ChartHop CEO Ian White breathed a major sigh of relief in late January after his cloud software startup raised a $20 million funding round. He’d started the process six months earlier during a brutal period for tech stocks and a plunge in venture funding.
For ChartHop’s prior round in 2021, it took White less than a month to raise $35 million. The market turned against him in a hurry.
“There was just a complete reversal of the speed at which investors were willing to move,” said White, whose company sells cloud technology used by human resources departments.
Whatever comfort White was feeling in January quickly evaporated last week. On March 9 — a Thursday — ChartHop held its annual revenue kickoff at the DoubleTree by Hilton Hotel in Tempe, Arizona. As White was speaking in front of more than 80 employees, his phone was blowing up with messages.
White stepped off stage to find hundreds of panicked messages from other founders about Silicon Valley Bank, whose stock was down more than 60% after the firm said it was trying to raise billions of dollars in cash to make up for deteriorating deposits and ill-timed investments in mortgage-backed securities.
Startup executives were scrambling to figure out what to do with their money, which was locked up at the 40-year-old firm long known as a linchpin of the tech industry.
“My first thought, I was like, ‘this is not like FTX or something,'” White said of the cryptocurrency exchange that imploded late last year. “SVB is a very well-managed bank.”
But a bank run was on, and by Friday SVB had been seized by regulators in the second-biggest bank failure in U.S. history. ChartHop banks with JPMorgan Chase, so the company didn’t have direct exposure to the collapse. But White said many of his startup’s customers held their deposits at SVB and were now uncertain if they’d be able to pay their bills.
While the deposits were ultimately backstopped last weekend and SVB’s government-appointed CEO tried to reassure clients that the bank was open for business, the future of Silicon Valley Bank is very much uncertain, further hampering an already troubled startup funding environment.
SVB was the leader in so-called venture debt, providing loans to risky early-stage companies in software, drug development and other areas like robotics and climate-tech. Now it’s widely expected that such capital will be less available and more expensive.
White said SVB has shaken the confidence of an industry already grappling with rising interest rates and stubbornly high inflation.
Exit activity for venture-backed startups in the fourth quarter plunged more than 90% from a year earlier to $5.2 billion, the lowest quarterly total in more than a decade, according to data from the PitchBook-NVCA Venture Monitor. The number of deals declined for a fourth consecutive quarter.
In February, funding was down 63% from $48.8 billion a year earlier, according to a Crunchbase funding report. Late-stage funding fell by 73% year-over-year, and early-stage funding was down 52% over that stretch.
‘World was falling apart’
CNBC spoke with more than a dozen founders and venture capitalists, before and after the SVB meltdown, about how they’re navigating the precarious environment.
David Friend, a tech industry veteran and CEO of cloud data storage startup Wasabi Technologies, hit the fundraising market last spring in an attempt to find fresh cash as public market multiples for cloud software were plummeting.
Wasabi had raised its prior round a year earlier, when the market was humming, IPOs and special purpose acquisition companies (SPACs) were booming and investors were drunk on low interest rates, economic stimulus and rocketing revenue growth.
By last May, Friend said, several of his investors had backed out, forcing him to restart the process. Raising money was “very distracting” and took up more than two-thirds of his time over nearly seven months and 100 investor presentations.
“The world was falling apart as we were putting the deal together,” said Friend, who co-founded the Boston-based startup in 2015 and previously started numerous other ventures including data backup vendor Carbonite. “Everybody was scared at the time. Investors were just pulling in their horns, the SPAC market had fallen apart, valuations for tech companies were collapsing.”
Friend said the market always bounces back, but he thinks a lot of startups don’t have the experience or the capital to weather the current storm.
“If I didn’t have a good management team in place to run the company day to day, things would have fallen apart,” Friend said, in an interview before SVB’s collapse. “I think we squeaked through, but if I had to go back to the market right now and raise more money, I think it’d be extremely difficult.”
In January, Tom Loverro, an investor with Institutional Venture Partners, shared a thread on Twitter predicting a “mass extinction event” for early and mid-stage companies. He said it will make the 2008 financial crisis “look quaint.”
Loverro was hearkening back to the period when the market turned, starting in late 2021. The Nasdaq hit its all-time high in November of that year. As inflation started to jump and the Federal Reserve signaled interest rate hikes were on the way, many VCs told their portfolio companies to raise as much cash as they’d need to last 18 to 24 months, because a massive pullback was coming.
In a tweet that was widely shared across the tech world, Loverro wrote that a “flood” of startups will try to raise capital in 2023 and 2024, but that some will not get funded.
Federal Reserve Chair Jerome Powell arrives for testimony before the Senate Banking Committee March 7, 2023 in Washington, DC.
Win Mcnamee | Getty Images News | Getty Images
Next month will mark 18 months since the Nasdaq peak, and there are few signs that investors are ready to hop back into risk. There hasn’t been a notable venture-backed tech IPO since late 2021, and none appear to be on the horizon. Meanwhile, late-stage venture-backed companies like Stripe, Klarna and Instacart have been dramatically reducing their valuations.
In the absence of venture funding, money-losing startups have had to cut their burn rates in order to extend their cash runway. Since the beginning of 2022, roughly 1,500 tech companies have laid off a total of close to 300,000 people, according to the website Layoffs.fyi.
Kruze Consulting provides accounting and other back-end services to hundreds of tech startups. According to the firm’s consolidated client data, which it shared with CNBC, the average startup had 28 months of runway in January 2022. That fell to 23 months in January of this year, which is still historically high. At the beginning of 2019, it sat at under 20 months.
Madison Hawkinson, an investor at Costanoa Ventures, said more companies than normal will go under this year.
“It’s definitely going to be a very heavy, very variable year in terms of just viability of some early-stage startups,” she told CNBC.
Hawkinson specializes in data science and machine learning. It’s one of the few hot spots in startup land, due largely to the hype around OpenAI’s chatbot called ChatGPT, which went viral late last year. Still, being in the right place at the right time is no longer enough for an aspiring entrepreneur.
Founders should anticipate “significant and heavy diligence” from venture capitalists this year instead of “quick decisions and fast movement,” Hawkinson said.
The enthusiasm and hard work remains, she said. Hawkinson hosted a demo event with 40 founders for artificial intelligence companies in New York earlier this month. She said she was “shocked” by their polished presentations and positive energy amid the industrywide darkness.
“The majority of them ended up staying till 11 p.m.,” she said. “The event was supposed to end at 8.”
Founders ‘can’t fall asleep at night’
But in many areas of the startup economy, company leaders are feeling the pressure.
Matt Blumberg, CEO of Bolster, said founders are optimistic by nature. He created Bolster at the height of the pandemic in 2020 to help startups hire executives, board members and advisers, and now works with thousands of companies while also doing venture investing.
Even before the SVB failure, he’d seen how difficult the market had become for startups after consecutive record-shattering years for financing and an extended stretch of VC-subsidized growth.
“I coach and mentor a lot of founders, and that’s the group that’s like, they can’t fall asleep at night,” Blumberg said in an interview. “They’re putting weight on, they’re not going to the gym because they’re stressed out or working all the time.”
VCs are telling their portfolio companies to get used to it.
“In this environment, my advice is pretty simple, which is — that thing we lived through the last three or four years, that was fantasy,” Gurley said. “Assume this is normal.”
Laurel Taylor recently got a crash course in the new normal. Her startup, Candidly, announced a $20.5 million financing round earlier this month, just days before SVB became front-page news. Candidly’s technology helps consumers deal with education-related expenses like student debt.
Taylor said the fundraising process took her around six months and included many conversations with investors about unit economics, business fundamentals, discipline and a path to profitability.
As a female founder, Taylor said she’s always had to deal with more scrutiny than her male counterparts, who for years got to enjoy the growth-at-all-costs mantra of Silicon Valley. More people in her network are now seeing what she’s experienced in the six years since she started Candidly.
“A friend of mine, who is male, by the way, laughed and said, ‘Oh, no, everybody’s getting treated like a female founder,'” she said.
CORRECTION: This article has been updated to show that ChartHop held its annual revenue kickoff at the DoubleTree by Hilton Hotel in Tempe, Arizona, on Thursday, March 9.
It’s been a decade since Ethereum’s inception, and although its native ether token has largely struggled for the last half of it, its future looks brighter than ever.
Ether has become more attractive to institutions in recent weeks largely due to legislation around stablecoins – most of which are issued on Ethereum – being signed into the first-ever U.S. crypto law. There’s also the successful June IPO of Circle, the issuer of the second-largest stablecoin, new leadership at the Ethereum foundation, and, most recently, a boom in ether treasury firms and corporate entrants.
Until very recently, however, it seemed like ether, better known by its ticker ETH, was left for dead. For one, institutional investors struggled to understand its purpose. While bitcoin’s primary digital gold narrative was clear and digestible, Ethereum’s was more complex, having been likened to a world computer, a web3 app store, digital silver, digital oil, ultrasound money and more.
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Ether (ETH) last five years
It’s also suffered from weaker revenue following a big technical upgrade last year and has dealt with increasing competition from Solana, which aims to be the solution to Ethereum’s notorious high costs and slow speeds.
The ether ETFs, now about a year old, were starting to look like zombie funds. They’ve amassed about $9 billion in net inflows since listing, helped largely by the latest resurgence, versus bitcoin ETFS’ $36 billion in their first year of trading. The April sell-off in risk assets made things even worse for the coin.
The price of ETH really took off during the 2021 bull market, when it hit an all-time high near $5,000 – a rally characterized by the rise of decentralized finance, better known as DeFi, and NFTs. But it’s struggled to fully come back since the 2022 crash and hasn’t yet revisited those highs. This week, it’s trading near $4,000 — a psychologically and technically challenging resistance level for ETH investors.
“ETH today is roughly where bitcoin was in January 2019 – that’s when bitcoin turned 10,” said Avichal Garg, a co-founder and general partner at Electric Capital, which has long invested heavily in the Ethereum ecosystem. “It’s not a surprise that after 10 years of uptime, that’s just how long it takes for people to get their heads around this. I suspect the next four to five years is where ETH has its institutional arc, the same way that bitcoin did between 2019 and 2024.”
The last 10 years
The idea for Ethereum was conceived by the computer programmer Vitalik Buterin, an early believer in bitcoin who saw the original cryptocurrency network as valuable, but recognized it was not equipped technologically to handle bigger and more sophisticated applications. The whitepaper, written by Buterin and others to detail the vision and use cases of the cryptocurrency, was released in 2013 and the network launched on July 30, 2015.
Over the years, it has powered crypto trends like DeFi, NFTs and decentralized autonomous organizations and tokenization. During the 2021 bull market, it was normal at one point to pay more for transaction fees than the actual NFT or DeFi trade – sometimes more than double.
It initially launched as a protocol similar to the Bitcoin network. But in 2022, it underwent a technical transition called the Merge, which was meant to increase its processing capacity and improve its security in an energy efficient way. It also opened investors up to staking opportunities, which allow them to earn “yield,” or rewards, on their ether holdings.
The next 10 years
Despite the apparent froth in the market – stocks at new records, the return of meme stocks, crypto treasury companies multiplying by the day– the current hype around Ethereum seems to have done a 180 from the last bull run. Instead of meme coins and NFTs, the future is the tokenization of dollars and other traditional assets by the world’s biggest institutions. With a more favorable regulatory environment, they’re embracing crypto technology’s lower costs, faster settlement times, greater transparency about ownership and performance and programmable terms, as well as increased accessibility for retail investors and global reach.
Despite Ethereum’s shortcomings, it still leads its competition in the most important factor.
“The North Star that Ethereum has stuck to from the very beginning was a maximally decentralized network,” said Austin King, co-founder and CEO of Omni Network, a blockchain platform that operates on top of Ethereum. “As stablecoins and institutional interest is starting to grow, we really are seeing the value proposition of that extreme level of decentralization really showing once again.”
“So much of the value that this whole technology class is providing is about removing the need to rely on other parties,” he added. “Solana is an incredible network … but where Ethereum really shines is the decentralization of the network. And if you are managing hundreds of billions of dollars, trillions of dollars of assets, what you care about most is ensuring that you actually really do have a neutral platform that people can operate on.”
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Google on Wednesday said it will sign the European Union’s guidelines on artificial intelligence, which Meta previously rebuffed due to concerns they could stifle innovation.
In a blog post, Google said it planned to sign the code in the hope that it would promote European citizens’ access to advanced new AI tools, as they become available.
Google’s endorsement comes after Meta recently said it would refuse to sign the code over concerns that it could constrain European AI innovation.
“Prompt and widespread deployment is important,” Kent Walker, president of global affairs of Google, said in the post, adding that embracing AI could boost Europe’s economy by 1.4 trillion euros ($1.62 trillion) annually by 2034.
The European Commission, which is the executive body of the EU, published a final iteration of its code of practice for general-purpose AI models, leaving it up to companies to decide if they want to sign.
The guidelines lay out how to meet the requirements of the EU AI Act, a landmark law overseeing the technology, when it comes to transparency, safety, and security.
However, Google also flagged fears over the potential for the guidelines to slow technological advances around AI.
“We remain concerned that the AI Act and Code risk slowing Europe’s development and deployment of AI,” Kent Walker, president of global affairs of Google, said in the post Wednesday.
“In particular, departures from EU copyright law, steps that slow approvals, or requirements that expose trade secrets could chill European model development and deployment, harming Europe’s competitiveness.”
Earlier this month, Meta declined to sign the EU AI code of practice, calling it an overreach that would “stunt” the industry.
“Europe is heading down the wrong path on AI,” Joel Kaplan, Meta’s global affairs chief, wrote in a LinkedIn post at the time. “This code introduces a number of legal uncertainties for model developers, as well as measures which go far beyond the scope of the AI Act.”
The logo of LG Electronics is seen on the opening day of the Integrated Systems Europe exhibition in Barcelona on January 31, 2023.
Pau Barrena | Afp | Getty Images
South Korea-based LG Energy Solution announced Wednesday that it had signed a $4.3 billion contract for supplying batteries to a major corporation, without naming the customer.
The effective date of contract — receipt of orders — began Tuesday and will conclude at the end of July, 2030. During this period, the counterparty will not be disclosed to maintain business confidentiality, the company’s filing with the Korea Exchange showed Wednesday.Reuters reported that Tesla was the counterparty.
Earlier this week, Tesla CEO Elon Musk confirmed that the EV maker was behind a previously undisclosed $16.5 billion chip contract with South Korea’s Samsung Electronics.
LG Energy said in its filing that details of the contract such as the deal amount were subject to change and the contract period could be extended by up to seven years.
“Investors are advised to carefully consider the possibility of changes or termination of the contract when making investment decisions,” the company cautioned. It’s shares were trading 0.26% lower.
The filing did not clarify whether the lithium iron phosphate batteries would be used in vehicles or energy storage systems. Its major battery customers include American electric-vehicle makers Tesla and General Motors.
The company has been expanding its battery production in the U.S., and is constructing a plant in Arizona that will produce lithium iron phosphate batteries.
LG Energy Solution and Tesla did not immediately respond to CNBC’s requests for comment.