Glenn's Weekly Digest - 1/5/24
Your Weekly Guide to the Startup Universe: Navigating the World of VC & Startups for Students
Predictions for the Year
1. While IPO window stays closed, M&A will skyrocket
Fundraising continues to be challenging and as more & more start-ups need liquidity, founders will increasingly view M&A as the most attractive option. Concurrently, larger companies (albeit with scrutiny from regulators) have the balance sheet and the access to capital to snap up companies that expand their customer base or enhance their tech stack, all while traditional public offering avenues remain less accessible.
2. Venture begins to recover, but the passengers are quick to exit
The venture capital ecosystem in 2024 will experience a cautious but notable recovery from the challenging times of 2023, marked by layoffs and limited funding. While the startup funding environment may remain subdued, there is optimism for a gradual improvement, with more capital being deployed to VC firms compared to 2023. However, in that same vein, as money is harder to come by, many investors will resign or switch industries as they realize that raising another fund will be difficult in the current macro-environment.
3. Cross border payments dominate the FinTech landscape
Cross-Border payments are at an inflection point with the industry moving towards more advanced methods (i.e. API connectivity), fueling opportunities for FinTechs and traditional financial institutions. Key factors such as speed, cost efficiency, and transparency are becoming crucial for providing superior client experiences. The pace of competition will rapidly increase as more start-ups vie for a piece of the $250 trillion in payments by 2027.
4. AI governance and ethics will be front & center in the 2024 election
With one of the most important elections in our lifetimes around the corner, concerns about misinformation in the U.S. presidential election will be heightened due to the proliferation of AI-generated deepfakes and the relaxation of social media safeguards. Election officials have responded by increasing public education and legal protections, but the effectiveness of these measures against sophisticated misinformation tactics remains uncertain.
5. Small business boom continues
In 2024, the urge for entrepreneurship will continue to grow leading to a boom in “business in a box” solutions that facilitate software for micro SMBs. These comprehensive solutions will integrate essential business functions like customer management, financial planning, and inventory control into user-friendly interfaces, leveraging AI and machine learning for personalized insights and data-driven financing options. This evolution will enable micro firm owners to streamline operations and focus more on customer service, fostering greater innovation and efficiency in the small business landscape.
Top Reads This Week
Why every company will be an energy company [Meera Clark - Substack]
Software continues to reshape the energy sector and as a result, many companies are re-evaluating their energy production and management strategies. Meera adds some interesting thoughts on the motivation behind this shift as well as the new opportunities created.
A Tax Rule Change is Threatening the Survival of Some Businesses [WSJ]
An often overlooked change in the tax code regarding how companies account for R&D costs is severely impacting businesses. The new tax rule has sparked layoffs and widespread concerns but the final outcome remains to be seen.
No major deals this week so we’re switching it up with some educational content…
Top 5 VC Terms of the Week
Burn Rate: the rate at which a company is spending its capital to finance overhead before generating positive cash flow from operations. It's a measure of negative cash flow, typically calculated on a monthly basis. Burn rate is particularly important for startups as it indicates how long they can operate before they need to secure additional financing or become profitable.
Liquidation Preference: specifies the payout order in case of a corporate liquidation or sale. Essentially, it determines who gets paid first and how much they get paid when a company is sold, goes public, or undergoes a liquidation event.
Drag-Along Rights: this provision allows majority shareholders to force minority shareholders to join in the sale of a company. Drag-along rights are typically used in a sale to ensure that the entire company can be sold without minority shareholders blocking the sale, thus providing a clear path for investors to realize their returns.
Ratchet: this is a provision that protects investors from dilution in subsequent financing rounds by adjusting the rate at which their preferred stock converts into common stock. This ensures that early investors maintain a certain percentage of ownership in the company even if the company's valuation decreases in future funding rounds.
Pro Rata Rights: these rights allow investors the option to maintain their percentage ownership in subsequent funding rounds. This means they have the right (but not the obligation) to buy additional shares in future rounds to prevent their stake in the company from being diluted.
Venture Jobs of the Week
Senior Associate/Principal, Exponent Founders Capital [NYC]
Part-time VC Researcher, Julian.Capital [SF/Remote]
Analyst/Associate, Erik Torenberg [SF/Remote]
Deep Tech Investor, Compound [SF/NY]
Analyst/Associate, Cubit Capital [Dallas]
Ventures Associate - Smart Cities, Plug and Play [Orlando]
Director of Business Development & Portfolio Operations, Foundation Capital [SF]
Thank you for joining us for another edition of Glenn’s Weekly Digest! We hope you found valuable insights into the dynamic world of venture capital and startups. If you have any feedback or suggestions, feel free to reach out. Stay tuned for more exciting updates next week!
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The material presented on Glenn Borok’s website and blog are my opinions only and are provided for informational purposes and should not be construed as investment advice. It is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, strategy, or investment product. Any analysis or discussion of investments, sectors or the market generally are based on current information, including from public sources, that I consider reliable, but I do not represent that any research or the information provided is accurate or complete, and it should not be relied on as such. My views and opinions expressed in any website content are current at the time of publication and are subject to change. Past performance is not indicative of future results.