Venture market shifts to founder-friendly conditions with increased competition
David Tisch argues that leverage has shifted to founders, with competitive deals now involving 10 to 15 term sheets. He advises LPs to avoid pure-play seed funds in favor of multi-stage firms.
The venture market is characterized by a founder-friendly environment where leverage has shifted to entrepreneurs, who can choose investors and prices. David Tisch notes that competitive deals now often involve 10 to 15 term sheets, compared to 3 to 5 in the past. He argues that pure-play lead-only seed funds are struggling to compete against established multi-stage firms like Sequoia, Andreessen Horowitz, and Kleiner Perkins, which offer larger checks and less price sensitivity.
Tisch advises limited partners that seeking pure-play seed exposure in San Francisco is the 'single worst' segment to be in, as market dynamics favor diversified, multi-stage strategies. He highlights the rise of new, high-performing firms like Thrive, Ribbit, and Founders Fund. The industry is consolidating, with only 20 to 30 firms remaining competitive and 10 outliers. Tisch emphasizes that general partners must adapt to these changing conditions, while limited partners face frustration due to limited access to specific portfolio constructions.
The shift reflects a broader trend where multi-stage firms are more accessible and efficient at seed investing. Tisch argues that the venture industry is undergoing consolidation, and limited partners should avoid niche, pure-play seed allocations in favor of established multi-stage firms that can navigate the current competitive landscape. This advice underscores the importance of strategic alignment in a market where founder choice is paramount.