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As part of our ongoing coverage of VC performance in the first half of 2023, TechCrunch+ surveyed 15 investors about their investment cadence and their plans for the second half of the year.
As expected, it appears a good mix of investors wrote checks at the rate they’d aimed for, while others fell a bit short. However, there is a sense that a slower investment cadence is going to become the new norm. Rajeev Dham, partner at Sapphire Ventures, and Mark Grace, investor at M13, both noted that the rapid investment cadence of the pandemic years has passed, and the adjustment period has been a bumpy ride for some.
However, those who operated at a slower cadence seem to be favoring a more cautious approach. Gen Tsuchikawa, CEO of Sony Ventures, said, “We have always been selective in our investments, and we are keeping the cadence of those investments flexible for now.”
Dham also advocates prudence for the coming period. “Once we understand what the new operating cadence is of businesses and then apply the appropriate price, which we now all know what it is (what it has always been!), then we can act accordingly. The other massive shoe to drop is further retreat from the most active investors in the 2018–2021 era. The more they retreat, the more likely there is to be less capital in the system chasing startups, which also level sets on price.”
Grace has his eyes firmly set on the full-half of the glass: “I think dealmaking cadence will continue to rebound. You need to be an optimist in this industry!”
Logan Allin, managing partner and founder of Fin Capital, stated that his firm was the most active fintech investor across the globe in Q1 thanks to its focus on early-stage startups founded by repeat founders.
He gave us some insight into his firm’s confidence: “This accelerated rate of new company formation is a function of (a) Management teams turning over the reins to professional management to take the company public or exit via M&A or buyout, and (b) seasoned entrepreneurs with underwater options that are not worth sticking around for to vest further.”
Read on to learn more about the investing climate of the past six months, and how these investors aim to tackle the next few months.
We spoke with:
Matt Murphy, partner, Menlo Ventures
Sheila Gulati, managing director, Tola Capital
Gen Tsuchikawa, CEO, Sony Ventures Corporation
Logan Allin, managing partner and founder, Fin Capital
Jason Lemkin, CEO and founder, SaaStr
Kaitlyn Doyle, vice president, venture, TechNexus Venture Collaborative
Rajeev Dham, partner, Sapphire Ventures
Jenny He, founder and general partner, Position Ventures
Oliver Keown, managing director, Intuitive Ventures
Rex Salisbury, founder and general partner, Cambrian Ventures
John Tough, managing partner, Energize Ventures
John Henderson, partner, AirTree
Christopher Day, CEO, Elevate Ventures
Mark Grace, investor, M13
Howie Diamond, managing director and general partner, Pure Ventures
Matt Murphy, partner, Menlo Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
The back half of 2022 was dead. Things suddenly picked up in late February, and we felt it across the board. We made investments in Anthropic and Typeface and have continued at a fairly rapid pace since then. In Q2, we made several commitments, including two life sciences companies, one digital health, one hard tech company and a few SaaS companies. So, the end of Q1 picked up and Q2 really accelerated. We even had a term sheet in on a company and we won the deal, but it got acquired.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Q2 was already busy and active for us, but mainly at the early stage. We have three funds: an incubation fund (Menlo Labs), which has been steady state; our Venture Fund, which picked up significantly in Q2; and our Inflection Fund (defined as early growth in companies with $3 million to $10 million ARR), which was still slow in Q2.
We expect Labs and the Venture Fund to remain just as busy as they have been from a pacing standpoint, but [we] expect the Inflection Fund will accelerate significantly in the back half of the year. About 80% of the companies in our sweet spot haven’t raised in two-plus years, and many will need to come back to market in 2H 2023. We’re excited about that segment of the market, where there is early but predictable scale and where valuations have settled substantially.
There will be many flat and down rounds, and there should be no stigma around that. The multiples VCs will use to value companies will be different, but that doesn’t change whether a business is good or not. So we’ll all get past valuation and focus on building great companies.
Sheila Gulati, managing director, Tola Capital
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
Our current focus is AI, primarily in the areas of domain-specific foundation models, AI/ML tooling, AI SaaS applications, AI compliance and governance, and AI security tools.
We have closed deals in these spaces in 2023, but the frenzy around AI has definitely meant a lot of capital has rushed into this market. The result has been that we have backed off certain deals based on valuation, and we expect this to continue in the AI world. It has meant fewer deals overall.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We’re focused on doing the right deals. Generational companies will emerge from this transformative period defined by AI, but there will be many losers, too.
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