Member Info for steph

In Q1 2023, the proportion of down rounds ticked upwards

to 18.8%, having finished 2022 at a decade low of 15.3%. Although the proportion is trending upwards, it is worth noting that investors and startups are not required to disclose valuations when announcing a round. Therefore, several recently completed rounds could be flat or down rounds.

VC down rounds as a share of all VC deals

2021 2022* 2023* Median Bottom decile Average

Source: PitchBook • Geography: Europe *As of March 31, 2023

Moreover, the lack of valuation disclosure could be artificially inflating valuations based on the higher valuations tied to large rounds that have closed in recent years. VC is an illiquid strategy, and valuations are linked to static VC rounds. Therefore, the further we progress through the downturn and more companies are forced to secure capital and potentially announce haircuts, the more accurate

The median venture-growth valuation fell to €25.3 million in Q1 2023, representing a 40.9% decline from Q1 2022. In contrast, the median venture-growth deal value rose to €9.9 million, a 19.9% increase from Q1 2022. Record- breaking valuations figures are unlikely in 2023. However, robust deals are still happening, as evidenced by the strong median venture-growth deal value showing. Venture-growth companies will typically have larger capital requirements given their age and size, which will drive up deal sizes. However, with growth rates and capital availability declining, valuations and deal sizes may come down further in 2023.

Through Q1 2023, the median early-stage deal value is painting a more positive picture, pacing in line with 2022’s €1.8 million. Early-stage capital deployment has benefited from larger VC funds, nontraditional investors, and international backers in recent years. However, deal sizes could constrict as portfolios are managed during the current downturn. Instead of chasing new deals, investors with existing exposure to several VC-backed companies may have to focus inwards on their existing portfolio companies to ensure that they have sufficient runway.

In Q1 2023, the median late-stage valuation increased 26.9% QoQ to €13.4 million. One major deal that helped boost

the figure involved Germany-based Enpal obtaining €215.0 million at a €2.2 billion pre-money valuation. Enpal offers a subscription-based model that supplies and installs solar panels. Near-term uncertainty is slowing investment levels, but long-term investment opportunities are helping sustain activity. Nonetheless, outlier companies can skew figures, and we expect late-stage valuations to flatten in the near future

“During Q1 2023, median early-stage valuations dipped to €5.5 million, a 15.4% QoQ drop and the third consecutive quarterly decline. Lower valuations have fed into the ecosystem in Q1 to ensure that they are closer to market expectations, comparable revenue multiples, and achievable growth rates. VC-backed companies have been able to command a premium in recent years and have enjoyed a lengthy period of abundant capital. But 2022 started a shift in capital availability and growth prospects, which has penetrated early-stage businesses into 2023. The median early-stage valuation step-up is pacing at 1.4x in Q1 2023, significantly down from its 2.0x reading in 2022; this further indicates the tricky valuation market”

The median seed valuation was flat at €5.5 million in Q1 2023, while the median deal value ticked upward marginally to €1.7 million, up from the €1.5 million full-year figure logged in 2022. Startups that receive seed funding are years away from an exit, and capital is typically used to establish product-market fit and a go-to-market strategy. Thus, startups tend to be lean and less affected by near- term uncertainty from poor growth rates.

“ In Q1 2023, angel valuations were robust, with the median pacing at €3.7 million—above the €3.0 million figure registered in 2022. With fewer deals taking place in the quarter, the uptick in the median valuation could be a result of larger, publicised rounds skewing the figure upwards. Angel-backed companies could still be in “stealth mode”

or have minimal financial information, and therefore, we expect figures to be detached from broader trends witnessed at mature stages of the VC ecosystem.

Angel investors with sufficient capital may find that investing in a brand-new idea linked to downward pressure on VC valuations could work in their favour as they could get more bang for their buck. Moreover, several previously VC-backed companies have launched in market downturns, such as Uber and Airbnb, which could give confidence to founders seeking capital for their ideas”

Of course sage but matters not if regulatory fine or private lawsuit it is a no no to knowingly overstate justification for an SP. Has toe be reasonable and evidence based opinion.

RNS is interesting. American fund selling down 0.6% of shares would act as a deflater of our SP in light traiding. Registered in Baltimore so no knowing the actual ownership as Baltimore is a global black hole of shell companies -much worse than UK offshore. Could be as unrelated to actual GROW news and prospects as Russian money needing to move fast regardless of strategy.

Me took. scary dips though.

yes they were so robust they they could be sued if no basis

At 5% and 4.5% respectively. So this is not a revisit of 16% interest rates. Looks like will not start to fall until late this year or early 2024 though.

Seed funds are holding falues nicely. I suppose they are so long term and mixed with government funding that they look beyond this market problems .

Value chain after that still seems in line with pre covid valuations and pre covid down round and failure rates. For us that means when the market returns to rationality we should go up to at least pre covid SP levels. Maybe more as we reinvested a lot of 2021 ill gotten loot upstream where it is holding value.

Https://files.pitchbook.com/website/files/pdf/Q1_2023_US_VC_Valuations_Report.pdf

See page 24.

We are back to pre 2021 levels of down rounds. Nothing alarming at all. Of course may be a bias to the firms that go to the market now (but not necessarily) in that they:

1) need to (negative) and

2) they can (positive).

The zombies will be saving cash and attempting to avoid raising cash that locks in a much lower valuation. I don’t think any of GROW’s portfolio are zombies. I don’t count CaZOO as our core. CAZOO is an example of a firm that could not possibly raise cash now at anything like previous valuations. It must use wisely the cash it has to survive and to pivot to profit. Will never be the global play that it set out to be at IPO.

For “overvaluation” of the scale implied by a 2.60 sp to be a legitimate fear one needs to assume that the real value of every one of our core portfolio is 1/6th of what we have them on our books for (once the mitigating effect of preference shares is weighted). That is just plain bonkers. This mad sp will correct itself to something more sensible at some point.

Need some communication from GROW. I get not worrying to much about SP (as they said a day after interim results) but excessive volatility damages confidence and results in a lower long term relationship with NAV/share. That in the long run limits fund raising and credit lines by GROW itself.

An SP at 32% of a recently updated NAV/share is either a legitimate fear of an exaggerated NAV/share or a communication issue. Market jitters for sure may mean 2/3rds of a properly calculated NAV/share but not 32%.

Https://files.pitchbook.com/website/files/pdf/Q1_2023_Retail_Fintech_Report_Preview.pdf

Worth looking at chart that shows valuation for fintech. Between 2017 and march 2023. We continue in 2022 2023 on the uptrend from circa 200m to 500m in march 2023. 2021 was an outlier (but not outrageously so) with 600 but the long term moderate upwards trend reestablished itself in 2022 2023. That’s a good chart.

As hitchikers guide says “don’t panic”.

Volumes down big for VC but implied valuations on the deals that have been done are not. OUr haircuts are quite enough to get our portfolio to a realistic NAV/share in curreent market conditions.

Https://techcrunch.com/2023/03/21/after-calling-off-spac-fintech-etoro-secures-250m-at-a-3-5b-valuation/

We never had a SPAC induced peak for our unlisted core portfolio in 2021 early 2022. So no retraces of this scale from an actual or theoretic frothy 2021 level.

Never-the-less 3.5bn for a fintech that is not growing is not bad. Money about at more sensible valuations. For my money I think our GROW core on our books are all on sensible valuations. This will be confirmed by price points for mid sized B2B buys and/or future funding rounds. IPO’s probably not for a while though.

Graphcore is difficult to put a value on. It is AI, the predicted fasted growing segment of the tech market, and has over 80 patents so a true tech share but with sales at only 5m is is still in it’s infancy and needs funding. It has direct competitors that have larger market shares. Although it’s product may be superior these things often go to who has the volume. SO I agree sage not inevitable it will succeed but in with a chance and if it does will be worth 10’s of billions. Microsoft disappointment big but not in any way fatal. At 5m sales they are in the early stages of developing a usable product and this is not always a smooth glide path. AI is a complex area and they are playing with some very big boys.

Cut staff a bit from high of 650 to preserve cash. Now at about 500. I can’t figure out runway length.

I Can’t find the exact % of Graphcore GROW has so can’t work out exact valuation we ahve it on our books at. Will be less than 2.8bn (we had it on our books March 2022 for 113m so assuming that was on the 2.8bn last round valuation we have 4%) that is but not sure of how much less. Assuing 4% ownership and currently on our books for 73m that implies a valuation of 1.8 -in line with most other funds. One fund (Sequoia) has written off their stake but that may be for convenience not genuine valuation. Ballie and Schroder have a value about 1.7bn on their books after having it as high as 3.5bn. Disappointing there was so many Graphcore director sales on last round. Be good to see buys.

GROW useful as a fund as it includes some deep tech with big potential, such as Graphcore, and some sectors that mature in a more predictable but less spectacular way. I trust GROW management that they see the potential in Graphcore and consider it worth the risk but risk it is.

Graphcore is not worth zero. According to pitchbook analysis it is successful and still on it’s way to IPO. yes a slow burn but it is on our books at 73m sept 2022 and was on our books March 2020 at 86m. A good example of our conservative valuations not an example of a company on it’s way down (as with CAZOO who has substantially scaled back ambitions) . Graphcore is not significantly overvalued never mind zero.

For our SP to be justified at 2.7 we need our core portfolio companies to be overvalued on our books by 600% taking into account the effect of preference shares and seed funds. That is highly improbable.

https://www.telegraph.co.uk/business/2023/05/05/europe-credit-crunch-next-chapter-banking-crisis/

I had an interesting sales pitch from pitch book and they wen over the unlisted company specific data we lack. I could not buy at the end as it was 20,000 us dollars a year but the demo was informative.

Ledger came out well nearly considered ready for an IPO. Even graph-core good good investment grades. Certian;y not highly stressed as a B2b private investment at all.

WHile the traditional IPO and fund raising is well down there are still a trickle of private B2B sales in sector that test actual values. These are not showing down rounds in any alarming %.

For my money I think SP should be at 2/3rds NAV/share and that 1/3rd is a silly overshoot due to poor information.

Good luck all.

For my money I think an sp 2/3rds of a nav that I think includes needed discounts to last round is sensible. 33.7% of a recently adjusted NAV/share is silly. Implies that all the core portfolio is overvalued by a factor of 600% when preference shares are taken into account. Just not credible. May be one or two in the core than might qualify for such a discount over what we have them on our books for but never all 15. An sp of 2/3rds of NAV/share plenty of discount to cover that. We have had decreases even in good times of some holdings. Just normal churn. All companies in core doing well. None need a discount due to performance. Just a debate on valuations. Valuations for all 15 core averaged out did not go up that much in 2021 so don’t need to go down that much in 2022-23 to return to 2020 valuations. Plus they have been growing in the meantime so worth more than they were in 2020.

Looks like fed will pause now. That seems to drive all global central banks and our sp.

Still talking tough on when rates will decline but they need to talk tough and talk is cheap.

For my money I think we are entering a deflationary cycle led by commodity prices. they are coming down just as fast as they went up starting this whole mess. Wage inflation was just catch up not leading. Even Saudi cuts or a million barrels/day can not keep oil price over 70. Many more drops to come.

Whole US shale industry pumps a lot more when oil price above 50. Permian basin alone has ramped up production 4m barrels as price ha gone over 50. Iran and Iraq edging up. Russian production and sales quite steady or up. there will be a glut soon. It always happens after oil spikes up as the higher price contains the seeds of it’s own destruction and never lasts long.

Central banks quite keen to bring rates down a bit as soon as conditions permit due to banking and sovereign debt stresses. Even a 1% cuts bank losses on many bonds by 20% which may prove critical. Sovereign debt will start needing to be rolled over at the much higher interest rates and that will add to the chorus to cut. Whole global banking ecosystem needs rates quite a bit lower than now. Maybe not zero again but 2% is probably the new normal. We just don’t have the growth to support over the long run 4% plus returns and with that not enough entities will be taking out business loans. Japan is the g7 future. EU well on it’s way to Japanization with it’s very low birth rate, aging population and modest net in migration (nowhere near enough to make up for the low birth rate).