The early-stage game

Fundamentals and a long-term outlook

TLDR: True early-stage venture is misunderstood and lumped in with the rest of the VC market, but it’s a very different game, and if you have the fundamentals and a long-term outlook, you can completely change the world.

The Bills won.

I know, the post could end there. It’s great news for a Monday Morning.

But I did promise a bit more business in our weekly ritual, so here it goes.

2023 was one of the worst years in the history of venture capital.

Funding was down 74.7% over a two year period.

IRR’s hit -16.8% at the end of 2022.

Limited Partners investing into funds plummeted 73% year over year.

38% of funds disappeared.

38%. That’s 2,725 funds that became inactive over the past 12 months.

Insane right?

But let’s talk about gaining market share in a down economy.

When interest rates are high and money is expensive, companies need to tighten the belt.

They forego the nice-to-haves, focus inward, and get their balance sheets healthier.

Excess talent gets cut.

Excess R&D gets cut.

Excess spending across the board—cut.

You get the idea.

So if you’re the company focused on those new horizons, and you’re well-funded and frugal, you can gain a tremendous amount of market share while incumbents are getting their house in order.

It’s better for them to buy later than to build today.

But the “build while there’s blood in the streets” narrative in VC has been over-reported.

Yes, it’s a great time to be building, but that’s not what we’re talking about today.

We’re talking about the early-stage game.

Gaining market share in a down economy also applies to venture funds.

And I’m insanely proud of what Antler has done in the US and abroad in one of the worst years in the history of venture capital.

While firms have disappeared and cut their investment pace—we’ve leaned in and increased ours. We became the most active VC fund in the world, according to Pitchbook.

When firms couldn’t raise capital, the US grew assets substantially.

When founders were only receiving ~125K from early-stage funds, we doubled our first check to $250K & added a $250K follow-on, giving founders enough capital to gain market share in a down economy.

And the result was 31% of the portfolio raising follow-on rounds at a time when new funding was being slashed over 74%.

Applications to build with us surged over 8,000 in the US and 120,000 globally.

In New York, we invested in just .36% of founders who applied, becoming insanely selective in an industry where 1% is standard.

And I don’t say this to brag, I say this to demonstrate that chaos creates opportunity.

Just look at what happened in the world last year.

SVB collapsed.

Earthquakes rocked Turkey and Syria.

Russia & Ukraine.

Israel & Hamas.

Hollywood went on strike.

OpenAI took LLM’s mainstream.

2023 shattered climate records.

Many COVID car buyers became upside down and consumer debt soared over $17T.

Mortgage rates rose with interest rates.

And the list goes on.

But when you look at the world knowing it was created by people no different or smarter than you, you do something about it.

That’s why we invest in founders who not only demonstrate the execution required to win in a down economy, but those who are building meaningful solutions to the world’s most pressing problems.

Like HStar, who is taking heavy objects to orbit and supporting Earth’s ability to operate in space while Elon leaves our planet behind to focus on Mars.

AminoChain, which allows biobanks to track, trace, and incentive blood and stem cell donations, contributing to a future of personalized medicine.

Stairs who helps first-time homebuyers find and save for mortgages.

Marco who helps small businesses flourish in emerging markets.

Vero who is helping auto dealers provide vehicles to families and businesses.

Bitewell who is improving the health of employees with the world’s first food-as-medicine marketplace.

PowerX, which is solving the world’s energy crisis.

Cedar who is creating better more affordable housing.

Dune, which is protecting companies from cyber attacks with AI in a time when AI is becoming more sophisticated than humans.

Benjamin, which disintermediates the big advertising networks and puts cash and advertising dollars directly in your pocket.

HIFI who is enabling businesses to accept cryptocurrency as fiat so that they can accept new forms of payment without the regulatory complexity.

And the list just goes on and on.

And this is why it’s all about the early-stage game.

By investing earlier than anyone—pre-incorporation in many cases—we’re able to give founders the much needed capital they need to gain market share in a down economy.

Particularly at a time when everyone thinks their ideas are outrageous or too ambitious.

And in return, we get an attractive valuation, commensurate with the risk we’re taking.

So when you’re able to make 140-225 bets from less than 1% of the total founders you meet, you end up with incredibly high-quality people building incredibly high-quality businesses.

You also get to invest in chaotic markets where problems are everywhere and incumbents are hamstrung.

And with ~70% graduating to seed, you also end up with a seed portfolio of ~100 companies at a ~78% discount to their seed price.

This, the early-stage game, is a game of principles, math, and patience.

If you have the fundamentals and a long-term outlook, you can completely change the world.

See you Monday.

*Note that figures presented are constantly changing. Numbers were not audited for the purposes of this post. This post is simply intended to be a directionally accurate illustration of relevant market dynamics*