Dear Limited Partners,

It is my pleasure to present the Endurance28 Fund III Q2 financial results and my initial letter in my role as CFO.

A little less than 1 year ago, I started my journey with Endurance28, after spending 10 years at KPMG. As I stepped into my role in September 2022, a combination of inflationary pressures, increasing interest rates and a large fall in valuations for public high-growth, low earning tech companies all combined to cause VC firms to tighten deployment of capital. In 2022, this resulted in capital raised by VC-backed companies falling 23% QoQ in Q2, another 34% QoQ in Q3 and 10% QoQ in Q4. All in all, VC-backed companies raised 36% less capital from 2021 to 2022 (CB Insights). While US VC Funds were able to raise more committed capital in 2022 from 2021 ($170.8B from $158.5B), this was concentrated in fewer funds (892 from 1,336) (Pitchbook). What was a downward trend in funding turned into a perceived crisis for the start-up ecosystem with the collapse of Silicon Valley Bank in March 2023. Total capital raised by VCs has continued to fall in 2023, to $33.3B as of Q2 2023 (on pace for lowest since 2017) across 233 funds (on pace for lowest since 2012) (Pitchbook).

While the US economy did not officially fall into a recession, the economics and trends in the VC industry resembled a downturn, causing startups to account for the extended time needed to raise additional capital. VC funds began requiring founders to raise funds with clear plans for a longer runway. VCs also started asking if their companies were in good operating order and in a good state of being capitalized, looking at fundamental metrics more closely. Burn rate, a clear plan to a longer runway, and revenue now play a key role in the early-stage. Revenue has become an anchor to an investor’s interests. Growth at any cost is out. This combination of factors caused early-stage companies to make significant changes in their company strategies. What could have worked in a pitch meeting in mid-2021 might no longer work in the current VC environment. The pace has slowed. With VC funding to startups at $130.2B halfway through 2023, less than a third of 2022’s year-end total, a lot of companies have been forced to close operations (CB Insights). Down rounds, which have a very large impact in the economics of startups, have also been around 20% for both Q1 and Q2 2023 (Carta).

At Endurance28, part of our investment strategy has been to invest in overlooked opportunities with outsized returns, not seeking the ‘hot’ deals the big VC firms are investing in and smaller firms are trying desperately to get in. Using a Decision Analysis framework to make investment decisions has allowed us to identify and select companies where founders are disciplined, resourceful, extremely good operators, and able to execute and thrive in the current environment. As we transitioned to this new stage in the economic cycle, we were able to have a clear view of how our investment thesis resulted in a strong, resilient portfolio.

Since the time of our first investment in Fund III, Holoclara, in July 2022, we have made 3 more investments, all of which are in healthy financial standing with strong operating performance. Considering the current environment described above, the strength of the portfolio speaks well of the quality of companies that we have been able to identify.

We have also continued putting entrepreneurs first in our daily calendars and when having to choose where we invest our time when a founder has a time-sensitive need from our team. We have been working with our founders to develop fundraising and operational strategic plans, identify talent for their teams, and provide marketing and branding advice, as well as guidance on team dynamics and personal resiliency when faced with difficult challenges. In doing this, we are fulfilling our fiduciary duties as GPs of the fund, as well as helping create value and success for our founders and LPs alike.

This year, we have also placed a strong emphasis on putting the building blocks in place to create a lasting franchise to continue fulfilling our mission. We are up to four full-time employees and added an additional Venture Partner in the past year. We’ve also implemented structured training and development programs and set clear growth plans for each employee to be able to grow professionally and add value to the firm from each of our diverse vantage points and experiences. Another key initiative was to establish our strategic advisory board, led by outstanding leaders who are all committed to providing valuable insights, support, guidance, and connections to us and our portfolio companies.

Thank you for your continued support and let me know if you have any questions or feedback on this report.

Vartan Indjeian Chief Financial Officer, Endurance28