In the past 10 years, numerous unicorn startups have quickly become household names in a short time, like Meta, Uber, Airbnb, and many more. Behind the scenes, these startups’ successes have a common denominator — the powerful support of VCs like a16z and Sequoia Capital. However, as these success stories spread via word-of-mouth, a growing number of hedge funds have begun developing a deep interest in this space.
In fact, two out of the three top investors with the most unicorns under their belt are hedge funds: Tiger Global and Coatue. While these types of funds typically invest in late-stage companies, they’ve recently begun investing in early-stage startups given their potential outsized capital returns. With an aggressively fast and encompassing investment strategy, these hedge funds have impressively seized the VC market with flying colors.
Hedge funds aside, traditional VC investors are facing growing competition from new and upcoming trends as a result of the recent democratization of investing. In addition, the sudden rise of Web3’s “decentralization” and blockchain technology has further democratized access to equity investing. Case in point, Web3 companies are currently choosing to fundraise with tokens over traditional means. There are even DAOs that specialize in investing, further challenging the existing appearance and model of modern-day VCs.
In order to adapt to this changing landscape, VCs have already begun evolving to remain competitive by not only focusing on investment performance but also adding value to themselves. One popular trend among VCs recently is establishing brand differentiation through content and online presence. For example, in many VCs, employees starting from partners to even interns have their own social media accounts to build brand recognition.
VCs have also begun implementing changes to their fund structures and capital deployment strategies. While the most important objective of any VC is to reel in the best possible portfolio for their LPs, VCs are traditionally limited by a determined fund period, meaning they can potentially miss out on investment growth after a fund’s cycle is complete. However, Sequoia Capital famously announced last year that they have revamped their strategy by eliminating fund life limitations, aiming to capture more growth potential over long stretches of time. Taking it a step further, a16z is one of the earliest VCs to become a Registered Investment Advisor in order to expand their investment strategy to include upcoming, nontraditional industries like Web3 and crypto.
To date, the value that VCs provide extends beyond mere capital investments. Particularly for early-stage startups, VCs are instrumental in helping founders take their first steps in establishing businesses, recruiting talent, finding initial users, connecting founders to exclusive networks, and offering insights and strategy recommendations. However, under changing times and trends, VCs themselves need to innovate as well. Investing in themselves today will likely be the biggest investment they can make for both startup founders and their LPs.