Insights 2018

From Seed to Secondary (and Everything in Between)

Venture capital traces its history to the mid-1940s when organized investing into developmental stage companies first began. Fast-forward 70 years, and ‘venture capital’ is an umbrella term for a large and multifaceted industry.

Total invested dollars in venture capital are at a decade high, slowly rising to its historical high during the dot-com bubble. However, while invested dollars are rising, deal count is decreasing. The availability has allowed startups to stay private longer than ever before and made the path to IPO a much longer time horizon.

The nomenclature around investment categories is constantly shifting; currently, there are 3 commonly referenced stages within venture capital:

•   Pre-seed/seed

•   Early stage (typically Series A-C)

•   Growth (typically Series D+)

Venture capital firms lie anywhere on or between these stages and fill voids in the market for financing.

The earliest stage of venture funding, the pre-seed/seed stage, is typically occupied by friends, family, and angel investors, with increasing competition from institutional funds. Seed stage companies are newly formed companies with little to no operating history. Investments at this stage are extremely network-driven and rest entirely on concept viability and the confidence in the founding team as determined by an investor.

Early stage capital is primarily allocated toward market research, product development, and business enhancements. Investors in the early stage seek companies that have a completed business plan and demonstrate some level of concept validation through key customers but are usually not cash flow positive. Businesses in this stage need cash to fuel staffing requirements, capacity/inventory, and other strategic capital expenditures.

Growth stage investors focus on companies with proven business models with a clear path to profitability. Firms investing in this space seek companies with existing sales and a strong pipeline. Companies seeking funding in this round use the raise to aggressively penetrate the market. Subsequent rounds of growth stage capital, sometimes referred to as late stage capital, are reserved for relatively mature companies seeking to raise large rounds for specific strategic initiatives (like geographic expansion, acquisitions, investment in PP&E, etc.) that will further clear the path to market dominance and a subsequent exit.

While these three categories all typically encompass primary capital used to fund company operations and initiatives, growth and late stage capital rounds often include secondary shares where founders, employees and early investors also sell their holdings to later investors. Secondary shares can also be available through broker-dealers or exchanges like SharesPost and EquityZen.

As part of any healthy portfolio, diversification is key. Based on your existing portfolio and exposure, you may benefit from investing on either end of the venture capital cycle. If you are interested in learning more about how you can tap into the rapidly growing venture capital market, get in touch with us at

Originally published in the October 2018 LVAM Newsletter.

Being a Fund-of-Funds

Generally speaking, a fund-of-funds is any group that invests in other funds. In venture capital specifically, funds-of-funds function as limited partners (with very few exceptions). Those limited partners receive reports and due diligence documentation whenever the fund is making a new investment as well as periodic reports on the performance of the portfolio as a whole.

Investing in venture capital funds either directly as a limited partner or through a single fund-of-funds can be a great way to diversify your overall portfolio. The high level of risk associated with direct startup investments can make it difficult to start a venture capital arm of your own. Investing in or as a fund-of-funds mitigates that risk tremendously as you are investing in the venture capital fund’s entire portfolio, which could represent dozens of startups. You still have the ability to capitalize on the oversized returns that come from successful venture investing without having to take on the same degree of risk.

The most straightforward funds-of-funds only invest in venture capital funds, but many groups are using a hybrid strategy where part of their portfolio is made up of venture capital funds and part of it is direct investments in startups.

If directly investing in startups is something that interests you, but you don’t have the team in place or knowledge base to properly source and analyze that type of investment, co-investing can be a great option. Essentially, a fund you are involved with may find an interesting company and decide to make an investment. However, it is extremely uncommon for one venture fund to be the only investor in a round of startup funding.

That’s where a hybrid fund-of-funds can come in and make an additional direct contribution to the round. It is a simple way to invest in a startup that has already been vetted and fully analyzed by a trusted venture group.

When you become a limited partner in a venture capital fund, it opens you up to a whole new world of tech startup knowledge. Doing so can be the ideal first step on the path in getting  venture capital exposure.

If you are interested in learning more about how to invest in or set up a fund-of-funds, feel free to contact us at

Originally published in the September 2018 LVAM Newsletter.

Due Diligence for Venture Capital

Venture capital can be a daunting asset class to analyze. If you are familiar with private equity, you are probably used to judging a company based on detailed financial modeling. With venture capital deals, the numbers and parameters you have for mature companies just don’t exist yet. That doesn’t mean that you can’t conduct a thorough analysis of a company before investing. What it does mean is that you need to have a formal and disciplined process for due diligence that is tailored specifically to early stage companies and startups.

At Laconia, we like to break our diligence into three stages. During the first stage, we focus on the business’s operations, and perhaps more importantly, the management team’s understanding and thought process around their product and strategy. While we do look at financial models at this point, we are looking at them with a grain of salt. We want to make sure there is a solid sales process in place and a good understanding of how the company is going to prioritize customers and increase their market share. In this stage, we also do our own research into the market size and competitive landscape, and take a detailed look at the company’s capital strategy.

During the second stage, we shift our focus to customers and product development. At this point, besides looking into the product development roadmap, we like to introduce the company we are working with to potential customers from our network. Not only does this allow us to add value to the relationship throughout the due diligence process, but it also allows us to get real time market insight and understanding of the sales process. Product market fit is one of the most important things to consider when evaluating a venture deal.

The final stage of our due diligence process mostly consists of tying up any loose ends. If we get to this point, we already have a good understanding of the product, and we have a technical expert take a look at the details of the tech stack and software architecture to make sure everything is sound. We also conduct reference calls for the main team members and take a look at the company’s legal documents. We try to keep the process as efficient as possible to respect everyone’s time while still being thorough. We strive to keep the due diligence process productive and painless for both ourselves and the entrepreneurs we work with.

If you are looking to make venture capital investments, a thorough due diligence process is essential. Don’t assume that just because a company is nascent in its development that you can’t do the research and ask the questions to make a smart investment decision. We have found that as long as you stay disciplined with a proven process, even this seemingly enigmatic asset class can be analyzed.

If you would like to learn more about our process, or are interested in collaborating with us on due diligence for your own venture investments, feel free to reach out to us at

Originally published in the July 2018 LVAM Newsletter.

How Venture Capital Differs from other Alternative Assets

If you are looking into venture capital as an investment opportunity, you are likely aware of other options like private equity and real estate. While these alternative asset classes share some similarities (illiquidity, long investment holding periods), there are distinct differences in structure and investment strategy that are important to consider as you dive into venture capital investing.

recent article in the Wall Street Journal takes a critical look at the differences in venture capital and private equity, specifically when it comes to returns. The biggest takeaway from their research is that venture capital investing vastly outperforms private equity when it is successful. However, the returns are more volatile, with longer holding periods. This time horizon stems from the fact that venture capital firms invest in early stage companies that may be pre-revenue, and venture investors only make money when those companies are acquired or go public. Thus, venture capital gets in early on high-growth opportunities, in contrast to private equity, which makes shorter term investments in mature, private companies.

Real estate investing presents its own set of variables. Real estate investors make money from regular payments and a long term increase in property values (although increases in property values rarely result in capital gains). This means that  you can have steady cash flow with less market volatility. However, you don’t have the opportunity to see the tremendous returns that venture capital is known for.

As you take steps to diversity your portfolio, it’s worth taking the time to evaluate the different asset classes available to you. A side-by-side comparison of alternative assets, like the chart below, is a good starting point to figure out what type of investing is right for you.

laconia+venture+asset+management+wealth+advisors+family+fund+alternative+realestate+private+equity (1).png

If you are interested in learning more about the role of venture capital within family offices, feel free to contact us at

Originally published in the June 2018 LVAM Newsletter.

Having Patience with the Venture Capital Timeline

One major challenge when investing in venture capital is to remember to stay patient when facing a timeline that could take years to see positive cash flows. This illiquidity is mainly due to the amount of time it takes a startup to go public or even get acquired.

As of 2017, the median time for a startup to exit via an IPO was 8.2 years. As more late stage startups are choosing to raise more capital and lengthen their runway rather than exit, liquidity has become the single biggest challenge for venture capital firms. Even success stories like Buzzfeed, Qualtrics and AirBnB have chosen to raise more money late in the game instead of going public, despite consistent revenue and high valuations. The reasoning is simple: they want more time. By staying private longer, these startups hope to establish profitability and avoid the pitfalls they’ve watched other tech startups like Snap run into.

While the long road to an IPO can seem daunting, it actually doesn’t spell trouble for venture capital investing. In the beginning of a VC portfolio’s lifetime, it will see little to no net cash flow as investments are being made, resulting in greater cash outflow than inflow. As portfolio companies start to exit, the portfolio moves into a harvest period in which earlier unrealized gains are realized. At this point, a venture capital portfolio can be self-funding where the realized gains now fund the newer venture investments. By the way, this is the exact same j curve investment horizon that private equity and real estate experience. In this regard, venture capital investing is exactly the same as investing in private equity or real estate. More importantly, investment returns generally increase with the degree of illiquidity for which venture capital historically has had the best performance.

If the long-term outsized returns associated with venture capital investing don’t provide enough incentive to take on the risk associated with venture’s illiquidity and timeframe, there are other options to help reduce the investment frame and risk. However, it is usually done with a concomitant reduction of risk. As highlighted last month with the Spotify IPO, secondary markets for late-stage venture investments have matured and proliferated. These markets can allow you to either invest at a later-company-stage or achieve partial or even full liquidity on an early investment without an actual exit event like an IPO or acquisition. In addition, funds that focus on late-stage secondary transactions have also begun to emerge, offering smaller investors the chance to participate in later-stage venture opportunities with shorter investment windows.

If you are interested in learning more about the role of venture capital within family offices, feel free to contact us at

Originally published in the May 2018 LVAM Newsletter.

Venture Capital Provides Outsized Returns

In venture capital, returns follow the Pareto principle - 80% of the returns come from 20% of the investments. Early-stage venture capital firms have often been attractive to investors, providing lower valuations with the opportunity to obtain significant equity ownership in portfolio companies. 

In today's Topic of the Month, we take a deeper dive into the numbers posted for a couple investments prior to their IPOs and acquisitions.


Facebook’s $22B acquisition of WhatsApp in 2014 is the largest private acquisition of a VC-backed startup. It was a huge win for Sequoia Capital, the company’s only venture investor, which turned its $60M investment into $3B. At the time of acquisition, Sequoia owned 18% of the company and its shares were valued at $3bn, representing a 50x return overall.


Zynga’s $7B IPO in 2011 made social gaming history — and was an important moment for Union Square Ventures, which owned a 5.1% stake worth $285.1M when the company went public. USV lead the company's $10mm Series A round when the company was less than a year old and made a 75-80x return on the original investment.

After taking a closer look at some of the largest VC exits, it is evident that VC investments provide an opportunity for outsized returns and are a result of detailed research/due diligence,  strong convictions, and committed follow-through. If you are interested in learning more about the role of venture capital within family offices, feel free to contact us at

Originally published in the April 2018 LVAM Newsletter.