The collaps of SVB puts more pressure on a venture market that was already reeling from the slowdown in financing seen over the past year. Quarterly capital invested had fallen more than 60%, and deal count, while high on a relative historical basis, was down nearly 25% in Q4–22. The reallocation of resources and banking that needed to be done only added to a slowdown in a financing market already looking very slow in Q1 2023.
While the collapse of SVB has caused an immediate effect on the deployment and fundraising environment, we expect that venture debt will continue to be an attractive space for allocators, as many startups are opting to remain private longer due to the current exit market and backlog, seeking creative forms of financing that minimise dilution in the near term (at nearly any cost). This has created a unique opportunity for smaller private credit players to take up market share, as highlighted by Blackstone recently. Increasing levels of capital demand relative to supply will likely allow venture debt lenders to increase debt pricing in the near to medium term, putting further pressure on companies’ P&Ls. While credit underwriting has not changed much fundamentally, shifting valuation paradigms will renew the importance of taking a hard, realistic look at growth and profitability outlooks for businesses.
The recent banking collapse and macro factors have also given rise to secondary opportunities in otherwise difficult-to-access managers and direct investment opportunities. Avlok Kohil, CEO of Angel List, arguably one of the most extensive datasets on VC, recently commented on this rise of secondaries, saying that discounts ranged from 20–60%, with an average discount of 40–50%. He believes there will be many exciting opportunities that emerge in the next 18 months for those in the market.
Finally, it’s important to address that with the current gap in debt supply, VC and PE firms have less ability to prop up or extend the runway of companies to avoid price discovery and dilution. This may culminate in a flood of companies coming to market to raise in a similar timeframe, with the potential for significant readjustment in pricing during H2 2023 through H1 2024 and an increase in death rates for those unable to find traditional or alternative means of funding. While this may affect historical performance, particularly at the late stage, repricing has the potential to drive significant value for investors that are currently deploying. Cash is once again King.
Read more on the topic ⬇️
📉 The Collapse of Silicon Valley Bank
📋 Takeaways From the Venture Debt Conference
💇 SVB Collapse Could Mean a $500 Billion Venture Capital ‘Haircut’
💰 What does Silicon Valley Bank’s collapse mean for the financial system?
In case you missed it…
Digital Technologies 🚀
🤖 The hype around generative AI has led to an influx of startups lacking product differentiation. Investors predict a tough time especially for those relying on API-based solutions. AI startups leveraging unique data are more likely to survive, according to experts. Read more here.
💸 US banks are investing heavily in fintech, with Goldman Sachs, Citibank, and JPMorgan Chase & Co. leading the pack. These banks are future-proofing their businesses by backing various fintech sectors, from wealth management to payments.
🍏 Apple takes on banks and fintech with 4.15% APY savings account: It’s the tech giant’s latest move to entice people to sign up for its growing basket of financial products at a time when the national average annual percentage yield for savings accounts is sitting at under 0.4%. See link here.
🧬 Gene editing to cure serious diseases. In the aftermath of gene editing’s “misuse” in China in 2018 to create designer babies, scientists now focus on the progress being made in using gene editing to cure serious diseases in adults. Over 50 experimental studies are underway, with CRISPR being the most popular gene-editing method being tested. Several biotech companies are racing to develop treatment including Vertex which will be the first on the market in the US in a year time, but its expected cost in the millions begs the question of who will pay.
Podcasts
🎙️Hear from Rob Lacher, Founding Partner at Visionaries Club on Why Signalling Risk is Real, What Founders Need to Know About Taking Multi-Stage Money vs Seed Fund Money, Lessons Scaling to $600M AUM & How Venture Will Be Disrupted.
Sustainability 🌍
🚨 IPCC pressing alarm to keep global warming below °1.5C. The UN organisation, made up of 195 member countries, has recently released its newest report summarising five years of research on global warming, GHG emissions, and climate impacts, stressing that political will and funding are critical for speeding up the energy transition.
⭐ Forbes predicts the top sustainability and climate tech trends for 2023, from circular economy practices to a surge in clean energy investment, as businesses and investors prepare for a more sustainable future. We are proud to see our former Carbon Economy Webinar speakers Mia (Lowercarbon), Mona (USV) and Sierra (Voyager) being featured as leading experts!
🌊 Microsoft bets on algae to mitigate its growing carbon footprint. Running Tide, which also works with Stripe and Shopify, intends to remove up to 12,000 tons of carbon dioxide over the next two years for Microsoft alone.
🥔 Deep-sea “potatoes” to be the future of mining for renewable energy. The ocean could be a new source for copper and other crucial materials according to MIT.
✈️ Largest hydrogen-fueled aircraft to ever fly. Co-founder and CEO of Universal Hydrogen, Paul Eremenko, proclaimed that this moment marks the beginning of a “new golden age of aviation”.
🚗 US to implement the strictest emissions regulations for the auto industry. The EPA is proposing new rules to accelerate the transition to electric vehicles and address the largest source of greenhouse gas emissions in the US (~25% of CO2 emissions). To learn more click here.
Podcasts
🎙️Hear from Albert Wenger, Managing Partner at Union Square Ventures (USV). USV is one of the most successful VC firms in the last decade, with investments in renowned startups including Coinbase, Twitter, Twilio, Etsy, and many others.
Blockchain & Crypto 💸
⛓️Significant step forward for Ethereum. On April 12th, Ethereum went through one of the most important upgrades following The Merge, called the Shanghai Capella (“Shapella”) upgrade. Introducing a major mechanic change, the Shapella upgrade has allowed users to withdraw their staked $ETH for the first time in years. Moreover, other features have come along, such as cheaper transaction fees. Overall, the Shapella upgrade represents a considerable advancement for Ethereum, further enhancing the network’s functionality, user experience and position in the crypto market.
🚧Web3 collectives face many issues today in the blockchain industry. The current toolset for on-chain coordination occurs across several fragmented on-chain tools and off-chain applications. Lore, Multicoin’s new investment, aims to solve this challenge.
☁️Web3 Native SQL. Multicoin announces its investment in Tableland, a Web-3 Native SQL. The company aims to provide SQL and relational databases for Web3 applications.
📊 The State of the crypto and blockchain industry is covered in Andreessen Horowitz’s 2023 State of Crypto. Across the noises, volatility and innovation that happened over 2022 in the crypto and blockchain industry, this report tried to provide some overview on this nascent market.
⏰ Real-time data on core blockchain infrastructure can be found in Electric Capital’s Developer Report. Updated in real-time and backed by quarterly analysis, the report provides an overview of how active developers have been amongst the blockchain ecosystems.
Podcasts
🎙️Ethereum’s Shanghai-Capella upgrade — and what it means going forward for the network — is explained in detail by the Bankless Podcast.
🎙️How to regulate crypto and the importance of the SEC is discussed here by Hester Peirce, one of five SEC Commissioners.
Eclispse Ventures is a seed and early stage venture capital firm based in San Francisco. Founded in 2015 by Lior Susan and Pierre Lamond, the fund invests in startups transforming physical industries across the US, Europe and Israel. The team has experience working in some of the leading hardware and deep-tech companies of the last decade including Tesla, Rivian, General Electric and Samsara. We are excited to partner with Eclipse in the recently announced $720 million Eclipse Fund V and $510 million Eclipse Early Growth Fund II. For more details.
Eclipse Portfolio Spotlight
Wayve is dedicated to creating the next wave of autonomous mobility. Their self-driving technology, called AV2.0, uses machine learning to adapt to different terrain and conditions. Their investor base include Microsoft, Virgin, Baillie Gifford, and Ocado. To gain insight into Bill Gates’ thoughts on autonomous driving in the next decade and his positive experience with Wayve in London, click here. Note that, Reference Capital has co-invested in this opportunity alongside Eclipse.
BrightInsight provides a compliant platform and software solutions to help biopharma and medtech companies bring their digital health innovations to market faster. Their platform meets global security, privacy, and regulatory requirements, eliminating the need for build-from-scratch implementations. BrightInsight partners with top industry players including Sanofi and BioMérieux more recently.
