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Regulators are coming for venture capital. And it could get messy.
Driving the news #1: Reuters reports that the SEC "is seeking details about FTX investors' due diligence," including information on firm policies and if those policies were followed.
Driving the news #2: The SEC is working on a rule that would eliminate private funds from seeking indemnification for simple negligence, effectively making it easier for limited partners to sue. READ MORE
It’s no secret that last year saw a dramatic slowdown in venture capital funding. In fact, it was the sharpest drop in deals in over two decades. We know tough market conditions will persist through 2023, which means VC investors will remain surgical in diligence and focused on investing in companies with strong unit economics and healthy contribution margins or profit — especially in the retail and ecommerce ecosystem.
Across the board, retailers have slashed budgets in this new normal of high interest rates, expensive cost of capital and supply chain crises. On top of this, some retailers have faced delays in new store openings, higher capital expenditure and increased cost of goods — all making four-wall profitability even more challenging. READ MORE
As we bid adieu to 2022, it seems easy in hindsight to sum up the startup investment climate as your usual cyclic clean-up after a big party. Valuations fell, investors got pickier, and a cratering public market reminded us that tech stocks do sometimes go down.
But parsing through the quarter-by-quarter numbers for active investors, it’s clear 2022 wasn’t entirely a clean-up-the-mess year. For large investors, the party actually continued to rage through the first quarter and remained festive in the second. Only in the latter half of the year did we really see a big slowdown. READ MORE
It doesn't matter if you invest $100 or $100,000 into your own business. It doesn't matter if your net worth is in the millions or pocket change. If you self-fund what turns out to be a money pit, you're going to eventually put an equally painful dent in your future.
I've self-funded three startups to success - and by "success," I just mean the opposite of failure, and there were a lot more failures. My first self-funded startup ran profitably for 12 years. The second was acquired relatively quickly. The third, Teaching Startup, has been running for almost three years now on sustainable margins. READ MORE
The momentum of the most active 12 months ever for venture investing did not carry over well into 2022, to say the least. As interest rates and inflation spiked, geopolitical challenges arose and the economy began trending downward, fundraising slowed dramatically throughout the year.
But if 2022 was a year of paradigm-shifting dynamics, 2023 will be a year when we’ll determine the winners and the losers — and more importantly, when crisper methods for evaluating success will emerge. READ MORE
If you wanted to come up with the one-liner about investing most likely to make my head explode, you might try, “The way to choose investments is to just jump on whatever’s done the best over the past three to five years.” Or, getting more creative: “Hey, did you know Cathie Wood is still getting inflows?” Yet more creative: “The war in Ukraine was caused by stock buybacks.” But you couldn’t do much better than “Interim valuations don’t really matter,” as Christopher Schelling says in reference to private equity investing. If exploding my cranium was the goal, then well played, sir. Otherwise, oh, hell no. READ MORE
Securing investment from VCs can be disruptive and slow – but there are things that can be done to ease the process
Most successful founders will tell you that getting venture capital (VC) to invest in your business is often the start of a long and disruptive process. Having a fundraising plan and getting your house in order helps minimize disruption to your business, avoids wasting time and makes the process as straightforward as possible. READ MORE
Lawyers representing private equity and venture capital portfolio firms understand that their clients routinely face important business decisions about whether to initiate meritorious litigation claims that could result in substantial recoveries.
Yet convincing their clients to move forward with litigation—no matter how lucrative it may ultimately be—is another matter entirely. The main culprit for this hesitancy is a simple one: PE and VC firms are loath to saddle their portfolio companies with the expense of litigation when that precious capital could be used to enhance a company’s operations or develop new products. READ MORE
After being battered by rising interest rates and choppy markets, the venture capital industry is sweating new regulations that could expose fund managers to legal risks.
The SEC is putting the final touches on a rule that would make it easier for investors to sue VCs for bad behavior, negligence or recklessness. It would “open up all types of litigation risk to being a venture capitalist,” Justin Field, the National Venture Capital Association’s senior vice president of government affairs, told MM. READ MORE
2022 will be remembered as the year that the tide turned on a historic era of easy money, and 2023 is looking like it will bring even greater challenges. Yet no matter how difficult the backdrop, there are still plenty of businesses that will need to raise venture capital. Especially in these tough market conditions, it is crucial for leaders to broaden their understanding of capital markets and multiple types of investors as they search for new sources of funding. READ MORE
Venture capital firms' cash piles continued to grow, even as dry powder fell across other private investment strategies.
Global venture firms were sitting on $585.5 billion of capital raised but not allocated as of the end of Q3 2022, according to PitchBook data. VC is the only private investment strategy in which dry powder is on pace to rise from 2021 levels. READ MORE
For multiple years, the most active startup investors kept upping their games. They did more deals, backed larger rounds, and kept pushing up valuations.
In 2022, they took a breather. Per Crunchbase, virtually all of the most prolific venture and seed investors did fewer deals last year than the year before. The value of rounds they led shrunk too, with particularly steep declines for SoftBank Vision Fund and Tiger Global Management, which pulled back in the wake of heavy losses in their existing portfolios. READ MORE
North American startup investment fell sharply in the fourth quarter, closing out 2022 with funding far below the prior year’s record-setting levels.
In total, investors put $36.1 billion to work across all stages in Q4, per Crunchbase data. That’s a whopping 63% decline from a year ago (a remarkably bubbly time for startup funding) and a 10% drop from third-quarter 2022. READ MORE
As the curtain falls on venture capital investment in 2022, the reviews are in, and they are mixed.
Venture and growth investors in private companies scaled back their investment pace significantly in the latter half of 2022, signaling a slower funding climate as we begin 2023. READ MORE
Private equity's share of terminated M&A deals was on track to grow again in the fourth quarter after declining over the previous three-month period, according to S&P Global Market Intelligence data.
Through Dec. 15, private equity or venture capital had a hand in three out of the 30 deals canceled globally in the fourth quarter, or 10% of all terminated deals. If that rate holds through the end of the year, it will nearly double their 5.1% share of M&A deals called off in the third quarter. READ MORE
At a time when investors and fund managers have struggled to find returns, some corners of the alternative asset space have held up better than other areas of the markets, like public equities. As a result, it should be no surprise that institutional investors are planning to boost their allocations to alternative assets.
However, one interesting finding from a recent survey is that smaller hedge funds and private equity funds with less than $250 million in assets under management are in demand. READ MORE
It was a funny year in enterprise tech M&A, one in which the majority of activity came from private equity firms: As tech stock values plunged throughout the year, these companies went bargain hunting. They saw companies with lots of upside being vastly undervalued in the brutal market conditions of 2022.
But curiously, the year began with Microsoft announcing it was acquiring Activision Blizzard for a startling $69 billion in January, followed in April by Twitter being sold to Elon Musk for $44 billion. Neither of those deals made this list, however — they aren’t really enterprise companies. But they did show the promise and big money being tossed around this year. READ MORE
Cerberus Capital Management, a big private equity firm, has long attracted controversy. In 2007, it took over Chrysler, but after two years of Cerberus ownership, the company needed a government bailout to stay in business. It spent years buying up companies that made guns — one of which was used by Adam Lanza in 2012 to kill 20 children and six teachers at Sandy Hook Elementary School in Newtown, Conn. READ MORE
Multiple studies have shown over the years that private equity has become increasingly popular among investors, and it's easy to see why. Not only does private equity (PE) increase diversification within a portfolio, but the asset class' returns have generally outperformed the public markets.
Looking into 2023, private equity could see increasing headwinds, but opportunities to generate alpha are expected to remain in place. READ MORE
“Companies should look at the coming year from a more conservative approach. Founders shouldn’t be stubborn on valuations; they need to understand that they can no longer ask for whatever valuation they want and cannot ask for whatever amount of money they want because, in the new market, it won’t work,” explained AnD Ventures. READ MORE