Venture capital vs. Y Combinator valuations (again)

1 big thing: VC complaints about YC valuations have a new culprit

Silicon Valley startups lean into AI boom

2. By the numbers 

Gathering the news for the AI-powered future

3. Zooming in

📚 Due Diligence

🧩 Trivia

🧮 Final Numbers 

Good morning! The past workweek was short but packed with news and events. 

🤫 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar (or ask me for my Telegram or Signal number).

Today's Smart Brevity™ count is 1,201 words — a 4½-minute read.

Thanks for reading! And to Javier E. David and Brad Bonhall for editing. See you Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and seed investors to sign up.

Pro Rata

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green

Dive into the world of dealmakers across VC, PE and M&A

Axios Pro Rata

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1 big thing: NYSE president on IPO return and AI

2. What they're saying: USV's Fred Wilson and Rebecca Kaden

📚 Due Diligence 

🧩 Trivia 

🧮 Final Numbers

Happy Saturday! I took a very short trip to NYC this week for a conference, so here's my dispatch. 

🚨 Situational awareness: Instacart is planning to start trading Tuesday and will ring the bell in Nasdaq's San Francisco office. 

🤫 Reminder: Feel free to send me tips or comments by replying to this email or on X (formerly known as Twitter) @imkialikethecar (or ask me for my Telegram or Signal number).

Today's Smart Brevity™ count is 1,235 words — a 4½-minute read.

🙏 Thanks for reading! And to Javier E. David and Brad Bonhall for editing. See you Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and seed investors to sign up.

Sizing up startup rocket ships

1 big thing: Sizing up startup rocket ships

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Equity comp has taken a hit with tech stocks

2. Zooming in: Employee equity comp

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🚨 Situational awareness: Instacart, Klaviyo, and Neumora Therapeutics filed yesterday to go public. 

😉 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar (or ask me for my Telegram or Signal number).

Today's Smart Brevity™ count is 869 words — a 3½-minute read.

Thanks for reading! And to Javier E. David and Carolyn DiPaolo for editing. See you Monday for Pro Rata's weekday programming, and please ask your friends, colleagues, and startup workers to sign up.

Convenience-focused startups adjust to tighter money, lower expectations

1 big thing: A modest reality sets in for venture-fueled convenience

an illustration of a downward stock chart surrounded by red, green and yellow squares and cutouts of a 100 dollar bill 

2. Zooming in: The Fed’s outlook on interest rates

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Welcome to the weekend! It's the first Saturday of fall, and there's lots to get into — like how the era of "higher for longer" interest rates will impact Startup Land. More on that below.

🤫 Reminder: Feel free to send me tips or comments by replying to this email or on X (formerly known as Twitter): @imkialikethecar. (Or ask me for my Telegram or Signal number.)

Today's Smart Brevity™ count is 769 words — a 3-minute read.

Thanks for reading! And to Javier E. David and Jay Bennett for editing. See you Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and  to sign up.

Salesforce revs its VC engine in the AI race

1 big thing: Salesforce revs its VC engine in the AI race

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Zooming in on Salesforce's venture capital operation

2. Zooming in

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3. What they're saying

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🚨 Situational awareness: Arm is reportedly targeting a $50 billion-$55 billion IPO valuation. Six investment industry groups filed a lawsuit yesterday against the SEC over the private fund adviser rules. The NVCA filed an amicus brief in support of Fearless Fund in an affirmative action-related lawsuit.   

Today's Smart Brevity™ count is 1,046 words — a 4-minute read.

🙏 Thanks for reading! And to Javier E. David and Amy Stern for editing. See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and AI startup investors to sign up.

National

Arm's return to the public market Thursday was hailed by some as a comeback for technology initial public offerings, but the window's reopening is more cautious than it appears at first glance.

What they're saying: "There are deals coming to market with all different sorts of structures, so people are being thoughtful about how they tap the IPO markets at the moment," New York Stock Exchange president Lynn Martin told Axios' Kia Kokalitcheva on Wednesday at Primary Venture Partners' NYC Summit.

Below are highlights from the onstage conversation with Martin at the conference:

"I think Arm is interesting in that it's got a core group of investors that aren't your traditional long-only funds [as anchors]. It's more of the customer base — so I think that's one of the things it's testing, the deal structure. I think it's also a test for the tech markets, quite honestly — but a portion of the tech markets. It's a very specific deal, it's not software, it's hardware. It's your more traditional company."

What's your assessment of investors right now?

"It's not growth at all costs. If you want to tap the public market, you've got to be disciplined, you gotta have a disciplined strategy, you've got to have a story that you can articulate.…

[I] totally understood why so many companies came out to market at the end of 2021. The valuations were incredibly frothy.… But what was being rewarded was growth at all costs, as opposed to core discipline, core strategy and execution of that strategy.… But I think it's instructive that these deals are getting done now, and it shows that there is investor demand out there, and the market is ready to welcome good companies to the public markets."

We didn't have IPOs and now we do. What changed?

"I think there's just a lot of dry powder on the sidelines, and companies, and long-only funds excited about investing in new companies.…

From a market fundamentals standpoint, the one thing that changed is the VIX.… Do you see the VIX at 30? There's not going to be IPOs.…

It's not about your IPO day, but the days, weeks, months, year that follows your IPO. Because you're gonna have a great IPO day, but then you're gonna have to do the hard work of doing your earnings calls, you're gonna have to be on the road with your long-only investors trying to drum up interest.…

So the VIX is really the one market fundamental being below 20 — being below 20 for most of this year, if not, call it the last six months in particular — that is giving the companies new confidence."

What are your predictions for the rest of 2023?

"The first business day … after [Cava's IPO], we had five companies file and start their roadshows. They wanted to get out because they saw the positive effects.

So I think you're gonna continue to see how these tech companies do in these next two-week period.… I think if they do well, they get the deals done, and they get the valuations that they hope to get, I think you're gonna start to see companies really gear up to file.

It might not be … that you see a flood until '24, because I think there's still a little bit of uncertainty. We'll see what the Fed does in terms of interest rates.… So that's that macro uncertainty that I was talking about, that's still is a bit of an overhang in the market.… I don't think our pipelines gonna move tremendously."

SEC chair Gary Gensler has been talking about his concerns about AI and its ability to create the next market crisis. Do you agree with him?

"In terms of regulation, I think having guardrails around it: possibly good. But I think at times regulation has — overregulation — has had unintended consequences.… I hope the conference that happened in D.C. today, with the tech leaders, I hope that policymakers are listening to them, because they have experience in rolling a lot of this out. And I hope that's rolled out responsibly. There are a lot of considerations, though, that come along with that technology."

Are you concerned that brokers are going to be using AI models, or deep fakes could make people think something's going with a company?

"I think that's where it comes back to data and human overlay. Humans have to be able to interact with these things to put intelligence over any piece of technology.…But a lot of times when there's bad data in the system.…

It also comes down to the strong regulatory framework that companies like us operate under.… There's this race to be first to market and go after the next sexy thing in the market.… Given our role at NYSE, we don't always need to be first to market, we need to be the most thoughtful to market.

And that means we need to think about regulatory implications, given our systemic importance in the market. So that's why when we've implemented pieces of technology, they've been battle tested, fully redundant, fully resilient, subjected to a high regulatory perimeter, not just the one that gets imposed by D.C., the one that we impose on ourselves.…"

NYSE president talks IPO return and AI

NYSE's Lynn Martin: "People are being thoughtful about how they tap the IPO markets."

NYSE president Lynn Martin, left, with Axios senior reporter Kia Kokalitcheva. Photo: Bridget Flaherty

Initial public offerings (IPO)

Arm&#x27;s return to the public market Thursday was hailed by some as a comeback for <a class="gtmContentClick" data-vars-link-text="technology initial public offerings" data-vars-click-url="https://www.axios.com/2023/09/14/arm-stock-price-chart-ipo" data-vars-content-id="1b3e350f-e48e-43e3-8cb1-1a39b3ba740e" data-vars-headline="NYSE president talks IPO return and AI" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/09/14/arm-stock-price-chart-ipo" target="_self">technology initial public offerings</a>, but the window&#x27;s reopening is more cautious than it appears at first glance.What they&#x27;re saying: &quot;There are deals coming to market with all different sorts of structures, so people are being thoughtful about how they tap the IPO markets at the moment,&quot; New York Stock Exchange president Lynn Martin told Axios&#x27; Kia Kokalitcheva on Wednesday at Primary Venture Partners&#x27; NYC Summit.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Online pharmacy Alto Pharmacy has raised $120 million in new funding at an $800 million post-money valuation, the company confirmed to Axios. 

Why it matters: Alto is among the many late-stage startups to take a valuation cut in the current market. 

The company was reportedly valued at over $1 billion when it raised $250 million in a round led by SoftBank in 2020. It’s unclear what valuation it had when it raised again in January 2022. 

Talks toward a merger with a special purpose acquisition company that would have taken the company public in 2021 fell apart, per Reuters.

Flashback: CEO Alicia Boler-Davis revealed this past May during Axios’ BFD event in San Francisco that the company was already in talks to raise new funding.

She also noted the company is on the lookout for more acquisitions, following its purchase of NowRx last year. 

revealed this past May during Axios’ BFD

Scoop: Alto Pharmacy raises $120 million in new funding

The modest valuation underscores the tough fund-raising market.

Illustration of a pill with the dividing line in the shape of a dollar bill sign.

Health care startups

Online pharmacy Alto Pharmacy has raised $120 million in new funding at an $800 million post-money valuation, the company confirmed to Axios. Why it matters: Alto is among the many late-stage startups to take a valuation cut in the current market.

The U.S. faces a range of health care flashpoints — unaffordable drugs, opioids, vaping — as we debate whether to adopt universal care. For now, the Affordable Care Act is the law of the land, but Republicans want to issue it a final death blow.

Health

Allocate, a company enabling clients of wealth advisers and family offices to invest in venture funds, raised $10 million in new funding.

Why it matters: The current fundraising market is an opportunity for venture firms to diversify their limited partner base, and for eager smaller investors to get access to top funds. 

How it works: On an average year, the company assesses between 500 and 700 fund managers, and selects between 20 and 50 across established large firms and smaller newer ones, according to co-founder and CEO Samir Kaji. 

Though he declined to name any firms, SEC filings indicate they include Andreessen Horowitz, Lightspeed Venture Partners, Khosla Ventures, Craft Ventures, Altimeter, Uncork, and among others. It also provides  co-investment opportunities alongside some fund managers. 

Allocate charges an investment fee, and will begin to charge subscription fees next year as it expands its portfolio management software's capabilities. So far, customers have invested almost $500 million. 

Of note: While wealth advisers and private banks have gravitated toward more blue chip funds, family offices tend to be more interested in smaller firms, says Kaji. 

What they're saying: "iCapital and CAIS allowed these [registered investment adviser] firms to offer these types of opportunities to clients... the one area that hasn't been as democratized is top tier venture capital," says Kaji, who previously worked at First Republic Bank and Silicon Valley Bank for two decades. 

While institutional investors are currently split on investing in venture, Kaji says that Allocate's customers are enthusiastic about the asset class and eager to get more access.  

Between the lines: An obvious question is why Allocate's customers wouldn't simply invest in funds-of-funds in order to access venture firms. 

Kaji argues that Allocate lets clients invest into funds that are more tailored to their preferences, avoids the double charging of carry, and avoids the higher minimum investments some funds-of-funds require. 

Details: Allocate's new funding came from Gopher Asset US (affiliate with Noah Holdings International), Intera Investments, M13 Ventures, and family offices.

Prior to this round, the company had raised $23.5 million in total, per PitchBook. 

Allocate raises $10 million to open top VC doors to wealth advisers

Allocate raised $10 million to connect VCs with wealth managers and family offices.

Illustration of hands placing coins into an arrangement creating a one hundred dollar bill

Venture capital

Allocate, a company enabling clients of wealth advisers and family offices to invest in venture funds, raised $10 million in new funding.Why it matters: The current fundraising market is an opportunity for venture firms to diversify their limited partner base, and for eager smaller investors to get access to top funds.

Years of zero interest rate policy (ZIRP) gave the world ambitious venture capital-stuffed companies that sought to make everyday tasks and chores as easy as the tap of a button. But the reality of those business models is much more modest now.

Why it matters: We were promised a new world of hyper-convenience while VCs dreamed of billions in investment returns.

Driving the news: Just in the past week or so, a number of those companies have entered new corporate chapters.

On Tuesday, grocery delivery company Instacart finally went public.

Spin, a scooter rental company, was acquired by rival Bird.

Ultra-fast delivery startup Jokr raised new funding at a lower valuation.

The big picture: These businesses, while facing headwinds, are far from being considered failures. 

Instacart has managed to become profitable despite the delivery business being notoriously low-margin.

Jokr appears to be doing well in Latin America after retreating from the U.S. last year. A number of delivery services are operating around the world (though there's been a lot of consolidation given the low margins and complex operations).

Others, including Uber, Lyft, and Airbnb, have matured into publicly traded companies in recent years.

Yes, but: The results haven't met the expectations these brands touted at the height of the bull market.

In the late 2010s, we had apps for everything "on demand": valet parking, chocolate chip cookie delivery, home cleaning, and car repairs, just to name a few.

The majority of these companies no longer exist. Many of them shut down within a couple of years and others died slowly, sometimes at the hands of acquirers.

Instacart went public, but at a fraction of the valuation it had in 2021. (Its current stock price is also trading below its IPO and below what it was at the close of its first day of trading, but broader market forces are also a factor.)

Scooter and bike rental companies have gone through a lot of consolidation as well, and Bird has had a very bumpy ride since going public. 

Airbnb is facing new heavy regulations in some cities, including New York City, which just stepped up its enforcement on short-term rentals. The company has called it a "de facto ban." 

Between the lines: The value of a venture dollar has changed. It's not free anymore.

Companies have to do more with less and figure out how to generate their own dollars sooner.

One obvious exception right now is artificial intelligence, but even in that field, investors seem at least somewhat vigilant about business models.

The bottom line: After a decade-long trip into the stratosphere, we've come back down to Earth.  

Just as the ZIRP era lasted far longer than anyone thought it would, the current interest rate environment appears here to stay for a while. Startups should internalize that and adjust.

Driving the news: The Federal Open Market Committee this week elected to leave the federal funds rate unchanged at a range of 5.25% to 5.5%, with 12 of 19 top policymakers expecting one more rate increase this year to be justified.

From my colleague, Axios Macro's Neil Irwin:

Between the lines: Fed officials are embracing a higher-for-longer strategy in which they only push interest rates slightly higher than they are now, but then hold those rates at elevated levels through most of next year.

The goal is to slow activity and keep inflation moving downward.

"Economic activity has been stronger than we expected, stronger than I think everyone expected," Powell said.

The median official raised their projections for 2023 GDP growth, to 2.1% from 1% in June, reflecting strikingly strong growth this summer.

The median also saw the unemployment rate rising only to 3.8% this year, not the 4.1% envisioned in June, reflecting a resilient labor market.

"Job gains have slowed in recent months but remain strong," the committee's statement said.

Fed officials expect inflation for the full year to be 3.3% this year and 2.5% next.

Of note: More top Fed policymakers now believe that the longer-term interest rate has risen, implying that rates will stay elevated well above the ultra-low levels of the recent past.

Five top officials now believe that the longer-term rate is 3% or higher. Three held that view in June and zero did last year.

The median estimate of longer-term interest rates was unchanged at 2.5%, however.

ambitious venture capital-stuffed companies

The reality of convenience-driven startups is much more modest now.

Scooter consolidation continues with Bird's acquisition of Spin

Bird acquired Spin, which was acquired by Tier last year, and was previously owned by Ford.

Illustration of a pattern of scooters.  

Mergers and acquisitions

San Francisco-based scooter rental company Spin has become the industry&#x27;s &quot;hot potato.&quot; Its rival Bird just acquired it from European peer Tier, <a class="gtmContentClick" data-vars-link-text="which acquired it just 18 months ago" data-vars-click-url="https://www.axios.com/2022/03/02/ford-sells-scooter-business-spin-tier" data-vars-content-id="cce40129-fcbf-4566-bcb7-315b969b9e84" data-vars-headline="Scooter consolidation continues with Bird&#x27;s acquisition of Spin" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/03/02/ford-sells-scooter-business-spin-tier" target="_self">which acquired it just 18 months ago</a> from Ford, which <a class="gtmContentClick" data-vars-link-text="acquired it in 2018" data-vars-click-url="https://www.axios.com/2018/11/07/scoop-ford-buying-e-scooter-company-spin-1541609400" data-vars-content-id="cce40129-fcbf-4566-bcb7-315b969b9e84" data-vars-headline="Scooter consolidation continues with Bird&#x27;s acquisition of Spin" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2018/11/07/scoop-ford-buying-e-scooter-company-spin-1541609400" target="_self">acquired it in 2018</a>. Why it matters: Bike and scooter rental companies are playing consolidation musical chairs.

Kia Kokalitcheva

Stories

Scoop: Alto Pharmacy raises $120 million in new funding

Convenience-focused startups adjust to tighter money, lower expectations

Allocate raises $10 million to open top VC doors to wealth advisers

Scooter consolidation continues with Bird's acquisition of Spin

NYSE president talks IPO return and AI

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