During a time of nationwide uncertainty when it comes to venture capital deal activity, in Birmingham, experts remain optimistic.
Across the United States, VC market trends that started last year carried over into 2023. "Instability abroad, stubborn inflation rates and several high-profile bank failures contrasted with a bevy of positive macroeconomic indicators spread a plume of anxiety across the markets," stated a recently released Pitchbook-NVCA Venture Monitor report.
This presents an opportunity for Birmingham to “double down,” according to Jared Weinstein, co-founder of and general partner at venture capital firm Thrive Capital.
“Venture funding is down over 50% globally from its peak,” he said. “That impacts all geographies from Silicon Valley to Birmingham. Venture funding will rebound in due time, but in the meantime, we double down on efforts to make Birmingham a city that attracts founders. That requires investment in specific support programs to help founders on their journeys but as importantly a culture that takes risk and celebrates failure. If we cultivate those things, great founders will make Birmingham their home, and capital will follow.”
Martha Underwood, founder of Prismm and ExecutivEstrogen, called Birmingham’s community of VCs engaged.
“But given the uncertainty in the market,“ she added, “VCs are taking deeper dives into business models and profitability of companies during due diligence.”
Matt Jaeh, Techstars’ local managing director and co-founder of ProctorU, said Techstars is not slowing down, however.
“We are actually investing more, going from 10 companies to 12,” he said. “On a national and local level, I’m seeing a lot more interest and investment in pre-seed and seed-stage companies,” adding that Redhawk Advisory and Alabama Futures Fund are also active.
Jaeh said where he does see a slowdown is in larger seed to series A rounds due to a few factors. The first one is economy.
“There is still a lot of market uncertainty and instability,” Jaeh said. “This has a trickle-down effect because investors are seeing more losses in moderate to moderate-low risk investments. They don’t want to take more chances on the riskiest class of investments, VC.”
Other factors, he said, include banking showing increased cost of borrowing and signs of bank instability along with existing portfolios.
“VCs that have funds ready to deploy that have already made some bets a year or two ago on startups probably would much rather support their existing portfolio instead of going out and taking a chance on something new,” Jaeh said.
He highlighted the expansion of Builders + Backer’s accelerator program into Birmingham, which the city provided incentives for, as a positive sign.
“There is so much activity going on and I feel we are just getting started. ... I was impressed with all the great submissions from the latest cycle from Alabama Launchpad and very proud of the companies that I worked with, Idyllo and Domestique Coffee,” he said. “I’m looking forward to the next cycle that just opened. Launchpad is an incredible way for a founder to get started.”
According to the Pitchbook-NVCA Venture Monitor report, deal value decreased to $16.37 million in the Magic City in the first quarter of 2023 compared to $37.75 million recorded in that same period last year. Deal counts have also decreased, though not by much, from 11 to 10.
It is important to note that PitchBook data is largely self-reported, and some funds do not report to PitchBook, which may skew numbers and prevent them from painting the full picture of VC activity in the Magic City.
Statewide, Pitchbook data shows a decline from $40.25 million in Q1 2022 to $34.02 in Q1 2023.
