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- In a webinar for startups and customers on Tuesday, credit card startup Brex unveiled its predictions for economic outcomes as the coronavirus-led shutdowns drag on and states pursue piecemeal revival strategies.
- According to Brex's proprietary data set of Silicon Valley tech startups, there is a smaller decline in venture funding than is publicly reported.
- In the webinar, Brex head of corporate development Adam Swiecicki said that fewer startups are publicly disclosing funding rounds that come with lower valuations, or so-called down rounds, given the stigma associated with those kinds of rounds.
- Swiecicki explained to the hundreds of entrepreneurs on the call that venture funding is still available for startups that need it, and those in industries like ecommerce and health tech could be best suited to getting higher valuations than they could in the pre-coronavirus market.
- See the Brex's full suite of economic predictions for startups in the completely changed environment.
- Click here for more BI Prime stories.
The slowdown in startup funding is not as bad as it seems — it's just that startups have stopped talking about their deals.
So says, Brex, a credit card startup that caters to other startups and compiles its own, proprietary data about venture capital funding.
In a webinar presentation on Tuesday, Brex head of corporate development Adam Swiecicki showed data about the state of startup funding amid the coronavirus pandemic.
While reported data from startup database Pitchbook shows roughly a 33% decrease in the number of venture funding deals from January through March compared to April, Brex's data shows just a 9% decrease across the same period. The proprietary data comes from financial information Brex has on its customers, which are largely other startups.
The difference, he explained, is likely due to startup founders who are intentionally not announcing new funding rounds publicly because the valuations associated with the rounds are lower than previous funding rounds. The phenomenon is commonly known as the dreaded "down round."
"People who might be in businesses where the appearance of weakness, or having to raise money, is not necessarily a good one to project to the public," Swiecicki said during the presentation. "And so, businesses want to keep the fundraising publicity quiet."
Indeed, Swiecicki described "a pretty dramatic pullback on valuation."
"The funding environment in general, even if there is money out there to be had, it's still tighter than it was at the beginning of the year."
"It's not about this year's revenue"
Fundraising during the coronavirus-led economic downturn can feel like an unwinnable battle for many entrepreneurs. Those that don't need funding immediately can cut costs and implement layoffs in an effort to stay afloat, but still face a barrage of unhappy former employees that are unable to find new jobs. Still others, mainly those that had originally planned to fundraise in 2020, may not be so lucky and will have to fundraise anyway.
Those are the ones that may have to accept a down round because, as Business Insider previously reported, many investors feel the negotiating power of funding deals has swung back in their favor.
"For those of us who are looking to raise money, I think [the data] suggests that the availability of capital, although pricing might be TBD, might be better than the reported statistics suggest," Swiecicki said.
The odds are better for startups in certain segments, Swiecicki suggested, regardless of whether the company had planned to fundraise or not. As was true in previous economic recessions, he predicted a long-lasting change in consumer behavior that could benefit ecommerce, wellness, and remote working startups. Even startups that cater to other startups in those categories could have tangential benefits.
"The vast majority of the value is the value of our businesses from year 5 to year 50," Swiecicki said. "It's not about this year's revenue or next year's revenue. A lot of investors, and certainly VCs that I've chatted with, what they've tried to do is look at a normalized number."
Here's the full presentation of economic predictions Brex compiled based on public markets and proprietary data about Silicon Valley's startup ecosystem.
"Startup" - Google News
April 29, 2020 at 08:23PM
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Brex: Startup funding rounds going unannounced due to lower valuations - Business Insider
"Startup" - Google News
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