UV Quarterly Update: Q1 2025
UV LPs,
Welcome to our February 2025 Quarterly LP Update. As a reminder, at Unpopular Ventures we focus on “the best companies, off the beaten path.” We invest in exceptional founders who are building high potential businesses, that are non-consensus in some way.
To help us find great opportunities around the world, we leverage a “Scout Program,” through which we share significant portions of our carried interest with anyone who helps us to identify, evaluate, and diligence companies that we invest in. If you would like to refer an opportunity, please check out our Scout Program Guidelines.
This is our quarterly update, which will be shorter than the annual update we write once a year. If you’d like to read about some of our most promising portfolio companies, how we do our portfolio tracking (along with relevant disclaimers), or navigate to some of the past updates/content we’ve written, you can find our last Annual Update here. This update will have some general thoughts from us, and then an update on the portfolio.
Thank you all for your continued partnership!
Sincerely,
Peter Livingston and Thibault Reichelt
Reminder: you can invest in our Rolling Fund for broad access to our portfolio, which co-invests in every new company we invest in, and invests in many more companies than you see in the syndicate. Rolling Fund LPs also receive preferential access to limited-allocation deals.
GENERAL THOUGHTS
Written by Peter, hence the switch to first person.
MARKET
AngelList recently published a report on The State of US Early Stage Venture and Startups. It’s a fantastic read, packed with informative data.
It highlights and confirms a lot of what we are seeing on the ground ourselves. 2.5 years ago (August 2022) I first shared this chart, estimating what the venture market and our portfolio might do over the coming years:
We had just been through a period where everything was up and to the right, and I speculated that as we entered a broad bear market, portfolio-level marks would probably flatten for a while or in a worst case scenario would dip, before eventually turning up again. In several updates since then, I had commented that it seemed like we were (luckily) tracking more along the blue line than the red. Lo and behold, AngelList just shared the first 2/3s of the same chart, based on real market data:
It reflects exactly that path: up and to the right through 2021, with everything ~flat since: the “blue line.” Vintages that began in 2021 and after have been flat lines.
We feel fortunate that we’ve actually been doing better than flat, thanks to a handful of outliers that are lifting the portfolio. For example, our 2019 portfolio has gone from 3.25x to 5.16x since August 2022 (thanks to Yassir and another company that remains in stealth but is now marked at 79x our investment), and our 2021 vintage is well into the green thanks to Thibault’s investment in Zepto (now at 86x, and rumored to be preparing an IPO).
But if you take out the outliers, these last 2–3 years have really been slow — especially relative to the go go years of 2020/2021. This next chart from AngelList captures the market shift from another angle:
What this shows is that starting in 2022 and accelerating in 2023, there were progressively fewer deals getting done, and the deals were progressively worse. It stopped getting worse in 2024 (thankfully), but we’ve been stuck here in the doldrums since then.
What comes next? I do think we are due for the market to turn up sooner or later. We have a lot of portfolio companies that are making great progress under the hood, but just haven’t been priced up yet. You can only hold a beach ball under water for so long.
Having said that, there is also a plausible scenario in which we plunge into an extended/deeper winter in the overall VC market. On January 27th, Dan Primack (Axios Pro Rata) wrote about the possible implications of DeepSeek on the AI Models, and in turn the VC market:
As he points out, there is still a lot we don’t know. But at the very least, this does seem to highlight that perhaps the moats for the AI models are thin. I have often wondered if the LLMs might end up being kind of like the airline businesses: extremely important, everyone uses them, provide tremendous value for society… but terrible businesses. If it’s easier than everyone expected to train a great model, the market ends up with several competitors, and these models are relatively low margin businesses when you factor in the costs to train and the short lifespans before obsolescence… perhaps OpenAI isn’t worth anything close to its latest valuation, and the tens of billions of investment have been wasted.
Considering how much has been invested, from so many top firms — that level of capital destruction would be a massive setback for the industry. If that worst case scenario came to pass, there might be a LP stampede out of the VC market, fund sizes may shrink dramatically, and VCs will be a lot more cautious for a long time. If that happens, we won’t be able to count on big and quick markups to our portfolio like we saw in 2019/20/21. The returns will only come over a longer period, as the companies grow organically and eventually sell or IPO. In that case, we might go 5+ years before seeing a change in price, vs. the price changes every 6–24 months we grew accustomed to when VC rounds were abundant. Time will tell.
What does it mean for us? Not much to be honest. We are so tiny, and we’ve always invested so early, that by nature we have had to focus more on companies that could do a lot with little. Those that had the potential to be capital efficient, and possibly reach profitability without being dependent on tens to hundreds of millions of dollars of additional capital. This is in contrast to the mega funds, which are incentivized to deploy their billions by finding companies that are likely to need hundreds of millions each. We certainly welcome it when our portfolio companies raise lots of follow-on capital; it often helps the companies grow faster and it marks up our investment value.
But we are also perfectly content when they don’t. In fact, one of our very best portfolio companies (which I can’t name due to it being in stealth), has only raised $6M total, is wildly profitable, growing fast, and has so much cash on hand from accrued profits that it is actually trying to buy back shares from its investors. Truly the dream outcome — especially in the current market. We will continue to try to invest in more companies like that.
VALUATIONS
Another thing worth commenting on from the AngelList report is this chart about valuations:
As you can see, seed and pre-seed valuations have risen dramatically in recent years. In 2015 the average seed was at $6M, and now 2022–2024 the average seed has been at ~$20M. Pre-seed started around $4–5M, and is now at $10M. Surprisingly, despite the bear market, these valuations haven’t come down. Why?
One thing worth noting is that “pre-seed” wasn’t really a thing back in 2015. The first round was just “seed.” But as seed firms got bigger, had to write bigger checks, and moved later, it created a vacuum for new, earlier investors to move in — and that gap had to be labelled something new. So “pre-seed” is probably just what “seed” was 10 years ago.
The same thing happened with Series As. It used to be that Series A was the first round of funding that a company raised. When I raised money for my startup from Kleiner Perkins back in 2011, the deal they offered was $1M on $2M post, we negotiated them up to $2.5M post, and the label on the term sheet was “Series A.” Going further back to the 2000s, or the 1990s, “Series As” were often even smaller at $250–500k.
The metrics have shifted too. Seed used to mean basically no traction, but now all the seeds have traction. It’s the pre-seeds that usually don’t (although they still often do). Series A used to mean $500k-$1M in annualized revenue, and a valuation of $20–40M, but now the expectation for Series A is more like $2–4M of revenue and a valuation of $50–100M. $500k-1M of revenue is now a “seed” in the $20–40M range. The point is, the nature of the rounds haven’t changed that much, but the labels have.
Having said that, there is valuation inflation too. The prices we see today for certain deal profiles are legitimately higher than they were before 2021. As examples, we did Zepto and Jeeves during YC at $13M and $10M post money valuations in 2021 and 2020 (with traction), and today we see very little in YC at less than a $20M valuation. YC is of course affected by their new deal, where they took over the “during-YC round” and replaced it with an extra $350k from YC on a MFN SAFE. But even outside of YC, valuations seem to be up.
The dynamic may simply be supply and demand. Amidst the market uncertainty, fewer talented people are starting companies, but there remains a lot of dry powder sitting in the VC firms. More money + fewer strong founders = higher prices.
But at the same time, a lot of companies *are* struggling to raise money these days. One thing that has frustrated Thibault and I is that not only are the valuations up, but the range of valuations at each stage seems to have tightened. The majority of pre-seeds I see, for example, are raising at a flat $10M. It used to be that some would be at $5M, some at $8M, some at $12M, and some even at $2–3M. And with that valuation variation, I could think about each one in terms of the risk/reward of that specific opportunity, at that price. There were deals I would do at $2–5M, but wouldn’t do at $10M.
But today, it seems like many (most?) companies are saying, “we are raising a pre-seed, the average pre-seed valuation is $10M, so that’s our valuation too.” No thought goes into it. Which means: we have had to raise our bar. We probably would have done more investments if we felt the price was more reasonable. But if everyone is raising at a flat high price, we have had to change our thinking from “is this a good deal at this price?” to “is this one of the top companies at this stage, thereby justifying an investment at this price that everyone seems to be raising at?”
So it’s tricky. I’d like to see valuations come back down, or at least see the range expand — which would enable us to do more investments. But for now, while valuations remain high and tight, we are pacing slower than we have in past years.
HIT “MY NUMBER.” WHAT NOW?
One last thing that’s been on my mind in recent months is that I’ve reached “my number.” Similar to what I think a lot of us do, long ago I decided on a net worth number that I felt that if I reached it, I’d have enough and wouldn’t feel like I needed to work for money anymore. I actually hit my original number a few years ago, but quickly realized it wasn’t really enough for me, especially with inflation, and I set a new number 3x higher.
I recently hit the new higher number, thanks to both investments I made during my solo investing years, as well as continued appreciation of some of our outlier UV investments. Some of it is liquid, some not, but as a diversified portfolio that I have confidence in in aggregate — I’ve reached a mental state in which I feel like I legitimately have enough.
There’s a funny dynamic in the VC career path that I think leads it to be short for most. Most people are either 1) bad at it, they strike out, and can’t raise more LP capital or are pushed out of their firms, or 2) are good at it, and make a couple monster investments that lead to them making enough money that they don’t have to work anymore. There is very little room in the middle, where you do well enough to stay in, but not well enough to make a lot of money.
I feel very lucky to have made it down path #2. I could retire if I wanted to. But I’ve given it a lot of thought over the last couple months, and decided that I love doing this, I think I’m pretty good at it, and honestly don’t know what else I would enjoy spending my time doing. I’m still young too — only recently turned 40.
So I’m going to keep at it, but I think my new mental state is changing how I invest. In particular, I’m becoming more selective. You might have noticed that I’ve put up fewer syndicates in the last few months than I have in the past. We’ve been doing fewer (but often larger) investments from our fund too.
The reasons for this are 2-fold. First, looking back at all the investments I made personally and we at UV have made together, it’s remarkable how few of them have really mattered. It’s probably 10 or fewer in total for UV, out of almost 500 companies we’ve invested in in aggregate. In another 5 years, it may be only 1–2 investments that will be worth more than everything else combined, even if everything else does reasonably well. The power law is real.
A remarkable statistic I recently learned: the number of investments in Sequoia Capital’s entire 50 year history that have returned at least 20x. Can you guess?
42. (Source)
Fewer than one per year. All of Sequoia’s elite performance is embedded in those 42 companies. It’s not unique to Sequoia either. If you look into the track record of most VCs, or most investors for that matter — you’ll see that most of their returns came from an extremely small number of investments. I read recently that most of Warren Buffet’s investing success is attributable to 5 investments of his (although there’s probably some nuance to that — depending on if you slice it by dollars, or % returns per year). You can see another example of it in the S&P 500 right now — where most of the gains in recent years have been driven by only 7 stocks.
Although we are often wrong, looking back, our current best investments did indeed feel like particularly high quality investments when we did them. Whereas a lot of the lower performing ones, in retrospect, do feel like maybe they were a little more borderline when we did them. So with this in mind, we are slowing it down, and trying to do a smaller number of the very best investments we can.
The second reason is that financially speaking, small investments in so-so opportunities won’t move the needle for me anymore — and I’m feeling that more and more. If the carry I earn from a given syndicate (or fund) investment will be worth 0.005–0.03% of my net worth, and the best outcome I can see for the investment is only 100x — thereby adding 0.5–3% to my net worth — is it really worth doing? No, the bar has to be higher. I have to both believe it’s such a great deal that we can invest a lot in it, and that the potential return could be huge: 500x+ (and really 1000x+).
The point is: the pace of investing you will be seeing for us (and especially me) will be a little different going forward — driven by both the broader market dynamics, as well as my personal mental/financial state. Fewer, bigger, and higher quality investments.
PORTFOLIO
SUMMARY: This was an up quarter for us, thanks to a couple of big markups. $75M of capital invested to date has now grown into $191M of portfolio value. This compares to $74M/$182M last quarter, i.e. $1M of additional investment and $9M of portfolio value growth — reflecting $8M of appreciation, 4.4% quarter over quarter.
The last couple of quarters have been tough for a lot of our portfolio companies, with the quantity of shutdowns and down rounds seeming to accelerate. It feels like we are finally in the depths of the bear market (as AngelList’s charts above confirm). Not only is the market tough, but a lot of the companies are finally running out of money too — forcing more official changes in price.
But of course, the way VC goes is that the returns are really driven by a small number of the investments, and it almost doesn’t even matter (financially speaking) what happens to the rest of them. So long as we get into 1 or more monster home runs, our portfolio-level returns will look amazing. And we feel fortunate to have enough of those — spread across multiple vintages too.
One small point of frustration is that many of our very best companies have also become the most secretive, which limits us in what we can share with you.
There seems to be a funny dynamic where the weakest performers and (some of) the best performers get the most quiet. The weakest ones because they are embarrassed that they can’t find a path to success, and/or just don’t have much to say. And the best ones get quiet because they become deathly afraid that if others find out how well they are doing, competitors will rise to chase them.
It’s (mostly) the companies in the middle that make the most noise. They tend to be more comfortable with us sharing news about them, and they post more information publicly. They are doing well enough to stay alive and make decent progress, but not so well that they think competitors will notice or care about their success. They usually have good reason to make more noise too — as a means to recruit employees, and/or raise additional funding.
It has been interesting to see how one of our portfolio companies is using AI agents so efficiently that it became profitable in record time and after having raised only seed capital. This company will probably never need to take on more VC funding. The less money you raise the less you dilute yourself in the process.
This could herald a new trend. Similar to how the likes of AWS and Stripe have made it much easier for startups to get going with a minimum of capital, compared to previous generations who had to buy their own servers and build their own payment rails. If more of these hyper-efficient AI-powered teams emerge, the only way to invest in their companies will be at the seed stage. This would be great news for funds like ours and bad news for the large VC firms whose business models are based on deploying large amounts of capital. We write small checks and hope for outlier returns over long periods of time. The large VC firms do not quite have the same incentives since they collect hundreds of millions in management fees on the basis of their billions of assets under management.
PORTFOLIO COMPANY NEWS
(As always, we are highlighting here only a few developments from the portfolio. It does not mean that other portfolio companies are doing any worse.)
Zepto is expected to IPO this year.
Yassir has launched its first fintech product, Yassir Pay, and is continuing to grow headcount according to LinkedIn.
Stepful is approaching unicorn territory in terms of its revenue traction.
Inversion has successfully launched to orbit and Albedo is about to do the same.
Rio is growing rapidly and expanding to Colombia.
Baton has raised its Series A.
A leading secondaries fund has offered to buy our Hint Health shares. Usually a sign that the company is doing well. As usual, we won’t be selling.
Palitronica is progressing nicely.
CopyAI executed a pivot and is finding great success in their new direction.
Yummy, after a pause, is once again on a nice growth trajectory.
One piece of news that’s bittersweet is that One Finance raised $300M at a $2.5B valuation. Unfortunately, we were forced to sell in the Walmart transaction for a little over a 2x return, at a ~$400M valuation. But good to know our bet was correct, even if we weren’t allowed to participate in all of the upside.
Altscore is continuing to make great progress after their Series A.
Blaze (fka Almanac) has found its footing after a couple pivots and is now growing fast.
Magic Mind is growing and expanding across retail locations really well.
Felix Pago raised another up round, at a much higher price.
We are invested in 2 different companies named HostAI (first, second) — both are making excellent progress.
Sniffspot, Hapi, Community Phone, Pippin Title, and The Swarm are all growing extremely well, especially relative to the amount of funding they have each raised.
PORTFOLIO STATISTICS
Our aggregate numbers, across every investment in UV’s life:
Numbers for only the UV Syndicate:
Annualized numbers for only the UV Rolling Fund:
Statistics about our investing activity:
Quarterly breakdown for the Rolling Fund:
We rolled over $145k of uninvested capital from Q4, and raised another $1.15M in Q1.
If you are a major LP of Unpopular Ventures, have invested at least $250k to date, and are willing to sign an NDA, we will share the complete portfolio data with you. Please submit a request via this form: link
For everyone else, you can access the de-identified data here: link
Thank you for reading, and thank you for your support of Unpopular Ventures!
