Sharing five topics that caught my attention this past week as we all deal with information overload.
1. What’s happening in the venture capital world?
The WSJ confirmed what we already know: Q2 venture capital investments declined both in size and in valuation.
• Declining investment: U.S. VC funds invested about $47.5 billion in 2,251 deals during the second quarter through June 15, versus about $70 billion in 3,369 deals in the first quarter
• Declining valuations: In the secondary market for private equity, 55% of the equity offered for sale in May was offered at a discount to the companies’ valuations per share, compared with 47% in March and 35% in January.
Venture Capital Feels the Stock Market’s Pain, Wall Street Journal
The public markets meltdown continues to have a trickle down effect on venture-backed private companies. Data compiled by ApeVue, collecting data from private secondary transactions shows the % of decline. For example, Klarna is rumoured to be raising $650M in fresh capital at $6.5 billion valuation, according to the WSJ, down from $45.6 billion in June 2021.
Another impact of the meltdown of the public markets is on performance, in LP and VC books which resulted in 68% of funds estimated to have marked down companies in their portfolio.
Inside.com offered this commentary:
According to a recent PitchBook analyst report on VC fund performance, over 68% of venture funds experienced a dip in overall realized and unrealized returns against capital invested in the first quarter of this year. In terms of TVPI, the total value to paid-in ratio used by fund managers to evaluate a fund’s performance, the median dropped 3.5% this year in comparison to the previous one, the third-highest decline seen in recent times behind the global financial crisis’ 7.8% drop and dot-com crash’s 15.7% slump.
Pitchbook
2. Narrative violation: VC investment in EMEA startups reached an all-time high in the first half of 2022
Dealroom data shows that paradoxically, European startups raised more than ever in the first half of 2022.
Possible explanations:
- Lots of dry powder in the market
- Companies keen to extend their runways
- Late announcements
- Continued underlying tech trends
European VC dry-powder is also at an all-time high
The 2022 European Capital Map report consultancy 5invest shows that there are now 550 active European venture capital firms, with 48 new venture capital firms were launched in 2021 alone.
3. How bad can it get? Not as bad as the dot com bust
The Economist talked about “Venture capital’s reckoning“ and why despite the crisis in the market, and the large number of layoffs in the market, this crisis will not be like the dot com bust in 2001.
It cites 3 reasons for that:
1. Many startups and scale-ups have built have vas war-chests that can provide them runway till 2025
2. The VC industry is far more institutionalised and are less dependant on one source of capital, say the US
3. Most importantly – the digital transformation that every industry is going through remains huge, and will require more innovation.
My favourite was the quote below:
Most important, the opportunity for innovation remains vast. The potential market for technology products has expanded hugely, beyond the bastions of business and consumer computing, to affect all parts of the business world, from biotech to supply-chain monitoring. What emerges from the chaos will be a leaner and more efficient industry—and one that will remain a powerful force.
Venture capital’s reckoning, The Economist
4. Remote hires represent the majority in the US in H1 2022
Carta released The state of startup compensation, H1 2022 report and the results indicate that the percentage of remote hires doubled since 2017 and remote hires now represent 62% of all new contracts signed by startup employees.
In 2019, about 35% of new hires were based in a different state than the primary company headquarters. So far this year, that number has ballooned up to 62% as the pandemic transformed many companies’ approach to remote work.
Carta
5. The impact on Gaming and Metaverse
As you may know, I’m very interested in the topic of the Metaverse, and how it’s developing in gaming and beyond. Last week I published a long read on “Investing in the Pillars of the Metaverse“, citing the latest trends according to McKinsey, A16Z and Newzoo.
With that said, with potential stagflation looming, what will be the impact on gaming and the future of the Metaverse? GameIndustry sampled some of the top gaming analysts and concluded that gaming isn’t going anywhere, and although some areas will feel the effect in case of a downturn.
Entertainment tends to fair well in recessions, as people seek escapism. And gaming as a whole is the most popular form of entertainment for people under 50 in the US, and is rapidly expanding to other demographics (women, adult men, etc) according to he 2022 Trends in Entertainment by GWI. A
On that note, I highly recommend “Why the Metaverse will be Epic“, a post by John Kosner and J Moses on why Epic is uniquely positioned to play a major role in this “New Internet”. Peter Warkman, the co-founder and chairman of Newzoo, said that in 2022, games will drive $203 billion in direct to consumer (DTC) purchases. The beneficiaries will be the companies that are able to attract users to play, hang out, shop, go to concerts etc. This is why Epic has a chance to ‘win’ this:
…the key to success in the Metaverse will be compatibility or in the Web3 vernacular — “composability.” If you own stuff and currency in one metaverse, you’re going to want to take it to other metaverses. We might live in a decentralized future but a definitive advantage goes to the metaverse where the most people hang out — because that metaverse is going to be able to leverage the other metaverses, drive subscriptions, micropayments, etc. Discord plays that centralized decentralized role as a communications platform right now.
Thanks for reading this far – happy 4th of July!
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.
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