When will startup valuations finally hit rock bottom? That’s a question I’ve been asking venture capital investors this week on the sidelines of the Web Summit tech conference in Lisbon. And their predictions might surprise you.
So far in 2022, the venture environment has changed dramatically: The investing pace has slowed to two-year lows, and sinking valuations have finally started showing up in the data. As Jessica reported earlier this week, median tech valuations fell nearly 29% in the third quarter from the second quarter of this year, per CB Insights, with valuations for late-stage deals falling by 50%.
Of course, valuations aren’t crashing equally in every sector, and VCs say quality companies are still attracting investors—who still have lots of cash to spend. But most of the VCs I spoke with at Web Summit agree that valuations haven’t had time to settle yet, mainly because many of these startups raised funds in 2021 and earlier this year and haven’t had to tap funding yet, so we don’t really know what their next (official) valuation will be.
A few top VCs I talked to do have some predictions, however, of when we might see a bottom for valuations—and it could be earlier than you might think.
Beth Ferreira, general partner at New York-based early-stage firm FirstMark, who focuses on consumer startups, notes “that’s the big question: whether or not there’s really a market clearing price [for startups]….Everyone thought it was gonna be right after Labor Day, and it’s probably a Q1  exercise of when we see that. I think we’re starting to see it now as companies [are] making the tough and right decisions to take capital at different valuations than they were anticipating.”
For those other companies that held off raising? “I think probably early next year we’ll start to see an unlock of some of those companies that could have waited to go out and raise or put a little bit more capital on the balance sheet to push out the timing to go out and raise, and I think we’ll start to see the pace sort of increase.…I think it’s probably [in] Q1.”
Meanwhile, Philippe Botteri, a U.K.-based partner at storied VC firm Accel, where he focuses on cloud and security startups, told me that “overall, as I look at our private portfolio, Q4 still…looks like it’s going to be okay, it doesn’t look like it’s going to fall off a cliff. But in this environment, you never know until the last few weeks of the quarter, so I think it’s way too early to tell. But given the amount of capital these companies have raised, and they have raised at a high valuation, they don’t need to raise right now.”
He believes “there’s still a lot of private capital on the sidelines ready to invest in these companies, but this capital is waiting for valuation[s] on the private side to still go down, and companies are waiting to grow into their valuation,” he says. “So at some point, supply is going to meet demand. My guess is that it’s going to happen next year—it’s gonna be probably slower at the beginning of the year. I think we will [look] much more active at the end of the year.”
Cack Wilhelm, a general partner at IVP who spends a lot of time on growth-stage cloud and tech firms, says “we talk about it being like, March, April [of next year]” when enough companies that “need money” will start tapping venture again—during which time you’ll likely see more data points to gauge valuations.
If one thing’s for sure, it’s that making predictions in the venture space is always risky in such a volatile macro environment. But for industry watchers, it seems like they should keep their eyes downward: The bottom may still be below us.
FTX’s Web3 social media bet: FTX Ventures, the venture arm of crypto exchange FTX, recently invested in Web3 social media layer Lens Protocol, created by the team behind DeFi lending protocol Aave, I reported yesterday. VCs have been betting on Web3 social media projects in the last year, with heavy hitters like a16z funneling cash into decentralized social networks like Farcaster. Read more here.
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Jackson Fordyce curated the deals section of today’s newsletter.
- Emalex Biosciences, a Chicago-based drug development company for Tourette Syndrome, raised $250 million in Series D funding. Bain Capital Life Sciences led the round and was joined by investors including Paragon Biosciences, Valor Equity Partners, Fidelity Management & Research Company, and others.
- Apiiro, a Boston, New York, and Tel Aviv-based cloud-native application security company, raised $100 million in Series B funding. General Catalyst led the round and was joined by investors including Greylock and Kleiner Perkins.
- Lusaris Therapeutics, a remote-based biotech company treating neuropsychiatric and neurological conditions, raised $60 million in Series A funding. RA Capital Management led the round and was joined by investors including Venrock Healthcare Capital Partners, Deep Track Capital, Boxer Capital, and others.
- Zest AI, a Los Angeles-based credit underwriting software company, raised $50.5 million in funding. Insight Partners and CMFG Ventures co-led the round and were joined by investors including CU Direct, Curql, Suncoast Credit Union, Golden1 Credit Union, Hawaii USA Federal Credit Union, and NorthGate Capital.
- Xeal, a New York-based electric vehicle charging company, raised $40 million in Series B funding. Keyframe Capital led the round and was joined by investors including ArcTern Ventures, Moderne Ventures, author Ramez Naam, Nexus Labs, Wind Ventures, and Alpaca VC.
- ORO, a San Francisco-based enterprise software platform for end-to-end procurement across teams, raised $25 million in Series A funding. Norwest Venture Partners and B Capital co-led the round and were joined by investors including XYZ Venture Capital, Array Ventures, and others.
- Orum, an Austin-based live conversation platform, raised $22 million in Series B funding. Tribe Capital led the round and was joined by investors including Craft Ventures and Unusual Ventures.
- Aro Homes, a San Francisco-based carbon-negative homebuilding startup, raised $21 million in funding. Innovation Endeavors, Western Technology Investment, and Stanford University invested in the round.
- Runwise, a New York-based building control company, raised $19 million in Series A funding. Fifth Wall led the round and was joined by investors including Rudin Management, SOJA Ventures, and others.
- Boston Materials, a Billerica, Mass.-based high-performance materials company, raised $12 million in Series A2 funding. Good Growth Capital led the round and was joined by investors including GS Group and PTT Global Chemical.
- Revuze, a Netanya, Israel-based consumer insights provider for brands, raised $12 million in funding led by PSG.
- Intus Care, a Providence, R.I.-based predictive analytics platform developer for geriatric care, raised $11 million in funding led by Deerfield Management.
- Playgig, a Los Angeles-based gaming studio, raised $10.85 million in seed funding. March Gaming led the round and was joined by investors including Paramark, Aream, and Gaingels.
- constellr, a Freiburg, Germany-based space data and services company, raised $10 million in seed funding. Lakestar and VSquared co-led the round and were joined by investors including FTTF, IQT, Amathaon Capital, Natural Ventures, EIT Food, OHB Venture Capital, Next Humanity, and Seraphim.
- FLX Networks, a Bernardsville, N.J.-based engagement platform for asset and wealth management firms and financial advisors, raised $10 million in funding. Barings led the round and was joined by investors including Allianz Life Ventures and Broadridge Financial Solutions.
- SparkPlug, a San Francisco-based incentive management and wage supplementation platform for frontline workers, raised $8 million in Series A funding. Lightbank led the round and was joined by investors including Industry Ventures, TenOneTen Ventures, and investor Jason Calacanis.
- Courtyard, a San Francisco-based NFT platform for physical goods, raised $7 million in seed funding. New Enterprise Associates led the round and was joined by investors including Y Combinator, OpenSea Ventures, VaynerFund, Brink’s, Cherry Ventures, and other angels.
- Guaranteed, a New York-based hospice care startup, raised $6.5 million in seed funding. BrandProject led the round and was joined by investors including Precursor Ventures, Springbank Ventures, Lakehouse Ventures, and Cake Ventures.
- VIEVE, a Strathaven, U.K.-based makeup brand, raised £5.5 million ($6.15 million) in Series A funding. Pembroke VCT, Venrex, Samos, and Active Partners invested in the round.
- Groove, a New York-based digital co-working platform, raised $3.5 million in funding. Resolute Ventures’ Mike Hirshland led the round and was joined by investors including 27V, Fresh Ventures, FullCircle, Overton Venture Capital, and Verissimo Ventures.
- AtlasJobs, a Manhattan Beach, Calif.-based talent engagement and management platform, raised $2.5 million in seed funding. PACA Ventures led the round.
- Grip, a Miami-based shipping logistics company, raised $2 million in pre-seed funding. Soma Capital, Western Technology Investment, and others invested in the round.
- ATL Partners acquired Aero Accessories & Repair, a Miramar, Fla.-based aerospace component maintenance, repair, and overhaul services provider. Financial terms were not disclosed.
- Cornell Capital and TorQuest Partners acquired a majority stake in S.i. Systems ULC, a Calgary, Canada-based IT staffing company. Financial terms were not disclosed.
- IMB Partners acquired a majority stake in Farwest Corrosion Control Company, a Downey, Calif.-based cathodic protection and corrosion control services company. Financial terms were not disclosed.
- Qnnect, a portfolio company of Arcline Investment Management, acquired Hermetic Solutions Group, a Trevose, Pa.-based electronic solutions designer and manufacturer. Financial terms were not disclosed.
- WindRose Health Investors acquired Bank’s Apothecary, a Trevose, Pa.-based specialty pharmacy. Financial terms were not disclosed.
- Marathon Oil acquired Ensign Natural Resources, a Houston-based natural resources exploration and production company, from Warburg Pincus for $3 billion.
- Voyager Interests acquired Knight Energy Services, a Houston-based rental tool company for the oil and gas industry, from Clearlake Capital Group. Financial terms were not disclosed.
- Ampla Technologies acquired Upside Financing, an Austin-based cash flow improvement platform for consumer brands. Financial terms were not disclosed.
- Marpai acquired Maestro Health, a Chicago-based third party administrator for employee health and benefits. Financial terms were not disclosed.
- RōBEX acquired Vantage Corporation, a Livonia, Mich.-based industrial robotics manufacturer and integrator. Financial terms were not disclosed.
- Acrivon Therapeutics, a Watertown, Mass.-based precision oncology therapeutics developer, plans to raise up to $106.2 million through the sale of 5.9 million shares priced between $16 and $18. Wellington Management, Surveyor Capital, RA Capital, Perceptive Advisors, Sands Capital, and Chione back the firm.
- Basis Global Technologies, a Chicago-based SaaS provider for programmatic ad buying, workflow automation, and analytics, withdrew its plans for an initial public offering.
FUNDS + FUNDS OF FUNDS
- DSG Ventures, the Pittsburgh-based venture arm of DICK’S Sporting Goods, launched a $50 million fund focused on sports companies.
- Clearview Capital, a Stamford, Conn.-based private equity firm, promoted Geoff Faux and Nick Berry to partner and Brent Simon to chief operating officer.
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