Kevin Dowd’s Post

IPO markets have been worse than you thought, and why it matters to startups more than you expect: IPO and Exits struggles - The IPO drought in US venture market has lasted for 1.5 years, but finally, Instacart and Klaviyo have filed for public offerings - Startup exit volume has been weak since 2021, with a decline in $1B+ exits. 2022 had only 19 exits, and 2023 had 13 YTD Public Market Drive Private Markets - Fewer exits come from a lack of public market investor demand for an added supply of stocks (i.e., banks may struggle to “fill a book”) - This is especially a problem given the late-stage private valuations have been greatly disconnected from public valuation comparables (stock investors' willingness to pay) Private Market Pains Hurt New VC Funds and Founders - Late-stage companies are stuck, and with fewer paths to exit, less money goes back to funds and to LPs - Less money available for these funds and LPs, limits recycled money into founders (new investments and follow-ons) and LP commitments to new VC funds (new funds which would invest into new founders) —- In other words… There has been excitement around these filings as we hope the IPO/exit windows will open back up over the next several months. Eyes will be on these stocks to see how they perform on their debut. If priced correctly and buyer demand (public tech stock investors) is there; then it may be the beginning of a slow recovery. Which stock are you more excited to see go public? #venturecapital #investing #ipo #technology

CrunchBase reports on many 2021 IPOs having "flopped" - close to half of the 171 companies that went public with a billion-dollar-plus valuation are now worth less than $500 million - https://lnkd.in/e_5zK9U8. #startups #ipos #flopped #crunchbase #unicorns #unicornstartup

Is startup funding a ponzi scheme? Yes that's pretty clickbaity but it's a good time to have this conversation. It was the subject of this excellent video - https://lnkd.in/gx3QtZCf So what has happened to the crop of unicorns that went public in 21-22? Calling it a bloodbath would be a nice way to describe it. And those are only the ones that were able to make it that far. Lots of others are just never going to justify their sky high valuations - nothing exemplifies this like Wework. Just have a look at the numbers in this Crunchbase piece. This year? Exits over the billion dollar mark have been incredibly slow - this might be changing with Arm, Instacart and others filing or making moves to go public one way or another. So what's next for startup and VC world? And is it a ponzi? Why or why not? I know it's a bomb to drop on a summer Friday afternoon but, why not. #startups #venturecapital #money

45% of the startups that went public in 2021 at a valuation of over $1B are currently worth less than $500M. Only 40% of the startups have still held their value of over $1B. What happened: Rivian, Coinbase, and Roblox were the three most highly valued companies to go public in 2021. All three are currently trading at significantly lower values than their respective IPO prices. Only 13% of the companies that went public in 2021 are valued between $500M and $1B. 32% are valued between $1B and $5B, while 9% are valued at over $5B. What the numbers say: The number of billion-dollar public listings more than tripled from 51 companies in 2020 to 182 in 2021. Of the listings completed in 2021, 93 were IPO listings, and 83 were SPAC listings. Exit activity peaked in 2021 before slumping in the following year. 2022 concluded with 3 IPO listings and 25 SPAC listings of billion-dollar companies. So far in 2023, only four SPAC listings of $1B+ startups have been completed.

🚀 Mamaearth's Big Debut - Lets try to understand the Pros and Cons 📈 Some exciting things are happening with Mamaearth's recent entry into the financial world. Their IPO has started with a massive valuation of Rs 10,425 Cr. They're looking to raise Rs 1,701 Cr by offering two types of shares - new and old ones. 👉 Most of the money, about 80% (Rs 1,350 Cr), comes from selling existing shares, making the current investors and promoters richer. Only 20% (Rs 350 Cr) will go towards growing the business with new shares. This means that the majority of the IPO money won't help the company expand. 🤔 Now, let's talk about the current situation. IPOs for startups are not the hottest trend right now. Many people are confused about why startups need to spend so much money to build their businesses. The global #VentureCapital market is also not as friendly as before, making it tough for startups to find new money. Even some well-funded startups are struggling. 📈 On the bright side, Mamaearth has started making a profit, which is good news for investors who like to see a company making money. But here's the twist: their valuation is at Rs 10,425 Cr, while they're making a quarterly profit of just Rs 25 Cr. This doesn't fit with the usual way investors evaluate companies. Mamaearth isn't a typical company; it's a fast-growing startup with a 50% increase in revenue in FY23. So, the usual method of evaluation might not be the best way to understand Mamaearth. 📊 Now, let's consider the role of regular people, like you and me, in this IPO. Well, it seems we don't have a big part to play. Only 10% of the IPO shares are set aside for us small investors, while 75% goes to big institutions, and 15% to the super-rich. Mamaearth has some top investment banks managing its IPO, and these banks have good connections with big investors. So, convincing them to invest in the IPO is probably not too hard. 🤩 But what's interesting is how much interest regular people will show in this IPO. Our participation will tell us a lot about what the public thinks of startups these days. #IPO #Investing #StartupJourney #RetailInvestors #VentureCapital #market #money

Between Q2 2020 and the end of 2021, the percentage of vested stock options on Carta that employees chose to exercise increased for six straight quarters. Over that span, the exercise rate climbed from 26% to 46%. Considering the state of the VC market during late 2020 and throughout 2021, the increase makes sense. Startup valuations were soaring across the venture landscape. Employees with vested options wanted their seat on a rollercoaster that was heading up, up, up. But then it started going down. Between the start of 2022 and now, the exercise rate has now decreased for seven straight quarters, reaching a new low of 24% in Q3. This shift also makes sense. In just about every sector and at every stage of the startup life cycle, startup valuations have fallen. So far this year, nearly one in every five venture investments on Carta has been a down round. In this environment, employees aren't quite so eager to get a piece of the action.

From Techcrunch: The IPO drought was worse than you thought ------------------------------- Even with a single-digit tally, the last three months of this year could be the most active quarter by the count of IPOs we do care about. #techcrunch #startups #breakingtechnews #marketAnalysis

The IPO market dried up significantly in 2022. For VCs... IPO exits were totally non-existent. In fact, according to CNBC, the most recent venture-backed tech IPO was HashiCorp... which happened in December 2021! It's been more than a year and a half since the VC industry has seen a successful IPO. In fairness, there were a few De-SPACs in 2022, but nothing major, and most performed really poorly. That all changed late last week when Instacart and Klaviyo both filed to go public within hours of each other! Both companies reported solid revenue growth and net profitability in their most recent fiscal quarters. Combined, these companies have raised close to $4B in the private market. This means these IPOs will have a significant impact on VC exit value in Q3, which had fallen off a cliff since the end of 2021. It appears the IPO window is starting to open as we head into 2024. As Bill Gurley recently said on All-In, sometimes the easiest way to clean up a cap table with major structural issues is to go public and convert everyone to common. There are a LOT of late-stage startups with structural issues that will likely be looking to IPO in 2024. It should be an interesting year! #markets #ipo #startups #venturecapital

Based on Carta's Venture Deal Term Survey, Onerous Deal Terms Were Less Common in Q3 ... That's the Bad News. "A likelier explanation for the shift in deal terms isn’t quite as promising for founders. During 2022 and early 2023, startups without sparkling financial results were still able to raise capital—they just had to accede to some unfriendly deal terms in order to do it. Investors were willing to make riskier bets on less-proven companies if they received some downside protection. In recent months, however, VCs seem even more focused on certainty and less willing to back a long shot. It’s not that struggling startups are now able to raise capital at better terms—it’s that they’re unable to raise capital at all." https://lnkd.in/e2nxNi4M #venturecapital #startups

Over the course of ten years, nearly 1,400 startups have reached unicorn status, but since 2016, startups have been experiencing progressively longer journeys to reach unicorn status. Despite 2021 seeing the largest new unicorn class ever (an outlier of hopeful investments post-COVID), overall funding and valuations are in a slump. Rampant inflation, economic instability, layoffs, and devaluations have led to more tentative venture funding and later stage investing has slowed down in tandem with the IPO market. Exits for companies approaching or at unicorn status and IPOs have led to late-stage investors losing money. Now, VCs want to see profitability and positive cash flow.