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Layoffs Spread to Venture-Backed Startups
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Good day. By running on investor capital—rather than sales—venture-backed startups are often shielded from the kinds of market forces driving layoffs at Twitter Inc., Facebook parent Meta Platforms Inc. and Amazon.com Inc.
But with investor capital running low in recent months, many startups are now looking for areas to cut costs. According to at least one market insider, that includes laying off workers.
Kruze Consulting, a New York-based firm that provides accounting, finance, tax and human resources services for startups, says roughly 30% of its more than 675 venture-funded startup clients have undergone layoffs in recent months. Among later-stage startup clients, which have struggled especially hard for funding over the past year, about 20% have reduced their headcount by more than half, the firm said.
E-commerce startups are cutting the most number of jobs, while software-as-a-service startups are cutting the least, said Healy Jones, Kruze’s vice president of financing strategy.
“It shows the strength of the subscription software model,” Mr. Jones said. “Our data clearly shows that information technology is a bright spot in this market right now,” he said.
Despite squeezing their capital reserves, Mr. Healy said, many startups continue to hold off on new funding rounds, for fear of selling shares at a lower price than in previous rounds.
Investors, too, don’t appear to be in any rush to buy stakes in nascent businesses, amid higher interest rates and turbulent public markets. There were 4,074 fundraising deals for U.S. startups in the third quarter, the lowest number since late 2020, while the amount of dollars invested fell to a nine-quarter low of $43.0 billion, according to analytics firm Pitchbook Data Inc.
Before they make job cuts, Mr. Healy said, some startups have simply decided to “take their medicine” and accept a lower valuation in the current market environment.
After years of low interest rates and easy money, tougher conditions are also prompting startups to refocus on business fundamentals, he said: “Growth at all costs has left the building.”
And now on to the news...
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Note to readers: The WSJ Pro Venture Capital newsletter will take a break for Thanksgiving and will be back in inboxes on Monday.
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Calpers headquarters in Sacramento. The pension plan is in the process of increasing its private-equity target allocation. PHOTO: MAX WHITTAKER/REUTERS
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Calpers Names New Private-Equity Head. The California Public Employees’ Retirement System, which manages about $442.72 billion for retirees and other beneficiaries, on Tuesday said Anton Orlich will lead its private-equity program, WSJ Pro reports.
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Mr. Orlich is the former head of alternative investments at California healthcare giant Kaiser Permanente. Calpers last month named him as managing investment director for its Growth & Innovation group, a newly created position overseeing the pension’s higher-growth, higher-risk investments.
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With Mr. Orlich’s promotion, the Growth & Innovation unit will be folded into the broader private-equity group, the pension system said Tuesday. With $49.2 billion in private-equity assets as of the end of October, Calpers has one of the largest private-equity portfolios among U.S. pension funds.
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66,000
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The number of homes bought by investors in the 40 markets tracked by real-estate brokerage Redfin during the third quarter, down from 94,000 homes during the same quarter a year ago, and marking the sharpest quarterly decline since the subprime crisis.
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Sequoia Capital Apologizes for FTX Investment
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Sequoia Capital, an early backer of Apple Inc., Alphabet Inc.’s Google and Airbnb Inc., apologized to its fund investors in a conference call Tuesday for its $150 million loss on the crypto exchange FTX and vowed to improve its due diligence process for future investments, said people familiar with the matter, The Wall Street Journal reports.
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Sequoia earlier this month wrote off its entire investment in FTX, which filed for bankruptcy protection on Nov. 11 after the crypto exchange struggled to meet a wave of withdrawals.
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In the call, a Sequoia partner said that the firm would be able to push harder to have even early-stage startups’ financial statements audited by one of the Big Four accounting firms, the people said.
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Substantial Amount of FTX’s Assets Stolen or Missing
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Failed crypto exchange FTX’s lawyer said in court on Tuesday that a substantial amount of the startup's assets may have been stolen as a run on customer deposits and a liquidity crunch precipitated a crisis of leadership and led the firm to collapse, WSJ reports.
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“FTX was in the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals,” said James Bromley, counsel to FTX’s new management, at its debut appearance at the Delaware bankruptcy court after the failed exchange filed for the largest-ever crypto bankruptcy case earlier this month.
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Funds
Summit Peak Investments seeks to raise $175 million for its Summit Peak Ventures III LP fund, according to a regulatory filing.
Foresight Ventures launched Foresight X, a $10 million incubator program to invest in blockchain projects.
People
Descartes Underwriting, an insurtech startup focusing on climate and emerging risks, said Louis Bollaert joined the company as chief revenue officer. He was most recently at Aon. In January, Descartes Underwriting said it raised a $120 million Series B round from Highland Europe, Eurazeo, Serena, Cathay Innovation, BlackFin Capital Partners, Seaya Ventures and Mundi Ventures.
Congruence Therapeutics, a startup focused on developing novel small molecules for diseases of protein misfolding, appointed Sharath S. Hegde as chief scientific officer. He previously held the same position at Herophilus. In February, Montreal-based Congruence said it landed a $50 million Series A round from Amplitude Ventures, Fonds de solidarité FTQ, Lumira Ventures, Investissement Quebec, OrbiMed Advisors and Driehaus Capital Management.
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Swell Energy, a Los Angeles-based energy-management and smart grid technology provider, landed a $120 million investment. SoftBank Vision Fund 2 and Greenbacker Development Opportunities Fund I led the round, which included participation from Ares Infrastructure Opportunities and Ontario Power Generation Pension Fund.
CatalYm, a Germany-based startup whose lead candidate is undergoing studies in patients with advanced solid tumors, completed a €50 million Series C round. Co-led by Brandon Capital and Jeito Capital, the investment saw additional support from Forbion, Novartis Venture Fund, Vesalius Biocapital III, Bayern Kapital, BioGeneration Ventures and Coparion.
WorkJam, a Montreal-based frontline workforce app, secured $50 million in Series D funding. Fonds de solidarité FTQ and Inovia Capital led the round, which included participation from Blumberg Capital and Demopolis Equity Partners.
Cobee, a Spain-based benefits-management startup, closed a €40 million Series B round. Octopus Ventures and Notion Capital led the investment, which included contributions from Balderton Capital, Speedinvest and Dila Capital.
GoFreight Corp., a freight forwarding software provider, raised $23 million in Series A funding. Co-lead investors Flex Capital and Headline were joined by LFX Venture Partners, Palm Drive Capital, Mucker Capital, Cornerstone Ventures and Red Building Capital in the round.
PayZen, a San Francisco-based provider of personalized patient financing services, grabbed $20 million in equity led by 7wireVentures, alongside a $200 million warehouse credit facility from Viola Credit. Lee Shapiro, co-founder and managing partner at 7wireVentures, will join the company’s board.
Taktile, a New York- and Berlin-based startup helping businesses make automated decisions, fetched $20 million in Series A funding co-led by Index Ventures and Tiger Global Management.
Turbine, a London-based startup developing a cell behavior simulation platform, closed a €20 million Series A round. Mercia and MSD Global Health Innovation Fund co-led the funding, which included contributions from Day One Capital, Accel, Delin Ventures and XTX Ventures.
Narwhal Technologies Inc., a Gilbert, Ariz.-based software development startup, completed an $8.6 million seed round co-led by Nexus Venture Partners and Andreessen Horowitz.
Popup, an e-commerce platform, raised $3.5 million in preseed funding. Lead investor Accel was joined by Seedcamp, 20VC and others in the round.
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Some big tech rivals supported the U.K.’s investigation into Apple and Google.
PHOTO: HOLLIE ADAMS/BLOOMBERG NEWS
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Workers at the venture capital-backed coffee chain Blank Street are trying to unionize (Daily Dot)
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Motive Partners inks deal to acquire venture-capital firm embedded/capital (Pensions and Investments)
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