IPO market optimism, down rounds, and crypto: The biggest VC conversations last week

IPOptimism

Naturally there’s a lot of chatter in VC circles that the window for IPOs is finally opening up—having big implications for investors way earlier in the company lifecycle. And with British chip designer Arm’s big (and successful) IPO late last week, it’s no surprise that VCs are rubbing their hands in anticipation. 

“If we can get a few of those successful IPOs, we might get this whole capital markets thing flowing and moving again,” Brad Svrluga, cofounder and general partner at VC firm Primary, which hosted the event, said during his opening remarks. “We are all watching you,” he said to the growth investors in the room. “If this goes well, you get back to work, because we’re waiting.” 

New York Stock Exchange Group president Lynn Martin was, unsurprisingly, bullish on the return of IPOs, declaring that there’s “a big pipeline coming up [and] a lot to talk about in the next, I’d say, six to eight weeks, which hopefully will position ’24 to be back to normal,” she said. The recent cohort of IPOs (like Arm, and earlier this summer, Cava) shows that there is investor demand for IPOs, she said—or, at least, the right companies. And if the recent crop of companies filing (including Klaviyo and Instacart) do end up getting the valuations they want, “I think you’re going to start to see companies really gear up to file,” Martin suggested, though it may not be a “flood” of S-1s until next year. 

Things are still bad

For all that optimism about going public, private companies are still facing a lot of challenges. And VCs dished plenty of advice and observations about the struggles startups are, and will be, going through. 

Rick Heitzmann, cofounder and partner at FirstMark, noted that “There’s gonna be a lot of companies back in market” that need to raise funding soon, “and the key thing that [investors] are going to focus on…is not how much burn have you decreased, but what real milestones have you achieved?” And he added that it might be competitive: “There probably is not as much dry powder as people would expect.” 

Some VCs were refreshingly honest. Hemant Taneja, CEO and managing director of General Catalyst, said the firm “wrote down our portfolio by about 40%” amid the downturn. “I thought it was important for us to take our medicine and start highlighting what the reality was.” 

It’s not just investors who need to take their medicine. Down rounds, where companies raise more funding at a lower valuation than their previous round, were a big topic of conversation among VCs. And the message to startups? There’s no shame in it. 

“Down rounds will happen. What’s the big deal? All of our public stocks are down,” Taneja said. Others like Rebecca Lynn, cofounder and general partner at early stage firm Canvas Ventures, are also in favor of down rounds over taking a deal with onerous terms. For companies in the position of needing to do a down round, “There’s sort of a two step piece of it: Step one is the down round. Step two is, what does this company need to look like now to set it up for the next round? And that’s often the hardest conversation,” she said, adding that she recommends founders try to recapitalize and clean up their cap table. 

Gavin Baker, managing partner and chief investment officer of Atreides Management, believes we’re in for a huge number of companies taking down rounds. “Unless the Nasdaq keeps going up, when the pig works its way through the python and all these rounds get priced and eventually the structure gets washed out,” the number of down rounds “is gonna go to like 50% or 60%, maybe 70%,” he estimated. 

The good, bad, and ugly on crypto and LPs

Investors can make mistakes when everything is going up-and-to-the-right. And Union Square Ventures’s Fred Wilson did not hold back on calling out what he considered terrible decisions during the bull market. 

Wilson argued that venture investors who held on to the public stocks of portfolio companies were being irresponsible with their limited partners’ money. “You look at some of these big funds, and they’re holding positions that they should have distributed [to limited partners] five years ago that went all the way up and all the way down, and they’re still holding on to them. They should be fired, their limited partners should fire them,” he declared passionately (to much laughter and applause from the audience, I should add). 

He also criticized VCs who raised large funds during the bull market because limited partners were willing to give them billions. “Don’t do what your limited partners tell you to do, that’s a recipe to underperform,” he argued, adding “your limited partners are not your friends.” 

Attacks on his peers aside, Wilson was also frank about the challenges—and opportunities—in the embattled crypto space. “There are some things that we should have sold that we didn’t sell in our portfolio,” he said, adding “we made some mistakes, too” and that they rode some investments down to zero, like others in the space. But Wilson, who was one of the early investors in Coinbase, said he hasn’t lost interest in crypto. 

In fact, while other investors are funneling cash into AI and are put off by crypto, he’s being contrarian: “It’s very tempting in the investment business to chase trends,” he said, adding that “I’m kind of like, okay, I want to do Web3 right now and no AI.” He believes that Web3 broadly will be successful once consumers can’t tell that an app was built using the wonky technology. 

CalPERS CIO steps down: Nicole Musicco, the chief investment officer at mega public pension fund California Public Employees’ Retirement System (CalPERS), is stepping down from her role at the end of September after less than two years, CalPERS announced on Friday. It’s a big and abrupt change for CalPERS, which is the largest public pension fund in the U.S. and an influential LP in the private markets, and comes as it is facing performance pressures. CalPERS announced preliminary returns of 5.8% for the fiscal 2022-2023 year in July—below its annual target of roughly 7%. CalPERS said that deputy CIO Dan Bienvenue will be the interim CIO after Musicco’s departure. (She cited family reasons for leaving.) 

See you tomorrow,

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- Dragos, a Hanover, Md.-based cybersecurity company for industrial infrastructure, raised $74 million in Series D extension funding from WestCap. 

- Mottu, a São Paulo, Brazil-based motorcycle rental company for delivery workers, raised $50 million in Series C funding. QED Investors and Bicycle Capital led the round and were joined by Endeavor Catalyst and Caravela. 

- Fipto, a Paris, France-based platform for B2B payments and treasury services, raised €15 million ($15.9 million) in seed funding. Serena Capital led the round and was joined by Motier Ventures. 

- Boxbot, an Oakland, Calif.-based platform that automates the sorting and storage of packages in transit, raised $12 million in Series A funding. Playground Global led the round and was joined by Maersk Growth, Toyota Ventures, and Artiman Ventures.

- LastMile AI, a New York City-based platform designed to help engineers integrate AI into their apps, raised $10 million in seed funding. Gradient led the round and was joined by AME Cloud Ventures, Vercel’s Guillermo Rauch, 10x Founders, and Exceptional Capital.

- Tamnoon, a Sammamish, Wash.-based developer of an AI-powered cloud security platform, raised $5.1 million in seed funding. Merlin Ventures, and Secret Chord Ventures led the round and were joined by Elron Ventures, Inner Loop Capital, and toDAy Ventures.

PRIVATE EQUITY

- Allied Group Holdings, backed by Bernhard Capital, acquired Dominion Engineering, a Reston, Va.-based field service equipment, technology, and engineering services provider for the nuclear power industry. Financial terms were not disclosed.

- Flourish Research, backed by NMS Capital, acquired Valley Clinical Trials, a Northridge, Calif.-based clinical trial operator. Financial terms were not disclosed. 

EXITS

- Aramco agreed to acquire Esmax, a Las Condes, Chile-based petroleum and natural gas distributor, from Southern Cross Group. Financial terms were not disclosed. 

OTHER

- Casafari acquired Targomo, a Berlin, Germany-based software developer using AI to help businesses and retailers gather data on real estate and property. Financial terms were not disclosed.

IPOS

- Instacart, a San Francisco-based grocery delivery platform, now plans to raise up to $660 million in an offering of 22 million shares priced between $28 and $30. The company posted $2.9 billion in revenue in the year ending in June 2023. Sequoia Capital and D1 Capital Partners back the company. 

- Neumora Therapeutics, a Watertown, Mass.-based clinical-stage biopharmaceutical company, raised $250 million in an offering of 14.7 million shares priced at $17. Amgen, ARCH Venture Partners, Biomatics Capital Partners, and SoftBank back the company. 

- RayzeBio, a San Diego, Calif.-based radiopharmaceutical therapeutics company, raised $311 million in an offering of 17.3 million shares priced at $18. Viking Global Investors, Versant Venture Capital, venBio Global Strategic Fund, and Pepti Dream back the company.

PEOPLE

- Cathay Innovation, a Paris, France-based venture capital firm, hired Bruno Delahaye as a partner. Formerly, he was with Walmart.