As interest rates rise, will limited partners move on from venture capital?

For the first time since 2018, the Federal Reserve is lifting the target for its federal funds rate by a quarter of a point, signaling the end of a long-lasting pool of cheap capital for companies. This has been on the table for some time—but now we’re finally going to see it start to play out. 

Theoretically, this could be a big deal. The Fed projects it may raise rates six more times this year, so you can expect the cost of borrowing money to get more expensive, and returns on investments that have offered a low yield in recent years (like bonds) to start going up.

Here’s why all that cause and effect talk matters to the private markets: Limited partners might turn attention to other asset classes.

Now, bear with me here. We had never seen a year like 2021 for the private markets. There were record levels of funding, exits, and companies going public. You can thank an enormous influx of capital from pension plans, universities, insurance companies, and banks into private funds: They poured billions more dollars into the market for firms to deploy. The billion-dollar fund closure announcements flowed en masse.

Here’s one of the reasons limited partners may have been so keen on writing those checks: Interest rates. At the end of the day, investing is a tradeoff between risk and return. With interest rates forcing down yields on less-riskier investments, like bonds, LPs seemed more willing to look at other, more riskier asset classes, like the private markets, to generate return. The big question: Will LPs still be willing to make those same bets when they have other options? 

Recent history suggests that the answer is no, at least not to the same degree: A 2017 report from the European Financial Management Association shows that, over a 35-year period in 20 major venture capital markets, a one percent increase in interest rates reduced venture capital fundraising by $647 milion the following year—or about 3.2%. 

To be sure, a 3.2% decline isn’t so substantial. But that’s still within a year of an interest rate hike, and it takes time for the impact of those rates to flush through the markets, and for companies to act. 

Theoretically, nothing has fundamentally changed between Tuesday and today (the inflation, supply chain issues, labor shortages, and war in Ukraine are still ongoing, and many funds will continue to outperform while others won’t). Interest rates aside, entrepreneurs with good ideas are still entrepreneurs with good ideas. Shouldn’t they get funding? I don’t think anyone is predicting some sudden dropoff anytime soon, even if some investors do warn of an impending correction. That being said, it is worth watching some of these macroeconomic factors and how they’ve played out in the past, even if there is always a lot of room for surprises.

Oh no, Oyo… It really is an awful time to try to go public. Oyo, a budget hotel booking company and one of the highest-valued startups in India, may knock its $1 billion IPO (and its intended $12 billion valuation) in half, due to factors like the poor performance in the stock market, people familiar with the matter told Bloomberg. Perhaps unsurprisingly, the company may decide to put its plans to go public on pause.

Meanwhile… Apparently others aren’t deterred. Deda Group, an Italian technology infrastructure company, is weighing going public by the end of this year or in 2023 in a deal that could value the company at $1.1 billion; and Belle Fashion Group plans to raise around $1 billion in an IPO in Hong Kong.

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See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Getir, an Istanbul, Turkey-based instant delivery startup, raised $768 million in Series E funding led by Mubadala Investment Company and was joined by investors including Abu Dhabi Growth Fund, Alpha Wave Global, Sequoia Capital, and Tiger Global.

- ConsenSys, a Brooklyn-based Ethereum and decentralized protocols software company, raised $450 million in Series D funding led by ParaFiCapital and was joined by investors including Temasek, SoftBank Vision Fund 2, Microsoft, AnthosCapital, Sound Ventures, C Ventures, Third Point, Marshall Wace, TRUE Capital Management, and UTA VC. 

- FLASH, an Austin-based cloud parking software, raised more than $250 million in funding led by Vista Equity Partners and was joined by investors including L Catterton.

- SiFive, a San Mateo, Calif.-based microchip computing company, raised $175 million in Series F funding led by Coatue Management.  

- Webflow, a San Francisco-based web design and hosting platform, raised $120 million in Series C funding led by YC Continuity and was joined by investors including CapitalG, Accel, Silversmith, and Draper Associates. 

- Amagi, a New York-based SaaS company for broadcast and streaming TV, raised $80.75 million led by Accel and was joined by investors including Norwest Venture Partners and Avataar Ventures.

- Multiplier, a Singapore-based global employment platform, raised $60 million in Series B funding co-led by Tiger Global and Sequoia Capital India and were joined by DST Global Partners.

- OXIO, a New York-based telecom-as-a-service platform for brands and enterprises, raised $40 million in Series B funding led by ParaFi Capital and was joined by investors including DigitalCurrency Group, Ascend, Leyden, Multicoin Capital, Monashees, Atlantico Capital, FinTech Collective, Allan Green, and angel investors from LightShed Partners and Sea Group.

- Circuit Clinical, a Buffalo, N.Y.-based research organization, raised $29 million in Series C funding led by Breakout Investment Partners and was joined by investors including Laboratory Corporation of America, 3DS Investments SAS, WNY Impact Investment Fund, Breakout Investment Partners, LaunchNYSeed Fund, and Rochester Angel Network. 

- Todyl, a Denver, Colo.-based security and networking company, raised $28 Million in Series A funding led by Anthos Capital and was joined by investors including Tech Operators, BluVentures, and StoneMill Ventures. 

- TruEra, a Redwood City, Calif.-based A.I. quality management solutions platform, raised $25 million in Series B funding led by Menlo Ventures and was joined by investors including Greylock Partners, WingVenture Capital, Harpoon Ventures, Conversion Capital, the Data Community Fund, Forgepoint Capital,and the Ascent Fund.

- Logically, a London-based mis- and disinformation A.I. platform, raised $24 million in funding led by Vitruvian Partners and was joined by investors including Amazon Alexa Fund, XTXVentures, and the Northern Powerhouse Investment Fund.  

- Apollo Neuro, a Pittsburgh, Pa.-based touch therapy wearable, raised $15 million in Series A funding led by the Noetic Fund and was joined by golfer Greg Norman as an angel investor. 

- Canopy, a New York-based oncology care platform, raised $13 million in funding led by GSRVentures and was joined by investors including Samsung Next and UpWest. Geoff Calkins and Chris Mansi joined as angel investors. 

- Plantish, a Rehovot, Israel-based alt-seafood company, raised $12.45 million in seed funding led by StateOf Mind Ventures and was joined by investors including Pitango, Unovis Capital, TechAvivFounder Partners, SmartAgro, E2JDJ, Alumni Ventures, and OurCrowd. 

- anywell, a New York-based workspace-as-a-service company, raised $10 million in Series A funding. Pitango and Viola Ventures led the round and were joined by investors including Emerge.

- LILA Games, a Bangalore, India-based mobile game studio, raised $10 million in Series A funding led by Rainfall and was joined by investors including BITKRAFT Ventures, Galaxy Interactive, Sequoia Capital, and KRAFTON.

- PingPod, a New York-based ping pong company providing 24/7 access to its locations, raised $10 million in Series A funding led by Sequoia Heritage and was joined by investors including KittyHawk Ventures and Draper Gain Family Office.  

- Contingent, a London-based supplier insight and risk platform, raised $8.2 million in funding led by Octopus Ventures and was joined by investors including Connect Ventures, Concentric, Seedcamp, Ascension, and Working Capital Innovation Fund. 

- OpenLoop, a Des Moines, Iowa-based hiring platform for physicians and health care providers, raised $8 million in Series A funding led by SpringTide Ventures and was joined by investors including ManchesterStory, Next Level Ventures, PanoramicVentures, ISA Ventures, and others. 

- Loveseat, an Austin-based online marketplace for home goods, raised $7 million in Series A funding led by Bessemer Venture Partners and was joined by angel investors Gokul Rajaram, Gabriel Weinberg, and Kal Vepuri.

- Solo, a Fremont, Calif.-based vehicle hardware company for the freight transportation industry, raised $7 million in seed funding led by Trucks VC and was joined by investors including Maniv Mobility and Wireframe Ventures.

- Payrails, a Berlin-based operating system for payments and financial services, raised $6.4 million in seed funding led by Andreessen Horowitz and was joined by HV Capital, Delivery Hero CFO Emmanuel Thomassin, Flixbus founders Jochen Engert, André Schwämmlein, Daniel Krauss, and founder of HelloFresh Dominik Richter. 

- Liveblocks, a collaboration startup for teams, raised $5 million in seed funding from investors including Atlassian, Boldstart, Seedcamp and others.

- Oorbit, an entertainment platform in the metaverse, raised $5 million in seed of funding from investors including Mark Cuban, Pixelynx (co-founded by artist deadmau5) and HOF Capital.

- Formfunction, a San Francisco-based NFT marketplace on Solana, raised $4.7 million in seed funding led by Variant Fund and was joined by investors including Solana Ventures, Canonical Crypto, Pear VC, Palm Tree Crew Crypto, and OpenSea Ventures.

PRIVATE EQUITY

- EQT acquired Baring Private Equity Asia, a Hong Kong-based private equity firm, for $7.5 billion.

- EQT agreed to acquire InstaVolt, a Hampshire, U.K.-based electric vehicle charging company, from Zouk Capital. Financial terms were not disclosed. 

- Orchard & Vineyard Supply, a Clearview Capital portfolio company, acquired Clearwater Irrigation Supply, a Salem, Ore.-based irrigation company. Financial terms were not disclosed. 

- Susquehanna Growth Equity acquired a minority stake in Tekmetric, a Houston-based automotive repair software company. Financial terms were not disclosed.

EXITS

- Alphawave IP agreed to acquire OpenFive, a Milpitas, Calif.-based semiconductor company, from SiFive. Financial terms were not disclosed.

- Odyssey Investment Partners acquired Pexco, a Johns Creek, Ga.-based supplier of engineered plastic components, from AEA Investors. Financial terms were not disclosed.

OTHER

- Booz Allen Hamilton agreed to acquire EverWatch, a Reston, Va.-based provider of national security services. Financial terms were not disclosed. 

- Zebra Technologies agreed to acquire Matrox Imaging, a Montreal-based developer of advanced machine vision components and systems. Financial terms were not disclosed. 

- Serent Capital, a San Francisco-based private equity firm, raised $1.1 billion for a fifth fund focused on founder-led B2B software companies. 

- Hoxton Ventures, a London-based venture capital firm, raised $215 million for a new fund focused on building and scaling European early-stage startups.

PEOPLE

- Clean Energy Ventures, a Boston-based venture capital firm, hired Nora Mead Brownell as partner. She will continue her full-time role at ESPY Energy Solutions. 

- KKR, a New York-based global investment firm, hired Chano Fernandez as senior advisor to the global technology team. He will remain as co-CEO at Workday. 

- Pi Labs, a London-based venture capital firm, hired Stefania Ponzo as partner. Formerly she was with Pembroke VCT.