In this week's frugal finance news, stocks jumped for the week, with the tech-heavy Nasdaq index gaining nearly 3%. At the big Fed meeting on Friday, Chairman Jerome Powell said the central bank could begin rolling back its economy-boosting money policy this year.
SPAC popularity has grown, along with scrutiny of the IPO alternative SPAC at it again. Since last year, special purpose acquisition companies have dominated the public market. SPACs go public for the sole purpose of one day acquiring a real company and taking them public. DraftKings, Virgin Galactic, and Opendoor all went public by merging with SPACs. SPACs have accounted for about 70% of all IPOs in 2021. So far this year, SPACs have raised a record-breaking $129 billion — already more than they raised in 2020. But as SPAC popularity has grown, so has scrutiny: SPAC lawsuits have tripled this year, including against billionaire Bill Ackman’s SPAC. Many cases involve allegations of misleading investors. Short-selling firms have increasingly scrutinized companies that went public via SPAC. The CEOs of e-truck startups Nikola and Lordstown resigned after a short-selling firm alleged they exaggerated their tech and misled retail investors. SPACs tend to lose a third of their value post-merger on average, according to a study spanning 2019 to 2020. The 50 biggest SPACs have lost 20% in value this year. Not always SPAC-tacular… SPACs offer a faster, and sometimes cheaper, way for companies to go public. A SPAC merger usually happens in three to six months on average, while an IPO can take 3X to 4X longer. Companies that go public via SPAC are also allowed to make sales projections to prospective investors, while IPO companies can’t. Plus, SPACs can sometimes help companies avoid initial mispricing. But with increasing scrutiny of SPACs, we may see more regulation in the future. SPACs can be a double-edged sword.
SPACs’ advantage — a faster, more frictionless path to going public — might also be their weakness. Companies that go public via SPAC sometimes face less oversight than those that IPO. Meanwhile, newly-public SPACs may not be able to provide as many disclosures to investors since their acquisition target has yet to be named, and financial diligence may be narrower. But all investments carry risk – and even the IPO review process, designed to help protect investors, isn’t a guarantee that companies' disclosures are completely accurate.
Pfizer's Covid vaccine received the first full FDA approval last week, with Moderna's expected next. The official greenlight could boost vax confidence — and sales. President Biden wants Americans to get booster shots this fall. Meanwhile, more employers are using “sticks” instead of carrots: CVS, Chevron, and Disney mandated employee vaccination, and Delta is hiking health insurance premiums for unvaccinated workers. But some countries — many in Africa — are still waiting to get their first vaccines. Equal and opposite rehack-tion... Google and Microsoft committed $30B to improve national cybersecurity at President Biden’s summit last week. This month, hackers stole sensitive data on 50M T-Mobile customers in a major cyberheist — the company’s third in two years. Global cybercrime losses skyrocketed to nearly $1T in 2020, and the cybersecurity market is expected to more than double between 2021 and 2028.
Pet e-commerce business Chewy sales soared 47% last year as its 19 million pet parents ordered goodies online for their pandemic pups. Now, Chewy hopes its popular recurring Autoship feature – for everything from Star Wars toys to pup puzzles – will keep online sales strong as in-store browsing returns. We’ll see how pet parents feel when Chewy reports earnings Wednesday. Zoom face ready… Zoom's sales last quarter more than tripled from last year thanks to all our WFH'ing. Since most companies are planning on hybrid workforces, Zoom could lose business to the IRL office life. But as many employers delay return-to-office dates, Zoom might not be sweating when it reports its latest earnings today.
When unicorn valuations are almost average—literally The rapid pace of US venture capital activity in 2021 has translated to similar rampant growth in the valuations at which deals are being priced. Median valuations have increased across all stages, with particularly notable jumps for the largest and most mature startups in our dataset. Illustrating this trend is the growth of the median and average late-stage valuations as of H1 2021 to $130 million and $914 million, respectively, opening the door for an average late-stage valuation over $1 billion by the end of this year. Our US VC Valuations Report has many charts with this trend. Both of these represent an increase of over 85% relative to 2020's values—which were the previous high-water marks. (And maybe it's about time we reconsider the term "unicorn" if $1 billion becomes the average.) Whenever we analyze valuations, capital availability is always one of the first factors we consider. In recent years, the story with capital availability, especially at the late stage, has been a focus on nontraditional investors. These participants are essential to the market for VC deals over $100 million, providing the crossover capital for startups prior to exiting. For nontraditional investors that hold public securities as a core strategy, these crossover rounds can be the start of a long-term relationship, which, along with deep pockets, allows these investors to be less intent on near-term price movements. This diversity of investment goals from the nontraditional cohort is also another driver in elevated prices of nontraditional venture deals. And while constantly increasing valuations bring their own worries around risk or an eventual correction, the liquidity release valve of the exit markets is still alive and well. The valuation step-ups at exit for acquisitions and IPOs were 2.2x and 1.7x, respectively, through H1 2021, both near the highs we've ever recorded. Until we see a change in behavior from corporate buyers and public market investors with their current risk-seeking via the VC ecosystem, we expect robust exit activity to persist:
Our Emerging Tech Indicator report provides a quarterly overview of startups receiving seed and early-stage investments from a select group of top-performing VC firms, and is meant to offer perspective on the products and technologies driving growth opportunities. In the second quarter of 2021, our analysts tracked 211 such deals involving the top 15 VC firms. Key takeaways from the report include: The top five areas of technology investment in Q2 included fintech at $920 million, followed by enterprise SaaS, health and wellness tech, decentralized finance, and ecommerce. ETI deal activity reached $5 billion across the 211 deals, compared with the $6 billion raised across 197 deals in Q1. Our analysts recorded eight ETI deals of over $100 million in Q2, compared with 12 in the previous quarter. The largest deal in Q2 was a $185 million Series A for Forte, the developer of a blockchain-based economic platform.
TPG planning $10B IPO amid PE stock gains After years of speculation, TPG will finally join the small group of private equity giants on the public markets. The firm has brought on JP Morgan Chase and Goldman Sachs to underwrite its upcoming IPO, The Wall Street Journal reported, with a previous report indicating the move could value the storied investor at around $10 billion. It's believed that the firm could begin trading by the end of 2021. TPG has fended off IPO rumors since at least 2018, opting to stay private while its rivals tested the public markets. The firm has made some management moves this year, with Goldman alum Jon Winkelried becoming sole CEO in May and co-founder Jim Coulter becoming managing partner of Rise Climate, an impact investing vehicle that held a first close of $5.4 billion in July. Winkelried was previously co-CEO alongside Coulter. TPG's decision comes as public PE shops Blackstone, KKR, The Carlyle Group and Apollo Global Management have seen their shares surge over the past year, buoyed by increased fee-related earnings and strong investment returns in a thriving US market. The firms also benefited after changing their tax structures from publicly traded partnerships to C-Corps, making their shares more widely available on public indices. News of TPG's listing comes after UK-based Bridgepoint went public in July on the London Stock Exchange at a valuation of £2.9 billion (about $4 billion). Blue Owl Capital, a publicly traded investor that specializes in GP stakes deals and investments in pro sports teams, also made its debut earlier this year when Owl Rock Capital and Dyal Capital Partners merged with a blank-check company.
Why the secondary market is becoming the first priority for PE fund managers Under the pressure of burgeoning competition and a need for increased portfolio diversification, private equity firms are now reaching across other alternative strategies. The second half of 2020 saw a dramatic upswing in secondaries dealmaking, and secondaries fundraising in this period reached a mammoth $85.8 billion raised across 38 funds. Download our new report, 2021 Alternative Investments & Secondaries Market Brief, which analyzes new financial data for trends and insights on how the secondaries market is evolving and maturing. We examine: Private fundraising vs. secondaries fundraising, by type and region Secondaries capital overhang Volume and scale growth in secondaries Growth prospects for alternatives and secondaries.
Warby Parker is going public via a direct listing on the NYSE, the eyeglasses retailer said. In June, the New York-based company confidentially disclosed its intention to publicly list its stock. Warby Parker, founded in 2010, has previously raised $536 million, and was last valued at $3 billion after a private round in 2020, according to data. The company said in its prospectus that it's unprofitable but revenue is growing. Warby Parker lost $55.9 million in 2020 versus a break-even year in 2019. Revenue rose to $393.7 million in 2020 from $370.5 million in 2019. The company listed its top institutional shareholders as Tiger Global, T. Rowe Price, General Catalyst, D1 Capital Partners and Durable Capital, but the size of their ownership stakes wasn't disclosed.
The agricultural industry is at the heart of a global sustainability push to find a way to feed billions of people while confronting climate change. Our recent analyst note—the second in a series on ecological food supply systems—explores environmental threats to agriculture and the technology that has been developed to face them. Examples include: To improve soil health, startups are developing lightweight machinery and analytics that promise more precise and automated farm work. Water reclamation systems and microbial treatments are being deployed to curb the impact of synthetic fertilizer, a major pollutant. Drought and water scarcity have helped drive investment in irrigation tools and indoor-farming startups.
Why a generation of female entrepreneurs can't escape the infamous legacy of Elizabeth Holmes. During the pandemic, executives were forced to turn to video conferencing for their IPO roadshows. Now they don't want to go back. Even with billions of dollars in funding behind them, farmtech startups are still susceptible to bumps in the road. The share of investment going to female entrepreneurs has recently taken a step backward. The figures are particularly dismal when it comes to Black female founders. A look at Nordhavn, a former industrial shipyard in Copenhagen that may just represent the future in urban planning. How India's demonetization policy turned Coinbase's product chief into a bitcoin believer.
The long-running effects of the pandemic continue to rattle global supply chains. Labor shortages, rising raw materials costs and other headaches have created a sense of urgency when it comes to investing in the supply chain sector's venture-backed tech businesses. Our latest installment of Emerging Tech Research assesses the state of VC investment in the supply chain tech space. Among the key takeaways: Supply chain tech startups raised $7.9 billion in VC investment during Q2, up 31.7% year-over-year. On-demand delivery has become a must-have in e-commerce—ultrafast B2B delivery is next. Startups such as Pickup and Airspace are creating solutions to speed the delivery of large or time-sensitive items for businesses. Port logistics have been slow to adopt new technologies, but that's changing. Startups are using software, data analytics and AI to automate niche operations, including the movement of goods within ports.
In the first half of 2021, female-founded startups in the US raised more venture capital financing than in any year over the past decade, to the tune of $25.12 billion. But is it all good news? A visual analysis turns up some surprising findings. Female founders now attract a far greater share of funding from late-stage rounds than in prior years. And they've made steady inroads as entrepreneurs in healthcare. Venture firms with female decision-makers have also raised successively larger funds, with 2021 on pace to see a new annual high. But there are also signs of stagnation and even backsliding. Female founders' share of overall VC dollars has remained unchanged in recent years. Although many female entrepreneurs, tech experts, and venture capitalists are still dealing with fallout from the Elizabeth Holmes Theranos scandal.
Why private equity leaders need to level up on data science Today, a successful deal is dependent on external data sources married with company data, requiring private equity to shift to more advanced analysis to stay competitive. Until recently, analyst experience, personal relationships and Excel prowess were relied on to guide decision-making and review target companies. But new methods have emerged. Data science identifies how operating executives should focus their resources. Using billions of data points, scarce company resources can be directed to initiatives that generate the highest return on investment. For example, West Monroe recently worked with a private equity-backed software company to evaluate several value-driving questions, including: Who are the customers we can upgrade? How can we quantify our churn risk?
How will the newly issued safe harbor on ERC affect your business? To better understand how the ERC impacts your unique situation and to develop a strategy to maximize your overall benefits, please contact Michael Belfer, Partner and Co-leader of Anchin’s Public Relations and Advertising Group. The Employee Retention Credit (ERC) is a refundable payroll tax credit available to qualifying businesses negatively impacted by the COVID-19 pandemic. The Treasury and IRS recently issued a safe harbor, allowing employers to exclude certain items from their gross receipts to see if they're eligible, like:
• The amount of the forgiveness of a PPP loan.
• Shuttered venue operators grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act.
• Restaurant revitalization grants under the American Rescue Plan Act of 2021
Here are the best practices to avoid violations of federal and state overtime laws Overtime analysis is not one-size-fits-all in the United States, and it's critical for employers to stay informed of both federal and state laws. Many employers are under misconceptions about which employees are required by federal and state law to be paid overtime. Some employers wrongly believe an employee is "exempt" from the overtime law if an employee has a college degree and is paid an annual salary. However, an employer cannot avoid required overtime payments merely due to an employee's education level or payment of a salary. Employees, regardless of education or training, are required to be paid overtime unless BOTH parts of a two-part test are satisfied.
Emergence of real-time health data drives startup opportunities. The proliferation of mobile health apps, biometric trackers and remote patient-monitoring devices has given rise to large quantities of healthcare data. This can provide real-world evidence that could be used across the healthcare ecosystem for clinical trials, evaluating treatment outcomes and monitoring safety after medical procedures. Our recent Emerging Tech Research analyst note examines the regulatory landscape, use cases and emerging opportunities for startups focused on such real-world evidence. Key takeaways include: In all, 57 startups developing RWE-based solutions have raised $1.8 billion in VC funding since 2019. Startup opportunities in this area include building proprietary datasets, developing analytical tools, and creating data standardization and management solutions. Over the short term, RWE startups will likely focus on datasets that can be monetized the most, such as those targeting illnesses that attract large investments.
KKR's Axel Springer locks down a new deal for Politico. KKR-backed Axel Springer has agreed to purchase Politico in a deal that's reportedly valued at over $1 billion, as private equity firms continue to grow their media industry influence. Reports emerged last week that the German publisher was exploring an investment in or full buyout of Politico. A $1 billion deal would amount to five times the news site's yearly revenue figure of $200 million, The New York Times reported. Founded in 2007 by Robert Allbritton, Politico employs a team of 700 individuals in North America, with some 200 employees working for its Europe edition, Politico Europe. Politico and Axel Springer first joined forces in 2014 when they launched Politico Europe. As part of the new deal, the German media company will acquire tech news site Protocol and the remaining 50% stake it doesn't own in Politico Europe. Axel Springer's media portfolio already includes Insider and Morning Brew.
A CRM built for VCs is now available. Five customer stories Affinity is a customer relationship management tool designed to help operate complex deal flow pipelines by automating manual processes such as data entry and contact management. By consolidating deal flow management and relationship network management in one place, teams can focus on making new connections and driving new deals without losing track of valuable information. Using relationship intelligence algorithms and enriched datasets, investment professionals can gain a better understanding of how their team is connected. Read on to learn how VCs are leveraging Affinity to discover new opportunities, gain new insights and close more deals.
Thoma Bravo and Vista Equity are now eyeing $20 billion fund targets. Thoma Bravo is reportedly seeking $22 billion for its 15th namesake fund and Vista Equity Partners is said to be targeting $24 billion for its eighth, Buyouts Insider reported. The vehicles will bolster what is already a historic year for private equity's mega-funds. Thoma Bravo closed its 14th fund, focused on the technology sector, at $17.8 billion in October, while Vista closed its seventh effort, also focused on tech, at $16 billion in 2019. At least 14 mega-funds—any vehicle that has raised over $5 billion—have already closed this year, according to data. For context, 18 mega-funds were closed in 2019, and 16 in 2020.
Western Digital, a computer hard drive and chip manufacturer, is nearing a deal to merge with Bain Capital-backed Kioxia for upward of $20 billion as remote work and the 5G tech boom continue to grow. Tokyo-based Kioxia specializes in flash memory chips used in smartphones, computers and other devices. Formerly a subsidiary of Toshiba, Kioxia was purchased by a Bain Capital-led consortium in 2018; other investors included Apple and Dell Technologies.
Traditional forecasts based on historical data are no longer effective at predicting wildfires, so startups are turning to AI to cope with climate change. Research shows that over the past decade it paid off to go big in the private markets, as larger allocations typically resulted in higher returns. How the pandemic made a complete mess of the world's intricate global supply chains, explained using a hot tub.
There's been a continued breakout in VC funding for AI semiconductors and AI core software, the basic building blocks of artificial intelligence. But capital has been flowing all over the industry, as AI companies closed 11 deals of $500 million or more last quarter—three led by SoftBank. There's more to uncover in our latest sector research: VC deal value in AI / ML set a third consecutive quarterly record, with $31.6 billion invested globally across 1,097 deals in Q2. After relatively low activity in the space, M&A is starting to pick up. Big tech companies are taking AI acquisitions more seriously and investing in them more heavily. Our data suggests that there are very active early-stage opportunities in natural language AI and intelligent robotics.
New expectations around consumer delivery are beginning to carry over into the world of on-demand B2B delivery. That's one key takeaway from our new research on the technology impacting a global supply chain that remains heavily disrupted almost two years into the pandemic: Supply chain tech startups raised $7.9 billion across 174 deals in Q2, with downstream logistics companies like freight and delivery tech receiving the bulk of investment. Headlines are dominated by robo-taxis and self-driving cars, but we think the trucking industry might actually be the first area to adopt on-road autonomous technology. Visibility into port logistics has historically been low, but that's changing as investors put money into management software, data analytics and AI tools to improve areas like drayage.
Senior PE analyst Wylie Fernyhough weighs in on the news that Petershill, the GP stakes arm of Goldman Sachs, is considering a public listing for a permanent capital vehicle: "Liquidity has long been a leading question around GP stakes as many funds have 15-year-plus or perpetual lives. "While this time frame aligns the GP stakes and target firms, LPs often question what liquidity looks like for them. "In the past, we have seen simple liquidity measures taken. However, many of the more complex options have remained theoretical—at least until now, with Petershill looking to publicly list a fund in London, according to Bloomberg. "Whether other firms will be able to follow is unknown. Specific legal provisions must be incorporated in original fund documents and each deal if the fund hopes to list as an operating company rather than a closed-end fund. "A fund IPO would be a massive step forward for the industry if they are able to provide liquidity to LPs while keeping the GP stakes firm and target firm relationship intact—especially if they achieve the multiples that firms like EQT have in public markets. "With the fund's broad and diversified cash-flow stream, it just might."
Mobility tech analyst Asad Hussain weighs in on the news that Waymo will expand its robotaxi offering into San Francisco (which he previously forecast): "As we predicted in our June report Robotaxis and the Road to Profitability, the primary purpose of Waymo's $2.5 billion Series B was to expand into San Francisco. "While Waymo has made progress automating vehicles and is largely regarded as the leader in autonomous driving, the company has failed to scale or expand despite several nearby areas possessing similar weather and traffic conditions. "We believe this reflects the poor economics of operating a ride-hailing model in suburban and less dense areas where ride volumes are low and car ownership is popular. "Both Uber and Lyft generate most of their profits from large cities, including New York City and San Francisco, where trips are frequent and prices remain relatively high. "While suburban locations provide safe testing grounds for robotaxis, dense cities' higher utilization rates will be necessary to achieve profitability. "In San Francisco, Waymo will come into more direct competition with Cruise, another robotaxi company."
Our insights and data featured in the press: Startups are charging consumers hundreds of dollars to analyze their gut microbes and offer dietary advice based on results. A deep dive into our US VC Valuations Report stresses the role of nontraditional investors on price increases. Mental health startups are convincing major companies that they can fight burnout. How VC can join the ESG revolution after lagging behind. Uber: A CA judge ruled that Prop 22 is unconstitutional — now the future of the gig economy is up in the air again. TikTok and Instagram are launching in-app shopping tools to make impulse purchases even easier.
Now 90% of companies plan to leverage a hybrid working model — to make remote feel closer, Salesforce is betting on Slack. But Facebook has created an entire new remote virtual meeting room solution to take things to a new level. Only time will tell how the WFH revolution progresses.
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