Venture Capital

Take Five – how shut are the venture markets right now?

Sharing five links that caught my attention this week as we all deal with information overload.

1. The market correction has come for series A and seed startups

For the past few week I’ve been sharing here the impact of the current downturn that started in the public markets on startups and venture capital. Until now, early stage startups were relatively unaffected. According to new research by Pitchbook, the trickle down effect has already started in seed and series A startups with round sizes and valuations shrinking in size compared to 2021.

According to Michael Kim, of Cendana Capital:

Last year, the typical best-in-class Series A deal was raising around $20 million at a post-money valuation of $120 million, according to Kim. But recently those round sizes and valuations have tumbled to about $10 million and $50 million, respectively, he said. As a result, founders are accepting increased dilution of the stakes they hold in their own companies.

While these prices are still high compared to what we see in Israel, Investors have putting a stronger focus on revenue growth (and in particular startups that can reach substantial revenue targets) especially before series A. It suggests that seed startups looking to raise their series A startups will need more time to reach these milestones.

One exception to the trend is Web3 and other crypto-related seed deals.

The market correction has come for Series A and seed startups (Source: Pitchbook)

2. How frozen are venture markets right now?

It’s not just the prices that are coming down. It’s becoming evident that there’s a slow down in VC investments in Q2 deal activity, but it’s not as drastic as in the early days of the pandemic. Dealroom shared very interesting data in the “State of VC in 2022” on the slow down in Venture Capital activity in Q2 2022, particularly in the growth stage

State of VC in 2022 (Source: Dealroom)

How shut are the venture markets for companies seeking capital right now? the answer is “it depends” (but don’t try to raise from crossover funds as they’re probably putting their out of office messages on…)

3. Forget about Unicorns (valuations), it’s all about Centaurs ($ ARR)

Aileen Lee coined the term “Unicorn” close to a decade ago, as a way of describing the then elusive status of startups reaching a $1 billion valuation. But the valuations weren’t necessarily given as a function of revenue, and often with multiples on ARR that we don’t see in today’s market. With over 1,000 global unicorns (and about 1.5 new unicorns created each day), startups may find themselves raising down rounds as they struggle to justify previous valuations. As an example, here are 34 new unicorns minted in May 2022.

That’s why Bessemer ventures coined a new term, reflecting that revenue is king. “Centaurs” are companies that achieved $100M in ARR. You can read more about it in their 2022 State of the Cloud report.

But what’s the path for startups to become Centaurs? How important are margins? How quickly should startups scale? These questions have become more important in today’s market and the firm’s blog is packed with interesting insights.

On a related note, this new report by OpenView is full of benchmarks and examples of efficient PLG (product led growth)

4. Interesting developments in AR this week

Amazon is using AR to offer customers virtual try on of sneakers. Users can change the model and colour of a product with the click of a button. This comes 2 weeks after Google started offering retailers to upload their 3D content into Google Shopping.

Amazon AR virtual try on for sneakers.

Amongst the many product announcements Apple made in WWDC 2022 this week, one that was less noticed was their parametric 3D room scanning with Roomplan, to scan and map surroundings with Lidar. The Roomplan API will work with iOS 16. Like many other announcements, this can pose a threat to startups.

Apple Roomplan API

Also in AR this week, Meta is scaling back its AR glasses plan as part of an effort to trim their Reality Labs. These changes come as Meta is dealing with slowed revenue growth, which has led the company to freeze hiring in some divisions. Bloomberg reports that Meta also stopped the launch of a new smart watch with two cameras. The first version of its smart glasses (code name Orion) will be distributed to Developers (according to TheVerge).

The Information reports:

Meta decided to not commercially release what was to be the first version of the AR glasses, codenamed Project Nazare, which was reportedly scheduled to launch commercially in 2024. However, employees have been notified that Meta no longer plans to commercially release the AR glasses due to efforts to cut back on heavy investments in its Reality Labs and AR/VR division.

On a related note: Qualcomm Ventures announced their first two investments from its new $100M metaverse focused fund. They are Tripp (an VR meditation app) and Echo3D (full diclosure: a Remagine Ventures portfolio company).

5. As layoffs in Israeli startups ramp up, a new resource for affected employees

Several companies started to announce layoffs in Israel, in some cases as a precautionary effort to extend runway, and in others completely shutting down (Avo, online grocery delivery is the only one so far).

Yoav Anaki of Fresh Ventures created https://www.layoffs.org.il/ as way to track these layoffs in an effort to help affected employees find new jobs more quickly. A a sign of the times.

Eze is managing partner of Remagine Ventures, a seed fund investing in ambitious founders at the intersection of tech, entertainment, gaming and commerce with a spotlight on Israel.

I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.

I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.

Eze Vidra
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