Pivot

It’s a word that you hear constantly in startup land.

The word is usually applied to startups:

But VC firms do it, too.

What puts a VC firm on the path to a pivot?

Here are a few triggers…

Fund N+1 Is Smaller Than Fund N

In 2021, it felt like everyone was raising a fund.

And everyone’s fund was oversubscribed.

In 2023, it’s totally different.

You’re seeing a lot of firms cut fundraising targets on their next fund.

In some cases, substantially.

A smaller target means (at least) one of these things will need to change for that firm:

• Of Rounds Led
• Initial Check Size
• Number of New Investments
• Follow On Rate
• % of Fund Used For Follow-Ons
• Investment Stage Mix

How the firm interacts with other firms will probably change, too.

For example:

A hypothetical seed fund that planned to lead rounds when they had a $50 million target:

Will be un-sharpening those elbows when they realize that they may only close on $25 million.

Fund N+1 Is Larger Than Fund N

It can go the other way, too.

A fund could pivot based on raising a larger fund.

And that would drive changes to some of the variables I mentioned above.

Though the words “larger fund” are not exactly rolling off the lips of LPs or GPs these days.

A New Partner Joins A Firm

If the new partner has a strong background in a specific industry or technology or stage of investing …

… the firm might pivot its focus there.

And that move might allow a fund, over time:

To move from being a niche player …

… to a full blown generalist fund.

Here’s an example of a seed firm that made that sort of move a decade ago.

When they had I’m guessing … $100 million in AUM — and a single sector focus.

Now they’re right around $1 billion in AUM — and are known as a generalist seed platform.

No Joke

Lots of VCs are going to need to pivot if they want to survive the next couple of years.

We’ll see lots of firms die off when they can’t pull it off.

And we’ll see some firms creatively pull through:

Or just plain grind it out.

I’m looking forward to seeing how it all plays out.

How about you?