Why Raise a $10 Billion Fund When Valuations Look Frothy?

Alex Heath asks why announce a $10 billion growth fund when valuations look frothy. Alex Davis calls this a market of haves and have-nots, and the right time to back a few companies rather than many. Around 2011 he remembers a total of about $10 billion of venture-backed private companies, before anyone called them unicorns. He puts the count now at 5,000 to 6,000, and says it has gone parabolic.

The firm does not try to cover every pitch. The opening is the top half-dozen to 20 companies, the ones that stayed private and still need capital. A company that stands alone in its category can deserve $5 billion, $10 billion, or maybe $100 billion while it is still private. That is not a plan to write 20, 30, or 50 checks a year, and it is not a plan to write checks on the scale of $500 billion. The aim is five, six, or seven winners a year, and not more than that. Froth, in this account, is the crowd of companies carrying huge valuations. A team that needs compute cannot start in a garage on $10,000 or $20,000 of savings and buy 100 GPUs, let alone 50,000. The companies that will own the market and the companies that may only get acquired are pulling apart, which is why the work is growth rather than a spray of early bets.