QED Investors, one of the top Fintech venture capital firms in the world, says that “dry powder” is slowly returning to the market following the “champagne hangover” of easy money and huge valuations ruled the day.
Venture markets, in general, have dropped dramatically in the past few quarters. Report after research document highlights the fact that money for private equity or VC deals has tanked. One recent report stated that VC investment in US have dropped by 50.2% versus the same period last year to $55.3 during the period January to May 2023.
The decline in venture deals is largely due to a slowing economy combined with rising interest rates. Some believe that clarity will return once the Fed gives the all-clear announcement. Of course, the all-clear could mean we are in a recession too or maybe a miracle will happen, and the Fed will nail a “soft landing.” Don’t hold your breath.
As for QED, they report they have made 12 investments in the past two months, which includes both new investments as well as follow-on rounds. At the same time, valuations are returning to earth, or as QED explains, the “bid-ask gap between VCs and founders is narrowing to more rational levels where deals can reach competition.”
At the same time, some early-stage firms are having trouble raising money. We have already seen multiple down rounds, and some firms have simply called it a day. Risk capital is less willing to put their money to work unless the company is deemed to be a hit in the making.
QED puts a positive spin on things stating that good companies with discipline and a vision will do fine and the next vintage of investments “may be the best we’ve seen.” Let’s hope this becomes reality.