E10: Michael Kim | Founder of Cendana Capital on How Small VC Funds Can Return 200X+

Market Saturation

The venture capital landscape has evolved significantly, with market saturation becoming a key challenge. Michael Kim notes that the number of seed funds has skyrocketed from 15-20 to over 2000 in the U.S. alone, leading to increased competition and changing dynamics in fund management 1. This saturation has resulted in larger seed rounds and more operators and founders creating side funds, altering the traditional venture capital model.

The average seed round, when I started Sendana back in 2010 or eleven, was like a million and a half. And today, at least in our portfolio, the median seed round from our fund managers is 4 million.

--- Michael Kim

The influx of capital and the rise of multistage firms have further intensified competition, impacting pricing and valuations 2.

   

Investment Opportunities

Identifying new investment opportunities in venture capital requires understanding the current economic landscape. Michael Kim highlights that institutional LPs are cautious, often favoring established funds like Sequoia over newer managers due to risk considerations 3. Despite this, he argues that economic downturns can be fertile ground for innovation, citing companies like Uber and Airbnb that emerged post-2008 crisis 4.

Amazing companies get started in difficult economic times.

--- Michael Kim

The abundance of dry powder, or uninvested capital, presents both opportunities and challenges, as firms decide whether to support existing portfolios or explore new investments 4.