Valley Recap | Feb10 The Impact of Rising Interest Rates on Startups

Sponsored by

The Impact of Rising Interest Rates on Startups

After over a decade of historically low interest rates, central banks have raised rates in response to inflation. Looking at the last 15 years, it's clear that near-zero rates correlated with massive investment into high-risk startups. High interest rates make "risk-free" assets like government bonds more appealing for returns.

However, there are still reasons for optimism that the startup ecosystem will rebound when rates eventually decline again. LPs will continue allocating funds to VC as part of diversified portfolios. And startups are becoming more efficient - median burn rates have already dropped 27% from 2020 to 2022 as reality sets in.

Creative dealmaking through instruments like convertible notes can help bridge valuation gaps between founders and investors. IPO activity is also cyclical. It is already recovering with IPOs up 50% year-over-year in 2023 so far. After the dot-com crash, IPOs rebounded 350% when rates declined.

The rise of bootstrapping startups will also empower more founders, following success stories like MailChimp and GitHub.The startup environment is always changing, but the opportunities are still there. Savvy founders will adapt to the new reality and build resilient, efficient businesses ready to thrive when rates decline again. Necessity drives innovation - and founders are resourceful in the face of challenges.

The data shows that VC investments dovetails with interest rates in a cyclical fashion. When rates are low, capital pours into startups - some resilient, some not. When rates rise, only the strongest survive as capital dries up. This cycle then repeats as rates eventually fall again. There are reasons for optimism as rates start to decline. More capital is coming to meet battle-tested founders who survived the recent lean part of the cycle. Both investors and founders stand to win in the next up-cycle as incoming capital meets founders whose businesses are resilient enough to thrive.

and there are more investor friendly deals

As we kick off the Year of the Dragon, Happy Chinese New Year! We're already witnessing some good fortune starting.

AI assistance in traditional industries is emerging as a definitive trend, marking the beginning of significant technological advancements and disruptions.

Early Stage:

• Polycam: Raised $18 million in Series A funding for its creation of 3D imaging tools for smartphones.

• Shepherd: Secured $13.5 million in Series A funding for its insurance tech platform for commercial construction.

• Upstash: Raised $10 million in Series A funding for its San Jose-based serverless data platform.

• Stellar Sleep: Raised $6 million in seed funding for its sleep therapy app designed for chronic insomnia.

Growth Stage:

• Neurona Therapeutics: Raised $120 million for its biotech endeavors focused on repairing dysfunctional neural circuits.

• ZEDEDA: Secured $72 million in Series C investment for its edge management and orchestration solutions.

• Ambience Healthcare: Raised $70 million in Series B funding for its AI operating system tailored for healthcare organizations.

• Unlearn.AI: Secured a $50 million Series C for its creation of digital twins of clinical trial participants.

• Aizon: Developed AI-powered software for pharmaceutical manufacturing, has raised a $20 million Series C.

• Overflow: Attracted $20 million in Series B investment for its giving and donation platform.

• Elroy Air: Garnered close to $50 million in fresh investment for its air cargo drones.

As we continue the month, it's clear that certain industries have emerged as frontrunners in attracting investment capital.

This past week has been marked by a series of deals showcasing the driving forces behind the next wave of innovation, from biotech breakthroughs to AI-driven innovations and beyond.

Kreger & Associates

Launching a new venture is an exhilarating journey, yet the intricacies of entity incorporation, tax optimization, and regulatory compliance can often dim the excitement. Kreger & Associates emerges as a beacon of support in these areas, simplifying and enriching the process of corporate structuring for startups, funds, or Special Purpose Vehicles (SPVs).

Nestled in Marin County, California, Kreger & Associates has dedicated over 35 years to assisting startups, investors, and individual taxpayers, achieving substantial savings for them along the way. The firm's founder, Ken Kreger, boasts a distinguished career with the IRS in Washington DC, where he garnered one of the agency's most commendable audit records. Leveraging his insider knowledge of the IRS, Ken established a private family tax practice, positioning Kreger & Associates as a formidable ally for clients seeking to navigate the complexities of tax law.

Kreger & Associates offers a comprehensive suite of services designed to meet the diverse needs of its clients, including:

• Entity formation, compliance, and strategic tax planning.

• Preparation of tax returns, with specialized expertise in Research & Development credits and Employee Retention Credit (ERC) for businesses.

• Representation as Power of Attorney to the IRS during audits or examinations.

• Strategic consulting for mergers and acquisitions, fundraising, exit planning, and tax minimization strategies.

With a commitment to efficiency and fairness, Kreger & Associates serves over 1,500 clients at rates that are highly competitive when compared to larger tax practices. The firm's guiding principle is to ensure clients save significantly more than they spend on services.

Operating on a referral-only basis, Kreger & Associates offers a complimentary consultation to prospective clients. This approach ensures a mutual fit and confirms the firm's ability to deliver value before any formal engagement is initiated. To learn more about Kreger & Associates services, visit their website at https://kregerandassociates.com/ or contact Jesse Kreger directly.

GP Co-Investing Dinner | Feb7

This week, we hosted our inaugural GP Co-Investing Dinner, marking the beginning of what we hope will be many fruitful founder-investor conversations. This event, conceived by our valued partner Murray Newlands, brought together founders and investors in an intimate dinner setting that sparked engaging idea exchanges.

The feedback so far indicates this has been one of our most successful events yet. The format enabled open and targeted dialogues tailored to founders' specific funding needs. By focusing the event around particular company stages, participants could connect with the most relevant investors and advisors.

Moving forward, we aim to replicate this format with even more tailored programming centered on funding stages. Narrowing the scope of each event will foster connections between founders and investors primed for symbiotic partnerships. If you attended, thank you for being part of this groundbreaking event. If not, stay tuned for announcements about similar focused forums for funding conversations. We’re just getting started!

The success of this first GP Co-investing Dinner reaffirms the power of intimate, strategic settings for bringing together entrepreneurs and backers. We look forward to cultivating these relationships from their beginning stages through fruitful collaborations that drive innovative ideas forward.

More to come

Around the Valley

• Feb12: AI B2C Investors & Networking (Palo Alto)

• Feb13: Founders & Funders (Los Gatos)

• Feb21: Path Ahead Summit (Palo Alto) pw: investors only

• Feb22: Path Ahead LP brunch (Los Altos). * By strict invite only, please connect with us [email protected] for more details.

• Feb25: Bay Area Founders Club - 1st Demo Day

• Feb28: SV Investing Summit by Angel Launch

• Feb 29: Llama Lounge (Palo Alto )

• Mar07: OFF Angel Group Pitch event (Palo Alto)

• Mar12: LG Founders & Funders Mixer (Los Gatos )

• Mar13 AI & Supply Chain event  

Interested in collaborating or presenting at the next Ignite event? Reach out to us and get on our events list!

Podcast We’re Listening To:

RADIO STATION 92.9FM COMING SOON

Thanks for letting us Ignite your Morning ☕️

Our primary objective is to provide you with informative and engaging content that adds value to your week. We value your feedback and encourage you to share your thoughts and suggestions with us. Your input is crucial to helping us improve our newsletter and make it a valuable resource for you.

As we work towards building a thriving community, your contributions will play a vital role in shaping the future of our publication. We believe that by collaborating and communicating openly, we can create a publication that truly caters to the needs and interests of our audience.

We appreciate your continued support and look forward to hearing from you!

Logan Lemery
Head of Content // Team Ignite

Join the beehiiv community — the secret behind the success of top newsletters like Milk Road.

Our comprehensive suite offers more than just tools; it's a gateway to growth, monetization, and seamless content creation. 

With beehiiv, you get a code-free newsletter and website builder, alongside insightful analytics that drive real results. Experience the difference of the most powerful newsletter publishing platform on the market.

Start your journey with beehiiv today, absolutely free — no credit card needed. 

Dive in now →