Category: capital
March 6, 2024 Claret Capital : What is the real cost of capital in Venture Debt?
To put it simply, the return Alternative Lenders need to make to justify their access to capital has increased, and therefore so has the cost for the borrower. However, venture debt providers have maintained the same cost of capital throughout, despite the increase in interest rates. (read more…)
CATEGORY: alternative financing, capital, debt
March 4, 2024 Business Insider : ‘2024 will be the year of the zombie VC reckoning.’
PitchBook says the number of VCs in US deals peaked at 18,504 in 2021 and fell to 9,966 last year. The term "zombie VC" first came into vogue after the Great Recession when a wave of firms slowly met their demise. But the destruction happening now will likely be much uglier considering the abundance of new VC funds started during the height of the tech boom from 2018 to 2022 — more than 1,100, according to PitchBook data. (read more…)
January 17, 2024 Sifted : M&A activity is likely to skyrocket in 2024 — how is financing changing?
“[Venture debt works for companies] looking at M&A as an option for bolting on additional solutions or expanding into new markets where there’s a certain level of predictability around payback periods [...] having debt to just sit on the balance sheet doesn’t always make sense. Debt can be useful when there are key drivers, identifiable roadblocks or cash requirements that you need in the future.
(read more…)August 24, 2023 Pitchbook : Q3 2023 Allocator Solutions: Evaluating Persistence in Fund Performance
Overall, we found that strong performance in a family's prior funds was correlated with strong performance in successor funds to some degree, but that's when looking at the most recent available returns data. To be useful for the allocator's decision to invest, persistency must be predictive at the time a new commitment can be made. The issue―which we and others have found―is that early IRRs are notoriously unreliable indicators of where a fund's performance eventually ends up. At the time the next sequence in the family is fundraising, the predecessor fund is on average only 3.5 years old, leading to a high degree of drift from that time to its final IRR. We find that, after controlling for information on prior fund family returns that was available at the time a successor was fundraising, the predictive power of a GP's track record is near zero. (read more…)
CATEGORY: capital, leadership, VC
August 14, 2023 Pitchbook : Q2 2023 Public BDC Venture Lender Earnings
At the end of Q2, the 5 BDCs had $1.335BN in available liquidity via cash and credit facilities, a tick up of ~$175M from Q1. Hercules represents 50% of this dry powder, roughly the same share as at the end of Q1. The median investment yield of the 5 venture debt BDCs has increased from 12.4% in Q1 2022 to 16.2% in Q2 2023, an increase of 380 basis point (“bps”), or 3.8%. That’s an ~31% uptick in yield achievement in the span of 6 quarters. The bulk of this increase (290 basis points) occurred in 2022 with a further increase of 90 basis points in 1H 2023. (read more…)
CATEGORY: capital, debt, resilience
August 12, 2023 Pitchbook : Down rounds at a high for US VC since 2017
Dealmaking and valuation figures have stagnated or declined across nearly all VC stages, perpetuated by a lifeless IPO market that continues to trap value. About 15% of all funding rounds completed during the second quarter of the year have been down rounds, the highest quarterly figure since Q4 2017. (read more…)
July 10, 2023 Pitchbook : LP-led secondaries volume is expected to overtake GP-led volume this year
LP-led deals are poised to lead the secondary market in 2023. Fueled by more favorable pricing agreements, LP-led deals could overtake GP-led volume by a 60/40 (or maybe even a 70/30) split. (read more…)
CATEGORY: capital, downturn, secondaries
June 9, 2023 Docsend : The Funding Divide 2023: Tracking Bias in Early-Stage Fundraising
All-female teams raised 36% less than all-male teams. All female teams with minority members averaged 33% fewer investor meetings and raised the least amount of funding. Diverse teams raised 33% less than all-white teams. All-female teams with a minority took 33 meetings to raise $750K. All female teams without a minority took 53 meetings to raise $1.2 million. All-male teams with a minority took 48 meetings to raise $1.3 million. All-male teams with no minorities took 49 meetings to raise $1.6 million. Mixed-gender teams with a minority took 50 meetings to raise $1.1 million. Mixed-gender teams without a minority took 45 meetings to raise $1.8 million (read more…)
CATEGORY: capital, resilience, VC
January 28, 2023 Chris Harvey via LinkedIn : What VC Fund Size is outperforming?
Emerging funds have a higher percentage of outsized returns, but larger growth funds deliver more consistent returns (for example, median returns of 1.86x for fund sizes $500m+ vs. 1.67x for funds under $250m). In other words, emerging funds have a higher slugging percentage, while growth stage funds have a higher batting average. (read more…)
CATEGORY: capital, resilience, VC
December 16, 2022 David Friedberg on All-In Podcast : State of the Markets
"What happens to the bottom 75% of Venture Firms. It's such a staggering demonstration of what people call the power law, which is how excess returns accumulate to a minority of investments. The market cap of 43% of companies that have gone public since 2020 is $750B. The market cap of the other 300 companies is only $26B. The cash that went into the $750B is $136B, and the cash that went into the $26B is $107B. And so the cash that went in to generate that $26B, that $107B, that's your bottom 50%. And the top 50% put in $136B to make $750B. And I think it gets even narrower as you move into that top quartile. And this is only the companies that went public, so this is only of the top companies and the top funds that were actually able to IPO. So it highlights how much of a power law actually plays through. The bottom 75% or the bottom 50% of various fund vintages is below 1.0. They lose money for their LPs consistently. It's a cycle, and so the next generation comes through and LPs make a portfolio of bets, and they hope that they make enough bets in the right VCs that their portfolio generates greater than market returns, greater than 15-20%." (read more…)
CATEGORY: capital, VC, winner take all