Tech Startups Find One of Their Last Funding Sources Is Drying Up (bloomberg.com) 27
A key form of financing that startups rely on is shrinking, hurting new companies that are already starved for capital. From a report: The volume of venture debt, a type of loan that younger companies line up to help pay the bills, plunged to $3.5 billion in the US in the first quarter, according to PitchBook, the lowest level since 2017. Climbing interest rates have made the funding more expensive for companies, and one of the biggest venture lenders, Silicon Valley Bank, faced a run on the bank that forced government regulators to seize it and sell it.
First Citizens BancShares, Silicon Valley Bank's buyer, says its appetite for venture financing hasn't changed. On a conference call on Wednesday, the company's president said First Citizens is better positioned to serve venture-backed companies now. But many of the biggest lenders across the economy are less willing to take risk as economic growth slows. Companies drove venture lending to record levels last year as revenue was under pressure and other forms of financing were drying up. VCs pulled back dramatically on equity investments in the second half of 2022, squeezed by rising interest rates and falling market values across the tech industry. By the first quarter of 2023, venture firms invested $79 billion in startups, less than half the $178 billion a year earlier, according to PitchBook. Raising equity in public markets is harder too: There were just $2.5 billion of initial public offerings in the US in the first quarter, the lowest for the first three months of the year since 2016, according to data compiled by Bloomberg.
First Citizens BancShares, Silicon Valley Bank's buyer, says its appetite for venture financing hasn't changed. On a conference call on Wednesday, the company's president said First Citizens is better positioned to serve venture-backed companies now. But many of the biggest lenders across the economy are less willing to take risk as economic growth slows. Companies drove venture lending to record levels last year as revenue was under pressure and other forms of financing were drying up. VCs pulled back dramatically on equity investments in the second half of 2022, squeezed by rising interest rates and falling market values across the tech industry. By the first quarter of 2023, venture firms invested $79 billion in startups, less than half the $178 billion a year earlier, according to PitchBook. Raising equity in public markets is harder too: There were just $2.5 billion of initial public offerings in the US in the first quarter, the lowest for the first three months of the year since 2016, according to data compiled by Bloomberg.
Venture debt was always a poor last resort (Score:2)
The terms were nearly always terrible for the company, resulting in loss of control by founders.
The company version of payday loans.
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That's not really true, it often just was a convenient way to get funding between funding rounds, also for successful companies. However for well-run companies it's not really a big deal if it wouldn't be available anymore.
"...as economic growth slows" (Score:2)
LOL. I guess that's one way of putting it.
Good! (Score:2)
That's kind of the point (Score:5, Insightful)
It does kind of ignore where most inflation is coming from, lack of competition leading to higher prices (with a smattering of left over supply chain issues).
But when your only tool is a hammer... Still if I was called in to do brain surgery and my only tool was a hammer, I think I'd politely decline.
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It does kind of ignore where most inflation is coming from, lack of competition leading to higher prices
That deserved to be said again, louder.
The SEC needs to change to a mode where, rather than looking for an excuse to block a merger, they have to look for an excuse to approve one.
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It does kind of ignore where most inflation is coming from, lack of competition leading to higher prices
That deserved to be said again, louder.
The SEC needs to change to a mode where, rather than looking for an excuse to block a merger, they have to look for an excuse to approve one.
At this point the SEC has their excuse handed to them in big fat wads of cash money for those approvals. Or, at the very least, promises of big fat mads of cash money in the future.
I know everybody used to scream at me that we absolutely have to have the experts in charge of regulating industries, but as we've seen everywhere, that just leads to the regulators eventually coming from the same pool as the CEOs and other executives in the companies that should be being regulated. So how do you fix that without
It's the FTC, but I think you (Score:3)
For a long time the rule was any merger would be approved unless it could be shown to raise consumer prices. Biden only just recently changed that.
So companies would pinkie swear not to raise prices so they could buy up all their competitors. This was fine in a strong economy, but when COVID hit they needed cash fast to keep their big stockholders happy, so they said "fuck it" and raised prices. That's where the current infla
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That might be the current administrations goal but it has nothing to do with inflation that's just simple repression. Tax payers and the companies they work for did not create this mess. The only way to lower inflation is to have the government stop spending so much money.
The root of inflation is the government printing more than it can spend but spending way more than it should. You have to stop both of those levers to get it under control, this administration has no desire to stop. Once we sustain 15%
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Oh you classical partial-Keynesian economist. This may have been true when the capitalist side of the economy's prices were set by classical Keynesian assumptions regarding the costs of the goods themselves. These days, the actual cost of goods and the price for those goods have a much larger gap than back then.
Companies that raise their prices 10% across the board in the absence of proportional input cost increases are absolutely driving inflation. (Hey P&G--looking at you.)
On the governmental side:
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That's a case of "new math" which doesn't work in a thing called reality. The top 50 companies in the US only equals 27% of GDP how does new math get you to the 10% cost increase creating crippling inflation? The #1 through #10 causes of inflation is government spending, government not paying there bills, government ... etc. Public/private companies are down around #20 and tax payers are not on the chart.
On a side note:
The US government pulls in between $19 to $20 Trillion tax dollars a year how much mor
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New Math--define that, please. If you mean "macroeconomic theory" then you're going to encounter some debate. Reference Nobel Prize winners.
Reality--I guess that's relative.
Crippling--who and what are being crippled, exactly? Certainly not the menu printers. Shall we cry a river for bank CEOs who don't understand what "cool the economy" means for the cost of credit? Maybe they should have read up on Diamond–Dybvig model (from the 1980s).
Government Not Paying Bills--which ones are those? Am I'm s
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A lot of people are too ill-educated to grasp the connection between money supply expansion (especially via government deficit spending) and inflation. Some people refuse to believe it even when they are told that's how it works. They just reject economics as wrong and go on believing some silly wrong thing is the cause.
So, that's why there isn't a loud unified voice coming from the taxpayers demanding that our government do its part to curtail inflation by reigning in that deficit spending. Too many of
Re:That's kind of the point (Score:4, Informative)
That might be the current administrations goal but it has nothing to do with inflation that's just simple repression. Tax payers and the companies they work for did not create this mess. The only way to lower inflation is to have the government stop spending so much money.
The root of inflation is the government printing more than it can spend but spending way more than it should. You have to stop both of those levers to get it under control, this administration has no desire to stop. Once we sustain 15%-18% inflation people will stop voting for there current favorite morons.
Funny enough all of these boomers was around in the 70's when Milton Friedman explained all of this in terms even they could understand.
Even the WSJ is starting to admit corporations gouging consumers is contributing to the problem. You want the government to stop spending so much money? Kansas tried that but with disastrous results. https://en.wikipedia.org/wiki/... [wikipedia.org] Five years in and here's how it went.
By early 2017, Kansas had "nine rounds of budget cuts over four years, three credit downgrades, missed state payments", and what The Atlantic called "an ongoing atmosphere of fiscal crisis".[19] To make up the budget shortfall, lawmakers tapped into state reserves set aside for future spending, postponed construction projects and pension contributions, and cut Medicaid benefits.[2] Since approximately half of the state's budget went to school funding, education was particularly hard hit.[2]
In addition to budget problems, Kansas was lagging behind neighboring states with similar economies in "nearly every major category: job creation, unemployment, gross domestic product, taxes collected".[41]
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Even the WSJ is starting to admit corporations gouging consumers is contributing to the problem.
Corporations gouging consumers **IS** the problem. If businesses don't raise prices then there is no inflation. Period. And yet businesses who are reporting record profits keep raising prices.
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The phrase "budget cuts" consists of two small words, but refers to something quite complicated with a very wide field of options.
So, one state did budget cuts badly, and got burned. That does not mean that "budget cuts" always result in what happened here. It depends greatly on which budgets get cut. If stupid programs are kept (for political reasons) while mission-critical programs are cut, you get a disaster.
So, budget cutting must be done wisely. Clearly, Kansas failed at this, but others may not.
An
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Funny enough all of these boomers was around in the 70's when Milton Friedman explained all of this in terms even they could understand.
Please stop thinking of "The Boomers" as a monolith of group-thinking zombies. (Yes, some of them are, but not all.)
Some of us understood "Uncle Miltie" just fine - and have been trying to get his (and related) economic ideas implemented from the time we started voting.
And losing...
And have been looted by government for our entire working careers...
And those of us who mana
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> The only way to lower inflation is to have the government stop spending so much money
Even if true (paint me skeptical), what specifically would you cut? Even "anti-gov't" Republicans often complain if the military is cut. Most of the infrastructure bill is for things that need fixing.
Plus, infrastructure is hard to ramp up and down based on short-term economics. If you pause too long, you'll often have to redraw the plans, as standards and surrounding buildings change.
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But when your only tool is a hammer... Still if I was called in to do brain surgery and my only tool was a hammer, I think I'd politely decline.
You clearly aren't innovative enough.
As a victim of Venture Capital ... (Score:3)
Not all Venture Capital are angels, some come in and kill the fledgling company and take it's IP, others wring it dry over months or years while skimming money off the top. Never occurs to some investors a company could be the next Alphabet or Meta.
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Not all Venture Capital are angels, some come in and kill the fledgling company and take it's IP, others wring it dry over months or years while skimming money off the top. Never occurs to some investors a company could be the next Alphabet or Meta.
I think you're confusing Private Equity with Venture Capital. Almost all Silicon Valley VCs are quite legitimate; they're not looking to kill a company, divvy it up, take it's IP. There is no money to skim in Venture Capital -- they invest in early stage companies that usually are not profitable.
Private Equity, on the other hand, buys companies and tries to return money to investors in the form of skinning profits, meaning cash sweeps of EBITDA. Various flavors can be quasi-benevolent and others can b
Translation (Score:2)
"People still want free money, finding it harder to find people willing to give it to them."
Venture Capitalist propaganda (Score:2)
After reading Scott Kuporâ(TM)s book on getting VC funding, in which he claims virtually every job created in America since the 70â(TM)s is due to VC funding, I have realized that VCs run their own gigantic propaganda machine, and they are also incredibly self centered: everything is about them.
All these stories about no name banks crashing threatening to bring down the economy? They hurt nobody but the VCs. The US economy is safe, the VCs are the ones suffering.
All these stories about VCs being c