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With illiquidity thin, VCs may get creative in returning cash to investors.

TechBrunchBy TechBrunchFebruary 24, 20249 Mins Read
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Welcome to the final issue of The Exchange! As TechCrunch+ ends this month, so too will The Exchange column and newsletter. Thank you for reading, emailing, tweeting, and sticking with us over the years.

PS A special thanks from me to Anna, who has been nothing short of an excellent lead author of this newsletter since taking over. She deserves infinite credit for her work on email.

Today on The Exchange, we dive into Continuing Funds, count down some of our favorite historic Exchange entries, and discuss what we're excited about reporting for the rest of the year. – Alex

Continuing funds

From our perspective, continuity seemed like an appropriate theme. This is also very topical. “The biggest source of liquidity right now is going to be recurring funds,” his VC Roger Ehrenberg predicted on a recent episode of his 20VC podcast.

If you're not familiar with the term, ask the FT for a definition.

Continuation funds common in private equity [PE] However, although rare in venture capital, it is a secondary investment vehicle that allows you to “reset” some of the assets of an old fund for several years by selling it to a new vehicle that the company manages. This helps the VC fund's backers, known as “limited partners,” roll over or exit their investments.

If you've been following venture capital activity over the past few months, you've probably asked yourself, “Why now?” The answer is easy. As the StepStone Ventures team told my colleague Becca Szkutak in his December 2023 investor survey, “Portfolios are full of unrealized value, reducing opportunities for immediate exits and lengthening holding periods.” GPs are starting to get creative to create liquidity.”

In practice, a continuation fund would have new investors investing in an existing portfolio, but “that reflects today's valuation,” Ehrenberg said. While this repricing and the potential conflicts of interest that come with it seem daunting in theory, Ehrenberg doesn't see it that way. “The portfolio is looking at net new investors, so they become price setters rather than established managers.”

It's not just very large funds like Insight Partners or Lightspeed that can consider this option. “This is a viable strategy for a significant portion of the venture industry,” Ehrenberg told 20VC host Harry Stebbings.

There is a clear push for VCs to seek solutions to ill-timed cycles, as we have already seen with the rise of permanent capital and exchange-traded funds, whether continuous funds, strip sales or secondaries. A common thread in today's economy is that projects and companies are not given the time they need to fully succeed. So it's nice to hear that pure investors are willing to give their portfolios more time to shine, even if they're assuming a temporary discount.

sleep in peace

The exchange was born in late 2019, without even a name yet. It quickly became a daily weekday column and then a weekend newsletter. For those interested in the historical nature of media products, The Exchange was his TechCrunch+ product on the site, but its weekend issue was sent out as an email for free. Why did this happen? Because at the time, we didn't have the in-house technology to send subscriber-only emails.

During The Exchange's lifetime at TechCrunch+, we've published over 1,000 columns and newsletters, making us the largest and perhaps most influential single project for driving subscribers to paid products. Exchange and TC+ were inseparable, so it makes sense that they would be retired together. Still, like any project that mixes both work and personal passion, we will miss it.

From the inception of the ARR $100 Million Club, The Exchange sought to chronicle the 2020-2022 startup boom and subsequent demise, while the early days of the pandemic were filled with stock market crashes and fear. We've gone from his tally of monster rounds and blizzard IPOs to seeing venture capital dry up and startup exits becoming rarer than gold. It was wild.

Anna took over The Exchange's newsletter in early 2022, around the time Alex became editor-in-chief of TechCrunch+. The column remained a group project, but it had to be divided and conquered to maintain its full fruition.

Below is a list of some of our favorite Exchange entries. Of course, you can't go back through the entire archive (which you can find here). So consider this a partial download of the hits.

  • $100 Million ARR Club (December 2019). The beginning of a long-running series examining pre-IPO startups. A number of entrants, such as Monday.com, later went public.
  • Why is everyone building OKR software? (January 2020). Our first “Startup Cluster” style post delves into what turns out to be an unusually busy part of the emerging technology company's journey.
  • API startups are super hot right now (May 2020). API startups will rely on the model that Twilio helped pioneer to remain popular for years to come. It's interesting to look back at May 2020, when there was still plenty of fear in the market. Little did we know what would happen next.
  • Don't Hate Low-Code and No-Code (May 2020). The low-level no-code debate has died down somewhat, as the stakes are now more about how non-developers can manipulate and create software that bends to their will than controversial product choices. Still, this wasn't always the case.
  • There has never been a better time for startups (July 2021). By mid-2021, it was clear that the market for startup stocks was entering a new era, with investors piling up cash in every software company they moved.
  • How to apply the math to today's (July 2021) sky-high startup valuations. Underlying the massive funding boom mentioned earlier was the expectation that software growth would continue faster and longer than previously expected. That wasn't true after all.
  • What could stop the startup boom? (September 2021). In late 2021, we were a bit concerned that the pace of investment was not entirely sustainable. The market will remain hot for some time, but our notes on potential disruptors of the startup boom turned out to be pretty accurate. Interest rates have really changed the game.
  • Increased transparency for LPs has expired (January 2022). VCs will tell you what they're investing in, but they're often silent about their backers. We argued that startup founders need to be a little more informed about where their capital is ultimately coming from.
  • Why you shouldn't ignore Europe's deep tech boom (February 2022). One of the interesting stories that has been forming in recent quarters is the resilience of European ventures and startups amid the current downturn in private market capital investment. We said European deep tech is poised to do well. And, well, we were right.
  • Yes, funding for startups is becoming increasingly difficult (July 2022). Even though the boom in 2021 continued into early 2022, by mid-2022 it was clear that the boom era was over.
  • The Rise of Platform Engineering, an Opportunity for Startups (December 2022). Instead of investing in more developers, why not spend the money on making them more productive? The ensuing pay cuts for developers made it clear that the days of mass hiring were over. , the argument here is now more appropriate.
  • Mirage of dry powder (January 2023). After a lackluster end to 2022, there was optimism that VCs had a lot of dry powder (capital to put into work) to hold onto. Will those funds loosen up and good times return? Anna argued that some venture capitalists who are theoretically on the sidelines are less “realistic” than they appear.
  • The core of the SaaS economic model is under extreme pressure (August 2023). One way software companies grow is by selling more services to customers over time. But by August of last year, it was clear that net retention was declining. This means that much of the organic growth startups once expected has evaporated.
  • Will the power of data in the age of data put startups at a disadvantage? (August 2023) If AI is what brings data to life, will the companies with the most data win? And if so, what will happen to startups?
  • Rainbow or storm? (September 2023). After discussing improving outcomes in fintech, Anna delved into the use of AI to fight fraud. This was an interesting shift from the usual AI and cheating stories where the AI ​​enhances cheating rather than restricting it.
  • Klarna's financial growth is my favorite story in the tech industry at the moment (November 2023). Even after the valuation was reduced, Klarna continued to grow and improve its financial performance without slowing down. Alex appreciated their progress.
  • WeWork's bankruptcy proves that its core business didn't really work (November 2023). What more can you say about WeWork other than that it was a weird lease arbitrage that never had a good core business?
  • Why I'm modestly bullish on cryptocurrencies in 2024 (January 2024). Ahead of the Spot Bitcoin ETF, this column suggested that this could be a bumper year for cryptocurrencies overall. So far this is correct.
  • Yes, the spike in tech layoffs you are feeling is real (January 2024). And to round out some of our favorite or most memorable entries, the recent wave of layoffs was by no means a mirage. Sadly.

It's not over yet

Although The Exchange is closed, we still have big coverage plans for this year. Thankfully, we're both still at TechCrunch, so you're far from kicking us out. Alex wants to study the health of unicorns, the state of debt financing in 2024, and how in his OS layer he buys AI. Anna is interested in AI hubs beyond San Francisco, GP stakes investments, and the S-1s we can get.

Thank you for reading The Exchange posts and newsletters. I'm really grateful that I was able to spend so much time on this project. Go higher and higher!



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