Join The Information and NYSE on October 9 during San Francisco Tech Week for a cocktail reception and discussion with the New York Stock Exchange’s head of market development, Erik Peña, Carta CFO Charly Kevers and The Information’s Katie Roof.
Greetings from Los Angeles, where I’ve taken up a new residence after a cross-country road trip from New York.
During a tour of a defunct U.S. Steel mill in Pittsburgh and a visit to the uranium boom-and-bust town of Moab, Utah, I spent time thinking about the technology that has reshaped national security, industrialization, energy and geopolitics. That sounds a lot like what I want to cover from my new home, which is not far from Anduril’s Orange County headquarters, SpaceX’s Hawthorne Falcon 9 factory and the raft of defense and industrial startups that have taken root in El Segundo, Calif.
I’m going to spend more time reporting on defense tech and aerospace here. This morning, Katie Roof and I scooped that Stoke Space, an up-and-coming space startup trying to remake the economics of launches, is in talks for funding that would value it at nearly $2 billion. My colleagues’ coverage in recent days also explains my interest: Miles Kruppa revealed that Founders Fund was sitting on a more than $19.5 billion gain from its investment in SpaceX since it started investing in 2008—more than its total assets under management! Peter Thiel, the firm’s founder, lives in Los Angeles.
And Anduril CEO Brian Schimpf told Jessica Lessin on TITV last week that its revenue would double—but it wasn’t yet making money. “Growing a hardware company at the rate we’re growing at turns out to be really expensive,” he said.
There’s a fascinating business story here about the reinvention of both the tech industry and the national defense complex. But there’s also something broader in the air: realpolitik. Tech is getting built and funded with an eye toward serving national interests and, importantly, getting close to power. Ideals only take you so far.
The artificial intelligence race is a big part of the story I’ll be covering, too. AI has transformed national priorities and capital markets, so scoops like ours today on Oracle’s thin gross profit margins have greater significance than just a typical inside-the-numbers story. I have a million more questions I’m trying to answer on how long the boom lasts, what new alliances get struck, and how people and businesses are using the technology.
Say hi if you’re in LA, and please reach out if you’re building or investing in these areas, or if you just think there’s an important story to tell. This is hard tech, and I have a lot to learn.
Now on to the rest of the newsletter…
Concentrated Late-Stage Bets
Top late-stage private tech investors increasingly are leaning into the idea that it’s best to not spread your bets too widely.
I was struck reading Miles’ story on Founders Fund Monday on just how much the firm has moved toward concentrating investments in its growth funds, where it makes its more mature startup bets.
Its partners’ comments at the firm’s annual general meeting last month suggest it would invest $460 million on average in each of the 10 companies in its latest, third growth fund. That compares to $225 million on average in each of the 15 companies from its previous growth fund, and $55 million in each of the 31 companies out of its first growth fund.
Miles reported that concentration has paid off so far, with much stronger returns in the second growth fund compared to the first. (There’s still a long way to go, of course. The second fund is only a few years old.)
Other high-profile venture capital firms, including Thrive Capital and Dragoneer Investment Group—two of OpenAI’s largest investors— have gone aggressively down that path as well. And it’s also true of some tech-focused growth equity firms. General Atlantic, for instance, told its limited partners earlier this year that it was “concentrating our focus in fewer companies, with an average check size of $210 million for new investments over the last year compared with $88 million in 2022.”
Higher portfolio concentration runs counter to VC firms’ typical strategy of spreading their bets around. It increases the importance of diligence, as well as the risk that any one company could blow up and wipe out fund returns. Limited partners, in turn, should be asking tougher questions of the firms concentrating these bets.
But it seems increasingly like a defensible strategy given the growing number of publicly traded tech giants exceeding $1 trillion market caps, and venture-backed private companies with valuations soaring into the hundreds of millions of dollars.
Investors’ winners are getting bigger, so it makes sense to push in those chips on a smaller number of them.
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