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Tag: EC venture capital

  • Countdown Capital winding down is not a bad omen for micro funds

    Countdown Capital winding down is not a bad omen for micro funds

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    Last week, my colleague Aria Alamalhodaei wrote an exclusive on defense and space tech venture firm Countdown Capital’s plan to shut down. Jai Malik, the founder of Countdown, said in a letter to his LPs that due to how competitive the industrial tech sector has become, he is no longer confident about smaller venture firms’ ability to secure the meaningful stakes in startups they’d need to produce worthwhile returns.

    As Aria wrote, the letter reads like a cold glass of water to the face. While winding down the fund is a mature move — GPs have a fiduciary duty to their LPs, after all — the news doesn’t help the growing scuttlebutt in the VC world that most micro funds can’t survive outside of a bull market like 2021’s.

    But Countdown shutting down is likely more of an isolated event than a sign of what’s to come for micro funds this year.

    When I spoke with Malik back in 2022 about the launch of this very fund, he said that Countdown was created to fill a void in the defense sector. His logic was that while larger firms like Andreessen Horowitz and Lux were interested in backing startups at the Series A stage and later, no one wanted to write the first small checks startups need to get going.

    That’s changed today, and it isn’t surprising given the sheer amount of capital it takes to get defense startups off the ground; the costs are incomparable to a category like SaaS.

    This is also why Countdown’s fate doesn’t portend cloudy skies for micro funds in other categories. A micro fund manager in the AI space, for example, told me that despite how active AI has gotten over the last year, the increased interest actually hasn’t made a material difference in pricing at the pre-seed stage where their fund invests. So despite the category heating up, a $500,000 check can still net a firm meaningful ownership at the pre-seed stage, they said.

    In VC, size does matter

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    Rebecca Szkutak

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  • Funding for female founders remained consistent in 2023 | TechCrunch

    Funding for female founders remained consistent in 2023 | TechCrunch

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    Female-founded companies in the U.S. raised $44.4 billion out of the $170.59 billion in venture capital allocated last year. Companies with founding teams that are all women raised around $3.1 billion — or 1.8% — which is a dip from $5.1 billion (2.1%) in 2022 and from the $7.3 billion (also 2.1%) raised in 2021’s bull market.

    In fact, this is the lowest percentage of venture capital allocated to such teams since 2016, when they picked up 1.6% of all venture funds. There is good news for mixed-gender founding teams, however. Such teams raised 26.1% of all venture capital allocated this year, a sizable jump from the 18.2% they picked up last year. This follows the pattern that women founders still fare better with a male co-founder in the mix.

    Kyle Stanford, lead VC analyst at PitchBook, told TechCrunch+ that it’s difficult to pinpoint a single reason why funding to women founders has dipped a bit, but he added that the decline in deal counts for women founders follows the trends of the broader market. Otherwise, he said, data shows there is still a long way to go before the market is seen as equitable.

    “Venture has had several tough years, and capital availability in the market has declined significantly. In general, the VC market saw declines of nearly 20% in deal count and 50% in deal value between 2021 and 2023,” he said. “That is not meant to make activity in female-founded companies look better, but the context of market difficulties is important.”

    Overall, less than 25% of all deals went to female-founded companies in 2023. The most popular category was software, where around $8.4 billion was invested, followed by B2B, SaaS, and pharmacy and bio. New York City takes the top spot for where women receive the most deals, followed by San Francisco and Los Angeles.

    “While it has been a large market for a while, it is beginning to close the gap with the Bay Area in terms of investment count activity,” Stanford said. “New York has become a great market for founders of all types, and right now that is showing through its high VC levels in female-founded companies.”

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    Dominic-Madori Davis

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  • VCs are optimistic that AI investing will move beyond the hype in 2024

    VCs are optimistic that AI investing will move beyond the hype in 2024

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    Artificial intelligence startups had a wild ride in 2023. Everyone and their grandmother tried out some sort of AI tool, startups in the space raised rounds at 2021 valuations, there were high-profile shutdowns, and then to close out the year, we had all the drama surrounding Sam Altman and OpenAI — plus New York Times’ lawsuit against the company.

    With so much in the rearview mirror, it’s hard to predict what will happen with AI startups in 2024. But some people, like investors, make their living from shrewd bets, so TechCrunch+ recently asked more than 40 investors what they think AI investing could look like in 2024.

    Most investors told TechCrunch+ that they expect the current swell of funding to continue, but were optimistic that the industry is moving past its initial hype cycle and toward more durable businesses that will last. They also think that 2024 could see the beginning of a second wave of AI startups that are more verticalized, focused on specific sectors, and that move away from building layers on top of technologies from companies like OpenAI and Google.

    Lisa Wu, a partner at Norwest Venture Partners, expects opportunities in verticalized AI to be particularly attractive this year. She thinks that there could be lower risk in investing in these startups, as they won’t be as likely — or easily — replicated by legacy companies like Microsoft and Google.

    “These are AI applications with deep underlying knowledge of end-user workflows and access to industry-specific training data to make employees and teams more productive,” Wu said. “For example, law firms that effectively leverage AI will be able to offer their services at lower cost, higher efficiency and higher odds of favorable outcomes in litigation.”

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    Rebecca Szkutak

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  • Unlocking LPs in a Bear Market | TechCrunch

    Unlocking LPs in a Bear Market | TechCrunch

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    Emerging fund managers have had a tough time these past few years, and there is no telling when it will get better.

    Still, some were able to brace the market’s winter. One of those was Gale Wilkinson, a managing partner at the early-stage fund Vitalize. Her firm just closed a $23.4 million Fund II after two years of fundraising. She called the experience “enlightening.”

    She plans to use that money to invest in at least 30 companies and has already cut checks to 50 from earlier capital pools. Her firm, founded in 2018, focuses on future-of-work technology. It typically writes seed checks between $250,000 and $750,000 and has an angel network that has deployed just over a million dollars in 14 deals.

    Wilkinson has no plans to raise a third fund anytime soon but has some advice for those who are, given the looming uncertainty in the venture market. She spoke to TechCrunch+ about why she no longer wants to work with institutional investors, what to do when an LP says no, and why she no longer aims to raise $100 million funds.

    Image Credits: Gale Wilkinson

    TC: This hasn’t been the easiest year to fundraise for many firms or founders. What were some of the big lessons you learned trying to court limited partners this year? 

    GW: I made one key error, which was to listen to everyone else when developing the strategy for Fund 2. They said to raise more, go after institutional capital, deploy faster, write bigger checks, do fewer deals, get more ownership per deal, and build out a bigger team to set the stage for further expansion in the future. Initially, I listened and went out to raise $50 million with the expectation of someday getting to a fund size of $100 million, which I think is about the largest seed-stage fund a VC should raise.

    After 300 conversations with institutional LPs, I had an aha moment in which I realized that I did not want to primarily work with institutions in the future. For over a decade, I have worked with individual investors, and it’s part of what I love most about this job. Individual investors are very different from institutional investors in all the right ways, in my opinion. Individuals are willing to make their own decisions versus just following the pack; they are adept at looking into the future, and they move fast.

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    Dominic-Madori Davis

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  • If I’m being honest, I didn’t have what it takes to be a founder | TechCrunch

    If I’m being honest, I didn’t have what it takes to be a founder | TechCrunch

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    Over the last couple of weeks, I’ve been working with some truly spectacular founders. One guy was a three-star general at one point. Another is in the U.S. because his research is so far ahead of the AI learning curve that the U.S. State Department issued him an O-1 extraordinary ability visa. Another had a doctorate and a stack of patents in his name.

    If you’re working at a VC firm, it isn’t unusual to meet such extraordinary people. You’ll see a steady stream of people waltzing in with pitch decks, prototypes and résumés. VCs are on a perpetual quest to discover and invest in extraordinary startups, those rare gems with the potential to disrupt markets, innovate industries, and disrupt the hell out of everything in sight. And if you’re an aspiring startup founder, you may wonder if you have what it takes to attract such investment and thrive in the competitive startup ecosystem.

    Unfortunately, what I’m seeing out on the fundraising trail right now is that if you don’t have perfect founder-market fit, fundraising is getting hard.

    Of course, that got me thinking about my own startups. If I map myself against the standards of fundraising today, none of my startups would’ve had a gnat’s shadow’s chance of raising money.

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    Haje Jan Kamps

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  • Before you found a startup, think about your personal goals | TechCrunch

    Before you found a startup, think about your personal goals | TechCrunch

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    In one of my past startups, I had a co-founder who had a pretty clear goal for himself: he wanted to make $1 million for every year that he worked on this startup, and he wanted to leave a positive impact on the world.

    I was struck by the clarity of that thought, and so I started asking other founders what their personal goals were. It turns out that a surprising number of startup founders aren’t really sure why they are running a company at all, let alone what their personal goals are.

    In this world of metrics and goals, I was left astonished by that. This isn’t just about a cohesive business model or a solid plan for your product or service. As a founder, you need to go deeper; you must have a lucid understanding of your goals for starting a company.

    The lure of entrepreneurship is undeniable: It offers the thrill of creating something new, the possibility of immense financial success, the chance to disrupt industries, or even the potential to change the world. Yet, the path is riddled with challenges and stress, which often make the comfort of a nine-to-five job seem immensely appealing.

    So why take the plunge? Why walk the tightrope of startup life? The answer is probably tied to your personal goals.

    If you’re looking to make a significant difference in the world, your startup could be the vehicle that drives that change. The world has witnessed the transformative power of startups like Facebook, Tesla and Airbnb. They began as small-ish initiatives driven by founders who wanted to alter the status quo. These entrepreneurs’ personal goals were not simply about profitability; they cared about creating a lasting impact.

    But how do you measure such an impact?

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    Haje Jan Kamps

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  • So how about another 20 IPOs? | TechCrunch

    So how about another 20 IPOs? | TechCrunch

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    The third quarter is behind us, but the scores are still being totted up. This week will bring a deluge of numbers from major tech companies, helping us better understand the state of the market, for example. Another lens into the third quarter that has yet to gel are its venture capital results. We’ve covered the big numbers from the United States, Europe, Latin America, Africa and India, and we’ve looked at how far capital has extended to underrepresented groups.

    The Exchange explores startups, markets and money.

    Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

    But one key area of private-market performance that we haven’t yet given enough attention to is exits. Exits, the conversion of investments into cash or another returnable asset, is the key product of private equity and its sub-asset class venture capital (no jokes about bips of AUM being the real product fit here, but you can write them for yourself).

    We spend lots of time looking at venture dollars flowing into startups, and not enough, at times, on the matter of money going out. Let’s make up for a little bit of lost time, as the exit situation in the market today is very poor. Even more, key exits from Q3 2023 do more to demonstrate just how bad things are, not how much exit data may improve as the year moves toward a close.

    That means venture got a few IPOs last quarter, and they were not enough. We’d need to see Q3 2023 levels of exit volume monthly for a year to just get back into the ballpark of 2021-era exit value. That’s an ocean away.

    The data is not hard to parse. In the first three quarters of 2023, what PitchBook describes as “U.S. VC exit activity” was worth $9.1 billion, $6.6 billion and $35.8 billion, respectively. Clearly, the final figure is a massive improvement on what came before it, but it was largely predicated on just a handful of deals, in particular the public debuts of Instacart and Klaviyo. PitchBook’s own accounting calculates that just those two deals were worth “more than one-third of the total exit value in Q3.”

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    Alex Wilhelm

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