Forbes - Why is late-stage funding slowing?

Startups raised $10 billion less in February compared with January—the first such monthly dip in years, according to data from Crunchbase. Late-stage funding was down 19%, dropping from $41 billion to $33.2 billion, and more insulated early-stage funding slipped 17%, from $18.4 billion to $15.3 billion. But these numbers are being compared to records: Even being down $10 billion, February 2022 still topped February 2021 by 24%. 

Investors tell Forbes that late-stage deal activity—which set records for both deal count and investment volume in 2021—has slowed considerably over the past few weeks. But why? 

One factor is that the booming exit market in 2021 has quieted down significantly. Nearly 200 companies went public via SPAC last year, and a record 296 venture-backed companies publicly listed, according to PitchBook. But performance hasn’t been great since. 

Many highly anticipated public listings have shredded their market cap this year. Crypto-trading platform Coinbase, which went public through a direct listing, started trading at $390 a share; the company was trading at $190 a share at market close Thursday. Clover Health went public via a SPAC in January and started trading at $15.30 a share; it closed Thursday at $3.61. 

Mark Goldberg, a partner at Index Ventures, says that this poor performance—and resulting slash to company valuations—makes the late-stage market less appealing to some of the crossover investors who helped fuel the funding fire in 2021. “Investors are looking to the public markets and saying, ‘Hm, a lot of the late-stage private companies look expensive,’” he says. “The public markets are down 50%-plus, and in the private markets things feel a little bit pricey.”

Some crossover investors have already started to move down the capital stack, too. Tiger Global has made half of the deployments out of its most recent $12.7 billion fund to Series A and Series B companies, according to an investor letter shared with Forbes. Coatue Management also seems to be dipping down; the hedge fund has backed multiple early-stage companies recently, including the $25 million Series A round into fintech Kubecost and the Series A round for game platform PortalOne. 

Goldberg adds that some of the pullback is also just due to fund logistics. Many firms picked up their pace last year to keep up with the market, but that doesn’t change the set investment periods their funds are on or the number of investments they told LPs they would be making. They might be pulling back just to balance out, he says.

Maybe. The decline in late-stage funding has impacted the market down as far as the Series A stage. But as the investors I spoke with for my deeper dive into the dynamics told me, this may be exactly what the market needed. —B.S.

“We’re not waiting to see traction. We just want to connect to the founders and their vision on what can change in the world,” firm founder Nadav Eylath tells our Forbes colleague Kenrick Cai. “If it’s too early, it’s probably a fit for us."

The strategy has gotten the firm into multiple unicorn companies, including web development tool startup Netlify and traffic analytics company Placer.ai. At.inc/ just raised $35 million for its second fund, while its first is tracking toward a tenfold return on investment. That figure helps explain the recent race to the bottom.  —B.S.

— Katie Haun raised $1.5 billion for two funds under her new crypto firm Haun Ventures. This total sets a new record for the largest sum raised by a solo woman GP. Haun raised the fund in four months after spinning out of Andreessen Horowitz—where she was a partner—in December. Her prior firm is an investor in the new endeavor. 

— Tempe, Arizona-based Wealth raised a $16 million seed round for its digital estate-planning platform. The financing was led by Anthos Capital with participation from Bela Juju Ventures. The startup helps individuals keep track of their estates’ assets and edit their estate plans. 

— For its latest acquisition, Apple is turning to fintech. The company purchased Credit Kudos, a British startup that makes software used by banks to assess consumer loan applications, with CNBC reporting a valuation of around $150 million.

— Toshiba shareholders were faced with two options for the company’s future on Thursday. They chose neither. Investors voted down a proposal from management to spin off Toshiba’s devices unit, plus another call from activist firm 3D Investment Partners for Toshiba to seek a sale. The famed Japanese company’s future remains unclear—and a lengthy battle over its fate will get even longer.

— Glia raised a $45 million Series D round at a $1 billion valuation. The startup offers an integrated customer-service application for banks and adjacent financial service institutions. This latest financing was led by Insight Partners with participation from Wildcat Capital Management and RingCentral Ventures. The company says it has doubled its annual recurring revenue for three years in a row. 

— Summit Partners made an investment in 48forty Solutions, which recycles and refurbishes wood pallets used in shipping, joining existing backer Audax Group. The Georgia-based company says it processes more than 300 million pallets per year, and it’s conducted 10 add-on acquisitions since Audax’s initial investment in November 2020.

— Yuga Labs, the company behind wildly popular NFT collections Bored Ape Yacht Club and CryptoPunks, raised a $450 million seed round at a $4 billion post-money valuation. The year-old company attracted 36 investors to the round, including large VC investors like a16z crypto and Tiger Global as well as public figures such as Colin Kaepernick and Steve Aoki. 

— In the last newsletter, we covered a funding round at Ramp. Now, a different player in the corporate-card space is raising new capital: Jeeves announced a $180 million Series C investment at a $2.1 billion valuation. Tencent led the round, and CRV and Andreessen Horowitz also participated.

— A SPAC called Mount Rainier Acquisition Corp. agreed to merge with Israel’s HUB Cyber Security at a $1.28 billion valuation, accompanied by a $50 million PIPE investment. Mount Rainier Acquisition is led by Matthew Kearney, a longtime media executive, and unfortunately seems to have no direct ties to one of America’s most beautiful national parks.

Anecdotally, multiple seed investors have confirmed to Forbes that the seed ecosystem is showing no signs of slowing down. “Our deal flow is as hot as it's ever been, and we are doing as much as we’ve ever done,” says Eric Paley, a partner at seed-focused Founder Collective. “Things have ramped up aggressively.”

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