Santosh Sankar: Overlooking Tallin’s old city

The Memo

Hello from cold and snowy Tallin, Estonia where I welcome you to the 13th issue of The Up Round. As a reminder, this is a "round-up" of relevant news and resources for fund managers building a best-in-class firm. Expect us to land in your inbox every other weekend.

I spent the weekend with some of the Dynamo team in Tallin, Estonia after Slush 2023 in Helsinki. It was pretty awesome to walk around in the cold and scale castles and cathedrals while taking in some medieval history that’s less accessible in the US. We’re off to Berlin shortly!

A few interesting things from the past week amongst European GPs:

European GPs are much more active in publicly announcing their funds. This is true even as they are in-flight (as seen below)
European LPs are still seen to be on the sidelines in support emerging managers and the broader asset class. Most funds end up taking money from the EU FoF but GPs tend to gripe around the controls and reporting requirements of doing so
There are still signs of “froth” in the EU seed market with some companies showing up and raising outsized rounds and outsized valuations to the tune of €4M in the €20M+ valuation range without proving much

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X’s & O’s of Firm Building

Forum Ventures’ State of the Market Report (link). Forum Ventures released a report that sheds light on this and more, exploring the evolving dynamics of startup funding in 2023. Featuring perspectives from leading investors at B Capital, Atento Capital, High Alpha, Right Side Capital Management and more, this report is your guide through the complexities of today's VC market.

US Emerging Managers Seeing Fundraising Rebound? (link). Despite a tougher fundraising landscape in 2022, emerging venture managers have fared better in 2023, raising $11B across 170 funds in the U.S. While they won't match the 2022 total, their resilience and unique focus areas have allowed them to maintain a significant share of the capital raised compared to established VCs.

📽️ Newcomer: Cerebral Valley with Vinod Khosla. (link). At 68 years old, Khosla works 80 hours a week and has ambitions to invest for another 25 years. More specific to the X’s and O’s, Khosla believes that there is still great opportunity for investments despite high valuations and also notes that America is in a techno-economic war with China that brings large opportunities with it. Interestingly, Khosla is anti open source AI due to the national security risk is brings with it.

How to Overcome Poor Data Quality When Applying ML to Early-stage Venture (link). “In essence, applying machine learning to venture capital is an exercise in applying ML to a complex problem space. It's less about the data volume and more about the deconstruction of problems into machine-learnable components, and then, over time, reconstructing them into a cohesive, end-to-end process – or as near to that goal as is possible or desirable.”

Fund Debuts

NP-Hard Ventures Raises Debut €12M Fund (link). The Amsterdam-based fund will focus on founders solving very big and hairy problems, focused on creating the building blocks of tomorrow. The fund has made 15 investments with plans to add 20 more.

Spanish Bcombinator Raising €40M Fund (link). The fund is targeting 100 companies with the majority coming through it’s acceleration program. The fund will invest €50k-€100k initially with €500k of follow on given it has 50% of AUM dedicated to reserves. Bcombinator has historically run it’s accelerator and my take is that there wasn’t a formal fund with the ability to invest in companies sourced outside of the program.

Tritemius Announces €50M Web 3.0 Fund (link). The fund will invest €150k-€3M in companies using Web 3.0 in application areas such as digital identity, decentralized finance, infrastructure, gaming, and social.