Pre-Money: June 3, 2024

KPIs

The week’s top performance indicators

Partner

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Dots & Lines

The week’s top takeaways

• Reckoning has arrived: VC thought leader and Vincent podcast guest Frank Rotman of QED laid out the case that the end of ZIRP-era venture capital is here, and an ecosystem “do over” is underway, in his Twitter thread “The Grand Reset.” He argues that companies were over-funded and over-priced from 2018-2021, and now reality has set in. Funds from that era will underperform, and companies are constrained as they amble towards IPO or exit. Managers are now playing to get their cash back, relying on liquidation preferences to drive performance rather than expecting extraordinary outcomes to return their funds. Don’t despair, though. The ecosystem reset, he states, will clear out the backlog and usher in a new era of investing in more of the profitable, durable businesses venture was designed to fund.

• Waystar on the way: The tech IPO spigot continues to flow, or at least trickle. Louisville-based Waystar (no, not that Waystar…) is a payments provider for healthcare companies, and plans to raise $800M-$1B at a $3.8B price when it debuts on Nasdaq as WAY in the coming weeks. The business was created in 2017 by the merger of two cloud companies, Navicure and ZirMed, and pegs its most recent valuation at $2.7B. It brought in $791M of revenue in 2023, with a net loss of $51.3M, and grew 12% last year. It boasts 30,000 diversified customers, more than $5B in annual transaction volume and the obligatory use of AI in its workflows. The offering will shed some light on where public market sentiment lies on healthtech and could open the door for additional healthcare IPOs that have been scant since 2021.

• Decoding the VC signals: Famously, venture capitalists don’t always directly say what they mean, choosing optionality over directness. You’d think a VC writing a check is an absolute expression of conviction in a founder and a business, with the investor’s career on the line. But in many cases, different incentives are at work. For example, Newcomer looked at Sequoia’s unwavering multibillion dollar bet on Elon Musk’s portfolio of companies - including shakier ones like The Boring Company and X. It suggests they are opting into the set in order to be perceived as loyal and avoid being left out of the next deal, and buying diversification since they don’t know where the founder’s focus will lie at any point in time. Another example of doublespeak can be found with multi-stage funds who invest in seed rounds. Such funds often write what is to them a tiny check despite anchoring a round, which gives them a call option - a chance to get involved later if they are so inclined - but little skin in the game. The next time the company has to raise capital, it can be left in a bind if the firm isn’t all-in. As an investor, be sure to know why the big name VC you’re following is in the deal, not just that they are there.

• General Partner optimism about fundraising and the IPO market is up from last year, according to Pitchbook’s latest survey

• xAI, Elon Musk’s AI startup building “advanced AI systems that are truthful, competent, and maximally beneficial for all of humanity,” raised $6B on a $24B valuation from Valor, a16z, Sequoia and others

• Cloover, a climate tech startup that supports renewable installations in Europe, raised a $114M seed round led by Lowercarbon

• TikTok is reportedly creating a separate US algorithm in case its sale or divestment goes through after Congress ordered it

• Credit losses are up but net losses are down at Unicorn Buy Now Pay Later(BNPL) unicorn Klarna as it expands in the US market and approaches IPO readiness

• X owner Musk will testify to the SEC as it the agency investigates possible securities violations during his 2022 purchase of the social network

• Climate funds have raised more than $4B this year, and by all accounts should exceed last year’s $5.2B total

• Startups are pursuing national security use cases, building military drones, targeting systems and more for a cause that was anathema a few years back

• PE Firm Vista Equity Partners wrote off Pluralsight, the Utah-based workforce development company it acquired in 2020 for $3.5B

• Savings app Yotta claims to have $112M of user funds tied up in the aftermath of the Synapse Bankruptcy and dispute with Evolve Bank

• A mid-year review of which unicorns will not be going public this year includes Plaid, Figma, Stripe and more

• An insightful look at how the falloff in M&A, a usual startup exit path, coupled with limited liquidity, could enable big tech to drive more disruption than startups