Beyond IPOs: How Tekedia Capital sees the best way to structure venture capital funds of the future

I wrote this on November 25, 2021 here

I respect traditional venture capital (VC) firms, but I hate their business models. How do you find a great startup, fund it, and because you’re required to return money to your sponsors (“the VC investors”), over the years you leave before the company even starts his life ?

Yeah, you got in when the startup was worth $200 million and it went public for $2 billion. You rejoice because over a period of 7-10 years you have made, say, 10x returns. But wait another 10 years, the same startup that went public at $2 billion is now worth $30 billion. But you were gone since!

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What would have been wrong if the VC had held their positions without any time constraints? That way, instead of capturing value at less than $2 billion in a decade, it opens up to capturing value at less than $30 billion in a multi-decade window. And you allow LPs who wish to leave to leave.

This is why I did not design Tekedia Capital as a typical venture capital firm. I did the math and discovered that over 90% of VCs leave money on the table due to artificial time constraints they created. They become operators at the center of the smiling curve rather than at the edges. For any backers of Facebook or Tesla, the biggest winners are the investors who got in early on their IPOs. VCs that came out in the first 10 years of this company’s life are left on the table.

(Some funds are structured to have expiry dates, usually 7-10 years, that the fund must close and return the money to limited partners.)

By removing time, Tekedia Capital investors will seize not only the initial opportunities, but also the latter-day opportunities in our businesses. In a Cambrian moment, restricting unlimited opportunities by time doesn’t seem right. Tekedia Capital will play both in the center and on the edges of smiling curves. And we want to ring the bell of a public market, not limited in time.

This is my destination: in the future, and because we have no time constraints, as our startups mature, we can stay the course and capture capitalized value by listing Tekedia Capital on the stock exchange. . That sounds like a great business model, even for a company that focuses on analyzing startup business models.

Read this article from Fortune Datasheet:

As the the wall street journal reported Thursday that a growing number of venture capital firms, including Accel, Lightspeed Venture Partners, Sequoia Capital and Andreessen Horowitz, are buying shares of publicly traded companies.

For Accel and Lightspeed, it’s about reinvesting in their portfolio companies. Logically, this makes sense: Accel and Lightspeed have a history with public companies like UiPath and GrubHub – they invested in those companies when they were private startups, and they have information valuable information about their business and operations. Buying their public stock is like snuggling up with a childhood stuffed animal when the hurricane hits.

Conclusion: VCs evolve to capture more value at the edges of the smiling curve.

There are great venture capital firms in the world. But for many of them, their business model doesn’t make sense (I wrote in November 2021). Yeah, you got in when the startup was worth $200 million and it went public for $2 billion. You rejoice because over a period of 7-10 years you have made, say, 10x returns. But wait another 10 years, the same startup that went public at $2 billion is now worth $30 billion. But you have since left! What’s stopping you from holding onto your positions after IPOs, while creating exit routes for limited partners?

Today, it looks like VCs have the memo: “As the Wall Street Journal reported on Thursday, a growing number of venture capital firms, including Accel, Lightspeed Venture Partners, Sequoia Capital and Andreessen Horowitz, are buying shares of publicly traded companies. For Accel and Lightspeed, it’s about reinvesting in their portfolio companies.”

At Tekedia Capital, we are structured in such a way that we do not have to go and buy out our listed companies (when this happens) because of limited partners. We would rather hold the positions than what Accel does: sell today and later go back and buy back. The business model of VCs must evolve.

By removing time, Tekedia Capital investors will seize not only the initial opportunities, but also the latter-day opportunities in our businesses. In a Cambrian moment, restricting unlimited opportunities by time doesn’t seem right. Tekedia Capital will play both in the center and on the edges of smiling curves. And we want to ring the bell of a public market, not limited in time.

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