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Jon Sakoda's avatar

This is a great post Nikhil - I think another force driving specialization in the VC model is the rise of strategic LPs who bring differentiation to GPs. Google has created a family of funds (GV, Capital G, and Gradient) that represent sector specialization and stage specialization. Sapphire (SAP) and M12 (Microsoft) have also emerged as relevant sector specialists and stage specialists in the ecosystem in a short period of time. Our firm, Decibel (Cisco), is purely focused on B2B software at the earliest stage and is investing heavily in services to help founders. The VC industry is now >50 years old - I think all of the innovation going forward is not in how we invest in companies but in how we differentiate what we do to help startups grow.

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Parasvil Patel's avatar

Thanks for sharing your thoughts. Another way to evaluate the specialist to agglomerator migration as well as the emergence of microfunds at the seed stage is through the lens of Christensen's Disruption Theory. The desire and need for growth (represented by growth in AuM) drives this migration and is difficult to resist. The same argument can be made for the angel -> super angels -> SPVs migration that you mentioned in the previous post. One way to address this urge for AuM growth is to limit growth in team size which makes it easier to stay a specialist without worrying about how to meet the team's career progression needs. And if you do go the agglomerator route, you can remain competitive (and generate great returns) if you 1. align incentives across both the investment and portfolio support team in a way that each sub-fund can invest and support portfolio companies independent of the other funds and 2. make sure that the value you provide to the entrepreneurs who take the smaller checks get the level of support they expect from a strong brand in the market. Obviously, all these suggestions are easy to recommend and difficult to execute on so it will be interesting to see how the market evolves.

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