The media reports that currently, companies with venture capital are reducing the volume of their mega funds after many years of accumulation and formation of the base of the financial asset.
Experts say that the downward trend in the volume of funds is a clear indication that investors who interact with the technology sector are narrowing the scope of their goal-setting. Special attention should be paid to the fact that this process is fixed during the recovery of the value of shares of technology companies, which is partly the result of the explosive growth of interest in artificial intelligence and AI-based developments.
The media, referring to venture investors, say that in the field of artificial intelligence, a significant part of the potential of new-generation technologies concerns small startups and, to a much lesser extent, firms that are at more stable stages of existence.
Investors did not say this out loud, but in fact, the conclusion is formed by itself that the financing of the AI industry contains significant risks. In this case, the prospects of the high-tech sector are not disputed. Developments in this area are guaranteed to be in demand and to one degree or another transform the surrounding space and the usual format of human life. The risk is associated with the obvious circumstance that literally every startup will not be successful and will not demonstrate phenomenal growth dynamics. Ultimately, the market leaders will be those who will offer the most useful and affordable technologies to consumers, including in the financial sense. From this point of view, investors interact globally with an actively developing, promising technological environment, but they risk spending money on firms that will not take a strong position in the industry and will not be able to offer a competitive product, and there will certainly be such cases because this is the logical law of economic being.
Initial public offerings (IPOs) indicate that the market for new issues is still recovering.
Alfred Lin, a partner at Sequoia Capital, says that venture capitalists are taking a break and returning to their roots against the backdrop of an improved financial situation and the subsequent appearance of margin investments. In June, his company scaled back its business and separated operations in the US and Europe from similar processes in India and China. This decision was made against the background of the increased attention of the American government to the Chinese enterprises of the firm.
In the current situation, technology startups that are in dire need of financing are increasingly considering the possibility of entering into deals with large companies to join them. For example, Databricks recently announced the purchase of the AI startup MosaicML for $1.3 billion. Typeface was valued at $1 billion after an oversubscribed funding round.
Also in 2023, Thomson Reuters paid $650 million for the acquisition of AI group’s Casetext legal service. Robinhood acquired credit card startup X1 for $95 million. Ramp bought Cohere.io, a company that creates an AI-based customer support tool.
Ryan Nolan, global co-head of investment banking software at Goldman Sachs, says that currently, about 1,000 start-up technology companies with a total value of more than $1 billion cannot get on the path to liquidity. He also said that a wave of consolidations is expected in the technology and software sectors.
In the sphere of the development of technology startups in the United States, there is a reduction in venture capital spending. In the second quarter of this year, local investors supported 3011 transactions with companies at an early stage of development. This indicator is about 30% lower than the investment activity recorded for the same period last year. Funding volumes are also showing a decline. In the second quarter of 2023, US venture capital companies invested more than $40 billion in technology startups, which is half the figures of a year ago.