The Big Book of Venture Capital - 2023

THE BIG BOOK OF
VENTURE CAPITAL
2023
IMAGE FROM DALL·E
Here is a painting created in the style of Abstract
Expressionism, themed around the 'VC industry in 2023'
with the concepts of 'Low, Limited, and Lopsided.'
1

Disclaimer
The contents of this presentation is solely for information purposes only and should not be considered to be legal, tax, investment or other
advice. The contents should not be considered as advice or a recommendation to investors or potential investors in respect of the holding,
purchasing or selling of any financial instruments.
The contents in this presentation - is sourced and complied from multiple 3rd parties, is provided in summary form only and does not purport to
be complete. No representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the presentation and
no reliance should be placed on it.
Projections, views, statements, or analysis may be based on subjective assessments and assumptions and they should not be relied upon as an
accurate prediction of future performance. This presentation also contains forward
‐
looking statements. Such forward
‐
looking statements involve
known and unknown risks, uncertainties and other important factors. Furthermore, certain forward
‐
looking statements are based on assumptions
or future events which may not prove to be accurate, and no reliance whatsoever should be placed on them.
Other important considerations:
• A conscious effort has been made to source meaningful content from broadest possible sources, though a universal coverage is impossible.
• Readers should carefully analyse all data and graphs since these are from 3rd party providers. These data and graphs from different providers
can vary significantly w.r.t their definitions (example - pre-seed can mean different definitions for different providers), data scope (example -
Tech M&A numbers from different data providers has different values), geographical context (example - two charts on one page and one
refers to the U.S. data while other to European data), or timeline (example - not all graphs represent same data timelines).
• The text snippets under clip-image on each slide are directly quoted from the article/report/blog post. Readers are strongly encouraged to
go through the complete version by following the image link.
• Most of the content is focused on the U.S., European and UK startup ecosystem - due to maximum data availability.
• The goal of this deck is to focus on the strategic aspects of venture capital relevant to founders, GPs, and LPs (i.e., valuations, market
dynamics, fundraising, portfolio construction, performance, etc.). This alone was a monstrous task. Hence, individual investment areas
(ClimateTech, DeepTech, SaaS, HealthTech, etc.) and their dynamics are not covered.
THE BIG BOOK OF VENTURE CAPITAL - 2023

Index
1. Preface 4
2. Thanks to contributors 5
3. About 6
4. Startup valuations & performance 8
• Valuations data 9
• Unicorns 16
• Early stage strength 20
• Performance 23
5. Startup fundraising 37
• Data 39
• Deal dynamics 57
6. Startup exits 75
• Data 77
• IPO 82
• Tech M&A 88
• Buyouts 93
• Secondary markets 96
6. Talent 102
• Startup talent 103
• Venture talent 115
7. Limited partners 117
• Corporate Venture Capital (CVCs) 119
• Family Office (FOs) 125
• Fund-of-Funds (FoFs) 132
• GP-LP dynamics 137
8. Venture capital fundraising 143
• Dry powder 145
• Data & strategy 151
9. Venture business 160
• Venture fund management 162
• Venture performance 167
• Venture as an asset class 181
• Future of venture capital 191
3

4
Preface
Sometimes, the most fulfilling endeavors are inspired by the past.
At 15, I began collecting clippings from a financial newspaper that
covered fundamental financial concepts (such as stocks,
debentures, debt, etc) and offered simple explanations. I diligently
read, gathered, and eventually compiled these clippings into an
informative book.
Back then, this was merely my way of satiating my hunger and
passion for the investment topic. Reflecting on it now, I understand
the power of:
• building an expansive knowledge base
• connecting the dots
• deriving insights
Fast forward to 2023.
I bring to you ‘The Big Book of Venture Capital.’ The objective of
this book is straightforward: to compile and articulate the most
vital venture and startup insights of 2023 and provide a strategic
overview of this dynamic landscape. The conceptual
methodology I employed two decades back is much more
relevant in today’s age of ever-increasing information flows.
This deck has something for everyone in the ecosystem, and my
sincerest hope is that it fosters a nuanced understanding of 2023.
Rohit Yadav (Author)

5
Thanks to the contributors!
Rightly said - “Collaborate with people you can learn from.”
Venture experts I admire contributed - personal thoughts, quotes,
content suggestions, ideas, and more - to specific sections of this
deck. Their support resulted in a much better outcome in the end.
I appreciate their time and efforts, especially considering the year-
end timing.
(in alphabetical order)
Brandon Hoffman Christophe Aumaître Eric Woo Jonathan Hollis
Michael Sidgmore Niklas Benesch Oliver Oster Pelin Yilmaz
Pratibha Vuppuluri Triin Linamagi Valerie Bures

6
2023 will be etched in the memories of everyone.
A decade down the line, there will be investors who will boost
their credibility of having lived through 2023. It’s that significant!
Like in equities, we reminisce over the Great Financial Crisis (GFC)
and divide the investors between those who survived the 2008-09
period and those who have only seen the boom phase.
Nevertheless, 2023 can be summarised in three words - Low,
Limited, Lopsided (‘LLL
’ environment)
• Low: Valuations of startups in most stages went through their
lowest levels.
• Limited: Capital availability and deployment became limited to
only the best opportunities.
• Lopsided: The power remained in the investor’s corner in 2023.
It was lopsided towards the capital providers.
Another reason that makes 2023 unforgettable is that we saw it all
- the advent of AI in almost everything, fundraising pain for
founders, the failures of SVB and Signature Banks, SEC regulations
changes, AI-regulation discussion uptick, failure of FTX, startup
closures, the Twitter takeover saga, growth of hard-tech, calls for
more diversity, the Fearless Fund lawsuit, VC fund pauses/closures,
and much more.
What else can you ask for from such a transformational period?
An LLL environment begets a downward push on returns. Public
markets were flat (except top tech stocks) for most of 2023, and
interest rates were running high, creating a competitive
environment for VC investments. Slowdowns in public markets
pushed down the valuations of startups. Consequently, VCs
started seeking lower price points for entry into startups.
Nevertheless, the startup environment wasn’t the only one to
suffer in 2023. Plus, we shouldn’t look at 2023 as one year but
rather as a phase in a long-drawn change spanning multiple years.
For some of those changes, 2023 represented a culmination (like
COVID-19); for others, it’s just a start (like AI-boom), and yet, for
others, it’s in the middle of a prolonged change (like geopolitics-
based restructuring).
Investors typically pause when the external market environment is
incomprehensible. VCs were no different in 2023, and there were
many reasons for them to pause or to slow down. Despite the
pause, the pace of global transformation, fueled by tech progress
in both the ‘atoms’ and ‘bits’ sectors, is still strong.
This LLL environment, in the end, is likely to benefit the larger
ecosystem. The argument lies in the theory of ‘booms and busts.’
Without going into the nuances, the ecosystem needed a reset,
and 2023 provided just the same. Moving into 2024, I’m sure we
have adapted to the realities and will scale up energetically in a
newer set of circumstances.
About

IMAGE FROM DALL E
Here is an image that reflects the 2023 market environment characterized by lower
startup valuations. This scene captures various aspects of the challenge, including the
downturn in unicorn formation, portfolio write-downs, down rounds, startup closures,
difficulties faced by startups in graduating to the next level, limited capital runway, and
the complex journey towards a public IPO. The setting is a startup ecosystem,
portraying both the struggles and the perseverance required in such a market.
SECTION
STARTUP VALUATIONS &
PERFORMANCE
7

Index
• Valuations data
• Summary
• AngelList
• Carta
• CB Insights
• KPMG
• PitchBook
• Private markets are lagged mirror image
• Unicorns
• Summary
• Unicorn formation
• Unicorpses
• Private unicorn to public IPO journey
• Early stage strength
• Summary
• Seed stage growth is undeniable
• There is a caveat to Seed stage growth
• Performance
• Summary
• Startup closures are trending higher
• Investors are getting selective
• Returning capital is Ok
• Startups getting stuck at Seed
• Startup graduation to remain impacted for months
• Taking cue from public markets
• Is there a performance power law?
• Markups
• VC portfolio write downs
• Down rounds hit 10 year high
• Down rounds prominent at growth stage
• Down rounds aren’t that bad
8
SECTION - VALUATIONS & PERFORMANCE

SECTION - VALUATIONS & PERFORMANCE | DATA
Summary - Valuations data*
9
Valuations data from different providers may have differences. Hence, one can build varying opinions.
2023 was a year of humbleness
• The deflation of the VC bubble was bound to happen following
the period of plentiful market liquidity during the ultra-low
interest rate phase after the Great Financial Crisis.
• With increasing interest rates and a more challenging IPO
market, startup valuations have been impacted substantially.
Early stage has been more robust in 2023
• At Seed stage, valuations have either been stable or have
trended upwards (depending on geography, and other
variables).
• This early stage valuation surprise is driven in part by (a) Principal
Power: participation of large (multistage) investors fishing for
future unicorn startups upstream and inflating valuations in a
bidding war, and (b) Supply: formation of more early stage VC
funds.
• Nevertheless, early stage deal counts have also fallen
significantly, in unison with late stage.
Late stage valuations were most impacted
• Late stage saw the biggest valuation downfall in early 2023. Deal
count also declined drastically.
• The sharper decline in late stage can be attributed to - weak IPO
market, weak equity markets leading to less buying power,
extended duration of VC investments (making them more
vulnerable to interest rate fluctuations), and ZIRP aftermath (easy
capital availability pushing startups into late stage, without
translating into correct fundamentals).
• After seeing their lowest levels, late stage valuations might finally
be showing signs of recovery in Q4.
Uptick in the market activity
• Investors are re-entering the market due to the lower cost of
investment (lower valuations and more VC buying power).
• Many investors believe the bottom is behind them and the likely
scenario ahead is a road to recovery in deal-making.
• Signs of this change can be seen in the valuations data, which
has trended higher on a QoQ basis.
• Private markets are generally a lagged mirror image of public
markets. Hence, it is likely that the public market rebound might
be reflected in the startup sector in mid-2024.
• In the U.S., elections will also dictate the flow of confidence.

AngelList data
Average valuation data differs from our median valuation data
10
Average valuations declined at every stage, except the early stage (Pre-seed) and the dispersion of late stage valuations is quite high
Data focus is U.S. Pre-seed is an investment round that is secured pre-product market fit and pre-revenue. For a detailed understanding check - HERE and HERE.

Carta data
• At Series B, Series C, and Series D, median pre-money valuations and deal count have declined
roughly in unison over past two years.
• At seed and Series A, however, things look quite different. There, valuations have actually
trended up since Q1 2021, while round count has fallen signi
fi
cantly.
• The pairing of decreasing deal count with sharply falling valuations tells one story: Late stage
investors are
fi
nding fewer attractive companies to back, and few (if any) companies are immune
from the realities of a valuation reset.
11
Data is U.S. focused
Median pre-money valuations and deal count have declined roughly in unison over past two years, except at Seed stage

CB Insights data
• Tech valuations bounced back in Q3’23, with each stage
experiencing a quarter-over-quarter (QoQ) increase in
median valuation.
• The valuation uptick was particularly strong for Series C and D+
startups, which saw their median valuations jump 54% and 43%
QoQ, respectively.
• Valuations for seed/angel rounds were only down 11% year-
over-year and Series A contracted just 5%.
• Mid- and late-stage valuations were less resilient with YoY
declines of between 33% to 42%.
Tech Valuations Q3’23 Report
Tech Valuations Q1’23 Report
12
2023 started on a bad note with YoY valuation change taking big hits. Though recently in Q3, it looks like valuations are
improving (based on QoQ data).

KPMG data
U.S. and Europe present a different picture at the late stage valuations. Decreasing late-stage valuation in the U.S. and increasing in
Europe.
13
Data is Europe focused

PitchBook data
14
U.S. vs. Europe data shows a huge dispersion within early-stage deal valuations levels (bw. top and bottom quartile)
Data is Europe focused

Private market = Public market’s lagged mirror image
Private markets roughly follow the performance of public
markets - by a few quarters.
15
• The public market rebounded in early 2023, even as the
venture market continued to slump.
• According to AngelList data, there's no immediate correlation
between the public market and the private market.
• However, AngelList data suggests there is a positive
correlation between lagged public markets (9-18 months)
and the private market.
• This lagged correlation suggests the venture market will
continue to slump in 2023, even if the public markets
rebound.
VC performance is more extreme on both positive and
negative side.

Summary - Unicorns
16
SECTION - VALUATIONS & PERFORMANCE | UNICORNS
Unicorn formation impacted
• 2023, a challenging year, massively pushed down the unicorn
creation rate.
Big valuation changes aren’t re
fl
ected yet
• Upon analysing and applying public market metrics to private
market unicorns, a valuation gap appears.
• Private valuations, being more subjective in nature, have yet to
reflect the complete macro + public markets impact on the
startup ecosystem.
Private unicorn to public IPO journey
• A significant gap has developed between the number of
unicorns (with a valuation between USD 1-3 billion) in private
and public markets.
• All the private market unicorns won't be able to IPO in 2024, and
M&A isn't going to be an option for many of them - suggesting a
tough time in 2024 if nothing substantial changes in the macro
environment.

Unicorn formation
2023 being a tough year pushed down unicorn creation massively
17
Data focus is Global

Unicorpses
• Chart from MorganStanley showing how much the herd might be worth today if we applied the
Nasdaq's derating to unicorn valuations.
• Much of this correction might not be re
fl
ected in private markets.
Will we see more unicorpses than unicorns in the coming quarters?
18

Private unicorn to public IPO journey
The public markets won't support 1000+ software company IPOs at $1B+ valuations,
and M&A isn't going to pick up all the leftovers. There's just too many.
19
Public markets won't support 1000+ startup IPOs at $1B+ valuations.

Summary - Early stage strength
20
SECTION - VALUATIONS & PERFORMANCE | EARLY STAGE
Early stage growth in the last years is undeniable
• Seed stage VC funding has grown dramatically over the past
decade.
• Several factors have led to this scenario - ease of building a
startup, tech talent moving out of established startups to start
their own company, growing presence of accelerators/
incubators, the advent of crowdfunding, the rise of Seed stage
VC funds, multi-stage VC funds moving in early stages, direct
investing from Family Offices, Super Angels, CVC participation,
and more.
There is a caveat to early stage growth
• Large/multi-stage investors have increasingly embraced early
stage investments.
• From 2010 to 2022, the number of large investors participating
in the Seed stage more than doubled.
• Large/multi-stage investor’s participation has impacted the deal
metrics.
• Despite the slowing participation of large/multi-stage investors
in Seed in 2023, Seed deal metrics (like valuation) have remained
high due to the growing Pre-seed market, the plethora of smaller
VC funds closed in recent years, higher competition, and more.
• This leaves the early stage deal market at unsustainable levels.

Seed stage growth is undeniable
• Several factors, including the emergence of a pre-seed market, the growing presence of accelerators and incubators, as well as the
advent of crowdfunding, have greased the entrepreneurial flywheel and supported the seed stage’s growth.
• As costs to create and run a startup have fallen, the minting of new entrepreneurs and startups has become easier.
• The increasing number of funding sources and investor interest in backing the most nascent startups further contributed to the
seed stage’s growth, such that the annual seed deal count grew from 859 deals in 2010 to 5,580 deals in 2022.
21
Data focus is U.S.

There is a caveat to Seed stage growth
Large-investor pullback leaves seed at unsustainable levels
• Large investors have increasingly embraced seed-stage investments.
• From 2010 to 2022, the number of large investors participating in seed more than doubled
• Large investors participation impacts on the deal metrics.
• Despite the slowing participation of large investors in seed, seed deal metrics have remained
high due to the growing pre-seed market and the plethora of smaller VC funds closed in recent
years. The short-lived overexuberance of large-investor involvement in seed has left smaller
investors having to pick up the check.
22

Summary - Startup performance / 1
23
SECTION - VALUATIONS & PERFORMANCE | STARTUP PERFORMANCE
Startup closures
• Startup closures were trending higher in 2023.
• In the U.S., about half of the startups that closed did so without
raising any VC rounds.
• Investors are getting selective and aren’t running to save all
startups in their portfolios. They are betting on the best ones or
which, according to them, have highest probability of
succeeding.
Startups getting stuck at Seed
• Startup graduation rate from Seed to Series-A has dropped
dramatically from 2020 cohort to 2022 cohort.
• Situation is likely to remain impacted for the coming quarters.
• This lower graduation rate is a reflection of startups delaying
their fundraising efforts until market improves, or it could be
fewer companies are reaching Series-A milestones – or both.
• However, critical point to note is that graduation rate differs by
startups’s sector.
Taking cues from performance of public markets
• Metrics like ARR multiples (a common valuation metric for SaaS)
have trended downward dramatically for public SaaS companies
and is now hovering at the bottommost level seen in the past 8
years.
• In such a scenario, it isn't easy to justify higher valuations for
startups (private assets).
Is there a performance power Law?
• A cohort of exits often drives portfolio value creation in
enterprise tech, while large, individual exits generally drive value
creation in consumer tech
• Billion-dollar enterprise exits can occur in both up and down
markets.
• For consumer companies to outperform, they must exit through
IPO, and in a favorable IPO market.

Summary - Startup performance / 2
24
VC portfolio write-downs
• Many VCs couldn’t help but slash valuations of startups in their
holdings.
• Older funds, established over a decade ago, also felt the pinch.
• However, a tougher discussion point is why level of decrease in
VC portfolios hasn’t been the same across the board.
Down rounds were the talk of the VC world
• Looking back 5+ years, percentage of down rounds exceeded
15% for the first time in 2023.
• Erosion of value creation between rounds continues to pose a
significant challenge.
• True depth of the down round issues is unknown as reporting is
often delayed, and startups are not obligated to publicly
disclose a round's valuation.
• Median decline of valuation in down rounds is highest in late
stage deals.
Maybe down rounds aren’t that bad
• Down round might not be as strong of a negative signal as many
perceive it to be.
• Even after a recap, a startup can become a successful
investment. This is critical as there is still a huge interest in
startups (with all the learnings, product efficiency, and refined
go-to-market strategy) with significantly revised pricing.
• Nevertheless, investors still consider down rounds highly critical,
especially in high growth-oriented verticals.
Markups
• Markups can predict the outcome of a venture investment on a
short time horizon.
• 18 months after closing, a Series A investment that hasn’t been
marked up yet is more likely to never be marked up.
• In contrast to 2023’s market environment, where most startups
valuations are down and down-rounds were high, some VC funds
have marked up their portfolio.

Startup closures are trending higher
• About half of the startups that closed shop did so without raising any VC rounds. The other half had at
least one priced round in their history.
• Within the cohort that had raised from VCs, 90% of the shutdown were either Seed or Series A startups.
25
Data focus is U.S.

Investors are getting selective
Startups Current Situation: Companies funded during the last
few years that didn’t accomplish their necessary milestones for
incremental capital, exacerbated by a challenging environment
that decreases the chances of a bridge round, leaves some of
their current investors without new funds to deploy, and (most
annoyingly to founders) moving goalposts on what they’re
supposed to achieve.
26
• Many good businesses might be failing because they are relying on
the wrong source of capital and operational help to make it through
this cycle.
• The venture-scale power law investment model is not designed
to continue backing businesses that are "chugging along”
In 2023, investors were razor focused on supporting selective top performing startups with capital

Returning capital is Ok
• Some founders even find themselves in tricky situations as their VCs propose
shutting the company down and returning capital to investors.
• Founders, if your startup is not progressing to your expectations or if you don’t
have the same passion as you had before, it is totally okay to
fi
nd a way out.
• It is important to remember that startups are inherently risky. Returning any capital
back to investors is not necessarily a negative outcome. It can be a choice that
allows you to reset and refocus.
27
In 2023, we were living in a regime where returning money back to capital providers (VCs or LPs) was OK

Startups getting stuck at Seed
• The percentage of companies who make it from seed to
Series A within two years fell by a lot for the 2021 seed
cohort.
• 27.5% of companies that raised a seed round in 2019
made it to Series A within 2 years.
• Only 17.6% of companies who raised their seed in
2021 have "graduated" to the next round.
• Graduation rate differs by sector. Hardest hit in 2021
cohort was FinTech. Smaller drops for Hardware,
Consumer, and Healthtech.
Not only that startups are getting stuck at Seed, graduation rates have marked differences based on sectors
28

Startup graduation to remain impacted for months
• 2020: 23% of Seed-stage startups made it to Series-A within
two years
• 2022: 5% of Seed stage companies have raised Series-A capital
after 20 months
• Lower rate re
fl
ection of companies delaying their fundraising
efforts until a later market entry, or it could be fewer
companies are reaching Series-A milestones – or both.
• Measured graduation rates will continue to fall
for several quarters as companies go out for and
fail to raise Series A rounds.
• One other byproduct of lower Series A deal volume
and lower graduation rates will be less bridging
and extending by seed funds.
Graduation rates remain low for the 2022 cohort Graduation rates likely to be low for multiple quarters
29

Taking cue from public markets
The current median multiple is 7.3x, below the pre-COVID median of 8.8x but down 69% from the 2021 high of 23.4x.
ARR multiples (a common valuation metric for SaaS) has trended downward dramatically for public SaaS companies
30

Is there a performance power law?
• Portfolio value creation in enterprise tech is often driven by a cohort of exits, while value creation in consumer tech is
generally driven by large, individual exits.
• Billion-dollar enterprise exits can occur in both up and down markets as enterprise companies’ consistency of
outperformance comes from both IPOs and large M&A to PE and corporations (hat tip Figma).
• In contrast, it’s our observation that for consumer companies to outperform, they must not only exit through IPO, but
also in a favorable IPO market.
The Power of Power Laws – Which Investments Generate the Greatest Venture Returns: Enterprise or Consumer?
31

Markups
The VC
fi
rm marked up 15 of the 19 funds with vintage
years 2018 and later by 9.2% on average over the 12
months ended June 20, according to a University of
California investments report.
How markups can predict the outcome of a venture investment
on a short time horizon?
Some VC funds marked up their portfolios
• 18 months after closing, a Series A investment that hasn’t been
marked up yet is more likely to never be marked up than to be
marked up.
• Seed investments, because of their higher baseline rate of
failure, cross this threshold even faster—at just 12 months.
32

VC portfolio write-downs
Many VCs couldn’t help but slash valuations of startups
in their holdings
• The trend is widespread, with nearly all funds reporting
a decrease in the value of their holdings over the past
year. Though it’s a little surprising that it has not plunged
more, it’s likely in the quarters since stakes have plunged
further in value.
• Older funds, established over a decade ago, are also
feeling the pinch from the economic downturn.
33
• Bill Gurley shared that both VCs and LPs aren’t marking
down their portfolios. For GPs, in
fl
ated numbers helps
you raise the next fund. For LPs, they’re given their
“bonus on paper marks. So, they don’t have an incentive
to dial around to their GPs and say, ‘Get their marks
right.’ ‘Cause it’s actually going to reflect poorly on them if
they were to roll those up.”
• Mark-downs of prior vintages are starting to occur but
will take some time given valuation and reporting lags.
• But until folks go back to market, there are many who
won’t jump the gun in writing down their portfolio.
On other side, some investors say markdowns aren’t
happening enough

Down rounds hit 10 year high
• 17% of all deals in Q3 were down rounds, the highest
percentage in a decade.
• The erosion of value creation between rounds continues to
pose a significant challenge for startups and their investors
Reporting of down rounds is often delayed, and
private venture-backed companies are not obligated
to publicly disclose a round's valuation.
34
Rate of down rounds is at a decade high, but it still isn’t GFC level high. Can things get worse?

Down rounds more prominent at growth stage
Down rounds, as a percentage, were higher in 2023
as compared to 2022
Looking back 5+ years, percentage of down rounds exceeded
15% for the
fi
rst time in 2023
• 19% of venture rounds are down rounds in 2023. That's up from
only 5% down rounds in 2021.
• Down rounds are seeing companies take significant haircuts vs
the prior valuation (anywhere from 30-60% drops).
35

Down rounds aren’t that bad
Down round isn’t a negative signal as many perceive it to be Even after a recap, a startup can be a successful investment
36

IMAGE FROM DALL E
Here is an image depicting the challenging fundraising
environment for startups in 2023. It captures the struggles of a
founder working alone in a modest office, surrounded by
plans and financial strategies, highlighting the intense focus
and determination required in such a challenging scenario.
SECTION
STARTUP FUNDRAISING
37

Index - Startup Fundraising
• Startup Fundraising Data
• Summary
• Crunchbase data
• EY data
• Dealroom data
• European context
• U.S. investor participation in global activity
• Role of startup industry in fundraising
• Capital demand remains high across stages
• Insider rounds data
• What are investors thinking about insider rounds
• Round sizes fall faster than valuations
• Fundraising round sizes
• Seed deal dynamics
• Mega rounds
• Easier to raise lower amounts
• Decreasing deal cadence
• Time since last fundraise
• Pre-Seed deal activity
• Deal Dynamics
• Summary
• Age of investor friendliness
• Fewer predatory VC deals?
• Equity acquired
• Deal specifics
• SAFE’s
• Are SAFE’s safe?
• Pro-rata’s
• Liquidation preference
• Convertibles
• Cumulative dividends
• Governance
• Runway
• What it takes to raise capital?
• Raise less, build more
• Is VC capital the best fit for a startup?
38
SECTION - STARTUP FUNDRAISING

Summary - Startup fundraising data
39
SECTION - STARTUP FUNDRAISING | DATA
Startup fundraising saw a dramatic slowdown in 2023
• Breakneck pace of fundraising observed in 2021 turned upside-
down in 2023.
• Many investors voiced concerns that funding levels in 2021
weren't healthy for the industry.
• First half of 2023 turned out to be one of the slowest periods for
early-stage investment activity in a decade.
• GPs have adjusted their deployment pace to align with historical
norms and macro conditions.
• U.S. investor's participation in global startup fundraising showed
a significant fall in 2023.
Fundraising shouldn’t be put in one bucket
• While supply and demand of capital have increased, demand
has increased significantly relative to the supply of capital -
especially in the late stage.
• Fundraising also varies based on the startup’s sector. Example:
capital-intensive BioTech startups raised at relatively valuation
caps, but only a few of them got funded.
• W.r.t round sizes, late stage saw the maximum negative impact.
Meanwhile, for Seed, it increased slightly. Mega rounds almost
disappeared, except specific sectors like AI.
• W.r.t geographies, the European share of global startup
fundraising has risen consistently in the last decade.
• European fundraising round sizes have been tracking and
catching the U.S.
New VC investments take a hit
• Insider rounds became so common in 2023 that follow-on
funding and bridge rounds dominated dealmaking.
• VCs are channeling investments into their current portfolio’s
best-performing startups through extensions, bridges, or insider-
priced funding rounds. Hence, ‘new’ investments from VCs have
taken a hit.
Alternative fundraising metrics were also abysmal
• In 2023, mega rounds were also low compared with 2021 and
2022.
• Time gap: Median years since last funding has edged higher
across stages.
• Lower investment cadence: Average fund velocity declined from
3-4 deals to under two deals per quarter in H1 2023 in certain
regions.

Crunchbase - Investment data
• Funding in October 2023 was less than one-third the monthly
totals during the peak months of 2021.
• Late stage funding was up 30% quarter over quarter and
almost 10% year over year, totaling $43 billion.
• Large fundings went to companies in the semiconductor,
sustainability and AI sectors.
• Much of this increase is visible in outside of North America.
• In Europe, late stage funding doubled quarter over quarter and
was up 20% year over year with large funding deals in energy and
manufacturing.
40

EY - Investment data
• VC-backed companies raised $29.8 billion in Q3 2023, flat from the $29.9 billion raised in Q2 2023.
VC investment trends Q3
41
Data focus is U.S.

Dealroom - Investment data
42
The rise is mostly due to a few large Mega+ rounds in climate tech: Northvolt, H2 Green Steel, Zenobe Energy, Verkor.
Uptick in investments in Q3 in Europe due to mega rounds
Data focus is Europe

European context
VCs slowed dealing making as compared with previous years
43
Europe’s share in global VC investment is rising

U.S. investor participation in global activity
U.S. investor's participation in global startup fundraising showed signi
fi
cant fall in 2023
44
U.S. investors have consistently increased their participation in global startup investment. But in 2023, due to
difficult market, they took a step back.
Geopolitical tensions have also led to a reduction in deals in certain countries, including China, following the
Biden administration's executive order restricting new American investments in certain technology sectors.

Role of industry in fundraising
45
SaaS is middle of the pack in valuation terms and total capital
raised, but by far the biggest category.
FinTech saw the biggest drop from 2021 to 2023. Energy
investments gained the most.
Data focus is U.S.

Capital demand remains high across stages
While both supply and demand of capital have increased, demand has increased significantly relative
to supply of capital. In the later stage, capital demand has outstripped supply the most of all stages.
46

Insider rounds data
• Insider-led rounds have become very common during the downturn and that, in most
cases, existing backers are offering companies better terms than new investors.
• Follow-on funding dominates dealmaking, accounting for a record 69% of overall VC
deal count so far this year.
• Investors are turning their attention to their best-performing investments, making pro-rata
rights an attractive term.
Insider rounds are at an all time high
47

What are investors thinking about insider rounds
Are existing investors actually willing to participate in
insider rounds?
Are insider rounds - Good or Bad?
VCs have already gone through portfolio and put their
portfolio companies in three buckets:
1) no more investment going forward
2) maybe more money depending on metrics/valuation
3) yes, more $ available
How can inside-led rounds bene
fi
t startups?
• Taking capital from existing investors eliminates the need to
spend time and energy doing “price discovery.”
• Another perk of inside-led rounds is that founders can
sometimes demand a higher valuation than they may have
otherwise earned.
• Finally, if you have a good relationship with your existing
investors, it can reduce the risks you might face with “the
devil you don’t know.”
48

Round sizes fell faster than valuations
49
• At Series B, Series C, and Series D, median pre-money valuations and deal count have declined
roughly in unison over the past two years.
• At seed and Series A, however, things look quite different. There, valuations have actually
trended up since Q1 2021, while round count has fallen signi
fi
cantly.
Seed is the only stage where valuation increased higher, as a %, than cash raised meaning low equity granted to VCs.
Whereas all other stages, this was reversed.
Data focus is U.S.

Fundraising round sizes
50
Q1 Fundraising
fi
gures
Q3 Fundraising
fi
gures
Late stage saw the maximum negative impact w.r.t
peak on the round sizes at the beginning of 2023
Seed stage edged up in terms of deal size since Q1 2023
Data focus is U.S.

Seed deal size dynamics
• It seems like Seed stage never had any problems.
• Though caution is warranted. Although the round size
increased, the number of deals happening at Seed decreased.
Meaning, only best ideas/teams were getting funded.
51
Seed deal sizes have trended upwards in longer term European round sizes have been tracking and catching the U.S.

Mega rounds
In 2023, mega rounds almost disappeared, except when it was about AI startups
• Mega-round investment in Q3 remained flat in deal volume,
while dollars invested increased by 17%.
• Since late August, three transactions surpassed the billion-
dollar mark: arti
fi
cial intelligence (AI), battery recycling and
autonomous trucking.
• We can see the change the redistribution of dollars between
early stage and growth-stage; all the while Series-B and -C
remains at the same levels (as a percentage)
52
Data focus is U.S.

Easier to raise lower amounts?
• W.r.t SAFE’s raising lower amounts of capital showed up in numbers. This
could be due to make laid-off tech people raising their first check for the
startups they just founded.
• Bigger test is if next year the number of startups raising priced rounds
increases. It could well be a very positive signal.
53
Data focus is U.S.

Decreasing deal cadence
54
The pace of new investments slowed significantly: Average fund velocity declined from 3-4 deals per
quarter between 1Q18 and 4Q22 to under 2 deals per quarter in the first half of 2023.
Data focus is U.S.
The pace of new investments slowed signi
fi
cantly

Time since last fundraise
• Another metric to showcase the difficult fundraising environment of 2023
55
Data focus is U.S.
Median years since last funding has edged higher across different stages, since last two years

Pre-Seed deal activity
• The global pre-seed universe grew consistently during the past decade, particularly in the US and Europe.
• This increased popularity can be attributed to a variety of factors, most prominently a quest for greater alpha and
the goal of developing regional entrepreneurial ecosystems.
56
Data focus is U.S. Pre-seed is an investment round that is secured pre-product market fit and pre-revenue. For a detailed understanding check - HERE and HERE.

Summary - Deal dynamics
57
SECTION - STARTUP FUNDRAISING | DEAL DYNAMICS
Age of investor friendliness
• The long term decrease in investor friendliness took a U-turn in
Q1. Markets majorly were ruled by investors.
• As the year is coming to an end, the decrease in predatory deals
is visible.
• Investors are still demanding more startup equity at growth
stages than before.
Deal Speci
fi
cs
• Startups were having more difficulty getting priced rounds done.
Hence, the use of SAFEs edged higher.
• On the one hand, SAFEs could bridge the funding gaps, but on
the other hand, they have essentially become less founder-
friendly.
• Pro-rata’s became increasingly non-negotiable amid a more
investor-friendly environment.
• Demand for liquidation preferences is making dealmaking a
more complicated topic in 2023.
• Governance will become a key topic in 2024, given the negative
startup cases this year (like OpenAI).
De
fi
nition of what it takes to do successful fundraising has
changed
• Due the dwindling runway, a substantial number of startups will
have to raise in 2024, creating a make-or-break scenario.
• Investors will concentrate on significant milestones/KPIs
accomplished. Definitions of those KPIs have also changed.
• The focus has shifted to back quality founders. It’s not just about
team setup, pedigree, or traction; but it’s also about being a
founder who can turn capital into demonstrable progress.
• Startups that are barely hanging on will find fewer suitors.
Raising less and building more could easily become a mantra.
Is VC capital the best
fi
t for a startup?
• Traditional venture capital cycles might not be the best fit for
certain categories of startups. A newer approach to fundraising is
required - either via. niche funds or new structures of funding.
• It isn’t an easy thought, but founders must consider whether
their fundraising strategy and business outcomes align well with
the VC strategy of power law and delivering >10X outcomes.

Age of investor friendliness
The long term decrease in investor friendliness has taken a u-turn recently
• From 2010 to 2015, late stage deals were markedly more investor friendly than early stage deals, but since 2015, terms
and deal characteristics converged and we saw a race to startup friendliness at all stages after midyear 2020.
• This trend has sharply reversed starting in 2022, largely driven by the expected demand for capital from startups
seeking additional funding after having raised large rounds over the prior two years.
58

Fewer predatory VC deals?
• Liquidation preferences: Liquidation preferences give a shareholder the right to be paid out
first if the company liquidates or is sold, often at a specific multiple of their original investment
• Participating preferred stock: Holders of participating preferred shares are first in line to be
paid out if a liquidity event occurs.
59
As 2023 progressed, the percentage of predatory deal aspects also decreased
Data focus is U.S.

Equity acquired
PitchBook Data
As investors have regained the upper hand in the negotiations
with late stage companies, they are also taking larger equity
stakes in the companies they are backing.
• Median dilution in venture rounds—calculated as round size
divided by pre-money valuation—ticked down at seed,
Series A, and Series C, and it inched up at Series B and
Series D.
• In general, a lower dilution rate is friendly to founders
because it means they are retaining a larger share of
their company’s equity.
Carta Data
60
Data focus is U.S.

Deal speci
fi
cs - SAFE’s
In Q1, 2023
• 88% of SAFEs raised so far in 2023 have a valuation cap
• 51% of them have a discount
• 41% have both a val cap and a discount
• Caution founders that the trend of raising 3 or 4 or even 5
separate SAFE rounds (defined by SAFEs with different
valuation caps) may seem like a great way to bring in bits of
cash along the way—but watch out for dilution!
61
Data focus is U.S.

Deal speci
fi
cs - Are SAFE’s safe?
• Startups are having more difficulty getting priced rounds done
• SAFEs could take the form of a bridge round.
• But they have essentially become less founder-friendly.
• With no maturity date or liquidation preference, there's no
guarantee that investors will get their money back if the
startup can't raise follow-on funding—plus, there's no
interest paid over the term of the SAFE.
• The risk isn't priced
• Cash Runway
• Governance
• SAFE is anything but safe
62

Deal speci
fi
cs - Pro-rata’s
• Pro-rata’s - Increasingly becoming non-negotiable
amid a more investor-friendly environment. 78% of
VC firms (400) said - not flexible on the topic, in a
survey
• If a company is doing well, new investors
demanding a minimum amount of ownership
could be deterred if all existing investors
exercise their pro-rata rights.
• It is conceivable that if an investor is already
guaranteed participation in a future deal, there
is less of an incentive to try and add value.
How effective are pro-rata’s? Euro VCs survey data shows that they care about pro-rata rights the most
63

Deal speci
fi
cs - Liquidation preference
• Deals negotiated with seniority or tiered liquidation
structures gained share across every stage from Series A
to Series D+ in H1’23.
• Close to two-thirds (65%) of late-stage deals in the US
used senior or tiered liquidation structures in Q3’23.
• This is highest level in over 4 years as investors look to
insulate themselves from downside risk.
• Complications involve liquidation preferences for
different share classes—seed, Series A, B and C, and
so on.
• Senior shares are at the top of the liquidation
preference stack and should be worth more.
• Various share classes may now root for competing
outcomes as portfolio companies seek liquidity or new
rounds of financing.
64
Investors are demanding liquidation structures into the deals for downside protection

Deal speci
fi
cs - Convertibles
• Convertible rounds typically raise less capital than priced rounds. But they offer
companies a way to extend their financial runway without raising a down round.
65
Even more than SAFE’s, convertibles were instrument of choice in late-stage deals.
Data focus is U.S.

Deal speci
fi
cs - Cumulative dividends
PitchBook Data
Cumulative dividends, another investor-friendly
term that means unpaid dividends accrue over
time, are also on the rise, jumping from roughly
20% to 26% between 2022 and Q1 2023,
according to PitchBook data.
66
Data focus is U.S.

Deal speci
fi
cs - Governance
67
Governance will become a key topic moving forward in 2024 given the negative startup cases this year.
FTX's implosion and OpenAI's recent saga—which caught investors by surprise when OpenAI CEO Sam Altman was
suddenly ousted without them being notified—reminded VCs and their limited partners why governance matters.
Relinquishing board seats
• Investors, whose primary concern was getting into competitive rounds, used their smaller ownership in each
portfolio company as justification for skimping on governance
• Another excuse for forfeiting board seats was investors' overcommitment to other companies.
Cautionary tales of poor startup governance—from Theranos to WeWork to Uber—often prompt calls for
investors to take oversight more seriously.

Runway
Majority of startups will have to raise in 2024
• 57% of venture-backed startups have fewer than 18
months of runway remaining.
• Well over half of these companies will need to fundraise by
mid-2024.
• In the next 12 months, only 46% of US VC-backed
tech companies must raise — which is lower than
historical pre-pandemic levels.
• Founders face depleting runway and few options
to replenish it.
Dwindling runway across the industry
68

What it takes to raise capital? - 1
Startups should track alternative metrics other than growth to showcase a solid case for
fundraising, especially at later stage
69
Growth is not enough for capital raising
This graph is based on an individual investor’s perception. Different investors will likely have different opinions on startup metrics and what it takes to fundraise.

• The muted late stage funding and exit environments have
left investors with few data points and examples of how to
price companies — and that now affects the Series A stage,
too.
• Series A investors are still taking longer to do due diligence,
are more focused on the metrics, and are looking to participate
in rounds at reasonable valuations.
• Plus, no one wants to back a company that has made so
many cost-cutting measures that they are barely hanging
on.
From Seed To Series-A Founders should follow playbooks or blueprints published by
VCs to set them up for success
70

Does being different matter in startup fundraising? Does TAM, SAM, or SOM play in fundraising?
• VCs don’t actually care about market size, they care about exit size
• Two factors affect whether $Xbn is a large enough market for a
venture scale outcome 1) the startups’ margin profile and 2) how
plausible it is for the company to achieve significant market share.
71
It might have been easier to do fundraising as a serial
entrepreneur
Does treating VC capital as an exception, create a better
understanding for the current market?

Raise less, build more
• Average startup today has 5x more VC
capital available than its counterpart did in
2013
• Do today’s startups need more money? Well,
no. The main driver of a startup’s burn is
salaries. Salaries over time have increased,
but not by 5x. Even the new increased
infrastructure costs with AI will ultimately come
down as companies scale and the industry
matures. None of this justifies the rate and
breadth of this capital increase from VCs.
72
Data focus is U.S.

fi
t for a startup? / 1
• It isn’t an easy thought, but founders need to think whether
their fundraising strategy and business outcomes align well
with the VC strategy of power law and delivering >10X
outcomes.
• Once founders have taken VC capital, they will be judged
quarterly on VC’s scale of ‘what a startup should look like’. It’s a
high bar and founders should be prepared for it.
73
• Finding money to develop the product is indeed the
Catch-22 of startups, especially hardtech startups that
require a lot of time and money to create.
• Let’s look at - how many of the biggest innovations of our era
were funded by venture capital.
Venture capital only works for speci
fi
c types of
businesses at a particular stage
Founders should think from the perspective of what VC
return entails, before accepting the capital

74
• In the venture capital world, startups are frequently asked
about their funding stage.
• In climate tech, these de
fi
nitions are not exactly
straightforward.
• But in climate tech, research and development are often
funded much earlier, at the university level, so that by the
time outside funding is sought, the necessary technology is
already far ahead of traditional startups at the same stage.
• Climate tech is a new asset class that requires everyone
involved, founders and investors alike, to think outside
the box.
• Not all startups follow traditional paths to readiness, so it
helps to develop new ways to discuss these new
technologies.
• Founders who choose not to pursue VC investment in Europe
say they are looking for investors who have longer investment
horizons than VCs, who are governed by 10-year fund
lifecycles.
• That’s especially important in capital intensive businesses.
fi
t for a startup? / 2

IMAGE FROM DALL E
Here is an image that illustrates the 2023 startup exit environment, highlighting the
slowdown and various challenges. The scene, set in a financial district, captures the
concerns of startup founders and financial analysts over the slowdown in exits, the
underwhelming performance of past IPOs, the mixed outcomes of 2023 startup IPOs,
and the mismatch in expectations between buyers and sellers in tech M&A. This visual
conveys the caution and complexity that marked the startup exit landscape during this
period.
SECTION
STARTUP EXITS
75

Index - Startup exits
• Summary
• Exit data
• Exit slowdown
• How are exits happening?
• What about exit valuations?
• IPO
• Startup IPOs
• What it takes to IPO?
• Past tech IPO performance
• IPO backlog buildup
• Is IPO window about to open up?
• Is IPO revival coming soon?
• Tech M&A
• Global VC-backed tech M&A
• US VC-backed tech M&A
• Mismatch in exceptions?
• Acquisitions demystified
• Consolidation is upon us
• Buyouts
• Small tech buyout is a growing niche
• Blurring lines between PE & VC
• (Semi) Distressed sales or divestitures
• Secondary markets
• Who are the buyers?
• What are buyers purchasing?
• Who are the sellers?
• Secondary market performance
• VC secondaries see weakest performance
• Secondary market spooks
76
SECTION - STARTUP EXITS

Summary - Startup exits / 1
77
VC exits have slowed down dramatically
• After an exceptional exit environment in 2021, startup exits have
slowed down dramatically. This has dampened the startup
ecosystem mood and actual returns to VC firms and LPs.
• Without a healthy exit environment, it is unlikely that the whole
ecosystem can fully recover.
Market environment isn’t supportive of exits
• Declining economic conditions have continued to challenge the
late stage venture market.
• High-interest rate, geo-political tensions, and subdued public
markets (beyond top stocks) - has impacted the mood.
• Valuation step-ups of companies being acquired or going public
have fallen to or near a 10-year low.
IPOs have dried up
• Although startup exits also happen via M&As and Buyouts, the
most substantive form of liquidity comes from IPOs.
• KPIs required for an IPO have changed, and investors are now
focused on profitability and efficiency.
• Pressure continues to build in the venture’s late stage, with the
IPO window shuttered.
Recent IPOs were a mixed bag
• Three IPOs in September 2023 (Instacart, Arm, and Klaviyo) have
reignited optimism, and investors have started deciphering
market trends and signals.
• While these much-anticipated three IPOs boosted exit values,
they had a lukewarm reception afterward.
2024 - the year of opening up?
• An IPO stack is building up for the companies with the potential
to go public in 2024. However, some investors might be advised
to hold off until there is more stability in interest rates
• Startups considering an IPO might delay their market debut until
tech-growth stocks receive more favorable valuations in public
markets.

Summary - Startup exits / 2
78
M&A markets
• M&A and Buyouts have also been subdued this year. A drop in
the share price of public tech firms and higher interest rates led
to less appetite for strategic acquisitions.
• Acquisitions are skewing smaller, as smaller deals tend to occur
during periods of uncertainty. The total value of acquisitions of
VC-backed companies is on track to reach the lowest annual
level in a decade.
• Big tech acquisitions are declining as regulatory pressure
increases.
• Bigger companies acquiring smaller startups was by far the most
active category in 2023.
Buyouts, distressed sales, and divestitures
• Small tech buyouts are a growing niche, and VC firms are
exploring buyouts as a strategy.
• Buyout strategy is inherently opportunistic, and taking
advantage of current headwinds makes sense.
• 2023 saw a string of divestitures or distressed sales. Startups
unable to raise in 2024 could face a similar sad ending.
Secondary markets were abuzz
• Buyers were primarily purchasing top pre-IPO names. Many were
adding to stakes in companies they already own.
• Median discount of +50% compared to valuations at their latest
funding rounds, making it one of the hottest opportunities in the
secondary markets since the 2008 financial crisis.
• Some prominent money managers were willing to buy stakes
piecemeal.
• Sellers: Pool of sellers was the widest and included top VC funds,
Hedge Funds, and institutional investors willing to think about
selling.
• The number of actual deals done this year is still fairly low
relative to the opportunity due to the divergence between the
expectations of buyers and sellers on price.
• Secondary investors disappeared because of OpenAI's recent
news - a testament to the fragility of the market.

VC exits have slowed down dramatically
After an octane driven exit environment of 2021, exit value has plummeted dramatically
79
SECTION - STARTUP EXITS | DATA
U.S. geography
Europe geography

How are exits happening?
80
• Majority of exit value YTD generated via public listing; first time since 2021
• YTD count of exits via acquisitions falls to roughly half of 2022 figure
Bigger question is whether the trends of 2023 will persist in 2024, or will markets open up to provide better exit opportunities
Data focus is U.S.

What about exit valuations?
81
• Exit values in this environment are less attractive than in the
recent past.
• Valuation step-ups of companies being acquired or going
public have fallen to or near a 10-year low.
Exit valuation step-up has also trended downwards and is now
at a decade low
Acquisition multiples are now at their lowest in the past 5 years
Data focus is U.S.

Tech startup IPOs
• The IPO world is changing. In 2021, the median company age at IPO was 11 years. Private companies going for an
IPO are more mature than typical tech company at IPO in the '80s-90s.
• Macro instability has resulted in - a slow IPO market and a lack of M&A.
• Baring the recent outlier story of IPO success in 2021, the year 2023 is proving challenging for IPOs across geographies.
• Even after the IPO, the challenges don't end. Post-IPO performance of tech companies has not been rosy, and stock
prices can take up to a couple of years to recover.
• Three IPOs in September (Instacart, Arm, and Klaviyo) have reignited optimism, and investors have started
deciphering market trends and signals.
• While every IPO is inherently different, a few common characteristics have de
fi
ned these above three IPOs - (a)
investor's focus on company profitability, (b) low float (10% or less), (c) jump in share price on the "first trading day"
providing exit opportunity, (d) drop in share price post in weeks after IPO pop, and (e) cornerstone/strategic investors who
would commit ahead of time to buying a chunk of the IPO.
82
|
SECTION - STARTUP EXITS | IPOs

What it takes to IPO?
Startup KPI expectation before an IPO have shifted
• Revenue efficiency to demonstrate the scalability and sustainability of the business model.
• Profitability with strong Y/Y growth to avoid any reliance on external funding for runway security.
• Higher overall revenue as the catch up with private market valuations continues.
83

Past tech IPO performance
Startup IPOs of the past haven’t performed well in the 2023 market.
While Big Tech is rising, not all tech companies are being lifted.
Venturebacked tech companies that went public in 2021 are
struggling to meet lofty expectations. These struggles are having a
knock-on effect throughout the innovation economy as a backlog of
exit-ready companies tread water.
84

IPO backlog buildup
There are an estimated 75 startups in PitchBook's IPO backlog,
highlighting the poor exit environment plaguing so many VC-
backed startups.
IPO backlog keeps piling up with more and more startups looking for exit.
85
As the IPO market creaks open again, these are the 257
companies we think could hit the public markets next.
While the tepid performance could push back other tech
players’ IPO plans, there is still a large pool of potential IPO
candidates waiting in the wings. They can’t wait forever —
especially as late stage venture capital dries up. The pressure
will likely force the IPO window further open in 2024, even if
the market conditions aren’t perfect.

Is IPO window about to open up?
After every IPO winter comes an IPO window.
Although VCs can sell their companies to strategic acquirers or private equity firms, the asset class's most
substantive form of liquidity has come from IPOs.
86

Is IPO revival coming soon?
• Gains in the stock prices of recent IPOs. Rising post-IPO stock prices could help revive the IPO market.
• Declining interest rates. If the Federal Reserve sees inflation dropping below its 2 percent target, interest
rates could drop and stocks could rise.
• Steadily rising technology stock prices: A steady rise in the tech-heavy NASDAQ index could create
demand for more technology company shares.
• IPOs of fast-growing Generative AI companies.
87
A combination of factors could push forward the case for IPO revival.

Global tech M&A
• US/Europe continue to see M&A deals trend down,
while Asia picks up in recent quarters
• Europe, US dominate share of large deals
($100M+)
• The number of large strategic deals are starting to
climb again
• 78% of M&A deals involved companies with 100
employees or less
88
Deal volume continues to slide. Large deals ($100M+) remain a small portion of overall deals.
SECTION - STARTUP EXITS | TECH M&A

US tech M&A
• Acquisitions are skewing smaller.
• Smaller deals tend to occur during periods of
uncertainty as larger companies push pause on larger,
transformational deals until more clarity comes to light.
• Challenges will pressure potential sellers and add to the
likelihood of more distressed activity.
• Dealmaking also started to decline last year just as many tech
stocks were getting hammered in the public market.
• A drop in share prices is usually an ill-advised time for M&A,
since public companies do not want to do stock deals —
essentially doing a deal at a discount.
89
Acquisitions are skewing smaller, as smaller deals tend to occur
during periods of uncertainty.
It made sense that dealmaking would pause or reset as interest
rates kept increasing and money became more expensive.

Mismatch in exceptions?
• The runways of many early and mid-stage startups are expected to
expire in the next six to nine months.
• For now, startups don't feel an immediate pressure to sell, and
buyers—whether larger startups, publicly traded companies or
private equity investors—are holding out for lower prices.
90
Sellers thinking of powering through; though buyers holding out
for lower prices.
Median exit sizes for acquisition and public listing remain
above 2022
fi
gures

Acquisitions demysti
fi
ed
91
Big tech acquisitions declining as regulatory pressure increases
SaaS & Cloud focused acquisition activity remaining strong

Consolidation is upon us!
92
• For those who are closer to running out of cash, they've had to consider down rounds,
wind downs, and layoffs. But for others, M&A has become the path forward.
• Four different types of M&A I expected to see in 2023: (1) Big + Big, (2) Big + Small, (3)
Small + Small, and (4) PE acquisitions.
• Big + Small was by far the most active category:
• Databricks acquiring MosaicML for $1.3B
• Atlassian acquiring Loom for $975M
Small + Small - there was plenty of activity there too this year:
• ThoughtSpot acquiring Mode Analytics for $200M
• ActiveFence acquiring Spectrum Labs for $137M

Small tech buyout is a growing niche
93
When looking at the median software and
services multiples over the past 15 years, there
is a remarkable 5.4x turn delta between the
small-cap deals ($50-$200M equity
investments) and the mega-fund deals ($1B+
equity investments).
• Over the last decade, an increase in investor appetite
for small-cap software and technology companies.
• This shift presents an opportunity for emerging
managers to come in at the early stages of the
company’s lifecycle, and then scale them into prime
buyout candidates for mid-market and mega funds.
SECTION - STARTUP EXITS | BUYOUTS

Blurring lines between PE & VC
94
VC
fi
rms are exploring buyout as a strategy Buyout strategy is inherently opportunistic in nature and it makes
sense to take advantage of current headwinds
Deriving from established PE strategies of continuation funds,
VCs are aiming to build a continuous supply of capital

(Semi) Distressed sales or Divestitures
95
2023 saw a string of divestitures or distressed sales. For startups unable to raise in 2024, it could be a similar sad ending.

Who are secondary market buyers?
VC firms and hedge funds are now the biggest buyers
in the secondary market – both in terms of dollars
spent and number of buyers
96
VC
fi
rms and hedge funds are now the biggest buyers in the
secondary market
Many are adding to stakes in companies they already own
SECTION - STARTUP EXITS | SECONDARIES

What are buyers purchasing?
97
Buyers are purchasing the most popular pre-IPO names at discount

Who are the sellers?
98
The pool of secondaries sellers got bigger in 2023

Secondary market performance
• Median discount of +50% compared to valuations at their
latest funding rounds making it one of the hottest opportunity
in the secondary markets since the 2008
fi
nancial crisis
• Some big money managers are willing to buy stakes piecemeal
• The number of actual deals done this year is still fairly low
relative to the opportunity. That’s because buyers aren’t
interested in struggling firms, and it’s still not clear how much
later-stage businesses are worth — especially as companies delay
funding rounds to avoid lower valuations, he said.
Increasing alignment between the price that buyers
want to pay and the price at which sellers are willing
to part with their shares (bid/ask spread)
99
Discount got higher but limited deals got done due to pricing spread bw. buyers and sellers in Q1 and Q2

VC secondaries see weakest performance
PE secondaries have fared better than VC secondaries because, although PE assets more
broadly did see write-downs, they were not as severe as the valuation drops in VC.
Caution though - the charts represents one-year horizon IRR.
100
Data focus is Global.

Secondary market spooks
• Buyer interest in OpenAI stock totaling around $100 million all but evaporated between Thursday and Monday.
• Prospective secondary investors have pulled back until the situation has more fully played out.
101

IMAGE FROM DALL E
Here is an image that captures the startup talent landscape in 2023, illustrating the
challenges of this era such as mega layoffs, slower hiring combined with higher
attrition, the formation of new startups as a result of layoffs, and the trend of
decreasing pay increases. The scene is set in a co-working space and showcases a
diverse range of emotions and activities among the startup employees.
SECTION
TALENT
102

Index - Talent
• Startup talent
• Summary
• Layoff
• Layoffs Were Sky High in 2023
• Europe - Slower Hiring and Higher Attrition
• Layoffs Leading To Startup Formation
• Compensation
• Compensation
• Startup Equity Grants Is Down
• Employee Grants Data
• Employee Option Pool Data
• Other topics
• Where Do Unicorn Founders Come From?
• Antler - European Tech Founders Report
• Venture capital talent
• Mega VC Talent Puzzle Of Growth
• Toxic Culture In Venture Capital Industry
103
SECTION - TALENT

Summary - Talent
104
SECTION - TALENT
Global tech talent impacted massively in 2023
• Layoffs were very high in 2023, with even big tech impacted.
There were multiple reasons for tech layoffs - startups running
out of cash, startup closures, higher cash burn, startups wanting
to extend runways, and more.
• A tough environment forced founding teams to split up.
Slower hiring
• Tech industry's recovery has been sluggish due to a shift in focus
from expansion to efficiency.
• Founders are now focused on product + sales and doing more
with less, which impacted startup hiring numbers.
• In Europe, slower hiring was combined with higher talent
attrition in the market.
Compensation impacted
• In Europe, pay increases were down by 50% compared to 2022.
• Salaries for employees have stayed flat in 2023 (in certain geos).
• Bootstrapped founders are paying themselves lower than VC-
backed founders, constraining their situation.
Startup equity grants were down
• Average equity for new hires was down 25%+ in some cases.
• Current market is increasingly less talent-driven. Startups are not
motivated to provide equity to new employees.
Founders shouldn’t just set aside 20% for employees
• Option pool allocations have stretched out over longer periods
of time. Option allocation utilization was also all over the place.
• Certain sectors reserved more than others for option allocation.
Where do unicorn founders come from?
• Multiple studies were done on the topic.
• One from Endeavour caught everyone’s eye. A few highlights:
Unicorn founders are global citizens, most top unicorn founders
did not study or work at an elite institution, and most top unicorn
founders have previous entrepreneurial experience.
High startup formation
• Layoffs are leading to a massive wave of startup formation.
• Engineering folks and tech managers - are heading back to the
drawing boards and building new startups.
• In some places, the startup formation metrics are crossing the
highest points.
Venture capital talent
• A tough environment is impacting career growth of VC partners.
• Toxic working environment + unhealthy cultures led to burnout.
• Younger VC investors are contemplating startup operator roles.

Layoffs were sky high in 2023
2023 layoffs were higher than 2022
Are more tech layoffs coming?
• There are signs that the volume of layoffs is tapering
• Job cuts in the tech sector to continue for the foreseeable
future as large tech companies and startups continue to battle
economic headwinds.
• Seed and early-stage startups in particular may continue to
conduct layoffs in an attempt to extend their cash runways
in a dif
fi
cult venture funding environment.
Many companies announced multiple rounds of layoffs
105
SECTION - TALENT | LAYOFF

In Europe - Slower hiring was combined with higher attrition
Start ups have cut hiring by 30-50% this year
Last year Europe’s start ups were in the midst of a talent war,
with hiring a top priority for many CEOs. But this year it’s a
different world.
Rising inflation has led to a worldwide reduction in VC
funding and an almost-closed IPO window, impacting growth
and hiring plans for start ups.
Attrition rates have increased for early and growth stage
startups.
Amidst this difficult time for growth and hiring, it’s more
important than ever for start ups to retain top talent. More
work may need to be done here, because whilst attrition has
remained fairly stable in the past year, there has been a slight
increase in attrition at early and growth stage start ups.
106

Layoffs leading to more startup formation
• For every 100 people who lost their jobs, 13 started their own companies.
• Meta generates the most startups from recent layoffs. One out of every three former workers in
Meta start their own business.
• After being laid off, software engineers are most likely to start their own companies.
• Nine out of one hundred startups are established by former software engineers.
• 44.4% of examined companies were founded by former managers and directors.
107

Compensation
Company size, funding-type, and geography - all play a role
in founder compensation
Bootstrapped vs. VC-Backed Salaries Breakdown
Founders who are VC-backed are more likely to have
higher salaries compared to their bootstrapped
counterparts.
Of the founders who paid themselves between $100K and
$200K annually, 93% of them were VC-backed while only
4% were bootstrapped.
In Europe - pay increases are down by almost 50% compared
to last year
While salary increase is still above average across other
industries and company types, it does threaten the
attractiveness of employment in a start up – a risk given the high
importance of employee retention currently.
108
SECTION - TALENT | COMPENSATION

Startup equity grants is down
Average equity for new hire is down more than 25%
• Salaries for startup employees have stayed basically
fl
at this year.
• Equity packages are down 26% from November 2022.
• Startup salaries across the US have drifted closer to SF rates. Places
like Charleston, Las Vegas, Raleigh, and Jacksonville all closed the
salary gap with bigger cities (not entirely, but the movement was
strong).
• Companies are hiring less and investors are cautious of
dilution
• Market that is less candidate-driven than for the past
two years, there is less incentive for employers to offer
equity for new hires.
• Europe has historically lagged behind when it comes to
employee ownership, with the typical share of equity
given to workers stagnating around 10% of stock options
— half as much as in the US.
In Europe, companies are hiring less and giving less equity;
exacerbating the European laggardness on the topic.
109

Employee grants data
Seed stage offers highest ISO’s; but RSU’s are
highest at later stages
110
Stock based comp in public tech companies is
abysmal.
• Best in class non-tech companies dilute at only 30bps a
year and that’s across a wide spectrum of industries
• Tech Gold Standard (<1%): MSFT, AAPL, NFLX, TSLA,
NVDA, PYPL, BKNG
• Dog House (>5%): LYFT, CFLT, W, SNAP
Stock based compensation as a % of revenue or FCF is
important, but the really simple way to think about
dilution is what is the growth in market cap required for
the stock price to stay constant over a 5 year period at
differing levels of dilution
Data focus is U.S.

Employee option pool data
• Today, these option pools are being stretched out over longer periods of time. Founder
that were expecting to top off the pool in the next fundraise are having to ration their equity,
leading to smaller equity packages for employees
• Certain industries reserve more than others, with B2B SaaS and Fintech typically having
slightly larger pools and Consumer / DTC Retail smaller ones.
• Utilization is all over the place. Some companies come up to their next round having spent
nearly the entire reserve of options, others have more than 50% remaining.
Founders should ignore the advice of "just set aside 20% for employees”
111

Where do unicorn founders come from? / 1
• 85% of unicorn founders have a university degree and
23% a Master/PHD degree (the story of a university drop-
out successful founders not really stand out when I
analysed the data);
• The average age at which a founder starts a future unicorn
is 33 years old;
• 10% of the unicorn founders have worked and Goldman
Sachs and 7% at McKinsey;
• Oxford University is the school that create the highest
number of unicorn founders (7%), followed by LSE (6%)
and Cambridge University (5%).
• Unicorn founders are global citizens
• Most top unicorn founders did not study or work at an
elite institution
• The vast majority of top unicorn founders have
previous entrepreneurial experience.
112
SECTION - TALENT | OTHER TOPICS
Data focus is U.S.
Endeavor study on unicorn founders went viral on the internet

Where do unicorn founders come from? / 2
113
Computer science was the most popular undergraduate major
among unicorn founders, as 42% of unicorns had at least one
founder with an undergraduate degree in this major.
Identified and carefully examined 1,698 unicorn candidates
from 61 countries.
The top countries by number of unicorn candidates are the
United States (817), China (367), and India (88).

Antler - European tech founders report
Record numbers of new founders entering the market, and they look very different to the unicorn founders who came before.
114

Venture capital talent
Are mega VC
fi
rms too big for the newer partner’s ambition? Tough environment impacting career growth of VC partners
115
Younger VC investors hoping to jump onto operator roles in
startups
SECTION - TALENT | VC TALENT

Toxic culture in venture capital workplace
116
SECTION - TALENT | VC TALENT

IMAGE FROM DALL E
Here is an image that depicts the behavior of limited partners towards venture capital
in 2023, illustrating the key themes such as their focus on performance to stick with
top-quartile managers, concerns over high VC valuations, and the debate over the risks
of venture capital in 2023. The scene is set in a modern financial office, capturing the
cautious and strategic approach of LPs in this environment.
SECTION
LIMITED PARTNERS
117

Index - Limited partners
• Corporate Venture Capital (CVC)
• Summary
• What is CVC?
• State of CVC - SVB
• State of CVC - CB Insights
• CVC data - Bain
• Survival rate and internal turnovers
• Family Of
fi
ces (FOs)
• Summary
• Growing role of FOs
• How have FOs invested
• FOs investing in VC managers
• Case of European FOs
• FOs challenges for direct investing
• FO fundraising advice for VCs
• Fund-Of-Funds (FoFs)
• Summary
• Role of FoFs
• FoFs building new approaches
• FoFs powering emerging managers
• Institutionals moving in FoF business
• GP-LP dynamics
• Summary
• Staying in the game
• How LPs evaluate GPs
• GP evaluation
• LP behaviour
118
SECTION - LIMITED PARTNERS

Summary - Corporate Venture Capital (CVCs)
119
SECTION - LIMITED PARTNERS | CVCs
More than just returns
• Unlike traditional VCs, CVCs seek more than just financial returns
on their investments.
• For a startup, fitting in their strategic vision, CVCs can provide a
long-term strategy and fitting partnership.
Scooping the gaps
• CVCs in 2023 decreased their deal sizes. This is due to the
valuation inflation in the last couple of years, in which CVCs were
very active. As they retrench from late to moving early, deal size
will decrease. In addition, there is much more interest in
investing in emerging VC funds (more exposure + learning).
• However, they still are taking a more prominent role as other
investors pull back.
• There is a regional difference in the activity of the CVCs. In
Europe, CVCs are leaving their mark.
High and dry
• Some CVCs invested millions into late stage startups at higher/
peak valuations during the last decade. They are now cutting
internal valuations or trying to sell their stakes in secondary
markets.
• CVCs are also becoming increasingly selective, raising their bar
for new investments.
More CVCs and increasing
fi
repower
• More CVCs are being built. Ones that are already active are
increasing their funding firepower.
• The focus of many such newer CVCs is undoubtedly AI.
Running CVCs isn’t easy, either
• A large percentage of CVCs got disbanded or stopped being
active. Caution, though, as some have spun out or become
independent entities to allow for better economics and the
ability to add third-party capital/LPs.
• VC talent working at CVC units are much more likely to change
jobs than those working at institutional VC firms.
• Kick-off delay as some corporates planning to start CVCs have
halted their efforts. Now, their bigger emphasis is on data and
software for managing VC programs.

What is CVC?
Corporate VC firms usually sit within the structure of a
large, established company.
Many CVC firms draw money from their parent
company for their operating budget, and CVC teams
—unlike traditional VCs—are looking for more than
just financial returns on their investments.
“We have the opportunity to invest in an up cycle or a down
cycle because we have a long-term investment approach as
strategic investors”
“I told them that we would invest over 10 years for the first
fund, and that it will include times of economical difficulties,
and that this would be during these times that we would want
to double down our investments”
120

State of CVC - SVB
• CVCs are taking their foot off the gas: 52% of funds have slowed their deal pace over the
last 12 months, similar to global VC investment, which fell 47% YoY.
• CVCs are increasingly selective, raising the bar for new investments. 72% of funds state
that the bar is higher for new investments; 45% say it’s significantly higher.
121

State of CVC - CB Insights
1. CVC-backed funding ticks up for the
fi
rst time since Q3’21.
Global CVC-backed funding ticked up 4% QoQ to $14.6B.
2. Median CVC-backed deal size falls across all funding stages in
2023 so far. The median CVC-backed deal size is $8.4M in 2023
so far, down from $10M in full-year 2022.
3. CVC-backed funding in the US drops 11% QoQ to its lowest
point since Q3’19
122

CVC data - Bain
• Current corporate venture capital (CVC) investors remain active, taking advantage of lower
valuations and hot themes such as AI, sustainability, and the energy transition, although with
less intensity than previous quarters.
• Companies are more reticent to launch CVCs
123

Survival rate of CVC and internal turnovers
A large percentage of CVCs get disbanded or stopped being
active
VC talent working at CVC units are much more likely to
change jobs than those working at Institutional VC
fi
rms
124

Summary - Family Of
fi
ces (FOs)
125
SECTION - LIMITED PARTNERS | FOs
Increasing role of FOs in the VC sector
• FOs backed deals have been increasing in the last 10 years.
• FOs investment style is shifting from an early stage to becoming
more relevant at a late stage.
• VC asset class still occupies less than 10% of most FOs capital
allocations.
FOs investing in VC managers
• FOs typically have a hybrid investing structure, with the majority
of FOs investing in startups via VCs rather than directly.
• In Europe, the biggest backers of VC Funds are FOs and HNWIs.
• In making direct investments, FOs are most concerned about
operational risk and deal flow quality.
• FOs in 2023 weren’t keen to deploy into a venture without
liquidity events - either from funds or directs.
• FOs who supported EMs were now more risk averse - higher
threshold for capital raised before considering investment
FO’s don’t invest alone
• FOs don’t invest alone. FOs prefer to invest in a syndicate with
other families.
• 9 in every 10 family office-backed investments in startups have
been via. “club deals.”
New age FOs
• Unicorn founders are building their own FOs and using their
industry network to get access to startup deals.
• Caution: Be aware that dedicated staff with experience is
needed, and a one-size-fits-all CIO doesn't work in VC.
Growing importance and nuances
• Caution may be warranted in taking capital directly from FOs.
Some FOs may desire more personal involvement, which may
not align with the startup’s goals and objectives.
• There are more than 10K FOs globally, and their presence is
likely to grow in 5-10 years.
• FOs can sometimes look complex due to their multi-stakeholder
structure with varying incentives.

Growing role of Family Of
fi
ces
Passing the peak: Family of
fi
ce-backed startup deals leapt in
2021 – and slumped in 2022
Heavy hitters: Family of
fi
ces are big investors in startups
• FOs is a rising trend since 2012.
• Though, FOs’ investments in startups declined sharply in 2022
for the
fi
rst time in 11 years, falling both in terms of deal
count and capital invested.
• At the same time, family offices appear to be maintaining a more
risk-averse approach towards investing in startups. While they
invested predominantly in early-stage startups until 2018, their
focus has shifted to later-stage investments from 2019 onwards –
a trend that continued in 2022
• Almost one-third of the total capital invested in startups
worldwide in 2022 came from family of
fi
ces.
• Family offices are major players in the global market for
investment in startups. Overall, family office-backed deals
represented a total of 10.1% of all investments in startups
worldwide in 2022.
126

How have Family Of
fi
ces invested?
Venture Capital still occupies a less than 10% in most Family Of
fi
ce allocations
127

Family of
fi
ces investing in VC managers
Venture capital is popular among family of
fi
ces globally, with regional
nuances: the lowest percentage of family of
fi
ces invested in venture
capital hails from EMEA (76%), compared to 91% in APAC and 86% in the
Americas.
128
• According to a recent survey of 111 VCs investing in
Europe, family of
fi
ces are the biggest backers of
European VCs.
• 94,5% had as their LP (limited partner, which is an investor
in a VC fund) a family office and HNW (high net worth)
individuals
Majority of family of
fi
ces invest in VC through fund managers In Europe, FOs along with HNWIs are the biggest backers of
VC Funds

In Europe, Family Of
fi
ces are increasingly investing in startups directly
• Several of Europe’s unicorn tech founders have launched their own, which tend to focus
exclusively on tech. Revolut’s Nik Storonsky, Checkout.com’s Guillaume Pousaz and Mollie and
Messagebird’s Adriaan Mol — along with dozens of others — all have them.
• The stage and sector that a family office invests in varies wildly — so it can be tricky as a
founder to know who to reach out to if you're on the hunt for funding.
• A VC fund will typically have reserves set up to follow-on. But with a family office whether or not
they do follow-ons is unknown, and it's something a founder needs to understand in terms of
choosing to work with that family.
129

FOs challenges for direct investing
130

FO fundraising advice for VCs
• With over 10,000 FOs globally, there is a huge market, and one that easily will play a even
more signi
fi
cant role in funding within 5-10 years.
• Many family offices have other motivations in VC that need to be fleshed out: Learning/Insights,
Some want to build their own direct capabilities, Network, Run an operating business and want to
de-risk technological disruption, Tax efficiencies
• The larger the family of
fi
ce, the more likely it will be a multi-stakeholder sale (family members
of different generations, CIOs, investment team members, etc.). Each will have different very
personas and incentives.
• Family Of
fi
ces can be excellent partners, but many are new, so don't underestimate education.
131

Summary - Fund-of-Funds (FoFs)
132
SECTION - LIMITED PARTNERS | FOFs
FoF represents diversi
fi
cation with an element of an additional
layer of fees
• FoFs offer an option for investors aiming to mitigate risk, as they
inherently diversify investments across various underlying funds.
These underlying funds can span different sectors, stages, and
geographies.
• LPs need to be convinced of the two layers of fees.
Changing FoF dynamics
• Historically, FoF was an "access" vehicle to brand-name VCs.
With "access" less of an issue and brand-name VCs increasingly
being market "beta," the focus of the FoF model is now on
emerging managers, where selection is important for driving
alpha. This is one of the most important shifts in the last five
years.
• FoFs are also an option for less sophisticated or less experienced
LPs within the venture asset class.
• Last few years were GP-favourable, but this dynamic has shifted
in 2023 towards LPs.
FoFs as a means to access early stage deals
• Many established VCs focusing on late stage have begun
investing directly in emerging VC managers. This way, VC LPs
gain insights into GP’s portfolio, and this information asymmetry
is leveraged to make investments better.
FoFs powering emerging managers (EMs)
• FoFs can become a vehicle of choice to invest in EMs.
• Majority of FoFs (in one survey) are invested in EMs, with 44% of
FoFs acting as cornerstone investors.
Institutional investors moving into FoF business
• A growing number of institutional investors are moving into the
FoF business to gain access to the VC asset class or to fund
certain topics (ClimateTech, critical technologies, emerging
managers, etc.)
• This is a welcome change, though it remains to be seen which
segment of the VC funds gets maximum benefit.

Role of FoFs
In the changing dynamics of VC ecosystem, FoFs need to innovate their business model model as well
Traditional U.S. venture firm fundraising set a record in 2022 with $162 billion. U.S.-based VC FoF raised just $400 million in
the first quarter of 2023, according to PitchBook, and $3 billion in 2022. This compares to $24.4 billion in 2021 and $33.7
billion — the fundraising peak — in 2017.
• Fund of funds (FoF) were created to serve as a bridge for LPs to get access to managers they couldn’t back otherwise.
• One model is designing an FoF strategy that helps larger LPs invest into emerging managers
• Many funds (including Andreessen Horowitz and Lightspeed) are also adding FoF strategies within their existing funds,
giving their LPs access to emerging managers in addition to the funds’ underlying portfolio companies, too.
133
SECTION - LIMITED PARTNERS | FOFs

The Big Book of Venture Capital - 2023

The Big Book of Venture Capital - 2023

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The Big Book of Venture Capital - 2023