#81 Top VC Insights for Q3'23

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Top VC Insights for Q3’23

Happy Tuesday folks - it feels good to be back writing! Today we’re sharing some of our top VC insights for Q3’23. We did a lot of holiday reading and have including our favorite insights, headlines, and articles as you kickoff the quarter. Enjoy!

  • The venture capital sector has been in a sustained downturn for almost eighteen months. How does this downturn end? Well, it may have already ended, but let’s see about that. We will know for sure in a few quarters.

  • The NASDAQ peaked at roughly 16,000 in November 2021. By June 2022, it was down 33%. It stayed down for all of 2022 and ended the year at roughly 10,500.

  • But this year the NASDAQ is up almost 40%.

  • Last week we got some great news. Inflation is way down in the US. That means rates may have peaked and will stabilize or possibly come down. I don’t know if the Fed makes any more moves or not. But I am not sure that really matters. What matters most to markets is expectations and I think inflation and interest rate expectations have settled down.

  • The venture capital market has started to stabilize after a sharp correction that began last year. But investors have yet to regain the optimism that fuels startup bull cycles, despite a fervor around generative AI and a comeback for large tech stocks. Here's a first look at US VC data from the Q2 2023 PitchBook-NVCA Venture Monitor:

  • Fundraising: VC funds raised $11.7B in Q1 2023 (lowest since 2017). Driven by slower deployment paces, fund downsizing, institutional LPs grappling with the denominator effect, and a flight to safety favoring established funds. As the market has started to settle, a total of $21.6B was raised in Q2, totaling $33.3B for H1 2023.

  • AI Driving Innovation: Despite a general downturn in VC funding, AI startups have bucked the trend, amassing a remarkable $15.5B this year. Even after stripping out the $10B outlier investment in OpenAI, the sector has already surpassed last year's total and is making significant strides toward the 2021 peak of $9.1B.

  • Get into the right companies. Without large exits, you’re unlikely to achieve venture returns. The spread between valuations for “cheap” and “expensive” companies is often much smaller than return multiples from outliers. 

  • Have a clear strategy for valuation. And, stick to it. Routinely overpaying undermines your strategy. It’s OK to make exceptions but be thoughtful and well-reasoned in the decision.

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