Navigating Modern Venture: Strategy, AI, and Market Evolution
An investor's perspective on the evolving VC landscape, AI investment strategies, fundraising, and the importance of personal brand in a commoditized market.
Key Insights
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Insight
The venture capital industry has evolved from a trust-based, 'small town' environment into a highly aggressive and commoditized market, akin to Wall Street.
Impact
This necessitates more competitive strategies for VCs to secure deals and build relationships, while founders must navigate a more transactional funding landscape. It also highlights the breakdown of traditional communal trust in favor of aggressive competition.
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Insight
Traditional VC firm structures with hierarchical associate-to-partner paths can disincentivize optimal long-term fund returns, as associates prioritize short-term deal markups for personal advancement.
Impact
Firms should consider flatter, equal GP structures to ensure all partners are aligned with the firm's best interests over individual career goals, potentially leading to better investment decisions and fund performance.
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Insight
Investing in AI should focus on 'second-order effect AI companies' that build solutions tangential to, rather than directly competing with, offerings from large AI labs like OpenAI.
Impact
This strategy helps avoid direct market encroachment by powerful tech giants, increasing the likelihood of venture-scale returns for specialized AI applications in niche or 'less glamorous' verticals.
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Insight
Founders often underestimate the strategic importance of managing a 'clean' Series A fundraising process, leading to suboptimal outcomes and signaling issues.
Impact
Advising founders to secure a strong lead investor first, manage allocation carefully, and orchestrate a well-timed, competitive process can significantly improve their chances of attracting top-tier firms and establishing a strong cap table.
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Insight
The decision to hold investments post-IPO for 'the last double' versus distributing liquidity to LPs is a critical strategic tension for VCs.
Impact
Managers must balance maximizing potential long-term returns with LP liquidity demands and fund duration considerations, potentially leading to more flexible distribution strategies in the future.
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Insight
Building a strong personal and firm brand through strategic PR and thought leadership is now essential for venture capitalists, especially for emerging managers.
Impact
In a crowded VC market, a distinct brand helps attract quality deal flow, differentiate from competitors, and establish credibility, countering the previous belief that one could 'fly totally under the radar'.
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Insight
Many investors and companies fail to grasp the enormous scale of certain market opportunities, particularly in legacy industries ripe for technological disruption.
Impact
Recognizing the multi-billion and trillion-dollar potential in sectors like insurance or customer service can unlock significantly higher valuation expectations and investment conviction for disruptive startups.
Key Quotes
""I think most of the people in ventures today are tourists. Like they like going to events. They like telling people at private members' clubs that they're VCs and they have single-digit psychues.""
""Sales and growth cure everything... The flip side is if sales, you know, cure all ailments, sometimes you might not be paying attention to other things that are going on.""
""My biggest mistake on the prior fund, it was a $33 million seed fund and a hundred and seven million dollar Series A fund that was deliberately meant to be kind of more collaborative. We could have done 11 labs at a 25 and put in 200, 250, and it was 1%. And I was like, we can't do a 1% deal. That would obviously have returned the fund many times over. And very stupidly, I was too tied to ownership.""
Summary
Max Altman on Modern Venture: Adapting to a Commoditized Landscape
The venture capital world is in constant flux, demanding agility and a sharp strategic vision from its players. In a candid discussion, Max Altman, co-founder and managing partner at Saga Ventures, sheds light on the dramatic shifts in the VC landscape, the nuances of investing in the age of AI, and the critical importance of defining one's unique firm identity.
The Evolving VC Ecosystem: From Trust to Competition
Altman notes a significant transformation in venture capital. What was once a more communal, trust-based environment, particularly in early San Francisco, has now become a far more aggressive and commoditized market. The proliferation of funds and startups means that genuine, deep relationships are harder to forge, and the industry increasingly resembles the competitive dynamics of Wall Street.
Impact on Firm Culture and Incentives
This shift profoundly impacts the internal culture and incentive structures of VC firms. Altman advocates for flat, equal GP structures where all partners are aligned for the firm's best returns, rather than individual advancement based on short-term wins. He argues that traditional hierarchical models, where junior members might prioritize quick deal markups over long-term value, can lead to suboptimal outcomes for the fund.
Strategic Investment in the Age of AI
Investing in AI requires a nuanced approach, particularly when facing goliath platforms like OpenAI. Altman advises against building solutions directly adjacent to what these dominant players will inevitably integrate. Instead, he champions "second-order effect AI companies" – those leveraging AI in specific, often less glamorous, vertical applications that the tech giants are unlikely to pursue directly due to their broader strategic focus.
The "Clean" Fundraising Process
For founders, fundraising has become an art form. Altman emphasizes the importance of running a "clean" Series A process. This involves securing a strong lead investor first, allowing them sufficient allocation, and then managing follow-on interest strategically. Avoiding piecemeal commitments and sporadic outreach prevents signaling issues and ensures the company aligns with a top-tier investor who can provide significant brand halo and support for future rounds.
Building a Brand and Managing Exits
In a crowded market, building a distinct brand for an early-stage firm is paramount. Altman, who initially preferred a quieter approach, now acknowledges the necessity of strategic PR and thought leadership. This helps attract quality deal flow and differentiate a firm. On exits, the conversation reveals a tension between holding for maximum returns and providing liquidity to LPs. Altman suggests a more flexible approach, recognizing that the "last double" can make a significant difference, but also that duration matters for overall fund performance.
Conclusion: Navigating the Future of Venture
Max Altman's journey and insights underscore a venture world that is more competitive, requires clearer strategic lanes, and places a premium on founder relationships, astute AI investment, and robust fund management. For investors and founders alike, understanding these dynamics is crucial for long-term success in an ever-evolving tech landscape.
Action Items
Emerging fund managers should prioritize securing high-quality anchor LPs early in the fundraising process before engaging with a broader investor base.
Impact: This strategy builds credibility and significantly eases subsequent fundraising efforts by demonstrating initial institutional validation, allowing for more efficient capital deployment.
VC firms should actively foster cultures that incentivize firm-wide success over individual short-term gains, potentially through equal GP structures or revised carry models.
Impact: This can lead to more aligned decision-making, better long-term investment outcomes, and a healthier internal culture, avoiding the pitfalls of a 'ladder to nowhere' mentality.
Founders raising capital should work closely with their seed investors to orchestrate a 'clean' and competitive Series A process, rather than sporadic outreach or piecemeal commitments.
Impact: This increases the likelihood of attracting a strong lead investor, optimizing valuation, and mitigating signaling risk, crucial for subsequent growth and future funding rounds.
Investors should develop a clear framework for identifying 'second-order effect AI' opportunities, visualizing potential market encroachment by dominant AI labs.
Impact: This mitigates the risk of investing in AI startups that will be quickly outmaneuvered by giants, focusing capital on defensible, specialized applications with high growth potential.
VCs should strategically engage in PR and thought leadership to build a distinct firm brand, rather than relying solely on private networks and 'texting people'.
Impact: A strong brand is crucial for attracting top-tier founders and deals in today's commoditized market, establishing credibility and differentiation.