Business & Legal Developments
Friends,
In last month’s newsletter, we reviewed the landscape of artificial intelligence, mergers and acquisitions, and financing.
This month, we are analyzing venture capital fund deployment pacing and how it impacts eventual returns.
Investor interest in private markets has surged over the past decade, with venture capital emerging as a particularly attractive asset class for its potential to deliver high-growth opportunities and robust returns. Between 2016 and 2022, VC fundraising more than tripled, reaching $185.2 billion. However, alongside this expansion, the variability in fund managers’ capital deployment strategies has become a focal point, with the pace of deployment significantly influencing fund performance and LP outcomes.
Funds that deploy capital rapidly in their first year often differ markedly in performance compared to those that adopt a more measured approach. Over the past 20 years, portfolios holding slower-deployment funds generated a net internal rate of return (IRR) of 11.6%, outperforming fast-deployment portfolios, which yielded 10%. This trend is visualized in the VC Horizon IRR by First-Year Deployment Speed chart below, where slow-deployment funds demonstrate superior returns over multiple time horizons. However, market conditions play a critical role, as fast-deployment funds have occasionally outperformed during recovery phases when growth opportunities are abundant.
Market cycles and economic conditions greatly influence deployment strategies. For instance, during the 2007–2009 Global Financial Crisis (GFC), slower deployment protected funds from downside risks associated with heightened volatility and constrained liquidity. On the other hand, in the subsequent recovery years of 2010–2014, faster deployment strategies often capitalized on the resurgence of market confidence, enabling funds to secure higher returns. These contrasting outcomes underscore the importance of aligning deployment pacing with prevailing economic conditions.
Recent years have presented unique challenges for venture capital, as the capital deployment boom of 2020–2021 gave way to tighter liquidity and rising interest rates in 2022. This shift has led to slower deployment and greater selectivity by fund managers, mirroring historical downturns. The resulting capital supply-demand imbalance has created both risks and opportunities, with fund managers increasingly focused on long-term fundamentals rather than the aggressive growth strategies that characterized previous high-liquidity periods.
The relationship between deployment speed and fund performance highlights critical insights for LPs evaluating venture investments. By understanding how pacing strategies align with market conditions, LPs can make more informed decisions to optimize returns while managing risk. The interplay of historical trends, economic cycles, and fund strategies continues to shape the landscape of private market investing.
As always, do not hesitate to contact us if we can help you brainstorm a legal or business challenge you are facing or connect you to a potential investor, professional, or entrepreneur.
Spotlight on Venture Revolution
2024 Venture Revolution Conference | November 7, 2024
Foley recently sponsored the Venture Revolution Conference in San Francisco, focusing on the future of AI and venture capital. Organized by Kayvan Baroumand (SignalRank and Innowise), the event featured prominent Silicon Valley figures, including Louis Lehot, who led a fireside chat. The discussions covered the rapid evolution of AI and its growing impact on various industries. The speakers highlighted the rise of the AI agent economy and shared insights into how the firm utilizes AI, particularly through its “Theme Machine” to identify emerging investment trends.
Other key discussions included the comparison of AI to the early days of the internet, pointing to its potential to create tailored products for specific market needs. Max Gokhman (Franklin Templeton) emphasized the importance of explainable AI for both risk management and compliance. Lehot noted the growing role of AI in legal practices, improving efficiency and accuracy, while also predicting that the incoming presidential administration would likely focus on deregulation rather than heavy regulation. He also discussed the potential for state-level legislation, particularly in California, to regulate AI technology.
The conference also explored the venture capital industry’s evolving role in funding AI startups. Reema Khan (Green Sands Equity) highlighted the cost-saving potential AI offers to larger companies, while Eric Benhamou (BGV) explained how his firm uses AI to streamline deal flow and maintain accountability. Panelists also discussed seed funding dynamics in the AI sector, with Gené Teare (Crunchbase) noting strong investment at this stage, despite tightening in Series A rounds. Investors like Peter Walker of Carta emphasized the importance of planning investment rounds carefully, with timelines stretching up to 36 months between fundraising efforts. The event underscored the transformative potential of AI across industries and the expanding opportunities for investors.
Events
Upcoming:
JPM — An Evening With Friends | January 13, 2025
In connection with the J.P. Morgan Healthcare Conference, Foley is co-hosting an evening of networking on Monday, January 13, at SHACK15 in the iconic Ferry Building. This event will bring together colleagues and entrepreneurs in Life Sciences at a vibrant space designed for innovators and change-makers, with stunning Bay views as the backdrop.
Silicon Slopes Summit 2025 Networking Reception | January 16, 2025
As Foley continues to support the Silicon Slopes Summit, our Innovative Technology sector has teamed up with Trustpoint.One, Silicon Valley Bank, Ampleo, and Tanner LLC to keep the conversation going after day four. Join us for an exclusive networking reception at Van Ryder, Salt Lake’s premier rooftop bar located at the Le Meridien hotel in the heart of downtown.
Recent:
Post–Election Insight: What Do Election Outcomes Mean for the Country, Your Industry, and Your Company? | November 8, 2024
Foley recently hosted a webinar offering expert analysis on the political shifts following the 2024 U.S. elections. The session covered critical topics such as the impact of election results on business strategy, regulatory changes, and legal considerations across various industries. Panelists provided actionable insights on navigating the evolving political and regulatory landscape in the coming months. Attendees gained valuable perspectives on how to prepare for potential changes in federal and state policies. A recording of the webinar will be available for those who were unable to attend.
Legal Horizons: Navigating the Latest Trends and Challenges | November 12, 2024
On November 12, legal professionals gathered for a pivotal event that explored the latest trends shaping the legal landscape. Expert speakers addressed emerging challenges and opportunities within the industry, while attendees participated in engaging panel discussions, took advantage of networking opportunities, and gained insights into innovative practices to enhance legal operations. As the legal field continued to evolve, the event aimed to equip participants with the knowledge and strategies necessary to thrive in a rapidly changing environment.
Executing Audit Committee Oversight in Turbulent Times: Risk Management and Financial Reporting | November 19, 2024
Foley recently sponsored this dinner hosted by the NACD Northern California Chapter. Foley partners Sandy Winer, Lauren Valiente, and Nick O’Keefe were joined by Stephen Parker and Claudia Montgomery from PwC to walk through hypotheticals and to share insights in a tabletop exercise with some of the region’s most forward-thinking board directors.
Innovation in Action: Technology, Health Care & Life Sciences Investor Insights | December 3, 2024
This recent event provided an opportunity to host clients and contacts in our new office space while showcasing the firm’s sectors. It featured an engaging fireside chat on the latest trends and smart investments at the intersection of AI and health technology. Antoinette Konski and Natasha Allen led the discussion, joined by Jonathan Norris, Managing Partner at HSBC Innovation Banking. This conversation offered valuable insights into the future of these rapidly evolving fields.
Innovation In Action: Revolutionizing Manufacturing and Energy through Autonomous Transport | December 5, 2024
This event provided an opportunity to host clients and contacts in our new office space while showcasing the firm’s sectors. Attorneys Louis Lehot and Brian Wheeler hosted a fireside chat with Stanford Professor Ilya Strebulaev and Gautam Narang, CEO & Co-Founder of Gatik. Together, they engaged in a dynamic conversation exploring the latest advancements in autonomous vehicles, their intersection with energy efficiency, and the broader implications shaping the tech industry.
Thought Leadership
Why Korea Is Gaining Prominence for M&A Activity
Korea, known for its rich culinary heritage, fascinating history, and renowned hospitality, has long rendered Seoul a favored travel destination. Today, it stands not only as a cultural and historical beacon but also as a vibrant hub for global business, mergers, and acquisitions. With a deep base of well-established and diversified global industrial conglomerates, Seoul is a hotbed for outbound and inbound business, with many countries jostling for its attention. In particular, there has been a noticeable surge in Korean M&A activity in recent years. This article was authored by Louis Lehot and Brian Wheeler.
M&A Market Picking Up Steam: A Look at Q3 Activity
There is finally some very good news in terms of M&A activity, with PitchBook reporting that the “M&A recovery is now hitting its stride.” In their Q3 2024 Global M&A Report, PitchBook data shows that in the first three quarters of this year, there was a marked acceleration in global M&A activity, with an impressive 27.6% jump in deal value and 13.3% growth in deal count over last year. This article is authored by Louis Lehot.
Key Takeaways From TEDAI 2024
Foley recently sponsored TEDAI 2024 in San Francisco, drawing industry leaders and change makers to share meaningful new ideas in the rapidly developing area of artificial intelligence (AI). Four Foley partners, Natasha Allen, Monica Chmielewski, Christopher Swift, and Louis Lehot participated in panel discussions throughout the event.
European Medtech Companies: Why a U.S. Centric Patent Strategy is Essential for Long-Term Success
As European medtech companies look to expand their presence in the U.S. market, understanding the intricacies of U.S. patent law becomes increasingly important. The U.S. market, being the largest for medical technologies, presents both opportunities and challenges. Many European companies may find that their current European-centric patent portfolio development strategy may not fully align with the expectations and requirements of U.S. investors, strategics, or other potential acquirers, nor align with U.S. patent practice in front of the U.S. Patent and Trademark Office (USPTO) or U.S. patent law. This article is authored by Shabbi Khan.
Épistémê Entrepreneur With Kamyar Maserrat
Kamyar Maserrat joined the Épistémê Entrepreneur podcast to discuss his journey from civil engineer to intellectual property lawyer in the world of quantum computing and artificial intelligence, exploring the intersection of innovation and value creation.
Private Equity Dives into Niche Sports
Private Equity investors have had a long-standing interest in the sports world, investing in almost every major professional sports organization from soccer to now football. In fact, PitchBook data shows that firms have almost doubled their investment in sports in the past decade, investing more than $10 billion through Q3 of this year alone. But, aside from major league teams, PE firms are now setting their sights on more niche areas of the sporting world, increasingly investing in less traditional sports. This article was authored by Lyman Thai and Brian Wheeler.
Additional Articles of Interest
Louis Lehot Assesses 2024 Election Result, Prospect of Tech Deal Resurgence
Federico Goudie on Brazil as Key Market — ‘It just happens that Miami is a smart place to be’
European Medtech Companies: Why a U.S. Centric Patent Strategy is Essential for Long-Term Success
Health & Hype Podcast: A Deeper Dive into DEA Telemedicine Controlled Substances
Louis Lehot Explores Costs for Startups
Authors
Louis Lehot
Partner, Venture Capital
Silicon Valley / San Francisco / Los Angeles
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