You’ve heard the rumblings. You’ve read the warnings. And you’ve seen the data hinting at an impending slowdown.
As Social Capital founder Chamath Palihapitiya recently put it in his annual investor letter: “After a decade of free money, quantitative easing, zero interest-rate policy, and an unprecedented bull market, the best party in town (‘long’ equities) has come to an end.”
Is this the end of venture capital as we know it, or a short-lived dip in the markets? I asked Term Sheet readers to weigh in.
Here’s what you all have to say about the private markets:
The tide is turning…
“We’re seeing a sort of stalling of some VC energy among a lot of startups in our personal network. Seems like all VCs are slowing down their investment pace right now, which is a huge departure from what it’s been until just recently. Many startups we spoke to decided not to raise in the current environment. Some people we’ve talked to say that if you have to fundraise right now, you have to basically take what you’d planned to raise in January, and cut it in half.” —Torben Friehe, Wingback
“We are starting to see the effects of higher interest rates and the resulting pullback in public technology stocks, most notably in SaaS, in the private markets. This is leading to a rotation from growth at all costs to efficient growth, a general flight to quality, and making software businesses adopting product-led growth (PLG) strategies even more attractive to investors. I expect there to be much less tolerance for high burn without exceptional performance, and an increasing emphasis on unit economics and return on capital.” —Mackey Craven, OpenView
“We closed out our Series A in early February after three months of intense negotiations, not to mention all the due diligence required. This was just as the stock market was cratering, China’s Zero Covid policy was crushing the global supply chains, inflation was at historic highs, and the war in Ukraine was looking inevitable. It’s safe to say that if we had started our raise 30 days later, the deal would probably not have happened.” —Dimitri Falk, Piñata
“Growth optimized businesses, like Amazon aggregators, have relied on VC debt financing and these VCs have pushed a ‘growth at any cost’ business model making it extremely difficult to be profitable. In 2022 we saw a serious slowing of retail demand, increased supply chain issues/delays, and rising interest rates. This confluence of events means these VC-backed companies aren’t able to meet the aggressive growth metrics required by VCs and are being hit especially hard with sell-offs, layoffs, and serious devaluation.” —Alexej Pikovsky, Alphagreen Group
We’ve seen this before…
“Experienced founders, entrepreneurs and investors know market conditions shouldn’t dictate their fundraising strategy. When interest rates rise, many founders are inclined to overlook venture debt––but this is often to their own detriment. Even when interest rates are high, and debt therefore seems scary—it can be the better option to ensure you retain ownership of your company, and your cost of capital doesn’t rise as you become more profitable—as it does with equity. Whether you’re looking to raise debt or equity, it is essential that founders use data to tell their company’s story. And when markets are increasingly volatile or conditions seem to be turning against founders, relying on performance data is more important than ever.” —Blair Silverberg, Hum Capital
“Atlassian, Procore—those were companies that were formed just [after] the big Dot-Com Bubble burst almost 23 years ago. And companies like Airbnb or GitHub were formed in ‘08. There are great companies out there, and in many ways, the companies that are going to rise to the top right now…are those that are really seeing the opportunities around them and going for it. So we’re just out there looking for those breakthrough generational businesses—and we think they can be made in any environment.”—Aidan Madigan-Curtis, Eclipse Venturers
“Two things are true: 1) VC funding is pulling back and we are transitioning from a frothy environment to a cautious one. Companies will need to be increasingly careful with cash, reconsidering burn for the 12-18m. 2) This is the best time to fund the best innovators. Some of the best companies came out of the trough in the cycle and, indeed, the most resilient founders thrive when there is less money to be raised. Women founders will have an advantage in such an environment; the data shows they return more on less capital raised. My bet is VCs who want to back founders who can get to product market fit with less capital will find alpha.” —Nisha Dua, BBG Ventures
Woohoo! A correction!
“On the downturn, I am actually excited for it. Finally the time will come where companies need to start behaving more responsibly, be more focused on their customers and the ways in which they can feasibly and viably solve their problems vs. just burning cash and breaking business models. Bring it on. May the strong survive and the well oiled machines thrive.” —Danny Le Gros
“I’m one of those founders who found no love from VCs when the markets were hot. It’s time for the spoilt founders to learn a bit of my lived experience—operating lean. The fast learners will be fine.” —Kayode Odeleye, Caena
“I’ve found that founders’ value expectations haven’t really changed yet at basically every stage, and this is somewhat driven by the occasional round still getting done at a crazy price where people are just anchoring to it. Additionally, in almost every high quality project there has been a rogue termsheet which is 40% above market by a non-traditional investor still just trying to win the ‘best’ deals.” —anonymous general partner at a multi-stage fund
“We are not pressing pause. We’re pleased that valuations are coming back down to earth, but I don’t think we’re done just yet. In the next two quarters we are very likely to see that re-opening their last round didn’t work, so they’re going to slash their burn-rates to extend their runway. If they can grow their way out of it, their valuations may stay intact. Most will not be able to, so a down round will likely come next.” —Brian McLoughlin, MTech Capital
What employees should do next…
“I don’t think employees should come out of pocket to exercise options. I did that when I left Airtime 10 years ago and I am still waiting for an exit. They should negotiate an extension to the option exercise window if possible. Employers still want to get a separation and release and avoid bad press with regard to layoffs, and that potentially gives ex-employees, especially if they coordinate, some leverage.” —Alda Leu Dennis, Initialized Capital
“Growth company leadership teams used to come together somewhat organically; hires were made in phases prioritized by specific gaps within the founding team – more and more we’re speaking with clients who want to understand how to bring on an entire team (or board) at once (with particular focus on team effectiveness and culture).” —Tuck Rickards, Russell Reynolds Associates
What to expect from LPs…
“On the LP side – many are tied up capital-wise, but also realize the big opportunity to ‘buy when there’s blood on the streets.’ I hear these are the times ‘forever-companies’ are formed and set up a trajectory to excel long term, at least in our sector (biotech/ healthcare). Hopefully this is the case this time around as well, for patients’ and health’s sake.” —Themasap Khan, Civilization Ventures
“Funds will have a harder time raising capital—LPs across the board are feeling the pinch and if the stock market continues to decline, they will pull back on investing in this asset class. In 2008, I saw major LPs pulling out of venture entirely, not just scaling back their commitments. This time around, I am optimistic it will just be more scaling back because VC has become such a long term strong performing sector for asset managers and they saw distributions recently. Less LP dollars means GPs need to manage pace better and be more selective. It also means that portfolio companies may be impacted because their customers are pulling back their spend.” —Alda Leu Dennis, Initialized Capital
“The fear is that retail investors will invest more heavily in SPVs run by managers with no skin in the game, [who are] not deploying any of their own money into the deal.” —Logan Henderson, Gridline
“If there is a sustained downturn, it will also be important to watch how CVCs are impacted. Those CVCs that are intimately linked to the corporation’s long-term growth strategy—both structurally and from a governance perspective—will be around but there might be others that cannot weather the storm.” —Brian Walsh, WIND Ventures
See you tomorrow,
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Jackson Fordyce curated the deals section of today’s newsletter.
- KuCoin, a Seychelles-based global cryptocurrency exchange, raised $150 million in pre-Series B funding led by Jump Crypto and was joined by investors including Circle Ventures, IDG Capital, and Matrix Partners.
- Pyramid Analytics, a London, New York, and Tel-Aviv-based decision intelligence platform provider, raised $120 million in Series E funding led by H.I.G. Growth Partners and was joined by investors including Clal Insurance Enterprises Holdings, Kingfisher Capital, and General Oriental Investments, JVP, Maor Investments, Sequoia Capital, and Viola Growth.
- Brightseed, a San Francisco-based biosciences company, raised $68 million in Series B funding led by Temasek and was joined by others.
- Mashgin, a Palo Alto, Calif.-based touchless self-checkout system provider, raised $62.5 million in Series B funding led by NEA and was joined by Matrix Partners.
- Irreverent Labs, a Seattle-based blockchain-enabled gaming company raised $40 million in Series A funding led by a16z and was joined by investors including Solana Ventures, Infinity Ventures Crypto founding partner Brian Lu, Creative Artists Agency founder Michael Ovitz, Bollywood actress Sonam Kapoor, Capitoria, Mantis VC, Unlock Venture Partners, Keen Crypto, and Advancit Capital.
- Azumo, a Chicago-based display technology company, raised $30 million in funding led by Anzu Partners and was joined by investors including SABIC Ventures, VectoIQ, Dipalo Ventures, and Energy Foundry.
- WizeHire, a Houston-based hiring platform, raised $30 million in Series B funding led by Tiger Global and was joined by investors including Amplo and Mercury.
- Common Energy, a New York-based community solar provider, raised $16.5 million in funding from S2G Ventures.
- PocketLaw, a London and Stockholm-based legal services and contract management software company for businesses, raised $11 million in Series A funding led by Atomico and was joined by angels including Personio co-founder Hanno Renner and COO Jonas Rieke, Pitch founder Christian Reber, Pleo co-founder Jeppe Rindom, Gloria Baeuerlein, the dbt Labs board member and former Gainsight COO Allison Pickens, Kinnevik’s Cristina Stenbeck, and Susanna Campbell.
- Freeverse, a Barcelona-based blockchain gaming software, raised €10 million ($10.5 million) in Series A funding. Earlybird Venture Capital and Target Global led the round and were joined by investors including Adara Ventures, 4Founders Capital, soccer player Mario Götze, OneFootball CEO Lucas von Cranach, and others.
- Handspring, a Newark, N.J.-based mental health care provider for children, raised $6.2 million in seed funding. Newark Venture Partners and NextView Ventures led the round and were joined by investors including 25madison Ventures, Arkitekt Ventures, Quantum Angels, and other angels.
- Cogniteam, a Tel Aviv-based robotics development company, raised $5.6 million in Series A funding from investors including Seabarn Management’s Andrew Owens and Panthera family office members.
- Southie Autonomy, a Boston-based robotic automation company, raised $2.5 million in seed funding led by BootstrapLabs and was joined by Ocean Azul.
- Gato Investments, backed by Searchlight Capital Partners, agreed to acquire Hemisphere Media Group, a Miami-based Spanish-language media company. Financial terms were not disclosed.
- Netherlands Measurement Institute, a portfolio company of Levine Leichtman Capital Partners, acquired Chamois Metrology, a Southam, U.K.-based legal metrology testing and inspection service provider in Europe. Financial terms were not disclosed.
- Carlyle agreed to acquire NSM Insurance Group, a Conshohocken, Pa.-based broking and risk management insurance provider, from White Mountains Insurance Group. A deal would be valued at $1.775 billion.
- Antech Diagnostics acquired EUROLyser, a Salzburg, Austria-based diagnostics specialists, from ArchiMed. Financial terms were not disclosed.
- Cornell Capital agreed to acquire Advancing Eyecare, a Jacksonville, Fla.-based ophthalmic instruments provider, from Atlantic Street Capital. Financial terms were not disclosed.
- Precisional, a portfolio company of The Jordan Company, acquired Sunnyvale, Calif.-based Protempis, a precision timing company for communication systems, data centers, financial networks, utilities, factory automation, security and other infrastructures, LOADRITE, an accurate sales company for loaders, excavators, conveyor belts, tractors, refuse trucks and forklifts, Spectra Precision Tools, a manufacturer and designer of construction instruments, and SECO, a surveying equipment and instruments provider, from Trimble. Financial terms were not disclosed.
- Grindr, a West Hollywood, Calif.-based dating app focused on the LGBTQ+ community, agreed to go public via a merger with Tiga Acquistion Corp., a SPAC, per Bloomberg. A deal values the company at $2.1 billion, including debt.
FUNDS + FUNDS OF FUNDS
- YL Ventures, a Mill Valley, Calif. and Tel Aviv-based venture capital firm, raised $400 million for its fifth fund focused on early-stage cybersecurity companies.
- Plexus Capital, a Raleigh, N.C.-based private investment firm, raised $204 for its first private equity fund.
- Bull City Venture Partners, a Durham, N.C.-based venture capital fund, raised $53 million for a fund focused on seed and early-stage software, e-commerce, fintech, mobile, and healthcare IT companies in the Mid- Atlantic and Southeastern U.S.
- INX International, a Schaumburg, Ill.-based printing inks and coatings manufacturer, set aside $50 million for a fund focused on sustainability and the circular economy.
- EQT, a Stockholm-based private equity firm, hired Tinna C. Nielsen as equitable transformation lead for social and human sustainability. Formerly, she was with the Danish Institute for Human Rights at the United Nations. The company also hired Angela Jhanji as managing director for sustainability integration. Formerly, she was with Grant Thornton.
- Grafine Partners, a New York-based alternative asset management firm, hired Grace Rhee Kim as managing director. Formerly, she was with Pine Brook.
- Platinum Equity, a Beverly Hills-based private investment firm, hired Alex Doñé managing director. Formerly, he was with the New York City Comptroller’s Office Bureau of Asset Management.
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