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It’s been almost 5 years since this editor sat down We sat down with veteran VC Harry Nelis and three other investors from Accel’s London office to discuss the trends that are spilling over into the venture industry. At the time, our talk centered around Brexit and SoftBank’s frenetic investment pace, which was starting to drive other late-stage funds into early-stage companies.
Of course, a lot has changed in the meantime. Brexit came into effect in January 2020. Shortly thereafter, COVID-19 spread around the world. The global recession has also reshaped how investors and founders think about their respective roles, pushing SoftBank behind.
To see how some of these changes affected Accel (thanks to successful bets like slack and UiPathwhich raised some huge sums just when things were cooling down), chatted with Nelis yesterday in a quick catch-up, lightly edited below for length and clarity.
TC: Your seventh fund closed almost exactly two years ago and paid out $650 million as part of it. $3 billion It is included in the capital commitment announced by Accel in June 2021. This includes US funds and Global Growth Stage funds. How much of the fund did you promise?
HN: I think we’re almost halfway through the fund. Following that entire fundraising, we raised another “Leaders Fund,” a pre-IPO fund. $4 billion With a commitment of June ’22. but . We are in a period where things are slowing down pretty dramatically right now.
It has early stage franchises in Palo Alto, London and Bangalore, India. There are his two global funds, Global Growth Fund and Global Pre-IPO Fund. Growth funds and pre-IPO funds in particular are doing very poorly as companies have raised so much money in the last few years that they don’t need more money. And they know that raising more money probably won’t get them any better. The early stage market was also sluggish for a moment. . . but it’s been recalibrated now and the early stage market is really coming back.
Accel wound down one of its funds after the dot-com crash in 2001. The company was unable to manage the funds it raised and LP was in trouble due to the recession. I’m here. Has Accel talked about scaling back these large pre-IPO and growth-stage global funds?
In general, I don’t think we’ve seen it. So I haven’t read the news that people are cutting stage funding or funding commitments. I also think the market is very close to adjusting again. We’re trying to figure out when most of the big funding rounds happened, how long ago that was, what the reasonable assumptions are for burn rates, and what companies have to raise again. And by most estimates, we should see markets normalize again towards the end of the year, and certainly early next year.
Sometimes it feels like a domino effect. When someone does it, everyone else says it’s the right thing to do. We should too. It’s good to think the market will recover. At the same time, the numbers don’t look all that great. I talk to second hand shops here in the US from time to time and they all said it’s like trying to catch a falling knife here. really don’t want to sell their shares. At the same time, buyers don’t want to buy yet because they think the stock will fall further. And yesterday I saw his LP, an institutional investor, selling some of his holdings. 40% – 60% discountAre your portfolio companies talking more aggressively with secondary platforms? Is Accel selling its holdings?
No, we’ve been here before, right? In 1999-2000 we had a massive fundraising cycle, but of course it’s been very quiet since 2001. Booms and busts are part of capitalism and therefore part of venture capitalism. So our approach is to stay really focused on building a large, valuable business. Over time, those large, valuable businesses end up in a window where liquidity and liquidity exist. Then good things happen.
Over the past few years we’ve had a lot of growth, sometimes inefficient growth. We are working on something that will bring great results to entrepreneurs and will also create great ventures.
Where in particular are you looking to place new bets? We know Fintech is an area of interest to you.
what are we looking at Of course, generative AI is a very fertile area for us to fund and look around. Security is the kind of gift we keep giving as attackers and defenders invent more and more powerful weapons to fight each other. , small businesses did not have many defensive and security advantages. That is why there are now many companies being set up to help small businesses protect themselves from cybercrime. We also fund many repeat entrepreneurs who have previous experience building large businesses, who are still quite young and want to start over.
How has the pace changed since we last spoke? How long does it take Accel to produce the first checks now?
Very different from the heyday.in full swing [in 2020 and 2021], it usually took 3-4 days to decide on a deal. This is not good for investors, but it is also not good for entrepreneurs. Because he will be working with me for at least 5 to 10 years. Now it takes him a couple of weeks to really get used to investment opportunities and entrepreneurs. This is much more prescriptive and gives you an opportunity to get to know the entrepreneur. An opportunity to get to know us.
Before the boom, the typical tenor of a fund was three years, and it took three years to launch. [would feature] About 30 to 35 companies per fund. In boom times, that rollout was definitely two years for him, and for many companies he could be a year and a half. And not getting enough time diversification into such funds makes venture funds more vulnerable. Now it’s back to his three-year introductory cycle that I expected. [more traditional] A period to really properly scrutinize the opportunity.
So many bets have been made during that period that the mortality rate in the startup world is high. Everyone is currently dealing with portfolio companies struggling to survive this period and no one knows how long it will last. ?
We are of the opinion that, in good times and bad, it is always best for investee companies to raise new capital from outside sources. The first litmus test is whether a company can raise external funding. Any rating is fine. If they can’t raise money, it’s a kind of signal from the market.
Do you tend to fund founders who have? Returned capital Back to investors before the gas runs out completely?
An entrepreneur said, ‘Listen, I don’t believe it at all anymore because things have changed. It’s a different market. ’” says on a case-by-case basis. In some cases, that’s fine. It’s okay to admit that circumstances have changed and that the opportunities you jointly found attractive are no longer there. it happens. But that’s not what we actively seek. Usually with entrepreneurs, we recognize that they’re in the driver’s seat, so we support them when they go public. We support them when they decide they want to sell. We also support you if your circumstances change and you decide that chasing your dreams no longer makes sense.