to settle in the local community, buy property, start families, launch startups of their own, start angel investing or forming VC funds, and re-enforcing that ecosystem’s inherent advantage in developing startups focusing on that domain. We are now seeing this phenomenon in a host of other geos that are not one of the big three U.S. hubs.

Given its association with Wall Street, New York was long considered the best place to launch a FinTech startup. Today, however, it’s facing stiff competition from smaller, less expensive hubs that are known for having robust FinTech ecosystems of their own. Think Frankfurt, Atlanta, Charlotte, and of course, London.

Oh, and the Wall Street as we knew it doesn’t really exist on Wall Street any longer either. It, too, has become distributed. The famed brokerage houses of Wall Street lore are now scattered across the greater New York Tri-State area, some even settling in Hoboken, New Jersey.

4. Having remote-first, distributed teams is now a competitive advantage

What all this talent dispersion means is that the world’s best data storage engineers, or FinTech experts, or AI specialists are more likely to be in places like Salt Lake City, Pittsburgh, or Toronto than in Silicon Valley today. Founders have already realized this. Many VCs are just now catching on.

This is transformative. And paired with the plethora of workplace collaboration platforms like Trello, Zoom and Slack, which did not exist a decade ago, it means talented teams can be spun up anywhere in the world almost overnight. Time zones be damned.

This means speed to market. This means teams can be collaborating 24/7. This means when developers are shutting down their laptops in San Francisco, their colleagues in Tbilisi are just booting up theirs.

In the fiercely competitive and increasingly global tech marketplace, this might not only be a nice advantage; indeed, it might be an existential threat to organizations not structured in this way.

5. New Venture Models Are More Adaptable to Remote-First, Cross Border Investing.

We last posted on this subject in our piece, VC 3.0 And The Democratization of Venture Capital, in which we examined how the VC 1.0 and 2.0 models from the ’80s and ’00s, respectively, were being challenged by a new wave of solo capitalists, rolling funds, and other innovative approaches which we loosely characterized as VC 3.0. An inherent advantage of these 3.0 venture platforms is the speed at which they can make decisions — i.e., fewer committees and fewer partner meetings required to approve investments — and how nimbly they can adjust to meet rapidly changing times.

While there may be some notable exceptions in VC, by and large in every industry the larger and more established and hierarchical an organization, the slower it tends to move and the more risk-adverse it tends to be.

The ‘atomization’ we’re seeing in venture capital as an asset class accrues nicely to emerging managers in emerging markets because small, nimble funds can spin up local investors with domain and geographic expertise quickly — either through a scout program or other mechanism — in order to source and support the best opportunities coming out of an emerging ecosystem. And because operating costs in emerging markets are often significantly lower than those in established hubs, emerging managers can take a risk on promising but still unproven market opportunities in ways an established, monolithic fund of the VC 1.0 model simply cannot.

6. Regulatory frameworks slowly achieving parity with U.S. standards.

Finally, for decades, U.S.-based startups possessed a clear advantage when fundraising from venture investors due to their status as a U.S. based company domiciled in the U.S., typically in Delaware. Delaware law was the gold standard. It was tried and tested. Investors knew what to expect under Delaware law. Moreover, the U.S. had bankruptcy laws and other regulatory frameworks that were generally investor-friendly and flexible enough for startups to hire/fire quickly so as to give them the best chance to mount an offensive against entrenched, better-financed incumbents.

Other nations were not so fortunate. Often bedeviled by red tape, archaic regulations, and mind-numbing bureaucracies, many nations outside the U.S. and a handful of others struggled to create systems and infrastructure that would support the innovation economies they said they so desperately wanted to create. But that’s begun to change.

Innovative leaders such as France’s Macron and Germany’s Merkel made strides to modernize their regulatory frameworks and their economies to be more startup- and investor-friendly. Moreover, some of the greatest progress in this regard has been made by post-Soviet bloc countries like Georgia, Estonia, Lithuania and Ukraine that have quickly modernized their systems, done much to root out endemic corruption, and developed infrastructure to help migrate them from the unsustainable, extraction-based industries that long defined their economies (i.e., oil, mining, et al) toward knowledge-based economies that attract high-paying jobs and stem brain drain.

The net result of this rapid modernization is that these emerging hubs are beginning to achieve parity with the U.S. in terms of their regulatory frameworks and investor protections. This will further erode the built-in advantages that U.S-based startups have long held over startups based in emerging tech ecosystems across Europe, Eurasia, the Caucasus and Africa in attracting venture funding.

The Road Ahead

While there is still much work to be done to build self-sustaining tech ecosystems in these emerging market hubs, recently there has been a dramatic shift. Pandemic was the obvious catalyst. While some nations looked to examples such as Estonia as evidence that even small, former Soviet-bloc economies can rapidly reinvent themselves into prosperous tech centers, others appeared too encumbered by long-standing business cultures to make the leap. Breaking away from long-held beliefs about the ‘way things are done here’ is difficult for any nation. Additionally, there were valid reasons why some countries were complacent. Extraction-based industries were profitable. Energy prices were relatively stable; and tourism provided consistent revenues. Pandemic changed all that.

As Covid took hold in early 2020, tourism revenue plunged. So did business travel and convention industry bookings. With everyone working from home, commercial real estate values tanked. Energy prices, while remaining high, became even more volatile.

Many emerging market nations began to accept that their economic futures were likely going to be tied to how well they migrated away from being reliant on things like tourism, oil and mining, to embracing science, technology and innovation in a fulsome way. And with less friction from having to wean off legacy systems already in place, these emerging economies could start fresh. They could quickly adopt best practices from what had worked in Estonia, the Nordics and other geos to lay the infrastructure for their own vibrant, startup-friendly ecosystems.

The data is now clear: VC investing in emerging markets is no longer a fringe activity practiced only by ‘true believer’ investors willing to withstand decades of losses before exits occur. The exits are now here and valuations are surging. Smaller hubs in Europe, Central Asia and the Caucasus are now catching up quickly with those in the U.S. on a variety of key metrics. Leading accelerators like Y Combinator and USMAC are increasing their presence in these regions to identify startups and import Silicon Valley know-how and mentorship. And global VC brands like us at Catapult are launching geo-specific funds to source, fund, and mentor the best founding teams building the next generation of global tech powerhouses.

It will take commitment. It will take money. It will take cooperation with compliant, forward-thinking governments working with us to design systems that support startup innovation for the long term. And that’s how it ought to be. The opportunities are enormous and we couldn’t be more excited for what’s to come.

Creators have quickly matured from crude meme videos to distributing full cinematic-quality productions to rival the best of Hollywood, with budgets to match.

Recent announcements across the worlds of technology, media and venture capital are serving as a harbinger for how traditional media will be fundamentally transformed in the years ahead. While none of these events might appear seismic on their own, in the aggregate they mark clear territory for the battles ahead that will both determine the future of media and the lasting influence of the Creator Economy.

In May, one of the industry’s most prolific venture capital firms, Andreessen Horowitz, rebranded its content site, Future, and issued statements implying it was evolving into a new kind of organization — one some characterize as ‘a media company with a venture arm’. Weeks later, Harry Stebbings, the 24-year old founder of the popular 20-minute VC podcast, announced that he had raised $140mm across a pair of inaugural funds, making his fledgling firm, 20vc, one of the largest seed investors in Europe virtually overnight.

So, in the space of a month a respected VC fund announced plans to become a content creator, while a respected content creator announced plans to become a VC fund.

Separately, in late May, Amazon announced it was acquiring media giant Metro Goldwyn Mayer (MGM), home of the James Bond franchise and 4000+ other iconic films, for roughly $8.5 Billion. The bold acquisition would ostensibly complement Amazon Studios, which has been occupied with producing TV programming, and would provide a wider audience (and greater monetization) for the deep MGM catalog of works.

Mega mergers between media companies and technology companies are nothing new, of course. Many still remember the AOL/Time Warner merger of 2000, the wave of mergers that that deal triggered, and the shadow that those pairings would cast over the industry for much of the next decade. Yet this Amazon/MGM acquisition feels different and has broad implications across media and tech. Let’s examine some history…

The Media consolidation era of 2000–’10

Twenty years ago, the media landscape looked very different. In the dot-com era, media companies were under enormous pressure as their traditional points of distribution — television stations, movie theaters et al — were increasingly being disintermediated by the internet. The level of centralized control and the cushy franchises that media companies had enjoyed for decades were eroding as consumers were increasingly able to access content by circumventing media companies entirely.

Telcos were facing an existential crisis of their own as consumers were increasingly going wireless and, hence, abandoning the landline services that had been the bread-and-butter of Telcos for generations. Yet, for Telcos the business of providing internet access was both not an especially attractive one and one that was rapidly becoming commoditized. In the face of this, Telcos such as AT&T and Verizon felt they needed to provide greater value to their consumers; accordingly, they went on a media company buying spree through much of the 2000s.

Over the next decade, Yahoo, AOL and TimeWarner would ultimately be passed around like hors d’oeuvres trays between these players as Telcos struggled to find ways to add value in combined offerings.

In the final analysis, however, many of these acquisitions failed and the acquired companies themselves were often spun off or otherwise disposed of.

2010–’21: Media rewires itself…

Over the subsequent decade, many media companies that avoided partnering with or selling out to a Telco during the 2000s went on to build internet businesses of their own. Tech companies, somewhat in parallel and in response to these potent offerings, determined that they needed to develop their own media companies.

Over the next decade, billions were invested in content development as companies such as Amazon and Netflix built their own robust film and television studios and, in short order, became major players on the media landscape.

…But not without an unwinding

More recently, many of the same Telcos that led the media buying binges of the 2000s have been shedding those assets. In 2019, Verizon unloaded Tumblr for a sum believed to be roughly $3 million, a far cry from the $1.1 Billion Verizon paid for the blogging platform in 2013. In 2020, Verizon sold Huffpost to Buzzfeed and took a $119mm loss on its quarterly earnings for doing so.

In early May, Verizon announced that it was selling AOL and Yahoo to PE firm Apollo for $5 Billion —half of the roughly $9 Billion it paid for the combined pair. This sale effectively ended Verizon’s decade-long troubled experiment with media production and advertising.

Separately, AT&T cut itself loose from Time Warner in a $43 Billion merger of WarnerMedia with Discovery, a deal that analysts have called a debacle for AT&T shareholders. Clearly, Telcos running media businesses turned out to be a bad idea whose time had passed.

Content becomes commoditized

Today, Telcos are grappling with the difficult question of where growth will come from in a world where consumers are increasingly circumventing their traditional business lines. Tech and media companies, for their part, are engaged in a fierce battle over slivers of market share across dozens of subscription services in an increasingly competitive landscape of siloed, balkanized content.

In response to all this upheaval, consumers are increasingly having to choose from whom they are going to purchase content; and those choices have only become more complex: “Do I go with the cable company bundle or just use Netflix? What about Hulu? or Disney+? Or Peacock? Would my Amazon Prime membership be duplicative to any of this?” And so on.

Will scale matter any longer in media?

In a world awash in media content, it’s clear that content itself has become commoditized and is no longer a differentiator. As such, no one platform can dominate when there is such diversity of quality content.

Traditionally, this is where size and scale brought enormous advantages. In the past, large media conglomerates would use their influence and scale to push content to consumers and, in the process, quash smaller players that didn’t have the balance sheet to compete in the content wars. But that world no longer exists.

The emerging threat to media companies is not coming from smaller media players any longer but from the creators themselves. Enter the Creator Economy.

How Creators are changing the content landscape

  1. Better Technologies. Fueled by vastly improved smartphones, inexpensive high-resolution cameras and user-friendly video editing software, user-generated content (UGC) has leapfrogged from the crudely produced parody videos of a decade ago to the full-length cinematic-quality videos of today. Across a host of social platforms from YouTube to TikTok, consumers are increasingly choosing to view this kind of content over the packaged offerings coming from major media outlets.
  2. UGC is edgier, more topical. Moreover, consumers find UGC more topical, edgy and relevant in the fast-paced media environment where a viral video can have global impact in minutes and can launch lucrative careers for content creators seemingly overnight.
  3. Immediacy. Current technologies enable a content creator to seize upon a news events or an emerging meme, produce a high-quality video, and distribute it to his or her millions of followers across an array of social platforms in just minutes. A media organization, with its Standards & Practices and other bureaucratic bottlenecks, cannot compete with that speed to market and relevancy.
  4. Content itself is changing. Formats are also becoming a factor. Less willing to sit through long, episodic content formats, an entire generation of consumers is being conditioned by TikTok and other social platforms to consume content in 15–30 second snippets. The staggering monthly active user numbers on these platforms bear this out. This shift is not temporal, and it’s changing how we think about content.

As content changes so do the economics of the media business

As the costs of producing high quality content continue to fall, as more content creators emerge, and as run-time lengths shrink, the economics of the media business will continue to erode. The increased balkanization of content means that producers of highly demographically-targeted content (i.e. Disney, et al) that can engender loyalty from niche consumer segments will have the advantage over producers of broad-based, mainstream content who will struggle to find an audience.

I predict that we will see another clumsy game of musical chairs across the media landscape as players scramble to partner or acquire their way to remaining relevant (and solvent) in the new world order of media fast coming into view.

Media decentralization and ‘Going direct’

This fundamental dismantling of ‘old media’ has many causes but one irrefutable driver is that content creators of all stripes are increasingly going direct. This includes groups as diverse as an Andreessen Horowitz or Coinbase—who’ve opted to tell their stories directly rather than relying on news organizations to do it — to a Tween influencer who still lives at home but has an 8k video camera and 2 million YouTube subscribers.

And that Tween influencer has no desire to communicate with her 2 million followers through an intermediary.

The ‘Creator Economy effect’ in the fields of music and journalism

This media decentralization is also evident in the fields of journalism and music. Musicians are increasingly producing their own music and distributing it directly to their fans, circumventing industry gatekeepers in the process. This is a dramatic shift from the days when industry players like now-defunct record store chain behemoth Tower Records (no relation, unfortunately) once held so much power that record labels would weigh which musical acts to sign based upon how artists would be marketed in the chain’s stores.

As with video content, audio content has also become dramatically less expensive to produce. What would once cost weeks of expensive recording studio time and take dozens of musicians to produce can often now be done on a Pro Tools-equipped laptop in a matter of hours.

In the world of literature and journalism, there is now Substack, which provides a platform for writers to build a following with loyal readers and then facilitates the means to charge for content.

‘Kardashianization’ of media and commerce

Once at scale, every content creator will want to control and monetize their relationships with their followers. One might call this new phenomenon the ‘Kardashianization’ of media and commerce — a nod to how Kim Kardashian and Kylie Jenner cleverly built billion-dollar media and branding empires by leveraging media platforms to get to scale and then migrating their millions of fans to their own platforms to monetize them through online and offline commerce. And we expect this trend to continue across broad swaths of the economy.

The Opportunities Ahead

While I believe we are likely in only the 3rd or 4th inning of a fundamental transformation of the media industry, the Creator Economy is as much a driver of this evolution as anything else on the media landscape today. As investors in the category, Catapult is enormously excited by the opportunities to support creators who wish to develop meaningful content, to find new audiences for that content across mediums they control, to communicate with their audience directly, and to generate significant remuneration for themselves, all unfettered by intermediaries. We believe transformational, billion dollar businesses will emerge from this period and look forward to partnering with many of those media innovators in the years ahead.

Steve Case, founder of AOL, and early evangelist of ‘rise of the rest’ cities, posited recently in an interview that we are now living in the third wave of the Internet. “First-wave companies like AOL were building the on-ramps,” argued Steve. “The second wave was building apps and software on top of the internet–think Facebook. This third wave is when the internet meets the real world. And it’s healtcare, it’s food and agriculture. These are big parts of our economy, and the domain expertise in those sectors and the partnerships you need to form to be successful in those sectors are often in the middle of the country, not on the coasts.”

Internet 3.0, meet VC 3.0

1960–2001: The VC 1.0 era

2001–06: VC 2.0 comes into its own

2010–2015: The super-angel era and the birth of micro-VC

2015-present: VC 3.0 comes into view

Global tech products require globally-oriented VCs

1. A surge in new VC funds now crowd the Seed space

Innovation in VC is long overdue, but not without consequences

Venture capital has long been an opaque industry. That opacity traditionally favored a handful of legacy venture firms while constraining access to capital and mentorship to all but the most connected and geographically advantaged entrepreneurs. The prevalence of technologies enabling distributed teams and remote workforce collaboration, however, and the innovations in venture capital mentioned above are loosening those constraints.

The growth in Seed stage financings and late stage, $100M+ “mega rounds” have been profound. Yet, traditional Series A/B VC has been relatively flat

Seed funds are typically good at syndicating but few are in a position to lead a Series A round.

Lots of Indians; not so many Chiefs.

2. Series A funds are demanding more traction from startups than in the past.

3. Many traditional early stage VC firms have increased AUM and moved later stage.

The Road Ahead

The year fast coming to a close was unlike any other in our lifetimes. In prior posts, we shared our observations on the state of venture and tech as the market swooned; we foretold the waning influence of Silicon Valley as smaller ecosystems benefited from the exodus of tech talent (and now VCs) from the Bay Area; and, during the market’s March bottom we made our Bull Case for why LPs should stay the course and continue investing in the VC asset class, market gyrations be damned.

1. The “decoupling” of capital and geography, accelerated by Covid-19, expands and matures.

2. Numerous unicorn companies will be built on the Zoom platform as remote work becomes the new normal.

3. The “creator economy” picks up where influencers left off, enabling talent to go direct, own their brands, and their audiences.

4. Innovation and disruption in venture will continue to fuel a renaissance across the asset class.

A “new normal” is taking shape as startups and investors find novel ways to continue to innovate and support transformational companies.

In our last piece, 6 Emerging Tech Trends for a Post-Covid19 World, we discussed trends that we at Catapult were seeing emerge from the current crisis. The post focused on sectors and themes across the technology landscape that have been enjoying a Covid19 ‘bounce’ or, at the very least, renewed interest from tech investors who feel, as we do, that companies focusing in these areas are well positioned to benefit from the changes in consumer behavior and commerce provoked by the pandemic.

In this post, we’ll offer 4 brief insights into what we’re currently seeing in the funding environment. Hopefully, this will provide some clarity to startup teams, fellow venture investors, and limited partners (LP) who are seeking to best navigate the current market uncertainty and position themselves for the road ahead.

1. Portfolio ‘triage’ is non-trivial, but starting to abate.

As has been widely reported, many venture funds — especially those with established, mature portfolios — are having to spend much of their time going through their portfolios and systematically categorizing their companies according to immediate cash needs, runway, overall performance and other metrics. Funds are assessing their own reserves and having state-of-the-union type conversations with portfolio company teams to set expectations for the coming few quarters. This is particularly the case with funds with many mezzanine or later stage companies that have large cash burns and sizable headcounts that could require right sizing. Not surprisingly, this takes time to unwind as these conversations are complex, often uncomfortable, and can involve arriving at difficult decisions.

This presents obvious challenges to startups in a fundraising process that are seeking an audience with those venture funds that have largely turned their focus to internal matters. The good news, however, is that there are signs that this is beginning to abate. Shortly after the first market gyrations of late February, many funds got out in front of this cycle and began putting out their biggest fires first, which has allowed them to now slowly increase new deal originations and to have more ‘pipeline’ conversations with new relationships. As such, while getting on the Zoom schedule with a partner with check-writing authority at a fund that’s digging out of portfolio challenges is still difficult, it’s a lot easier than it was a month ago.

Clearly, this is also a fund-by-fund issue. Some firms with more troubled companies will be more preoccupied than others with firefighting distractions this year. Fortunately, this is not quite the case for newer funds without a legacy overhang of prior investments requiring attention. With valuations coming down, along with lower operating costs and more talent available, this is an exceptional time for newer funds unburdened by troubled companies to triage to be deploying capital on new investments.

2. Cadence of fundings at Seed/Early stage increasing whereas Mezz/Late stage companies still face challenges.

Of the investments that are closing, there is a clear bias toward Seed and early stage rounds. On one level, this is predictable: Seed/Early stage round check sizes are smaller; there is less of a company or product to diligence; and, funds are typically more comfortable approving and funding a $500k investment in a company they’ve never met in person than one they would for, say, $10mm.

On another level, this uptick has a lot to do with the market environment facing a Seed/early stage company versus a more mature one, and the kinds of expectations attached to a Seed investment. Investors understand that, typically, the first two years after funding a Seed stage company will be dedicated to building the product or service, not profitability or concerns about near-term macroeconomic conditions. In many ways, this makes a bearish market like the one we are experiencing now and will likely continue to inhabit for the rest of this year ideal for funding and growing a Seed stage company — a point we covered in detail in a prior post, The Bull Case for Venture Capital in a coming Bear Market.

In contrast, later stage companies are viewed through an alternate lens by investors and held to a different standard. The expectations are also different. Near-term market conditions carry much more weight; and, unless the company is in a sector that will likely be a clear beneficiary of Covid-19, those near-term market conditions are not terribly favorable.

Additionally, the pandemic has altered the late stage funding landscape which has, in turn, ratcheted up financing risk for many late stage companies that continue to burn cash. Six months ago when there seemed no shortage of Fund-of-Funds, Corporate Venture Funds(CVCs), and family offices eager to invest in promising later stage companies, financing risk was considerably mitigated. This is not the case today. While there is still a good amount of late stage capital available from non-traditional investors, it seems to be accessible now only by the strongest and most sought-after companies.

3. Overall mood improving as notions of the “new normal” come into view

While it’s still early days, in recent weeks the overall mood seems to have improved among broad constituencies in the asset class. The panicky nervousness of investors that seemed ubiquitous in the weeks following the market’s tumbles in late February and during the early weeks of shelter-in-place seems now to have been replaced with a more muted tone. Investors remain concerned, to be sure, but there now seem to be boundaries around those concerns and around what we can expect in the months ahead. Many investment mandates that were entirely put on hold in early March have now been re-activated. The performance the Dow, now that it’s recovered more than 60% of its losses since the market bottom in early March, has certainly helped; so, too, has the strong performance of the tech-heavy NASDAQ. This all serves as a harbinger that tech, writ large, is poised to perform well in a post-Covid world.

On the GP side, fundraising remains robust. There has been a record number of $1Bn+ venture funds raised in just the past quarter. While many of these fundraising conversations were already well advanced before Covid19 hit, there were still a number of funds that began marketing and had closes while the markets were just coming to grips with the pandemic. While some LPs have backed away from participating in these funds, there has been no shortage of other LPs willing to seize an opportunity to access a manager it long wanted to access and, thus, stepping in to take those available allocations.

4. Companies now need to prove they’re a Covid benificiary or are Covid-resilient

Finally, another evolution we are seeing is the kind of companies that are successfully raising capital now. While hotly competitive companies and those with high-profiles but perceived to only be temporarily impacted by Covid have closed financings in this environment, most companies securing new rounds are either clear beneficiaries of the post-Covid environment or possess a Covid-resilient business model. As such, founders are well advised to embrace the current market realities in their investor collateral and make a cogent case for how their businesses will prosper in this post-Covid world. Clinging to a marketing plan or investor deck from six months ago will appear to investors oddly tone-deaf. A better approach is to address the “elephant in the room” early in investor conversations, demonstrate how the current environment is ideal for the company’s product/service (or at least does not meaningfully impact it) and lay out a clear 18–24 month roadmap for how the company plans to navigate it successfully and emerge as an ostensible leader in its category.


On January 30, the WHO declared COVID-19 (C19) a global health emergency. In the 9 weeks since, the lives of most everyone in the developed world has been radically altered.

Beyond the destabilizing personal and social impact of C19, the pace and breadth of these changes across the business world have been profound. As ones who’ve lived and invested through the dot-com bust and the Great Recession, as both company operators and as venture investors, we’ve collected our thoughts on some of the trends we see emerging from this current moment and how these shifts will inform future investment opportunities for venture firms and Limited Partners alike.

1. The Remote Workforce Collaboration Revolution shifts into hyper drive.

One of the clear early winners of the WFH boom has been the videoconference and team collaboration  platform providers and those companies providing related tools and services. As one oft-cited example of this, video conference company Zoom recently achieved a market cap of $45 Billion, making the 9-year old company worth more than General Motors. Granted, Remote Workforce Collaboration has been an active trend for some time — and a core investment theme for us at Catapult — as companies have increasingly sought to decouple their human assets (employees) from their physical assets (expensive offices.) This desire by enterprises, traditionally focused on cost containment, is not a new one. What’s changed has been how these same companies are recognizing more of the strategic advantages, not simply the cost advantages, in spinning up remote teams — i.e., speed to market, employee flexibility, the ability to access global talent pools, etc. While C19 clearly did not launch the remote workforce revolution, it has accelerated it dramatically.  As we exit this crisis, we expect the imperative to be ‘global from day one’ for many companies will become part of the standard operating playbook.

This will accrue to the benefit of not only those tools and technologies that facilitate these transitions, but to emerging tech ecosystems across the globe that can offer emerging growth companies many of the same advantages of a dominant tech hub, but with greater flexibility and at a fraction of the cost.

2. Digitally Native Brands extend well beyond CPG and Fintech.

Digitally native brands — those born on the web untethered from brick and mortar origins — is not a new phenomenon. Yet, it was only in the past decade that brands like Dollar Shave Club and Casper became household names and established in the business world firmament the direct-to-consumer (DTC) category. My partners and I were early investors in both Casper and Dollar Shave Club. Dollar Shave Club cleverly bypassed the Byzantine channel conflicts inherent in the razor blade industry and is credited with pioneering the now-ubiquitous subscription ecommerce model. Casper jettisoned the painfully inefficient and expensive showroom sales model and offered no-questions-asked returns policies to gain early adopters. Predictably, in the wake of the huge successes of both DSC and Casper, there has been an expansion of the DTC playbook well beyond CPG. Neobanks or challenger banks are one example from the Fintech world but there are many others. We expect to see a continued and rapid expansion of digitally native brands that will sweep across dozens of categories and sectors where, heretofore, such brands were not considered viable.

As discussed above, the C19 age is rapidly decoupling physical assets–be they office space, showrooms, bank branches, or retail stores–from the sale of goods and services. For some time now, consumers and businesses have been increasingly comfortable transacting in a virtual world that offered little to no human interaction. However, what we now see are more consumers and businesses preferring to transact that way. For many, the less human interaction in a transaction, the better. As such, today’s virtual experience is no longer considered a poor replacement for an in-person transaction; it’s often considered an improvement over it.

3. VR/AR & Immersive Experiences come of age.

Roughly a decade ago, a new wave of Virual reality/Augmented reality (VR/AR) technologies emerged, generated a great deal of interest and fanfare in the tech community, and went on the raise sizable amounts of venture capital. One notable company, Oculus, went on to be acquired by Facebook for roughly $3BnShortly thereafter, however, investment activity in the sector cooled significantly. Candidly, many of the early technologies were still quite crude: serviceable enough to play certain games but not of a professional grade sufficient for most business applications. Unable to shake the market impression that they were niche-y toys, most of these technologies were not deemed serious or reliable enough to become mainstream. However, C19 is now fueling a renaissance in the VR/AR space, which now includes other fields in the broad “immersive experience” genre. This renewed interest in VR/AR technologies is spurring new investment and innovations designed to shed the “gamer” associations which bedeviled prior VR/AR technology generations. We expect to see a new crop of companies (and new investments) focused squarely on developing hardware and software solutions aimed at vastly improving the current state of VR/AR and, in so doing, extending into new categories and applications within enterprise/business services and ecommerce heretofore not considered practical or viable for prior VR/AR solutions.

4. GovTech accelerates

One bright story which has been lost in the drumbeat of dour C19 news has been one of how a tiny country on the Baltic Sea not only managed to effectively weather the C19 crisis, but how it is leading the way for other nations on how best to protect itself from the next one. That nation is Estonia. At the onset of the crisis, Estonia did what most other European countries did. It closed its borders, shuttered its schools, and prohibited the operation of businesses where people gathered. While Estonia still experienced C19 casualties, it did not experience civil unrest. Perhaps it is because Estonia’s economy is almost entirely digital and, as it happens, one of the nations best prepared for the consequences of a pandemic. Most of Estonia’s government services are entirely digital. Voting is done online, and a single piece of I.D. stores a citizen’s person information, which includes health, tax and police records. Except for marriage, divorce, and the transfer of property, every other transaction can be (or must be) done electronically. As such, when the government ordered its citizens to work and study at home, it cause barely a ripple. As we exit this crisis, we expect to see renewed interest and investments in the broad GovTech space; technologies and that facilitate the migration of municipalities — and, indeed, entire governments — to predominantly (or exclusively) online services and solutions.

5. TeleCommuting/Virtual work elevates its image

On a personal level, we have all learned, at rapid speed, how much can be moved online with minimal friction. The C19 crisis has forced so much into the virtual sphere that it has unquestionably caused a reappraisal of what being “virtual” means and its value to both consumers and enterprises. For decades, “telecommuting” was often viewed skeptically by many traditional corporations. Employees that telecommuted — either for necessity or lifestyle reasons — were often viewed suspiciously by management and even fellow employees. Were they really working the hours they insisted they were working? How effective were they outside the office? How could they possible be ‘in the loop’ when not physically in the office and privy to the water cooler conversations that often sets a company’s culture? Would their ‘virtual’ status hurt them when promotions were on the line?

C19 is not going to settle all those issues, but it is lending a legitimacy (and, now, urgency) to telecommuting and is elevating the practice. More seriousness is be given to virtual work and virtual teams. Millions across the globe are, at this very moment, upgrading their WFH set-ups and creating virtual Zoom backgrounds. Millions more are finding that they have been surprisingly productive in a WFH context and are rethinking the traditional ‘5 days a week in the office’ routine which defined much of their professional lives. Across the country, companies are evaluating how when the crisis lifts whether it makes sense to reconstitute their teams entirely back in their offices as they existed pre-quarantine or, perhaps, shift to flex time.

Companies around the world are having these conversations. By their very nature, tech companies have more experience working with distributed teams. As such, their transition to even further virtualization and distributed workforces will be easier. More traditional companies that have been reliant upon the classic centralized workforce playbook and have struggled to adapt to the recent WFH mandates will continue to experience challenges, but the evolution is decidedly taking place.

6. The Virtualization of (almost) everything

Finally, as discussed above, the rapid migration of so much of what we do and how we interact to a virtual context is stretching our notions of what can exist virtually and what cannot It will also lead to new categories of experiences that will exist only in a virtual context. As VR/AR/Immersive Experience technologies improve, they will no longer be utilized to replicate a poor facsimile of an experience better had in person and in real time. Peloton is one company that’s pushing the boundaries in the fitness space by creating a user experience that’s more than just a grainy virtual reproduction of what attending an in-person spin class would be. Peloton — not a Catapult portfolio company; we’re just fans — has integrated novel technologies and features that create a rich user experience that even the most highly advanced state-of-the-art fitness facility would find difficult to match. Nowadays, fitness centers are scrambling to add technology features to their facilities to compete with Peloton.

Given the rabid devotion of many of Peloton’s fans, the Company is clearly doing something right. Beyond just virtual representations of a brick a mortar experience, we expect to see a wave of new experiences — in entertainment, sports, education, healthcare, etc — designed entirely to be consumed virtually, with no brick and mortar counterpart. These experiences will leverage the idiosyncratic advantages of being virtual to make them unique which, by their very nature, will create competitive moats.

In conclusion, as saddened as we are by the human and economic toll of C19, we at Catapult remain sanguine about the future of tech innovation and the investment opportunities that will emerge from this crisis. The themes discussed here are just a handful of the trends and behavioral shifts that we are already witnessing and serve as a harbinger for what’s to come in the months and years ahead. We believe these themes will present enormous market opportunities for those investors and company leaders that stay the course.

As a famed investor commented during the last market reset, fortunes are made and lost during times of transition. The ‘fortunes made and lost’ part is a bit premature to assess, but we are certainly undergoing a time of profound transition. If history is any guide, the tech sector will withstand current market headwinds better than most and those investors and companies that remain disciplined and engaged will weather this storm and emerge stronger for having done so.

Don’t fear the bear. History suggests that we may be entering a superb time for tech investing.

 A Black Swan Health Crisis; Not a Tech-lash

As sad and horrific as the human toll of COVID-19 is, from a market perspective what we are experiencing is not akin to the wholesale collapse of tech valuations following the dot-com bust of 2000–01. COVID-19 was (and is) a black swan health crisis, not a tech-specific market selloff.

While some recent tech IPOs have not fared well, the reasons for the public market’s lukewarm response to those debuts have more to do with the underlying fundamentals of those businesses. It should be noted that the market has not soured on tech companies per se; it has soured on wildly unprofitable tech companies with wobbly unit economics, unsound management practices, and still-unproven business models.

While a bear market will encourage investors to be even more skeptical of such businesses — and, in some cases, to conduct actual due diligence, not simply the illusion of due diligence — it will not unduly prejudice the technology sector.

Bear Markets present exceptional opportunities to build sustainable businesses

While it’s true that great companies are founded in all markets, as is often repeated, some of the biggest technology names were formed during challenging economic times: AirBnB (‘08), Yammer (’09), Square (‘09), Stripe (‘09), Facebook (‘04), Uber (‘09), Groupon (‘08), Playdom (‘08), Adobe (‘82), and Microsoft (‘75), to name just a few.

Arguably, a bull market may be the most challenging time to launch a startup. Witness what we’ve experienced in Silicon Valley and in a handful of other established tech hubs in recent years: a ferocious competition for talent; unprecedented hiring challenges and wage levels; costs for office space and service providers at all-time highs; tight housing markets; skyrocketing rents and living expenses for employees; community backlash; and so forth.

While a bull market might more easily enable a budding entrepreneur to secure funding for her lofty startup vision, it often enables many other budding entrepreneurs to secure funding for directly competitive ideas.

Those startups are then forced to exhaust a good amount of their investors’ capital competing against each other and not focusing on the incumbents. In the end, the infamous Peter Thiel quote proves accurate: an enormous amount of the venture capital that startups raise in a bull market ends up in the pockets of landlords, service providers and of companies like Google and Facebook, not taking on incumbents and building sustainable businesses.

Bear Markets ‘lower the volume’ so teams can focus

Great companies and robust products take time. In frothy markets, startups feel undue pressure to continue raising capital and guarding their flanks against competitive startups launching in their wake, seemingly every week. In a bear market, there’s a flight to quality and, as a consequence, fewer competitors are securing funding. As such, those teams that do raise capital can actually focus on building a great company, a robust product and a sustainable market position. And, unlike in bull markets, startup CEOs are not unduly preoccupied with team attrition; their best engineers are not constantly being poached by better funded, more established rivals. Team cohesion improves as a result.

Bear Markets typically generate better venture returns

Correspondingly, bear markets are exceptionally good markets in which venture capitalists and limited partners should be actively investing. Much as startups can take advantage of a less hectic pace to build consequential companies, venture capitalists can also spend more time with their portfolio companies to coax those companies into their fullest expression. VCs still must work as hard as ever, but the focus seems more channeled and directed, less scattered, and less driven by FOMO.

Moreover, the trickle down benefits of a bear market to a venture investor — lower OPEX costs for one’s portfolio companies, more available talent, more rational valuations, a smaller competitive set, etc — has the effect of making a GP’s capital go a great deal farther than it does in a frothy bull market. And those lower valuations and longer runways for portfolio companies for the same invested capital has a direct and positive impact on venture returns.

For LPs, similar dynamics are at play. Historically, the best VC fund vintages tend to have been those that were invested during bearish markets. For LPs to step away from venture now when valuations will almost assuredly come down, capital will go farther, and ownership stakes for that same capital will increase, would be a mistake.

LPs that were spooked after the dot-com bust and sat out the 2002-06 period missed the Consumer Internet/Web 2.0 wave and some of the best VC returns in a generation. Similarly, those that retreated following the GFC of 2007–08 missed enormous returns generated in the venture asset class from investments made in startups between 2009 to 2015.

Tech Innovation does not stand still

The global technology innovation boom shows no sign of abating; if anything, it is accelerating. Technology progresses irrespective of where the Dow sits that week. Moreover, in turbulent times there is an even greater focus by both enterprises and consumers on controlling costs, which naturally favors startups deploying technology solutions to drive efficiencies.

At Catapult, which has a specific focus on investing in emerging tech ecosystems outside Silicon Valley, we spend a great deal of time in nascent tech hubs across North America, the EU and Central/Eastern Europe. In our extensive travels, we have found that it is in some of the most under-served markets like Istanbul or Tbilisi where the entrepreneurial spirit is most in evidence; and those markets have virtually no venture capital ecosystem to speak of; just incredibly resourceful entrepreneurs with an indomitable spirit to compete and win.

And whether a startup team is in Kansas City or Kuala Lumpur, it is most likely using Slack, or Zoom, or Trello, or any number of workforce collaboration platforms that can enable it to be both globally competitive and cost competitive as it sources the world’s best talent, regardless of where it resides.

Today’s worries over COVID-19, unnerving as they are, will only accelerate interest in companies and investors squarely aimed at fueling the current remote workforce collaboration revolution. This is a core investment theme at Catapult and an area in which the partners have been long-time investors. As the COVID-19 crisis abates, whether in weeks or months, there is no reasonable likelihood that interest in remote workforce collaboration will suddenly go fallow. This is not just a trend; it is a fundamental shift in how enterprises and workplaces will look and function going forward. There is no going back from this.

Silicon Valley, which has enjoyed a 70-year reign as the world’s dominant tech hub, will likely experience a contraction in job growth and economic expansion during the coming cycle. However, we believe this contraction will ultimately accrue to the benefit of the Pittsburghs, Berlins, Lisbons, and Barcelonas of the world where technical talent has quietly been coalescing, where valuations and costs have remained reasonable, and where low cost of living and quality of life has long been a draw for the well-educated, newly affluent and tech-savvy.

In Summary: Tech and VC is increasingly a global driver of economic growth.

Finally, while a bear market may temper the rate of the current global innovation boom it will by no means extinguish it because the catalyst behind this period of innovation has little to do with capital and much more to do with the irrepressible entrepreneurial spirit and with the desire of founders to apply technology solutions to address fundamental global challenges.

It also has to do with increasingly compliant governments around the world that see the promise of technology innovation to re-tool their economies from those long driven by old world industries like mining and manufacturing to ones that prioritize high value intellectual work and entrepreneurship. This, in turn, stimulates job creation, quells the brain drain, expands the tax base, and creates the flywheel effect of a robust tech hub, which attracts future generations of visionary founders to those geographies.

With the recent advancements in workforce collaboration technologies and the availability of low cost bandwidth and cloud storage, addressing these challenges becomes a question principally of ingenuity, not capital. And there will always be sufficient capital for mission-driven founders with bold ideas that are addressing fundamental problems and have the potential to achieve global scale. For us at Catapult, we’re excited by the enormous opportunities in the years ahead for tech innovation and tech investment and we’re decidedly open for business. You should be as well.

Venture capital is experiencing a sea change. Consider just a few of the things we’ve witnessed in recent years:

  1. A 20x increase in the number of seed funds deploying capital in and around Silicon Valley since 2009. (I credit Ahoy Capital’s for this stat.)
  2. Most legacy firms raising larger and larger funds with every fund cycle, with a few notable exceptions. This upward migration has caused many of these same Ivy League venture names to largely move away from Seed stage investing and, in some cases, even move away from what was traditionally considered “early stage venture investing.”
  3. The rise of fast-emerging ‘Tier 2’ tech ecosystems outside Silicon Valley that are catching up quickly with Silicon Valley and now challenging the Valley’s once-indisputable hegemony as the dominant ecosystem for tech innovation; and, finally,
  4. The flood of late stage investment capital and an influx of new investors, many of whom are recent arrivals to the asset class.

While each of the first 3 bullet points would individually merit an entire post to its examination (which I may explore in a forthcoming piece), it is this last point on which I want to focus. I believe mature and maturing tech companies will be funded in coming years in fundamentally different ways and from fundamentally different types of investors and investment products from what we’ve traditionally seen. With those changes, I believe we are seeing some structural and lasting changes in the late stage venture landscape and a possible winnowing of pure play late stage-only venture firms unable to adapt to new market realities. Allow me to lay out some of the elements to this argument…

1. The ‘arrival’ of debt

While private debt, in some form or fashion, has been around the venture ecosystem for decades we are undoubtedly seeing a renaissance in the perception of debt and its utility as a means to fund emerging growth companies. With this renaissance comes a long overdue re-appraisal of some of the less-than-favorable connotations about debt — some fair, many antiquated — that have traditionally soured venture investors and founders on debt as an funding option. There is also a newfound recognition that as technology companies mature and as their revenues achieve a level of predictability the notion that equity is the only “tool for the job” for accelerating growth is being challenged. A number of recent blog posts on the subject — Alex Danco’s ‘’ stands out here; Ali Hamed’s ‘’ picks up where Alex left off and adds nuance — have elevated the conversation further within venture circles. Both are worthwhile reading.

I agree with many of the arguments posited therein; namely, that debt will become a more common tool for financing later stage, mature technology companies that enjoy predictable revenue streams, high customer retention, and long-term customer contracts.

As more technology companies mature and develop revenue models that possess these characteristics, the argument for raising large amounts of dilutive equity for these companies becomes more difficult to make. I expect to see a marked increase in the number of institutional investors offering low cost, highly flexible, minimally dilutive, innovative debt structures to mature technology companies. In many ways, these firms and their offerings have already arrived.

2. The influx of ‘non-traditional’ late stage investors

Late stage venture investing has long held a broad appeal to a wide swath of investor types: from pure-play late stage VC firms, to corporates and strategics, to non-traditional types such as (SWFs), family offices and financial investors typically known for focusing on other asset classes, such as hedge funds and real estate. What’s different today is the dramatic increase in the number and the activity of these more ‘non-traditional’ groups on the venture stage.

In addition to active LP groups that are banding together to invest later stage in co-invest deals (see #3 below), corporate/strategic investors, financial investors such as hedge funds, and arms (CVCs) have also grown in prominence in recent years. By some estimates, strategics/corporates and CVCs are more active now than at any time since the peak of the dot-com era. While some detractors may argue that these groups have been known to abruptly shutter their VC investment arms or curtail their activities at the first hint of a market downturn, this current trend feels different. Many of these groups seem more thematic and committed to the asset class this cycle. The strategic imperative of corporates building a pipeline to access emerging technologies and innovations is more acute than ever and, some might argue, somewhat inelastic to market gyrations in the fiercely competitive environment that corporates find themselves in. As such, when the inevitable downturn comes, I don’t believe we’ll see the exodus of CVCs and strategics as some cynics might predict. Many appear to be here to stay.

3. The boom in late stage co-invests and in ‘going direct.’

In the current climate, most every LP active in the venture asset class will profess that they are interested in seeing and investing in . At my firm, , we see the same dynamic. My partners and I have been venture investors for 15+ years and have invested more than $660mm in 275 companies in the aggregate, so we are fortunate that many of our prior portfolio companies return offering us allocations in their follow-on rounds. Often the allocations are too large for our Main Fund but perfect to share with LPs interested in co-invest opportunities in highly vetted, de-risked later stage companies. Like many VC firms, we offer late stage co-invest opportunities to LPs as a kind of “membership has its benefits” perk to them for being investors in our fund.

This increased appetite from LPs for late stage co-invest opportunities has added a fairly new dynamic to the late stage venture ecosystem. It has also extended the reach of VC firms that would typically not be very active after, say, Series B. Today, with LPs willing to provide capital to enable VC firms to continue to support their breakout companies, these firms can now lead and follow on in these rounds in ways that would not have been possible a short time ago.

Moreover, some () and institutional investors have developed discrete programs to productize late stage co-invests, essentially providing seed and early stage VC firms with a turnkey solution to offer allocation opportunities in later stage companies to LPs.

Finally, in addition to going the co-invest route, more LPs are simply ‘going direct’ in venture opportunities. By building robust deal sourcing mechanisms and instituting some process and post-deal support, these LPs are bypassing the VCs altogether. Yes, there are myriad pros and cons to taking this approach, which has been of late so I won’t rehash them here, but it’s axiomatic that this is occurring more frequently now and altering the landscape.

4. The ‘platforming’ of VC firms and the advent of the Opportunity fund.

These days, it seems that if you throw a rock down any street in downtown San Francisco or Palo Alto you will hit five seed stage VC firms that recently launched a ‘Continuity’ or ‘Opportunity’ fund to sit alongside their seed stage-focused Main Fund. The logic behind these vehicles is obvious: more capital to continue to support a VC firm’s breakout companies as they scale and require more capital. These Opportunity funds also enable the VCs themselves to maintain or even augment their ownership in the underlying companies rather than incur the equity dilution from not following along in subsequent rounds in a fulsome way. Where these vehicles differ from the late stage co-invests discussed earlier is that these Opportunity funds are discrete, committed vehicles established and managed by the GPs, whereas late stage co-invest opportunities are simply allocations offered to a firm’s LPs without any obligation on the part of the LPs to invest in those companies.

As discussed earlier, the increased presence of these Opportunity and Continuity funds is enabling more seed and early stage VCs to continue investing larger amounts and at later stages of maturity than before, which is impacting the value proposition of a new, late stage financial investor — who might only be contributing capital and ostensibly some growth stage operating expertise and capital markets expertise — coming into the round.

5. More investor syndicates keeping their best companies “in the family”

Finally, and perhaps most controversially, there’s been a trend in recent years of syndicates of seed and early stage investors choosing to continue funding their breakout companies themselves rather than, as they once did, taking their best companies to late stage institutional firms when growth stage capital is required. Some investors have taken to calling this practice “keeping it in the family.”

Part of this rationale is returns driven. The most famous (or infamous, depending on your perspective) example of this was being the sole institutional investor in By providing essentially all the venture money WhatsApp required, Sequoia went on to reap a to . Other firms have taken notice.

Another part of this trend is the benefit of avoiding the ‘upsetting the apple cart’ dynamic that often occurs when a new investor appears, especially if it’s a traditional late stage VC firm. That new investor routinely demands a Board seat, which in turn often necessitates a previous investor either reducing its Board involvement or stepping off the Board entirely. This is not always ideal or welcome. A well-functioning Board of Directors is a highly prized, somewhat rare, and delicate organism. Well functioning Boards often like to stay intact. As such, by contributing most of a startup’s capital requirements internally (or through affiliated groups that won’t require a Board seat) and not bringing in new investors there is a higher likelihood that the current Board composition remains unaltered.

Finally, ego and the tension that sometimes exists between early stage and late stage firms has a role to play here as well. Sharp elbows exist in all areas of finance; venture is no different. Some early stage investors admit openly that they avoid taking their best companies to traditional late stage firms where follow-on capital is required.

While this perspective may be an extreme one, in some ways this overall trend should not be surprising or discounted. As discussed earlier, more early stage firms are raising larger sums of capital themselves, either in a Main Fund or through a platform strategy/Opportunity fund, or through partnerships with their LPs or other groups. With more capital around the table, the imperative to go outside to raise late stage capital from new financial investors is mitigated significantly, notwithstanding some of the signalling issues inherent in inside rounds with no new investors joining. With capital abundant for great companies, late stage investors have to compete fiercely to put capital to work in the most sought-after companies. As such, Boards of directors can be very picky in choosing which late stage investor should be given the opportunity to invest. In most of these cases, the late stage investor who is ultimately selected is bringing more than capital to the table. This gives a significant advantage to a strategic investor or a CVC who can deliver highly desirable channel partnerships, domain expertise, cross-border capabilities, a name association “halo” effect, and a plethora of other advantages far greater than simply capital.

In Summary

As is often said about the venture capital asset class, investing in venture capital is playing the long game. VC funds are typically closed-end, 10-year vehicles (with 1–3 year extensions) and it can take years for trends to appear, the dust to settle, and for industry standards to emerge. Portfolios take a long time to mature. Venture investors often won’t know for many years whether they are any good at venture investing. As such, I am not predicting the end of the traditional late stage VC firm. Indeed, some traditional late stage firms have been superb partners to many of my portfolio companies, have added real value, and have been great to work with. That said, there is no denying that the landscape of late stage venture capital has changed in fundamental ways. With more ‘platform’ VC firms building a latticework of multiple funds under management, with innovations in debt structures and new funds deploying such solutions, with more non-traditional investors active in the space willing to right sizable checks at generous terms, and with more early stage investors reluctant to go outside their syndicates for follow-on capital unless that capital comes with very specific value-adds, I believe how late stage technology companies will be funded going forward has being altered dramatically and both the value proposition and the future of all but the very best late stage venture firms is in question.

End-to-end wedding management and services platform Joy recently announced the close of its $10mm Series A round, led by Avalon Ventures with the participation of Sound Ventures and the support of existing investors. The company has been accelerating nicely and establishing a solid position in what is inarguably a crowded space for wedding apps, platforms and service providers. Building a business that demonstrates solid network effect in the wedding space has long been the holy grail of the sector. Due to the seasonal and cyclical nature of the wedding business, the question becomes how does a wedding-focused business build a strong brand and virality and repeatability when its customers are typically single use. As such, it is critical to provide real value to the broader ecosystem of wedding guests, venues and service providers; and we think Joy has done a masterful job of provider a simple, elegant solution that drives value across that ecosystem.

The fresh capital will enable the company to continue building out its suite of solutions and to expand its team. More information on Joy can be found here.