VCs are racing to pay more to get smaller pieces of less profitable companies

Welcome to TechCrunch+ Tuesday

The unprecedented rush of venture capital into startups is having an interesting knock-on effect:

“Venture capital investors are racing to pay more to buy smaller pieces of startups that are less profitable than before,” writes Alex Wilhelm, who studied Silicon Valley Bank’s State of the Markets Report Q4 2021.

Going for larger rounds with higher multiples means reduced ownership, and it’s shifting more power to founders as investors are “paying more and at shorter intervals for less of less profitable startups.”

I have never used this space to offer advice, but if you believe you have a good idea for a startup — go for it. When venture capitalists say this is a good time to be a founder, you know they absolutely mean it.

Thanks very much for reading!

Walter Thompson
Senior Editor, TechCrunch+
@yourprotagonist

Read More

Mixing the personal with the professional in startup fundraising

The pandemic has rewritten the way investors and startup founders do business, but “chemistry is important,” notes Brian Heater.

Laela Sturdy, general partner at CapitalG, and Webflow co-founder and CEO Vlad Magdalin joined Brian on TechCrunch Live to discuss COVID-era deal-making and the changing nature of startup-investor relationships.

“As great as Zoom is, to me, that in-person experience takes you to the next level of getting to know someone,” said Sturdy.

Read More

November 10: TechCrunch Live with Volition Capital

Sponsored by TechCrunch

Join a free live discussion with Rent the Runway co-founder Jenny Fleiss and Volition Capital partner Larry Cheng.

Register now

15 sectors pi Ventures expects deep tech to disrupt in the next 5 years

Deep tech holds a lot of potential for changing how our world functions, but many applications are still years away from reaching the market.

Looking to the future, Anna Heim analyzed pi Ventures’ Deep Tech Shifts 2026 report, which explores 15 deep tech sub-sectors expected to reach an inflection point in the next five years.

“If you invest too early in an innovation, then you will have sub-optimal returns,” said founding partner Manish Singhal. “If you invest too late, you may also end up getting sub-optimal returns, because it is no longer a cutting-edge thing.

If investment and the timing of innovation getting to a resonance point come together, then good things happen.”

Read More

Why QED, hot on Nubank, is bullish about LatAm fintech

Brazil-based Nubank’s IPO is generating a lot of interest, so Anna Heim and Alex Wilhelm interviewed Lauren Morton, a partner at QED.

Her firm invested in Nubank’s Series A, B, D and E, but “since then, the fintech-focused fund has made more investments in the region,” they report.

In an extended Q&A, Morton shared why QED is bullish on LatAm fintech and offered a few predictions:

I think the volume and pace we have seen so far this year will continue into 2022, but we’re also realistic enough to know that valuations can’t keep rising indefinitely. There will be a correction at some point, but make no mistake that some big, real businesses will emerge over the next few years regardless of whether money into the region slows down or not.

Read More

How China’s regulatory crackdown whomped Vision Fund 1’s returns

SoftBank’s Vision Fund 1 is still the world’s largest tech investment fund, but founder Masayoshi Son committed to an $8.8 billion buyback after it reported its latest quarterly losses.

One aggravating factor: Chinese regulators made ride hailing app Didi, one of the fund’s chief investments, stop accepting new customers and pull its app, resulting in the company’s shares plummeting.

The Japanese bank has now lost nearly $5 billion in value since its initial investment in Didi, Alex Wilhelm writes.

Read More

Taking a production-centric approach to enterprise-wide AI adoption

Training an AI to do something is difficult, and deploying AI solutions across an entire enterprise is an undertaking most companies struggle with.

Because the field is still taking shape, there’s no single framework for managing such a project, and organizations need best practices like fish need water.

Roey Mechrez, co-founder and CTO of BeyondMinds, outlines the main barriers to enterprise-wide AI adoption, offering detailed suggestions for addressing “the orchestration problem.”

Says Mechrez, “enterprises should take a step back and see the big picture of the AI journey, and start thinking of a systematic way to utilize many AI models in a single, robust framework.”

Read More

Haven’t switched from CentOS 8 yet? Here are your options

The work lives for users of CentOS 8, the popular free-to-use clone of Red Hat Enterprise Linux, were upended earlier this year when Red Hat announced that it would cease supporting release 8 after December 2021.

“You can’t really blame a profit-centered organization for focusing on its objectives, but a shift in objectives can have significant implications for some users,” says Joao Correia, a technical evangelist at Cloudlinux

If you haven’t yet found an alternative, he shares a few open source options companies can use to reduce risks and comply with enterprise security policies.

“With just a month to go, time is running out.”

Read More

HashiCorp’s IPO filing reveals a growing business, but at a slower pace

HashiCorp’s IPO filing last week gave us a good look at why the software company has managed to grow to where it is now: a strong subscription model driving “mostly recurring, high-margin revenues that have proven sticky over time,” Alex Wilhelm writes.

The company reportedly expects to be valued at about $10 billion, but with slowing growth, its per-share IPO pricing and resulting valuation may depend on whether the investors who are along for the ride get queasy during deceleration.

Read More

With a Section 1045 rollover, founders can salvage QSBS before 5 years

Founders of companies that are eligible for Qualified Small Business Stock (QSBS) can pay zero federal capital gains tax when they cash out — if they hold those shares for five years.

“However, not everyone can time when to sell their company,” write Calvin Lo and Peyton Carr of Keystone Global Partners.

“The fact that many acquisitions happen before five years leaves some founders and investors short of qualifying for these powerful tax savings,” but a Section 1045 rollover “can salvage the opportunity in some cases.”

Read More