SEIC
PANNEL
DISCUSSION

OVERVIEW:  As we enter the 3rd year of record downsizing of investments in the early-stage arena we need to pause to briefly look back so that we might begin to grasp where the best ROI opportunities are right now and how we can best take advantage of them.

 

THEN:  Was it really just 4 years ago when most of us were jumping for joy at our investment ecosystem?  Money was flowing from fire hoses in all directions;  startups and pre-seed rounds through $15m Series A deals at K4-MST were getting funded with great enthusiasm and the VC – Private Equity guys could not paper enough $50m+ deals!  Too many too fast?  Maybe, but not until late Q4 of 2021 did it look like a slowdown might be creeping into the equation.

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By the end of 2022 most of the hoses were down to a trickle and a new reality hit our world in 2023.  Ron Weissman began the series of harsh realities in our funding world and Pitchbook talked about a downturn of $147B.  We recognized that the timelines of our portfolios of great companies had slipped from the 5-7 year world into the 10-12+ year liquidity reality and many, if not most investors had had enough.

 

NOW:  As we migrate through 2025 we may be seeing a dim light at the end of the tunnel.  Truth be told it is way too early for any predictions, and most are still too shell shocked to be making any “normal” investments.  So where are the opportunities and how do we adjust to take advantage of them?  I believe that we can look at 3 definite areas of significant opportunity, but only if we re-adjust our thinking to embrace the true brutality of today’s investment environment.

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1. NEW INVESTMENTS:  Focus on nimble companies that can clearly demonstrate;

   1. A new and exciting solution to a big problem – NO 1-offs

   2. A One-and-Done Single Funding Round to Exit

   3. A Strong ROI in 24-36 Months

   4. A Strong Marketplace that Validates the Opportunity and the Return!

2. CONSIDER OTHER ROI MODELS:

   1. Where are the deals with great distribution opportunities?  Why not structure a TS that locks in significant distributions with;

      1. A reasonable ramp-up period that leads to…

      2. A well-defined % (NOT $ amount) of net revenue to be distributed on quarterly, semi-annually, or annual basis – locked in for the duration of the agreement

      3. A mutually agreed upon recognition of distribution waver(s) for exceptional company acquisitions

      4. A Cap on distributions at 5-10X over 3-7 years?

      5. A return of Equity after a 10X?

3. ENTER THE NEW ERA OF RE-START OPPORTUNITIES:

   1. Recognize the difference between Zombie / near-Zombie portfolio companies and re-start opportunities

      1. A company with truly great product or secret sauce that has not performed

      2. Initial focus on companies with little or no revenue but some product sales