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 for your continued trust and support,

Matt Wilson

Founder & Managing Director | Allied Venture Partners

Not an LP? Click here to join the Allied Venture Partners syndicate.

Team Updates

• Our core team includes Steve, Melinda, Brendan, and Colton.

• The Allied 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. Thank you to all those who have participated.

New Deals

• Our deal flow pipeline is arguably the most robust it’s ever been. We’re in late diligence with four companies and have completed diligence on three more.

• With each company, I’m helping the founders secure a lead investor, after which I look forward to sharing these opportunities with syndicate members in the coming weeks.

• In a related situation, we recently made a soft commitment on an AI deal (pending final terms) but ultimately chose to pass after a lead investor offered an excessively high term sheet (i.e., $15M pre with <$25k ARR from a few unsecured pilots). Details below.

Portfolio News

• For a third consecutive year, EdLink grew more than 100%. Congratulations to the entire team on your continued success!

• GroWrk welcomed Jason Winnie to the team as VP of Global Operations. Previously, Jason served as the Senior Director of Operations at both Amazon and Shopify, where he built and scaled global supply chains and logistics networks.

• Ediphi opened its sixth university training lab and now serves over 1,000 students worldwide.

• Thanks to Scott Kelly and Black Dog Ventures for inviting me to guest judge their March VC Fast Pitch competition.

• I’ll be in the Valley April 1-4, speaking at Venture Summit. Please reach out if you’re attending the conference or will be in the Bay Area and would like to connect.

Industry Insights

As you know, the venture landscape is normalizing post-2021, but with a striking divergence: AI versus everything else.

While Series C+ rounds have returned to historical fundamentals (i.e., 5-10x TTM revenue multiples), seed-stage valuations tell a different story. AI-native startups are commanding a 21% premium over non-AI counterparts (and investors are giving it to them).

As mentioned above, this divergence was highlighted in a recent pre-seed deal we considered, passing on a two-year-old AI startup seeking a $15M pre-money valuation with less than $25k ARR in pilot revenue. The math was problematic:

• 600x revenue multiple vs. typical 10-30x for early-stage deals

• Required $1.7B exit EV for a venture-scale return (pre-dilution)

While I firmly believe we are in the early innings of the next major platform shift, and I have no issue paying a premium for a world-class team with exceptional market insights, we must draw the line somewhere. Otherwise, we inevitably reach a point of market exuberance where VC math no longer works and LPs lose money.

Considering the company’s modest growth rate in a niche sector with lengthy sales cycles, I would realistically value this deal between $2M–$5M. Otherwise, achieving a venture-scale return of 100x in 7-10 years is extraordinarily difficult.

The Paradox of AI Valuations

Here's what's most concerning to me: the commoditization of AI actually lowers barriers to entry. With off-the-shelf tools like Cursor and Replit, it’s never been easier/faster/cheaper for a non-technical team to quickly build and deploy competing software products.

In fact, a quarter of startups in the latest YC batch have codebases where 95% of the code was AI-generated (aka. “vibe coding”), and more than 50% of the companies built AI-related products.

Counterintuitively, if barriers to entry are disappearing and anyone can enter the market with a competing product, this suggests that AI-native startups should warrant a discount, not a premium.

So, how should we think about evaluating early-stage AI deals?

I believe investors should remain cognizant of two key risk factors when pricing deals:

1. Overvaluation

   Accepting inflated valuations introduces downstream risks for both the company and GP/LP. For example:

   • Down-round risk: If the startup fails to rapidly scale revenue and grow into its valuation, future fundraising could necessitate painful dilution. According to CB Insights, nearly 40% of startups that raised at peak 2021 valuations faced flat or down rounds in 2023/24.

   • Portfolio contagion: High paper valuations in one company can distort LP expectations and strain follow-on fundraising for the entire fund if downstream investors don’t support current marks.

2. Revenue Quality

   A startup’s reliance on unsecured pilot projects amplifies risk:

   • Customer concentration: Pilot-stage customers don’t always convert to long-term contracts at scale.

   • Revenue predictability: Without contractual lock-in, ARR lacks visibility, complicating growth planning and follow-on investment decisions. For instance, I’m seeing many AI startups reach six and seven-figure revenues from pilot customers who are merely kicking the tires, with minimal switching costs or lock-in.

With the bar for Series A higher than ever, Seed investors paradoxically have more leverage to negotiate fair terms. Yet many are caught in bidding wars, potentially setting their portfolios up for future challenges.

At Allied, we remain committed to disciplined entry prices and ownership targets. While we're excited about AI's transformative potential, I don’t see the need to abandon fundamental investing principles that have proven crucial throughout prior market cycles.

In other words, playing the game on the field is futile if the entire field goes up in flames. Instead, find a different field that others have overlooked.

As always, thank you for your trust and support.

As a reminder, our Core Investment Values since Day 1:

Read our investment thesis one-pager, available here.

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