Top 4 Curated Venture Capital Weekly Update for Oct 19, 2022 💰
🗒️ Startups, Don’t Pin Your Hopes on VC Dry Powder
Harvard Business Review: Venture funding for startups suffered a 50% year-over-year drop in the 3rd quarter of 2022. While most participants in the startup ecosystem were expecting a downturn, this dramatic pullback in deployment is sure to send chills down the spine of many founders and funders.
Some, like venture capitalist Jon Sakoda, believe the funding downturn is transitory and argue that the $290 billion of committed capital to venture capital firms is “dry powder” that will re-energize the startup market in 2023. As a VC myself, I sincerely hope he and others in the optimistic camp are correct. However, investors and entrepreneurs need to prepare for what could be a massive level of attrition that could occur if the funds are deployed more slowly.
🗒️ Space tech startups fall out of VC orbit
Reuters: Space technology startups are being forced to limit their sky-high ambitions, as their venture-capital backers turn to safer bets due to the current economic turmoil, VC firm Space Capital said.
Decades-high inflation, rapidly rising interest rates and the Ukraine war have roiled global financial markets, forcing investors to evaluate their investment strategies and focus on companies with viable products in the market.
Investments in space technology companies, which collect, process and analyze space-related data, have fallen 80% in the third quarter to about $1 billion from nearly $5 billion in the year-earlier period, Space Capital said in a report.
"Venture Capitalists are refocusing on enterprise software-as-a-service companies and away from deep tech companies that provide solutions based on engineering innovation," New York-based Space Capital said.
🗒️ What is the Difference between 409A Valuations and Venture Capital Valuations?
JDSpura: Clients often come to us with questions about 409A valuations vs. valuations in venture capital financings. They are sometimes concerned that, if they receive a low 409A valuation, that will set the valuation for a future financing. Thankfully, companies generally do not need to be concerned about this. Below is an explanation of this common point of confusion, starting with a brief discussion of 409A valuations.
What are 409A valuations and why are they important?
Most early-stage companies use stock options to incentivize employees, directors, consultants and advisors. Stock options can help a company attract talent and retain and reward its service providers; by granting these service providers stock options, the company is giving them an economic stake in the appreciation of the company. Consequently, they are motivated to act in ways that help the company grow, which in turn causes the company’s stock to appreciate in value and facilitates long-term wealth creation for both the company and the service provider. However, the use of stock options as compensation and as an incentive for US taxpayer recipients involves a number of complicated legal and tax issues under US law, one of the most important of which is compliance with Section 409A of the Internal Revenue Code.
🗒️ As Web3 gains traction, indie game investors are updating their wish lists
Venturebeat: 2021 was a record year for game industry investing, with game deals topping $85 billion across 1,159 announced or closed deals. This year has already surpassed that record, with more than $107 billion worth of total investment deals in the first six months of 2022 alone.
But as money pours in from all sides — from players, esports viewers, individual investors, mergers and acquisitions, growth funds and more — it’s still hard for indie games to get noticed and get the support they need in an increasingly competitive market, says Owen O’Donoghue, co-founder and CRO of InfiniGods. That’s especially true as interest in Web3 innovations accelerate.
“My sense is that in the coming year, VCs are going to become more conservative in terms of what they invest in,” he explains. “Growth funds will look more and more for real traction from any companies they plan to invest in. It may not mean less funds investing, but they’re less likely to take a risk on a pure idea.”