Demystifying the AGM
It's AGM season, but what the heck does that even mean? Why should founders care?
Greetings! We hope you had a great October and are ready for the mad dash to the end of the year.
đ Thought Bubble: Demystifying the AGM
Iâm not sure if Iâm just primed this year, but it seems like the acronym âAGMâ has been everywhere this last month. âAGMâ stands for âannual general meetingâ and refers to the yearly event where VCs bring together their investors, aka, limited partners (LPs). Donât ask me why, but for many firms, these usually happen in September or October.
The concept of the AGM is nothing new, but there has always seemed to be a little mystique around what is quite honestly a generally uneventful (& sometimes very bland) meeting. It is usually part social activity (think happy hour or dinner) and part presentation on relevant topics, such as portfolio performance.Â
The main goals for a VCâs AGM are to 1) update their LPs and 2) strengthen the relationship with their LP base. While most VCs have a regular communication cadence; e.g., quarterly, with their LPs, the AGM is the opportunity to give a broader view of whatâs happening (or has happened) across the portfolio and/or market that go far beyond whatâs possible in a quarterly update. Many firms use this as an opportunity to discuss predictions for what the next year holds or delve into hot topic areas, such as AI, which, not surprisingly, has been a very popular, almost obligatory part of many investorsâ presentations this year.Â
Like most things in venture, though, some structural details of an AGM vary by firm. Iâve talked with folks at larger growth firms who have their AGM span multiple days (!!). That is rare. For smaller Seed firms, it is usually somewhere between a half and a full day. Some firms invite every founder in their portfolio to be passive participants, while others invite only a handful of CEOs from the most promising companies in the portfolio to present. SpringTime hosts a half-day event, with three portfolio company CEOs joining at the end to share their story, and of course, a happy hour for everyone to socialize.Â
A lot of time spent during the AGM is focused on providing information to the LPs, but this exchange isnât entirely one sided. Consistent with most group meetings, there usually arenât many questions during the main presentation, which is why the unstructured social time is so important. Thatâs where VCs have 1:1 time with LPs and get a glimpse into what LPs are thinking and where their concerns lie.Â
The preparation for an AGM forces some level of self reflection for VCs around what is and isnât working for the firm, and while you wonât see a major strategy shift for a firm coming out of an AGM, VCs are likely to emerge from the meeting with a renewed vigor on where they need to focus. Theyâre also probably going to be more sensitive to areas where LPs might have grilled them the most; e.g., entry price for new investments, pace of deployment, etcâŠÂ
Just like founders who have raised VC funding have to answer to their investors, so too do VCs. We spend so much time talking about founders fundraising that itâs easy to forget that VCs also have their own set of investors theyâre accountable to. LPs play an important role in the ecosystemâmany of the changes we are seeing in the market now are a result of the pressures LPs have put on VCs, either directly or indirectly. AGM season just makes the LP role all the more salient.Â
đ«€ WTF VC â Fall 2023
Sam Lessin, Partner at Slow Ventures, released a report on the current state of the Seed market. It covers Samâs idea of the âVC factory lineâ, how this factory-line concept shaped the VC market over the past decade, and why it ultimately broke. Sam also discusses the new state of the Seed market and where things potentially go from here. The report is a great summary of the forces currently at play that are reshaping everything from early-stage financings to hiring at startups.Â
STV Take: We have been talking about this since early 2022, but what happens in the public markets eventually (albeit, slowly) trickles down to Seed, and this report is a great synopsis of how thatâs happened over the last 18 months. What I found particularly interesting were slides 58-63 that discuss the shift in work culture post pandemic. The pandemic brought this feeling of randomness to everyoneâs life, and people have internalized that, meaning theyâre prioritizing their lives and what matters most to them now versus some pay off far in the future that may or may not be within their (perceived) control. The more I think about this the more questions I have about this trend and the implications not just for startups that are hiring but society as a whole.
đ The Big Reset in Seed to Series A Graduation Rates
Charles Hudson, Partner at Precursor Ventures, released a new Substack that discusses why the graduation rate from Seed to Series A is dropping and why itâs unlikely to rebound. He provides some insights into why graduation rates climbed over the past several years (spoiler alert: capital abundance) and outlines the following predictions:Â
The Seed to Series A graduation rate will drop to as low as 25%. (For context, during the heyday, something between a 50-75% graduation rate for a firmâs portfolio was considered good, according to Charles.)
Overall, fewer Series A deals will be done for the next several quarters.Â
A smaller number of companies will raise Seed extensions or bridges as Seed-stage firms become more skeptical of a companyâs growth potential if they arenât already showing some kernels of product-market fit after raising a Seed.Â
STV Take: The next round of financing is not, and never was, a guarantee. Capital efficiency reigns supreme in this market, and Charlesâ perspective is very much in line with our perspective. One of the interesting topics he brings up is founder quality and how the bar for talented founders has risen. I think this is true for most investors. As Charles mentions, what matters most is not pedigree or resume but the ability of a founder to instill confidence in investors that they can build a big, capital efficient business.
đ On the road to impact: Mile markers for early-stage digital health startups
Rock Health published a report that shows benchmarks for digital health startups across different stages. One of the key insights is that strong engagement is table stakes for companies. It makes senseâengagement is critical to unlocking the potential clinical value for most solutions and is an early indicator that a company has the potential to deliver meaningful ROI for the customer.Â
STV Take: Rock Health mentions this in the report, but one of the many challenges of building an early-stage company, especially in digital health, which is uniquely different from, say, B2B SaaS, is the lack of benchmarks. Itâs hard to know if something is working if you canât compare your progress to other companies. While the sample size was small for each stage, it will be interesting to see how these benchmarks evolve over time as capital continues to be constrained across stages.Â
đŽ Decompression Zone
Happy belated Halloween! Hope you had as much fun as these folks: