UV Quarterly Update: Q4 2024
UV LPs,
Welcome to our November 2024 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
GENERAL THOUGHTS
MARKET
While we recognize there will be mixed opinions here about the outcome of the US election, one thing we think few will disagree with is that the Trump and Republican sweep is likely to be very good for business at every level. The prospect of lower taxes and reduced regulation will be a boon for growth, profitability, M&A, the IPO market — and optimism in general. In the words of Siqi Chen:
You don’t have to take our word for it; the market is already speaking: public equities are smashing new all time highs, and Bitcoin is on fire. We are even seeing it in our little corner of the world on AngelList — with syndicate deals already appearing to raise more money on average than they were before. Historically, AngelList has been a remarkably accurate gauge of VC sentiment at large — at the macro, market sector, and even individual deal levels. VCs are people after all, no smarter than many of the sophisticated angels we have here on AngelList. So the behavior and sentiment that we see on AngelList is often indicative of what is happening in the broader VC market. And thus far, things are looking up.
Looking ahead, we believe the coming years are going to be fantastic for our portfolio. We are grateful to have had the opportunity to buy ownership in so many promising startups over the last 3 years when it has not been easy. Startups haven’t been growing as fast as they were in ‘20/21 when they and their customers were getting pumped with cash and the tide was rising. Since 2022, investors have pulled back dramatically, leading to our companies receiving less follow-on cash, and also reducing the “credit” we used to receive for our good investments in the form of quick, high value markups.
Series A is the first big funding milestone that matters to our portfolio, considering that 90%+ of our investments are at various stages of seed. The Series A market has been exceptionally slow recently, and you can see it in Carta’s data. Whereas 34–38% of startups in 2020 raised a Series A within 2 years, only 12–15% of startups from 2022 have:
Investing in 2019, 2020, and 2021 felt easy in comparison. It’s not hard to invest when almost everything you buy increases in price in a short amount of time. In contrast, these last 3 years have been much more of a grind; they haven’t been delivering that same rapid positive feedback cycle.
But at long last, we expect to finally reap the rewards of that hard work. THANK YOU to all of our LPs who have supported us through the unpopular years. We expect that you are going to be very happy with the investments you made with us — at both the fund and syndicate levels — as our portfolio matures and the market warms in the coming years.
TIME
One of the dominant narratives in VC land right now is that LPs are dissatisfied with how long it’s taking to get liquidity on their investments. For good reason: the M&A market has been slow, and the timeline to IPO is the longest it has ever been.
This table from Jason Lemkin’s recent post captures the duration problem well:
In the 1990s the timeline to IPO was 4 years. Recently, the conventional wisdom has been that it takes 10 years. But now looking at the top private companies — the ones that will really “make” the VC funds that invested in them — the time to IPO seems to have stretched to 13–14 years, and even longer in some cases.
That is a long time. I, Peter, consider myself a fairly experienced startup investor, having been at it for 12 years now (as a solo angel for the first 7) — and even that isn’t as long as the average journey to IPO these days.
But against that narrative, I’ll share an unpopular opinion: I actually like how long it takes.
Certainly, I also like it when we make an investment and we get a big cash return in a short amount of time. I will always welcome that. And if we have opportunities to return cash to our LPs without sacrificing long term returns, we will always strive to do it. We take our fiduciary responsibility to our LPs very seriously.
But zooming out, to my own experiences as an Angel Investor — I personally love the positive surprises that trickle in over a long period of time.
As an example, last month I received an update from a company I angel invested in in *2014.* I mentally wrote it off a long time ago, and hadn’t even received an update since 2020. Out of nowhere, 10 years post investment, I learned that they pivoted business models, passed $3M ARR, are growing fast, have a fresh inspiring vision, and are closing an oversubscribed venture round. My original $25k investment is now worth $125k — and could go much farther.
I love that the founder stuck with it this long, and is probably going to earn generational wealth from her efforts. She still owns ~85% of the company. A separate aspect of this that I love is that I get to be a small participant in an entrepreneur’s life’s work. She spent 10 years to get here, and might spend another 10 taking it to scale, maybe even longer. A simple action 10 years ago, combined with patience and positive support, has enabled me to ride along as a small part of her journey.
The surprise news made my day. An extra $125k investment position I didn’t even know I had. Sure — 5x in 10 years isn’t anything crazy, but it beat the S&P 500. It will be tax free too, thanks to QSBS, when they eventually decide to exit.
Now, perhaps I can talk like this because I also *did* get quick liquidity from other investments. As I said, the quick liquidity is important too. But I just love that this work I did so long ago is continuing to produce surprise investment gains even today.
I’m certain that the portfolio we have built at UV, and are continuing to build, will behave similarly. Some of these investments will pay out sooner — and we intend to return our LPs at least 1x their cash in a respectable amount of time. But I’m also sure some of them will take longer, and we will continue to receive surprise “dividends” from some of these investments for 10, 15, even 20 years.
There’s something about this that really gives me an optimistic outlook. It makes me feel good to know that some of these will surprise me far out into the future.
What else can you invest in that might give you a positive financial surprise so far out into the future? You can do something today that will have an impact on you and your family 20 years from now. In my opinion, that is a feature of VC, not a bug.
TAX TIP
Let me start with a disclaimer: I (Peter) am not a tax professional nor financial advisor, and before you take any actions related to what I’m sharing here — please consult with someone who is. My intent is to share something I have personally chosen to do, and maybe it will serve as an idea for you to investigate as well.
With that out of the way, here’s the tip: consider gifting some of your startup shares to your kids. Especially shares that are likely to be QSBS eligible.
Some people choose to give money to their kids, some don’t — and that’s a separate debate. Among those that choose to do so, there are a variety of ways to do it. One popular approach is to set up a 529 college savings plan — which allows the money to grow tax free, so long as it is only used to pay for education.
Parents typically gift their kids up to the maximum amount they are allowed to give tax free, per parent, per year — which in 2024 is $18k, or $36k from the two parents combined. If you do that for several years, early in your kids’ lives, it will have the benefit of growing tax free for 18 years, and will easily pay for their college one day.
Another thing some parents do is give their kids other assets — like stocks, bonds, or real estate. That’s nice, but it won’t grow tax free in the same way the 529 account will.
Less frequently talked about: you can also give your kids shares in startups that you own. If you give them a diversified portfolio of startups over time, that is likely to outperform a portfolio of conventional assets.
And here’s the twist: according to my understanding of US tax law, if you give your kids startup shares that are QSBS eligible — the QSBS status transfers with it. Which means when the startup eventually exits, their gains will be tax free on up to $10M per investment, per year.
So your kids will get the benefit of *both* faster appreciation, and zero taxes.
It’s nice too, because if you’re like most angels/VCs who struggle with liquidity (especially relative to aggregate paper net worth) — this is a way to give your kids valuable assets that will become liquid (and extremely valuable) by the time they are adults — without impacting your current liquidity in any way.
My wife and I have been doing this for many years now for our kids, and without getting too specific — I’ll just say that I am very happy with how this approach is setting them up financially.
Again: before you do anything here, please make sure to consult with a professional and do your own research. And if you choose to do it, make sure to document everything properly so it is all above board with US tax law.
PORTFOLIO
SUMMARY: $74M of capital invested over the last 6 years has grown into $182M of portfolio value. This is down vs. last quarter ($71M/$183M), due to more markdowns this quarter than usual. I.e. we added $3M of principal, but lost $1M of aggregate portfolio value — reflecting a total loss of $4M.
PORTFOLIO NEWS
Here are some noteworthy things that happened within the portfolio over the last quarter:
Zepto raised another up round at a $5B valuation. We invested from our rolling fund in 2021 on $13M post money. This is clearly our biggest winner from 2021 so far, and we think it’s likely to produce a strong investment multiple on that vintage. One more doubling from here will make it worth well over 1x all the money we raised in 2021 — which might happen soon, judging by how many offers we keep getting to buy out our shares. And then if it merely grows another 5x over the coming years — we think it’s plausible that this single investment could end up delivering a 5x+ return to our LPs on that portfolio vintage.
Jeeves is continuing to grow. The CEO recently said October was their best month this year, and their Brazil business is growing rapidly.
Stepful raised a very competitive Series B at a much higher valuation.
Albedo Space will launch its first satellite to space soon.
Revv raised a Series A led by Left Lane Capital.
Brellium raised a very competitive Series A.
Capi Money raised a Series A led by Creandum.
Taiv raised a Series A.
Constrafor raised a Series A.
Helius raised a large Series B at a much higher valuation.
AltScore raised a Series A.
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 $288k of uninvested capital from Q3, and raised another $1.25M in Q3.
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!
