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I recently wrote about how VCs with money to spend are piling into only the best, highest-quality companies right now — awarding big sums and valuations to Helsing, Monzo and Mistral. But lately, I’ve also been wondering: where is it hard for VCs to deploy capital right now? (Readers, I’d love to get your take.)
I posed the question to Suranga Chandratillake, general partner at Balderton Capital (which just raised $1.3bn in two new funds across early and growth stages) last week. For him, it’s Series A through C, “which actually hits both of our funds,” he says. “There’s a huge amount of focus on AI right now, and knowing what are the right tricks to invest in AI companies at those stages is really, really hard.”
Breaking it down, he believes it’s “relatively easy to do seed AI investments because those are really tech and people driven: so, is this an innovative, new idea or technology? Are the people, people who could pull it off? If yes, then invest.” Growth investments, he adds, are not quite as straightforward, but those companies do have pretty clear business models and their technology works.
“In between, it's really hard,” Chandratillake says of those Series A to C rounds. “The valuations are high, some of the companies have fantastic traditional sales and revenue metrics, but you don't know necessarily how much of that is experimentation on the part of customers, how much of it is really real and going to retain and some of the companies don't have any metrics.”
It seems to tap into another big trend I’ve written about lately: worries about whether AI companies can actually deliver the growth and revenues investors have been expecting — and betting on.
AI companies in those in-between stages, as Chandratillake says, may have hit some technical milestones, but might not be performing as a late-stage company would be expected to. “It’s a really hard period where you have general excitement over the sector, there's clearly interesting companies that are going to get built.
“But knowing which ones they are, and being able to take the level of risk required to write a relatively large cheque — you know, $10m, $20m, maybe even $30m — that's a tough place to be right now.”
I’m curious to hear from you, VCs: do you agree with Chandratillake? Where do you think it’s a challenge to invest your money right now? What stages or sectors are you finding it more difficult? Where are you seeing more or less competition for rounds right now? I’m all ears.
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