Caplight’s Post

It's easy to doom spiral these days. Especially in Venture and VC secondaries-land. If you look under a rock right now you'll find another reason to be worried about the 2024 market environment. A 'will they/won't they' Fed, global geo-political risk, skittish IPO calendar, and a looming US election are all easy things to point to when rationalizing waffling through another year. But at Caplight, to start 2024, we're choosing optimism. We collected $1 billion of closed VC secondary trade data last year. There are gems in the numbers, so we decided to share our findings here: www.caplight.com/insights. We noticed a clear rebound in market activity starting in June last year that picked up momentum before the holidays. Holding aside macro risk, we expect more VC secondary deals in 2024 than in 2023. The opportunity is explained as follows: 1) Secondary funds (PE + VC) had the best fundraising performance last year of all categories. Investors want managers to find attractive secondary opportunities. *(market demand force)* 2) Dry powder amongst funds remains near all-time highs. How much longer can funds hold off on actually deploying capital raised? *(market demand force)* 3) Many funds that invested in pre-IPO companies w/ active secondary markets are 8+ yrs old, creating pressure to return capital in a DPI-starved environment. *(market supply force)* We've built tooling to help investors and brokers in the pre-IPO secondary market understand the market opportunity. Let me know if you want a demo of the latest. We love illuminating this opaque market, and we have much more to do. See you out there!

Ag Meme of the week: The New Year is in full swing and the writing is on the wall for many in #AgTech unfortunately. More👇 This isn’t to imply some giant explosion or that anyone including myself wants this. It’s just happening and is becoming more apparent with end of the year summaries coming out with a few big changes and shifts with some groups. I don’t have to explain it all here, but investment is drying up as income is stagnant at best for most if not dropping significantly. Investors, especially the VC world, seem to be just sitting back to wait or likely trying to divest if possible. It’s messy. This doesn’t mean there is no hope on all fronts, it means the narrative has changed and it seems to be getting back to where it actually was 10 years ago and beyond. Here’s how that typically went. Simply put, Investors are interested and are game they just want you to have like 2-10 million in revenue before they think about it. They only will too if there is decent equity in play and the business just sort of runs as is now yet needs to expand. Overall, it’s the old normal way. The most recent way was more or less bet a ton on an idea and build it up to sell to someone else or go public I spose. Literally, that was pretty much it beyond some edge cases. It did start to shift away from that a few years ago as people started to understand that was/is fairly hard to to in Ag. 🤦Now what? The old model didn’t work well and the new one didn’t either. The enhanced new model which is a mix of the two doesn’t also really work well either as it’s more of a fix to hopefully save evaluations enough and buy time to still sell. Now we have a lot of overvalued groups with little room to do much beyond getting sold. Those values are rapidly falling and for some it’s been too late. 🤷Can it be fixed? Maybe, so here is my straight forward idea to fix it with a plan to help to summarize this all. For new investors: Invest with those that have history and time on their hands and/or start small with unique things. Please don’t go back to the old way. It’s not realistic. For current investors: Do more work for your investments and help them find new core partnership deals with larger ag groups that need it. Sitting back didn’t work. Be active yet not controlling. It still could suck for you. For new startups: Don’t do something that’s already being done with a new twist. Just don’t. Be more creative and find some potential partnerships first, learn now, not after, start small. For current startups and small companies: You have the toughest job, get as lean as possible, focus on one thing, get back out there, and don’t be distracted. 🤝 So these are just general suggestions and ideas. Take it for what it is worth. Clearly there is more nuance to it all. Overall, I’m just trying to throw some perspective out there and help in minor ways of thinking for this new future of #AgTech. Stay fresh out there…

🔮 Lots of GOOD information to unpack here Seed valuations are double what they were six years ago. That's fine, and it mirrors public market increases. A seed round is quickly inflating to what a Series A used to look like. Pre-Seed is the new Seed. Valuations have increased 20% since the COVID bubble in 2021. On one hand that seems crazy, but compared to other asset class increases, it isn't unreasonable. The top quartile is dominated by AI which may (or may not) justify price increases. We are yet to know the long-term benefits. Even the two largest Investment Banks can't agree and have taken two very different viewpoints. Harry Stebbings is seeing multiple $300K ARR companies being done at $60-$80M post. This bit worries me the most. If you are telling your LPs that you have just increased the exit valuations you'll need by 8x, I can't believe they'll be thrilled. #VC #venturecapital

EBITDA is “fugazi!” In 1994, I was fortunate enough, after being persistent and creating opportunity, to be offered a base position with a top technology fund in Silicon Valley on Buy Side Wall Street as a research assistant at $25,000 a year. I had been screened and asked to analyze three company earnings calls, and I was pretty confident despite being self-taught with no MBA and dyslexic. I have been a student of the market since I was 11 years old and know how to identify unique opportunities. One of my skill sets, I believe, was being dyslexic, which required me to find a different way to approach, analyze, and identify opportunities while at the same time making it a little bit harder compared to those with an MBA and brought up through a training program. Three years later I was a top-ranked Wall Street Institutional Investor Magazine Buy-Side Investor. EBITDA wasn’t much discussed in 1994 as most of us on the buy side were schooled in other fundamentals and tangible elements. But as time progressed, EBITDA has become the champion for the Sell-side and Venture Capitalists, and I’ve always thought and believed that it is just “Fugazi.” One day, sitting across the table in a private meeting with former CEO of Cisco Systems, John Chambers. He told me, “All buy-side and sell-side analysts will find a way to value the company independently to justify your valuation.” The comment was so true and resonated. In the last five years, EBITDA has become the Holy Grail, and clearly, people don’t understand that it is the incorrect way to value companies and clearly smoke and mirrors. Warren Buffett and the late Charlie Munger would agree! (See this video from 1998) #buyside #sellside #investment #assetmanagement #institutionalinvestors #wallstreet

https://lnkd.in/dj8i3TmT Reddit finally filed for its long expected IPO. With 800 million USD worth of revenue for 2023, net loss of 158.6 million USD for 2022 and 500 million users as of December 2023, Reddit's intrinsic worth is 16 billion USD, according to Wolfteam Ltd.'s projections and estimates. Reddit in previous private market financing round was valued at 10 billion USD. Reddit is unprofitable, loss-making, but this could easily be mended with job cuts, more efficient operations, in Wolfteam Ltd.'s view. Reddit's IPO could jump start the IPO market and many other technology companies may follow with IPOs of theirs.  This, on its turn, could propel technology stocks to even higher highs. Money will flow back to venture capital funds, which are sitting on paper profits, which will be monetized via potential IPOs and this money will several times again be recycled into new technology companies investments, which will move Silicon Valley and the rest of the technology world and technology stocks in particular into a mild hyper-drive. #reddit #ipos #ipo #stocks #stockmarket #equities #investing #wallstreet #technology #techstocks

https://lnkd.in/d4U_p-RF Reddit finally filed for its long expected IPO. With 800 million USD worth of revenue for 2023, net loss of 158.6 million USD for 2022 and 500 million users as of December 2023, Reddit's intrinsic worth is 16 billion USD, according to Wolfteam Ltd.'s projections and estimates. Reddit in previous private market financing round was valued at 10 billion USD. Reddit is unprofitable, loss-making, but this could easily be mended with job cuts, more efficient operations, in Wolfteam Ltd.'s view. Reddit's IPO could jump start the IPO market and many other technology companies may follow with IPOs of theirs.  This, on its turn, could propel technology stocks to even higher highs. Money will flow back to venture capital funds, which are sitting on paper profits, which will be monetized via potential IPOs and this money will several times again be recycled into new technology companies investments, which will move Silicon Valley and the rest of the technology world and technology stocks in particular into a mild hyper-drive. #reddit #ipos #ipo #stocks #stockmarket #equities #investing #wallstreet #technology #techstocks

The latest US VC Valuations Report sheds light on some intriguing trends. As we've seen, while median VC valuations have experienced a modest increase in Q1 across all stages, they remain tightly aligned with companies' previous valuations. This indicates a cautious optimism, tempered by a realistic appraisal of market conditions. A key takeaway is the challenge in the exit market, highlighted by scenarios such as Reddit's IPO, which came in significantly below its peak valuation. This serves as a reminder of the volatility and unpredictability inherent in high-stakes VC investing. Furthermore, the secondary markets reflect a conservative stance from investors, with shares trading at an average discount of 28%. The rise in flat and down rounds, now representing 27.4% of all VC deals, highlights a shift towards more conservative valuations amidst a landscape marked by uncertainty and heightened scrutiny. This trend is particularly noteworthy as it may signal a new phase of market adjustment, where growth expectations are recalculated against broader economic signals. For investors and entrepreneurs alike, these dynamics emphasizes the importance of strong due diligence and strategic foresight. #VCInvesting #VentureCapital #MarketTrends #InvestmentStrategy #Avestix #AVXI Source: 2024 US VC Valuations Report | PitchBook

NEW Newsletter is live: "Why Most LPs Are Playing it Safe Right Now" No one ever got fired for investing in Tier 1 VC It’s an age old problem that founders complain when VCs wont invest in them and GPs complain when LPs wont invest in them. But beyond not being a “fit for them at this time” and “cheering from the sidelines,” it also has to do with changes all the time in the stock market, competition, world events and even vibes/trends Basically it comes down to risk tolerance and what LPs can stomach - your gut feeling. A few years ago (feels like a lifetime ago…) in 2021 we were in the ZIRP Era; no fundamentals, vibes and Covid induced drunken exuberance where everything was awesome! But now we’re dealing with the consequences and are now getting back to basics; which in the short term there are debts to be paid, to make up for our lack of stringency and DO (not due) diligence, while in the long run, we will be better off. What doesn’t kill you, makes you stronger right? https://lnkd.in/eH56g4Vp

Secondary Markets, the best of both worlds: “It releases that pressure for liquidity for some of the investors. You created liquidity for the ones you wanted to, you didn’t upset your late-stage investors and you are taking your time to grow. The secondary market allows for that now.”

Today we look at Term Sheets. Founders often don’t know what a "good" term sheet looks like, which puts them at a disadvantage compared to VCs. Drawing from Y Combinator’s extensive experience with term sheets, here’s what a clean and standard one looks like. This template from a reputable Silicon Valley VC includes bracketed items that are frequently negotiated, while other terms are generally not heavily debated. Key Points to Consider: 👉 𝗖𝗼𝗻𝘁𝗿𝗼𝗹 𝗧𝗲𝗿𝗺𝘀: Focus on board composition and the investor’s ability to block or dictate decisions. Founder-friendly terms retain board control 2-1. 👉 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗧𝗲𝗿𝗺𝘀: Avoid non-standard terms like liquidation preferences >1x, participating preferred, cumulative dividends, and warrant coverage. 👉 𝗙𝗼𝘂𝗻𝗱𝗮𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝗙𝘂𝘁𝘂𝗿𝗲 𝗥𝗼𝘂𝗻𝗱𝘀: Clean terms now make future financing rounds smoother. The goal is a clean deal, not a perfect one. Founders should focus on closing quickly and getting back to work, knowing they can execute well and potentially renegotiate later if needed. Hope it’s helpful.