Reflecting on a recent article about a moment of transition in the venture capital industry, Lynn Loacker, Founder and Managing Director of Project W, considers how that transition is well under way and how the next generation of investors is doing things differently.

A recent article in the New York Times noted that the "steady thrum of departures" suggests that venture capital is in "a moment of transition," creating an "opening for new investors to step up." One has to wonder where the author has been the past 10 years. That transition is well under way. Unlike the last generation of investors – almost all white men – the new generation of investors is a more diverse group: people of color, women, and individuals from more diverse socioeconomic and educational backgrounds. And this new generation is already tackling – and overcoming – the challenges the old guard has left in its wake.

The Next Generation of Innovation

While the last generation of investors may have earned their stripes making bets on consumer-facing internet startups, the new generation of investors is investing in startups tackling big problems, such as financial insecurity, climate change, and women's and population health. Solving these problems creates substantial opportunities for attractive returns for these investors and their limited partners.

A Different Approach to Portfolio Construction

The idea of throwing money at a bunch of companies with the hope that one will become a Unicorn is like playing Roulette. And, in any event, as the Times article observes, "[m]any venture funds have also grown so large that owning a stake in a 'unicorn,' or a startup valued at $1 billion or more, is no longer enough to reap the same profits as before." In contrast, a new generation manager of a $35 to $50 million fund who builds a well-constructed portfolio can realistically deliver a 2.5x to 3x return without spending time on the hunt for an elusive Unicorn. There's nothing wrong with that.

Investing in Real Businesses

New generation investors make each investment as if it were the only one. While failed investments are inevitable in venture investing, new generation investors don't embrace a strategy that some percentage of their portfolio companies will fail. They invest with the expectation that all of their portfolio companies will be successful and deliver returns for their investors. A "last generation" investor quoted by the Times stated that "companies today only have one option ... [t]hey have to build a real business." Well, yes. When did that become such a unique concept?

A Hands-On Approach To Supporting Portfolio Companies

New generation investors are committed to support their companies with human capital as well as financial capital. Many are former founders or operators and work directly with their companies to share their expertise and experience. That's possible with a portfolio of dozens but not with a mega-portfolio of hundreds of companies.

At SXSW this year, the Project W team, along with True Wealth Ventures and J.P. Morgan, had the opportunity to co-host a dinner attended by 24 women fund managers. From pre-seed to Series B, these women are writing checks from $250,000 to several million dollars. They are leading rounds and taking board seats. They are investing across sectors such as space, transportation, healthcare, education, fintech, and climate and in technologies like generative AI, blockchain, and new materials.

These women are the next generation of venture capitalists. Many have already built significant portfolios of high performing companies and have raised more than one fund. They approach their work as stewards of their investors' funds and as stewards of the companies in which they invest. Whether or not they invest through a gender or race lens, these investors are backing founders that have been historically underrepresented despite their potential for delivering outstanding returns. These investors did not need an "opening." They have already "stepped up" and they are making a difference across the venture ecosystem.

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