Open Scout - 11

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Startup spotlight

Startup Name: Depot

Geography: US

Description: Depot is a remote container build service that makes image builds 3-14x faster than building Docker images inside generic CI providers. Best of all, Depot's build infrastructure requires zero configuration.

Founder(s) background: Software Engineer @ Era Software, Thorn, Webflow, and Zapproved

Backed by (public source): Y Combinator

Startup Name: Mason

Geography: Sweden

Description: Mason is creating the quickest way to query, visualize, and share data with teams. It combines AI with the best features of data and productivity software, making it faster than ever to get answers from data.

Founder(s) background: Product Lead, Staff Developer @ Shopify

Backed by (public source): Raised $1.7m pre-seed—Creandum, Tobi Lutke (Shopify), Christian Reber (Pitch), Renauld Visage (ex-Eventbrite), and Fredrik Björk (Grafbase)

Gigs: Product Designer, Fullstack Engineer

Startups, don't count on VC "dry powder" to save the day

2022 was undeniably a year marked by weaker fundraising and lower-than-usual deal volumes across PE and VC. According to CB Insights, global venture funding reached $415.1 billion in 2022, a 35% decrease from the record-breaking 2021. The funding slowdown was particularly noticeable in the second half of the year, with Q4’22 funding totaling $65.9 billion—a 64% year-over-year drop that returned to pre-COVID levels.

The reasons for this decline included geopolitical issues, rising interest rates, inflation, potential recessions in any G20 countries, a decrease in Nasdaq and tech valuations, paralyzed decision making, and a bit of a domino effect.

This means that venture capital funds are sitting on large amounts of capital that has yet to be deployed. According to PitchBook's latest review of venture capital funds, global venture firms were sitting on $585.5 billion of capital raised but not allocated as of the end of Q3’22. Similarly, the global private equity industry had a record level of cash reserves available for buyouts and other investments as of December 15, when firms collectively held an estimated $1.96 trillion in dry powder, according to Preqin Pro.

However, this does not necessarily mean that funds will be forced to invest in a down market. In fact, the timeframe over which most funds are expecting to deploy capital has increased to counteract the fast deployment of capital in 2020-21. Funds are being very careful about how money is allocated, taking a more conservative approach.

Investors are still planning to invest, but they are looking for lower valuations and are focusing on businesses with clear metrics proving traction, market fit and growth prospects. The high valuations that founders commanded previously have also certainly decreased. While median and average valuations increased year-over-year, they showed marked declines in 4Q’22, indicating that the market is becoming more favorable for buyers. The capital demand to supply ratio is also the highest it has been in over a decade.

However, exceptional businesses will still attract competition, resulting in the deployment of dry powder and premium valuations.

Microsoft and OpenAI extend partnership

On Monday, Microsoft confirmed plans to invest $10 billion in OpenAI. OpenAI has skyrocketed in valuation and popularity since November. In 2021, OpenAI had roughly a $14 billion valuation, and is now valued at about $29 billion, according to Semafor.

Fundraising tip

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Until next time,Kenneth