VCs predict dark days ahead for the private markets

May 6, 2022, 4:02 PM UTC

Kevin Baum, co-founder and CEO of farm management software startup Agriwebb, is trying to get ahead of it. The company, in March, re-opened the Series B round it closed in early 2021.

“We want to open it and close it quickly,” Baum says, telling me they are aiming to close the extension before the end of the third quarter. It would be nice for Agriwebb to have some additional capital for its new ranch data aggregation software and its integrations—and, in today’s environment, Baum isn’t sure how long the company might need to hold off before raising a Series C.

“Things are changing a bit out there,” he says. 

Some investors are likening it to an oncoming storm. But no matter who you ask, nearly everyone would say we have entered a new period in the market. Earlier this week, the Federal Reserve lifted interest rates, which makes borrowing money more expensive. The war in Ukraine is hoisting gas prices. Inflation levels are higher than they have been in decades. And then, of course, there are the tumbling public markets. The Nasdaq is down more than 23% since the beginning of the year. IPOs have tapered off, temporarily closing an exit route many late-stage investors rely upon. 

Many of these signals had been simmering at the end of last year, but deals can take months to close, and there’s a wide lag between the public and the private markets. But if anyone was waiting on the data, it’s starting to show up.

Global venture funding notched $47 billion in April, according to new Crunchbase data. That’s still high, but it’s the lowest figure we’ve seen in the past year. It’s 10% lower than even levels in March, and 12% lower than funding figures in April 2021. As you could expect, it’s bottling in the late stages first and late-stage funding is down 19% from last year, per Crunchbase. While the median valuations for early-stage companies have generally been on the climb each month of this year, per AngelList data, later-stage post-money valuations have been more sporadic.

There’s good reason to believe this is only the beginning, and VCs are warning their portfolio companies to gear up for a dry spell. 

For one, interest rates. When it’s cheap to borrow capital, more cash floods the system, explains Peter Hébert, co-founder of Lux Capital, an emerging science and deep technology VC firm. “People don’t really think about macroeconomics and central banking when they’re thinking about venture capital opportunities—but the money is being created by the central bank flooding the system,” he says. “A significant amount of cash, or even just incremental cash coming into these markets, causes a massive impact on pricing.”

That influx of cash has inflated public markets, Hébert says, which has created an arbitrage opportunity for hedge funds in late-stage investments. “Companies that have $1 million of ARR are being valued by very high-quality, reputable investors at $2 billion. That has an impact on, not just psychology, but when you have these market prices being established, everything kind of moves up in tandem.”

All of this is playing out in a pullback and newfound hesitation in later rounds, he says. “That market is just frozen. People do not know where to price. People do not want to offend companies or existing investors by applying any kind of rigorous public market framework” to companies whose comps are down 75%.

We’ve seen this play out before. For one, when Hébert entered the industry in the 90s and early 2000s, which were followed by what you could call a drought. But there are also false alarms. Take the beginning of the pandemic, for instance. In early 2020, VCs sent shockwave warnings (most famously, Sequoia’s 2020 Black Swan memo). But that was followed by the most active two years in venture capital the world has seen.

Are things different this time around? As for now, there’s still a plethora of capital on the market. Many venture funds just raised their biggest funds to date, and they have to do something with that money.

But there are all sorts of questions floating around as to what happens when that capital dries up. In the past two years, limited partners have been itching to write checks to VCs. But now that interest rates are on the rise and tumbling markets are offering lucrative opportunities in other places, will they look elsewhere?

The last year has brought “a lot of attention to the [biotech] sector, and to venture, and yet there have been these headwinds for allocating to venture, and in the space in general, given the alternatives that are available,” says Dr. Jenny Rooke, founder and managing partner at biotech-focused VC firm Genoa Ventures. At the same time, limited partners seem to understand and be more educated on the startup market now, and it’s been easier to fundraise—even if there are compelling investment opportunities elsewhere.

This is the conundrum—no one really knows what’s going to happen. In the meantime, founders are extending closed rounds or issuing convertible notes. Startups are reconsidering their cost structures and spending. After all, it helps to show up to a downturn prepared.

Keep it coming… I got so much feedback from readers on this topic of the state of the private markets, so I decided to dedicate an issue of next week’s newsletter to reader sentiment. Please continue to send me all your thoughts/fears/predictions on the state of private markets. I will be reading through your comments until mid-day Monday and look forward to publishing some of them in one of next week’s issues.

Please note: The online version of Wednesday’s newsletter has been updated to reflect that Moonfare has 2,500 global investors and $1.8 billion in assets. I had incorrectly written that this was U.S. business.

Until Monday,

Jessica Mathews
Twitter: @jessicakmathews
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Jackson Fordyce curated the deals section of today’s newsletter.


- Material Bank, a Boca Raton, Fla.-based online materials marketplace, raised $175 million in funding led by Brookfield Growth and was joined by Fifth Wall.

- Redcliffe Lifetech, a Noida, India-based diagnostics platform, raised $61 million in funding led by LeapFrog Investments and was joined by investors including Healthquad, Schroders, LC Nueva, Growth Spark Ventures, Chiratae Ventures, and Alkemi Venture Partners

- Zora, a public protocol for buying, selling, and creating NFTs, raised $50 million in funding led by Haun Ventures and was joined by investors including Coinbase Ventures, Kindred Ventures, and others.

- Team Liquid, a Santa Monica and Utretcht, the Netherlands-based e-sports organization, with parent company aXiomatic, raised $35 million in funding led by funds managed by Ares Management and was joined by investors including Revolution Growth and Hiro Capital.

- Synerise, a Krákow, Poland-based behavioral data platform, raised $23 million in Series B funding led by Carpathian Partners.

- LootRush, a San Francisco-based blockchain & NFT video games platform, raised $12 million in seed funding led by Paradigm and was joined by investors including Andreessen HorowitzY Combinator, and other angels. 

- Cometh, a Paris-based Web3 gaming studio, raised $10 million in seed funding. White Star Capital, Ubisoft, and Stake Capital co-led the round and were joined by investors including Serena Capital, Shima Capital, and IDEO Colab Ventures

- Heard, a remote bookkeeping and tax platform for mental health professionals, raised $10 million in Series A funding led by Footwork and was joined by investors including Founders Co-Op, Act One Ventures, and other angels. 

- Tomorrow Farms, a New York-based sustainable food-tech company, raised $8.5 million in seed funding led by Lowercarbon Capital and was joined by investors including Maveron, Valor Siren Ventures, Simple Food Ventures, and SV Angel

- Line, a San Francisco-based financial services company, raised $7 million in funding led by Massive and was joined by other angels.

- ​​Masa Finance, a San Francisco-based hybrid credit protocol, raised $3.5 million in pre-seed funding from Unshackled Ventures, executives from GoldenTree Asset Management, Flori Ventures, GSR, Decentranet, Intersect VC, Lateral Capital, Peer VC, Alves Ventures, and other angels. 

- Seaspire, a Boston and New York-based skincare startup, raised $3 million in seed funding led by The Engine and was joined by investors including MassMutual through the MM Catalyst Fund, MassVentures, Alumni Ventures, Safar Partners, and angel investors Drs. Daniel Siegel and Susan Bryde.

- Cheq, a Wilmington, Del.-based crypto payments platform, raised $2 million in pre-seed funding led by Connect Ventures and was joined by investors including Semantic Ventures, firstminute Capital, and other angels. 

- Kabata, a Los Angeles-based workout platform, raised over $2 million in funding from investors including Courtside Ventures, Detroit Venture Partners, Tribe Capital, NBA athlete Zaza Pachulia, EVP of Basketball Ops for the Golden State Warriors Kirk Lacob, AngelList founder Naval Ravikant, Caraway Home founder and CEO Jordan Nathan, Bonobos co-founder and CEO Andy Dunn, My First Million podcast co-host Sam Parr, and pro soccer player Daniel Sturridge


- Congruex, backed by Crestview Partners, acquired Tower Engineering Solutions, a Dallas-based wireless tower infrastructure engineering company, and Sorensen Companies, a Syracuse, Utah-based telecom infrastructure services company. Financial terms were not disclosed.

- Elvisridge Capital acquired Glacier Glove, a Reno, Nev.-based outdoor activity glove maker. Financial terms were not disclosed.

- The Jordan Company acquired a majority stake in Flywheel Software, a San Francisco-based data activation platform for enterprise. Financial terms were not disclosed.


- General Atlantic, Nautic Partners, and The Vistria Group acquired PANTHERx Rare, a Pittsburgh-based rare disease pharmacy, from Centene Corporation


- Larsen & Toubro plans to merge its Indian-based Mindtree and L&T Infotech software units. A deal would be valued at $17.69 billion. 

- Former Disney CEO Bob Iger, sports agent Rich Paul, eBay, and the Chernin Group agreed to acquire a 25% stake in Funko, an Everett, Wash.-based toymaker. A deal would be worth $263 million.


- SK Shieldus, a South Korean-based security services company, withdrew its $825 million IPO plans in Seoul amid market volatility. 

- Vescovini Group, a Reggio Emilia, Italy-based industrial fastener maker, plans to raise up to $2 billion in a public offering in Milan, according to Bloomberg. 


- IMB Partners, a Bethesda, Md.-based private equity firm, hired Maurice Markey and Leo Singer as operating partners and Rich Beaty as managing director. Formerly, Beaty was with S&T Bank. Lamar Warren was also promoted to director.

- Norwest Ventures, a Palo Alto, Calif.-based venture capital firm, hired Lisa Ames as CMO. Formerly, she was with Lucidworks. The company promoted Laura Boyd to principal, head of M&A and capital markets, Laurie Tennant to principal, people advisory, Teri McFadden to principal, talent, Kris Snodgrass to principal, talent, Lauren Heller to vice president, talent, and Julia Noellert to vice president, talent. The company also hired Shu Dar Yao as senior advisor, ESG and Rachel Williams as senior advisor, DEI. Formerly, Williams was with X

Correction: After yesterday’s newsletter was published, a Fictiv spokesperson stated that William Blair Merchant Bank had not participated in the funding round and that Standard Investments, not Standard Industries, had joined the round. 

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