What's not to love? (as long as you are the General Partner)
From Wolf Street, October 14:
Venture Capital Slammed by Fed Tightening: Exits Blocked after IPOs & SPACs Collapsed, Distributions at Financial Crisis Lows
Outside of the boom in anything with AI or Machine Learning (ML) in its name or description, a lot of hot air has come out of the Venture Capital industry from the steamy levels during the free-money era of the pandemic.
Since the Fed started hiking rates and switched from QE to QT, marking the end of free money, VC funds experienced large-scale write-downs of their portfolio companies. They now cannot exit those startups by selling them because the market has tightened, after many hundreds of companies that VCs sold to the public during the free-money era via IPO or SPAC merger collapsed and entered into our pantheon of Imploded Stocks.
Exits in dollar terms amounted to only $10 billion in Q3, according to the Venture Capital Monitor for Q3 from PitchBook. VC funds sold only 14 portfolio companies via public listings. For the year through Q3, VCs booked only $69 billion in exits, down by 91% from the full-year 2021 of $780 billion in exits, which was the steamy and final year of free money. In 2024 so far, compared to 2021:
- Exits via IPOs or SPACs: -95% (red)
- Exits via buyouts by PE firms: -91% (yellow)
- Exits via acquisition by Corporations: -64.5% (purple)
Successful exits are what makes the VC industry work. VC funds have to be able to sell their portfolio companies, at least some of them, at a huge profit, and then distribute the proceeds from the sale to the limited partners (LPs) in their funds so that these investors can re-invest their VC allocations in new VC funds that invest in the next cycle of startups.
The exit is when everyone makes money – except, as we learned over the past three years when these newly public IPO and SPAC stocks collapsed, the buyers; they ended up holding the bag. But now the whole system of exits, fundraising, and dealmaking has gotten clogged up because the pipeline of exits is blocked....
...MUCH MORE
And there's private equity. If the Fed doesn't bring rates down, fast, we'll probably be referring back to this May 2024 post - Private Equity, The Refi Crunch
I'm guessing we will be seeing more bankruptcies among the 2009 - 2022 cohorts,
