Founders Fund, General Catalyst & Spark Capital Crave Even Bigger War Chests
Plus, a big data center shuffle keeps everyone happy, for now
The Week in Short
Founders Fund, General Catalyst, and Spark are getting even more mega. Rick Heitzmann says tech IPOs may come sooner rather than later. Abilene data center still on track after OpenAI opts out of expansion, but the risks are stark. Female founders bring in more VC dollars on two big deals. Yann LeCun’s new startup joins the billion-dollar-seed club. Legora, Replit, and Quince close big rounds. Iran war brings fresh tech risks. Two more founders quit Elon Musk’s xAI. Binance faces a federal investigation over Iran money flows and is suing the Wall Street Journal over the story that apparently prompted the probe.
The Main Item
Founders Fund, General Catalyst & Spark Show LPs Can’t Get Enough of Megafunds
It’s getting a little cliche over here to say but…
Megafunds are riding high.
If any week was proof of that, it was this one.
First, TechCrunch reported Monday on Founders Fund’s rumored $6 billion growth fund that’s in the works.
The same day, The Information wrote that Spark Capital is raising $3 billion for new funds, partly off the strength of its early Anthropic investment.
Then came the whale, with General Catalyst reportedly raising $10 billion for a new suite of funds, per Bloomberg.
Capital concentration is the new normal. According to PitchBook, funds over $500 million accounted for over 52% of all of the capital brought into the venture ecosystem in the last four years, even if they only made up 6.7% of the total venture funds raised.
This divide in fundraising likely isn’t going away anytime soon, says Contrary’s Kyle Harrison. The megafunds are increasingly in a different business than traditional VCs.
“The people who are investing in these $5-10 billion funds, they’re not looking for 5 to 10x returns on that capital — they are looking for a place to park $300, $400 million a year,” Harrison told us.
With the lack of IPOs in recent years, limited partners are using large venture funds as a place to make the kinds of investments that used to go into small to mid-size public stocks, said Slow Ventures’ Will Quist.
Investing in megafunds is also a way to get at least a little piece of the biggest AI deals. That particularly benefitted Spark this time around, since the firm was an early institutional check into Anthropic. (Yasmin Razavi, Spark’s growth partner, is a name rival investors bring up a lot these days on their investors-to-watch lists after the prescient bet.)
“For 40 years the tech IPOs were big drivers,” said Quist. “Now, if you want exposure to these kinds of companies, you can tell yourself that’s what you’re getting in these funds.”
LPs are likely viewing these megafunds as the private capital version of the Russell 2000, he added. They’re a place for the largest players to park capital and get exposure to technology companies, in exchange for solid (if not astronomical) returns.
Newcomer Podcast
Rick Heitzmann on Why AI Will Create a Fresh Wave of IPOs
Rick Heitzmann of FirstMark joins the Newcomer Podcast to discuss the state of venture capital, the AI investment boom, and why the next wave of tech IPOs may be closer than many expect.
Heitzmann shares how investors are thinking about AI infrastructure, the role of data as the core advantage in the AI race, and why massive private capital has allowed companies to stay private far longer than in previous cycles.
As AI companies continue raising unprecedented amounts of money, the conversation turns to what happens when that capital eventually runs out and why public markets may become the next step.
Data Center Delays
OpenAI Is Out, Meta & Microsoft Are Circling as Oracle Keeps the Plates Spinning in Abilene
Last week, Bloomberg caused a stir in the AI world with a scoop that Oracle and OpenAI had walked away from plans to expand a major data center in Abilene, Texas.
The piece reported that the two parties were at odds over financing and OpenAI’s demand forecasting. While they already had 1.2 gigawatts planned on the site, the expansion would have taken the project up to two gigawatts. It was just last fall that those companies had hyped up the expansion as a sign of their huge ambitions at what is still the only realized Stargate site.