With liquidity uncommon, VCs might get inventive to return investor money

Welcome to the final concern of The Exchange! With TechCrunch+ sunsetting this month, The Trade column and its e-newsletter are additionally coming to an finish. Thanks for studying, emailing, tweeting, and hanging out with us for thus a few years.

P.S. A particular thanks from myself to Anna, who was nothing wanting a superb lead creator for this text since taking it over. She deserves infinite credit score for her work on the e-mail.

Right now on The Trade, we’re digging into continuation funds, counting down by a few of our favourite historic Trade entries, and discussing what we’re excited to report on for the remainder of the yr! — Alex

Continuation funds

Continuation appeared like an apt theme from our perspective. Additionally it is a really topical one: “The greatest source of liquidity now is going to be continuation funds,” VC Roger Ehrenberg predicted in a current episode of the 20VC podcast.

In case you aren’t acquainted with the time period, let’s flip to the FT for a definition:

Continuation funds, that are frequent in personal fairness [PE] however uncommon in enterprise capital, are a secondary funding automobile that permits them to “reset the clock” for a number of years on some belongings in previous funds by promoting them to a brand new automobile that additionally they management. This helps a VC fund’s backers, often called “limited partners,” to roll over their funding or exit.

If in case you have been following the previous couple of months of enterprise capital exercise, the “why now?” is simple to reply. Because the StepStone Ventures workforce advised our colleague Becca Szkutak in her December 2023 investor survey: “With portfolios awash in unrealized value, fewer immediate exit opportunities, and longer hold periods on the horizon, GPs are beginning to get creative in order to generate liquidity.”

In observe, a continuation fund sees new buyers spend money on current portfolios, however “it reflects today’s valuations,” Ehrenberg stated. This repricing and the potential battle of curiosity round it sound difficult in principle, however Ehrenberg doesn’t suppose so. “You have net new investors looking at a portfolio, so they’re the price setter, not the existing manager.”

It’s not simply very giant funds like Insight Partners and Lightspeed that may discover this selection, both. “It’s a viable strategy for a decent swath of the venture industry,” Ehrenberg advised 20VC host Harry Stebbings.

Whether or not it’s continuation funds, strip gross sales or secondaries, there’s a transparent impetus for VC to search for options to its typically ill-timed cycles, as we had already seen with the rise of permanent capital and publicly listed funds. A typical thread in right now’s economic system is that tasks and firms aren’t given the time they should absolutely succeed, so even when it supposes a short lived low cost, it’s good to listen to that internet buyers are ready to offer portfolios extra time to shine.

RIP The Trade

The Trade started its life in late 2019, earlier than it even had a reputation. It shortly grew to become a each day column in the course of the week, and later this weekend e-newsletter. For these of you curious about the historic quirks of constructing media merchandise, The Trade was a TechCrunch+ product on the location, however its weekend concern was despatched out totally free as an e-mail. Why was that the case? As a result of on the time we didn’t have the inner tech to ship out subscriber-only emails!

Over the lifetime of The Trade on TechCrunch+ we shipped greater than 1,000 columns and newsletters, making it the most important and — if we might — most impactful single challenge for driving subscribers to what was our paid product. The Trade and TC+ have been inseparable, so it is smart that they’re being retired collectively. Nonetheless, as with all challenge that blended each work and private ardour, we’ll miss it.

From its begin, the $100 million ARR membership and the early pandemic days replete with inventory market collapses and concern, The Trade was round to chronicle the 2020–2022 startup increase, and its later conclusion. We went from tallying monster rounds and a blizzard of IPOs to watching enterprise capital dry up and startup exits turn out to be rarer than gold. It’s been wild.

Anna took over The Exchange’s newsletter in early 2022, across the time that Alex grew to become editor-in-chief of TechCrunch+. The columns continued to be a bunch challenge, however we needed to divide and conquer to maintain our output at full tilt.

Beneath is a listing of a few of our favourite Trade entries. After all, we couldn’t return by your entire archive — which yow will discover here — so contemplate this a partial obtain of the hits:

• The $100M ARR Club (December 2019). The beginning of a long-running sequence wanting into pre-IPO startups. A bunch of the entrants like Monday.com later went public.
• Why is everyone making OKR software? (January 2020). Our first “startup cluster” type publish, digging into what we discovered to be an unusually busy phase of upstart tech firm effort.
• API startups are so hot right now (Might 2020). API startups would keep sizzling for years to come back, leaning on the mannequin that Twilio helped pioneer. It’s attention-grabbing to suppose again to Might of 2020, when there was nonetheless ample concern available in the market. Little did we all know what was coming subsequent.
• Don’t hate on low-code and no-code (Might 2020). The low, no-code debates have quieted considerably as the strategy of making software program that non-developers manipulate and bend to their very own will has turn out to be extra desk stakes than controversial product alternative. Nonetheless, it wasn’t all the time that means.
• Startups have never had it so good (July 2021). By mid-2021, it was clear that the marketplace for startup shares was in a brand new period, with buyers piling money into each software program firm that moved.
• How to make the math work for today’s sky-high startup valuations (July 2021). Underpinning the huge funding increase that we famous earlier than was an expectation that software program development was going to be quicker, and last more than beforehand anticipated. That wound up not being true.
• What could stop the startup boom? (September 2021). We have been somewhat involved in later 2021 that the tempo of funding was not solely sustainable. The market would keep sizzling for some time longer, however our notes about potential disruptors to the startup increase wound up being fairly correct. Rates of interest actually did change the sport.
• More LP transparency is overdue (January 2022). VCs will inform you what they spend money on however are sometimes extra tight-lipped about their very own backers. We argued that startup founders are due a bit extra data on the place their capital is finally coming from.
• Why you shouldn’t ignore Europe’s deep tech boom (February 2022). One attention-grabbing narrative forming in current quarters is Europe’s enterprise and startup resilience in the course of the current slowdown in private-market capital funding. We stated that European deep tech was poised to do effectively. And, effectively, we have been proper.
• Yes, it’s become harder for startups to raise funding (July 2022). By mid-2022, it was clear that the increase occasions have been over, regardless of 2021’s exuberance stretching into early 2022.
• The rise of platform engineering, an opportunity for startups (December 2022). As a substitute of investing in additional builders, why not spend to assist them be extra productive? Later cuts to developer payrolls made it clear that the period of mass-hiring was behind us, making the thesis right here all of the extra pertinent.
• The mirage of dry powder (January 2023). After a lackluster finish to 2022, the optimistic take was that VCs had a number of dry powder — capital to place to work — that they have been sitting on. Certainly these funds would shake unfastened and convey again the nice occasions? Anna argued that a number of the enterprise capital theoretically sitting on the sidelines was much less “real” than it appeared.
• A core plank of the SaaS economic model is under extreme pressure (August 2023). A technique that software program firms develop is by promoting extra of their service to clients over time. Nonetheless, by final August it was clear that internet retention was struggling, that means that numerous natural development that startups might need as soon as counted on was evaporating.
• Will the power of data in the Al era leave startups at a disadvantage? (August 2023). If AI is information dropped at life, then do the businesses with probably the most information win the day? And in that case, the place does that go away startups?
• Rainbow or storm? (September 2023). After discussing bettering fintech outcomes, Anna dug into using AI to battle fraud. It was an attention-grabbing turnabout of the standard AI and fraud narrative, which entails AI bolstering fraudulent exercise as a substitute of limiting it.
• Klarna’s financial glow-up is my favorite story in tech right now (November 2023). After seeing its valuation slashed, Klarna didn’t decelerate and as a substitute saved rising and bettering its monetary efficiency. Alex gave them a giant thumbs-up for progress made.
• WeWork’s bankruptcy is proof that its core business never actually worked (November 2023). What extra can we are saying about WeWork apart from that it was a bizarre leasing arbitrage play that by no means had an excellent core enterprise.
• Why I’m modestly crypto-bullish in 2024 (January 2024). Forward of spot bitcoin ETFs, this column indicated that this yr could possibly be a fecund one for crypto as a complete. Up to now, so appropriate.
• Yes, the tech layoff surge you are feeling is real (January 2024). And to shut out a few of our favourite, or most memorable entries, the current layoff wave has been something however a mirage. Sadly.

We’re not carried out

Whereas The Trade is shuttering, we nonetheless have huge plans for protection this yr. Fortunately we’re each nonetheless at TechCrunch, so you’re removed from rid of us. Alex needs to work on unicorn well being, the state of debt financing in 2024, and the way AI will discover buy on the OS layer. Anna is inquisitive about AI hubs past San Francisco, GP stakes investing and whichever S-1 we are able to get our arms on.

Thanks once more for studying The Trade’s publish and e-newsletter. We’re so very grateful to have gotten to spend a lot time with you on this challenge. Onward and upward!