UV Quarterly Update: Q4 2022
UV LPs,
Welcome to our last quarterly update of 2022. In it you will find:
1. PORTFOLIO UPDATE
- Portfolio Highlights
- Statistics
2. GENERAL THOUGHTS
- Market
- Bridge Rounds
Thank you all for your continued partnership!
Sincerely,
The Unpopular Ventures Team
Reminder: you can invest in our Rolling Fund for broad access to our portfolio, which co-invests in every new company we invest in, and invests in more companies than you see in the syndicate. Rolling Fund LPs also receive preferential access to limited-allocation deals.
1. PORTFOLIO UPDATE
SUMMARY: lots of action in the portfolio this quarter, but you wouldn’t know it from the overall numbers. We have been bummed to see some down rounds and shutdowns in our portfolio, as has everyone. But we’ve also had numerous markups, and in aggregate our portfolio is once again slightly up this quarter. In our last update, we posted this image to illustrate the two ways we think our portfolio value might move during this market downturn:
If we are lucky, we’ll get the blue line — a flattening out of the portfolio value for a while, before an eventual resumption of the uptrend. And if we are less fortunate (or the market downturn turns out to be extremely severe), the red line might happen, where we see a dip. So far, we are grateful to be tracking along the blue line at the overall portfolio level.
The bigger/longer term point is: we are confident that we have a lot of really strong companies in our portfolio at UV. Regardless of what happens with market prices and individual companies in the near term, we believe that we will emerge from this bear market with a great portfolio and excellent long term investment returns.
Last quarter we reported that we had invested $49M to date, which had grown into $148M of AUM. Now, one quarter later, we have invested $53M to date, which has grown into $154M of AUM. So we’ve increased principal by ~$4M, while expanding the portfolio value by $6M. Not huge, but in these times where almost everything seems to be down, we are grateful to actually be up.
PORTFOLIO HIGHLIGHTS
Here’s some news about our portfolio companies that made big public announcements in the last quarter:
Yassir: announced their $150M Series B from Bond Capital. Thibault led their seed round, and we were also the first check into them in their second seed round during YC.
Kyte: raised a $60M Series B from InterAlpen, Valor Equity Partners, Anthemis, and others. We invested in their pre-seed, and every round since.
Albedo Space: raised a $48M Series A from Breakthrough Energy Ventures. Thanks to Thibault for leading our investment in their seed round, and to Tommy Leep for collaborating with us on the syndicate.
Billpocket: was acquired by Kushki in a very positive outcome for us. Thanks to Nathan Lustig for guest leading our Series A investment.
CopyAI: crossed $10M ARR. We invested in their pre-seed.
Landis: raised a $40M Series B from GV. Peter personally invested in their seed round in 2018, and we invested from UV in their Series A in 2020.
Hint Health: raised a $45M Series B from Banneker Partners and Frist Cressy Ventures, and recently acquired another company in the DPC space.
Localyze: raised a $35M Series B from General Catalyst. Thanks to Dec Kelly for leading our original Series A investment.
Fullview: raised a $7.5M seed round from Lightspeed. Thanks to Chris Murphy for leading our original pre-seed investment.
Breyta: raised a $4.9M seed round. Thanks to Chris Murphy for leading our original pre-seed investment.
Equi: raised a $15M Series A from Smash Capital. Thanks to Jonathan Wasserstrum for helping us invest in their seed round.
Omsom: received national distribution with Whole Foods Market.
And here are some more portfolio companies of ours that have had something exceptional happen in the last 90 days — in most cases either an investment value markup, or an exciting development in their traction. In all of these cases, the news is not public, so we are treading cautiously to ensure we don’t share information before the companies are ready for us to: Blissway, Gable, Flint, myPocketCFO, Kashin, AltScore, Koban, Foodcourt (fka Chowdeck), Zenfi, Avails Medical, Diode, Dashworks, Udhaar, Ready.
STATISTICS
First: please read the disclaimers and our valuation methodology in the last Annual Report. The same applies here.
Second: we are updating how we present our numbers to be in line with the SEC’s new guidance that if fund managers present gross performance numbers, they must also present the numbers net of all fees. This is a bit tricky for us, because we offer numerous fee options to investors in our rolling fund — each of which would require a different calculation. 2 and 20 is the default option, but we also offer 0 and 30, and even 0 and 20 with a 6 year commitment. That last option is our favorite (we prefer long term stable capital) but recognize that 2 and 20 is the market standard, and most LPs prefer a shorter commitment duration — so we have set that as the default choice.
To produce “net” numbers, we are standardizing them along the 2 and 20 fee structure. To do this, we are starting with the amount that we actually invested into companies, which is “real” — regardless of whether you are signed up with management fees or not. We are then creating an “imaginary” number for capital raised, which is the amount of money we would have had to raise based on how much we invested, if all of our LPs had signed up with 2% annual management fees. But because some of our LPs are signed up without management fees — this imaginary “raised amount” does not actually represent how much we raised. It just serves to facilitate proper calculations net of 2 and 20 fees. Keep in mind: if you have a different fee structure than 2 and 20, the net numbers are different for you.
We are also separating out our syndicate and fund investing. We kept them together in the past, because our intent was to simply measure ourselves — to make sure we were doing a good job investing — and we didn’t really care about which type of vehicle the capital came from. But because the fees on these two entities are different, we have to separate them in order to produce numbers that are net of fees.
On to the numbers. First, here are the numbers for the UV Syndicate:
Here are the annualized numbers for the UV Rolling Fund:
And here are the numbers combined:
Here are statistics about our investing activity:
And here’s the Quarterly Breakdown for the Rolling Fund:
Q4 ’22 is underway (hence why it’s marked TBD), but we’ve raised $1.7M in new rolling fund capital this quarter, and also rolled over an additional $414k of leftover capital from the prior quarter. As mentioned in the last update, we are being a tad conservative while we are seeing valuations reset across the board — opting to not invest all of our available capital in each quarter, saving it for the coming quarters when we expect valuations to be lower.
As always, if you are a major LP of Unpopular Ventures (invested >$250k to date), and are willing to sign an NDA, we will share with you the complete portfolio data that is behind these numbers. Please submit a request via this form: link
For everyone else, you can access the de-identified data here: link
2. GENERAL THOUGHTS
MARKET
The market continues to be top of mind for us. The downturn is here in full force, and valuations are continuing to come down. The recent FTX blowup was particularly jarring, and we think it’s likely to reverberate through the rest of the tech market. Crypto is the most impacted, but we think it will also depress overall tech and VC sentiment as well.
For us, we are just heads down, continuing to make the best investments we can. We know it’s cliche, but it’s also true: the best investment opportunities appear during bear markets. We are seeing lots of amazing founders, building wonderful businesses, raising at very reasonable valuations. We think that the portfolio we are building now is likely to produce outstanding returns over the coming years.
It has been a bummer to see some of our portfolio companies struggle in the current market climate, but we’ve also been incredibly impressed by others. As we noted in our Is Winter Coming? post from January, our financial results as investors are primarily driven by a few extremely positive outliers — and we feel grateful to have quite a few of those.
Even if market prices are down 80%, the fastest growing companies often grow 5x+ per year (if not faster) — which means that so long as the companies grow and execute, they can outpace even the most extreme market swings. Yassir and Kyte, as examples mentioned above (among many others), both recently raised massive venture rounds at higher valuations than their prior rounds. This is because they grew dramatically, more than market valuations came down. Of course, their valuations would have been much higher (probably unicorns) if market multiples were the same as a year ago — but it’s a testament to their hard work and extraordinary execution that they were still able to raise up rounds amidst the tough climate. And perhaps most importantly — they are getting (a lot of) money when money is scarce — which makes them more likely than ever to keep winning, and grow into immensely valuable companies on the other side of the bear market.
BRIDGE ROUNDS
We also wanted to share some follow up thoughts related to our recent post on tier 1 bridge rounds, as we’ve distilled our thinking into a simpler framework. When investing as an LP in AngelList syndicates, you basically have two choices:
- You can invest before the tier 1 VCs come in.
- Or you can invest after them in their leftovers.
There are rare opportunities to invest alongside a tier 1 VC the first time they invest, but those deals are rare — probably well under 5% of deals on the platform. And those allocations are limited and extremely popular, so even if they exist, you can never invest in those deals with meaningful size. You always get cut back significantly, if you even get invited to them in the first place.
So the reality is, if you want to be co-invested with tier 1 VCs, as a syndicate LP on AngelList, those are your two real options: invest in qualitatively promising companies before the tier 1 VCs come in, or invest after them in their leftovers.
Many people feel safer investing in companies where a tier 1 VC is already in, but we believe that’s an illusion. If you want to perform like the top tier VCs, you need to be in the best companies, and VCs don’t tend to make their best companies available to others. They either invest and take the whole allocation themselves, or they send them to their buddies at other top firms.
So we believe the optimal strategy is to invest before the tier 1 VCs come in. It feels risky (because it is), and some of these investments won’t work out, but many of them will end up succeeding and become top companies (with tier 1 VCs in them) *later.* You are more likely to invest in some mega breakout successes by investing before the tier 1 VCs, than if you pick among their leftovers.
We see it all the time in our own portfolio. We often invest in companies before there are any other VCs, and can invest as much as we want. But then when the top tier VCs come in, everybody and their mother wants to invest. Either the VC takes the entire round, invites all their buddies, and/or the company can raise the rest of their round from stars (famous founders, celebrities, etc.). A syndicate is near the bottom of their wish list of investors they want to fill out their round. Even among our own existing portfolio companies — when the top tier VCs come in — we often can’t get much of an allocation to run another syndicate.
So that’s a big part of our thesis in how we invest: as UV, and as AngelList syndicate LPs ourselves. Invest in the qualitatively best companies we can, either 1) before the tier 1 VCs come in, or 2) alongside tier 1 VCs the first time they invest (in the rare cases we can get into those deals). Avoid the tier 1 leftovers, except in exceptional cases.
We believe that the over-emphasis on AngelList around co-investing *alongside* tier 1 VCs has distorted the market. Instead of focusing on bringing qualitatively attractive companies to the platform, many leads have instead optimized for the existence of tier 1 VCs — which has led to an abundance of deals that are tier 1 leftovers. Syndicate leads do it, because they know those deals raise money, because AngelList LPs focus heavily on investing alongside tier 1 VCs. The intent of our recent blog post was to help remind LPs that the existence of tier 1 VCs does not necessarily mean an opportunity is a good investment — and that we should all scrutinize these deals more closely.
We have something new in the works that follows this line of thinking.
