Venture Capital Returns, Zipline's Mega Round & Updates from Silicon Valley

Reporter's notebook + a look at returns from USV, Sequoia, Forerunner & others

I returned to New York last night after a short reporting trip to San Francisco and a friend’s wedding in Carmel the weekend before. On my trip, I caught up with the head of a billion dollar venture fund, founders of artificial intelligence companies, a tech reporter friend, and various other investors and tech-types.

I’ll have a podcast interview for you next week with Substack’s co-founders from their offices in downtown San Francisco. And, while I was in town, I made progress on a larger story that I’ve been toiling away on. The charts at the end of today’s update — investment returns for venture capital funds based on UTIMCO filings — are a happy outcropping of that reporting. More on that below.

I’m a bit of a broken record on the mood in Silicon Valley: It has a split personality. On the one hand, artificial intelligence deals are red hot. (See this story on an AI startup that received 170 committed investment offers.) Or consider the boom in vector databases.

Myself, I met up with Amr Awadallah, the co-founder of Cloudera who is back at it with an AI search startup called Vectara. He’s bullish on open-source language models’ ability to stay competitive with the likes of proprietary foundation model companies like OpenAI.

This month, Bessemer Venture Partners made headlines with its announcement that it has committed $1 billion to back AI-native companies. Of course, that’s about a year after the firm committed $250 million to invest in Web3. (I don’t think these commitments mean much of anything. In another realm, Andreessen Horowitz committed $500 million to American Dynamism. I guess, I’m guilty here of helping firms get more attention from already announced funds.)

While artificial intelligence is booming, the rest of startup land is rocky. Venture capitalists are contemplating how best to mark-down their portfolios. Investors are gaming out how to convince aimless founders to return their money if they can’t find product-market fit. SoftBank has virtually halted new investing as the value of its investment portfolio continues to fall. The electric car hype machine is faltering.

The AI euphoria offers a mask for just how bad the rest of the startup industry really is. While I believe that large language models are genuinely a profound technological advancement — there is also a reality that this AI hype cycle handed investors exactly what they wanted. Forget about a new technology platform — they wanted an excuse to get back to momentum investing.

Even Harry Stebbings — the investor and creator of 20VC, who often has an optimistic spin on things — is dour about the amount of hype in AI right now.

He wrote:

Controversial take: There are simply not enough AI assets to absorb the immense wall of cash coming for AI companies.

Prediction: This will be worse than the dot com bubble in terms of lost dollars in hype companies.

Be patient, stay disciplined, technology cycles ALWAYS take longer than you think.

You’ve got firms like Founders Fund and Thrive Capital paying up to invest in OpenAI. And Spark Capital is unloading a truckload of capital on companies like Anthropic and Adept.

I’ll note here that there is a case to be made that a broader startup rebound could be in the cards. The NASDAQ Composite is up 19% so far this year, with big tech companies like Apple (up 38%), Facebook (up 88%), and Microsoft (up 27%) doing even better.

I was surprised to see drone delivery company Zipline is reportedly raising at an eye-popping $4.2 billion valuation. It makes me nostalgic for 2021.

The company is famous for delivering blood in Africa via autonomous electric drones.

I got my hands on a fundraising deck from Zipline’s current Series F round. The deck reveals that the company projects $37 million in revenue for this year. But of course the real juice is that it’s projecting $20 billion in revenue in 2032.

Valor Equity Partners is apparently leading the expected $400 million round, according to the deck, with Sequoia, Andreessen Horowitz, GV, Fidelity, and others participating.

Those sorts of wild projections and huge growth rounds in non-AI rounds feel so 2021. My hunch is that this is more of a flyer than the norm. There are a lot of companies with broken business models that have raised hundreds of millions of dollars that will die slowly.

If there’s a broader rebound before there’s a real reckoning over broken businesses, that will only prolong the inevitable.

Venture capitalist Lee Edwards subtweeted one such unnamed startup. He wrote, “Two year old company with $600k revenue and $120M annual burn blames ‘fundraising environment’ for failure. Incredible stuff.”

He’s almost certainly referencing the failed fintech company Fast. The defunct company’s former chief executive, Domm Holland, just tried to kick off a comeback with a new company called Trady.

“Fast was a canary in a coal mine for a very different landscape than we’re in today,” Holland said in a video. “When the tide went out, we were frankly left standing there like a big fat baby in a Fast hoodie and our pants down. We were the first to be smacked with the realization that we had built a grossly overstaffed business with overheads a multiple too high and revenues a multiple too low.”

---

Internal Rate of Return Data for USV, Forerunner, Sequoia, GGV & True Ventures

The other day I made a public records request with UTIMCO, the Texas public investment fund with over $65 billion in assets under management.¹

I'm not the first reporter to go ferreting through UTIMCO's disclosures for insights about performance of venture capital funds. But this data² — from a report dated February 28, 2023 — gives an updated snapshot on the state of venture capital returns. And we tried to organize them nicely for you.