Rob Biederman
As we turn the page to 2025, my colleagues at Asymmetric Capital Partners and I are optimistic about the growth and innovation we will see in the coming year. We do not believe that these benefits will be uniformly shared, but there will be clear winners and losers.
On the bright side, we can expect truly valuable AI companies to outperform and thrive while flashy, hype companies languish. At the same time, we predict a rise in vertical integration efforts and efforts to pursue buy-and-build strategies for markets that require technology rationalization.
We also expect limited partners investing in technology to continue to migrate to capacity-constrained and revenue-focused startups (vs. fee-optimized asset aggregators). Finally, we see the beginning of the end for 2020-2021’s glut of overfunded growth companies.
artificial intelligence
It’s no secret that AI funding rounds and dollars have exploded since the release of GPT-4. As many would say, this moment was far from the beginning of commercial AI.
But for many investors, this release marked a turning point in the practical application of AI. Although many applications are very convincing, we are often concerned that the hype exceeds the reality. Moreover, for categories that are realistically meaningful, so many competitors are funding it that it is nearly impossible to make average returns convincing in a winner-takes-most market. is.
The available value of a company in any market is constant, and excessive competition in the process leads to increased customer acquisition costs and unnecessary upward pressure on input prices such as computing and payroll.
The privileged few who back the winners in these subsectors will do well, but most venture capital markets end up with one or two breakout companies that capture nearly all of the excess profits. There is no other choice. For these few, the returns may come as a surprise. For others, and after all, in the case of ventures, they are mostly strangers, we expect returns that will disappoint.
vertical integration
There is a gap between the number of vertical end markets where technology can meaningfully improve business (which is very large) and the number of vertical end markets where software can be sold, serviced, and maintained attractively (much smaller) .
This is primarily due to the cost of acquiring small business customers. We at Asymmetric believe there’s a hack here: buying and assembling companies that were supposed to sell software. This works best when the increase in company value from technology integration is approximately the same order of magnitude as the company’s value.
We have implemented this theme in residential pool services, dental spaces, and more. We’re excited to see what other industries will be revolutionized by technology and improved by new ownership in 2025.
Industry capital flows and financing
In 2006, I wrote my junior college thesis on venture capital, “Too Much Money Chasing Too Few Deals.” Unfortunately, 20 years later, the fact remains true that venture is simply an asset class that doesn’t scale.
People analyze the current amount of capital pursuing profits in this sector and consider how many times the existing high-tech GDP it would take for all funds in that sector to achieve the MoIC (multiply of invested capital) promised by the LPs. It turned out that we needed to generate some numbers. The next 10 years.
Of course that won’t happen. As we look at LPs, we hear a consistent refrain that subscale and emerging managers will continue to gain share compared to those that have reached scale where premium returns are no longer possible. I asked.
This is clearly not something that will happen in 2025 alone, but will be a 10-year process, so it is not necessarily different from the parallel process in control-oriented private equity.
ZIRP era sale
Finally, 2025 is expected to be the first year in many years to finally settle the excesses of 2020 and 2021.
Many of these companies have wisely extended their runways, cut costs, and raised money with discounted but uncapped paper money, but eventually nature will take its course.
Companies that continue to be in the red need to cover their losses with new capital from outside, which requires a certain level of valuation. We are concerned that these valuations are often close to the total amount of capital raised to date. As a result, common stock in many of these companies becomes worthless, forcing founders and employees to reset to stay motivated, and further entrenching existing shareholders already diluted by new inbound equity. It will put pressure on you.
For companies that systematically create value for their customers and do so at a reasonable cost, elegant solutions can be arrived at.
Fire sales and even failures are likely to occur for customers who are not particularly valued by existing customers or whose prices are unsustainably low.
In summary, we expect a return to more normalcy in 2025. Ideally, venture investing would return to its core DNA: the artisanal weaving and cultivation of significant innovations. And that some of the industry’s worst impulses – the hype over economics, the hoarding of GP assets, the over-funding of every concept by dozens of players – will eventually be subdued as reality sets in. It will be.
Rob Biedermann is a Managing Partner at Asymmetric Capital Partners, where he invests in and advises early stage companies. Previously, he was co-founder and co-CEO of Catalant Technologies, and currently serves as chairman of the board. He began his career at Goldman Sachs and was a private equity investor at Bain Capital, where he founded Catalant, before attending Harvard Business School. His experience as an entrepreneur and investor provides unique insight into the challenges and opportunities facing today’s startups.
Illustration: Dom Guzman
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