What Are the Latest Trends in VC Returns and Startup Employment?

TL;DR

Venture capital returns have averaged between 1.8x to 3.2x over the past 30 years, with exceptional performances from firms like Union Square Ventures reaching a remarkable 9.1x. The startup employment market shows distress, as more employees are hesitant to quit, reflected by a 'death cross' where layoffs now exceed voluntary departures—indicating a precarious job climate influenced by AI and automation.

Transcript

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Key Insights

• ↩️ Union Square Ventures stands out for its exceptional 9.1x cash on cash return, with other funds likely to show further growth in returns.
• 😵 The "death cross" in startup employment, with layoffs exceeding quits, indicates unease and reluctance among employees to switch companies.
• ✳️ The advent of AI and automation poses both opportunities and risks for startups and the job market, with potential impacts on capital allocation and workforce dynamics.
• 💪 San Francisco continues to be a thriving ecosystem due to its strong network effects, despite challenges with governance and affordability.
• 😚 VC returns and startup opportunities remain unique to the US, driven by close ties between universities and industry, government support, and a risk-taking culture.

Questions & Answers

Q: How have VC returns evolved over the past three decades?

VC returns have grown significantly, with the global market expanding from $30 billion to $300-400 billion. Returns have ranged from 1.8x to 3.2x, with significant differences between top and bottom performers.

Q: How have VC returns been affected by crises such as the dot-com bubble and the 2008 financial crisis?

Vintages that started at the tail end of severe crises tend to outperform, suggesting that investing during crisis periods can be advantageous. However, sticking to an investment program and considering the historical context of each vintage is crucial.

Q: How have Jason Calacanis' returns as an angel investor been impacted by cyclical trends?

Calacanis's returns have been counter-cyclical, meaning that investing during bear markets has often yielded better returns. The key is to judge investments based on their long-term performance, as earlier funds may not accurately reflect their future success.

Q: How do fund of funds managers construct portfolios to ensure steady returns?

Fund of funds managers prioritize working with top-performing GPs who can attract the best entrepreneurs of a particular vintage. They aim to have a diverse portfolio with managers who align with their investment criteria and consistently deliver strong results.

Summary & Key Takeaways

• VC returns over the past 30 years have ranged from 1.8x to 3.2x, with top quartile performers outpacing the rest significantly.

• Startups are facing challenges in the employment market, as more employees are reluctant to quit and find new positions due to uncertainty.

• Investments discussed include companies like Jam, which simplifies communication between product managers and engineers, Antares, which offers micro nuclear reactors, and Perplexity, a conversational search engine.