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🧟‍♂️ Zombie Funds Blocking Liquidity

In the current economic climate, venture capital is facing its most challenging period since the dot-com bubble burst. A new pattern has emerged: the rise of "Zombie VCs." These funds, while still technically operational, find themselves in a state of limbo—unable to raise new funds due to performance yet continuing to exist as corporate entities.

It’s firms that have enough money to stay in business but not enough to make new investments. They typically have just enough capital to cover existing operating costs and service their debts. Still, they are unable to invest in new startups or provide significant additional funding to their existing portfolio companies.

Several factors have contributed to the emergence of Zombie VCs. High interest rates have increased borrowing costs for VC firms, limiting their available capital for investment. The economic downturn has made LPs more risk-averse, making it difficult for VCs to raise additional funds. Additionally, many VC firms are burdened with high debt and decreased returns on existing investments.

The consequences of this phenomenon are significant for the startup ecosystem. Funding is becoming increasingly scarce for both young and mature startups. VCs that previously funded a company may refuse to participate in the next round or offer significantly less money than needed. This forces startup leaders to become more strategic about preserving their cash runway and exploring alternative financing options.

Interestingly, while new venture funding has slowed dramatically, there is an unprecedented amount of dry powder sitting idle in Family Offices and High/Ultra-High Net Worth individuals' accounts. This paradox underscores a fundamental shift in investor confidence and risk appetite.

The path forward for the Zombie funds typically splits into two directions. Some will face a quiet death, while others will attempt to salvage what they can through secondary market sales of their performing investments. This latter approach is contributing to a broader consolidation trend in the venture capital market.

For startups navigating this challenging landscape, it's crucial to be aware of the potential issues that can arise with these types VCs on their cap table. These firms may push for quick sales, even at a loss, to wind down their old funds. They might resist additional financing rounds that could dilute their stake, even if it's what the company needs for growth.

Despite the challenges, this consolidation phase may prove to be a necessary cleansing of the venture capital ecosystem. As weaker firms exit and portfolios consolidate under stronger management, the industry could emerge more resilient and better positioned for sustainable growth.

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Bay Area Startups Secured Over $6.4B

The week ends with a very large deal - $5.6B for Waymo – taking the Bay Area total for the week to $6.4B and October-to-date to $16.5B. The largest funding today (and for the week) was the $5.6B Series C for Waymo, an autonomous driving technology company creating a new way forward in mobility.

We've been waiting to see if the IPO window would open before the end of the year. Septerna's IPO today cracked the window. The company initially set their IPO terms for 10.9M shares at price range of $15 - $17, but response was so positive that they increased the number of shares to 16M and the price to $18. Their IPO today raised $228M, and their share price was up as much as 42%, settling at 18% up when the market closed this afternoon. We'll be watching to see if this motivates more SV companies who have filed for IPOs – like Omada Health and Cerebras Systems – and are waiting for "the right time".

Follow LinkSV on LinkedIn to stay on top of Bay Area startup fundings and exits.

Early Stage:

• Pantheon AI closed a $25M Seed, designs offices with speed and precision, streamlining every phase from test fit to construction documents with our proprietary technology.

• E2B closed a $19.5M Seed, an open-source runtime for executing AI-generated code in secure cloud sandboxes that is made for agentic & AI use cases.

• Oloid closed a $6M Series A, standing at the forefront of physical identity management and automation, offering state-of-the-art passwordless and automation solutions for enterprises.

• Pharos closed a $5M Seed, lets hospital quality teams pull data from charts at scale, without manual chart review, automating the abstraction of data for clinical registries.

• BackOps.ai closed a $2M Pre-Seed, the AI-driven platform for automating supply chain logistics and acting as the central nervous system for operations.

Growth Stage:

• Waymo closed a $5.6B Series C, an autonomous driving technology company creating a new way forward in mobility.

• Zip closed a $190M Series D, empowering businesses to accelerate the procurement process, mitigate risk, and drive growth by offering a single front door to unify the teams, tasks, and tools involved in working with suppliers.

• Nimble Robotics closed a $106M Series C, inventing the autonomous supply chain using next-gen AI robotics to power the future of fast, efficient, and sustainable commerce.

• Finix closed a $75M Series C, a full-stack payment processor enabling businesses to accept and send payments online and in-store.

• Concentric closed a $45M Series B, helping organizations address their unmet data security needs by discovering and protecting business-critical content.

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Around The Valley

RAISE Global Summit // San Francisco

As an exclusive, invite-only community and event series, RAISE Global connects LPs with emerging GPs in venture capital. Founded by Akkadian Ventures, the annual summit gathers LPs and fund managers, providing opportunities for networking, sharing insights, and exploring early-stage investment opportunities. Held at the beautiful Presidio, this year’s event stood out as a high-caliber gathering of top venture professionals. Kudos to the RAISE Global team for hosting a well-organized, polished event with an impressive guest list. https://www.raiseglobal.co/

Opal Group // Napa

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Our mission is to provide you with an insider's view of Silicon Valley's undercurrents – insights often overlooked by mainstream sources. While many newsletters offer broad market overviews, we focus on delivering a unique, in-depth understanding of the local ecosystem. We share behind-the-scenes conversations, introduce key players we meet at events, and offer exclusive insights.

Your feedback is crucial in helping us refine our content and maintain the newsletter's value for you and your fellow readers. We welcome your suggestions on how we can improve our offering. [email protected] 

Logan Lemery
Head of Content // Team Ignite

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