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Backlog of Private Companies Grows as IPOs Remain Scarce
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By Brian Gormley, WSJ Pro
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Good day. A backlog of venture-backed companies is growing as venture firms struggle to either sell or take startups public.
But Jeff Grabow, Ernst & Young’s U.S. venture-capital leader, sees reasons for optimism, saying there are still venture firms with significant dry powder to invest that take the long view.
“There will be companies that make it through this dark period,” he said.
There were more than 49,000 venture-funded companies in the U.S. as of the third quarter, said Grabow, rising from 5,350 in 2004. Startup creation jumped over those years as the cost of launching a technology company declined and venture capital, until last year, flowed freely.
Initial public offerings surged in 2021. But there haven’t been enough IPOs or mergers and acquisitions to significantly thin the population of startups, Grabow said. As a result, an overhang of private companies continues to build.
“We’ve had very little liquidity,” Grabow said. “We need more IPOs, we need more M&A, and there will be companies that aren’t successful and will wind down.”
Raising capital also remains difficult as venture firms slow the pace of deal-making. But capital remains available for strong companies that adapt to lean periods, Grabow said.
“There’s still opportunities to build great companies, and there’s still money to fund them,” he added.
And now on to the news...
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Itamar Friedman, co-founder and chief executive of Israeli startup CodiumAI and a reservist in Israel’s military, shared a moment with his young daughters before he deployed. PHOTO: YARDEN YAVNE
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Israel-Hamas war. Members of Israel’s technology sector are reeling from the war unfolding in their country, while trying to keep their businesses going as executives and employees join the fight, The Wall Street Journal reports.
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The Israeli military has called up hundreds of thousands of reservists, including many who are employed by startups at home and abroad, as the nation responds to a sudden attack by Palestinian militants over the weekend.
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Business has been interrupted and meetings canceled as organizations deal with the personal impact of the war.
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Companies and investors with operations in Israel are assessing how to proceed as staff members, including executives, have been drafted or voluntarily enlist. Firms are checking on their staff’s safety, and attempting to provide support for those who are affected. Entrepreneurs are also coordinating volunteer efforts to support the war and those affected by it, as well as setting up contingencies for how their businesses will operate should they join the fight.
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Big Tech Struggles to Turn AI Hype into Profits
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Tech companies are touting new AI technology that can spit out business memos or computer code. They are still figuring out how those products will generate a profit. Generative artificial-intelligence tools are unproven and expensive to operate, requiring muscular servers with expensive chips that consume lots of power. Microsoft, Google, Adobe and other tech companies investing in AI are experimenting with an array of tactics to make, market and charge for it. Microsoft has lost money on one of its first generative AI products, said a person with knowledge of the figures. It and Google are now launching AI-backed upgrades to their software with higher price tags.
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Funds
Grand Rapids, Mich.-based Grand Ventures closed its second fund with $50 million in commitments to invest in seed-stage companies in the fintech, supply chain and DevOps sectors across the U.S. and Canada.
People
JumpCloud, an identity, device and access management platform, named Khanh Tran to the post of chief product officer. He was most recently vice president and head of proactive security at CrowdStrike.
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Harri, a New York-based employee experience platform for the hospitality industry, completed a $43 million growth equity round. Atalaya Capital Management led the investment, which included additional support from Golub Growth.
LimmaTech Biologics, a Switzerland-based vaccine developer, closed a $37 million Series A round from investors including Adjuvant Capital.
HarfangLab, a French cybersecurity startup, closed a €25 million Series A round. Crédit Mutuel Innovation led the round, which included participation from MassMutual Ventures.
SuperOps.ai, a New York-based startup whose technology supports managed service providers, picked up $12.4 million in Series B funding led by Addition and March Capital.
Wanda Fish Technologies, a developer of cultivated fish outside of the ocean, landed $7 million in seed funding led by Aqua-Spark.
Ostium, a London-based startup building a decentralized perpetuals exchange for real world assets, raised $3.5 million from General Catalyst and others.
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ROB DOBI
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