September 24, 2022 Bessemer Venture Partners : State of the Cloud 2022
With inflation on the rise, interest rates climbing, and geopolitical uncertainty, 2022 was met by stormy conditions in the form of a dramatic market correction. The BVP Nasdaq Emerging Cloud Index slipped back to 2020 levels, dropping over 40% in value. (As of May 2022, the cumulative market capitalization of the public cloud is approximately $1.4 trillion). However, despite this drop—or what we’ve called “The SaaSacre” at Bessemer—this cohort of cloud companies still exhibits strong fundamentals (e.g., 41% average growth rate, 71% average gross margin, 45% average efficiency score.) (read more…)
September 22, 2022 Pitchbook : Down Rounds, Impacts, and Exit Opportunities
Companies taking on a down round often continue growth. Just 13% of companies raising a down round from 2008 to 2014 were unable to raise a new round or exit immediately after the down valuation investment. Nearly 20% of post-down round exits occur via PE buyout, which is a significantly higher proportion than what is seen in the broader venture exit dataset. The data also shows that investing into a down round could prove to be an investment strategy with decent returns. The fact that 88% of known exit valuations for companies taking a down round were higher than the down round valuation should increase the confidence in down round participants. (read more…)
CATEGORY: downturn, leadership, resilience
September 20, 2022 Pitchbook : Distressed venture is coming to save your orphaned startups
"Our goal is to find companies that are fundamentally good businesses with business models that make sense and are revenue-generating. They just need a second chance so that they can grow profitably and sustainably, and then have a meaningful exit for founders and investors."
(read more…)CATEGORY: alternative financing, profitability, resilience, VC
September 20, 2022 Carta : Early 2022 data shows a drop in median IRR across funds
While all vintages saw median net IRR decline, 2017 and 2020 vintages saw the sharpest drops (of 3.6% and 3.0%, respectively). The lone exception to the decline was 2021 vintage funds, which are still rising from the dip below zero that private-fund IRR usually takes in the initial stages of the fund lifecycle. (read more…)
CATEGORY: resilience, valuation, VC
July 11, 2022 Institutional Investor : There’s an Easier Way to Win in Alternatives
Given these fundraising dynamics, it’s probably an even more attractive time to be looking toward the smaller end of the market. The vacuum of capital being allocated to small managers portends still better future returns, as fewer and fewer dollars are chasing the same opportunity set. (read more…)
CATEGORY: alternative financing, capital
June 17, 2022 Crunchbase : Surviving Down Rounds
Raising money at a sky-high valuation feels like a big win on the day you close. But it also raises expectations that much higher. The consequences of failure are asymmetric. If you stumble and need a down round, the VCs just write a check or even buy more on sale. Whereas you can lose all your shares, all your vesting, or even your job. Those are years you cannot replace. So be prudent. Leave enough room to be sure of raising the share price in the future, even if you make mistakes and even if the markets are down. In short, enjoy your swim. Just please keep your suit on. (read more…)
CATEGORY: downturn, leadership, resilience
May 26, 2022 Suraj Gupta via Forbes Business Council : Diversity: The Holy Grail Of Venture Capital
No matter how you slice it, diverse teams outperform homogenous teams, and the numbers back this up. Teams that are diverse by gender and ethnicity generate 30% higher MOIC (multiples on invested capital) compared to homogenous teams. Companies with at least one female or one ethnically diverse founder generate over 60%+ in business value. Ethnically diverse founders enjoy an average exit multiple that is 30% higher than those of solely white founding teams (3.26x vs. 2.5x). This gap becomes even more pronounced when we consider diversity in the C-suite. Ethnically diverse C-level teams have an average exit multiple that is 64% higher than their solely white counterparts (3.31x vs 2.02x). (read more…)
CATEGORY: leadership, resilience, VC
December 1, 2021 Anthropology Today : Towards fully automated investing? How venture capitalists are making the economic future old-fashioned
November 27, 2021 The Economist : Something ventured, something gained The bright new age of venture capital
Why, then, is the model being disrupted? The frenzy is a result of both the entrance of new competitors and greater interest from end-investors. That in turn reflects the fall in interest rates across the rich world, which has pushed investors into riskier but higher-return markets. It has no doubt helped that vc was the highest-performing asset class globally over the past three years, and has performed on a par with bull runs in private equity and public stocks over the past decade. Though rising valuations bolster returns on current portfolios, they dry up future returns. Crossover funds are less price-sensitive than traditional vcs. And for later-stage startups, investors’ money is more fungible, says Mr Giuffrida. It matters less who is investing than how much they are willing to pay. Furthermore, the market for orthodox vc firms is becoming tougher. Despite the venture boom, fundraising by new niche vcs in America has fallen from a peak of $14bn in 2018 to an expected $5.5bn in 2021. (read more…)
CATEGORY: VC
November 16, 2021 Oaktree Capital : Global Opportunity Knocks: The Evolution of Distressed Investing
The evolution of this investment style has been a gradual process. In the late 1980s, investors like Oaktree’s principals, who focused on distressed assets, were primarily targeting U.S. high yield bonds. The opportunity set eventually expanded to include bank debt, mortgages and opportunities in growing non-U.S. markets. In the 1990s, distressed opportunities investors increasingly began exploring situations that were complex but not classically distressed, especially those in illiquid markets or niche industries in which companies’ access to capital was limited.
In the decade following the GFC of 2008-09, investors began finding opportunities in an ever wider array of areas, such as direct lending, portfolios of non-performing bank loans, real-estate-related debt, specialty-finance platforms and structured credit, among others. Experienced investors found that private credit and other complex opportunities could – like traditional distressed debt – provide the combination of significant upside potential and strong downside protection.
(read more…)CATEGORY: debt, downturn, leadership