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| Hey Insiders, Today we are bringing you an analysis of how the shutdown of TotalEnergies' CVC arm impacts fundraising in Europe and why wait times between seed and Series A rounds are increasing. Scroll down for some top funding news and quick hits, then let us know which sector-specific funding you'd like to see more of in future issues! Karan
p/karan-chafekar |
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| 1 | | TotalEnergies, the French oil and gas conglomerate, is closing down its corporate venture capital (CVC) division. The firm will sell its stakes in portfolio startups to French VC firm Aster. News of the shutdown comes as CVCs reduce participation in European VC deals. In Q1 2023, CVCs participated in European VC deals worth $6.7B (€6.3B), down from $9.3B (€8.7B) from the preceding quarter. European CVCs reduced their participation by more than half since the peak deployment of $15.7B (€14.7B) in Q1 2022. Considering the economic uncertainty, CVCs will continue to decrease their participation in European VC deals as the year progresses. While traditional VCs are curbing their deployment due to a lack of exit prospects, the reasons for CVCs differ. A CVC's capital deployment is linked closely to its parent organization. Because of recent market volatility and uncertainty over future market conditions, several parent companies have been forced to improve their balance sheets, resulting in a lower allocation to VC investments. CVCs typically invest in companies to obtain a strategic edge rather than profits alone. As a result, in the face of market uncertainty, corporations are focused on enhancing their own profitability rather than entering into VC partnerships. Corporations that have been struggling with liquidity will be resorting to layoffs and other cost-cutting measures to enhance the long-term prospects of their organizations. At such a time, corporates will find it difficult to justify startup investments to their board, says Pitchbook analyst Nalin Patel. According to Patel, the withdrawal of CVCs would impact startup fundraising rounds since "A large component of the overall figure for most large deals that VC-backed companies secure are going to involve some form of non-traditional investor." CVCs account for a large proportion of non-traditional investors in VC. Due to CVC pullback, NTI funding dipped to $8.5B (€8B) in Q1 2023. Patel reckons that the lack of record valuations in Europe in the past six months is due to the retrenchment of NTIs and CVCs. TotalEnergies established its CVC division in 2008. It committed $400M in 2019 to invest in carbon neutrality-focused startups over a five-year time period. To date, the firm has backed nearly 20 startups across the U.S. and Europe, the most notable of which are renewable energy startup Zola Electric and microgrid startup Canopy Power. TotalEnergies posted an EBITDA of $71.6B in 2022, buoyed by the jump in oil and gas prices. Given the strong earnings last year, it is unlikely that TotalEnergies is shutting down its CVC division due to financial concerns, making the actual reason behind the move unclear. While TotalEnergies is shutting down the CVC division, the French firm is retaining its accelerator program, which will continue to back startups focused on energy storage, power retail, and renewable electricity generation. | | |
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| 2 | | U.S.-based seed startups are taking longer to raise funding for their subsequent Series A rounds. Crunchbase data shows that the median time taken by startups to raise Series A rounds after closing a $1M+ seed round increased from 21 months in 2022 to 25 months in Q1 2023. With the VC funding headwinds persisting, this trend will likely continue until early next year. Time taken between seed and Series A funding rounds has consistently increased over the past few years. The time taken is higher than its previous peak of 24 months in 2020 and nearly twice the 14 months in 2014. However, the median time was shortened in 2021 and 2022 to 22 months and 21 months, respectively, due to the free flow of capital. Seed startups have shown resilience to the VC funding pullback. While funding for seed startups dipped, the slump was more gradual than the dip witnessed across all other stages. Also, the venture funding pullback started impacting seed startups much later in the last year. The retreat started in Q2 2022. By the third quarter, seed funding was flat year-on-year. It wasn't until Q4 that the dip actually impacted the sector, causing funding to decline to $3.3B. The slump continued into this year, with Q1 2023's quarterly total coming in at $3.1B. However, the dip has significantly impacted startups across all other stages, making fundraising challenging for non-seed-stage startups. Seed-stage valuations are less prone to fluctuations, unlike late-stage startups, which helped soften the pullback blow. Additionally, VC firms that were focused on late stages started concentrating their bets on early stages, especially around seed stages. While startups were able to raise seed rounds despite the funding, they will likely face difficulty raising their next round of financing. With more seed-funded companies in the pipeline than ever before, more startups will be vying for the Series A rounds. The market is expected to be flooded with 4,400 startups looking to raise Series A rounds, 2,000 of which have not raised any new post-seed funding since 2021. Although the remaining 2,200 startups raised funding in 2022, they will also be in the mix and competing for the next Series A rounds. Per Crunchbase, over two-thirds of U.S.-based startups that secured $1M or more in a seed round between 2012 and 2017 went on to raise post-seed investment. Now a lower number of startups will raise subsequent Series A rounds. The median time taken to raise a Series A round after a seed round has also increased as investors are taking longer to ink deals to ensure proper due diligence is being conducted, especially considering the lapses on their part on deals such as FTX. | | |
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| 3 | | Today's Funding: AI - Low-code machine learning platform Predibase raised $12.2M through a Series A extension round led by Felicis Ventures Management.
Analytics - Cloud-based customer analytics platform secured $45M in Series D funding. Avataar Ventures led the funding round with backing from Filter Capital and Innoven Capital.
Blockchain - PayPal Ventures led a $52M funding round into white-label crypto wallet maker Magic at a $500M valuation.
Climate Tech - ESG data platform startup Measurabl secured $93M in Series D funding co-led by Energy Impact Partners and Sway Ventures.
DevOps - Internal developer portal software maker Cortex closed its IVP-led Series B funding round at $35M. Craft Ventures, Sequoia Capital, Tiger Global, and Y Combinator participated in the round.
EdTech - Swing Education, an online edtech marketplace that connects schools with substitute teachers, nabbed $38M in Series C funding led by Apax Partners and Reach Capital.
Energy - Clean energy developer Nexamp raised $400M in fresh equity and debt funding led by U.S. Bancorp Impact Finance and Mitsubishi UFJ Finance Group, respectively.
Hardware - Photonic AI hardware maker Lightmatter secured $154M through a Series C funding round. SIP Global, Fidelity Management & Research, Viking Global Investors, GV, HPE Pathfinder, and others provided the funding.
SpaceTech - Hyperspectral earth imaging technology developer Pixxel announced a $36M Series B round with participation from Google, Radical Ventures, Lightspeed, Blume Ventures, Sparta, and Athera.
Travel - German travel experience marketplace startup GetYourGuide raised $194M, consisting of an $85M equity tranche led by Blue Pool Capital. The debt portion was led by UniCredit with additional backing from BNP Paribas, Citibank, and KfW.
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- Food and beverage startups raked in nearly $1B in VC funding in Q1 2023, down from $1.3B raised in the same period a year ago.
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- StepStone Group's VC division, StepStone VC, has raised two blockchain-focused funds worth $96.54M.
- Former Amazon executive TJ Parker is joining VC firm Matrix Partners as a general partner. Amazon acquired Parker's startup PillPack five years ago for more than $700M.
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| | Karan Chafekar Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield |
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