Unsurprisingly, it appears that several investors wrote checks at the rate they expected, while others fell somewhat short. However, there is a feeling that a slower investment cadence will become the new norm. Rajeev Dham, a partner at Sapphire Ventures, and Mark Grace, an investor at M13, noted that the rapid investment cadence of the pandemic years has passed and the adjustment period has been a journey fraught with uncertainties.
However, those who traded at a slower rate seem to favor a more cautious approach. Gen Tsuchikawa, CEO of Sony Ventures, commented that "we have always been selective in our investments and are keeping the cadence of those investments flexible for now."
Dham also advocates prudence for the upcoming period. “Once we understand what the new operating pace of companies is, and then we apply the appropriate price, which we all now know what that is (which it always has been!), then we can act accordingly. The other huge shoe to drop is further withdrawal from the most active investors in the 2018-2021 era. The more that withdraw, the less capital there is likely to be in the system chasing startups, which also levels out prices.”
Grace has her eyes firmly on the full half of the glass: “I think the trading cadence will continue to pick up. You have to be optimistic in this industry!”
Logan Allin, managing partner and founder of Fin Capital, said his company was the most active financial technology investor worldwide in the QXNUMX thanks to its focus on early-stage startups founded by former startup owners.
He gave an idea of the confidence of his company: “This accelerated rate of formation of new companies is a function that contains on the one hand the management teams that hand over the reins to professional management to take the company public or exit through mergers and acquisitions or purchases, and on the other hand experienced entrepreneurs with previous options that are not worth the time to move forward.
Below are comments from a number of investors on their activity in the first half-
Matt Murphy. Partner, Menlo Ventures
Sheila Gulatti. CEO, Tola Capital
Gene Tsuchikawa. CEO, Sony Ventures Corporation
Logan Allin. Managing Partner and Founder, End Capital
Jason Lemkin. CEO and Founder, Saastr
kaitlin doyle. Vice president, TechNexus Venture Collaborative
Rajeev Dham. Partner, Sapphire Ventures
Jenny He. Founder and General Partner, Position Ventures
Oliver Kown. Managing Director, Intuitive Ventures
Rex Salisbury. Founder and General Partner, Cambrian Ventures
John Tough. Partner director, 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 investment cadence meet your expectations? Did you exceed your goals or did you miss them?
The second half of 2022 was dead. Things suddenly took a turn for the better at the end of February and we felt it across the board. We made investments in Anthropic and Typeface and have continued at a fairly fast pace ever since. In the second quarter, we made several commitments, including two life sciences companies, a digital health company, a hard tech company, and some SaaS companies. So the end of the first quarter picked up and the second really picked up. We even had a term sheet from a company and we won the deal, but it was eventually acquired by a third party.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
The second quarter was already busy and active for us, but mostly in the early stage. We have three funds: an incubation fund (Menlo Labs), which has been stable; our Venture Fund, which rallied significantly in the second quarter; and our Inflection Fund (defined as early growth in companies with ARRs of $3 million to $10 million), which was still sluggish in the second quarter.
We expect the Labs and Venture Fund to remain as active as they have been from a pace standpoint, but the Inflection Fund is expected to pick up significantly in the second half of the year. About 80% of companies in our sweet spot haven't raised in more than two years, and many will need to be back on the market in the second half of 2023. We're excited about that segment of the market, where there's early but predictable investment, scalable and where valuations have settled substantially.
There will be a lot of flat and low rounds, and there should be no stigma attached to it. The multiples that venture capitalists 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 over valuation and focus on building great companies.
Sheila Gulatti. CEO, Tola Capital
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
Our current focus is AI, primarily in the areas of basic domain-specific models, AI/ML tools, AI SaaS applications, AI governance and compliance, and AI security tools.
We've closed deals in these spaces in 2023, but the frenzy around AI has definitely meant a lot of capital has poured into this market. The result has been that we have withdrawn certain valuation-based deals, and we expect this to continue in the world of AI. It has meant fewer deals overall.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We are focused on making the right deals. Generational companies will emerge from this AI-defined period of transformation, but there will also be plenty of losers.
With the team's background as operators at Microsoft, we have a strong view of which companies will be able to compete with large-cap cloud and AI companies, and where companies can build sustainable moats. Patience and identification with generational companies is more important to us than accelerating our pace of business.
Gene Tsuchikawa. CEO, Sony Ventures Corporation
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We have always been selective in our investments, and for now we remain flexible in our investment cadence.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We are watching the market to determine when to speed up the cadence, as are many other investors. We are mildly optimistic based on some positive signals in the capital markets, but not enough yet to send a clear direction to the team.
Logan Allin. Managing Partner and Founder, End Capital
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We were the most active fintech investor globally in QXNUMX, but that was largely in pre-seed and seed investments, where we are seeing ample activity from talented founders returning to market and seasoned entrepreneurs.
This accelerated rate of new company formation is a function of (a) management teams handing the reins to professional management to take the company public or pursue M&A or buyouts, and (b) experienced entrepreneurs with unclear options in which they are not worth keeping.
It's an excellent time to start a company with fundamental principles and a disciplined start-up mentality, as we saw in 2008-2010, which were some of the best Private Equity vintages of all time, according to Cambridge Associates' benchmark.
Traditional early phase (Series A/B), growth capital and late phase continue to be slower as leading companies have room to extend their next funding until 2024, when we all expect market conditions to be more favorable .
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
Currently, our orientation is to play more attack than defense, but for our pace to pick up, we need to make sure that unforeseen factors don't show up for us and that the founders and boards we're engaged with are constructive in assessing and structure in this environment.
Therefore, we believe that there will continue to be more attractive opportunities in the second half of 2023 and that the pendulum is certainly in favor of investors. But more than ever, the selection of companies certainly outpaces any type of broad-impulse investing we saw in 2019–2021.
Jason Lemkin. CEO and Founder, Saastr
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
I've been behind, and many top seed investors I know [who] have been doing it for a while (versus newer managers) are behind or off their historical pace. But I do want to pick it up.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
Forks. I'd like to do two to three investments in 2H 2023, versus essentially zero in 2022.
kaitlin doyle. Vice president, TechNexus Venture Collaborative
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We are below the target. The rounds are still showing up; They're just taking longer than we thought. So we still have active deals in the pipeline, they just won't close in the second quarter.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We hope so! We are long-term investors, so part of this depends on the cadence of lead investors and round closures. Our volume is still relatively good; the closing periods are the ones that are getting longer.
Rajeev Dham. Partner, Sapphire Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
Our pace of investment has accelerated since 2022, but we remain highly disciplined. We wait until we find strong companies solving real challenges with smart and passionate founders in the B2B SaaS landscape. Those are the companies we want to partner with.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We do not propose an acceleration or deceleration. For us, it's all about what the market produces, and right now I just don't see the market producing the right conditions.
I think we're still in the early innings of this private tech market downturn. Just because Nvidia's stock price is through the roof doesn't mean that more than 95% of private tech startups aren't having a hard time delivering performance and hitting their numbers.
Once we understand what the new business cadence is and then price it right, which we all now know what that is (which we always have!), then we can act accordingly. The other big challenge is the biggest withdrawal of the most active investors in the 2018-2021 era. The more they withdraw, the more likely there is less capital in the system chasing startups, which on the other hand also levels out price sets.
That being said, we remain excited about innovative companies disrupting industries, markets, and helping improve business processes. We are eager to invest at realistic prices and support visionary CEOs. We always search with the brightest minds and I am confident that as an industry we will return to our usual pace in 2024 onwards.
Jenny He. Founder and General Partner, Position Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We are maintaining a steady pace of investment, slightly adjusted due to the rising costs of some early AI companies. We stayed disciplined and made investments that we are very excited about despite having to pass up some opportunities that we consider too expensive.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We align with our strategy of identifying the most promising opportunities and not rush trading in the second half of 2023. We are committed to maintaining a no-nonsense approach and reducing noise to ensure that our investments align with the long term of our portfolio and its goals.
Oliver Kown. Managing Director, Intuitive Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We are more or less on pace or slightly below year to date, having closed one deal and with several in the pipeline.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We are actively deploying capital and hunting for new deals.
Rex Salisbury. Founder and General Partner, Cambrian Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We strive to be “boring” and steady in pace, and the second quarter was no exception: we kept our standard pace of about one deal per month.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
No. Companies need to develop a strategy and stick to it. For pre-seed, seed and, increasingly, Series A, there's been a steady supply of great startups, and there's no reason for early-stage investors to drastically change the pace.
For Serie B and beyond, the scarcity of opportunities, together with the need to align the price expectations of the public and private markets, makes the quarterly changes in the rhythm of transactions more relevant.
John Tough. Partner director, Energize Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
The bid-ask spread between entrepreneurs and investors has begun to close. However, the differential in valuation expectations remains wider in the climate and environmental sector than in another, as investor interest remains above historical averages. The two most relevant areas currently are environmental and AI.
Making investments in 2023 requires two things: experience and creativity. At Energize, we met our implementation goals for the first half of the year, but it required creativity in the deal structure (primary, secondary) and looking geographically beyond the US. For us, that meant looking to Europe.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
Our goal is to maintain an investment cadence that is consistent with the first half of the year, aligned with the implementation goals we outlined when we structured our current fund.
John Henderson. Partner, AirTree
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
In the seed stage, 2023 has been business as usual for us. We take a decade-long view, investing at a steady pace and watching the changes in cycles.
Things are much slower than expected in the growth stage. In some respects, it's a good sign for our portfolio companies, which still have strong offerings to come from increases in the last 24 months. But many large companies are not interested in going higher, given what has happened to public market multiples and what this means for them.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
Steady pace and a 10+ year mindset have been the blueprint for our success over the past decade when it comes to our trading cadence. “Unprecedented times” and a “technological wreck” do not change our approach; they reinforce it.
Christopher Day. CEO, Elevate Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
We are in line with the cadence and the number of agreements that we have as a goal for 2023.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We plan to continue with the same cadence and speed in the second half of 2023.
Mark Grace. Investor, M13
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
Our cadence has slowed down a little bit, but even with that, we've been putting in several net new and Series A investments this year and we've been pretty active.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
Yes, I think the trading cadence will continue to pick up - you have to be bullish in this industry! – but I don't expect it to return to 2020-2022 levels any time soon. That was an anomaly.
Howie Diamond. Managing Director and General Partner, Pure Ventures
Did your investment cadence meet your expectations? Did you exceed your goals or did you miss them?
Our cadence met our expectations and we achieved all of our goals with the added benefit of investing at lower prices. Market corrections, such as they are, also make it easier to spot founder talent.
Does your company plan to accelerate its trading cadence in the second half of 2023? Why or why not?
We are in our final phase of implementation, so most of the capital is going into tracking/prorating on our best deals. That being said, we do have the flexibility to do one or two new deals in this final stretch if we see something that sensibly appeals to us.
