Allied Venture Partners

Hello Partners,

As a current or prospective partner, this newsletter provides exclusive insights into our investment strategy, portfolio companies, and industry trends.

Thank you again for your continued trust and support,

Matt Wilson, MBA

Founder & Managing Director | Allied Venture Partners

Team Updates

• Our core team is finalized, including Steve, Melinda, and Brendan. Colton has replaced Jeremy at AngelList.

• Our Scout and Advisory programs continue to expand with several new members each week, providing quality diversified deal flow from across Canada and the United States.

• I’ll be in Boston December 6-7 for Techstars demo day and am looking to host a small dinner for founders & investors. If you are in the Boston area and would like to be included on the guest list, please let me know.

New Deals

• We are nearly closed on our latest deal in the AI Defense Tech space. If you have yet to review the deal page, please do so this week.

• We are in diligence with several more companies and expect a busy end to the year. Stay tuned for more updates.

Portfolio News

• Vint’s new Marketplace continues to exceed all growth targets, surpassing a seven-figure run rate in just seven months.

• GroWrk continues to execute incredibly well, posting consistent double-digit MoM growth. The team has signed several more enterprise clients and is expanding across the EU and South America.

• ZenSports Co-Founder and CEO Mark Thomas has stepped aside. As the company transitions to a large-scale sports book, Mark and the team feel it best to bring in a CEO with large-scale sports book experience. Mark has moved into a full-time advisory role and remains committed to growing ZenSports/KeyStar into a multi-billion dollar company. The company continues to experience tremendous growth since launching in Tennessee in July.

Industry Insights

I’m seeing an increasing number of great early-stage companies getting passed on by investors. Not for lack of talent, product, or customers but for the simple fact they lack a “tier-one” investor leading or participating in the round.

And it’s not just angels who are passing; it’s VC funds, too. 

It’s a typical herd mentality that provides the illusion of safety (especially in down markets) even though it works directly against one’s ability to generate top-decile returns.

Why?

• Consensus + right doesn’t make you rich

• Non-consensus + right makes you rich

And most importantly: “Be greedy when others are fearful.”

Markets have certainly shifted, and investors are feeling more cautious. However, if we look at some of the most notable venture-scale companies of our time—Canva, Uber, Facebook, etc.—two key things stand out:

1. They were started during down markets,

2. They didn’t have tier-one institutional investors leading their pre-seed rounds.

In every instance, they had angels and (possibly) an emerging VC fund.

Why is this often the case?

Firstly, tier-one investors only see a fraction of total dealflow across the market, and the deals they see are typically overpriced because, well, they’re tier-one investors.

By simple way of brand recognition, dealflow is priced high and highly competitive. Accordingly, early investors must find these companies before they hit tier-one radars—that’s where the alpha lies.

Secondly, many tier-ones cannot deploy at early stage due to large fund sizes.

As compute and other costs decline, less capital is required to get an MVP to market and validate a business. As a result, pre/seed rounds are becoming smaller, which means the fund math on larger pools of capital no longer works in the current market.

For example, a nine-figure fund dependent on $3M initial checks doesn’t work when seed rounds are sub-$2M. Consequently, even if tier-ones wanted to deploy, in many instances, they simply cannot due to fund economics.

Keep in mind that the business model of large funds is to generate financial returns, not necessarily invest in the best companies. This is why we see head-scratching mega rounds at lofty valuations for unprofitable companies like Clubhouse, FTX and WeWork.

Large funds need to deploy large checks, and the principle of notional value is a legitimate factor in engineering financial returns.

So, what’s a better signal that’s more indicative of company success in the current market?

First and foremost: Runway

In the current market, those who can survive and outlast the competition will consolidate marketshare and emerge as the category winners. Ideally, a pre/seed company should have a minimum of 18 months of runway post-close with a clear path to revenue and/or cashflow breakeven.

Gone are the days of Series A firms marking up a high-burn position and handing it off to their growth-stage counterparts. Investors are highly selective with initial checks and even more so with follow-ons. Thus, never assume a tier-one will keep a company alive—it’s not their job.

Other strong signals that I like to look for include:

• a talented team with deep domain expertise,

• a differentiated product with delighted early customers,

• a large and rapidly expanding target market,

• capital efficiency with a low burn,

• a mix of angels and smaller funds determined to roll up their sleeves and help the company through the weeds; and,

• a reasonable valuation that has yet to be hyped up.

This market is another once-in-a-decade opportunity to do the work and find the diamonds. If a company is successful, tier-ones will find it eventually, but not until they can write a large enough check to satisfy fund math.

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