It is widely believed that investment in startups will recover around the fall of 2022.
Summer 2022 has been an unusually cold summer for startups.
Venture capital (VC) has invested heavily in startups over the past two years due to pandemic lockdowns and booming stock markets, but the summer of 2022 has seen a lull. VCs began to hold back, and the nose-bleeding valuations once enjoyed by startups disappeared almost overnight.
However, even in this situation where the global recession is imminent and the economy is in jeopardy, the investment situation of VCs, which had slowed down, is on a recovery trend. There is a growing momentum among VCs to resume investing in promising startups.
Investors expect the pace of investment to pick up in the fall of 2022, though it will take some time to return to its peak during the pandemic.
Mark Goldberg, a partner at Index Ventures, which invests in startups in various stages, said, “The market was pretty much frozen this summer, but it’s been moving in the last few weeks. I started,” he says.
Brad Svrluga, a prominent seed-stage investor in VC firm Primary, which has invested in fintech startup Alloy and healthcare company K Health. was worried when several of its portfolio companies began looking for new funding over the past month. But to everyone’s surprise, the deals were all closed on “very favorable” terms.
“Good companies are still attracting the attention of good investors,” says Svrga.
Semil Shah, a partner at Lightspeed Venture Partners and an early-stage startup investor through his fund Haystack, said: .
“From Y Combinator’s latest batch, a startup is said to raise $2 million at a valuation of $75 million. I think this shows the growing appetite of investors.”
“Open now”
The venture industry typically goes into hibernation in the summer, when investors are said to set up autoresponders for out-of-office messages and travel around. But as the tech industry exploded during the pandemic lockdown, many VCs skipped the holidays and continued chasing startups, investors recall.
“Most investors continued to work as travel was restricted due to COVID-19,” Svrga said.
However, that enthusiasm will cool down in the summer of 2022. In April-June 2022, the latest quarter for which data is available, startup funding plummeted, with investments down 23% year-on-year (according to PitchBook).
Barring the impact of the pandemic, investors and companies typically start trading around the start of the new school year and the end of Burning Man in Black Rock Desert, Nevada. do. After a very weak summer, some investors appear to be turning their attention to companies.
Burning Man, a festival held in the Nevada desert, marks the end of summer vacation for VCs.
“We’re open right now,” says Mike Ghaffary, general partner at Canvas Ventures, which invests in early-stage startups. The company continued to invest during the recession and sees even greater opportunities in the aftermath.
Gaffary has seen startups raise Series A and Series B rounds at valuations 30% to 40% lower than similar companies in 2021. As corporate stock prices fall, the company can invest in more companies.
Investors have started to turn their attention to funding, but fewer entrepreneurs are bringing deals to market, according to several VCs interviewed by Insider.
Gaffary says many startups are cutting costs and banking their money during the recession, allowing them to defer fundraising until market conditions pick up. He’s on the board of six startups, four of which have 24 months of runway.
Gaffary says of fundraising startups in general, not of his portfolio companies, “they’re not going to be happy with the valuation they’re getting now.”
more prudent investment
Many investors are now in a state of excess cash.
Sunita Patel, chief business development officer at Silicon Valley Bank, said venture firms raised a staggering $83 billion in new capital in the first half of 2022. He said it was the highest in the industry. Some of these companies have spent most of 2021 raising capital, he said.
However, “I’m not in a hurry to invest just because I have the money,” Patel said. Many investors wait to see what market volatility will bring before committing money. VCs also recognize that their investors (limited partners) may not be able to meet capital calls (investment funds asking investors to raise capital) because the overall stock market is down. says Patel.
Early-stage specialist Zachary Bratun-Glennon, a partner at Gradient Ventures, said the macroeconomic slowdown “will continue to be on the minds of investors for months to come. I would,” he said.
As investment talks heat up, investors want to have “reasonable expectations” of startup founders heading into the end of 2022, Svrga said. It takes weeks to raise money, so “you can get to know each other better before you get married,” Svrga says. Startup valuations, which were “stratospherically high” in 2020 and 2021, have returned to “ground level,” says Bratun Glennon.
Primary founders Brad Svurga (left) and Ben Sun.
And while funding for early-stage startups has largely recovered, investors say growth-stage startups will take some time to recover. In Q2 2022, seed-stage funding increased 9% from the previous quarter, while growth-stage funding fell 31%, according to Crunchbase data.
Jake Gibson, a partner at Better Tomorrow Ventures, which primarily invests in pre-seed and seed-stage startups, said the company is looking to invest in its investee companies as growth-stage funding fails to recover. He said he plans to increase additional investment in
“We have enough money for additional investments so we can continue to support teams that we feel are worth investing in,” Gibson said.
Still, index venture Goldberg says founders hoping the funding market will return to its peak during the pandemic around the fall of 2022 shouldn’t count too much.
“Founders shouldn’t expect investor activity to pick up after the Labor Day holiday. That said, Interest in both deals is on the rise, and I think more and more companies are looking to raise money again.
[Original: The venture-capital summer slump is over: Investors are itching to get back to dealmaking, but they have some new conditions for startups raising money]
(Edited by Sayuri Daimon)
Source: BusinessInsider
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