IPO market revival hinges on 3 factors / Wiz nabs $300M at $10B valuation / 500 Global bullish on VC sector despite slump

Plus, Skydio raises $230M to fund the company's ambitious scaling plans

Inside.com Part of   Network February 27, 2023

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VC and PE-backed startups could witness an uptick in IPO activity if the macroeconomic environment stabilizes, interest rates start reducing, and startup founders and investors could reach a consensus on valuation figures, per Pitchbook. E&Y's IPO and SPAC market advisory leader Mark Schwartz said that IPO markets follow a "V-shaped" recovery curve. Morgan Stanley's Nash Waterman expects the IPO market to show signs of recovery in the second half of 2023.  More: An earlier EY report analyzed the recoveries after the dot-com crash and the 2008 financial crisis and found that IPO listings recovered within 24 months and 18 months, respectively.  Waterman said that there is a positive correlation between public stock market performance and listings.  Zoom out: IPO activity in the current quarter to date has already shown an improvement over the preceding quarter, with nine IPO listings completed within the first two months of 2023 already compared to Q4 2022's tally of five.  IPO exit value for U.S.-based VC and PE-backed startups totaled $1.7B in Q4 2022, a sharp decrease from the $171.1B total from the same quarter in 2021.

Public cloud cybersecurity solutions provider Wiz secured $300M in fresh funding as its eyes further expansion into the U.S., EMEA, and APAC markets. Lightspeed Ventures led the Series D round, with participation from existing backers Greenoaks Capital Partners and Index Ventures. The firm intends to use the proceeds to increase its workforce strength and open three new offices in the U.S. More: The New York-headquartered firm raised the funding at a $10 post-money valuation, which the firm claims to make it the world's largest cybersecurity unicorn.  Wiz reported $100M ARR in July 2022, up from $1M 18 months ago.  The fresh funding brings its total raised to date to $900M.  Zoom out: Cybersecurity startups secured $18.5B in venture funding in 2022.  Despite a slump in funding over the previous year, VCs are bullish on the sector's potential considering the rise in cyberattacks, which increased by 38% YoY in 2022.

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VC firm 500 Global is bullish on the sector, despite a slump in funding deployment. Managing partner Vishal Harnal said, "There is definitely a drop in the allocation towards ventures this year, but it really depends on which markets you are investing in and what the opportunities set in those markets are." More: Harnal says that VC firms are taking a long-term view of their investments as startups start prioritizing profitability over growth.  He adds that while the investment pace has reduced compared to 2021's total, which was an outlier year, "I wouldn't go so far as to say that there is a funding winter." 500 Global has over $2.7B worth of assets under management (AUM).  Notable previous portfolio startups include graphic design software Canva, ride-hailing firm Grab, and fish farming startup eFishery.  Zoom out: Global venture funding deployment slumped by 35% in 2022, with year-end totals reaching $445B.

San Mateo, California-based autonomous drone maker Skydio secured $230M in fresh funding. The firm doubled its valuation over the previous round to $2.2B. Skydio intends to increase its manufacturing capacity tenfold at its plant in Hayward, California, increase R&D efforts, and strengthen its sales and customer support divisions with the incoming capital. More: CEO Adam Bry stated that there were numerous challenges in raising the funding and that it took nearly a year to raise the target amount.  The firm counts Shell USA, Dominion Energy, and the U.S. Army as a few of its prestigious customers.  The U.S. Army gave Skydio a $100M contract last year to perform short-range reconnaissance missions for the next five years.  Axon Enterprise, a law enforcement and military technology product maker, made a strategic investment in the current round.  Prior to the current fundraising, the firm raised $340M in equity funding, the last of which came in the form of a $170M Series D funding round in February 2021 led by Andreessen Horowitz.

Washington, D.C.-based New Markets Venture Partners launched a new $160M education technology-focused fund. The fund, New Markets' fifth overall, is already oversubscribed. New Markets will invest in Series A and B-stage startups that are currently generating $2M to $5M in revenue and have the potential to scale to $50M to $200M in revenue within three years. More: The edtech and workforce technology VC has backed nearly 41 startups to date over the last two decades, most prominently Credly, Learn Platform, Kickboard, and StraighterLine.   It reportedly generated $3.3B in value for shareholders, with over $100M returned to limited partners in the last three years. New Markets' co-founder and general partner Mark Grovic said that the new fund NMEP III, which is double the size of its predecessor, will enable the firm to "write bigger checks, take bigger positions, and spend less time syndicating than we have in the past." Zoom out: VC funding deployment in the edtech sector slumped 50% YoY in 2022.

Sequoia Capital backed 100 startups throughout 2022, 25% of which were fintech startups, mostly within the capital markets, payments, and payroll and benefits sectors, per a CB Insights report. Nearly a quarter of Andreessen Horowitz's investments were in the fintech sector as well.  More: The three aforementioned sectors within fintech secured 16% of Sequoia's investments each, followed by 8% into crypto startups.  Notable funding rounds Sequoia participated in include Citadel Securities' $1.2B round, Klarna's $800M fundraiser, and Rippling's $250M Series D.  The majority (75%) of the deals in the capital markets sub-sector were follow-on rounds, reflecting the firm's confidence in the sector.  Meanwhile, blockchain accounted for a larger portion of a16z's fintech investments (28%), most notable of which were SpotOn's $300M Series F and Jeeves' $180M Series C rounds.  The CB Insights report can be downloaded here.

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Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot.  Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 and 1972 Fords.

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