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VC Daily : Is This VC Cycle Virtuous or Vicious?

10/18/2021 | 09:12am EST

Good day. Public listings of venture-backed companies like GitLab Inc., which priced at a market capitalization of $11 billion and saw its shares pop 35% on the first day of trading last week, are drawing more capital into the private market. GitLab's previous financing round valued the company at $2.75 billion.

The flood of capital to private markets increases competition for venture deals, boosting valuations, increasing paper returns for many funds and allowing them to raise even more money, which they funnel into larger deals at higher valuations. And on and on.

How long will this continue?

"We are monitoring the risks," said Cameron Joyce, vice president of research insights at Preqin Ltd. "There doesn't appear to be any immediate catalyst that would undermine that virtuous cycle," he said, adding that the riskier venture capital investments make sense in an environment where 10-year bond yields are staying low.

But the expansion of venture capital is causing problems for startups already, such as in the competition for talent and the need to keep up revenue growth to meet investor expectations.

"That's how these cycles work," said Atul Rustgi, partner at Accolade Partners, a fund of funds manager. "You start seeing returns, people rush to it and returns come down," he said, adding "It's kind of like a vicious cycle -- it's all feeding on itself and amplifying on itself."

We explore the contradictions in the current market in today's story below.

And now on to the news...

Top News

Dizzying climb. Venture capital funds are reaping the rewards of a booming market as returns continue to improve. But the dizzying climb in startup valuations has some worried that the market euphoria is turning irrational.

"It's going too well. I'm not actually that smart. It can't continue like this," said Matt Harris, a partner at Bain Capital Ventures. Over the past 12 months, five of his portfolio companies either went public or have been preparing to list. Others raised private capital at higher valuations. Mr. Harris said he has been surprised both by the traction companies are getting and how well they are being received in public and private markets.

Liquidity and valuations jumped sharply this year for venture-backed companies after picking up pace in the second half of 2020. The value of U.S.-based venture-backed companies that went public or were acquired this year through the third quarter totaled $582.5 billion, up from $289 billion in 2020 and surpassing half a trillion dollars for the first time ever, according to the latest PitchBook-NVCA Venture Monitor report.

Numerous startups once backed by venture capital have been trading at market capitalizations of double-digit billions of dollars on public markets, including trading app Robinhood Markets Inc.

$60,000

Bitcoin hit $60,000 Friday for the first time since April, as traders anticipate U.S. regulators will approve the first exchange-traded fund to track the cryptocurrency. (WSJ)

Walmart, With Eyes on Amazon, Tries to Build a Fintech Startup

Walmart Inc. is building a new weapon in its war with Amazon.com Inc.: a fintech startup, The Wall Street Journal reports. The retail giant is helping launch a new company, helmed by two former Goldman Sachs Group Inc. executives, that aims to provide financial services for its millions of customers and workers. The firm is a joint venture with Ribbit Capital, known for investing in Robinhood Markets Inc. and other digital financial businesses. Options under consideration include building a user base around mobile payments, as well as potentially buying a startup that offers consumer bank accounts through a mobile app, known as a neobank, according to people familiar with the situation.

Kargo Acquires E-Commerce Ad-Tech Firm for $64 Million

Advertising-technology company Kargo Global Inc. has acquired StitcherAds, an ad-tech firm focused on driving e-commerce sales, for $64 million, Kargo said, WSJ reports. Kargo's technology helps marketers buy ads that target certain types of consumers on the websites of hundreds of publishers, including on mobile and desktop devices. A growth area for the company has been in special ad formats meant to help retailers boost e-commerce, but Kargo's offering wasn't available on large social media platforms, said Harry Kargman, the company's chief executive and founder. StitcherAds brings that capability, delivering paid ads for retailers and other brands across platforms including Facebook, Instagram, Snapchat and TikTok, he said.

Why Ford Picked Tennessee for Its New Electric-Vehicle Plant

Tennessee is emerging as a leader in a national scramble to develop electric-vehicle and battery production, as states compete to woo multibillion-dollar investments from auto companies pivoting away from the combustion engine, WSJ reports. Ford Motor Co. and South Korean battery maker SK Innovation recently said they plan to develop a large complex to make electric vehicles and batteries in West Tennessee. That follows similar investments made by General Motors Co. and Volkswagen AG to add electric-vehicle production at their Tennessee assembly plants.

Industry News

Funds

Newark Venture Partners raised $85 million for its second fund, nearly doubling the amount collected for its first vehicle. The new fund will continue investing in seed-stage business-to-business software companies nationwide, providing checks up to $3 million. So far, Newark Venture Partners Fund II LP has invested in Pair Team, Optimal Dynamics, Clockwork Logistics, Podsights, BackboneAI, Gearflow, Wax Insurance and Meet Cute.

Angular Ventures closed its second fund with $80 million in commitments and named David Peterson as general partner. The new fund will write checks between $250,000 to $3 million for early-stage enterprise and deep-tech companies across Europe and Israel. Mr. Peterson joins the firm from Airtable. Angular Ventures closed its first fund in 2019 with $41 million.

Lunar Ventures closed a EUR40 million ($46 million) inaugural fund to invest in European early-stage deep-tech startups. To date, the Berlin-based fund has backed 12 startups including Deepset, Molecule, Zama and Mobius Labs.

People

Accolade Partners, a technology- and healthcare-focused venture capital and growth equity fund of funds investor, hired Marcos Veremis as partner to focus on the firm's blockchain efforts. Mr. Veremis was previously at Evanston Capital Management and Cambridge Associates.

Window-cleaning robot maker Skyline Robotics named Michael Brown as chief executive and chairman of the board, and Ross Blum as chief operating officer. The company has secured $6 million in funding to date from investors including Karcher New Ventures, Gefen Capital and ICONYC.

Climate Intelligence platform Cervest appointed Karan Chopra as chief operating officer and opened its first U.S. office in San Francisco. Mr. Chopra was most recently co-founder and COO of Opportunity@Work. In May, London-based Cervest said it raised $30 million in Series A funding from Draper Esprit, Astanor Ventures, Lowercarbon Capital and Future Positive Capital.

Exits

Sales engagement platform Outreach acquired Canopy.io, a revenue intelligence software company, for an undisclosed sum. In June, Seattle-based Outreach said it raised $200 million in funding from investors including Premji Invest, Tiger Global Management, Sequoia Capital Global Equities, Salesforce Ventures, Mayfield, DFJ Growth and Trinity Ventures.

New Money

Tala, a Santa Monica, Calif.-based consumer finance app serving Kenya, the Philippines, Mexico and India, scored $145 million in Series E funding. Upstart led the round, which included additional support from Stellar Development Foundation, Kindred Ventures, the J. Safra Group, IVP, Revolution, Lowercase Capital and PayPal Ventures. Upstart co-founder Paul Gu and Stellar Development Foundation Chief Executive Denelle Dixon joined Tala's board.

AutoGrid Systems Inc., a Redwood City, Calif.-based provider of artificial intelligence-powered optimization and controls for the energy industry, picked up an $85 million Series D2 investment. SE Ventures led the round, which included support from Moore Strategic Ventures, National Grid Partners, Shell Ventures, Total Carbon Neutrality Ventures, GS Futures, SolarEdge Technologies and Microsoft.

Bionexo, a São Paulo-based cloud software and data analytics provider that connects healthcare suppliers and providers, secured a 450 million Brazilian real (about $80 million) growth investment from Bain Capital Tech Opportunities.

Culture Biosciences, a South San Francisco, Calif.-based digital biomanufacturing startup, secured $80 million in Series B financing. Lead investor Northpond Ventures was joined by Synthesis Capital, Cultivian Sandbox Ventures, The Production Board, Craft Ventures, E14 Fund, BoxGroup, Verily Life Sciences and Section 32 in the round. Andrew Lee of Northpond Ventures will join the company's board.

Lively Inc., a San Francisco-based health savings account provider, landed $80 million in Series C funding. B Capital Group led the investment, which included contributions from Telstra Ventures and Costanoa Ventures.

Zone & Co, a billing automation platform, completed a $76 million growth equity investment from Insight Partners.

Aware, a Columbus, Ohio-based collaboration data governance startup, fetched $60 million in Series C funding. The growth equity business within Goldman Sachs Asset Management led the investment, which included support from Spring Mountain Capital, Blue Heron Capital, Allos Ventures, Rev1 Ventures, Draper Triangle Ventures, JumpStart, Ohio Innovation Fund and JobsOhio.

(MORE TO FOLLOW) Dow Jones Newswires

10-18-21 0911ET

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