1、H2 2023As we wade through the unsettled waters of 2023,its worth reflecting on how much has changed.At the onset of the year,top market strategists called for weak public markets.Analysts cited concerns over increased market volatility,Federal Reserve overtightening,credit shocks,elevated inflation,

2、recession risk,falling corporate and investor sentiment,rising unemployment and geopolitical tensions.In spite of these hurdles,the market has proved resilient.As of August 17,the S&P 500 stood at 4,370,up 14%on the year.Inflation has fallen precipitously,unemployment remains near recent historic lo

3、ws,the Fed has grown increasingly confident that it can avoid a recession,and investor sentiment seems to be warming.Top players in the private markets,SVB included,predicted material drops in fundraising,investment and exits.While that has mostly played out,for pockets of the innovation economy a f

4、loor is beginning to form.Valuations and investment appear to be stabilizing,company profitability is modestly improving,and generally companies have ample runway.This momentum could reopen the IPO window,bring confidence and stability to late-stage investment and valuations,and help balance limited

5、 partner(LP)allocations to public and private markets.Looking ahead,there are several key indicators that give us pause,such as an inverted yield curve,falling corporate profits,muted LP distributions,increased down rounds and declining revenue growth among startups.Despite this adversity,SVB contin

6、ues to believe in the resilience of the innovation economy.Uncertain and challenging market conditions provide an opportunity for startups to focus on building,on product market fit,on talent,on efficiency,on profitability and on innovation.Startups are already making headway in these realms.Burn mu

7、ltiples have decreased 24%since the start of the year.Operating margins have improved 37 percentage points(pp)since this time last year.There is no doubt companies will be busy shifting their business to improve their position but its the right kind of busy.Companies that embrace these tactics are w

8、ell-positioned to accelerate as headwinds become tailwinds.SVBs State of the Markets report leverages our unmatched proprietary data and vast network of deep relationships with investors and startups to gauge the health and productivity of the innovation economy.For this edition,we surveyed 80 notab

9、le venture capitalists(VCs)to delve into the new normal for banking.The consensus is clear.Treasury management is more important than ever,and investors recommend diversifying risk among two banks for most companies.Our spotlight on innovation banking(pages 7-9)dives deeper into this subject to prov

10、ide key takeaways on how VCs are thinking about banking when it comes to their portfolio companies.US investors sit on north of a trillion dollars in dry powder across private equity(PE)and VC strategies.They can be patient,but they cant be stagnant.Capital will need to be deployed.If history is a g

11、uide,tech will remain an integral part of a recovery and likely be the foundation for a new bull market.Exciting technologies such as generative AI will help usher in a new age of innovation.The venture ecosystem may not have turned the corner just yet,but its clear the tide is starting to change,an

12、d we will be there for our clients every step of the way.We look forward to working with and are committed to supporting the best and brightest companies and investors in the innovation economy.Marc Cadieux PresidentSilicon Valley BankMark Gallagher Co-Head of Investor CoverageSilicon Valley BankSTA

13、TE OF THE MARKETS 2Marc CadieuxPMark GallagherCo-Head of Investor CSTATE OF THE MARKETS3H1 2023 Outlook:US VC funds will likely raise$70B in 2023,down 50%from 2022,driven by subdued public markets,high interest rates and muted distributions to LPs.H2 Update:Capital RaisedVCs are on target to raise$7

14、0B by year-end,as anticipated.Continued rate hikes and slow deployment of record-high dry powder are deterring new funds until investments pick up.H1 2023 Outlook:US Series A tech deals will likely decline 15%to 1,250 deals in 2023,falling back to 2015-20 levels on mismatched valuation expectations

15、and slower growth.H2 Update:DealsSeries A deals are on pace for a 36%drop from last year,tracking below our expectations.While early-stage valuations and investment are more resilient than late-stage,investors are still slowing down.H1 2023 Outlook:US VC-backed tech IPOs will likely remain dormant i

16、n H1 2023,though pent-up demand and greater interest rate clarity may lead to 10+VC-backed IPOs in 2023.H2 Update:IPOsValuation overhang is suppressing later-stage exits.The IPO route remains blocked with only one VC-backed exit in H1.Barring a strong Q3,were lowering expectations and looking for an

17、 open window in 2024.H1 2023 Outlook:Late-stage US tech valuations will likely settle at 60%-65%below Q4 2021 levels,reaching a floor as public and private markets converge.H2 Update:Valuation DeclineValuations may be approaching the floor.The median later-stage pre-money valuation bottomed out at 6

18、1%below market peak in Q1,then rebounded 6 pp in Q2.The bounce may signal pricing clarity.However,valuation overhang persists.$35B$70B4701,250110-61%Full-Year Forecast From H1 ReportH1 2023 ActualFull-Year Forecast From H1 ReportH1 2023 ActualFull-Year Forecast From H1 ReportH1 2023 ActualFull-Year

19、Forecast From H1 ReportH1 2023 Actual-65%STATE OF THE MARKETS 4Macro:Big Tech Booms While Banking Comes into FocusFundraising:Capital Tied UpInvestment:Finding the Floor?Startup Benchmarks:Bottom Line Top of MindExits:Looking for Soft Landings STATE OF THE MARKETS5MacroBig Tech Booms While Banking C

20、omes into FocusJan 23Jul 23Growth$2.0T$3.0T51%$1.8T$2.6T44%$1.2T$1.6T38%$0.9T$1.4T58%$0.3T$0.8T142%Economic expectations couldnt have started much lower this year.In January,the S&P 500 was down 20%from the year prior and heading in the wrong direction.Inflation,though abating,was still twice the hi

21、storic average.Fed-controlled interest rates,already at 15-year highs,were climbing with no end in sight.Mounting tech sector layoffs threatened to spill into the broader economy,and corporate profits an indicator of business investment and spending dipped to a two-year low.Surveying these headwinds

22、,economists polled in January by The Wall Street Journal(WSJ)found a 63%likelihood of recession in 2023,a near-record level of pessimism.The market braced for a recession.So far,it hasnt materialized.While challenges still exist borrowing rates are higher than theyve been in 20 years the macro pictu

23、re has generally improved.Inflation appears tamable,unemployment has remained near all-time lows and public markets are surging back.After 18 months of uncertainty,there are signs that confidence is returning to the market.The S&P 500 has recovered nearly all its losses since the downturn.The latest

24、 WSJ poll from June showed a 54%chance of recession,back into coin-toss territory.Perhaps no group is having a better year than Big Tech.The five tech giants of Meta,Amazon,Apple,Microsoft and Google have mounted a remarkable comeback to collectively reclaim more than$3T in market cap since January.

25、The turnaround has accompanied a rise in AI applications that has captured public interest in what the next era of technology may mean for humanity.While Big Tech is rising,not all tech companies are being lifted.Venture-backed tech companies that went public in 2021 are struggling to meet lofty exp

26、ectations.These struggles are having a knock-on effect throughout the innovation economy as a backlog of exit-ready companies tread water.US Federal Funds Rate(FFR)and Inflation1US Corporate ProfitsPublic Market Performance:Indexed Market Cap of Tech Cohorts vs.S&P 5003STATE OF THE MARKETS69.1%3.2%0

27、.25%5.5%0%2%4%6%8%10%2020202120222023FOMC DecisionDecreaseNo ChangeIncrease22-year high-41.1%-10.7%-23.3%-8.0%-70.4%-58.1%-80%-70%-60%-50%-40%-30%-20%-10%0%Jan 22Apr 22Jul 22Oct 22Jan 23Apr 23Jul 23FAAMG Market Cap 2023Largest drop in corporate profits since Q2 20The 2021 Tech IPO cohort hasnt seen

28、the gains of FAAMGFFRInflationAvg Inflation(1980-2019)RecessionChange to FFR:US Corporate Profits(After Taxes)YoY2ChangeFAAMG CompaniesS&P 500(Without FAAMG)2021 Tech IPOsNotes:1)Inflation measured as the year-over-year(YoY)change in the Consumer Price Index.2)Year-over-year(YoY).3)As of 7/14/2023.F

29、AAMG companies include:Meta(Facebook),Amazon,Apple,Microsoft and Alphabet(Google).Source:S&P Market Intelligence,Bureau of Labor Statistics,National Bureau of Economic Research,The WSJ,and SVB analysis.2%3%1%5%-1%-9%20%11%33%55%18%20%10%8%2%-1%-5%$2.0T$2.1T$1.8T$2.4T$2.8T$3.0T$2.7TQ1 Q2 Q3 Q4 Q1 Q2

30、Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q120192020202120222023Below average$6.1B$5.7B$4.5B$8.9B$8.7B$11.0B$11.3B$12.7B$18.3B$20.4B$12.5B$10.1B$20.1B$11.8B$18.3B$14.4B$20.5B$23.4B$21.1B$24.0B$18.3B$20.9B$17.2B$13.3B$12.7B$5.4B725720676641747707705754746796825892837761781824975983907932796774663774557532Q1Q2Q3Q

31、4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2201720182019202020212022202350556065707580859095100Mar 2023Apr 2023May 2023Jun 2023Jul 2023Startups grappling with the VC downturn faced an added stressor in March when simmering concerns about the banking sector boiled over.The rapid rise in interest rat

32、es over the last two years put many banks investment securities underwater.In Q4 2021,US banks had just$8B of unrealized losses on their securities portfolio,which ballooned to$620B over the next year as the Fed began its rate hike cycle.Between March and July,a handful of notable banks facing liqui

33、dity concerns,including SVB,went into FDIC receivership and were subsequently acquired.This shock to the banking system the biggest financial crunch since the Global Financial Crisis(GFC)has reverberated in the innovation economy.For banks,the ripples from March have resulted in increased scrutiny f

34、rom credit rating agencies,which have downgraded the credit ratings of at least 10 US banks,with more under review(as of August 11).These pressures,coupled with higher interest rates and other market forces weighing on regional commercial lenders,have contributed to constrained debt markets and tigh

35、ter lending standards.As a result,US venture debt deployments have fallen back to 2017 levels.For some tech companies,higher interest rates and broader macro challenges such as slowing VC investment and weaker revenue growth are making debt financing a less viable source of capital.A Federal Reserve

36、 poll of senior loan officers in July showed that demand for loans to companies with less than$50M in revenue was at its weakest level since the GFC,while lending standards had also tightened to near-record highs.While this data is not specific to VC-backed companies,it highlights how many banks are

37、 tightening their lending standards and slowing the flow of capital.Despite these trends,tech companies seeking loans may benefit from new competition for their business.Since March,a range of conventional banks have entered the innovation space or sought to expand their presence.Timeline of Notable

38、 Banking Events in 2023US Demand for Small Business Loans and Tightening Lending Standards4STATE OF THE MARKETS7US Venture Debt Deals 47%-63.5-53.3-80%-60%-40%-20%0%20%40%60%80%20072011201520192023Mar 8:SilvergateBank announces liquidationMar 9-10:SVB put into FDIC receivershipMar 12:FDIC closes Sig

39、nature Bank,later acquired by Flagstar Bank2Mar 15:Index is down 29%from Mar 1Mar 19:Facing closure,Credit Suisse is acquired by UBSMar 27:First Citizens Bank acquires SVB1May 1:First Republic Bank is closed by FDIC and acquired by JPMorgan ChaseMay 4:Index is down 41%,a 3-year lowJul 25:PacWest and

40、 Banc of CA mergeJul 15:Index is trending higher and recovers half its losses since Mar 1BankJul 22Jul 23JPMorgan Chase11First Citizens Bank3016HSBC2125PacWest+Banc of CA5541Select Bank Rankings by US Assets3Net Percentage of Banks TighteningLending StandardsNet Percentage of Banks Reporting Increas

41、ed DemandNotes:1)First Citizens Bank acquired SVBs US private and commercial banks.It did not acquire SVB Securities,SVB Capital or SVBs internationally-located businesses.2)On March 20,Flagstar acquired$38B in Signature assets,including 30 banking branches.The FDIC retains$60B in Signature assets.3

42、)July rankings estimated based on acquisitions and latest available assets.4)Small business are those with under$50M in annual revenue.Source:S&P Market Intelligence,Federal Reserve Board of Governors,PitchBook and SVB analysis.DealsCapital S&P Regional Banks Index(March 1,2023=100)49%23%21%1%1%6%35

43、%41%17%6%12%27%32%13%6%4%12%32%22%19%12%8%15%31%30%13%9%22%14%36%17%3%1%3%10%23%3%55%Regulatory RiskTreasury ManagementMacro HeadwindsHiringFundraisingCustomer AcquisitionProduct Market FitThe events of this spring have created a new set of norms and standards for how startups and VCs manage their a

44、ccounts.Its no longer standard practice to keep all deposits with one bank.That much is clear.But beyond that baseline,what best practices are emerging?For instance,how many banks should a company keep?What factors are important for evaluating the right banking partner?To better understand best prac

45、tices,we surveyed 80 notable VCs on their advice to founders.1Overall,our findings underscore VCs view that founders,who may have once put banking on the back burner,must now actively manage their cash allocations as they do other business priorities.When asked how founders should rank treasury mana

46、gement among other business challenges,VCs gave it near the same importance as navigating macro headwinds or managing regulatory risk,two areas that have always been on founders radar of priorities.The survey also made clear that other essential needs such as product market fit,customer acquisition

47、and hiring should come first.VCs are taking a more hands-on approach to their portfolio companies banking decisions.Of the VCs we surveyed,over 95%say they advise their clients on banking practices,with 11%going further to enforce firm expectations.When it comes to the most important features to loo

48、k for in a primary bank,the top features were non-negotiables such as security and stability,execution and reliability,and products for startups.Below these table stakes were differentiating factors,such as relationships,the size of the bank and industry knowledge.These secondary factors are still v

49、alued by VCs,all rated above moderately important.Now that competition in innovation banking is more fierce and companies are shoring up the must-haves in a banking relationship,its possible that these peripheral factors like networking and industry knowledge could carry additional sway.VC Guidance:

50、How Founders Should Prioritize Business Challenges2Most Important Features in Choosing a Primary Bank for VC-Backed CompaniesSTATE OF THE MARKETS8How VCs See Their Role in Startup Banking Decisions:Advise on best practices,84%Enforce firm expectations,11%Do not advise,5%9.08.58.48.38.17.07.06.76.76.

51、3Stability andSecurityExecution andReliabilityFDIC InsuredCustomerServiceProducts forStartupsRelationshipsand NetworkTechnology andPlatformsInterestRates/YieldBank SizeIndustryKnowledge5Very Important=100=Not at All ImportantRank7th6th5th4th3rd2nd1stAverage Rating:Notes:1)SVB survey of 80 general pa

52、rtners at US VC firms,conducted from 7/24 to 8/4/2023.2)May not sum to 100%due to rounding.Source:SVB survey,SVB proprietary data and SVB analysis.Differentiators Non-NegotiablesModerately ImportantWhen it comes to considerations for dividing assets between multiple banks,it is,unsurprisingly,all ab

53、out the amount of cash held.Outweighing considerations like the experience of the founding team and the presence of a CFO on staff,77%of VCs said they weigh a companys cash and amount raised when giving guidance on banking decisions.1There were three main strategies considered for dividing money amo

54、ng bank accounts.The largest group of VCs advised keeping a cash reserve beyond what is needed for normal operations,with 40%of VCs favoring this approach.A less conservative approach is to keep a buffer to meet short-term payroll,say two pay cycles,for example.Over 28%advised this approach.The most

55、 conversative strategy was to move any money outside of the federal insurance amount of$250k.Nearly a third of VCs favored this approach,though the infeasibility of having dozens of banks suggests that it would take the form of an insured treasury management product like a cash sweep.These products

56、have gained traction since March,though this route is typically reserved for companies with more cash.Of VCs who recommend the strategy of FDIC-insured limits,94%said theyve advised portfolio companies to consider insured accounts.In practice,there are only so many banks a company can keep.For most

57、companies,two is enough.That was the median recommendation for companies up to$100M in revenue.At that threshold,the median advice jumps to three banks.This tracks with the guidance that cash is the most important factor for these decisions.As companies bring in more revenue and their cash reserves

58、multiply,the complexity of their banking needs grows,necessitating more diversity.Its also likely that preferences based on relationships or familiarity or the desire for access to specialized products will weigh more heavily over time.US VC-Backed Tech:Cash and Cash Equivalents by Revenue Band2STAT

59、E OF THE MARKETS9Anything beyond what is needed for normal business operationsAnything above FDIC-insured limitsEmergency buffer to meet short-term payrollHow Much Capital Should CompaniesKeep Outside of Their Primary Bank?3Factors VCs Consider When Advising on Banking Decisions34%76%76%52%42%35%Rev

60、enueCash Held andAmount RaisedCompany StageCash BurnIf the Team Hasa CFOExperience ofFounding TeamVC Guidance:Number of Banks Startups Should Have by Revenue Band22230123456Less than$10M$10M-$50M$50M-$100M$100M+$1.6M$4.0M$10.5M$29.8M$4.2M$9.8M$23.9M$81.4M$9.7M$23.1M$52.1M$221.0MAs revenues grow and

61、cash on hand multiplies,the complexity of banking increases VCs advise 2 banks for companies under$100M in revenuePercentage of VCs Citing the Factor as a ConsiderationMedianMiddle 50%of CompaniesLess than$10M$10M-$50M$50M-$100M$100M+Notes:1)SVB survey of 80 general partners at US VC firms,conducted

62、 from 7/24 to 8/4/2023.2)Annual revenue calculated using the revenue run rate for the statement period.3)Does not sum to 100%due to rounding.Source:SVB survey,SVB proprietary data and SVB analysis.MedianMiddle 80%of Responses28%31%40%STATE OF THE MARKETS10FundraisingCapital Tied Up$0B$50B$100B$150B$

63、200B$250B199820012004200720102013201620192022US VC fundraising saw five consecutive record-breaking years starting in 2017,growth that was fueled by low interest rates,investors seeking alpha in private markets,and tailwinds for technology that leapfrogged adoption during the pandemic.But the party

64、is over.Since H1 2022,US VC fundraising has fallen 66%to just$35B in H1 2023.Many firms dont need to raise capital;they raised it during the boom and are now biding their time and deploying capital far more slowly.The pressure from LPs to deploy capital is also gone.Anecdotally,many LPs,already over

65、 allocated to private markets,would prefer VCs not continue to call capital.But the clock is ticking and this pause cannot last forever.The tighter market has shown up in several key metrics for VC fundraising and deployment.First,the time between funds is beginning to increase as funds are not comi

66、ng back to market as quickly.This is due to their slower pace of deployment and a lengthier timeline for those raising capital because of muted demand from LPs,who have yet to see material liquidity from their VC holdings in recent quarters.Second,the average age of dry powder is beginning to increa

67、se.The dot-com bubble and the GFC saw the weighted average age of dry powder increase significantly as VC fundraising slowed and VCs called capital less frequently.Third,the percentage of dry powder deployed for funds with a vintage of 2021 is just 9%lower than any previous cycle.This indicates that

68、 the capital raised at market peak remains untouched.While the amount of US VC dry powder is a bright spot in the innovation economy,with limited LP pressure to invest,capital deployment is likely to remain slow at least until more companies are forced and there is more agreement on terms and pricin

69、g.Annualized US VC FundraisingYears Between US VC Funds Closed of the Same Fund Series1US VC Dry PowderUS VC:Average Dry Powder Deployed Two Years After Funds Vintage YearSTATE OF THE MARKETS11Non-Downturn VintagesGFCSlowdown2.72.72.52.62.61.92.11.72.50.00.51.01.52.02.53.03.54.04.5201520162017201820

70、192020202120222023Early signs of reaching a bottomH1 2022$102BH2 2022$51BH1 2023$35BDot-ComSlowdown42%32%25%9%1$283B0.0yr0.5yr1.0yr1.5yr2.0yr2.5yr3.0yr$0B$50B$100B$150B$200B$250B$300B200020042008201220162020GFCSlowdownDot-ComSlowdownNotes:1)For funds of the same series time between close dates of th

71、e fund.2)Assumes current run rate of deployment through year-end.Source:Preqin and SVB analysis.Trailing 12 MonthsTrailing 3 Months(Annualized)MedianMiddle 50%of CompaniesDot-Com20212GFCWeighted Average Age(Yrs.)Total Dry PowderFollowing a surge in VC investment,valuation increases and material exit

72、s in 2021,the private market industry delivered stellar returns.However,as the industry has entered a new phase,those returns havent translated into distributions,but rather paper gains.More than 80%of US VC fund vintages since 2010 have at least half of their total value to paid-in capital(TVPI)tie

73、d up in residual value to paid-in capital(RVPI).1This indicates that half of funds value is in unrealized paper markups.The percentage of return tied up in undistributed valuation gains only increases as you move along the fund vintages.When cutting the data by fund stage,as expected,funds focused o

74、n earlier-stage investments have a disproportionately smaller amount of returns from distributions.Without an open exit market,investors have been forced to extend hold times for their portfolio companies or seek alternative solutions for liquidity.One option general partners(GPs)have used more is t

75、he net asset value(NAV)loan.Uses of NAV loans could range from growth capital support for portfolio companies,financing for bolt-on acquisitions or distributions to LPs,especially before beginning to raise another fund.This third purpose is becoming increasingly popular.Look no further than the Carl

76、yle Group,which recently used a 1.25B NAV facility on its fifth European buyout fund to accelerate distributions back to LPs.This could signal a shift in the purpose of NAV facilities,putting the emphasis on consistent distributions and liquidity management rather than portfolio growth or internal r

77、ate of return(IRR)enhancement.US VC Funds Share of TVPI Held in RVPI by Vintage Fund YearUS VC Funds Median DVPI and DVPI Share of TVPI by Strategy2for 2010-2015Count of Active NAV Facilities Indexed to 100 by Year3Common Use of a NAV FacilitySTATE OF THE MARKETS1244%41%53%68%65%82%89%88%96%100%33%2

78、2%28%50%41%60%70%74%85%80%23%17%16%35%22%40%43%52%59%59%76%84%87%90%97%100%200720092011201320152017201920210.75x0.54x0.83x37%22%50%GeneralEarly-StageLate-Stage10010015016721720192020202120222023Support a portfolio company in any life stage(negative cash flow,growth,etc.)Potentially enhance overall F

79、und IRR Hedge currency risk of international assets without posting cash for collateral diluting fund returnBridge a portfolio company to a pending liquidity eventProvide liquidity to LPs through distributionsFund a portfolio company acquisition or recapRVPI at Least 25%of TVPIRVPI at Least 50%of TV

80、PIRVPI at Least 75%of TVPIMedian DVPIDVPI Share of TVPINotes:1)As of 8/9/2023.Performance data for US VC funds as defined by Preqin with vintage years from 2010 to 2022.2)Strategy defined by Preqin.Early-stage includes startup,seed and undefined early-stage funds.3)Data as of year end for all dates

81、except 2023,which is as of 6/30/2023.Source:Preqin,Private Equity International,SVB proprietary data and SVB analysis.30%GrowthMajority of fund value unrealizedMajority of fund value returned to LPsSTATE OF THE MARKETS13InvestmentFinding the Floor?0%10%20%30%40%50%60%70%80%90%JulSepNovJanMarMayJulSe

82、pNovJanMarMay202320242025Total Required2023 Monthly Capital56%32%10%2%41%34%18%6%30%36%22%12%$0-$10M$10M-$25M$25M-$50M$50M+On a monthly basis we estimate US VC-backed tech companies collectively burn$27.6B net of revenue.In other words,these companies rely on outside sources of capital to cover$27.6

83、B of net burn.In 2020 and 2021,record VC investment meant companies could raise capital relatively easily and on favorable terms.This pushed company burn higher as companies prioritized growth over profitability.Now the tables have turned,and companies have cut back.However,burn is still high its ha

84、rder to reduce spending than to increase it during good times.As a result,there is a significant gap between the$27.6B that companies burn each month and the$13.1B in VC investment that has occurred(on average)each month in 2023.This is the funding gap.A funding gap is a normal part of the venture e

85、cosystem.It ensures that companies that are underperforming are not funded and keeps the ecosystem healthy.However,a 50%gap means that many companies will be unsuccessful at raising capital and must look for alternatives such as reaching profitability or pursuing an acquisition to avoid failure.Comp

86、anies that can raise capital may have to accept lower valuations and tougher terms that induce investors to invest.The gap is immediately apparent to companies with limited runway that must raise capital now,but most companies arent in that position yet.In the next 12 months,only 46%of US VC-backed

87、tech companies must raise,which is lower than historical pre-pandemic levels.As companies adjust burn and VC investment normalizes over time,we expect the gap to decrease.Capital Requirements:US VC-Backed Tech Startups1Percentage of US VC-Backed Tech Startups that Must Raise:Next 12 Months2Startups

88、that Must Raise in the Next 12 Months:Distribution of Capital Required3STATE OF THE MARKETS1446%of companies must raise within12 monthsPercentage of US VC-Backed Tech Startups Running Out of Runway by Date2$27.6B The estimated amount of capital required to cover US VC-backed companies monthly burn$1

89、3.1B Monthly equity and debt investment into VC-backed tech companies 30%35%40%45%50%55%60%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q22017201820192020202120222023Interpretation:56%of companies would need to raise less than$10M to secure 12 months of runwayBelow historical levels Size of Com

90、pany FundraiseThe Funding Gap will lead to:Companies capitulating to lower valuations Soft-landing M&A to recoup value of companies unable to raiseCompany failure Notes:1)Estimated based on net burn rates and the number of active US VC-backed tech companies that have raised capital in the last three

91、 years.2)Assuming current burn rate and cash and cash equivalents.3)Estimate uses current monthly burn rate and multiples by 12,18 or 24 months.Source:SVB proprietary data,PitchBook and SVB analysis.12 Months of Runway18 Months of Runway24 Months of RunwayCapital Required for an Additional:While it

92、is unlikely that well see US VC investment levels return to 2021 levels in the near future,the question remains as to where we are in the cycle.Using history as a guide,past cycles have taken between 12 and 18 months to find a bottom.June marked the 18th month of this cycle,and while US VC investmen

93、t levels may still fall,they are showing signs of stabilizing.Return to peak is another story it took nearly 14 years to return to the peak achieved during the dot-com bubble but only three years to recover from the GFC.Over the last 18 months there have been several shifts that have changed the VC

94、investment landscape significantly.The zero interest-rate environment and low-cost capital of 2021 has disappeared,replaced with the highest rates in 22 years.The pandemic tailwinds that catapulted tech adoption years ahead have faded.LP appetite for alpha from private markets has subsided as return

95、s become available elsewhere and their portfolios are overly weighted to private assets.Finally,with the median 2021 US VC-backed tech IPO 62%below its IPO price,late-stage activity has slowed 46%YoY as most late-stage companies would prefer not to risk raising a down,flat or weaker up round than an

96、ticipated.This late-stage slump has also been impacted by hybrid PE/VC firms.As a proxy,we looked at a cohort of four notable hybrid firms who reduced their US VC deal activity by 82%since 2021.3These investors participated in 60%of the total value of deals in 2021;however,that has fallen to just 39

97、%as PE investors have retreated.Firms such as Tiger Global went from averaging nearly four US VC deals per week in 2021 to about two and a half deals a month in 2023.Yet not all non-traditional VC investors have pulled back.Corporate venture capitalists(CVCs)have remained active,dispelling the commo

98、n misconception that they are tourist investors.Some CVCs are far more active such as Lockheed Martin,which went from being the 50th most active CVC to the 4th,highlighting the significant tailwinds in the defense sector,including NATOs 1B deep tech defense fund.VC Investment in US Companies:Trailin

99、g Twelve months VC Investment in US Companies:Indexed to 100 at Market Peak1Non-Traditional Investors Share of US VC Deal ActivityUS VC Investment from Notable Hybrid PE/VC Investors3STATE OF THE MARKETS15$0B$50B$100B$150B$200B$250B$300B$350B$400B19951999200320072011201520192023Months203040506070809

100、0100-12-10-8-6-4-20246810 12 14 16 18 20 22 24Dot-Com:13.8 years GFC:3.2 yearsCurrent Cycle2023 investment levels have started to settle.$182B in line with 2019-2020 US VC investment levels11.2%15.7%26.2%6.9%12.6%24.4%4.3 pp3.2 pp1.8 pp$19B$86B$30B$3B$6B94168512325472020202120222023Historical recove

101、ry after 18-24 monthsAsset ManagersCVCPrivate EquityMarket PeakTop 5 CVC Investors by Deals H1 20232Dot-ComGFCCurrent CycleNotes:1)Uses monthly VC investment number smoothed with a trailing three-month average to remove noise as of 6/30/2023.2)Google Ventures,Salesforce Ventures,Alexandria Venture I

102、nvestments,Lockheed Martin and Coinbase Ventures.3)Notable hybrid PE/VC firms include:Insight Partners,Coatue Management,SoftBank and Tiger Global.Source:PitchBook,PitchBook NVCA Venture Monitor,NATO and SVB analysis.H1 2023Percentage Point Decline 2021Total Size of Deals Participated inDeals2023 Fu

103、ll Year ExtrapolationIt was only a matter of time.Following a frenzied 2021 dealmaking pace that many deemed unsustainable,the venture slump has hit startups and finally shown up in the data.This year saw a jump in down rounds,accounting for the largest share of deals since 2018.1Down rounds are an

104、unwelcomed event for a number of reasons,namely because they can lead to outsized dilution,disgruntled investors and employees concerned over their equity not to mention the public black eye.Even though 2022 was a muted year,startups likely had enough runway due to an exuberant 2021 funding year.As

105、startups have gone back to the venture well this year,theyve been faced with the harsh reality that yesterdays price is not todays price.In fact,Q2 2023 had the highest share of down rounds(12.6%)since Q4 2017(14.8%).1As expected,most of the down rounds are occurring at the late-stage,where public c

106、omps are more readily available and the allure of early-stage potential is better understood.This share of down and flat rounds could be even higher than the data suggests as more companies refuse to disclose their valuation during downturns.This is likely tied to startups wanting to avoid the publi

107、c scrutiny of raising a down round.Another possible scenario for not disclosing terms is if a company raised less capital or at a lower valuation than initially expected.Valuation step-ups2in 2023 are the lowest they have been post-pandemic.Step-ups have fallen the most at the later stage,with Serie

108、s C to Series D valuation step-ups decelerating to 22%the lowest total since 2010.1 Meanwhile,the earlier stage has remained more resilient as it is less susceptible to changes in the public markets.US VC Down&Flat Rounds by YearUS Startups Disclosing ValuationsUS Valuation Step-Ups by SeriesSTATE O

109、F THE MARKETS160%5%10%15%20%25%30%35%SeedSeries ASeries BSeries CSeries D+25.5%36.6%27.3%32.6%31.7%38.2%37.6%32.3%36.0%202320212019201720152013201120092007200520032001Firms tend to not disclose valuation during downturns.11.0%6.9%7.6%10.5%9.8%11.9%14.0%12.3%6.0%5.9%10.5%9.9%10.7%12.2%23.3%12.9%13.5%

110、21.0%19.6%22.6%26.2%2023202220212020201920182017Down&Flat Rounds as a Percentage of All US VC Deals by StagePercent of Deals That Were Flat RoundsPercent of Deals That Were Down Rounds2017201820192020202120222023Percentage of Deals with Post-Money Valuation DisclosedUS Bear Market3Notes:1)As of 7/31

111、/2023.2)Step-up defined as the percentage change from the current rounds pre-money valuation vs.its previous round post-money valuation.3)US bear market defined as a period where the S&P 500 declined by more than 20%from peak to trough.Source:PitchBook and SVB analysis.43%18%87%57%7%86%54%150%94%22%

112、127%128%257%162%82%80%66%122%125%45%148%143%222%219%119%263%263%415%424%253%51%43%88%69%15%108%106%170%131%52%183%185%300%245%123%A to BB to C20192020202120222023MedianMiddle 50%of CompaniesC to D100 pp.YoY79 pp.YoY72 pp.YoYThe US innovation economy produced a record 293 new tech unicorns in 2021 an

113、d added 168 more in 2022.However,minting unicorns has all but stopped in 2023,with only 13 added in the first half.For the stable of 622 US tech unicorns,the question is what happens as the late-stage capital that supported them remains largely dormant.One measure to understand the dynamics of unico

114、rns is to examine what has happened to 2021 US VC-backed tech IPOs,which saw their market caps fall on average 52%from their IPO date.If 2021 unicorns were marked to market based on 2021 IPOs,we would expect their total valuation to fall from$900B to around$550B.At current burn rates,only 18%of unic

115、orns will have to raise in the next 12 months.The market dynamics may shift by that time in favor of large,late-stage companies.Nonetheless,unicorns have tightened their belts;38%of US tech unicorns have implemented layoffs since the beginning of 2022,and EBITDA margins have improved steadily since

116、the beginning of 2022.But as companies have moved toward profitability,revenue growth has slowed.Only 13%of unicorns are profitable,and theyve been relying on large,late-stage deals to sustain their operations.Even public companies have depended on growth and capital.Uber,for example,founded in 2009

117、 and exiting a decade later,just reported its first profitable quarter,indicative of the low-cost capital environment where investors favored growth over profitability.Long-term,if private capital doesnt continue to fund the herd of US tech unicorns,and if they exit through down-round IPOs,late-stag

118、e investors may pull back due to poor performance.This dynamic could mean companies exit sooner,reversing the trend witnessed in recent years of companies relying on private capital investments to stay private longer.US Tech Unicorn Formation and ValueUS Tech Unicorns Years of RunwayUS Tech Unicorns

119、 EBITDA Margin2US Tech Unicorns Annual Revenue Growth3STATE OF THE MARKETS1778%64%48%42%45%48%32%25%15%12%-50%0%50%100%150%200%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2202120222023-47%-55%-57%-64%-75%-67%-58%-49%-40%-30%-150%-130%-110%-90%-70%-50%-30%-10%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q220212022202318%31%16%10%4%20%123455Years of Ru

120、nway13%of unicorns are profitable62%decline in VC funding for unicorns since 202138%of tech unicorns have had layoffs since January 20224991439431730577178293168130510152010 2012 2014 2016 2018 2020H1 2023More unicorns formed in 2021 than the prior five years combined$900BLast round value of all pri

121、vate US tech unicorns$550BTotal H1 2023 mark-to-market value of all private US tech unicorns(including fallen unicorns)1MedianMiddle 50%of UnicornsMiddle 50%of UnicornsMedianNotes:1)Mark-to-market values assessed using average performance of the 2021 US VC-backed tech IPO cohort;only companies that

122、havent raised since 2021 were revalued.2)Using a representative sample of US tech unicorns.3)Annual revenue growth rate calculated using the quarterly revenue growth rate.Source:PitchBook,S&P Market Intelligence,SVB proprietary data and SVB analysis.AI applications have augmented our lives for years

123、,performing tasks from setting our kitchen timers to detecting cancer cells.With the rise of generative AI,weve entered a new realm.Powerful language models such as OpenAIs GPT are demonstrating the capacity for computers to mimic human creativity and improve productivity in ways that far exceed any

124、thing that came before.Where Alexa could recite a Wikipedia article,ChatGPT can compose one.The seemingly limitless promise of software capable of writing a hit song or crafting a business plan has become a bright spot in the innovation economy,as founders and investors race to stake their claim in

125、the AI gold rush.The share of US VC investment in AI companies jumped to 26%for the 12 months ending in Q2 2023,a 10 pp spike from the year prior.Not only has the deal activity increased,but investors are also paying a premium for AI exposure.This year,companies at the seed stage which are less pron

126、e to market volatility have seen a 33%spike in valuations if they list AI as a tech vertical.1Many of these companies are incorporating AI into their core business products,mining the technology for efficiency gains by replacing workers with chatbots or adding revenue-producing features.The biggest

127、opportunity may belong to those selling the picks and shovels.AI chip producer NVIDIA is among the top-performing stocks in the S&P 500 this year,increasing its market cap 2.5x since January.Large corporations have invested heavily in AI infrastructure for decades.Companies like Google have long tou

128、ted the potential for AI as a new paradigm for computing.Microsoft invested$3B into OpenAI,with a further$10B committed.GM has invested billions into its self-driving car subsidiary,Cruise,now offering nighttime rides in San Francisco.Collectively,R&D spending at Google,Meta,Microsoft,Amazon and GM

129、exceeded$176B in 2022 an amount greater than 48 state budgets.Key Milestones in Generative AI andFunding in AI1as a Percentage of Total VCNotable Corporates Funding AI ResearchUS VC Investment in AI1AI Valuation Bump for Seed Stage Tech Companies by Sector in 2023STATE OF THE MARKETS18$6.7B$6.4B$7.8

130、B$6.2B$5.9B$7.2B$6.8B$10.2B$13.5B$20.4B$13.5B$17.0B$13.9B$11.6B$7.5B$8.1B$16.0B$14.8B597546518521613471515599783704762786867711656593537623Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22019202020212022202344%21%12%12%6%AI FundingSince 20184%CompanyAnnual R&DKey AI Business Unit/Products$73.2B

131、Amazon Bedrock$39.5BDeepMind Technologies Lab,Bard$35.3BAI Research SuperCluster$27.2BOpenAI,Co-pilot(Productivity Software)$9.8BCruise(Self-Driving Cars)Notes:1)Deals include the PitchBook vertical“artificial intelligence and machine learning”as of 7/17/2023.TTM=Trailing 12 months.2)Aggregated sear

132、ch terms for“artificial intelligence”indexed to 100 for the top search month since 2004.Source:PitchBook,Google Trends,company annual reports and SVB analysis.Percentage of US VC Invested in AI Companies(TTM)Index of Google Searches for AI215%15%16%18%17%18%16%17%18%20%19%19%19%16%17%17%21%26%201920

133、20202120222023OpenAIlaunches GPT-2OpenAIlaunches GPT-3.5OpenAIlaunches GPT-4OpenAIlaunches ChatGPTGoogle launches BardDealsCapitalEnterprise SoftwareFrontier TechFintechHealthcareConsumer InternetClimate Tech$10.6M$15.0M$16.5M$13.0M$18.7M$19.9M$20.0M$20.5M77%33%21%58%ConsumerInternetEnterpriseSoftwa

134、reFintechFrontier TechAI Valuation PremiumMedian Post-Money Valuation:WithAI as a Tech VerticalWithoutAI as a Tech VerticalDespite the transition to remote work enabling workers to move out of cities,California and New York remain the dominant force in US VC investment.In 2019,these states accounted

135、 for 62%of US VC investment.As of H1 2023,that number remains more or less unchanged at 61%.While metros like Miami have tripled in size since 2020,the up-and-coming regions remain small relative to established VC hubs.The network effects of repeat founders,established pools of capital,and a VC comm

136、unity make top regions hard to surpass.Nonetheless,tides are turning in established markets.A McKinsey study found demand for office space could fall 20%in San Francisco and 16%in New York by 2030.Looking to Austin as an example of where companies may go,197 companies expanded or relocated to Austin

137、 in 2021,but today the city is on track to see just 70 companies relocate or expand in a sign that some of the trends accelerated by COVID-19 may now be decelerating.Nonetheless,US VC investment is not a monolith,and trends vary greatly depending on the region.During the investment boom of 2020-2021

138、,California and New York saw the steepest increases in valuations,while other regions lagged.Today,many regions continue to play catch-up with valuations.While the median valuations may still be climbing in the middle of the country(Mountain,Midwest and South regions),California and New York still h

139、old a substantial valuation premium.Furthermore,just because the median valuation may be climbing does not mean all companies are seeing gains in these subregions.The reality is that fundraising dynamics are still challenging every region has seen substantial declines in VC investment.Some of these

140、regions are also more heavily impacted by individual sectors.Miami,for example,has a vibrant fintech scene,while the Mountain West sees more frontier tech.These sectoral differences result in investment trends driven by industries rather than simply macro VC trends.STATE OF THE MARKETS19VC Investmen

141、t in US Companies Key Metrics by Region H1 2023 Pre-Money Valuations By Stage and Region0%20%40%60%80%100%120%2020202120222023H1 2023 Median Early-Stage Valuations Percent Change Since 2020Capital Invested H1 20231MedianMiddle 50%Notes:1)West(turquoise blue)includes Alaska and Hawaii(not pictured).S

142、ource:PitchBook,Austin Chamber of Commerce,McKinsey:The Impact of the Pandemic on Real Estate and SVB analysis.$2B$5B$4B$4B$5B$8B$3B$44B$10B61%of VC investment is from CA and NYCA and NY witnessed the steepest increase and decline in valuations$13M$40M$12M$43M$14M$48M$9M$50M$16M$50M$18M$52M$17M$53M$

143、15M$70M$20M$88M$0M$50M$100M$150M$200MEarlyLateEarlyLateEarlyLateEarlyLateEarlyLateEarlyLateEarlyLateEarlyLateEarlyLateSoutheastMid AtlanticMountainMidwestSouthNew YorkWest CoastNew EnglandCalifornia-STATE OF THE MARKETS20Startup BenchmarksBottom Line Top of MindValuations,deal size and investment le

144、vels are down across all stages.These declines have been steepest at the late-stage,mirroring trends in the public markets 89%of VC-backed tech companies that went public in 2021 are below their IPO market caps.1This decline in tech IPO performance could be indicative of how late-stage companies wou

145、ld perform if they were to exit.That said,reported valuations are only half the story;higher liquidation preferences and investor-friendly terms are par for the course across all stages.Not only are the deal metrics different today,but operating metrics for companies raising capital are also differe

146、nt.As companies focus on profitability and reduce burn,their revenue growth has fallen,which is compounded by a tougher macro environment.As companies are growing slower,the valuation calculus changes.Slower growth means higher forward revenue multiples and weaker forecasts used to inform company va

147、luations.In our portfolio,we have seen many companies revise their forecasts sometimes multiple times.No longer will growth alone support high valuations if companies dont have a clear path to profitability.While revenue growth is lower,reductions to burn are showing up in higher EBITDA margins.EBIT

148、DA margins for companies successfully raising capital have increased substantially.For example,the median EBITDA margins for companies that raised a Series A have increased 71 pps since Q4 2022.Ultimately,we believe the focus on profitability will create stronger,leaner companies capable of sustaina

149、ble growth and stronger long-term performance.US VC-Backed Tech Companies:Deal Benchmarking by Deal Date and Stage2STATE OF THE MARKETS21Series ASeries BSeries CSeries D+Annual Revenue Growth3,4Median EBITDA Margin3$32M$11M-21%YoY-13%YoY$80M$25M-33%YoY-17%YoY$155M$39M-39%YoY-21%YoY$309M$54M-60%YoY-5

150、3%YoYMedian Pre-Money Valuation$23B-42%YoY$26B-38%YoY$17B-45%YoY$27B-46%YoYAnnualized InvestmentMedian Deal SizeMedianMiddle 50%of Companies That Raised a Round-100%0%100%200%300%400%500%-100%0%100%200%300%-50%0%50%100%150%200%250%0%50%100%150%200%250%-450%-300%-150%0%-300%-200%-100%0%-150%-100%-50%

151、0%-120%-80%-40%0%Notes:1)Data as of 7/20/2023.2)Data as of 6/30/2023.3)Calculated using trailing 4 quarters to remove noise from data.4)Annual revenue growth is calculated using quarter-over-quarter(QoQ)data and annualizing the growth rate based on runrate.Source:SVB proprietary data,PitchBook and S

152、VB analysis.Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Q1 21Q1 23Q1 22Consumer InternetEnterprise SoftwareFrontier TechFintechMedian Months of Cash Runway by Revenue Band and Sector:US Tech1Runway by Revenue Band:US Tech1Cash and Cash Equ

153、ivalents by Revenue Band Indexed to 100:US Tech1STATE OF THE MARKETS22$0-$10M$10M-$25M$25M-$50M$50M+050100150200250300350Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q12017201820192020202120222023COVID-19CutsCurrent Cycle510152025303540Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q12017201820192020202120222023COVID-19CutsCurrent CycleNotes:

154、1)Annual revenue calculated using the revenue run rate for the statement period.Source:SVB proprietary data,PitchBook and SVB analysis.H1 20232021$0-$10M$10M-$25M$25M-$50M$50M+$0-$10M$10M-$25M$25M-$50M$50M+$0-$10M$10M-$25M$25M-$50M$50M+$0-$10M$10M-$25M$25M-$50M$50M+$0-$10M$10M-$25M$25M-$50M$50M+1214

155、18211420233212142418162121281191016121717261011162012161725In aggregate,the US innovation economy is doing well in terms of runway.Only 46%of companies will have to raise in the next 12 months,which is below historical values typically in the mid-50%range.The troublesome trend is that runway continu

156、es to fall across the board for all stages and sectors,as capital coming in through investment and revenue lags capital going out through burn.Overall,the early-stage is far more vulnerable than the late-stage from a runway perspective.The typical company with less than$10M in revenue now has less t

157、han a year of runway.Anecdotally,a lot of the companies in this cohort that do not have technical differentiators may have the hardest time raising.Some consumer internet companies,for example,differentiate with their business model and brand not their technical capabilities.It is in these areas whe

158、re we expect the most difficult fundraises and potentially the highest percentage of companies forced to shut their doors as runway runs out.In contrast,companies with technical intellectual property(IP),such as frontier tech,have a better case to make for an M&A.For example,Spark AI,a seed-stage AI

159、 company in the industrial space,was acquired by Deere in March of this year.However,its worth noting that despite a 61%decline in the level of US VC investment since 2021,tech company runway across the board has only fallen 23%since its peak in Q4 2021.This is in large part thanks to significant co

160、st-cutting by companies as they focus on profitability and extending runway rather than revenue growth.-37%-46%-36%-55%-76%-45%-74%-121%-103%-56%-93%-61%-160%-140%-120%-100%-80%-60%-40%-20%0%As more companies face depleting cash reserves and few options to extend runway,founders are cutting every ex

161、pense they can bear.While this trend began in 2022 as VC investment began to fall,the gains in profitability and efficiency continue to materialize.Operating margins for US VC-backed tech companies peaked in Q3 of 2020 after companies made significant cuts during COVID-19.At the same time,tech adopt

162、ion accelerated.If the current trend of improving profitability continues,we can expect operating margins to surpass their 2020 peak by the end of the year.That said,VC-backed tech companies remain highly unprofitable by the nature of the VC model,which depends on high growth and low profitability t

163、o achieve scale.As of H1 2023,our proprietary data suggest only 7%of US VC-backed tech companies are profitable and 13%of unicorns.The efficiency of unprofitable companies has increased markedly as measured by burn multiples.For example,the typical company in 2022 burned$2.10 to gain one dollar in n

164、ew revenue.As of Q2 2023,that number is now$1.60 to gain one dollar of new revenue.That said,those companies that have successfully raised since 2022 are less efficient compared to those that didnt raise.Perhaps this is indicative of the fact that they are less worried about runway than those that h

165、avent raised.Complicating companies journey to profitability is the fact that many late-stage enterprise companies have struggled with customer retention,as many customers examine the tools and services they use and seek to reduce costs.Generally speaking,enterprise companies focused on core-busines

166、s functions,such as cybersecurity or accounting,have performed better than those required to perform non-essential tasks.US VC-Backed Tech Historical EBITDA Margin by Revenue1EBITDA Margin:US VC-Backed Tech with$10M-$25M in Annual RevenueEBITDA Margin by Sector:US VC-Backed Tech with$10M-$25M in Ann

167、ual Revenue2Median Burn Multiple:US VC-Backed TechSTATE OF THE MARKETS23-180%-160%-140%-120%-100%-80%-60%-40%-20%0%$5M$15M$25M$35M$45M$55M$65M$75M$85M$95M4.7x2.4x1.6x1.2x4.3x1.9x1.4x0.9x1.8x2.1x1.6x201720202023$0-$10M$10M-$25M$25M-$50M$50M+202120222023Growth companies typically reach an asymptote ar

168、ound$50M-$60M in revenue and margins remain negative as they scaleMedianMiddle 50%of CompaniesMedianMiddle 50%of CompaniesNotes:1)Trajectory assessed using historical data between Q1 2017 and Q2 2023 to reflect typical path of US tech companies.2)Data for 2023 as of H1.Source:SVB proprietary data an

169、d SVB analysis.Consumer InternetEnterprise SoftwareFintechFrontier TechBurn Multiple Trend:All StagesCompanies that Raised in the Last 18 MonthsCompanies that Did Not Raise in the Last 18 MonthsGrowth at All CostsProfitability Over GrowthCOVID-19 CutsQ1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q22021202020222023Reven

170、ue BandOne of the primary ways companies have sought to improve profitability and extend runway is through layoffs.While companies are focusing on other areas such as travel and expense(T&E)and reducing spend on SaaS,headcount is among the largest line items for many startups,making it a core focus

171、for cuts.Not only that,but many companies overhired in the high growth environment of 2020-2021,and now face slower than expected growth and excess headcount.In one signal of the trend,the online job site ZipRecruiter cut one-fifth of its staff in June.The company,which primarily serves the tech ind

172、ustry,experienced a 19%drop in YoY revenue in Q1 and a 29%drop in Q2.ZipRecruiter said cuts were necessary to“focus on profitability during times of decreased demand.”They arent alone.With 68%of US VC-backed tech companies reducing net burn,personnel cuts have spiked in H1 2023,with first-wave cuts

173、giving way to second,third and fourth waves of cuts.Our analysis showed that cuts are occurring across all stages and sectors of the tech industry,though large layoffs at public companies account for the majority of disclosed job losses.SVB proprietary data demonstrates that cuts do make an impact o

174、n the bottom line.Companies that made layoffs in H1 2023 had a 20%lower burn rate compared to companies that didnt make layoffs.That happens to be the average size of a force reduction for tech layoffs announced over the last 12 months.All of these layoffs may be keeping the lights on.While US bankr

175、uptcies have spiked 68%this year compared to last,VC-backed tech bankruptcies are flat to last years rate,according to PitchBook data.0k50k100k150k200k250k300k020406080100120140MarMayJulSepNovJanMarJunSepNovJanMarMayJulSepNovJanMarMayJul2020202120222023Percentage of US VC-Backed Tech Companies with

176、Decreasing Net Burn YoYUS Tech Layoffs by Round of Job Cuts1US Tech Layoffs by Sector and VC Round STATE OF THE MARKETS24US VC-Backed Tech Burn Multiples68%0%10%20%30%40%50%60%70%80%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q220182019202020212022202367%of tech layoffs since March 2020 have occurred

177、in the last 10 months0%20%40%60%80%100%Series ASeries BSeries CSeries D+1.6x1.2x1.9x1.6xQ1 2023Q2 2023Cumulative Layoffs by Round:1st2nd3rd4thLayoff Announcements(3-Month Trailing Average)Enterprise SoftwareFintechFrontier TechClimate TechConsumer InternetNotes:1)VC-backed or formerly VC-backed comp

178、anies reporting layoffs and number of jobs cut.Source:Layoffs.fyi,Reuters,PitchBook,SVB proprietary data and SVB analysis.Companies That Didnt Make Layoffs Since 2022Companies That Made Layoffs Since 2022108107STATE OF THE MARKETS25ExitsLooking for Soft LandingsIf you listen closely,you can hear the

179、 creaks of the IPO window slowly starting to open.This is on the back of public market indices steadily remaining in positive territory,despite most calling for a muted year.The S&P 500 climbed 25%off its 2022 low and is up 17%year-to-date(YTD).1 Another glimmer of hope is the recent IPO of restaura

180、nt chain CAVA.While not a traditional tech IPO,its nearly 100%first day pop and 250%+return above its last private valuation provides investors confidence that they can deliver a successful IPO in current market conditions.1However,private investors have recently shifted their view on how long they

181、plan to hold portfolio companies that recently had a public exit before selling their position.In fact,nearly one-fifth of 2021 US VC-backed tech IPOs outstanding shares are held by private investors who missed their opportunity to liquidate at market peak and provide distributions to LPs.This puts

182、emphasis on long-term public market performance and a broader economic environment.As it stands now,its likely most private investors will continue to hold on to their recently exited positions,given 64%of US VC-backed tech IPOs since 2017 are below their IPO market cap.1,2Even compared to measures

183、like last private valuation(LPV),over one-third of that same cohort remain below their LPV,with 43%of the 2021 cohort being below that watermark.1,2Furthermore,the complicated cap tables of late-stage private companies pose challenges for companies who need to raise.Many exit-ready companies may pre

184、fer taking a down-round IPO rather than a private market down round.Having a long-term view on the public markets may provide a helpful perspective for investors.Some of the most notable tech companies have gone public during downturns or volatile market periods,indicating its not just about how you

185、 perform out of the gate,but rather how you sustain that success over the long term.Trailing Twelve Month US IPOs and IPO Filings by Year1Share of US VC-Backed Tech IPOs Below IPO Market Cap by Year1STATE OF THE MARKETS26010203040506070809002004006008001,0001,2001,4001,6001,8001997199920012003200520

186、0720092011201320152017201920212023Percentage of Outstanding Shares of US VC-Backed Tech IPOs Held by PE/VC Firms3Number of IPO Filings&US IPOsVIX Level1%12%1%4%1%9%3%5%2%3%12%22%0%3%0%2%0%4%0%1%1%3%10%17%201020122014201620182020Notable Tech IPOsIPO FilingsVIXUS IPOsBear Market29%50%8%14%42%0%20%41%3

187、9%42%50%88%201020122014201620182020Average Percentage Held by PE/VC Firms by YearAggregate Percentage Held by PE/VC Firms by YearNotes:1)As of 8/10/2023.2)Tech defined using SVBs proprietary taxonomy.3)Data as of latest company filing.Source:PitchBook,S&P Market Intelligence,SEC EDGAR and SVB analys

188、is.64%of US VC-backed tech IPOs since 2017 are below their IPO market capAs public exits remain subdued,acquisitions continue to be the preferred exit route even if not by choice.As 2023s exit market mirrors last year,a greater share of exits are M&A deals.Despite this,M&A deals are getting done at

189、a slower clip,with US VC-backed tech M&A on track to be 20%lower than last year and the lowest total since 2013.1As uncertainty still remains,companies likely look for more clarity before moving forward with a deal.Plus,interest rates at a 22-year high add additional hurdles to dealmaking by increas

190、ing the cost of acquisition financing and lowering equity valuations.These acquisitions are skewing smaller,with 21%of US VC-backed tech M&A coming from sub-$500M deals nearly double last years share and the highest since 2000.1Smaller deals tend to occur during periods of uncertainty as larger comp

191、anies push pause on larger,transformational deals until more clarity comes to light.These challenges will pressure potential sellers and add to the likelihood of more distressed activity.Carve-outs and divestitures will likely become more prominent,as companies shore up balance sheets.As deals are m

192、ade,similar to down rounds,fewer companies are reporting their exit price as they go for the“soft landing”route as to avoid a perceived negative outcome.If capital doesnt continue to flow into the venture ecosystem,more companies will become“troubled”and have to look to acquirers for rescue.Our prop

193、rietary index on troubled startups has grown 30%since 2019,recently passing levels last seen at the onset of the pandemic in 2020.1Share of Startup Exits by Exit Route1US VC-Backed Tech M&A by Year1Share of US VC-Backed Tech M&A with Reported Exit Price1Index of Troubled US VC-Backed Tech Companies2

194、STATE OF THE MARKETS270%20%40%60%80%100%0%20%40%60%80%100%2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022Transaction CountTransaction Value14%25%35%27%34%41%33%47%51%40%65%202320212019201720152013201120092007200520032001The share of deals reporting an exit price tends to fall during down

195、turns2976489426126466615785092023202220212020201920182017Share of M&A by Exit Value Bucket 2023 vs.2022364%56%23%24%5%14%6%7%020406080100120140160Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2201820192020202120222023Companies cut burn in H1 2020 and VC investment doubles each year IPOM&ABuyoutUS VC-Ba

196、cked Tech M&A CountProjected 2023 US VC-Backed Tech M&A Count$100M$100M-$500M$500M-$1B$1B+Notes:1)As of 7/31/2023.2)Troubled companies defined as those with less than 12 months of runway and have a combined EBITDA and revenue growth rate less than predetermined buckets based on stage.These buckets w

197、ere determined using the long-term median value by stage.3)May not sum to 100due to rounding.Source:PitchBook,S&P Market Intelligence,SVB proprietary data and SVB analysis.20232022STATE OF THE MARKETS28Marc CadieuxPLead Authors Market Insights Team Authors Marc Cadieux is president of Silicon Valley

198、 Banks commercial banking business where he focuses on the needs of innovation companies at all stages of development,including the investors who back them.Marcs career at Silicon Valley Bank,a division of First Citizens Bank,began in 1992.In the three decades since,he has held a variety of top cred

199、it and sales roles serving some of the worlds most innovative companies.Most recently,he served as chief credit officer,appointed in 2013,and oversaw credit policy and process,credit underwriting,loan approval and portfolio management activities.He is a strong advocate of bank initiatives to expand

200、opportunities for those who are underrepresented in the innovation economy.He serves as an executive sponsor for the companys employee resource group focused on women employees.Eli OftedalSenior ResearcherMarket IJosh PherigoSenior ResearcherMarket IAndrew Pardo,CFASenior ResearcherMarket IMark Gall

201、agherCo-Head of Investor CMark Gallagher is the co-head of the investor coverage practice.He and his team provide tailored services,industry insights and strategic guidance to top investors in the innovation economy.Mark has served as a financial partner to venture capital firms and technology and l

202、ife science companies for the majority of his career.During his 22-year tenure with SVB,he has been involved in a number of strategic projects and initiatives,most recently leading the corporate venture capital practice.Hes held numerous leadership roles including head of the Northeast technology ba

203、nking practice,head of business development in New England and several years running the Northeast life science practice.A supporter and champion of the New England technology community,Mark serves as a board member for BUILD Boston and was formerly on the board of overseers for The Mass Technology

204、Leadership Council(MTLC).Silicon Valley Bank(SVB),a division of First-Citizens Bank,is the bank of some of the worlds most innovative companies and investors.SVB provides commercial and private banking to individuals and companies in the technology,life science and healthcare,private equity,venture

205、capital,and premium wine industries.SVB operates in centers of innovation throughout the United States,serving the unique needs of its dynamic clients with deep sector expertise,insights and connections.SVBs parent company,First Citizens BancShares,Inc.(Nasdaq:FCNCA),is a top 20 U.S.financial instit

206、ution with more than$200 billion in assets.First Citizens Bank,Member FDIC.Learn more at .29See complete disclaimers on following page.2023 First-Citizens Bank&Trust Company.Silicon Valley Bank,a division of First-Citizens Bank&Trust Company.Member FDIC.3003 Tasman Drive,Santa Clara,CA 95054#SVBSili

207、con Valley BSTATE OF THE MARKETSThe views expressed in this report are solely those of the authors and do not necessarily reflect the views of SVB.This material,including without limitation to the statistical information herein,is provided for informational purposes only.The material is based in par

208、t on information from third-party sources that we believe to be reliable but which has not been independently verified by us,and,as such,we do not represent the information is accurate or complete.The information should not be viewed as tax,accounting,investment,legal or other advice,nor is it to be

209、 relied on in making an investment or other decision.You should obtain relevant and specific professional advice before making any investment decision.Nothing relating to the material should be construed as a solicitation,offer or recommendation to acquire or dispose of any investment,or to engage i

210、n any other transaction.All non-SVB named companies listed throughout this document,as represented with the various statistical,thoughts,analysis and insights shared in this document,are independent third parties and are not affiliated with Silicon Valley Bank or First-Citizens Bank&Trust Company.Al

211、l third-party trademarks,logos,and brand names are the property of their respective owners and are herein used for informational purposes only.Any predictions are based on subjective assessments and assumptions.Accordingly,any predictions,projections or analysis should not be viewed as factual and s

212、hould not be relied upon as an accurate prediction of future results.Investment Products:2023 First-Citizens Bank&Trust Company.Silicon Valley Bank,a division of First-Citizens Bank&Trust Company.Member FDIC.3003 Tasman Drive,Santa Clara,CA 95054STATE OF THE MARKETS30Are not insured by the FDIC or any other federal government agencyAre not deposits of or guaranteed by a bankMay lose value