With Russia’s invasion of Ukraine and rapid spikes in inflation and stock market volatility, I’m seeing rapid changes in startup fundraising.
As has been widely reported, late stage startup valuations are starting to take a hit, if not quite as quickly as public markets. The cause and effect here is fairly obvious - political and market instability means there may be fewer IPOs brought to market, and those that do make it will face lower multiples for their public comps. In some cases, the probability of an exit by M&A rather than IPO will have significantly increased though.
On the other hand, early stage startup valuations are not being beaten down. But rounds are taking a lot longer to close (60-90 days is the new 2-3 weeks) because the amount of diligence by lead investors increased. Another way of putting it is that overall dollar flow per month seems to have pumped the brakes (at least in my corner of the world). As a result, startups that were already financially healthy and had partially filled their rounds in January are just reducing the size of their rounds and getting back to executing on their business (e.g. $3M seed rounds turned into $2M seed rounds in the last 30 days).
On AngelList, the amount that angel investors are committing to my deals has dropped significantly, and I’m hearing from other syndicate leads that they’re seeing the same. Angel investors aren’t complaining about valuations, nor am I seeing fewer investors join each deal. Instead, the average LP check size is dropping, making it slower to fill my target allocations.
It may be stating the obvious, but there are many startups that rely on talented Ukraine and Russia dev teams. The ones relying on Ukraine have been incredibly agile at getting them out and therefore although the employees have suffered psychological impacts, I haven’t seen investment activity affected. I can’t say the same for Russia though. In the long run, tech talent outflows from Russia and Eastern Europe seem likely to benefit startups in neighboring regions.
In terms of sector impacts, a few observations:
Startups leveraging data relevant to supply chains (e.g. shipping SaaS, satellite data) seem to be heavily beating their revenue projections.
Valuations are higher in the short-term for hardware startups structured to allow for rapid change in their supply chains, as parts of the globe suddenly become unreliable suppliers of key components. However, inflation means that the capex-heavy ones may start to feel a pinch.
Given the high cost of gas, energy startups and ecosystems supporting electric vehicles and other alternate forms of transportation received a boost.
As if fintech and crypto wasn’t already hot enough, the West’s sanctions have created new opportunities to startups who can tell a strong story about alternative rails for moving money.
Predictably, drones and cybersecurity startups are starting to see more inbound from the government/military sector.
Construction supply chains are totally broken. We have the most homes under construction in the US since 1973. This means big opportunities in the construction proptech sector.
If the Ukraine war changes the odds of China eventually gaining control of Taiwan, big money pools may be open to taking more risk on funding basic research investment in chips, which will have knock on effects and might eventually reduce the number of “software-only” VCs.
At Asymmetry Ventures, we remain focused on long term defensible “sci-fi” investments, so our decision matrix there isn’t much affected. Here’s a sampling of some exciting deals we’ve worked on since the last post:
Quaise Energy uses plasma to drill 10 miles into the earth to access geothermal energy. They’ve generated a lot of press coverage: https://www.quaise.energy/company#news
Endiatx built a tiny robotic pill you can swallow so your doctor can do an endoscopy via telehealth. The term “visionary” gets overused, but it’s the right one for this founder.
Sigma Genetics built a machine that uses magnetic fields to lower cost and time of genetic therapy vectors by an order of magnitude, starting with CAR-T cancer therapy.
Rain Neuromorphics built a new kind of AI chip with a structure of synapses closer to the human brain.
Inhalon Bio provides inhaled immunotherapy for acute respiratory disorders (including COVID). They made two scientific breakthroughs: delivering aerosolized antibodies, and binding the invaders to mucus which transports out of the lungs. They’re in Phase 1 trials with Celltrion .
Falcomm has reinvented the power amplifier. Too many impacts to list for this one - interestingly, the first market to take off will probably be satellites.
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Solid synopsis of the world, as I see it, too. Thanks very much, Dan. Great stuff.