Everywhere you look, the economy is in a deep freeze

The VC space, for example, was supercharged throughout the pandemic. In 2021, global VC funding volume reached a record $681 billion, more than double 2019’s figures. 

“[A] growth-at-all-cost mindset fueled by cheap capital in 2020 and 2021 and exploding investor interest caused by a fear of missing out (FOMO) led to large investments into startups across all stages,” Alex Warfel, a PitchBook analyst, explained in a Friday note. READ MORE

Here’s Why the Illiquidity Premium Is a Bad Reason to Invest in PE

The illiquidity premium may not exist.

Although private equity and other alternatives may be a better choice than the public markets when it comes to diversification and the potential for higher returns, they also require investors to put their money into funds that have lives ranging from seven to ten years or longer. To compensate for the risk, academics and practitioners have argued that investors earn a so-called illiquidity premium over similar publicly traded stocks, which can be sold any time. READ MORE

Private Equity Exits Increasingly Hinge on ESG

Environmental, social, and governance issues are increasingly impacting exit opportunities for private equity firms. But keeping up with ESG standards remains an ongoing challenge, especially for mid-market managers.

According to a new survey by U.K.-based KEY ESG slated to be released this week, firms can take as long as up to 12 weeks to collect the proper ESG data, which often results in missing reporting deadlines — something that can stall exits or even cause deals to fail. READ MORE

Venture capital’s $300bn question

Consider the following puzzle. In 2021 venture capitalists raised $150bn in fresh cash, a record amount. Despite a market slowdown, they broke the record once again in 2022, raising more than $160bn. Chunks of this have already been spent, but close to $300bn of “dry powder” sits waiting to be put to use. Indeed, spending fell throughout 2022. Fledgling firms appear cheap. Why, then, are venture capitalists sitting on the cash? READ MORE

Startup funding has tanked over the past year—and recession fears are to blame

The thought of a potential global recession might have you cutting back on spending. Startup investors are doing it, too.

Venture capital investors are pumping the brakes on aggressive funding of startups, spooked by an uncertain economic picture, plunging tech industry stock prices and growing recession fears. In the final quarter of 2022, investments in North American startups fell 63% compared to the same period a year earlier, according to a new Crunchbase report. READ MORE

Venture capital may have a liability problem

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

How venture capital will empower retail in 2023

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

It’s Crazy How Much Investors Cut Back From Q1 to Q4

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

6 Steps to Self-Fund Your Startup

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

2023 will bring crisper methods for evaluating startup success

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

Why Does Private Equity Get to Play Make-Believe With Prices?

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

How companies can successfully navigate the VC investment process

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