The art of raising from LPs in an economic downturn with Mark Suster, Upfront Ventures

**Samir Kaji** (0:00)
Welcome back to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. I'm your host, Samir Kaji. Today, we're excited to bring Mark Suster back on the pod. Mark is the managing partner of Upfront Ventures and also an active contributor of great content for the venture ecosystem through his blog, Both Sides of the Table, which I'd highly recommend you subscribe to.
Mark and I were recently chatting about venture funds raising this market, and given some of the macro challenges, we thought it would be timely to record a session on what we're both seeing, and how venture fund managers should think about navigating in this market. I really hope you'll enjoy my conversation with Mark, so let's get into the episode now.

**SPEAKER_2** (0:38)
Samir Kaji is the CEO and co-founder of Allocate. Allocate and Venture Unlocked are independent of each other. Any statements or references made by Samir or his guests regarding third parties, investments, or securities are solely their views and opinions, and are not intended as investment advice or an endorsement of such parties or securities by Samir, his guests, or Allocate.
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**Samir Kaji** (1:12)
Mark, it's so good seeing you and thanks for being on the show for the special episode about fundraising.

**Mark Suster** (1:17)
Of course, I'm always happy to talk to you.

**Samir Kaji** (1:19)
Let's talk about what's going on. I was actually just looking at the numbers right before this call about VC fund fundraising. $150 billion plus, 2020-21, dropped off a cliff in 2022, early part of 2023, about $33 billion raised during the first six months. And it does seem to be affecting everybody, big funds, small funds.
Since you spent so much time both with LPs and GPs, maybe provide a summary of what you're seeing and hearing at a high level.

**Mark Suster** (1:51)
If I'm talking for a minute to fellow GPs, let me tell you that the market that you exist in is no different than the market you're serving where you're looking to invest. So everything that you can see psychologically going on for your own fund and how you're deploying capital, of course, is the same of LPs.
And let me say it clearly, which is there was way too much supply of capital for the last seven, eight, nine years, maybe even ten years.
As a result, every startup you funded got funded at a higher price after you. Everything you funded seemed to be working. Loss ratios were at an all time low. Loss ratios, deals worth less than 1x were south of 40%. By 2021, it had gone south of 20% that were any amount of loss. And we all got used to this period of time where fundraising into startups was easy. So the same was true of managers. LPs have always been hard to raise from. They have always been very selective with where they put their dollars. But so much money entered the ecosystem in the last five, seven, eight years that we have all fooled ourselves into thinking this is easy. Turns out it's not easy. And I would say today reminds me a lot of 2011 because 2011 we were just fresh off the global financial crisis. People were questioning whether or not venture capital was a real asset class. There was a report that had come out from Kaufman saying like, don't invest in venture capital.
And of course, if you had followed that advice, you'd have missed the best decade of venture capital maybe ever. I think it's just a return to normal is like, I think how I would call it.

**Samir Kaji** (3:45)
You mentioned 2011 and I remember the Kaufman report, I think it was called The Enemy Is Us, right? And it talked about the big funds versus small funds. The difference is back in 2011, rates were really low, rates are much higher, at least from what we've seen historically over the last 25 years.
What are you hearing, I guess, from the institutional piece because a lot of the institutional piece had the denominator effect affect them in 2022, at least when public markets went down, the actual markdowns of the private markets didn't happen and so they were over allocated. Seems like some of that has been not necessarily fully resolved, but to a certain degree, we have seen the public markets go up, private markdowns are happening, but what are you hearing, I guess, from the institutional investors as they approach venture today?