Gené Teare, Senior Data Editor at Crunchbase News, discusses fluctuations in venture capital landscape, market contraction vs. dot-com bubble, funding predictions for 2023, rise of unicorn companies, current state of tech investment, gender equity in VC industry, and the need for diverse tech ecosystems.
VC firms have become more cautious and selective in their investments, leading to a decrease in the number of startups that they lead funding rounds for.
The surge in venture capital investments and the formation of unicorn companies in recent years was largely driven by the pandemic and increased adoption of digital tools and technologies.
The delay in going public for many private companies has caused a liquidity crunch for investors and a repricing of valuations during the IPO process.
Deep dives
The Growth of Crunchbase as a Resource in the Venture Ecosystem
Crunchbase, initially a part of TechCrunch, was founded by Michael Arrington to keep track of startups and their funding. As TechCrunch gained popularity, Crunchbase became recognized as a valuable resource in the venture ecosystem. In 2015, Crunchbase spun out and focused on building tools to make accessing and using their data set easier, including the launch of Crunchbase Pro. Over time, Crunchbase has become an essential tool for investors, journalists, and entrepreneurs seeking insights into the startup landscape.
The Shift of VC Firms to Cautiously Funding Startups
Recently, there has been a notable pullback from leading VCs in terms of funding startups. VC firms have become more cautious and selective in their investments, leading to a decrease in the number of startups that they lead funding rounds for. This shift is evident in the data, with the numbers of investments by leading VCs becoming more closely aligned. The overall funding numbers have also decreased, reflecting this cautious approach from VC firms.
The Unprecedented Growth in Venture Capital and Unicorn Companies
The past few years have witnessed an unprecedented growth in venture capital investments and the formation of unicorn companies, privately valued at $1 billion or more. In 2021, over 600 new unicorns emerged, more than doubling the number from the previous year. This surge in activity was largely driven by the pandemic, as digital tools and technologies experienced increased usage and adoption. Late-stage investments soared as alternative investors sought to invest in high-growth private companies before their anticipated public offerings. This growth in the venture ecosystem has created opportunities and challenges, reshaping the startup landscape.
Companies staying private longer and the impact on liquidity
Many private companies have chosen to stay private for longer periods due to their ability to raise late-stage equity at cheaper valuations. This has allowed them to delay the scrutiny and accountability associated with going public. While this has been advantageous for the companies, it has caused a liquidity crunch for investors who are unable to exit their investments. As a result, more investors are looking to sell their stakes to attain liquidity. The delay in going public has also led to a longer period for the public market to understand the intrinsic value of these companies, which often results in a significant repricing during the IPO process.
Unwinding of private market valuations and its impacts
The unwinding of private market valuations has started affecting various stages of the venture capital ecosystem. Many companies have experienced layoffs as they cut costs to adapt to the changing market conditions. Investors have become more cautious, and funding has declined across all stages of venture capital, from public companies to late-stage private companies, to seed-stage companies. This tightening in funding has led to more company closures, as many lack the product-market fit required to raise funds. Furthermore, the increasing duration of seed-stage raises has impacted the ability of companies to progress to the Series A stage. The overall impacts of the unwinding are expected to continue with more closures and a downward trend in funding.
This is a special episode of The Deal with Gené Teare, Senior Data Editor at Crunchbase News. Gené is a Silicon Valley veteran (she joined TechCrunch in 2008 to run Crunchbase, within 6 months of its founding) with extensive knowledge of the tech industry. Gené uses Crunchbase's extensive database to conduct strategic research on trends within private company data. She focuses in particular on global venture funding trends, artificial intelligence, fintech, AI, gender equity in tech and venture. (Gené leads the charge on Crunchbase News' monthly, quarterly, and annual VC funding reports.)
In this episode of The Deal, Gené breaks down the data behind fluctuations in today's venture capital landscape, how our current market contraction looks different from the dot-com bubble bust, her funding predictions for the remainder of 2023, and more.
