Silicon Valley's venture and startup industry may be due for a major market correction.
Since the dot-com bubble burst in the early 2000s, the ecosystem hasn't really seen a downturn, not even during the Great Recession, Chuckie Reddy, a partner with QED Investors, said on CNBC Friday. But in the wake of the meltdown of Silicon Valley Bank, a multi-year reset may be on the way, he said.
Venture "for the first time in 20-plus years is going to correct," said Reddy, whose Virginia-based firm focuses on early-stage startups.
When the venture industry saw a correction during the dot-com crash, it was more of a "cottage industry," he said. But thanks to the free flow of capital in recent years, venture firms and the startups they funded hired lots of people and lots of new venture firms cropped up, he said.
Those firms "are about to go through that two- or three-year cycle where we're going to have a correction," Reddy said.
The industry has already seen at least the start of such a reset. After a record year in 2021, venture funding into startups and fundraising by the firms themselves fell precipitously last year then dropped again in the first quarter.
It may be a while before venture investment bounces back. Venture capitalist are seeing investment opportunities, but they're "not as high quality" as before, Reddy said. And investors being cautious, because valuations have been dropping and there's a mentality that people will be able to buy the same stake for less in the future, he said
"We haven't hit the bottom yet," Reddy warned. "We thought there would be ... tons of deals, and activity would happen, but we still haven't seen that."
Because of all the capital raised by startups in recent years, many of them still have plenty of capital to burn, so it's unlikely that there will be a wave of bankruptcies anytime soon, at least if the economy remains healthy, he said. If it goes into recession, though, that's likely to push many over the edge.
"That's, you know, game over," he said.
Funding rounds
- Span.IO Inc., San Francisco, $96 million, Series B2: Wellington Management led the round for this provider of an internet-connected home electrical panel. Congruent Ventures, Capricorn Investment Group, Qualcomm Ventures, Fifth Wall, Munich Re Ventures, A/O PropTech and Amazon’s Alexa Fund also invested.
- Snapcommerce Holdings Inc. (dba Super.com), San Francisco, $60 million, Series C: Inovia Capital led the round for this provider of a discount travel and online shopping service. Hyphen Capital, EDC, Plaza Ventures, and others. The company also raised $25 million in a credit facility.
- Sonet.io Inc., San Jose, $6 million, Seed: WestWave Capital and The Hive led the round for this provider of a service that helps companies manage and provide network access to remote workers.
- Stack Identity Inc., Menlo Park, $4 million, Seed: WestWave Capital and Benhamou Global Ventures led the round for this provider of identity and access management software for companies' cloud-based applications.
Funders in the news
- Ridge Ventures raaised $180 million for its fifth fund. The San Francisco firm focuses on seed and Series A investments.
Business Journal TechFlash Editor Cromwell Schubarth contributed to this report. If you have funding or venture capital news, please let us know at svbjnews@bizjournals.com.
