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<ul class="summary-list"><li>As 2023 winds down, a reckoning in the VC industry is underway.</li><li>With startup failures and VC-firm layoffs, it's not likely to improve in early 2024.</li></ul>I was on a Zoom call with a staffer for the venture capital arm of a big tech company. She's a person I've known for years.We were chatting about life when she stopped talking, looked at her phone and said in a clipped voice, "I'll have to call you back. We just had layoffs."Her job was safe, I later learned. But it was clear that the VC world has entered into rarified territory: people are getting fired, not because of performance, but because their industry is in a cataclysmic downward spiral.In 2023: Y Combinator cut 17 people, <a target="_blank" href="https://www.ycombinator.com/blog/changes-at-yc">it said.</a> Sequoia Capital laid off seven staffers, about a third of its talent operations unit, <a target="_blank" href="https://finance.yahoo.com/news/sequoia-cuts-seven-talent-staffers-212407134.html">it told Bloomberg</a>. Greycroft cut five investors; and Boston firm OpenView stopped new investments and laid off most of its staff, <a target="_blank" href="https://affiliate.insider.com?h=e5bdfde7e880977fdd79545fd96710c7998a0cb1bc9cd2f749d169b1af70358e&amp;postID=65735d7a33f7fba9f649582f&amp;postSlug=venture-capital-cataclysm-layoffs-2024-outlook-2023-12&amp;site=bi&amp;u=https%3A%2F%2Fwww.theinformation.com%2Farticles%2Fvc-firm-openview-abruptly-winds-down-as-industry-pressure-rises">the Information reported.</a>In 2023, the house of cards the VC industry had built in the previous decade — and especially the previous three years — was no longer shielded by short-term financial maneuvers. Economic headwinds had arrived.And signs point to more challenges for at least the first quarter of 2024.<h2>What led to trouble in 2023?</h2>A decade-long bull market in tech accelerated into a startup-funding frenzy by 2021 (sans a couple-months scare in late spring of 2020 from the pandemic lock-down).Opportunists, <a target="_blank" href="https://www.businessinsider.com/tiger-global-changed-venture-capital-startups-funding">exemplified by hedge-fund turned-venture-capitalist Tiger Global,</a> looked at the prices paid for shares in early-stage startups and wanted in.Shares in companies that will eventually have multi-billion dollar IPOs go from a few quarters to a few dollars when they are at their earliest stages. For good reason. Picking winners before they've got customers and business models make them the riskiest bets in venture. It looks like easy money but it isn't."You do seed investing because you love it," one investor — who works for an established VC firm with $3.5 billion under management — told me. There's, frankly, more money to be made in later-stage investing when startups have track records, he conceded. The checks are bigger. The time-frames are shorter. That kind of investing is all about pricing."These early stage investors, it's like same sport, different league. It's harder [to make big money] because you are going super early, but you love the building phase," he said.But the game-plan for opportunists was different. These investors raised mega, multi-billion funds, giving them sizable income on their 2% management fees, long before they had delivered results. Some classic VCs sounded the alarm at the time, <a target="_blank" href="https://www.businessinsider.com/wesley-chan-vc-market-in-danger-tiger-global-andreessen-horowitz-2021-11">that this was "misaligned incentives"</a> that would cause trouble when the venture market cooled.The opportunist's strategy was "spray and pray," getting into as many deals as they could, as fast as they could. In Tiger's case, it did <a target="_blank" href="https://www.businessinsider.com/tiger-global-changed-venture-capital-startups-funding">hundreds of deals of year,</a> famously took no board seats and did little to no meddling in the business itself, as traditional white-glove VCs do.Their deal making pace caused the rest of the VC world — always subject to a bit of herd mentality — to follow. If a venture investor wanted a piece of the hot startup they were wooing, they had better offer high valuations — <a target="_blank" href="https://www.businessinsider.com/vcs-say-exploding-term-sheets-are-on-the-rise-founders-beware-2021-7">possibly without great due diligence</a>, or lose out to those who would.The whole seed fund landscape changed. Everyone wanted in. There were new fund types: <a target="_blank" href="https://www.businessinsider.com/why-more-tech-investors-are-starting-rolling-venture-funds-2020-8">rolling funds</a>, and <a target="_blank" href="https://www.businessinsider.com/solo-gps-lone-wolf-vc-investors-competing-despite-funding-slump-2023-8">micro-funds</a>. Pre-seed rounds grew as big as seed rounds. Seed rounds grew so large, they became <a target="_blank" href="https://www.businessinsider.com/seed-stage-funding-deal-trends-2020-12">known as "mango" rounds</a> — as big as previous Series A rounds and so on up the stack.Many of these startups were commanding share prices that, by 2023, couldn't be justified. I recently talked to a startup CEO who became a unicorn in 2021 and when I asked him if he would land the same now, he laughed and said, "May we all live up to our 2021 valuations."Rising interest rates in 2022 crashed the frenzy. Cash conservation became the be-all. Investors grew stingy. Valuations fell. VCs looked at their startup portfolio and quietly, if not openly, chose which ones they would continue to support.They helped some of those startups arrange <a target="_blank" href="https://www.businessinsider.com/seed-startups-venture-capital-funding-rounds-decline-2023-9">short-term funding like bridge or extension rounds.</a> Both of those involve committing to sell more shares at favorable prices to investors and are not ideal for startups. They can result in giving up a bigger chunk of the company at lower prices than a later deal would.And if the startup isn't in excellent shape when that cash ran out, it will most likely be doomed, even if it had a great idea, great tech, a great team and so on.By Q4, 2023, those 2022 extension rounds started running out, one investor told me in September. He predicated that in the last quarter of this year through the first of 2024, the startup "mass extinction" event would take place.<a target="_blank" href="https://www.businessinsider.com/failed-venture-capital-startups-burnt-27-billion-pitchbook-2023-12">3,200 startups have died in 2023</a>, along with $27 billion in venture investment, deal-tracking database Pitchbook says.High profile, recent deaths among the unicorn ranks include <a target="_blank" href="https://www.geekwire.com/2023/convoy-collapse-read-ceos-memo-detailing-sudden-shutdown-of-seattle-trucking-startup/">Convoy</a>, <a target="_blank" href="https://www.healthcaredive.com/news/olive-ai-shuts-down/698455/">Olive</a> and <a target="_blank" href="https://techcrunch.com/2023/11/27/prefab-home-builder-veev-reportedly-shutting-down-after-reaching-unicorn-status-last-year/">Veev</a>.<h2>'Dry powder' is a myth</h2>There should have been a silver lining to all of this.All of that money raised for VC funds during the heat of 2021 should have meant that VCs would be out there funding lots of promising startups, and at bargain prices.But another phenom is also happening.With the IPO market still closed, and startup valuations down, the limited partner investors in venture capital funds have been pressuring their VCs to slow their investing."LPs have been putting pressure on but also asking for ways to get liquidity," one investor told me.This person says that a VC firm with $80 billion under management has created a new <a target="_blank" href="https://www.orrick.com/en/Insights/2023/09/Continuation-Funds--A-Continuing-Trend">continuation fund</a> — a type of fund that allows their LPs to either let their investments ride or cash out a small percentage.This means that at least some of the so-called "dry powder" raised in 2021 is somewhat of a myth.Yes, the LPs did commit that money to funds. Yes, by the end of 2022, dry powder (money raised but not spent) had reached a record high of about $280 billion, <a target="_blank" href="https://pitchbook.com/news/articles/venture-startup-trends-charts-q2-2023">according to Pitchbook</a>. Yes, if a fund puts out a capital call to its LPs, they must pay up, or face potential consequences (should the fund wish to take the politically treacherous step to sue their investors). But the LPs are the VC funds' customers. Angering them when they tell you to slow your roll to help them rebalance their assets is a death wish.<h2>'Greed' may return in 2024</h2>Right now, there are no indicators that we've hit rock bottom. For a shift to happen interest rates may need to drop. The IPO market may need to resume its appetite for cash-burning tech companies. The regulator environment may need to get less hostile to acquisitions from incumbents.In the meantime, startups are facing more harpoons.Seed investor and prolific VC industry secret-spiller, Elizabeth Yin, explained in a <a target="_blank" href="https://twitter.com/dunkhippo33/status/1732498998077129009">recent X thread</a> how VC funds <a target="_blank" href="https://www.businessinsider.com/audits-venture-capital-firms-startup-valuations-2022-12">hire independent auditors to value their startups</a> and report results to their LPs. Many LPs invest in multiple funds. Many LPs are later stage firms. Many funds invest in the same startup. So a mark-down in one fund could be seen and repeated by the others."Now all of a sudden the whole LP world sees that you've been written down," she wrote. And when that startup goes to raise, VCs may already be a no, even though "some of your actual VC investors may not actually think you are a bad company."As startups fail, that brings VC funds down, making this a dangerous time for those who work in venture capital.One of the VCs I talked to quipped, "VC is the best job ever if you're ok with living in constant anxiety with no control."But here's the kicker. As soon as fortunes reverse — as they will — VCs will do it all over again. All the VCs I spoke to agreed. They'll invest, compete, grow frenzied, build another unsustainable bull market.VC works in "fear and greed" cycles, one investor told me. If the IPO market opens up in early 2024, then maybe we'll be "coming out of the fear stage and the question is, are we already about to turn back to greed? I think you're going to see more greed come around, especially if some of these IPOs come around."

A VC cataclysm has begun. Early 2024 will be rough. But it won't change anything.

New Delhi, Mar 2 () The Indian venture capital industry invested record USD 10 billion in 2019, driven by increased deal volume and larger average deal sizes, according to a report. The amount was 55 per cent higher than the money invested by the industry in 2018, the report by Bain &amp; Company's India Venture Capital Report 2020 said. At the current exchange rate, USD 10 billion translates to over Rs 72,000 crore. The report, in partnership with Indian Private Equity &amp; Venture Capital Association (IVCA), said there has been 30 per cent increase in deal volume and 20 per cent rise in average deal size in 2019 over the previous year. "Despite substantial capital deployment, dry powder availability for VC investing in India was at an all-time high of USD 7 billion at the end of 2019, indicating likely continued investment activity in 2020," it added. The term 'dry powder' refers to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations. The VC exit momentum in 2019 was in line with 2018, with secondary sales leading the mode of exits in India with an average exit value of around USD 39 million. "Despite the global economic climate, India's startup and VC ecosystems continue to thrive as investors take a long- term view based on the country's growth potential. We go into 2020 with record-high levels of dry powder, counter-balanced with caution and an underlying optimism in the long-term potential for the ecosystem," Arpan Sheth, Partner at Bain &amp; Company, said. About 80 per cent of the VC investments in 2019 was concentrated in four sectors -- consumer tech, software/ SaaS, fintech and B2B commerce and tech. Consumer tech continued to be the largest sector, accounting for approximately 35 per cent of the total investments with several scale deals exceeding USD 150 million, the report said. Within consumer tech, verticalised e-commerce companies continued to be the largest sub-segment. In addition, there were increased investments in healthtech, foodtech and edtech as well. "The Indian VC industry had a landmark year in 2019. However, India-focused VC investments raised less funds this year, the fundraising outlook for 2020 remains positive among both LPs and GPs (Limited Partners and General Partners)," Sriwatsan Krishnan, Partner at Bain &amp; Company and co-author of the report, said. Following the brief moderation between 2015 and 2017, the VC industry in India has been in a renewed growth phase and that is expected to continue, Krishnan added. The Indian startup ecosystem, one of the top five globally, continued to remain robust and grow rapidly. Between 2012 and 2019, the number of startups in India increased 17 per cent each year, while funded startups increased faster at 19 per cent CAGR in the same period, the report said. Currently, of almost 80,000 startups in India, only about 8 per cent are funded, indicating room for investments, it added. The report said India-focused VC funds raised about USD 2.1 billion in 2019, slightly lower than that in 2018. The dip was the result of marquee funds that had already raised large sums and hence did not go to the market in 2019, it added. "There is a massive pipeline of soon to be unicorns; few of the Indian Unicorns will become decacorns by 2025. All this could not have happened without the support of the current government and the exits driven by first-generation entrepreneurs in the last couple of years," IVCA President Rajat Tandon said. SR SR ANUANU

Indian VC industry sees record USD 10 bn investment in 2019: Report

New Delhi, May 13 () India continued to be the second largest deal market in the Asia-Pacific region in 2019 with over 1,000 private equity and venture capital pacts valued at USD 45 billion - the highest in the last decade, a report by Bain &amp; Company said on Wednesday. Private equity (PE) and venture capital (VC) investment in the country rose to its 10-year peak primarily due to the increasing number of large deals greater than USD 100 million as well as an increase in their average deal size, the firm's India Private Equity Report 2020 said. The report, developed in partnership with the Indian Private Equity &amp; Venture Capital Association (IVCA), also found that exit value in 2019 decreased, finishing at nearly USD 13 billion against USD 17 billion in 2018 (excluding Flipkart's exit). This was still the third-highest for the last decade. The dip over last year was led by a decrease in the number of exits from 265 to 200. India-focused dry powder (marketable securities that are highly liquid and considered cash-like) will remain healthy, but a potential reduction in investments could occur in the first half of 2020, accompanied by a price correction across the board, the report noted. India continued to be the second largest private equity deal market in Asia-Pacific (APAC) with the most growth in the region, it said adding that India's share of the APAC deal market increased to nearly 25 per cent in 2019, and the investment value was about 70 per cent higher than in 2018 and nearly 110 per cent higher than the previous five-year average. Meanwhile, China's PE market witnessed a decline in both deal value and volume due to trade war concerns, social unrest and stringent Renminbi fundraising regulations, the report said. Of the top 15 deals in India - which constituted more than 35 per cent of the total investment value in 2019 - five were in real estate; three in IT and ITES; and the rest across banking, financial services and insurance (BFSI), telecommunications, energy and consumer technology. Notable large investments in 2019 included stakes in Reliance Jio Infratel, Pipeline Infrastructure, Axis Bank, GMR Airports, GVK Airport Holdings and Paytm. Real estate and infrastructure, telecom, IT and ITES, and BFSI contributed to more than 90 per cent of the growth in investment value. BFSI investments were fuelled by deals in banks as well as non-banking financial companies with investments of USD 8.4 billion, while consumer technology attracted USD 7.7 billion of investments in 2019. Almost half of these investments were in vertical e-tailers/marketplaces and fintech companies. "From an investment perspective, we will likely see a short-term dip in investment activity with COVID-19, as already evidenced globally. However, this imminent price correction across the board will present an investment opportunity. "Investors need to triage their portfolio and take actions to adapt to the changes in the economy which includes taking immediate actions to ensure business continuity and plan for value creation to retool their businesses for the future," Arpan Sheth, Partner at Bain &amp; Company and one of the lead authors of the report, said. He added that the market disruption caused by COVID-19 could lead to growth in select pockets such as e-commerce, enterprise technology, healthcare, and on-demand services. Like previous years, the total share of buyouts rose with an increase in growth and late-stage investments. These featured a few large individual buyouts like Reliance Jio Infratel (USD 3.5 billion) and Pipeline Infrastructure (USD 1.8 billion), the report said. With recent investments from global players, competitive intensity in the Indian investment market has progressively increased, with 662 active funds in 2017-19 compared with 553 funds in 2015-17, it added. The report pointed out that the COVID-19 pandemic signals the possibility of a significant impact due to increased global interconnectedness and the virus' high spread rate. India is beginning to face the impact of COVID-19, with major import and export destinations impacted as well as the stock market which has taken a hit in recent months, it said. The report said, based on global financial crisis experience, deals invested during or after a downturn tend to do well. Overall APAC-focused fundraising slowed considerably, dropping to about USD 80 billion in 2019 from nearly USD 200 billion in 2017. This was largely driven by weakening Renminbi-based funds, reflecting the Chinese government's tightened restrictions on PE investments. A majority of investors expect the fundraising environment to be more challenging in the next 12 months, driven by record-setting previous years, cautiousness of a slow economy and limited partnerships being highly selective with increasing competition, the report said. "A strong exit track record will be important for future investments. Having seen record investments last year, Software as a Service and cross-sector technologies will be the attractive opportunities for investors in the future," Sriwatsan Krishnan, Partner at Bain &amp; Company and a co-author of the report, said. With an unpredictable public market, strategic sales became the preferred mode of exit, accounting for about 50 per cent of exit volume. SR ANSANS

India sees PE, VC deals worth USD 45 bn in 2019, highest inflow in 10 yrs: Report

Kleiner PerkinsKleiner Perkins Partner Mamoon Hamid.<ul class="summary-list"><li>On Thursday, <a href="https://www.businessinsider.com/tech-vc-investors-alumni-kleiner-perkins-2019-4">Kleiner Perkins</a> partner Mamoon Hamid <a href="https://twitter.com/mamoonha/status/1238174374105976832">tweeted</a> that the Silicon Valley firm had just landed a Series A funding deal, its first completely with an entirely remote team.</li><li>According to principal Bucky Moore, the Kleiner Perkins team conducted the pitch meeting and follow-ups on <a href="https://www.businessinsider.com/zoom-eric-yuan-coronavirus-video-conferencing-earnings-2020-3">Zoom video conferencing</a>, and that the deal took roughly the same time as traditional in-person meetings.</li><li>Moore told Business Insider that he has been advising startups that are able to avoid fundraising for the near term as the <a href="https://www.businessinsider.com/andreessen-horowitz-coronavirus-fears-handshake-ban-2020-2">uncertain climate may make investors slower to act</a> and less likely to invest.</li><li>Moore, who was part of the deal team for Kleiner Perkins, clarified that he had known the entrepreneur in question for several months, and had already met in person prior to the <a href="https://www.businessinsider.com/investor-advice-for-startups-during-coronavirus-outbreak-2020-3">remote work directives set in place earlier this week</a>.</li><li><a href="https://www.businessinsider.com/prime?module=article&amp;area=summary">Click here for more BI Prime stories</a>.</li></ul>Tucked in between news of markets in turmoil and growing US coronavirus cases on Thursday was a healthy dose of venture capitalist optimism.Mamoon Hamid, partner at <a href="https://www.businessinsider.com/tech-vc-investors-alumni-kleiner-perkins-2019-4">Silicon Valley venture stalwart Kleiner Perkins</a>, tweeted that he and his team had signed a Series A term sheet for a as of yet undisclosed startup. The deal, he claimed, was the first of its kind since <a href="https://www.businessinsider.com/andreessen-horowitz-coronavirus-fears-handshake-ban-2020-2">many VC firms have chosen to go entirely remote</a>, ditching the glass-walled conference rooms in Silicon Valley and San Francisco."Our first signed term sheet for a Series A investment in our new 'WFH' world," <a href="https://twitter.com/mamoonha/status/1238174374105976832">Hamid tweeted</a>. "From partner meeting pitch to investment decision - all done remotely and completely distributed. While we crave in-person interaction, this can and will work. Perhaps 'remote work' is the new platform."The deal isn't entirely closed yet, according to Kleiner Perkins principal Bucky Moore. He was part of the original deal team that scouted the company in question, and told Business Insider that he had been following the entrepreneur in question for roughly nine months prior to the signed term sheet Thursday. He said he had met the entrepreneur in person before the remotely finalized deal, but several partners had not."They didn't have plans to raise a Series A because they were achieving milestones that had been set at the seed round," Moore told Business Insider. "Things started to heat up in that respect at the same time this new way of working became commonplace."Moore said that the deal team had initially planned to bring the entrepreneur in to meet the firm's partners, a common final step in securing funding, on Monday. But once it was clear the partners would be working remotely, Moore said he was able to get the entrepreneur on board with pitching the firm <a href="https://www.businessinsider.com/zoom-eric-yuan-coronavirus-video-conferencing-earnings-2020-3">remotely via Zoom</a>. Just four days and several negotiations over the phone later, the term sheet was signed and the process will begin moving forward with both parties' legal counsels, which also relies on email and phone communication instead of in-person meetings."I think it's unchanged, which is why this is interesting," Moore said of the deal's timeline. "When a partner meeting happens, we decide what we want to do from there, communicate that to the team, and then we start negotiations and make an offer. Usually that all happens over a week."By Friday, several other early-stage investors had gone to Twitter to similarly trumpet term sheets signed and deals closed in <a href="https://www.businessinsider.com/investor-advice-for-startups-during-coronavirus-outbreak-2020-3">Silicon Valley's new reality as a show of confidence to worried founders</a>. Moore said that it is likely that "business will continue" - he said that he has been advising startups that need to fundraise to be cautious and well aware of the financing situation of the entire ecosystem."If you have the resources to do so, it's prudent to take a step back," Moore said. "In any seed company's case, they are inherently under-resourced and three are a lot of those companies that need to raise and have to do that now. That's the group of companies that are going to have to bear the brunt of what I expect to be indecisiveness while people are trying to figure out what's going on."Firms like Kleiner Perkins, however, have plenty of dry powder at their disposal and aren't going to hold back on funding entirely. That won't be true at every VC firm, he said, and desperate founders should think long and hard about taking on unvetted investments or debt financing if they can avoid it. "Otherwise, just tighten your belts and keep your heads down building the company," he said. <h3>NOW WATCH: <a href="https://www.businessinsider.com/salomon-recycles-shoes-ski-boots-2020-2">How running shoes can be recycled into ski boots</a></h3>

Top VC firm Kleiner Perkins says it signed the first term sheet of the 'work from home' era. Here's how it came together.

<a href="https://www.flickr.com/photos/dlee13/14072309735/">Flickr/dlee13</a><a href="http://www.pepsico.com/brands">PepsiCo</a> - the food company that makes snacks like Doritos, Cheetos, and Quaker Oats cereal - is looking for alternative protein sources for its products. On the open innovation site NineSights, PepsiCo recently <a href="https://ninesights.ninesigma.com/web/pepsico-gallery/needs-listing/-/needs-portlet/viewNeed?_NeedsPortlet_WAR_NeedPortletsportlet_needId=778">posted a request</a> for "new and novel protein sources for usage in their snacks and beverages." These non-traditional proteins could include plant-based protein, mycoprotein (a protein made from mushrooms), or insect protein.The request also mentioned that PepsiCo has already done extensive work with soy, moringa (a protein powder made from dried leaves), duckweed, cricket powder, pea protein, dairy, single cell protein, and mealworm powder (generally made from roasted and milled mealworms).PepsiCo declined to comment on any specific plans, but spokesperson Andrea Foote said the company's R&amp;D team is working on the project, which is not tied to any one brand.Other food giants are also experimenting with novel types of proteins, often made from plants. In 2016, Campbell Soup Co. <a href="http://www.foodbusinessnews.net/articles/news_home/Business_News/2016/08/Campbell_Soup_refreshes_approa.aspx?ID=%7B970CC84D-73E7-47BD-8DB5-5B76882C3301%7D&amp;cck=1">started selling</a> a line of non-dairy, plant-based milk with 10 grams of pea protein per serving. Later that year, Tyson Foods, one of the world's largest meat producers, <a href="http://www.reuters.com/article/us-tyson-foods-funds-idUSKBN13U2TV">launched</a> a venture capital fund worth $150 million that invests in startups developing meat alternatives. The VC arm of General Mills, 301 Inc., has also <a href="https://www.nytimes.com/2016/10/11/business/tyson-foods-a-meat-leader-invests-in-protein-alternatives.html">invested</a> in the plant-based protein startups Beyond Meat and Kite Hill, which makes non-dairy cheeses, milks, and yogurts.PepsiCo's request may reflect a growing consumer shift away from non-traditional protein sources. US sales of foods with alternative proteins totaled $4.9 billion in 2016, <a href="https://www.nytimes.com/2016/10/11/business/tyson-foods-a-meat-leader-invests-in-protein-alternatives.html">according to</a> the Plant-Based Foods Association. The research firm Markets and Markets predicts that the meat substitutes industry will be worth <a href="http://www.marketsandmarkets.com/PressReleases/meat-substitutes.asp">$5.96 billion</a> by 2022."Consumers the world over have embraced a variety of high-protein foods, such as Greek-style yogurt and beef jerky style meat products," PepsiCo's request reads. "Unfortunately, that increased level of protein in the product can negatively impact consumer perceptions by adversely impacting texture, taste, color, etc."Ideally, PepsiCo said it would like to find a high-protein source that has a pleasant taste. Additionally, the company said the protein should be non-GMO, have "a good sustainability story," and have an "easy to pronounce and common" name that avoids "chemical-sounding ingredients." <h3>NOW WATCH: <a href="http://www.businessinsider.com/hidden-mac-macbook-keyboard-shortcuts-video-guide-2017-4">16 keyboard shortcuts only Mac power users know about</a></h3> Please enable Javascript to watch this video

PepsiCo has experimented with mealworm powder for its snacks and drinks

<ul><li>The Indian <keyword id="10600982" type="General" weightage="50" keywordseo="B2B-SaaS" source="Orion">B2B SaaS</keyword> industry continues to have a bullish outlook for 2023 despite global headwinds. </li><li>Four out of 10 Indian B2B SaaS CXOs are targeting over 100% ARR growth. </li><li>The majority of such companies are from AI, HCM, Fintech and CRM/CDP SaaS segments.</li></ul>Unmoved by recessionary trends of the past year, the Indian B2B SaaS industry continues to have a bullish outlook for 2023, says a report by Ernst &amp; Young in partnership with Upekkha Value SaaS Accelerator. It states that Indian SaaS growth is highly capital-efficient by default, across stages. Eight out of 10 Indian <keyword id="6756963" type="General" weightage="100" keywordseo="SaaS-companies" source="Orion">SaaS companies</keyword> have a burn multiple of under 1.5x. Globally, a burn multiple of less than 2-3x is a good state for growth stage — companies with $1 million to $100 million Annual Recurring Revenue (ARR). “Indian B2B SaaS is about 2x capital efficient compared to its global counterparts. This places them well, when the capital ask shifts from ‘growth at all costs’ to ‘profitable growth’,” says Kamalanand Nithianandan, partner, Business Consulting, EY India. The growth outlook is balanced by financial and operational prudence, reflecting strong focus on building and scaling capital efficient businesses, says the report titled ‘Bellwethers of Indian SaaS’. <cmsannotation type="cmsannotation" annotationid="Targeting ultra &amp; hyper growth" comment="subhead2" text="Targeting ultra &amp; hyper growth">Targeting ultra &amp; hyper growth</cmsannotation> Insights from the survey reveal that four out of 10 Indian B2B SaaS CXOs are targeting over 100% ARR growth (ultra-growth). A majority, eight out of 10 CXOs, are targeting above 50% ARR growth (hyper-growth) in 2023, as per the survey conducted by EY India and Upekkha. The majority of companies tagreting ultra-growth are from AI, HCM (human capital management) fintech, customer resource management (CRM) and customer data platform (CDP) segments. The funding scenario for Indian SaaS companies is also expected to remain bullish. The report highlights that with expected economic recovery in the second half of 2023 and availability of dry powder within the SaaS focused Indian VC/PE ecosystem, funding activity is expected to gain traction. “This presents an opportunity for Indian SaaS companies with demonstrated profitability to raise capital at favourable terms and double down on growth,” the report says. Alternative funding instruments, such as convertible notes, were emphasized against the backdrop of access to equity funding due to rising inflation rates. According to the report, 60% of company CXOs reported product innovation, pricing changes and partner-led expansion as their top strategic priorities. Top challenge inhibiting growth was ‘delay in customer closure cycle’ for 51% CXOs, whereas sales inefficiency came next for over 41% CXOs. Hiring and retention continue to be a key challenge, but CXOs also emphasize on adopting reskilling and training strategies to mitigate the talent shortage risk. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/stock-price-run-up-in-paytm-nykaa-zomato-pb-fintech-delhivery-could-see-large-shareholders-cashing-out-bofa/articleshow/98274102.cms">Stock price run up in Paytm, Nykaa, Zomato, PB Fintech &amp; Delhivery could see large shareholders cashing out - BofA</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/tech/apps/news/vr-app-allows-users-to-revisit-memories-previously-recorded-on-their-smartphones/articleshow/98275527.cms">This app is straight out of Black Mirror — it lets you capture and revisit memories in virtual reality</a>

Indian B2B SaaS companies are 2x more capital efficient than global peers: EY report

<ul><li>Future returns in the <keyword id="11895235" type="UNKNOWN" weightage="60" keywordseo="stock-market" source="Orion">stock market</keyword> hinge on the pace of technological innovation, according to DataTrek.</li><li>"Technology-led innovation is the only pathway to higher returns from here," DataTrek said.</li><li>To track the pace of technological innovation, investors should watch the pace of venture capital funding.</li></ul>"Generational returns" in the stock market have historically occurred in 20-year waves and have been driven by different long-term trends, according to a Tuesday note from <a href="https://www.datatrekresearch.com/">DataTrek.</a>From the 1940s to the early 1960s, 20-year compounded annual returns in the <a href="https://markets.businessinsider.com/futures/s&amp;p-500-futures">S&amp;P 500</a> were as high as 17% as the US economy boomed after World War II. And from 1980 to 1999, similar returns were seen as interest rates fell and the internet was born.But over the past 20 years, compounded annual returns have fallen to the single digits thanks to two separate bear <keyword id="11893875" type="UNKNOWN" weightage="100" keywordseo="markets" source="Orion">markets</keyword> in 2001 and 2009, which led to precipitous declines of more than 35% in the S&amp;P 500. Those back-to-back bear markets have set up the S&amp;P 500 for heightened gains in the future, but only if the pace of technological innovation continues to accelerate, according to DataTrek co-founder Nicholas Colas."Technology-led innovation is the only pathway to higher returns from here. The pattern of prior peak long-run returns shows that there must be powerful, fundamental drivers of strong equity returns," he said. But this time around, future US stock market returns are being held back by two factors: America is not the world's only economic superpower like it was during the post-World War II economic boom, and interest rates are no longer in a secular decline like they were during the 1980s and 1990s."All that's left is growth – earnings growth, specifically – from technological innovation to create future above-average stock market returns," Colas explained.That's why it's important investors track trends in venture capital funding, as they are usually the first to invest in innovative companies that ultimately go public and drive future equity returns. "Owning the index for the next 20 years is ultimately a bet that, right now, somewhere in a VC conference room a founder is pitching the next big idea that will one day be a large public company...This is the reason we pay so much attention to venture capital funding trends," Colas said.But VC funding has pointed lower so far this year. In fact, it fell 13% in the first quarter relative to the fourth quarter to $160 billion, a decline public equity investors don't want to see.That decline is especially tough for growth-minded investors that buy profitless innovation stocks. And Colas said if VCs are pulling back on late-stage investments, it may suggest concerns that market valuations will remain under pressure.But despite the decline in funding last quarter, the longer-term trend in VC funding remains up and to the right."Venture capital still has a lot of dry powder to invest from its 2020-2021 fundraising cycles. That is good news for long-term US equity investors, even if we may not see the results of this year's VC investments for a decade," Colas concluded.<div type="image" title="S&amp;P 500 compounded annual returns" height="1060" width="1590" msid="90690149" hostid="261"></div>

'Generational returns' in the stock market will be driven by technological innovation, DataTrek says. Here is the key indicator to track.

<div class="KonaFilter image-container display-table"><div><div class="image on-image">BirdBird CEO Travis VanderZanden's company was among the tech startups that cashed in on the venture funding boom in the first half of this year.</div></div></div><ul><li>The amount of money flowing into venture-backed companies jumped to $57.5 billion in the first half of this year - up 50% from the same period a year earlier, according to a new report from PitchBook and the National Venture Capital Association.</li><li>The lion's share of the dollars flowed into software companies and those based on the West Coast. </li><li>Much of the boom is coming from nontraditional venture investors, such as private equity firms.</li></ul> For entrepreneurs looking to raise money for their tech startups, this year has been the best of times.Venture capital-backed firms raised a whopping $57.5 billion in the six months ended June 30, according to a <a href="https://pitchbook.com/news/reports/download/2q-2018-pitchbook-nvca-venture-monitor?key=fCeZFwpgtl">new report</a> from Pitchbook and the National Venture Capital Association. To put that in perspective, that's more than was invested in such firms in any full year between 2008 and 2013, and it's 50% more than was invested in the first half of last year. "For an industry that has been characterized by capital availability over recent years, the first half of 2018 has only exacerbated feelings of excess," Pitchbook and the NVCA said in the report. The report continued: "To say capital availability is high would be putting the true state of the US VC industry lightly."But if you wanted to get some of that cool venture cash, your best bet was to be in the software business - and to be located on the West Coast. Software startups raked in $23.7 billion in venture investments in the first half of this year. That's about 41% of the total, and about even with the same period last year. They also accounted for about 42% of all venture deals in the first six months of this year.Some 62% of all the venture capital money invested - and 40% of the deals - in the most recent period went to West Coast based startups. In the same period last year, startups based in San Francisco, Seattle and other West Coast locations accounted for 55% of the money invested and 41% of the deals.Overall, the number of venture investments ticked up only slightly, from 3,917 in the first half of 2017 to 3,997 this year. But the size of those deals swelled. For example, the median seed-stage investment jumped from $1.6 million in the first half of last year to $2.1 million this year. Meanwhile, the median amount invested in Series B round jumped to $29.3 million from $24.3 million for all of last year.Interestingly, much of the money flowing into venture-backed startups isn't coming from traditional venture capital firms. In fact, about 63% of the total dollars invested in the first quarter came from private equity and other nontraditional sources.And it looks like the good times will continue to roll. Venture capitalists raised $20.2 billion in the first half of the year, up from $19.1 billion in the same period last year, putting the industry on track to top $30 billion in funds raised for the fifth year in a row."We don't believe that current trends will subside in the near term," PitchBook and the NVCA said in the report.The new funds flowing in are "adding dry powder to a market already awash with capital," they continued. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/social-entrepreneurship-venture-capitalist-ross-baird-investing-2018-5">80% of startup money goes to 3 states - here's what one visionary is doing to help spread the wealth</a></h3> <div> </div> </div>

Venture investment topped $57 billion in the first half of this year - and the money will probably keep on flowing

Hello, readers.Happy (belated) Thanksgiving! Most probably think of Black Friday and Cyber Monday as make-or-break shopping days for retailers. But as you might expect, here on the finance team we're more focused on the payments and card companies that help underpin all that spending. Turns out, <a href="https://www.businessinsider.com/paypals-visa-mastercard-partners-ebay-partners-payments-2019-8">PayPal </a>is already planning for the 2020 shopping rush. <a href="https://www.businessinsider.com/paypals-cto-public-cloud-payments-google-gcp-2019-11">As we reported this week,</a> the payments giant is working to move a portion of its services - including parts of transactions - into the public cloud for the first time. PayPal's CTO told us that the company is aiming to get 25% of traffic onto the Google Cloud Platform by the next holiday shopping season. We've already <a href="https://www.businessinsider.com/aws-google-public-cloud-providers-targeting-exchanges-2019-10">written a ton</a> about how financial firms (recently, <a href="https://www.businessinsider.com/ibm-is-launching-a-public-cloud-geared-towards-wall-street-2019-11">even some holdouts</a>) are slowly but surely <a href="https://www.businessinsider.com/banks-public-cloud-aws-google-microsoft-2019-3">embracing the public cloud.</a> PayPal's tech chief <a href="https://www.businessinsider.com/paypal-tech-data-innovation-stripe-square-2019-9">Sri Shivananda</a> explained why, for ecommerce payments in particular, it makes sense given seasonal extremes in volume. "When you run something on-prem, you build capacity for the peak of the peak, and you are holding on to that capacity. You paid for it, and you continue to depreciate it every day," he told us. <a href="https://www.businessinsider.com/paypals-cto-public-cloud-payments-google-gcp-2019-11">Read all the details on PayPal's plans here. </a>American Express - both a card network and issuer - may be associated more with corporate cards and airport lounge perks, but for 10 years it's also put a lot of effort into pumping up its own post-Thanksgiving shopping promotion for small businesses. Banks have <a href="https://www.businessinsider.com/amex-is-testing-out-mortgage-offers-with-select-customers-2019-10">beefed up rewards</a> on their own cards, which has in turn has been upping the pressure on AmEx to get in front of more people in more places. (Oh, and last week, <a href="https://www.wsj.com/articles/amex-is-paying-up-to-get-businesses-to-accept-its-cards-11574109204">the Wall Street Journal reported</a> that AmEx has been <a href="https://www.businessinsider.com/wsj-reports-amex-paying-merchants-accept-credit-cards-2019-11">paying some small businesses</a> hefty sign-on bonuses.)A recent AmEx event in New York trotted out "Hamilton" writer and composer Lin-Manuel Miranda as a spokesperson. There, we saw how the card company is hoping it's found a sweet spot blending digital and brick-and-mortar using tech like biometric flavor recommendations for doughnuts and augmented-reality wine bottles. And a FedEx same-day delivery robot was twirling around there, too, making for a mesmerizing GIF ... words can't really do it justice, <a href="https://www.businessinsider.com/amex-debuts-new-tech-pushes-for-small-business-saturday-2019-11">so check out the full story here.</a>We've taken to using the phrase "blockchain shrimp" as shorthand for some of the splashy, tech-heavy card showcases we've been attending over the past few months (<a href="https://www.businessinsider.com/mastercard-launches-blockchain-for-seafood-and-healthcare-service-2019-10">this story should explain the reference.</a>) But the efforts do all tie in with broader trends -<a href="https://www.businessinsider.com/bain-capital-ventures-matt-harris-explains-payments-need-to-do-more-2019-11">VC investors have told us</a> why payments companies old and new are under pressure create a shopping experience as opposed to just moving money from Point A to Point B. Shopping aside, we had some must-reads this week on Wall Street people moves. Goldman Sachs has assembled a team of senior bankers devoted exclusively to building relationships with middle-market private equity firms, a first for the investment banking giant - <a href="https://www.businessinsider.com/goldman-sachs-has-finalized-its-middle-market-private-equity-team-2019-11">read here for details on the key hires.</a> Private equity giants like Blackstone have been expanding their rosters by hiring operating partners to squeeze returns out of portfolio companies that have been bid up by mountains of dry powder. <a href="https://www.businessinsider.com/pe-firms-blackstone-kkr-hiring-more-operating-partners-executives-2019-10">Read more here to learn where firms are looking to do even more hiring. </a>We also rounded up the biggest investment banking people moves of 2019: <a href="https://www.businessinsider.com/top-40-dealmaker-hires-departures-in-2019-by-investment-banks-2019-11">see the full list of 40 here.</a> We discussed some of the key factors that shaped hires and exits across Wall Street, and how the turmoil at Deutsche Bank meant that competitors swooped up at least 15 MDs in the US alone so far this year. So to do that justice, we decided to also assemble a <a href="https://www.businessinsider.com/deutsche-bank-top-dealmaker-departures-in-2019-exodus-2019-11">breakout of the must-know Deustche Bank departures. </a>Keep reading below to see how we unpacked the proposed <a href="https://www.businessinsider.com/charles-schwab-td-ameritrade-deal-reports-prompt-analyst-questions-2019-11">Charles Schwab-TD Ameritrade deal</a>; heard one real estate exec's take on how to fix affordable housing; and explain what exactly a family office is and isn't. Plus - a roundup of the latest fintech and proptech news. Enjoy the weekend!Meredith <h2>Fintech and propetch news</h2><ul><li><a href="https://www.businessinsider.com/softbank-tencent-lead-150-million-investment-in-argentinas-uala-2019-10">Ualá, a fast-growing personal-finance app in Argentina, just closed a $150 million fundraising led by Tencent and SoftBank's Latin America innovation fund</a></li><li><a href="https://www.businessinsider.com/financial-advisers-on-robo-advice-wealth-management-technology-2019-11">Here's what financial advisers say is the most overhyped wealth tech, and which tools they think will actually help them in the next 5 years</a></li><li><a href="https://www.businessinsider.com/proptech-companies-that-are-changing-the-financials-of-home-ownership-2019-11">12 proptech startups that have won millions in investor backing to upend how you pay for your house</a></li><li><a href="https://www.businessinsider.com/vc-investors-bain-citi-insight-andreessen-horowitz-fintech-founders-pitches-2019-11">We asked 4 VC investors what they look for in a fintech founder: they want someone who's 'gritty' and has 'transgressive' ideas, but can also take advice</a></li><li><a href="https://www.businessinsider.com/squarefoot-hires-former-savills-president-michaeel-colacino-2019-11">Fresh off a $16 million funding, office space startup SquareFoot just hired a Savills veteran who brokered mega New York real estate deals</a></li><li><a href="https://www.businessinsider.com/warburg-pincus-backed-fintech-facet-wealth-client-referrals-growth-2019-11">Financial-planning startup Facet Wealth is using Netflix-style pricing to scoop up clients that other firms turn down for being too small</a></li></ul><h2>Charles Schwab's $26 billion deal for TD Ameritrade is an aggressive play for size that was set in motion before brokers started slashing commissions</h2>Charles Schwab ended days of speculation on Monday by announcing plans to buy its smaller rival <a href="https://www.businessinsider.com/category/td-ameritrade">TD Ameritrade</a> in an all-stock deal valued at about $26 billion.That sets the stage for a megamerger that would remake the US <a href="https://www.businessinsider.com/category/wealth-management">discount brokerage</a> landscape, and it comes after rapid-fire moves to slash commissions rocked the industry and fueled chatter that consolidation and cost-cutting would follow.The San Francisco-based Charles Schwab and the Omaha, Nebraska-based TD Ameritrade, the two largest publicly traded US discount brokerages and registered investment adviser custodians, would together oversee some $5 trillion in assets. Deal talks were underway before the two discount brokerages announced they would eliminate online trading commissions for US stocks and exchange-traded funds in October, a source familiar with the matter said, and scaling up amid the industry's fee pressure was a main driver.<h2><a href="https://www.businessinsider.com/inside-26-billion-charles-schwab-td-ameritrade-deal-2019-11">READ THE FULL STORY HERE</a></h2><h2>Family offices are gaining visibility, but remain tricky to define. Here's how an HSBC private bank exec explains the term to ultra-rich clients.</h2>When it comes to overseeing the wealthiest families' complicated financial lives, executives toss around the phrase "if you've met one family office, you've met one family office." In other words, no two family offices are the same, because no two families are the same.Pinpointing the precise size of the single- and multi-family office universe is difficult given the secrecy with which many of them operate. <a href="https://www.businessinsider.com/family-offices-angling-for-more-visibility-power-direct-investments-2019-10">Business Insider has previously reported</a> that family offices, historically an opaque corner of the wealth universe, are seeing slightly more light than in the past. That's thanks in part to the desire to partake in more direct deals (the practice of investing directly in a company rather than through a vehicle like a fund.)Carly Doshi, the head of philanthropy and family office governance at HSBC's private bank for the Americas, recently spoke with Business Insider about how she explains the term to ultra-rich families, and what deploying a family office actually looks like in practice. <h2><a href="https://www.businessinsider.com/family-office-wealth-management-explainer-hsbc-exec-carly-doshi-2019-11">READ THE FULL STORY HERE</a></h2><h2>Developers have zero incentive to fix the affordable-housing crisis. Here's what one real estate exec thinks could change that.</h2>Americans are spending 37% of their income on housing expenses, seven percent higher than the standard measure of housing affordability.<a href="https://www.businessinsider.com/housing-affordability-declines-to-lowest-in-nearly-a-decade-attom-2018-6">Housing affordability is plummeting</a>, <a href="https://www.housingwire.com/articles/u-s-housing-market-experiences-largest-inventory-decline-since-2018/">inventory is declining</a>, and the high cost of labor and construction makes building new middle-income housing financially untenable for developers. These factors have led to a squeeze in middle-class housing, one that's led venture capitalists to invest in construction tech that drives the cost of development down, and activists to push for rent control measures across the country. At <a href="https://www.businessinsider.com/four-portfolio-managers-overseeing-17-billion-have-left-nuveen-2019-3">Nuveen's</a> Real Estate Roundtable 2020 event last week, James Martha, managing director and head of housing sector in the Americas, highlighted middle-income rentals as a sector of concern. Simply put, there isn't enough affordable housing, and developers aren't incentivized to build more affordably-priced stock. <h2><a href="https://www.businessinsider.com/how-rent-control-prefab-housing-can-fix-the-housing-crisis-2019-11">READ THE FULL STORY HERE</a></h2><a href="https://www.businessinsider.com/intelligence/10-up-and-coming-fintechs-2019?IR=T&amp;itm_source=businessinsider&amp;itm_medium=ctgr_bii&amp;itm_term=ctgr_leadgen&amp;itm_content=finance&amp;itm_campaign=10-up-and-coming-fintechs-2019-2"></a>

PayPal puts a move to the public cloud on its wishlist; the must-know banking hires and exits of 2019

<div class="KonaFilter image-container display-table"><div><div class="image on-image">REUTERS/Mike SegarA worker sweeps the floor of the New York Stock Exchange after the close of the final trading session of 2009 December 31, 2009. </div></div></div><ul><li>In a sweeping new report on the state of venture capital, Goldman Sachs analysts revealed new findings about the performance of private and public markets.</li><li>The firm found that - over the last two years - the biggest newly public companies would've created more value for themselves by staying private, because the actual value they've earned in the public market has significantly lagged.</li><li>In other words, it may have paid to stay private between 2017 and 2018.</li><li>This dynamic is historically unusual, underscoring both a broader trend in companies staying private longer, and the importance of monitoring how <a href="https://www.businessinsider.com/2019-was-supposed-to-be-a-banner-year-for-ipos-but-now-its-turning-into-a-shitshow-2019-1">this year's IPO slate</a> performs.</li><li>Indeed, this shift has only appeared twice in the past 25 years, both at harrowing times for US markets - once before the dotcom-bubble burst, and once before the financial crisis, the analysts said.</li></ul>"Fortune favors the bold," the oft-quoted proverb goes. It also favors the private market.A comprehensive new report from <a href="https://markets.businessinsider.com/stocks/gs-stock" target="_blank" rel="noopener">Goldman Sachs</a> found that - over the last two years - the biggest newly public companies would've created more value for themselves by staying private. That's because the actual value they've earned in the public market has significantly lagged.That's historically rare, according to the bank's analysts, who found that gains in the public market generally tend to outpace those of the private market.Indeed, the trend over the last two years in value creation migrating from the public to private spheres has only occurred twice over the last quarter-century - between 2006 and 2007, prior to the financial crisis, and between 1998 and 2000, prior to the tech bubble.While noting that any kind of analysis attempting to quantify private-market performance can be "extremely difficult," the analysts found a clear shift in "alpha from public to private markets." "With the formation of mega funds like Softbank's $100bn Vision Fund, record levels of dry powder in other funds, and continued strength in VC fundraising driving larger dollar deals on average, the data would suggest that investors and management teams increasingly prefer to exit via later stage funding rounds given greater scrutiny over public financial disclosures and uncertainty around relative availability of growth capital post-IPO," the analysts led by Heath Terry wrote.The report underscores both the broader trend in companies staying private for longer periods of time and the importance of monitoring how large IPOs expected in 2019 perform.See below for one chart the analysts included, which illustrates just how striking the difference was in 2017 and 2018 when it came to gain in private companies, relative to the public market.Indeed, some years did in fact see private gains top those in the public market, but never two years in a row - other than the two periods that Goldman Sachs highlighted. <div class="KonaFilter image-container display-table"><div><div class="image on-image">Goldman Sachs"Aggregate annual public gains vs. annual private gains."</div></div></div>The analysts explained their methodology in comparing the public and private markets.While a slew of high-profile companies like Uber, Lyft, <a href="https://markets.businessinsider.com/news/stocks/slack-ipo-what-is-a-direct-listing-2019-1-1027862628">Slack</a>, and Airbnb are expected to debut as public companies this year, experts <a href="https://www.businessinsider.com/2019-was-supposed-to-be-a-banner-year-for-ipos-but-now-its-turning-into-a-shitshow-2019-1">told Business Insider's Becky Peterson</a> last month that elements like the partial government shutdown and <a href="https://www.businessinsider.com/stock-market-volatility-increasing-trade-recommendations-from-goldman-sachs-2018-12" target="_blank" rel="noopener">stock-market volatility</a> have thrown a wrench in some of those plans.One of the most notable IPOs over the last couple of years that significantly underperformed the S&amp;P 500 <a href="https://markets.businessinsider.com/stocks/snap-stock">Snap</a>, which has seen shares fall 45% since listing in early 2017.Another 2017 inital public offering, <a href="https://markets.businessinsider.com/stocks/aprn-stock">Blue Apron</a>, <a href="https://markets.businessinsider.com/news/stocks/blue-apron-stock-price-tumbles-below-1-first-time-2018-12-1027818501">has now lost most of its market value</a>, trading around $1.54 on Thursday. The stock debuted at $10 per share in June of 2017.Read more: <ul><li><a href="https://www.businessinsider.com/are-tech-stocks-cheap-investing-opportunity-in-one-area-2019-2">Everyone thinks the market's hottest tech stocks are too expensive - but new research suggests one segment is offering a major bargain right now</a></li><li><a href="https://www.businessinsider.com/citis-innovation-chief-explains-how-to-kill-technology-projects-2019-2">Citi's innovation chief says that employees ask her to kill their tech projects, and it helps the whole company move faster</a></li></ul>Get the latest Goldman Sachs stock price<a href="http://markets.businessinsider.com/stock/GS-Quote"> here.</a> <div class="margin-top"> <h3>NOW WATCH: <a href="https://www.businessinsider.com/roger-stone-donald-trump-richard-nixon-2017-2">Roger Stone explains what Trump has in common with Richard Nixon</a></h3> <div> </div> </div>

New Goldman Sachs research suggests companies are better off skipping IPOs and staying private - a rare development that's preceded both the financial crisis and tech bubble

<div class="KonaFilter image-container display-table"><div><div class="image on-image">YouTube</div></div></div><ul><li>Union Square Advisors is a boutique investment bank focused on tech companies.</li><li>Now in its 10th year, the firm keeps tabs on all the unicorns roaming the world and primarily works on transactions in the $1 billion neighborhood. </li><li>Founder and chairman Carter McClelland says sorting out the real unicorns from the pretenders requires investigating businesses up close and knowing every single board member and investor. </li><li>Union Square is private and doesn't disclose revenue, but it has had record performance in three of the last four years, and the firm pulls in well over $1 million in revenue per employee, McClelland said.</li></ul> The past decade has seen an unprecedented rise in tech entrepreneurship, with $1 billion "unicorns" morphing from a rare creature to a mundane sighting in the process.And as enthusiastic investors clamored to grab equity in the next Google, Facebook, or Uber, many entrepreneurs have commanded <a href="http://www.businessinsider.com/study-nearly-half-of-tech-unicorns-overstate-their-valuations-2017-8">valuations inflated more by hype and gusto</a> than true potential. Besides inducing a chorus of "bubble!" proclamations, this has also led in recent years to <a href="https://www.bloomberg.com/gadfly/articles/2017-05-04/tech-bubble-quietly-burst-for-overvalued-startups-like-cloudera">some painful initial public offerings</a> as well as late-stage investments at deflated valuations.<a href="http://www.businessinsider.com/how-much-blue-aprons-investors-have-made-and-lost-so-far-2017-7">Blue Apron</a> and Cloudera, for instance, each saw <a href="http://www.businessinsider.com/r-software-company-cloudera-raises-225-million-in-ipo-source-2017-4">their valuations buckle</a> under public market pressure this year. Union Square Advisors - a boutique investment bank tailored toward tech mergers and acquisitions - has had a front-row seat for the whole spectacle, getting its hands dirty assessing startups and entrepreneurs for the past 10 years. Carter McClelland, a technology investment banker who first started covering the space in the the 1970s with Morgan Stanley, left his job as chairman of Bank of America Securities in 2006, believing that if he assembled a crew of bankers that actually understand tech, he could steal advisory business away from the bulge bracket banks that dominated the arena. So far, it's worked out for the Union Square founder, partner, and chairman, whose company primarily focuses on deals in the $1 billion valuation neighborhood and below but has in <a href="http://www.usadvisors.com/wp-content/uploads/2017/03/Union-Square-Advisors-Fact-sheet-4.26.pdf">recent years worked on deals involving</a> Dell, eBay, IBM, Nasdaq, and Salesforce.Part of the strategy at the tech investment firm - a team of less than 40 bankers - is to keep close tabs on the more than 150 unicorns roaming the world, as well as the portfolios of the top venture-capital firms."We have a very sophisticated venture portfolio inspection system. We know, we think with pretty good accuracy, where the next 400 companies are coming out of the top-30 venture capital funds," McClelland told Business Insider. "So we cover those to try and be in the way of exits as they occur." <h2>Sorting the real unicorns from the pretenders</h2>Because there's so much capital available right now - dry powder to invest has been at all-time highs in venture capital and private equity - there are more competitors with funding working on a given idea or technology than there really should be, McClelland said.Seven startups have venture backing where there's really only room for two or three. Hence the rash of tech companies experiencing painful revaluations. He said his bank has advised a couple tech companies this year that raised capital at a valuation over $1 billion but now are reckoning with the prospect that they're actually worth half that. "You just have to go to these meetings and listen to the gnashing of teeth," McClelland said. McClelland estimates about a third of unicorns will fail, another third will take a decade to grow into their business model, and the last third are more imminent winners on the track for initial public offerings.So how does Union Square sort out the true gems from the pretenders? "You meet with the companies, you figure out what the business plan is, you try to assess whether it has legs and is it going to survive," McClelland said. "You've got to know every single board member and investor, because they're not aligned."One mistake McClelland often sees is VC investors cowing to a confident, charismatic startup CEO who's convinced success is right around the corner when in reality the company is headed toward the scrap heap. "I think this is just the nature of America, technology, and entrepreneurs - it's their baby, right? Quite frankly, venture capitalists are susceptible to, 'Just give me another year, and I'll get this right,'" McClelland said. He continued: "They did it because they think they can build something great, and they maybe take longer to give up than they practically should."<h2>"We usually just get the phone call."</h2>But business is good for McClelland's boutique investment bank, which celebrated its 10th anniversary in 2017.The firm is often approached directly to work on deals rather than having to pitch its capabilities or compete in a "bake-off" with other investment banks, according to McClelland. Of the roughly 50 assignments the firm typically secures each year, it competes for less than 10% of them, he said. "We usually we just get the phone call. And we don't get it just because we're tall and good looking, we get it because we've invested a year or year and a half with these companies, we get way ahead of the decision, and by the time they have to make the decision, we're the choice," McClelland said.He added the caveat that many firms they're hunting don't wind up in their laps, of course. "It's not a 1,000% batting average."Union Square is private and doesn't disclose revenue, but it has had record performance in three of the last four years, and the firm pulls in well over $1 million in revenue per employee, McClelland said. And given their size and lack of overhead, employees will keep most of that cash, too."Part of the reason you see so much more of the M&amp;A business being done in boutiques is just because it's a better model," McClelland said. "We pay our people a lot more than what the big banks can pay their people." <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/what-is-stopping-bitcoin-from-becoming-mainstream-currency-finance-tech-2017-12">These are the major roadblocks stopping Bitcoin from becoming a mainstream currency</a></h3> <div> </div> </div>

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