Agya Insights: Edition 107
Financial Turbulence & VC Implications
We have seen a lot of volatility in the financial markets over the last few weeks.
As such, we thought it’s good to take a step back, summarize what has been happening to date, what could happen, and explore the implications for VCs, startups, and the tech industry more broadly.
As always, please let us know if you have questions or thoughts!
On behalf of the team,
💡 What’s Happening
Inflation and Market Conditions
2021 saw the Fed and other market participants dismiss long-term inflation concerns using two lines of logic: (1) the inflation rates in 2021 appeared artificially high relative to the prior year because COVID-19 depressed pricing, and (2) the supply shocks caused by the pandemic were temporary and would dissipate once the world returned to normal.
However, the influx of stimulus cash in the hands of the consumers and massive government spending – coupled with the pandemic’s prolonged impact on supply chains – have had a much larger and persistent impact on inflation than originally anticipated.
Over the last several months, the Fed has shifted gears from calling inflation “transitory” to increasing interest rates with record speed. The tightened financial conditions have led to a correction in public market pricing, which has had a cascading impact on both late stage and mid stage financing. Impacts on public markets have also led to some layoffs and an overall slowdown in hiring.
Going forward, inflation is a key indicator to watch out for. If the Fed’s tightening is effective in taming inflation, we may be nearing a market bottom. Conversely, if continued interest rate increases are necessary to tame inflation beyond what’s already priced in, we could see further decline in asset prices and tighter financial conditions.
Implications on VCs and Startups
The uncertainty in markets caused by inflation provides both challenges as well as opportunities for startups and VC funds.
For startups, the financing environment could get tougher. Improving key operational metrics and having enough runway is critical as VCs will be more inclined to invest in companies with robust business fundamentals. On the other hand, recent slowdown in hiring and layoffs by FAANG and other tech companies mean a larger pool of qualified candidates available for hire.
For VCs, unfavorable market conditions will inevitably lead them to spend more time with portfolio companies, as the founders navigate through new and unforeseen issues. On the other hand, market uncertainty could also lead to market prices adjusting to a normalized level from a record-setting year, creating an opportunity for investments with more favorable pricing and terms. History shows that the best time to invest is when there is a market correction, and this could be one of those moments.
Web2 to Web3 Transition Accelerating?
Historically big tech companies have had an unfair advantage in attracting top talent because of their enormous cash balance. This has made it challenging for startups to compete for top talent given that they have scarce resources.
We may be witnessing a secular change in this narrative. With higher interest rates, declining valuation and dwindling stock options, the allure of big tech may be slowly fading.
This could (and we hope it does) inspire an exodus of employees from big tech to either start their own web3 companies or join existing ones, accelerating the transition from web2 to web3.
🎉 Updates from the Portfolio
Stayflexi to host an exhibit at next month’s HITEC event in Orlando (June 27-30)
They plan to unveil several exciting new features and will be organizing a party bus and sponsoring an opening party.
Register for their Party Bus here!
Kift launches DAO and first NFT drop
Kift’s DAO will strengthen its community of like minded digital nomads and van dwellers through shared governance and benefits like early-access to IRL events.
NFT ownership will provide lifelong access to the Kift community, and help finance new site acquisition and the development of their geographically-distributed city.
💸 Select Financings in the Built World
SimpliSafe | simplisafe.com
$200 mn Growth
Home security hardware solutions, including wireless cameras and alarm systems.
Lev | levcapital.com
$70 mn Series B
Digital commercial real estate financing marketplace.
Dusty Robotics | dustyrobotics.com
$45 mn Series B
On-site construction robots to automate floor layouts.
Mint House | minthouse.com
$35 mn Series B
Tech-enabled upscale apartments for short-term stays.
Voxel | voxelai.com
$15 mn Series A
Platform that uses computer vision to transform safety and operations in the workplace.
Landgate | landgate.com
$10 mn Series B
Marketplace and data provider for commercial land and its resources including solar, wind, minerals, water, and carbon offsets.
Courted.io | courted.io
$6 mn Seed
Professional network for residential real estate agents.
Realto | realto.ai
$4.5 mn Seed Ext.
Automated marketplace for the secondary trading of illiquid real estate and alternative securities.
S.I. Container Builds | sicontainerbuilds.com
$1.7 mn Seed
Converts recycled shipping containers into living, rental, and working spaces.
For the complete list of real estate tech and construction tech investment announcements from May 12th - May 24th, click here!
h/t Aaron and Hovik for helping with this edition of the newsletter.