Finance

VCs say tech investing is ‘tough’ amid IPO lull and ‘nuts’ AI hype

Published

3 weeks ago

November 14, 2024

Edith Yeung, general partner at Race Capital, and Larry Aschebrook, founder and managing partner of G Squared, speak during a CNBC-moderated panel at Web Summit 2024 in Lisbon, Portugal.

Rita Franca | Nurphoto | Getty Images

LISBON, Portugal — It’s a tough time for the venture capital industry right now as a dearth of blockbuster initial public offerings and M&A activity has sucked liquidity from the market, while buzzy artificial intelligence startups dominate attention.

At the Web Summit tech conference in Lisbon, two venture investors — whose portfolios include the likes of multibillion-dollar AI startups Databricks Anthropic and Groq — said things have become much more difficult as they’re unable to cash out of some of their long-term bets.

“In the U.S., when you talk about the presidential election, it’s the economy stupid. And in the VC world, it’s really all about liquidity stupid,” Edith Yeung, general partner at Race Capital, an early-stage VC firm based in Silicon Valley, said in a CNBC-moderated panel earlier this week.

Liquidity is the holy grail for VCs, startup founders and early employees as it gives them a chance to realize gains — or, if things turn south, losses — on their investments.

When a VC makes an equity investment and the value of their stake increases, it’s only a gain on paper. But when a startup IPOs or sells to another company, their equity stake gets converted into hard cash — enabling them to make new investments.

Yeung said the lack of IPOs over the last couple of years had created a “really tough” environment for venture capital.

At the same, however, there’s been a rush from investors to get into buzzy AI firms.

“What’s really crazy is in the last few years, OpenAI’s domination has really been determined by Big Techs, the Microsofts of the world,” said Yeung, referring to ChatGPT-creator OpenAI’s seismic $157 billion valuation. OpenAI is backed by Microsoft, which has made a multibillion-dollar investment in the firm.

‘The IPO market is not happening’

Larry Aschebrook, founder and managing partner at late-stage VC firm G Squared, agreed that the hunt for liquidity is getting harder — even though the likes of OpenAI are seeing blockbuster funding rounds, which he called “a bit nuts.”

“You have funds and founders and employees searching for liquidity because the IPO market is not happening. And then you have funding rounds taking place of generational types of businesses,” Aschebrook said on the panel.

As important as these deals are, Aschebrook suggested they aren’t helping investors because even more money is getting tied up in illiquid, privately owned shares. G Squared itself an early backer of Anthropic, a foundational AI model startup competing with Microsoft-backed OpenAI.

Using a cooking analogy, Aschebrook suggested that venture capitalists are being starved of lucrative share sales which would lead to them realizing returns. “If you want to cook some dinner, you better sell some stock, ” he added.

Looking for opportunities beyond OpenAI

Yeung and Aschebrook both said they’re excited about opportunities beyond artificial intelligence, such as cybersecurity, enterprise software and crypto.

At Race Capital, Yeung said she sees opportunities to make money from investments in sectors including enterprise and infrastructure — not necessarily always AI.

“The key thing for us is not thinking about what’s going to happen, not necessarily in terms of exit in two or three years, we’re really, really long term,” Yeung said.

“I think for 2025, if President [Donald] Trump can make a comeback, there’s a few other industries I think that are quite interesting. For sure, crypto is definitely making a comeback already.”

At G Squared, meanwhile, cybersecurity firm Wiz is a key portfolio investment that’s seen OpenAI-levels of growth, according to Aschebrook.

The startup, which turned down a $23 billion acquisition bid from Google, hit the $500 million annual recurring revenue (ARR) milestone just four years after it was founded.

Wiz is now looking to reach $1 billion of ARR in 2025, doubling from this year, Roy Reznik, the company’s co-founder and vice president of research and development, told CNBC last month.

“I think that there’s many logos … that aren’t in the press raising $5 billion in two weeks, that do well in our portfolios, that are the stars of tomorrow, today,” Aschebrook said.

Finance

South Korean stocks rocked after martial law declared

Published

2 hours ago

December 3, 2024

Business Finance News

Police stand guard in front of the main gate of the National Assembly in Seoul on December 3, 2024, after South Korea’s President Yoon Suk Yeol declared emergency martial law. South Korea President Yoon on December 3 declared emergency martial law, saying the step was necessary to protect the country from “communist forces” amid parliamentary wrangling over a budget bill.

Jung Yeon-je | Afp | Getty Images

South Korean stocks dropped in the U.S. on Tuesday after President Yoon Suk Yeol invoked emergency powers and declared martial law, raising fear of instability in the world’s 13th largest economy.

The iShares MSCI South Korea ETF, which tracks more than 90 large and mid-sized companies in South Korea, tumbled 6% to hit a 52-week low.

Korea Electric Power’s American Depositary Receipts (ADRs) dropped 5%, and Korean e-commerce giant Coupang shed 6%. KT Corporation, formerly Korea Telecom, saw shares fall 3%. Posco, a South Korean steel manufacturer, declined more than 6%.

The president accused opposition parties of sympathizing with North Korea and controlling parliament. Yoon did not specify how martial law — a temporary rule by military authorities in a time of emergency — would affect governance and democracy in the country.

The Korea Exchange announced it would hold an emergency meeting “to prepare response measures” and later decide whether the market would open on Wednesday, according to local media reports.

The U.S. dollar jumped 1.9% against the South Korean won Tuesday.

— CNBC’s Hakyung Kim contributed reporting.

Finance

X, T, SYF, CVS and more

Published

3 hours ago

December 3, 2024

Business Finance News

Finance

PSQ Holdings doubles, becoming latest stock to rip higher on news of Donald Trump Jr.’s involvement

Published

3 hours ago

December 3, 2024

Business Finance News

Donald Trump Jr. speaks with the media at the end of the debate between Republican vice presidential nominee U.S. Senator JD Vance (R-OH) and Democratic vice presidential nominee Minnesota Governor Tim Walz hosted by CBS in New York, U.S., October 1, 2024.

Brendan Mcdermid | Reuters

Talks of Donald Trump Jr. joining the board of PSQ Holdings sent the owner of the online marketplace PublicSquare skyrocketing on Tuesday.

The stock surged 130% in premarket trading after Bloomberg News reported, citing people with knowledge of the matter, that the eldest son of President-elect Donald Trump could join PSQ’s board as early as Tuesday.

PublicSquare is a commerce and payments company with a focus on “life, family, and liberty.” PSQ is a microcap stock with a market capitalization of only $72 million as of Monday’s close.

For the September quarter, the firm had net revenue of $6.5 million and operation losses of more than $14 million. West Palm Beach, Florida-based PSQ is a 16-minute drive from Mar-a-Lago, the president-elect’s primary residence.

PSQ Holdings declined CNBC’s request for comment.

Just last week, Trump Jr. joined the board of Unusual Machines, a small U.S. drone and drone component maker, sending shares up as much as 100% the day of the announcement.

In November, Trump Jr. joined venture capital firm 1789 Capital as a partner. The firm invests in products and companies aimed at conservatives and its investments include Tucker Carlson’s media company.