Disappearing Exits and Seven Other Charts That Explain Tech Today
Hype shift: artificial intelligence replaces Bitcoin in search interest
With the NASDAQ Composite up 12% this year, there are glimmers of hope in the technology industry. Artificial intelligence companies like Anthropic and Stability AI are raising at multi-billion valuations. And even as growth rounds remain icy, Stripe showed that it could attract a whopping $6 billion from investors, as I reported yesterday.
In the second installment of our new regular data series, we’re giving you a snapshot of the tech market. We’ve got eight charts that speak to some of the big questions in the tech industry today. We pulled together data from Carta, PitchBook, EquityZen, Battery, and more.
The charts reveal massive declines in the number of IPOs, acquisitions, and late stage investments. We also track rising AI hype and offer a snapshot of the promising companies in the sector. Finally, charts show shifting investor appetite for software companies.
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1. Savvy private tech companies went public or sold in 2021. Exits skidded to a halt in 2022.
There’s a reason that Stripe is raising from venture capital firms to resolve its employees’ expiring restricted stock units and associated tax bill: the public markets are basically closed. At least for the time being, Stripe missed its moment.
Back in 2021 — over the three latter quarters — startups totaled over $650 billion in exits. It was a bonanza for company fundraising and investor exits.
Then in 2022, IPOs, acquisitions, and de-SPACs fell off the face of the Earth.
Unicorn startups have been left scrambling to figure out how to bridge the gap.
2. Here are the companies that exited at the peak.
Companies like Coinbase, Toast, and Gitlab took advantage of the moment in 2021 and exited at peak valuations. It’s hard to imagine a better time for them to have gone public.
Venture capitalists who sold down their positions after their portfolio companies publicly listed realized massive returns, while firms that held onto their positions have seen them erode as market caps have fallen.
Just because a company goes public in a peak market doesn’t mean that it escapes market turmoil. For instance, Rivian is down 89% since its IPO and UiPath is down 79%.
The chart below, reflects the values of the companies when they exited. Coinbase, for instance, is worth only $13.5 billion today.
3. Hype is shifting from crypto to artificial intelligence.
The startup hype cycle merry-go-round goes on and on. After stops at direct-to-consumer retail, last-mile delivery, and cryptocurrency, venture capitalists’ attention has shifted yet again, this time to generative AI.
Of course, some hype cycles are grounded in real technology shifts and others end up being a mirage. Personally, I’m a believer in some of the AI hype (I’m hosting an AI conference this month). But that certainly doesn’t mean every company is worth the valuation that it’s getting right now. And I do think some private investors are happy to have an excuse to write big checks even as those valuations are hard to square with public market multiples.
4. EquityZen shows declining investor interest in cryptocurrency companies.
Much like we saw above with Google searches, investors are also starting to look past crypto. Since big crypto news like the collapse of FTX last November, investors simply aren’t nearly as interested in crypto.
Even as startup categories like Fintech and SaaS have stayed flat, AI interest has climbed.
5. The major players in the AI boom are taking shape.
That growth in AI interest among investors is beginning to translate into big checks.
Companies like OpenAI, Stability AI, and Anthropic are building large language models. Other companies are developing specific ways to apply artificial intelligence.
Many of the top AI companies’ founders — from Stability AI, Runway, Jasper, LangChain, Replit, Hugging Face, Adept, and more — will be on stage at the Cerebral Valley AI Summit later this month.
I hear that right now investors are actively chasing companies in the vector database sector. Key players include Chroma, Zilliz, Weviate, and Pinecone. The companies facilitate semantic and contextual search, rather than just keyword-based search. That’s important in a world where large language models have limited memory.
6. In Pre-Seed rounds, investor enthusiasm for software companies has fallen.
Software-as-a-service companies defined much of the frenzy in 2021. As public software multiples exploded, every software startup looked like a great investment.
By late 2021, startups were raising at unicorn valuations with less than $10 million in annual recurring revenue (and some with basically no revenue).
The next few charts show a mixed picture for software companies relative to other startups raising money. In the earliest stages, investor interest in software companies seems to be falling. According to Carta, a smaller percentage of Pre-Seed companies raising money were software companies in the first quarter of 2023 than in any previous quarter since 2019.
7. However, Series A rounds actually saw the share of software startups increase.
I don’t know exactly how to square the circle on this one. Pre-Seed software rounds are a smaller percentage of first quarter deals but Series A software rounds are ticking up.
Please leave a comment if you have a theory!
8. As growth rounds plummet, late-stage software funding has the farthest to fall.
We touched on this theme in the last installment but here’s a pretty stark chart that shows $100 million-plus growth rounds by category. The higher you soar, the farther you have to fall.
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Come See Me in New York
I’m moderating a panel at the NY Enterprise Technology Meetup on March 15. I’ll be speaking with Haystack’s Semil Shah, Cowboy Ventures’ Amanda Robinson, and Work-Bench’s Jonathan Lehr.
I believe tickets are sold out but there are a few tickets that are being held back for Newcomer readers.
When signing up on Eventbrite, have readers use the promo code, “NYETM_NEWCOMER.”