As part of our ongoing coverage of VC performance in the first half of 2023, TechCrunch+ surveyed 15 investors about their investment cadence and their plans for the second half of the year.
As expected, it appears a good mix of investors wrote checks at the rate they’d aimed for, while others fell a bit short. However, there is a sense that a slower investment cadence is going to become the new norm. Rajeev Dham, partner at Sapphire Ventures, and Mark Grace, investor at M13, both noted that the rapid investment cadence of the pandemic years has passed, and the adjustment period has been a bumpy ride for some.
However, those who operated at a slower cadence seem to be favoring a more cautious approach. Gen Tsuchikawa, CEO of Sony Ventures, said, “We have always been selective in our investments, and we are keeping the cadence of those investments flexible for now.”
Dham also advocates prudence for the coming period. “Once we understand what the new operating cadence is of businesses and then apply the appropriate price, which we now all know what it is (what it has always been!), then we can act accordingly. The other massive shoe to drop is further retreat from the most active investors in the 2018–2021 era. The more they retreat, the more likely there is to be less capital in the system chasing startups, which also level sets on price.”
Grace has his eyes firmly set on the full-half of the glass: “I think dealmaking cadence will continue to rebound. You need to be an optimist in this industry!”
Logan Allin, managing partner and founder of Fin Capital, stated that his firm was the most active fintech investor across the globe in Q1 thanks to its focus on early-stage startups founded by repeat founders.
He gave us some insight into his firm’s confidence: “This accelerated rate of new company formation is a function of (a) Management teams turning over the reins to professional management to take the company public or exit via M&A or buyout, and (b) seasoned entrepreneurs with underwater options that are not worth sticking around for to vest further.”
Read on to learn more about the investing climate of the past six months, and how these investors aim to tackle the next few months.
We spoke with:
Matt Murphy, partner, Menlo Ventures
Sheila Gulati, managing director, Tola Capital
Gen Tsuchikawa, CEO, Sony Ventures Corporation
Logan Allin, managing partner and founder, Fin Capital
Jason Lemkin, CEO and founder, SaaStr
Kaitlyn Doyle, vice president, venture, TechNexus Venture Collaborative
Rajeev Dham, partner, Sapphire Ventures
Jenny He, founder and general partner, Position Ventures
Oliver Keown, managing director, Intuitive Ventures
Rex Salisbury, founder and general partner, Cambrian Ventures
John Tough, managing partner, Energize Ventures
John Henderson, partner, AirTree
Christopher Day, CEO, Elevate Ventures
Mark Grace, investor, M13
Howie Diamond, managing director and general partner, Pure Ventures
Matt Murphy, partner, Menlo Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
The back half of 2022 was dead. Things suddenly picked up in late February, and we felt it across the board. We made investments in Anthropic and Typeface and have continued at a fairly rapid pace since then. In Q2, we made several commitments, including two life sciences companies, one digital health, one hard tech company and a few SaaS companies. So, the end of Q1 picked up and Q2 really accelerated. We even had a term sheet in on a company and we won the deal, but it got acquired.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Q2 was already busy and active for us, but mainly at the early stage. We have three funds: an incubation fund (Menlo Labs), which has been steady state; our Venture Fund, which picked up significantly in Q2; and our Inflection Fund (defined as early growth in companies with $3 million to $10 million ARR), which was still slow in Q2.
We expect Labs and the Venture Fund to remain just as busy as they have been from a pacing standpoint, but [we] expect the Inflection Fund will accelerate significantly in the back half of the year. About 80% of the companies in our sweet spot haven’t raised in two-plus years, and many will need to come back to market in 2H 2023. We’re excited about that segment of the market, where there is early but predictable scale and where valuations have settled substantially.
There will be many flat and down rounds, and there should be no stigma around that. The multiples VCs will use to value companies will be different, but that doesn’t change whether a business is good or not. So we’ll all get past valuation and focus on building great companies.
Sheila Gulati, managing director, Tola Capital
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
Our current focus is AI, primarily in the areas of domain-specific foundation models, AI/ML tooling, AI SaaS applications, AI compliance and governance, and AI security tools.
We have closed deals in these spaces in 2023, but the frenzy around AI has definitely meant a lot of capital has rushed into this market. The result has been that we have backed off certain deals based on valuation, and we expect this to continue in the AI world. It has meant fewer deals overall.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We’re focused on doing the right deals. Generational companies will emerge from this transformative period defined by AI, but there will be many losers, too.
With the team’s backgrounds as operators at Microsoft, we have a strong view of which companies will be able to compete with the mega-cap cloud and AI companies, and where companies can build sustainable moats. Patience and identifying the generational companies is more important to us than accelerating our deal pace.
Gen Tsuchikawa, CEO, Sony Ventures Corporation
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We have always been selective in our investments, and we are keeping the cadence of those investments flexible for now.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We are watching the market to determine when to accelerate cadence, as are many other investors. We have slight optimism based on some positive signs in the capital markets, but not yet enough to send a clear direction to the team.
Logan Allin, managing partner and founder, Fin Capital
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We were the most active fintech investor globally in Q1, but that was largely pre-seed and seed, where we are seeing ample activity from talented repeat founders and seasoned entrepreneurs.
This accelerated rate of new company formation is a function of (a) management teams turning over the reins to professional management to take the company public or exit via M&A or buyout, and (b) seasoned entrepreneurs with underwater options that are not worth sticking around for to vest further.
It is a terrific time to start a company with first principles and disciplined bootstrap mentality, much as we saw in 2008-2010, which were some of the best PE vintages of all time, per Cambridge Associates benchmarks.
Traditional early stage (Series A/B), growth equity, and late stage continues to be slower, as the leading companies have the runway to extend their next financing to 2024, when we all expect market conditions to be more favorable.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Our orientation currently is playing more offense than defense, but in order for our pace to accelerate, we would need to ensure we are not catching any falling knives and that the founders and boards we’re engaged with are going to be constructive on valuation and structure in this environment.
Hence, we believe there will continue to be more attractive opportunities in 2H 2023 and that the pendulum is certainly in investors’ favor. But more than ever, company selection certainly trumps any kind of broad momentum investing that we saw in 2019–2021.
Jason Lemkin, CEO and founder, SaaStr
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
I’ve been behind, and many top seed investors I know [who] have been doing it for a while (versus newer managers) are behind or off their historical pace. But I do want to pick it up.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Yes. I’d like to do two to three investments in 2H 2023, versus essentially zero in 2022.
Kaitlyn Doyle, vice president, venture, TechNexus Venture Collaborative
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We were under target. Rounds are still happening; they are just taking longer than we thought they would. So we still have active deals in the pipeline — they just won’t close in Q2.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Hopefully! We are follow-on investors, so some of this depends on the cadence of lead investors and round closures. Our volume is still relatively good; closing periods are just elongated.
Rajeev Dham, partner, Sapphire Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
Our investment pace has picked up since 2022, but we are still being very disciplined. We wait until we see strong companies solving real challenges with smart and passionate founders in the B2B SaaS landscape. Those are the companies we want to partner with.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We don’t plan for an acceleration or deceleration. For us, it’s about what the market yields, and right now, I just don’t see the market yielding the right conditions.
I think we are still in the early innings of this private tech market downturn. Just because Nvidia’s share price is going through the roof doesn’t mean 95%+ of private technology startups aren’t having a very challenging time performing and hitting their numbers.
Once we understand what the new operating cadence is of businesses and then apply the appropriate price, which we now all know what it is (what it has always been!), then we can act accordingly. The other massive shoe to drop is further retreat from the most active investors in the 2018–2021 era. The more they retreat, the more likely there is to be less capital in the system chasing startups, which also level sets on price.
That being said, we continue to be excited by innovative companies disrupting industries and helping improve business processes. We are eager to invest at realistic prices and back visionary CEOs. We’re always meeting with brilliant minds and I’m confident we, as an industry, will be returning to our usual pace in 2024 and beyond.
Jenny He, founder and general partner, Position Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We’re maintaining a consistent investment pace, slightly adjusted due to the escalating costs of some early AI companies. We’ve stayed disciplined and made investments that we’re really excited about despite having to pass on a few opportunities that we felt were overpriced.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We’re sticking to our strategy of identifying the most promising opportunities and not accelerating dealmaking in the back half of 2023. We are committed to maintaining a level-headed approach and cutting through the noise to ensure that our investments align with our portfolio’s long-term objectives.
Oliver Keown, managing director, Intuitive Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We are roughly at pace or just under for the year to date, having closed one deal and with several in our pipeline.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We are actively deploying capital and very much on the hunt for new deals.
Rex Salisbury, founder and general partner, Cambrian Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
I strive to be boring and consistent in pacing, and Q2 was no exception: I stuck to our standard pace of about one deal per month.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
No. Firms should develop a strategy and stick to it. For pre-seed, seed and, increasingly, Series A, there has been a steady supply of great entrepreneurs, and there is no reason for early-stage investors to dramatically shift pacing.
For Series B and beyond, a paucity of opportunities coupled with the need to align the pricing expectation of the private and public markets makes quarterly changes to deal pacing more relevant.
John Tough, managing partner, Energize Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
The bid-ask spread between entrepreneurs and investors has begun to close. However, the spread in valuation expectations remains wider in climate than other sectors, as investor interest remains above historical averages. Climate and AI are two areas of increased interest.
Getting investments done in 2023 requires two things: experience and creativity. At Energize, we have met our deployment targets for the first half of the year, but it required creativity in deal structure (primary, secondary) and looking geographically beyond the U.S. For us, that meant looking to Europe.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We aim to keep an investment cadence that’s consistent with the first half of the year, aligned to deployment goals we outlined when we structured our current fund.
John Henderson, partner, AirTree
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
At the seed stage, 2023 has been business as usual for us. We take a decade-long view, investing at a consistent pace and seeing the cycles through.
Things are much slower than expected at the growth stage. In some respects, it’s a good signal from our portfolio companies, who still have solid war chests from raises conducted over the last 24 months. But many great companies aren’t interested in raising, given what has happened to public market multiples and what this implies for them.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Consistent pacing and a 10-year-plus mindset has been the blueprint for our success over the last decade when it comes to our dealmaking cadence. “Unprecedented times” and a “tech wreck” don’t change our approach; they reinforce it.
Christopher Day, CEO, Elevate Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
We are in line with the cadence and numbers of deals we are targeting for 2023.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We plan to continue with the same cadence and velocity in the back half of 2023.
Mark Grace, investor, M13
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
Our cadence has dipped a tad, but that said, we have been deploying into several net new seed and Series A investments this year and have been staying quite active!
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
Yes, I think dealmaking cadence will continue to rebound — you need to be an optimist in this industry! — but I don’t expect it to return to 2020–2022 levels any time soon. That was an anomaly.
Howie Diamond, managing director and general partner, Pure Ventures
Did your investing cadence meet your expectations? Did you exceed your targets or undershoot them?
Our cadence met our expectations and we hit all our targets with the added benefit of investing at lower prices. Market corrections like this also make it easier to spot founder talent.
Is your firm planning on accelerating its dealmaking cadence in the back half of 2023? Why or why not?
We are in our final deployment phase, so most dollars are earmarked for follow-on/pro rata in our best deals. That said, we have the flexibility to do one or two new deals out of this final tranche if we see something we love.