The venture capital industry has undergone significant changes over the years, and as Uncork Capital celebrates its 20th anniversary, its founder, Jeff Clavier, and managing partner, Andy McLoughlin, reflect on these shifts. One notable change is the acceptance of full-time VCs investing their own money in startups. In the past, institutions funding venture firms wanted partners to solely focus on investing for the firm. However, Clavier explains that partners can invest in non-competitive companies with certain disclosures and restrictions.
The acceptance of backing competing companies is another change that has occurred in the industry. While this is still not widely accepted, some investors have led later-stage deals in direct competitors. McLoughlin points out that while companies may act like it’s fine now, it could become a problem in the future. Founders may have little control over this issue due to the lack of late-stage deals being done currently. The risk of information leakage also raises concerns.
The topic of board seats has also evolved. While they were once seen as a way to underscore a firm’s value or investment in a startup, some VCs have become advocates of not taking them. They argue that investors can gain better visibility into companies between board meetings. However, Clavier and McLoughlin believe that being active on the board is part of their fiduciary duty and responsibility to help companies. They emphasize the impact that great board members can have on a business and explain that board seats are still important for companies that need guidance.
The length of board tenures has been influenced by factors such as funding markets and late-stage rounds. If companies aren’t raising Series B and C rounds, VCs may remain on boards for longer periods. However, as more traditional firms back these rounds and take board seats, seed investors can roll off at an earlier stage. McLoughlin confirms that things are beginning to pick up again.
Regarding seed funding, there has been a contraction in the number of active seed funds. Many funds are nearing the end of their cycle and will face challenges in fundraising, especially from non-institutional LPs. McLoughlin predicts that the number of active seed funds in North America will decrease from around 2,500 to 1,500 in the next few years.
The conversation also touches on the AI wave and pricing rationality. Clavier acknowledges that there is overpricing happening in the AI space. Uncork Capital focuses on large seed rounds of around $5-6 million, and they are cautious about investing large amounts. McLoughlin reminds investors not to forget that they are ultimately investing in businesses that need to be profitable in the long term. While AI budgets are still relatively small for many companies, they look for businesses that can be durable and have the potential for growth.
In conclusion, the venture capital industry has experienced significant changes, from the acceptance of VCs investing their own money to debates about board seats and the challenges in seed funding. The industry continues to evolve, influenced by factors such as funding markets, competition, and emerging technologies like AI.