The Real Operation of a $70 Million Consumer VC: From Fundraising and Selection to the Power Law of 3x Returns
Ryan Springer
Midnight Venture Partners
Original Statement
1. Core Background and Fund Positioning: Deeply Cultivating the Consumer Sector Amidst the AI Wave
1. Differentiated Positioning: Vertical Consumer Goods Fund (Specialist Fund)
• Industry Contrast: Currently, most venture capital is highly concentrated in the AI sector, with large comprehensive funds often writing huge checks to a few star companies; Midnight Venture Partners (based in Austin, Texas, USA) chooses the opposite route, focusing on physical consumer brands (CPG / Consumer Brands).
• Tangible Investments: Focused on tangible products that can be touched and bought on supermarket shelves (such as beverages, snacks, food, etc.), which provide a stronger intuitive experience compared to pure software or SaaS.
• Founder-Friendly Philosophy: Breaking the traditional cold and even predatory stereotype of venture capital, advocating for a highly empathetic and equal relationship with founders, encouraging them to proactively communicate issues and solve them together.
2. Partner Background and Entrepreneurial Pain
• Founding Journey: Founded in 2021 by university alumni Alex, Ryan, and Chris, who decisively resigned to fully commit to fund operations.
• Early Difficulties: Before completing the first fundraise, the team experienced an extremely long unpaid period, with personal bank accounts continuously shrinking, and even went nearly two years without normal income (later only giving themselves about $35,000 in annual salary to maintain basic living).
• Serendipitous Timing: The market was extremely overheated in 2021. If they had easily secured funding from the start, they might have over-allocated assets during the high valuation bubble; it was precisely because of the early hardships and cautious progress that they avoided high-priced acquisitions and built a healthy and robust investment portfolio.
2. The Underlying Operations and Return Mathematics of Venture Capital (VC Mechanics)
1. Fund Lifecycle and Investment Strategy
• Fund I Size: Raised a total of $23 million.
• 10-Year Duration: In the first few years, funds are concentrated on new brands, followed by gradually doubling down on high-performing winners, ultimately waiting for exits to realize returns; during this period, LP (limited partner) funds are completely locked.
• Investment Stages and Check Sizes:
• Stage Span: Covers from Seed to Series B rounds.
• Single Investment Amount: $500,000 to $4 million, usually acquiring 2% to 4% equity in target companies.
• SPV (Special Purpose Vehicle): For explosive targets that wish to receive large additional investments, they will additionally initiate independent special investment tools ranging from $2 million to $20 million.
2. Fund Profitability and Exit Paths
• Daily Management Fee: Typically a 2% annual management fee to maintain basic operations.
• Three Major Exit Channels:
• IPO: The investment target goes public.
• M&A: Fully or largely acquired by large industry giants (such as traditional consumer goods giants).
• Secondary Transfers: Early transfer of shares to large funds or strategic investors in later rounds.
3. Power Law and "Correct Magnitude"
• Power Law: VC success does not rely on hit rate (Frequency of Correctness) but rather on "Correct Magnitude" (Magnitude of Correctness). A fund typically relies on just 1-2 breakout winners to support the entire fund's returns.
• Representative Case (Ollipop Healthy Soda):
• Valued at only about $200 million at the time of investment, now valued at $1.85 billion.
• LP Return Expectations: For a $23 million fund, investors typically expect to achieve a 3x return within 10 years, meaning a final cash return of about $70 million.
3. Post-Investment Support and Daily Challenges: Fighting Alongside Founders
1. Complex Post-Investment Negotiations and Interest Balancing
• Coordinating Investment Term Sheets: A video shows partners assisting a portfolio company in handling extremely complex financing term disputes.
• High Communication Costs: To protect the interests of founders and executive teams, avoid legal conflicts, and balance various interpersonal networks, partners may spend 20-25 hours a week on phone negotiations and interest coordination.
2. Daily Work Rhythm
• Investors' lives are filled with high uncertainty; apart from a fixed morning gym routine, most of their time is spent meeting founders, reviewing projects, conducting due diligence, and handling sudden crises in portfolio companies.
4. Evaluation Logic and Due Diligence of Consumer Projects
1. Two Main Types of Investment Evaluation
• Category-Defining Products: Products that open and define entirely new subcategories, which have high acquisition attractiveness for industry giants (strategic buyers).
• Data-Validated: Mature teams with proven product-market fit (PMF) and sustained high revenue growth (e.g., targets with an annual revenue run rate of $25 million and strong execution).
2. On-Site Project Presentations and Due Diligence Details
• Innovative Pet Sector Project: After 6 years of R&D, developed a squeeze pouch packaging format, with financing primarily used to expand capacity with contract manufacturers, explore new sub-markets, and accelerate customer acquisition.
• Dairy-Free Cheese Project:
• Precise Positioning: Clearly defining itself as "Dairy-Free" rather than simply "Vegan."
• Core Data Support: 74% of the platform's consumers are not strict vegans but choose alternatives due to lactose intolerance, health, or quality pursuits; focusing on a high-end artisanal route (e.g., new mozzarella cheese), avoiding price wars with low-end frozen shredded cheese.
• E-commerce Growth Data: Monthly online revenue in March surged from $600,000 in the same month last year to $1 million.
3. Founder-Friendly Due Diligence Style
• Engaging with experienced founders who have appeared on "Shark Tank," investors delve into details through an equal and respectful dialogue atmosphere, accurately probing real repurchase rates and channel velocity while allowing founders to be candid without defenses.
5. Offline Store Visits and Future Entrepreneurial Advice
1. Inspecting Shelves at Texas's Largest Chain Supermarket H-E-B
• Investors personally lead a team to inspect the shelf displays and endcap presentations of portfolio brands, checking brands like Ollipop (soda), Recess (functional relaxation beverage), Leisure Hydration (electrolyte water), and FitJoy (healthy snacks).
• Observing shelf displays, sales status, and competitor shelf conditions, experiencing the closed-loop of consumer product investment from the capital side to the end shelf.
2. Core Advice for Early-Stage Consumer Goods (CPG) Founders
• Break Mental Constraints: There are no rigid rules in the business world; as long as you firmly believe in your product's value, be brave to create and implement.
• Value Compound Accumulation: Taking small steps every day in the early stages, continuous execution and accumulation will lead to amazement at the distance traveled when looking back.
• Prepare for Financial Survival: Before entering consumer goods entrepreneurship, founders must be mentally and financially prepared for at least 2 years without salary (0 income).
ABAB AI Insight
The real takeaway from this content is not about "what a consumer VC team does 24 hours a day," but rather it reveals a very important yet often overlooked capital rule by entrepreneurs and ordinary investors:
Investment returns are determined not only by "how big the company can grow" but also by "how big the fund is, how low the entry price is, and how much equity is ultimately held."
The smartest aspect of Midnight Venture Partners may not be discovering OLIPOP, but rather choosing a game that matches their fund size.
1. Correcting a few key facts: Your framework is good, but the numbers must be precise.
First, Midnight Venture Partners was publicly established in 2020 in Austin, with core founding team members including Ryan Springer, Chris Aydam, and Alex Bodney, not in 2021.
Second, it can be clearly confirmed that:
Fund I: Approximately $23 million.
Additionally, there is about $27 million in co-investment capital.
So a more accurate statement would be:
Approximately $50 million in capital size / AUM system, rather than a "$70 million fund."
The video indeed used the title "$70M Venture Capital Fund," but the data disclosed in the text is $23M debut fund + $27M co-investment, so when writing in-depth articles, do not take the title packaging directly as the legal definition of fund size.
Third, OLIPOP's valuation of $1.85 billion is accurate.
In 2025, OLIPOP completed approximately $50 million in financing, led by JPMorgan Private Capital Growth Equity, with a valuation reaching $1.85 billion. Previously, the valuation was around $200 million.
So the "$200 million to $1.85 billion" means:
The company's valuation increased by approximately 9.25 times.
But this does not mean that Midnight necessarily achieved a 9.25 times cash return on this investment.
Because it also involves:
Subsequent financing dilution, actual entry valuation, preferred stock terms, holding ratios, whether to sell old shares, liquidation preferences, etc.
These specific numbers have limited public information and cannot be fabricated.
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2. What Midnight is most worth learning from: It is not "avoiding AI," but rather playing a different capital game.
Many people see this story and draw a shallow conclusion:
"Others invest in AI, they invest in consumer, so they are differentiated."
The real logic is much deeper than that.
Midnight is doing:
Specialization + Fund Size + Exit Market matching.
This is the core.
For example, if you manage a:
$10 billion fund,
investing in a consumer brand, even if it ultimately sells for $2 billion, the contribution to the entire fund may be negligible.
But if you manage:
A $23 million fund,
the situation is completely different.
Assuming a company ultimately exits for $2 billion, and you still hold 2%:
$2 billion × 2%
=
$40 million.
One company can generate an exit value equivalent to:
1.74 times the entire Fund I size.
Note, this is a simplified model; in reality, dilution, carry, fees, and specific security terms must also be considered.
But this precisely explains one of the most important rules in the VC world:
Fund size determines what kind of company is worth investing in.
This is called Fund Size / Outcome Fit.
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3. Small funds have a significant advantage that large funds do not have: The Return the Fund Threshold is very low.
VCs often say:
"Can this company return the fund?"
This does not mean:
"Is this a good company?"
But rather:
"If it succeeds, can this investment earn back the entire fund?"
This is a completely different question.
For example:
$23 million Fund I.
If a company exits and brings Midnight:
$23 million in cash,
it has already achieved:
1x Fund Return.
If it brings:
$46 million,
theoretically, it would be:
2x Fund Size.
If the final portfolio cumulatively generates about:
$69 million,
it is:
3x Gross Multiple of Fund Size.
So the "$70 million" in your material is truly valuable here.
It is not to say:
"Midnight is a $70 million fund."
But rather:
"If the $23 million fund achieves about 3 times, it ultimately needs to create about $69 million in total value."
This is a very important distinction.
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4. Why a $23 million consumer fund might be a very smart size?
Because the exit ceiling for consumer companies is usually different from that of software companies.
In the software world, you might see:
Stripe, Figma, OpenAI, Databricks, Palantir.
A single company:
$10 billion, $50 billion, or even $100 billion.
Consumer products can certainly produce super companies like Nike and Coca-Cola.
But from the VC holding cycle perspective, the more realistic exit for most new consumer brands might be:
$300 million,
$500 million,
$1 billion,
$2 billion,
$3 billion.
Thus, fund size becomes very important.
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5. A real case has proven this exit market: Poppi.
Poppi and OLIPOP are almost the best cases to study this issue.
In 2025:
PepsiCo acquired Poppi for $1.95 billion.
This includes about $300 million in expected tax benefits, so the disclosed net purchase price is about $1.65 billion, plus potential earnout.
The importance of this matter goes far beyond:
"A soda brand sold for $2 billion."
It proves to the entire consumer VC industry that:
Modern Soda has formed a real strategic exit market.
Looking at it now:
Poppi: approximately $1.95 billion acquisition.
OLIPOP: approximately $1.85 billion private valuation.
This means that consumer VC now has a very clear value anchor.
For giants like PepsiCo, they are not just buying a can of soda.
They are buying:
Gen Z users.
Brand culture.
New health consumption trends.
Growth in channels like Whole Foods / Target / Walmart.
Social media influence.
A newly validated consumer category.
And most importantly:
Time.
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6. Why would PepsiCo rather spend $2 billion to buy Poppi than make one themselves?
This is one of the most important questions in understanding consumer investment.
Theoretically, PepsiCo's ability to make soda far exceeds that of Poppi.
Stronger supply chains.
More factories.
Stronger channels.
Larger advertising budgets.
Stronger R&D capabilities.
But it lacks one thing:
Authenticity.
A Fortune 500 company suddenly telling young consumers:
"We now represent the new era of health culture."
Consumers may not believe it.
But a startup brand that has spent 5-10 years forming:
Brand stories,
Founder stories,
TikTok communities,
Whole Foods users,
Young consumer recognition,
These things are hard to manufacture directly with money.
So large CPG groups have long had a business model:
Startups create culture, and large companies scale culture.
This is the most important Exit Engine for consumer VC.
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7. So what Midnight is really looking for is not "tasty products"
It is looking for:
Strategic Acquisition Candidates.
That is, in the future:
PepsiCo,
Coca-Cola,
Unilever,
P&G,
Nestlé,
Mars,
Mondelez,
General Mills
are willing to purchase assets.
At this point, the investor's question changes.
Not:
"Is this beverage tasty?"
But:
"In five years, who will be anxious without this brand?"
This is a very advanced level of investment judgment.
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8. Why is Category Defining much more important than "good products"?
Suppose you are making the 143rd protein bar brand.
Even if the product is excellent:
Why would industry giants want to buy you?
There is no reason.
But if you create:
"Prebiotic Soda"
which consumers previously had no clear recognition of,
things change.
You actually start to occupy:
Category Mindshare.
When consumers think of a new category, you are the first to come to mind.
This is brand equity.
The real strength of OLIPOP and Poppi is not:
"Soda is healthier."
But rather that they have turned:
Gut Health + Soda
into a consumer category.
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9. This is the biggest difference between consumer VC and AI VC
The biggest moat for AI VC usually comes from:
Technology,
Models,
Data,
Computing power,
Developer ecosystems,
Network effects,
Switching costs.
Consumer brands are completely different.
Moats come more from:
Brand Mindshare,
Channels,
Shelf placement,
Repurchase,
Supply chains,
Bulk purchasing,
Consumer habits,
Cultural identity.
Therefore, consumer investment has a very interesting phenomenon:
Technical barriers may be low, but brand barriers can be very high.
Coca-Cola's formula is not the real reason Coca-Cola is worth over $300 billion today.
The real assets are:
Global channels + Brand Mindshare + Consumer Habits.
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10. Therefore, when looking at CPG, one cannot only look at Revenue
This is where your content can continue to upgrade.
Professional consumer investors must look at several very important things.
First: Velocity
That is:
Sales per unit time per store.
For example, two brands both have:
$10 million in revenue.
A:
In 10,000 stores.
B:
Only in 2,000 stores.
On the surface, both are $10M Revenue.
But B's sales efficiency per store may far exceed A's.
This means:
Once B expands distribution from 2,000 to 10,000 stores,
Revenue may explode.
So what VCs really like is:
High Velocity + Low Distribution Penetration.
This is a very attractive growth structure.
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11. The second key metric: Repeat Rate
Consumer products without repurchase are very dangerous.
The first purchase may come from:
TikTok,
KOL,
Advertising,
Attractive packaging,
Promotions,
Curiosity.
But whether consumers are willing to spend their own money to buy again is the true PMF.
So a consumer brand:
1 million first purchases
is not necessarily impressive.
If a large number of consumers:
30 days,
60 days,
90 days
keep repurchasing,
the value is completely different.
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12. The third core metric: Gross Margin
This is where many consumer entrepreneurs ultimately fail.
Suppose a product:
Retail price $4.99.
The founder may think:
"I sell one bottle for $5, which is very profitable."
Not at all.
There may be:
Retailer margin,
Distributor margin,
Broker fee,
Freight,
Manufacturing,
Packaging,
Promotions,
Slotting,
Returns,
Spoilage.
In the end, the money the brand keeps may be far less than expected.
So:
Revenue ≠ Economic Value.
What truly matters in consumer goods is:
Gross Margin × Velocity × Repeat × Distribution Expansion.
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13. The fourth metric is even more dangerous: Working Capital
This is something software entrepreneurs often underestimate.
SaaS collects money:
The server provides you with services.
CPG is different.
You need to first:
Buy raw materials,
Produce,
Package,
Transport,
Store,
Give to retailers,
Then wait for payment terms.
For example:
The company grows rapidly.
This year:
$10M Revenue.
Next year:
$30M.
On the surface, this looks great.
But to support this $30M sale, you may need to prepare millions or even tens of millions of dollars in advance:
Inventory.
Thus, a classic problem arises:
The more you grow, the more money you lack.
This is why consumer financing is not simply for "burning money on marketing."
A large part is actually for:
Financing Working Capital.
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14. This also explains why Midnight's "post-investment services" are very valuable
Ordinary VCs can teach software entrepreneurs:
Hiring,
Financing,
Strategy.
But CPG requires completely different capabilities.
You need to understand:
H-E-B.
Whole Foods.
Target.
Walmart.
Costco.
Distributor.
Broker.
Shelf Placement.
Endcap.
Promotions.
Category Buyer.
Velocity.
Retail Margin.
Inventory.
This is very vertical industry knowledge.
Midnight officially describes its positioning as:
capital + functional go-to-market expertise.
So it is actually not just:
Capital Provider.
More like:
Capital + Distribution Intelligence.
This is the true meaning of Specialist VC.
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15. Their visit to H-E-B to check shelves is definitely not just "filming a video"
This is very knowledge-intensive.
Many outsiders think:
What use is it for VCs to go to supermarkets to see products?
In fact, supermarkets are the:
Bloomberg Terminal for consumer brands.
You can observe on-site:
SKU count,
Shelf height,
Competing brands,
Prices,
Discounts,
Endcap,
Restocking status,
Out-of-stock,
New product placement,
Packaging recognition.
You can even infer the retailer's level of importance attached to this brand.
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16. Why is Endcap so valuable?
The economic value of each shelf position in a supermarket is completely different.
Endcap is the display area at the end of the shelf.
Its traffic is usually much higher than ordinary shelves.
So when you see a startup brand getting a huge Endcap display,
It usually means:
The brand has spent promotional dollars,
Or the retailer has confidence in its sales ability,
Or both are conducting significant promotions.
For consumer investors:
Shelf Space itself is an asset.
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17. Rebel Cheese's "74% Non-Vegan" is an extremely classic entrepreneurial case
This point deserves to be discussed separately.
Rebel Cheese founder Kirsten Maitland has publicly stated:
74% of customers are not vegan.
What does this mean?
It means the real market is not:
Vegan Cheese.
But possibly:
Dairy-Free Premium Cheese.
The TAM of the two is completely different.
If positioned as:
"Cheese for Vegans."
You actively exclude most of the population.
But if positioned as:
"For those who love cheese but cannot eat dairy due to lactose intolerance, allergies, or health reasons."
The market suddenly expands.
This is a very classic:
Category Reframing.
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18. Entrepreneurs must learn to distinguish between "what the product is" and "why consumers buy"
These are two completely different things.
What the product is:
Plant-Based Cheese.
Why consumers buy:
"I love cheese, but dairy makes me uncomfortable."
Truly excellent companies build around the second question.
This is Jobs To Be Done.
Consumers do not buy products to:
"Support plant-based cheese technology."
Consumers are actually buying:
"The ability to eat cheese again."
Completely different.
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19. What Midnight means by Founder-Friendly should not be understood as "VC doing charity"
Why do truly excellent VCs want to be Founder-Friendly?
Because it is essentially a:
Deal Flow Strategy.
The best startups always have options.
Truly outstanding founders may simultaneously receive offers from:
Sequoia,
General Catalyst,
a16z,
Founders Fund,
Industry Funds.
Then VCs start to compete.
Who can get allocation?
Who can enter the cap table?
Founder reputation becomes an asset.
So:
Founder-Friendly → Founder Referral → Better Deal Flow → Better Portfolio → Better Returns.
It ultimately remains economics.
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20. This also explains why the true product of VCs is not money
Capital is becoming increasingly commoditized.
What excellent entrepreneurs truly lack are:
Judgment,
Relationships,
Talent,
Channels,
Follow-up financing,
Customers,
Crisis management.
So the future direction of VC competition is increasingly like:
VC as a Service Platform.
a16z is the most typical example.
They build:
Recruiting,
PR,
Policy,
Market,
Crypto,
AI,
Talent networks.
Midnight just compresses similar ideas into:
Consumer / CPG.
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21. Further discussing the most important term in your material: Power Law
Many people's understanding of Power Law is:
"Invest in ten, nine fail, one succeeds."
This is not accurate enough.
The real meaning is:
The returns of Winners are not linear.
Suppose:
Project A: loses 1x.
B: loses 1x.
C: 1.5x.
D: 2x.
E: 3x.
F: 30x.
In the end, you will find:
F's importance may exceed all the previous companies combined.
So VC is not a:
Win Rate Game in traditional asset management.
But rather a:
Payoff Distribution Game.
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22. This is why "Magnitude of Correctness" is a very advanced statement
In stock investment, many times it concerns:
How many times you judged correctly.
VC is more important:
How much you earn when you judge correctly.
You can:
Be wrong in 70% of investment judgments,
And still become a top VC.
As long as that remaining 30% includes:
Airbnb,
Uber,
Coinbase,
Google,
Facebook.
So:
What VCs fear most is not making mistakes, but missing extreme winners.
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23. However, the Power Law of consumer VC is not exactly the same as that of software VC
This is very important.
An AI software company theoretically:
$50M ARR,
$200M ARR,
$1B ARR,
While achieving gross margins of 70%-90%.
Consumer products are different.
Raw materials,
Production,
Logistics,
Retailers
always exist.
Therefore, CPG typically:
Has lower capital efficiency,
Lower gross margins,
Heavier growth,
Lower valuation multiples.
Thus:
Consumer VCs must pay more attention to Entry Valuation.
This is also why they did not invest crazily in 2021, which may have turned out to be Midnight's fortune.
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24. Why was 2021 an extremely dangerous time?
From 2020-2021, global funds were extremely loose.
Zero interest rates.
QE.
SPAC frenzy.
Growth stock frenzy.
VC valuations skyrocketed.
Many DTC / Consumer companies' financing prices detached from fundamentals.
When interest rates rise:
Valuations compress rapidly.
Therefore, if Midnight really reduced high valuation deployments in 2021 due to slow fundraising,
In retrospect, it may indeed have been an:
Accidental Timing Advantage.
But do not romanticize it as:
"Difficulties are always good."
A more accurate investment conclusion is:
VC returns depend on both Selection and Entry Price.
Good companies bought too expensively
Can also be bad investments.
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25. This is a core idea that ordinary investors should also learn
Many stock investors ask:
"Is this a good company?"
Wrong.
The correct question is:
"Is this a good price?"
Nvidia can be a great company.
But any company has a price high enough that future returns could be poor.
Similarly:
A bad company could become a profitable transaction if the price is low enough.
So it is essential to distinguish between:
Great Company
and
Great Investment
as not being the same thing.
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26. SPVs also reveal another secret of the VC industry
Why have a fund and still need SPVs?
Because funds are subject to:
Fund size,
Concentration limits,
Reserve strategy
constraints.
For example, Midnight has already invested in a company.
Later finds:
This company is increasingly likely to become a winner.
But Fund I may only have a few million left.
What to do?
Establish:
SPV.
Allow LPs or other investors to invest separately in this company.
Thus, VCs can continue to increase:
Winner Exposure.
This is:
Double Down on Winners.
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27. But SPVs also have a hidden value for GPs
They can expand:
AUM,
Carry opportunities,
LP relationships,
Deal allocation,
While avoiding being completely constrained by the main fund size.
So a VC managing:
A $23 million Fund
Can actually participate in transactions far exceeding $23 million.
This is also why one cannot only look at:
"Fund Size."
One must also consider:
Co-investment,
SPVs,
Opportunity Funds,
Continuation Vehicles.
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28. Why can "3x" not simply be understood as LPs ultimately getting 3 times?
This also requires specialization.
In the VC world, one must at least distinguish between:
Gross MOIC
and
Net MOIC.
For example, if the final value of fund assets is:
3x.
But there are also:
Management Fees,
Carry,
Fund Expenses.
If GPs typically take:
20% Carry,
LPs will not actually receive a complete 3x.
Additionally, there are:
TVPI,
DPI,
RVPI,
IRR.
These metrics have completely different meanings.
So in the future, when writing:
"LPs expect three times returns"
It is best to write:
Small early-stage VCs often need to target around 3x or higher fund-level returns to compensate for the ten-year lock-up period, liquidity, and high failure rate; specific net returns depend on fees, carry, exit timing, and portfolio performance.
This will be much more professional.
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29. Another extremely critical metric: DPI
Many VCs like to say:
"My portfolio valuation has increased fivefold."
Until there are cash exits:
All are paper wealth.
LPs truly care about:
DPI—Distributions to Paid-In Capital.
LPs invested:
$10M.
Ultimately, the actual cash received:
$20M.
DPI:
2x.
This is real money.
So OLIPOP's current $1.85 billion:
Is a very excellent mark-up for Midnight.
But until there is a real IPO, acquisition, or secondary exit:
It remains primarily unrealized value.
This point must be clarified.
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30. Therefore, the entire Midnight case, I believe the most impressive layer is not "counter-cyclical investment in consumption"
But rather five words:
Choose Your Own Game.
They did not compete with:
a16z,
Sequoia,
Thrive,
General Catalyst
for:
AI Foundation Models.
Because a $23 million fund has almost no strategic advantage in that kind of capital war.
They chose:
Consumer.
Then established:
Industry relationships,
Retail capabilities,
Supply chain experience,
Founder reputation,
H-E-B / Whole Foods / Target recognition.
Ultimately forming:
Information Edge.
This is what true investment moat looks like.
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31. If I were in the position of a billionaire/capital allocator, the biggest lesson I learned from Midnight is not:
"Go invest in beverages."
But rather:
Do not enter a game where capital is greater than yours, relationships are stronger than yours, information is richer than yours, and brands are larger than yours, then fantasize about defeating everyone through hard work.
Truly smart capital seeks:
Small battlefields where it has structural advantages.
Then penetrate the small battlefield.
And then expand.
Berkshire Hathaway is like this.
Early Sequoia was like this.
Benchmark is like this.
Many of the best vertical funds are like this.
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32. For entrepreneurs, this case also has a very important revelation
Do not just ask:
"Can my company grow?"
You should also ask:
"Who naturally needs me to grow?"
This is a completely different strategic thought.
If you make beverages:
Why must PepsiCo buy you in the future?
If you make beauty products:
Why must L'Oréal buy you in the future?
If you make pet products:
Why must Mars buy you in the future?
If you make AI SaaS:
Why do Salesforce, Microsoft, Adobe, and ServiceNow need you in the future?
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This is called:
Build With Strategic Optionality
Not just to sell the company.
But to ensure that the business has:
IPO,
Strategic Acquisition,
PE Buyout,
Secondary
and other exit options from day one.
True advanced entrepreneurship is not just about:
Creating Revenue.
But about creating:
Strategic Value.
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Finally, I would compress the core of this content into one sentence
The case of Midnight Venture Partners is not a story of "small funds counter-cyclically betting on consumption," but a lesson on capital efficiency: using a sufficiently small fund size, sufficient vertical information advantage, and sufficiently low entry price to find category definers that can be acquired at high prices by large strategic buyers, and then letting a few extreme winners determine the fate of the entire fund.
This is what ordinary entrepreneurs, investors, and fund managers should truly learn from this content.
R