Why "Flat Is The New Up" and VC Funds Are Under-Reserved
Everyone in the VC business is looking hard at their fund reserves right now. Very hard. That's because the two key assumptions regarding how much money a portfolio company would require from start to finish (the exit) have changed: (1) The length of time before exit; and (2) The number of portfolio companies that would attract outside capital to lead follow-on financing rounds. The new planning assumption being embraced by VC fund CFOs and senior partners is that each portfolio company's exit forecast should be pushed out two to three years. Moreover, funds should assume that inside rounds will be the prevailing method for raising additional capital within the portfolio. For the strongest portfolio companies, it will be a privilege to close a flat round with an outsider. In other words, "flat is the new up.”
