Venture capitalists offer predictions for this year’s fundraising market
Last year saw a ‘shift toward austerity’ for venture capital. Will 2023 bring more of the same?
Venture investors saw a reshaped landscape last year. Both the startup fundraising market and venture capitalists’ own ability to raise new funds were turned upside down after a red-hot 2021 in which easy money was the overarching theme. What will this year bring?
WSJ Pro fielded insights from investors on what they believe is in store for 2023. Here are excerpts from the written responses we received.
Chuckie Reddy, a partner and head of growth at QED Investors, said that the mountain of dry powder in the venture industry won’t translate into an acceleration in deal activity. “The companies that clean up their capital structure early will be at a major advantage to those who choose to kick the can. We will see high-quality IPOs return to the market and a lot of M&A."
John Slater, head of strategic capital at Hum Capital, said that use of debt as a financing option will continue to increase despite interest-rate increases. “For many companies and founders who raised equity rounds in the heady 2021 cycle, taking on debt now will become more attractive, as they seek to avoid valuation down rounds."
Blair Silverberg, co-founder and CEO of Hum Capital, predicts that more limited partners will cut out venture firms. “A looming recession and the VC industry’s 2022 shift toward austerity will send startups in search of new sources of still-available capital in 2023." That will increasingly come from investors such as insurance companies, university endowments and pension funds, he said. These institutions have traditionally leaned on venture capitalists to source deals, conduct diligence and generate returns. “In an effort to get around VC management fees, some LPs have started investing directly in startups over the last decade, and the current macroeconomic environment coupled with new data-driven investing tools will accelerate the trend."
Bill Cilluffo, a partner and head of early-stage investments at QED Investors, said: “The market will continue to be bad through all of 2023, but the best companies will be able to raise. Downturns provide great opportunities for innovation and growth, so there will be breakout companies. But many, many others will fail."
Dave Zilberman, a general partner at Norwest Venture Partners, said there will be more structured financings for late-stage companies that are sitting at 2021 valuations and that need to raise capital or exit. “With roughly $290 billion of capital on the sidelines, very modest 2022 investment activity, companies exhausting options to conserve cash, and companies accepting the new valuation frameworks, investment activity will pick-up dramatically. Investors have a shot-clock to deploy capital and time is ticking. This will be for companies that raised at high valuations in 2021 and don’t want a down round."
