Winter is Coming

Andy Lee
2 min readMar 20, 2021


As we close out Q1 2021, I’ve had numerous conversations with friends arising from their year-end annual reviews (many frustrated — it’s been a long year)

Several have suggested starting new firms / new ventures — a few I’ve urged to go for it, others I’ve counseled that without a compelling investment thesis their ability to achieve liftoff would be challenged

Let’s start with some numbers

  • 3,700+ (2016 — Credit Suisse) of Publicly traded Companies in the US; 3,300+ Hedge Funds (2020 — Preqin) based in the US
  • 3,700 / 3,200 = 1.12 Companies per HF Firm
  • Approx. 5.7mm Businesses in the US (22K with >$100mm of Sales — Census); approx. 500+ (2017 — Bain) of PE firms based in the US
  • 22K / 500 = 44 Private Companies w/ $100+mm of Sales per PE Firm
  • 8K (2017 — McKinsey) of which are already owned by Sponsors (suggesting that 14K (22K — 8K) remain have not received institutional capital)
  • Approx. 21K (2018 — Vlad Pavlov) Startups; 600 US VCs (doesn’t include individuals angels / rolling funds)
  • 21K / 600 = 35 Startups per VC

For each of those — the opportunity set keeps getting more competitive

  • HF: The field of publicly traded companies continue to shrink as de-listings outpace IPOs / Direct Listing; SPACs may in the near-term increase supply
  • PE: GP-led Continuation Funds result in fewer secondary buyout transactions as Sponsors keep their trophy assets resulting in a level of adverse selection (i.e, Sponsors only sell the segment of the 8,000 they own because they no longer believe in the thesis)
  • VC: Opportunity set shrinks as bootstrapping / alternative forms of financing (i.e., Pipe, Capital, Earnest Capital, etc); Reformation Partners wrote on several of these alternatives

If I was a institutional capital allocator, I would be terrified — the one avenue in the past decade for consistent returns is fast being competed away

Profit pools are being redistributed as (a) growing levels of intermediation as investment banks attempt to cover the universe of private opportunities (GS starts cross-market group) effectively, (b) adoption of alternative forms of financing (it’s not clear to me why an investment bank hasn’t been started in this segment to help Companies decipher financing options) shrink entrepreneurs need for large rounds of funding / shrinks the appetite for growth equity and (c) crowdfunding marketplaces (i.e., AngelList, EquityZen, Republic) which have struggled due to long feedback loops (as measured by first check to exit) finally gain traction — for consumer facing products with loyal fanbases, this may serve as an avenue to access valuation agnostic capital

I’ll repeat one of my previous articles — Beta dwarves Alpha by a mile. Picking the right Beta is Alpha — focus on the base rates

Recognize the above suggest a zero sum perspective but NEVER discount the ingenuity of human innovation!



Andy Lee

Just a little country boy, lost in the city. Property of @tacoboutcorgi Get in touch via