The Week in Short
Founders Fund, General Catalyst, and Spark are receiveting even more mega. Rick Heitzmann states tech IPOs may come sooner rather than later. Abilene data center still on track after OpenAI opts out of expansion, but the risks are stark. Female founders bring in more VC dollars on two large deals. Yann LeCun’s new startup joins the billion-dollar-seed club. Legora, Replit, and Quince close large rounds. Iran war brings fresh tech risks. Two more founders quit Elon Musk’s xAI. Binance faces a federal investigation over Iran money flows and is suing the Wall Street Journal over the story that apparently prompted the probe.
The Main Item
It’s receiveting a little cliche over here to state but…
Megafunds are riding high.
If any week was proof of that, it was this one.
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First, TechCrunch reported Monday on Founders Fund’s rumored $6 billion growth fund that’s in the works.
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The same day, The Information wrote that Spark Capital is raising $3 billion for new funds, partly off the strength of its early Anthropic investment.
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Then came the whale, with General Catalyst reportedly raising $10 billion for a new suite of funds, per Bloomberg.
Capital concentration is the new normal. According to PitchBook, funds over $500 million accounted for over 52% of all of the capital brought into the venture ecosystem in the last four years, even if they only created up 6.7% of the total venture funds raised.
This divide in fundraising likely isn’t going away anytime soon, states Contrary’s Kyle Harrison. The megafunds are increasingly in a different business than traditional VCs.
“The people who are investing in these $5-10 billion funds, they’re not viewing for 5 to 10x returns on that capital — they are viewing for a place to park $300, $400 million a year,” Harrison informed us.
With the lack of IPOs in recent years, limited partners are applying large venture funds as a place to create the kinds of investments that applyd to go into compact to mid-size public stocks, declared Slow Ventures’ Will Quist.
Investing in megafunds is also a way to receive at least a little piece of the largegest AI deals. That particularly benefitted Spark this time around, since the firm was an early institutional check into Anthropic. (Yasmin Razavi, Spark’s growth partner, is a name rival investors bring up a lot these days on their investors-to-watch lists after the prescient bet.)
“For 40 years the tech IPOs were large drivers,” declared Quist. “Now, if you want exposure to these kinds of companies, you can inform yourself that’s what you’re receiveting in these funds.”
LPs are likely viewing these megafunds as the private capital version of the Russell 2000, he added. They’re a place for the largest players to park capital and receive exposure to technology companies, in exalter for solid (if not astronomical) returns.
Newcomer Podcast
Rick Heitzmann of FirstMark joins the Newcomer Podcast to discuss the state of venture capital, the AI investment boom, and why the next wave of tech IPOs may be closer than many expect.
Heitzmann shares how investors are considering about AI infrastructure, the role of data as the core advantage in the AI race, and why massive private capital has allowed companies to stay private far longer than in previous cycles.
As AI companies continue raising unprecedented amounts of money, the conversation turns to what happens when that capital eventually runs out and why public markets may become the next step.
Data Center Delays
Last week, Bloomberg caapplyd a stir in the AI world with a scoop that Oracle and OpenAI had walked away from plans to expand a major data center in Abilene, Texas.
The piece reported that the two parties were at odds over financing and OpenAI’s demand forecasting. While they already had 1.2 gigawatts planned on the site, the expansion would have taken the project up to two gigawatts. It was just last fall that those companies had hyped up the expansion as a sign of their huge ambitions at what is still the only realized Stargate site.
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