March 13, 2025
Hello there,
Welcome again to any newcomers!
This is our biweekly newsletter where we talk venture capital (VC), Connetic, data, and sometimes funny stuff. Hope you enjoy and read to the end!
Recently, Brad Zapp and I had the incredible opportunity to guest lecture at the University of Cincinnati, thanks to Tim Metzner—a fellow VC and entrepreneur—who teaches a class focused on building a venture capital fund from the ground up. The students spend the semester crafting their own fund concepts, culminating in a pitch at the end. It was energizing to see the next generation dive deep into the mechanics of venture capital. I covered portfolio construction and follow-on strategies, while Brad shared insights on fundraising for a fund and the nuances of different LP personas. It’s the kind of class I wish had been available when I was in college.
What stood out to me most is how universities are evolving beyond traditional entrepreneurship classes to also explore the venture capital side of the equation. It’s exciting to see this shift—it not only highlights the growing interest in private investing among students but also reinforces the staying power of venture capital as an asset class. At the same time, the experience underscored a challenge in higher education: while adjunct professors like Tim bring invaluable real-world expertise to the classroom, universities often struggle with outdated structures like tenure, limiting the flow of domain experts into these roles. As the demand for specialized, practical knowledge increases, colleges need to rethink how they attract and empower top talent to teach the next wave of entrepreneurs and investors.
In today’s update:
- Understanding the Performance of Early-Stage and Late-Stage VC
- Data: 35% of Adults Will Start Their Search with AI by 2027
- Venture News: AI Funding Surged in 2024
- Connetic Corner: Expanding Deal Flow – Wendal’s Salt Lake City Pitch Competition
- Super Interesting Reads:
- Secondaries Swell
- Supersonic Commercial Air Travel
- Duolingo Killed It’s Mascot
- Stuff That’s Weird AF
By: Chris Hjelm
Portfolio Manager
Understanding the Performance Gap Between Early and Late-Stage Venture Capital
Venture capital has long been an attractive, albeit complex, asset class for investors seeking outsized returns. Recent data from PitchBook, as of August 5, 2021, highlights a notable performance gap between early and late-stage VC investments. Early-stage funds, as defined by Pitchbook in this analysis, are those focusing on Series A and earlier rounds, have posted an average Internal Rate of Return (IRR) of 26.7%, significantly outpacing late-stage funds (Series B through Series F), which averaged a 17.3% IRR over the same period.
A Series A company typically has a proven product with early market traction, some initial revenue, and is focused on scaling its customer base and refining its business model. In contrast, companies in Series B through F rounds are more mature, with established revenue streams, expanded teams, and a focus on scaling operations, entering new markets, or preparing for an exit like an IPO or acquisition. While, these figures underscore the potential rewards of early-stage investing, it’s essential to remember that past performance does not guarantee future results.
One reason early-stage investments may outperform is the nature of venture capital’s power law return dynamics. In VC, a small percentage of portfolio companies typically generate the vast majority of returns. Early-stage investors gain access to startups at lower valuations, offering higher upside potential if a company becomes a market leader or achieves a significant exit. This approach, however, likely with higher risk—many early-stage companies fail to scale or secure follow-on funding. Yet, for well-constructed portfolios, the success of one or two outliers can more than compensate for losses, driving strong overall returns. Please see our prior newsletter from 10/17/2024 which discusses the VC power law.
Late-stage investing, while generally less volatile and tied to companies with established traction, often sees compressed returns due to higher entry valuations and increased competition among investors. Though this stage may offer more predictable exits and shorter time horizons, the trade-off is a lower ceiling for returns compared to early-stage opportunities. For financial advisors guiding clients in venture investing, understanding these dynamics is critical. Balancing potential upside with risk tolerance, time horizon, and diversification is key—especially in an asset class where a few standout investments can define the success of an entire portfolio.
Data – 35% of Adults Will Start Their Search with AI by 2027
One of the most significant shifts in user behavior is happening right before our eyes—the move towards AI as the starting point for search. Data suggests that the percentage of people who begin their search journeys with AI platforms is set to grow from 5% in 2023 to an astonishing 35% by 2027. This isn’t just incremental change; it’s a seismic shift that could fundamentally disrupt the way we access information. For a company like Google, which derives the vast majority of its revenue from traditional search-based advertising, this trend poses a real threat to its core business. As more users turn to AI-driven tools that provide direct answers rather than a list of links, Google’s dominance—and its lucrative ad model—could be significantly impacted. I’ve personally felt this shift in my own habits. These days, I find myself starting nearly every search with an AI assistant. It’s faster, more intuitive, and often delivers exactly what I’m looking for without the noise. If this is happening at scale, we’re on the cusp of one of the biggest changes in the digital economy since the rise of Google itself.
Venture News
AI continues to dominate VC funding with 44% of VC dollars going to AI companies in 2024.
Speaking of AI, I frequently bounce between different models especially during new releases or enhancements. Recently, I tried Grok 3, Elon’s latest model update and have to say it is the best LLM I have ever used. In my opinion, it is the most “human-like” and does not shy away from providing a strong POV which other models feel to do. Give it a try!
Expanding Deal Flow: Wendal’s Salt Lake City Pitch Competition
We recently returned from an exciting trip to Salt Lake City, where Wendal, our AI-driven deal sourcing platform, sponsored a pitch competition at one of the region’s largest tech conferences. This event was part of our ongoing initiative to tap into high-potential startup ecosystems that might otherwise fly under our radar. The competition offered a $200,000 investment to the winning startup, attracting a diverse range of early-stage companies eager to pitch.
The response was incredible—over 160 startups applied during the open application window. Using Wendal’s proprietary selection algorithms, we narrowed the pool down to five standout finalists, who then pitched live in front of a 500-person audience. This approach not only showcases some of the most promising startups in the area but also allows us to engage directly with ecosystems that are rich in talent yet often underrepresented in mainstream venture deal flow.
What makes these events so impactful is their efficiency in driving high-quality opportunities. On average, we invest in 1 out of every 70 startups that apply through Wendal. With over 160 applicants in Salt Lake City alone, this event exceeded our benchmarks, providing a pipeline of opportunities we wouldn’t have otherwise seen. It’s a win-win: startups gain exposure and funding, while we continue to diversify our portfolio with companies from vibrant but less tapped regions.
Super Interesting Reads
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