Pod Insights Equity Podcast The venture market is overcorrecting About this episode This week Gené Teare from Crunchbase and Crunchbase News joined the podcast. She's a well-known analyst of the global venture capital market, and was instrumental to Crunchbase's early life and remains one of its more tenured staffers.
So, what did the three of us get into? Here's the rundown:
The big picture: What should we think about when we consider the Q3 2023 venture capital market as a whole. (More on Latin America here, Canada here, and global data here from TechCrunch+.) Here's Gené on Q3 data as well.
Stage-level health. Which level of startup maturity is seeing the most capital? The least?
And, venture capital flows around the world. As always, where venture dollars land is nearly as important as their total number for any particular period.
Equity is back on Friday with our weekly news roundup. Chat then!
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Transcript 0:11 Speaker 00 Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and the nuance behind the headlines. My name is Alex and this is our Wednesday show where we sit down with a guest, think about their work and then unpack the rest. I'm joined today by Mary Ann. Mary Ann, I love doing these as a pair. How the hell are you?
0:31 Speaker 01 I'm great. I'm excited to be here. Alex, it's always so much fun to interview people together.
0:36 Speaker 00 I know. It's like all the fun with half the work. It's kind of like the best hack ever. And we do have on the show today, someone that we're actually very, very excited to talk about.
0:46 Speaker 01 Yeah, we've got Janey Tier from Crunchbase, which is an old dear friend and colleague of both of ours.
0:51 Speaker 00 This is almost like getting the band back together. So Janey, hi, thanks for coming on the show. How the hell are you?
0:57 Speaker 02 Hi, I'm well and it's absolutely wonderful to see you both and to be back with you guys. We worked, as you said, at Crunchbase News and it's great to be back.
1:05 Speaker 00 Even more than that, like we were down in like the data bunker at Crunchbase. And we were on the same like half floor and it was a good time. You know, startups have changed, going remote, going hybrid. But that was kind of the last gasp, I feel of like startups being 100% in person. And there were some nice things about it, except for Mary Ann, of course, he was in Austin, but you know.
1:23 Speaker 01 Yeah, but I did visit and then when I did visit, I felt the warmth. I felt the love. It was a cozy space and it was really cool and I all the snacks and just, you know, everybody's sitting so close together and the camaraderie, like I felt that camaraderie.
1:38 Speaker 00 Yeah, the camaraderie was great, but also I remember spending about half of my time talking to people and not working. And that's why like offices are great, but not for productivity is my view. Anyways, Janey, you were at Crunchbase. We used to work there. I own stock in Crunchbase and TechCrunch and Crunchbase were once upon a time sister companies. Crunchbase was spun out, but our parent company still owns stock in it. And I'm pretty sure that whatever AOL Ventures did with that is still probably part of what became Oath and then Verizon Media Group and now Yahoo. So I think our parent company's owners are a part owner in Janey's company, as am I.
2:17 Speaker 01 It's a complicated thing.
2:20 Speaker 02 And that sums it up.
2:21 Speaker 00 So a web of disclosures, but.
2:23 Speaker 01 Yeah, and I own stock in Crunchbase as well. So another disclosure.
2:27 Speaker 00 So all three of us are shareholders of Crunchbase. There you go. And that's Silicon Valley for you in a nutshell. Janay, just so people know, everyone knows Crunchbase. But can you tell people a little bit about your history and how early you were to the Crunchbase team?
2:40 Speaker 02 Yeah, so I joined within a year of Crunchbase being formed. So that was back in about 2008. And I joined the team largely because the lead, I think it just left to Facebook. And Michael Arrington, who recruited me, said, we need a lead for Crunchbase. We have this data set. We think it's going to be incredibly useful to the industry to understand the companies that are getting funded and how much they're raising and who are the founders and who are the investors? And all of that in one place would be incredibly useful. And largely because he was writing about Web 2.0. He had very little context and he couldn't keep up with everything that was happening then. And that was all the way back in 2007 and 2008. So I came in to run it. It was a couple of engineers at the time.
3:20 Speaker 02 It was me running a bunch of interns around the world and trying to get the data into shape and into our data set. So I worked a lot with our data. And then in 2015, wrote the first report on funding to female founders. I spearheaded adding gender to the data set just because there was this whole discussion happening already in 2013 and 2014 around gender equity. So we spearheaded that into the very first report. And since then, I've been reporting since 2015. And it largely comes from the frustration of you have all this data. You're always working with the data. You're always cleaning up the data. You want to do something with the data to explain what's happening.
3:58 Speaker 00 Yes, and one of the things that Crunchbase has done for a long time is produce quarterly data dumps. I had the privilege of working on a number of these when I was at Crunchbase and the tradition has been kept up. Actually, Janay, you guys are doing monthly now. I'm curious about the increase in frequency because quarterly to me is frequent, but there's always a lot that goes on inside of a quarter. So I presume that's why you're doing monthly reports as well?
4:20 Speaker 02 Yeah, what we found is, you know, during 2021, when the venture industry basically doubled, waiting a whole quarter to find out what was happening and what were the shifts and who was getting funded just seemed too long. And so we decided we need to do this monthly to sort of get a beat. As we lead up to a quarter of what's really happening in venture, have things shifted? Because we know things have changed a lot since 2021 and we've been tracking the upturn and now the downturn.
4:45 Speaker 00 Yeah.
4:46 Speaker 02 And the shifts in that.
4:47 Speaker 00 It's a bit of a bummer to keep reading all the data because I recall a time when Mary Ann and I were writing about this stuff as a team and every single quarter was the same headline. Venture sets new records, global market on fire, have you seen fintech? Oh my God, everyone's a unicorn. And now I'm bored in the other direction, which is another quarter of sequential declines. In many cases, kind of like a global venture market that feels a little bit. All right, let me actually just stop there and ask you, Janay. So I'm torn because on one hand, it does seem that venture capital is in a bit of a funk. And we're seeing numbers come down around the world in terms of number of rounds sometimes and dollars invested. But on the other hand, when I look at current data versus 2019 and early 2020, it doesn't
5:31 Speaker 00 seem to be too miserable. So I'm kind of curious, where do you come down on the macro picture of venture capital as it pertains to Q3 of this year?
5:40 Speaker 02 Well, I think where we are is we're sort of five to six quarters into the downturn. So when the market started trending down at the end of 2021, it took a whole Q1 2022 was in fact incredibly strong. So it took a whole quarter for it to kind of register in the venture industry that things were coming down. And I think that's partly because if you remember back to the beginning of the pandemic, we also saw venture come down slightly at the beginning of 2020. And then very quickly it was off to the races and everything went back up. And so I think the industry, they look at it and think, is this going to be sustained? Are we going through something quite cataclysmic? Or is this just going to be a little blip and then we're back off to the races? And so it took a little while for the venture industry to kind of register what was going on.
6:23 Speaker 02 And I think where we are now, we're, as I say, five to six quarters in. And it's very clear to me that, you know, investors are holding back. I think the industry is incredibly cautious about where they're putting their money and what they're investing in. Everyone's talking about efficiency. And so I think we're in a very, very different climate. But what I see, the venture industry is the most, the venture investors, the most active ones. I really see them holding back in this moment. And so funding is still trending down and we can go into what that looks like. But definitely, we're in a much more cautious and possibly realistic. I think the industry needed this 2021 was crazy.
7:00 Speaker 01 Yes.
7:00 Speaker 02 It was too much. And so we're at a level, I think we're in overcorrection at this point. But I think that's justified based on all the money that's gone in.
7:09 Speaker 01 Yeah, you you raise a really good point, Janay. We're realistic, I think, is a great word to describe what I think is taking place. Because things were so out of control, bonkers in 2021, it just, you know, it felt surreal. Those of us in the thick of it, covering these deals and crazy valuations. I mean, like, we just knew this could not keep happening. This could not sustain. We could not keep going like this. Overcorrection is interesting. I would have to say that I'm surprised that not only are we continuing to see these declines, it feels like things are just getting worse in terms of dollars raised and deals closing. So I'm a little bit surprised by that. Because I felt like, yeah, we were having a downturn, things had slowed down a lot.
7:52 Speaker 01 But I thought we were going to maybe level out and start to creep back up a little bit. But in fact, we're not really seeing that. From the data that, you know, you've recently shared, it looks like things just keep getting worse.
8:03 Speaker 02 Yeah, I think what's interesting and what was confusing in Q3 is that venture dollars was 73 billion for the quarter, around that mark. And that's the second lowest quarter. So that tells you that things are still trending down. And the last quarter, Q2, is our lowest quarter. So this is the second lowest quarter on record since venture has been trending down. So it's up a little bit quarter over quarter. And you might say, okay, it's up a little quarter over quarter. People are leaning in a bit more and that things might be a little bit up on the uptick. And it's 15% down year over year. So not massively down year over year, but again. Q three was already trending down quite significantly.
8:43 Speaker 02 But when you dive into the numbers, I think what's interesting is what we found is that early stage is down the most, Mm hmm. Quite significantly, seed is down quite significantly. And again, if you think back to Q three, those stages had already started trending down. So the fact that early stage is down tells you that's the bread and butter of the venture industry. That's the heart. That's where investors want to invest in the most exciting companies going forward. And the fact that early stage is down tells you that the venture industry is still drawing back or still pulling back. Yeah, that was so brain.
9:14 Speaker 00 Yeah, when you're talking about these early stage deals slowing, are you talking about the volume of deals that we're seeing? Or their worth or both the number and their value?
9:24 Speaker 02 I think we're seeing it on both sides. It's obviously more on the volume side is always clearer, but we're seeing it both on volume and on deal count size coming down.
9:33 Speaker 00 Gosh, that's a bummer. I mean, you know, it's funny that we can have this conversation about global results like weeks after it feels like we just did a Y C demo day in which everyone was saying these valuations are too high. Some of these companies are already raised, et cetera, et cetera, et cetera. And so are we seeing kind of the creation of a kind of a dual tier venture capital market where there are some haves, but mostly have nots? Because I just can't quite square the data on early stage and also how in some cases, like with Y C, things seem as hectic as they have been for some time.
10:03 Speaker 02 Yeah, that's interesting. One of the themes that I'm hearing a lot from people I'm speaking to the industry is the sort of outlier law in venture, which is there are those companies that are incredibly exciting. Either they're in a space where there's a massive tectonic shift and so you want to invest in that space. And obviously A I is one of those. Or there are companies who they think are going to outperform the market either because the team is so exceptional or the space they're moving into is going to be interesting. And so I think there is this sense that there are companies out there who are going to be able to raise in this environment, no matter what's going on. And then there's the rest of the companies who are finding it incredibly difficult. So I think that sort of outlier model has become more accentuated.
10:44 Speaker 02 And so you will see investors chase deals where they think there are going to be outsized returns at the seed and early stage, seven to 10 years out. But those deals are fewer and further between.
10:54 Speaker 01 I think this is really interesting. And if I may turn this around on me for a minute here, I can actually relate to what these investors are feeling because I feel that way as a reporter when I get pitches, right? I feel like I'm being a lot more discriminating, a lot more skeptical, even than before, burned a little bit by what happened in 2021. So I'm really also looking at all these companies with a
11:19 Speaker 00 More skeptical eye?
11:20 Speaker 01 Yeah, just, you know, really, really looking at them more carefully, just, you know, not taking things at face value anymore. So I feel like I can actually relate. I can't believe I'm saying this. I can relate to these VCs. I can relate to these investors. But as I mentioned, it is a little sobering to see that both early stage and seed stage were down in the third quarter because, as you mentioned, even when things were slowing down last year and earlier this year, we were still seeing a lot of those early stage and seed deals taking place. And that was kind of encouraging. It was like, okay, so maybe investors are scared to fund, you know, at the later stage, but they still have hope. They're still funding at these earlier stages. So this, to me, it gives a little bit of a
12:02 Speaker 01 different vibe, I guess, as to what's taking place.
12:06 Speaker 00 Okay, well, here's one thing that we hear a lot from people on Twitter, which is, you know, I can't believe these investors are putting their capital behind GPT wrappers, you know, a bit of software placed around an LLM. And the argument there, as far as I can tell, is there's not much of a moat there. Anyone can do it. So what you're building isn't defensible. It'll get commoditized, et cetera. Okay, fine. So many AI companies are insufficiently differentiated. The fintechs also kind of like, you know, out of favor. Web three, out of favor. SaaS, God's valuations dramatically cut, making it less attractive. And also, growth is harder to get in a more difficult macro environment. So where is the hot sector these days? It's still AI, but there seems to be enough skepticism already of that change in investing kind of focus to make me worried about how long that's
12:51 Speaker 00 going to last. And so, I don't know, Janay, is there a cool kid sector in startups right now, apart from what we think?
12:57 Speaker 02 Well, I think what's interesting, you know, again, looking at the data is late stage was up in Europe and in China. So in China, it was up pretty much a lot year over year. And I think in Europe, it was up quarter over quarter. And, you know, Europe, the late stage market has always fluctuated a little bit compared to the US because it's been a smaller market for late stage. But I think what's interesting is if you look at China, a lot of the very large rounds have gone into spaces, I think, or sectors which are strategic. It's a lot of state level investors. So it's not just the venture industry, even though some of these companies have raised from the venture industry at earlier stages. So it's semiconductors, it's electric vehicles, and it's sustainable battery tech.
13:38 Speaker 02 I think those were the biggest sectors which kind of led the late stage in China specifically, extremely strategic to that market. And then I think in Europe, we saw, again, looking at sort of the larger rounds, it was more around climate tech and sustainable tech, some manufacturing. The interesting thing about the AI piece that you know, you know, AI is not the biggest sector that we see, even though AI is talked about so much. So about 10 billion went into AI this past quarter. It's about 14% of all venture. Health tech is bigger. So there are other industries which are gaining more dollars even than AI. But I think what's interesting about AI is the way it seeps into many, many, many different industries. And so its impact is going to be outsized.
14:23 Speaker 02 So, yes, we might look at the wrapper companies and say, is that so interesting? But if you look at AI transforming, obviously, the electric vehicle sector, AI is incredibly important to that. If you look at robotics, it's incredibly important to that. If you look at manufacturing, if you look at ag tech, if you start looking at all these different industries and the impact that, and also obviously health, healthcare and health tech, you know, that AI will have an impact and AI is already beginning to have an impact in some of these industries now. And then moving into the future, the significance and importance of AI becomes incredibly clear, despite the fact that it's not every dollar in venture at this point.
15:01 Speaker 01 See, that's a really great point because if we look at companies that are just strictly AI companies, that's, that's one subset of, of the startups. But as you mentioned, startups in all, so many other sectors are now incorporating AI into what they're doing. So if we just look at AI as a category, it's not really truly reflective of its impact right now because it's kind of infiltrating. Almost all industries at this point. So that's, that's a really interesting point.
15:28 Speaker 02 Yeah. And I think there are companies, you know, there's the generative AI companies, which is obviously very strong and hot at the moment that are getting funded. So Anthropic raised that very large deal from Amazon. Again, not a venture investor, strategic investor. If you look at all the machine learning operations companies, those are very hot because they're going to help transform the sector and prepare the data, et cetera, for this industry.
15:50 Speaker 00 Is that the Databricks of the world?
15:52 Speaker 02 Yeah, I think Databricks has definitely entered into that space. And then you have all this sort of AI uses and AI applications. And again, those are going to be very broad and are going to impact many industries.
16:02 Speaker 00 Yeah. Well, I, I feel like there's, there's a desire to have the cool label slapped onto your corporate body somewhere. And so, you know, when we think about like vertical SaaS companies, adding certain elements of fintech to their operation, smart, you know, processing payments as well makes a lot of sense, but we don't consider them to be fintech companies. But I feel like when it comes to AI, currently we're granting that label a little bit freely. And AI is more of like a method of building software, a bit like SaaS is a business model, not really a startup category itself. And so it's a little bit tough to draw a boundary around AI. But that brings up kind of classification. And enough about AI, we've talked about that to death on the show for the last couple of months. Take a quick break here and then when we're back, we're going to ask Janey all about categorizing
16:45 Speaker 00 venture capital data and how to decide what should count and what should not.
16:53 Speaker 00 I wanted to talk about this before I run through a couple more numbers, Janey. You mentioned China earlier. And one thing I recall from my days at Crunchbase was a moment, I think it was in one quarter of 2018 or 2019, when there was more venture capital raised by Chinese startups than American startups. And at the time, we weren't sure what the next couple of years were going to look like. And there was a question of, you know, has the, has the crown changed heads essentially? And that didn't wind up being the case. But now China's business climate is different and you're talking about non-traditional investors. So how is the Crunchbase team deciding what to count from the Chinese market when we consider venture capital results? Because I want to understand how you're thinking about that.
17:33 Speaker 02 Sure. I think it's always for us, you know, we don't want to capture the whole private equity industry because we track those deals in Crunchbase, but that's not part of the venture industry. And so for us, what we look at and our delineator is If you are a venture-backed company that goes on to raise very late-stage fundings, which could be Series F, G, H, I, or it could be in the private equity space, or if we don't know, we'll call it venture series unknown.
17:59 Speaker 00 Yeah.
18:00 Speaker 02 But we want to track companies all the way through. So the companies we include are companies that did raise from the venture ecosystem earlier in their lives and then went on to raise.
18:08 Speaker 00 Didn't we call that venture growth?
18:10 Speaker 02 Yes.
18:11 Speaker 00 Yes. Okay. Okay. So the same kind of classification system holds up. That sounds good to me. I just wonder about the distortive effects in certain markets where there is state-run capital pools that could make the numbers look more positive than they otherwise might be. But even with those nuances, you know, Chinese venture capital results haven't been stellar in recent years, and they have been highly sector-specific.
18:31 Speaker 02 Yeah.
18:32 Speaker 00 Okay. Europe, though. So I've been thinking a lot about Europe because I live in America, and so I think about Europe once a week. It's my allotted amount of time I give to it. And one thing that I've seen in Crunchbase data, I think, and also some data from Pitchbook, is that European venture capital results have been slightly stronger than what we've seen in certain other markets. And so I'm curious if, one, you agree with that? And then, two, maybe, do you have any idea why Europe might be a bit more resilient than some other markets this year?
18:59 Speaker 02 You know, I think it's an open question about whether Europe is more resilient. I think it has a very strong seed and early venture ecosystem, and then its late-stage ecosystem is very dependent on a sort of global market of players. And those investors, you know, invest first in, well, really, American investors, and they invest first in the US and then in Europe.
19:19 Speaker 00 Yeah.
19:19 Speaker 02 In the European ecosystem, what we did see is the numbers didn't go up as much during 2021. The values didn't go up as much. So I think we didn't, there was, obviously, the late-stage market did grow in Europe significantly in 2021, which was to do with these global investors coming into the European market and saying, we're a little bit oversaturated in the US, the values are high, let's come into Europe. So that did happen, but I think Europe has always been, I don't know cautious of the right word, but it hasn't been as overvalued as an ecosystem. And when you look at the investors in Europe, those seed and early-stage investors haven't pulled back as much as we're seeing in the US. So I will, when I looked at in H1 2021 and looked at venture, they'd pulled back forty to sixty percent from a year ago.
20:05 Speaker 00 Yeah.
20:05 Speaker 02 When you look Europe, it's kind of more twenty to forty, but you know, they haven't pulled back as much. It's steadier as an ecosystem, especially at those earlier stages. But they're very reliant for late-stage on the global ecosystem.
20:17 Speaker 01 So we didn't see the crazy, crazy highs. So we're not necessarily seeing the crazy lows because it's less turbulent, it feels like.
20:25 Speaker 02 Exactly.
20:25 Speaker 00 Yeah, well, if you don't go up as high, you don't have as far to fall. That's less bullish, Janae, than I was hoping to hear because the thing in the back of my mind was maybe European startups are seeing better growths, or maybe they're more attractive on evaluation terms. But simply having not lost their mind quite as much as, let's just say, North American startups is slightly discouraging per se, but it's not quite the oomph that I was hoping for there, if that makes sense.
20:49 Speaker 02 Yeah. What I see the venture industry struggling from is if you think of it from the perspective of investors, is they have a whole host of portfolio companies that are struggling in this market, that have cut costs to extend runway, that are struggling to sell because there've been so many layoffs and so many downturns, it's very difficult to sell in this environment. And that affects the US as much as Europe. And so those investors are looking at and saying, do I invest in this next company because I have this other company which is struggling? And so will this company make it through? What I see is really driving the fact that investors are holding back. Partly, it's not wanting to pull money from their investors, their limited partners, because those guys are struggling and want liquidity. But partly, it's because the sales climate for startups is much, much
21:33 Speaker 02 tougher. And so they're being much, much more cautious about where do they put their money? Is this company going to make it through? So I think it's those two trends which are sort of driving investors to pull back.
21:44 Speaker 01 Janae, what about LatAm? I mean, we saw kind of a boom in funding there in 2021, and then things obviously started slowing down along with the rest of the world. But from what I'm hearing, numbers this year so far are on the low side. Do you feel like this is a temporary dip for the region? Or will things bounce back? Because it felt like there was a lot of promise and potential in that startup ecosystem there.
22:08 Speaker 02 Yeah, I think Latin America has come down just looking at our numbers. And we have a Latin America report coming out, which Joanna Glasner, my colleague, will write.
22:15 Speaker 00 Joanna.
22:16 Speaker 01 Hey, Joanna.
22:17 Speaker 02 Yes, such an excellent writer.
22:19 Speaker 00 We miss her.
22:20 Speaker 02 I love her reporting. But yeah, it's come down, I think, more precipitously than other markets. It is down, I think, more than 46% year over year, and it come down a lot. So Latin America is really struggling.
22:32 Speaker 00 Yeah, and I want to call out something here because we on this show occasionally are critical of 2021 era venture and startup excess. And like every business cycle has this, it's not a particular diss. It's just when things get hot, they get a bit overheated, such as life. But one of the best things that came out of that moment was a bit of what Jay was highlighting with American investors being overexposed to the late stage American market and going over to Europe. That cascading effect often brings capital to areas that have been sufficiently, I mean, effectively parched. And so we did see a lot of money flowing into Latin America. We did see more money flowing into Africa. Yeah. And, and, you know, Southeast Asia and other markets that were historically a bit more overlooked.
23:13 Speaker 00 And so my hope is that, yes, we are seeing this comparative venture doldrums compared to where we were a few years ago. But I hope that when things do recover, they recover faster in markets that have gotten the biggest whack, which seems to be the markets that were smallest ahead of time. So like, it was cool that the crazy times brought good things. I'm just sad that now that things are more conservative, those regions are seeing such a dearth of capital. It's a bummer.
23:36 Speaker 01 Yes, yeah, it is.
23:37 Speaker 02 Yeah, and what you would hope in those markets is that they've in the 2020 through 20, that they've built a local ecosystem that where funding sources are local and they're building it up from the ground up. And sure, the global investors will come in at later stage, but what you're hoping is through the sort of boom years. That a stronger local ecosystem was built.
23:56 Speaker 00 Yeah, I hope so. There's a joke about a sign hanging up behind the bar in a small Texas town and it said, Dear God, give us one more boom. We won't piss it all away this time because people are famously bad about kind of noticing how short boom times will be. And so it's tough, especially in venture capital, Janay, because there's a money circulation effect that goes on and capital is recycled after liquidity events, which I will note, we've all noticed, aren't really happening. And so, you know, looking at the data from Crunchbase, it does seem that the exit market is about as crap as I thought it was. Any signs that things are going to get better?
24:32 Speaker 02 Well, I think the recent, you know, you obviously tracked Thavio and Instacart and Arm that went public in September. So I think these are the three strongest listings that we've seen. It's been a dearth for the last 18 months and we've launched a billion dollar exit board to try and keep track of the exit markets. It's US companies that have gone public. And what we did found, which is very disconcerting, is if you look at the 2021 class of US companies, a billion and over that went public, more than 60% of those are worth below billion. So obviously some of those weren't above. So it's even a higher proportion below their IPO price. And then when you look at 2022, which was very weak, it was dominated by SPACs. Not a lot of good companies went out. If you went out in 2022, it was kind of because you had to, or you'd already done your SPAC
25:15 Speaker 02 deal in 2021. And I think 78% of those listings are below their IPO price. And so if you look at recent performance related to IPO price, we're down. But I think what's also interesting is if you look at a lot of those companies, a year out, or a year to date, or even in the last six months, they've gone up since. They're not at their lowest point. Some of those companies who have a growth story have gone up in this market. And so I think that's partly why these three companies went out is obviously for Arm, it was about the AI excitement, but a lot of it was to do with, or part of it was to do with the fact that we're not at the lowest low in the in the public markets. We saw a lot of value go to the Microsofts and alphabets and the big companies,
25:59 Speaker 02 but there is also some value going into some of these newer listings that are up year to date.
26:03 Speaker 01 Janey, something else that stood out to me, I was kind of shocked by the number of new unicorns we've seen so far in 2023. The chart that you've shared with us is like, whoa, we went from 616 new unicorns, which was obviously insane in 2021, to 315 in 2022, and then as of third quarter 2023, 64 new unicorns. Now, looking back, the last time we saw a number that low was 2014. So, wow. Like, I mean, I knew there were a lot fewer unicorns being born, but I didn't realize it was like this little.
26:43 Speaker 02 Yeah. And I think what that shows is that of the 1,400 companies on our unicorn board, probably half of those today would not be unicorns.
26:53 Speaker 00 Yes.
26:53 Speaker 02 Yes. So I think we're kind of that, almost every number, every top line number on our board, the 5 trillion could be halved, the north of 800 billion invested would be halved. So I think the numbers would be halved. And I think it's also, Marianne, a little bit to do with the fact that there's been so many companies who've joined. You know, a lot of those companies would not hold those values today. And so there's just been a massive pullback at those large rounds, high values, and hence you're seeing those numbers drop quite dramatically this year.
27:22 Speaker 00 And if you want to think a little bit about the compression in valuations in venture capital, Crunchbase data that Janey shared with us, we were at $222 billion invested in global startups through Q3 of this year, basically on target to kind of match where we were in 2019, when the final number for the year was about 300. Okay, fair enough. So we're going back a couple of years in time in terms of capital raised this year. But unicorns are down by 90% from two years ago. And so we're seeing capital come down, yes, but the amount of insane valuations that are coming out of the capital raise today has come down dramatically. So it does feel much more conservative. And I bet you a dollar that the unicorns minted this year are of much higher quality than the ones in previous years, to the point when, Janey, I kind of wonder if unicorn is almost a bad word now,
28:04 Speaker 00 in which people don't want to be called that because it makes them seem frivolous or too close to the 2021 era mindset, if you will.
28:11 Speaker 01 I remember, just have to share this anecdotally, 2021, I remember Henry coming down on on me for using a unicorn image too often with stories. That's how crazy it was. He's like, okay, enough with that unicorn image. Find something else, because that's what, you know, there was a new unicorn like every day, right?
28:29 Speaker 00 Yeah, I got hit with the same thing.
28:31 Speaker 01 Right.
28:31 Speaker 00 Henry comes for all of us, eventually.
28:35 Speaker 00 Yeah, but Janey, so I mean, like, you know, fewer unicorns, no IPOs. It seems that liquidity is still going to be low. Is there any place you think we're going to see more liquidity in the next couple of quarters? Or are we kind of just here in the doldrums?
28:47 Speaker 01 Yeah. And another question I have too, before I forget, Janey, is like, when do you think things are going to start picking back up a little bit?
28:53 Speaker 02 Yeah. So I think on the liquidity question, you know, I've been speaking to analysts and a lot of people are talking about the M and A markets coming back a little bit. And I think they're seeing it on the buy side and the sell side. So for a lot of companies, it's tougher, it's going to take longer to go public, it's going to be tougher to reach those revenues. And so they're looking at, are there options, you know, they're interested in being sold because the exit markets have become much tougher. And then I think on the buy side, values have come down and so companies have become more attractive. And we know a lot of companies do have strong revenues, some of these leading companies, and they have money on their balance sheet. So I think we could go into a period where M and A becomes a bit more active. Again, I don't think we're going to go back to 2021 because everything was kind of up in 2021.
29:36 Speaker 02 So we won't go back to those levels, but I think M and A will come back a little bit, I think into 2024. And then I do think more companies are going to test the public markets. I don't think we're done. Yeah, I don't think we're done with the three that we saw. But I think, again, it's going to be into 2024 and it's going to be slower. There's going to be this pacing of can we go out, should we go out? We have strong fundamentals, we're profitable, we're growing, and so we're a good company to go. So I think it's not going to be a deluge. I think it's going to be. Companies continuing to test because we know just with the recent set that went public, they're kind of at or below current values. And so, you know, we're not off to the races.
30:14 Speaker 00 Yeah, I also think that no one wants to be the company who gets punched in the face really hard by the markets. Although it turns out, as Instacart has shed some of its value post IPO, it's kind of taking the stick right now from the markets. I think Q3 earnings for the recent IPOs is going to set the tone for the rest of the year for their performance. And then also, how soon we see things next year. But I'll tell you guys this, if we don't get more IPOs next year, I'm gonna cry. It's gonna start up tears because I only got three in two years. That's not enough IPOs. I didn't learn nearly enough. And you know, Janay, venture capitalists turns out have a job, which is returning capital to their investors. And, you know, I bet they're screaming to get some cash to hand back to their LPs who have often had their, you know, monies locked
30:58 Speaker 00 up for 10, 11 years in some cases. It feels like it's been in stasis for so long. It's surely eventually the dam has to break.
31:06 Speaker 02 Yeah. And I think there are promising companies with strong revenues who've been preparing, they have the last 18 months to cut costs. And so I think we definitely will see more, but it's still, we're testing the market. There's a lot of uncertainty.
31:18 Speaker 00 Yeah, you think about companies that have worked on their cost profile in the last 18 months that have raised a lot of money and have a great roster of investors behind them. There's this company called Crunchbase that I've heard about. And, you know, we're all waiting for the Crunchbase S1. So Janay, can you give us a hard deadline for when we can expect that document to drop?
31:37 Speaker 02 Yes, definitely. I can release that.
31:40 Speaker 00 No, I mean, I feel, I feel kind of part and parcel in a very small way to the stuff we're talking about, because we did work at Crunchbase. I was there, Series A through Series C. And I got to kind of see the company grow up and do this. And now it's in the late stage doing its thing. I don't know the numbers anymore, but every day I check the SEC website, you know, and hope springs eternal. So when it does go public, will you come back on and tell us all about it?
32:04 Speaker 02 I definitely will.
32:05 Speaker 00 All right. Well, Janay Tier, an absolute pleasure as always. She's on X. You can find her there. She's also off and off on the conference circuit. She gives great presentations on data. You can read her reports on news.crunchbase.com. And Janay, what else did I forget?
32:18 Speaker 02 That's it, I think. It's just lovely seeing you both.
32:20 Speaker 01 Oh, it's so great to see you. You're an amazing guest, too. So thank you for joining us.
32:25 Speaker 00 Big thanks to Janay and everyone. Equity is back on Friday. We'll see you then. Bye.
32:30 Speaker 00 Equity is hosted by myself, editor in chief of TechCrunch Plus Alex Wilhelm, and TechCrunch senior reporter Mary Ann Azevedo. We are produced by Teresa Loconsolo, with editing by Kell. Bryce Durbin is our illustrator, and a big thank you to the audience development team, and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.
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