Am seeing retail LPs (HNIs & Family Offices) in “do growth-stage AI SPVs and chill” mode.
Veteran public market investors often say that financial memory of crowds is incredibly short, and therefore, every generation learns the same set of lessons the hard way.
Given the current heated stage of the AI cycle, people have forgotten all lessons from 2021. So a quick recap from my side as a GP:
- Growth investing is significantly harder than seed investing simply because you can’t afford to get the entry valuation wrong.
A low loss ratio creates a mirage of emotional safety. As the recent exits of Airtable and Headspace have shown, if you overpay in a supposedly de-risked-looking late-stage round, you will see major markdowns on eventual exits (see my recent post: Exit Learnings From the Airtable Acquisition).
- In some sense, this is the absolute worst time to be doing late-stage SPVs in hot, go-go companies (not counting ANT and OAI in this).
At this point, there is a lethal combination at play of (1) early stages of a major new tech, where new hot companies could get disrupted by changes in the underlying tech itself, and (2) extreme FOMO at work in private markets, leading to a major disconnect between valuations and business reality (case in point is a recent what would be normally called a beta/ early adoption product at best, raising at $2.5B).
So essentially, when you choose to do only access SPVs in highly valued late-stage companies at this stage of the cycle, purely from a bottom-up POV, you are investing in tech companies that have a high likelihood of not being eventual category leaders, but are being valued like generational companies.
- Contrary to this, as pre-seed & seed investors, we are backing companies anywhere from sub-$10M to $20-30M entry valuations.
Examples of recently exited companies via Grok:
1/ Hugging Face: Angel/pre-seed at $5M post, Seed at $20M post
2/ Airtable: Seed at $7.3M post
3/ Cursor: Seed at $40-50M post
4/ OpenRouter: Seed valuation in the tens of millions
As seed investors, we are backing companies at reasonable risk-adjusted valuations, with the conscious intent of staying nimble & iterating to PMF, and with a decade-long holding-period outlook.
These companies have small teams that are designed to rapidly adapt to underlying tech changes, pivot, and course-correct as required.
Most tech startups have a realistic, eventual steady-state exit valuation of $100-250M. For the ones that break out, $500M-$1B isn’t far fetched too.
In the former “moderate exit” scenario, seed investors still make a 5-20x post-dilution multiple on invested capital (MOIC).
In the latter “breakout exit” scenario, which is also moderate by today’s overheated standards, seed investors can end up with 50-100x MOICs, and maybe even more.
Seed portfolios are constructed in a diversified manner & so for retail LP personas, GPs that know what they are doing will end up driving superior risk-adjusted returns.
Just an alternate POV to consider in the current madness of AI growth rounds.
