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Once a year at Bowery Capital, we bring together our founders, investors (Limited Partners), advisors, and friends for a day of learning and understanding. We call it an Annual General Meeting (AGM) but it is always more than that. A lot of great people have contributed to the body of work around these meetings and informed a lot of lost time or helped those that want to learn about the inner workings of a fund. Understanding how the Limited Partner community is thinking is not something that is easy but we thought we would put pen to paper and lay out some notes from our Annual General Meeting with themes and trends from today.
1. Liquidity Remains A Huge Theme In This Ecosystem… Venture inflows remain at all time highs with minimal liquidity going back to the Limited Partner (LP) yet. A constant and obvious storyline remains the unprofitable unicorns and 100+ billion dollar private companies. What still isn’t obvious is when all of that money is going to get paid back and turned into profits to the Limited Partners. It will be interesting to see how firms and their managers think about liquidity and holdings periods in the upcoming years when they may have the ability to “take some off the table” or “sell into this round” to generate the liquidity needed for a future fundraise. There are obvious trade offs with decisions getting harder and harder as we hear it.
2. …Which Has Constricted The Usual Suspects. A byproduct of this liquidity constraint is Limited Partners tending to focus on the managers they have already backed and doubled down on. There was a lot of “we are good with the managers we have” going around which logically will have adverse effects on new fund formation. We still think new Limited Partners coming in to the space will make up the balance but it is getting more and more difficult to access the long term folks that have been consistent for years.
3. The Bar For Differentiation As A New Manager Is High. Something coming out of our meeting that was clear was that many of the new ideas and strategies are already covered. The bar has gotten so high and with most Limited Partners making their logo selection these past few years it seem the dust is settling and net new additions are scarce. Maybe it is a new geography an LP wants to add. Maybe it is a unique sector an LP wants to add. But is is not at the pace and availability as in prior years and now seems like a brutal (or great) time to raise your first fund.
4. Are We All Still Friends? We Hope So. Thankfully, founders cannot raise unlimited amounts for their seed rounds. As fund sizes have increased in the institutional seed group of managers, the market has logically seen sharper elbows. Complementing this is a founders interest in greater selection and choice. We heard it the norm now to see a binary outcome of only one seed fund winning a deal with all others bowing out or losing. Competition is good for the ecosystem but has collaboration amongst seed funds decreased? We don’t know but this will be an interesting one to watch as more and more people focus on returns.
These were just some notes from our Annual General Meeting today.
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