HKMC

Inspired by this op-ed by Mike Bloomberg, we wrap our week with a perspective on American innovation in defense. As many of us know, the internet, GPS, prosthetics, cybersecurity, are just a few of the myriad innovations invaluable to us that came out of military research. Now, the U.S. defense sector is experiencing a renaissance, driven by unprecedented collaboration between the United States Department of Defense, intelligence agencies, and Silicon Valley. This resurgence is highlighted by: • Defense tech startups raising $7.2 billion in 2023, a 30% increase from 2022 • The Central Intelligence Agency's IQT (In-Q-Tel) investing in 60+ startups in 2023 • DoD's Defense Innovation Unit (DIU) awarding $1.3 billion in contracts to commercial tech firms Bloomberg is the chair of the DIU, and emphasized in the op-ed the critical need for tech talent in modernizing defense systems. With 40% of DoD's civilian tech workforce nearing retirement, he advocates for competitive salaries and expanded programs like Cyber Corps. Bloomberg notes that in the 1960s, DoD accounted for 33% of global R&D; today, it's only 3%, while U.S. businesses now account for 70%. Key figures & organizations driving this transformation include: • Doug Beck, head of DIU, leveraging his Apple VP experience • Nand Mulchandani, CIA's first CTO, with 25+ years of Silicon Valley expertise • Trae Stephens, chairman of Anduril Industries and partner at Founders Fund • Google partnering with DoD on AI projects • Amazon Web Services (AWS) Services providing cloud infrastructure for defense agencies • Microsoft working closely with the Pentagon on various initiatives • Andreessen Horowitz's @American Dynamism fund • Lux Capital backing startups like Anduril and Shield AI • Shield Capital investing at the intersection of tech and national security Such collaborations aim to overcome cultural barriers and accelerate tech adoption in AI, cybersecurity, and autonomous systems. As we enter a decade of intense technological competition among nations, this partnership between defense and tech sectors is crucial for maintaining America's edge in national security and innovation. (Hat-tip also to an informative book-talk organized by Bloomberg Beta and Shield Capital to discuss this topic.) #DefenseTech #Innovation #NationalSecurity #SiliconValley

In 2023, the US had ~3400 VC firms. In 2020, that number was ~2800. So, ~600 new firms were formed in those 3-4 years. That is a lot of venture firms. As costs to launch tech companies come down, trajectories for profitability get longer, and the number of VCs goes up, raising (+ deploying) capital grows more sophisticated and competitive, requiring ever more patience. Venture is a lo(oo)ng game; those that win know they're signing up for 7-10 years for (realizable) proof of victory. Just in the past 45 days, we at HKMC have talked with 7 emerging managers raising their first / second funds, totaling $300MM+. Each of their journeys, goals, and drive, is compelling, and different. Inspired, we share a few recurring observations from our own journey as prior founders and current investors (as angels & LPs). 1. Diversify Your Limited Partner Base A diverse LP base not only provides stability but also enhances your fund’s credibility and reach. Engaging with a variety of LPs, such as institutional investors, family offices, and high-net-worth individuals, helps mitigate risk and ensures that your fund is not overly reliant on any single source of capital. In 2023, the number of VC deals was above 25,000, highlighting the importance of diversification in this competitive environment (Source: World Intellectual Property Organization – WIPO, Refinitiv). 2. Offer Attractive Terms to First Movers The first close is critical for an emerging fund. To entice LPs to be first movers, offer them favorable terms that reward their early commitment. This might include reduced management fees, carry preferences, or co-investment opportunities. Data indicates that early LPs often receive preferential terms to offset the increased risk they take (Source: Visible.vc). 3. Use Initial Closes and Deals to Build Momentum Having a solid first close and a few initial deals in place can create a sense of momentum and urgency for other potential investors. LPs are often more eager to invest when they see that the fund is already active and making progress. For example, warehousing deals before the fund’s official launch can demonstrate your ability to source and execute investments effectively, which can help build confidence among prospective LPs. 4. Build Long-Term, Trust-Based Relationships The venture capital industry is cyclical, and relationships with LPs should be nurtured over the long term. It’s crucial to be a true partner to your LPs, maintaining open and honest communication and showing genuine commitment to their interests. Avoid the temptation to impose onerous terms when markets are favorable; focus instead on building trust and demonstrating that you value the partnership beyond financial transactions. We continue to learn from the VC community and from the insights of many investors and allocators - Cindy Bi, Soumitra Sharma, Charles Hudson, Jamie Rhode, CFA, and Ed Stubbings, to list a few.

We are fans of Peter Walker at Carta. Here’s another insightful post from him, on post-money valuations in 2024. We present a summary of the chart, and a few other takeaways from our research. - Series A startups predominantly fall under the $50M mark, with 50% in this category and a median valuation of $52M. - Series B firms show substantial growth, with 41% valued between $100M-$250M, reflecting a median valuation of $140M. - Series C valuations diversify, with 32% in the $100M-$250M range and 23% reaching $250M-$500M, resulting in a median valuation of $238M. - Series D sees a significant leap, with 32% surpassing the $1B mark and a median valuation of $637M. - Series E+ companies show 64% exceeding $1B, leading to a median valuation of $1.214B. HKMC Research: - Total venture capital funding for software startups is projected to exceed $150 billion in 2024, up from $120 billion in 2023. - The average time from Series A to Series C has decreased to 2.5 years, down from 3 years a decade ago, reflecting increased investor confidence and faster growth trajectories. - Over 1,500 M&A transactions are expected in 2024, highlighting a robust exit environment for high-growth software startups. #startups #venturecapital #mergersandacquisitions

As we wrap-up the week, we are thinking about growing interest from larger companies to launch their own venture funds, particularly in markets outside the US. Today, we present a quick perspective on Corporate venture capital (CVC). CVC has as surged significantly, with global investments reaching $172.4 billion in 2023, despite a decline from $269.6 billion in 2022 . This model is particularly prominent in the United States, China, Germany, Korea, Japan, India, and the GCC (Gulf Cooperation Council) region. In the US, companies like GV (Google Ventures) and Intel Capital lead, investing in high-growth success stories like Uber and Airbnb. Google Ventures' early investment in Uber saw exponential returns (20x as of 2019). Intel Capital has invested over $12 billion in more than 1,500 companies globally. China’s Tencent and Alibaba Group invested billions in AI and fintech, with Tencent's backing of JD.COM transforming it into a leading e-commerce platform. Germany’s Siemens and Bosch focus on Industry 4.0 technologies, with Siemens’ Next47 fund managing €1 billion in investments. Korea’s Samsung Ventures has invested in over 500 companies, including Whisk and DeePhi 北京深鉴科技有限公司. Japan’s SoftBank Investment Advisers' Vision Fund dramatically impacted the global startup ecosystem, investing over $100 billion in companies like WeWork and ByteDance. In India, Reliance Industries Limited's Jio and Infosys Emerging Technology Innovations Fund are key players, with Reliance investing over $50 billion in its digital ecosystem and Infosys focusing on tech startups. The GCC region, led by Aramco Ventures and Mubadala, has seen increased CVC activity. Saudi Aramco Ventures manages over $1.5 billion, investing in energy and tech sectors. Mubadala Ventures, with $15 billion in assets under management, invested in companies like C3 AI.ai and Virgin Hyperloop. CVC-participating investments in the Americas were $96.7 billion in 2023, with the Asia-Pacific region at $44 billion, and Europe at $28.2 billion. Despite success stories, CVC faces challenges like balancing strategic and financial goals, potential conflicts with core business units, and adapting to the fast-paced startup ecosystem. Looking ahead, the future of CVC appears promising, but requires strategic finesse. Companies are expected to increase allocations to venture arms to stay competitive and innovative, leveraging their investments to drive growth and technological advancement. However, they must navigate complex regulatory landscapes, manage potential conflicts with core business units, and ensure alignment with overarching corporate strategies. The emphasis will likely be on sectors like AI, fintech, and cleantech, reflecting broader industry trends. As firms refine their approaches, the CVC landscape will continue to evolve, offering substantial opportunities for growth and collaboration in the global innovation ecosystem. #venturecapital #startups #ai #fintech #cvc

From Napkin Sketches to Global Impact: Our Philosophy We kickoff the week by highlighting a simple but powerful representation of our philosophy, created by our founding partner Hanz Kurdi. The napkin sketch—a quintessential symbol of #SiliconValley ingenuity. Some of the most transformative ideas, like the inception of Southwest Airlines, began as simple sketches on napkins. Similarly, the famous Apple logo, Virgin logo, and the Nike logo were all conceptualized in their early stages through simple, yet impactful sketches. This tradition of distilling big ideas into simple sketches is something we honor in our own approach. Our guiding philosophy is rooted in over 40 years of combined experience in Silicon Valley as startup founders, investors, and operators. Our journey spans diverse verticals such as high-tech, media, ed-tech, food-tech, and SaaS, across geographies including the USA, India, Canada, Africa, LATAM, and Europe. This extensive background encompasses successful exits, innovative product launches, strategic leadership roles, and advising the next generations at Stanford University & University of California, Berkeley. We have driven growth and innovation through pivotal roles in startup accelerators, international market access programs, and executive coaching. Our expertise includes scaling AI-powered healthcare platforms, leading distributed workforce planning technologies, and managing customer success initiatives for high-impact startups. We leverage our track record of designing leadership programs, facilitating executive coaching, and fostering innovative cultures across three continents. Our philosophy is to leverage this vast expertise to support global ecosystems, particularly focusing on emerging VC fund managers, VC portfolios, and entrepreneurs. We believe that innovation thrives when nurtured with a balance of strategy, tactical execution, and a deep understanding of local cultural nuances. Our approach involves providing both macro-level guidance and tailored micro-level support, ensuring our clients—from global organizations to hyper-local upstarts —receive the precise assistance they need to succeed. By embracing the diversity of our experiences, we aim to drive meaningful change and build a thriving global community of innovators. Here's to a productive week and beyond, from our napkin sketch to yours.

The Continued Rise of Emerging Market Entrepreneurship This weekend, we are reflecting on the explosive growth of entrepreneurial ecosystems beyond traditional tech hubs. Key trends we're observing: 1. Fintech Revolution in Africa: Mobile money solutions are driving financial inclusion, enabling millions to access banking services previously out of reach. A standout example is Chipper Cash, which offers free cross-border payments and has rapidly expanded across the continent, facilitating financial transactions for individuals and businesses alike. 2. E-commerce Boom in Southeast Asia: Innovative last-mile delivery solutions are overcoming geographical challenges, ensuring that products reach even the most remote areas. Companies like Ninja Van are revolutionizing logistics with their efficient and reliable delivery services, supporting the region's burgeoning e-commerce market. 3. Cleantech Innovations in Latin America: Sustainable solutions are being developed to address urban development challenges, focusing on renewable energy and waste management. A notable player is Kingo, which provides off-grid solar energy solutions to rural communities, reducing reliance on traditional energy sources and promoting environmental sustainability. 4. Health-tech Advancements in India: AI-driven diagnostics are making healthcare accessible in remote areas, bridging the gap between urban and rural healthcare services. For example, SigTuple uses artificial intelligence to assist in medical diagnostics, offering affordable and accurate healthcare solutions to underserved populations. These ecosystems are not just adopting global best practices but are also creating unique solutions tailored to local needs and constraints. Emerging markets are proving to be hotbeds of innovation, with startups addressing critical issues and driving economic growth. As we enter a new era of global innovation, how is your organization tapping into these diverse entrepreneurial landscapes? #GlobalEntrepreneurship #EmergingMarkets #InnovationEcosystems #India #Africa #LATAM #Asia

We come across cultural nuances that play a pivotal role in shaping the entrepreneurial landscapes all the time. This is how cultural imposition influences entrepreneurship in Korea, Japan, India, and the Gulf Coast countries. Korea: Innovation Amidst Tradition Korea's startup ecosystem thrives on a blend of technological prowess and a strong Confucian influence, emphasizing education, respect for hierarchy, and community cohesion. Major players like Coupang and (주)우아한형제들 (Woowa Bros.) Brothers are revolutionizing industries and fostering a collaborative spirit essential for startups. As of 2023, Korea's startup investment reached a remarkable $4.5 billion, reflecting the nation's commitment to nurturing innovation while respecting its cultural heritage. Japan: Balancing Risk and Stability Japanese culture, deeply rooted in risk aversion and long-term planning, presents unique challenges and opportunities for startups. Startups like Mercari, Inc. and Preferred Networks, Inc. are at the forefront, driving innovation and encouraging a more dynamic entrepreneurial culture. In 2022, Japan saw a 15% increase in startup funding, totaling approximately $2.8 billion. This steady growth highlights the careful balance Japanese entrepreneurs strike between innovation and cultural expectations. India: The Spirit of Jugaad India's entrepreneurial scene is driven by the spirit of 'Jugaad' - a frugal, flexible approach to innovation. Cultural diversity and a burgeoning middle class contribute to a vibrant startup ecosystem. Flipkart and Ola are key players, driving the e-commerce and mobility sectors, respectively. In 2023, India witnessed a staggering $14.5 billion in startup investments. The cultural emphasis on adaptability and resourcefulness is a key driver behind India's entrepreneurial success. Gulf Coast: Tradition Meets Modernity In the Gulf Coast countries, traditional values intersect with a forward-looking vision. Startups like Careem and Anghami are leading the way in transportation and digital entertainment. Saudi Arabia's Vision 2030 and the UAE's strategic initiatives are prime examples of how the region is embracing innovation. In 2023, the Gulf Coast region saw over $3 billion in startup investments, underscoring a significant shift towards entrepreneurship while respecting cultural and religious norms. Cultural imposition significantly shapes the entrepreneurial ecosystems in these regions. Understanding and navigating these cultural dynamics is crucial for international startups aiming for success. By leveraging local cultural strengths and adapting to unique market conditions, entrepreneurs can unlock unprecedented opportunities. #gcc #India #Korea #Japanmn #culture #startups #venturecapital #siliconvalley

We kickoff this week with our perspective on startups adopting a global mindset from inception, irrespective of their geographic origin. This global is vital for survival and growth, whether a startup is based in India, Southeast Asia, the GCC, Europe, or the US. This need for a globally relevant strategy is driven by international mobility of talent and availability of capital, and the increasing interconnectedness of markets. Innovaccer, Fenergo, Grab, Stripe, Zomato, and Flutterwave are just some of the many amazing examples. According to Startup Genome's 2021 Global Startup Ecosystem Report, 45% of startups now have customers in multiple continents from their first year, up from 34% in 2017. CB Insights reports that cross-border venture capital investments reached $79 billion in 2020, accounting for 30% of all VC deals globally. Governments are also recognizing the importance of supporting startups in their global focus. Enterprise Ireland provides funding and resources to help Irish startups scale globally. Similarly, the Startup India initiative offers benefits such as tax exemptions, funding support, and international market access programs. Cultural differences significantly impact global expansion strategies, especially in terms of the value of money and "fiscal trauma." Founders from developing countries face different financial pressures compared to those from developed countries. A founder from India might prioritize cost efficiency due to economic instability, whereas a founder from the US might be more aggressive in scaling due to a stable financial environment. Fundraising has also become a global endeavor. Venture capital is increasingly crossing borders, with firms like Sequoia Capital and Accel Partners actively investing worldwide. Sequoia Capital launched a global fund in 2022 to invest across geographies, and Y Combinator now runs fully remote programs, attracting founders globally. SoftBank Vision Fund invests globally, while A16Z GAMES launched a $500M global fund. 500 Startups operates worldwide, and Techstars has expanded to over 30 cities globally. Atomico, based in London, invests across Europe. It is imperative for startups to think globally from inception is now more critical than ever. This shift isn't just about expanding markets; it's about survival and relevance in an increasingly interconnected world. This global perspective requires a delicate balance: maintaining a strong local presence while adapting to diverse international markets. It demands cultural intelligence, regulatory agility, and the ability to navigate complex global ecosystems. Successful startups of the future will seamlessly blend local insights with global ambitions, leveraging technology to bridge geographical and cultural divides. #gcc #India #startups #venturecapital #siliconvalley

As the United States celebrates its 248th Independence Day, it is worth noting how the spirit of innovation continues to shape the vast nation. Peter Walker brings us another insightful view into American entrepreneurship, which remains resilient and geographically diverse, despite economic challenges. From cities to small towns, startups are emerging across the country. This widespread activity not only contributes to economic growth but also brings opportunities to a variety of communities. The Fourth of July reminds us that the ability to innovate and pursue new ventures has long been part of the American experience. Today's founders are continuing this tradition of independence and creativity. This entrepreneurial landscape raises some interesting questions: 1. How might we support founders in less traditional startup locations? 2. What advantages could these diverse areas offer to new businesses? 3. How does this geographic spread of startups affect regional economies? While the data is encouraging, it's important to recognize that starting and scaling a business remains challenging, regardless of location. As we look to the future, fostering an environment that supports entrepreneurship across the country will be crucial. This may involve rethinking traditional models of funding, mentorship, and resource allocation. By doing so, we can help ensure that the spirit of innovation continues to thrive in communities large and small, contributing to a more dynamic and inclusive economy. We at HKMC are proud to be contributing to this narrative. 🇺🇸 #July4th #Entrepreneurship #Innovation #EconomicDevelopment

We continue our spotlight on the incredible depth and breath of #EmergingManagers in VC, this time looking at their activity across Europe, the Middle East, India, and Southeast Asia. In Europe, where VC investments hit €49 billion in 2023 (Atomico), new managers are carving out niches. While giants like Atomico and Balderton Capital dominate headlines, firms like Moonfire and BACKED VC are making waves with sector-specific strategies. 42% of European funds raised in 2023 were by first-time managers (PitchBook). The Middle East saw $3.1 billion invested in 2023 (MAGNiTT), with emerging managers playing a crucial role. Firms like Nuwa Capital and VentureSouq are challenging established players like STV. In a region where 38% of investors are new to VC (Middle East Venture Partners (MEVP) report), fresh perspectives are driving innovation. India's $24 billion VC ecosystem (Bain & Company) is experiencing a micro-VC revolution. While Peak XV Partners and Accel in India lead mega-rounds, firms like WaterBridge Ventures and Stellaris Venture Partners are backing early-stage innovators. Micro-VCs participated in 60% of seed-stage deals in 2023 (Indian Venture and Alternate Capital Association (IVCA)). Southeast Asia's $6.5 billion VC market (Cento Ventures) is seeing a surge of local managers. Alongside established firms like Golden Gate Ventures, newcomers such as Iterative and Foxmont Capital Partners are gaining traction. First-time fund managers raised 22% of total capital in the region in 2023 (Preqin). Cross-regional trends for emerging managers include: 1. Sector specialization: 65% of new funds focus on specific industries (SVB Capital). 2. Operator-led funds: 48% of new managers have entrepreneurial backgrounds (Kauffman Fellows). 3. Alternative structures: 30% of emerging funds use non-traditional models like rolling funds (AngelList). Emerging managers are innovating in fundraising and LP attraction. Many are leveraging novel fund structures like rolling funds, which allow for continuous capital raising. AngelList reports a 215% year-over-year increase in rolling fund launches. Others are using tokenization and blockchain technology to fractionalize fund ownership, with 12% of new funds exploring this avenue (Blockchain Capital survey). To attract LPs, emerging managers are offering creative terms. Some provide fee discounts for early commitments, while others offer co-investment rights. A growing trend is the "founder-friendly fund," where managers pledge a portion of carried interest to portfolio company founders, aligning incentives across the board. 78% of emerging managers now also use real-time portfolio monitoring tools, providing LPs with deep visibility into fund performance (Carta). These innovative approaches are redefining the rules of the game, democratizing access to capital and deal flow, and potentially reshaping the future of global innovation finance.