Between midterm elections, lingering inflation and rising interest rates, the biggest cause of the venture capital deal slowdown is economic uncertainty for investors. That’s according to Sig Mosley, founder of Mosley Ventures who's nicknamed Atlanta’s godfather of angel investing.
U.S. core consumer prices rose 6.6% in September from a year ago, the highest level since 1982, according to a recent report from the Labor Department. This raises fears of a slowdown in consumer spending.
To cool inflation, Federal Reserve policymakers have suggested raising interest rates more than initially expected, Bloomberg reports. San Francisco Fed President Mary Daly said raising rates to between 4.5% and 5% “is the most likely outcome."
Investment firms and startups won’t have a clear picture of when venture deal flow will get back to normal until the first six months of 2023, Mosley said.
“I feel confident [the Federal Reserve] will raise rates one more time, then the question is whether they raise beyond that,” Mosley said. “Once they determine that inflation is getting under control and cut back on rates, there will be a more stable market.”
Mosley predicts inflation will likely get under control during the last six months of 2023, unless the Fed continues raising rates through next year. In that case, startups and firms won’t see a return to normal until 2024.
A tumultuous economy has led to a decline in venture capital deals in Georgia and across the U.S. The latest quarter was the third in a row that venture capital declined, according to PitchBook and National Venture Capital Association's latest report. Georgia startups saw a 28% decrease of funding overall from the prior quarter.
“In this environment, companies should seek profitability in a reasonable time rather than shoot for the moon,” Mosley told Atlanta Inno in July. “VCs used to look at things like eyeballs. Today, we can't. We have to look at actual revenues.”
Mosley began his career in 1990 and founded Mosley Ventures right as the dot-com bust unfolded later that decade. Mosley has invested in over 120 startups. He led the SAP Ariba’s $5.7 billion acquisition of Tradex Technologies Inc., the Southeast’s largest-ever VC deal.
