As cash-strapped startups struggle for survival, venture capital firms are still biding their time for an all-clear signal that could be days to weeks or months away. The Federal Reserve Board’s confirmation in January that inflation is slowing could be just the sign they were looking for.
“For the first half of the year, I don’t think you’re going to see many strategic changes, especially for venture capital. They are going to continue to be very mindful of their investing companies and will be paying close attention to their cash flow,” said Dean Kim, equity researcher and head of research product at the Playa Vista-based investment advisor firm William O’Neil + Co. Inc.
Kim said the Jan. 13 Consumer Price Index report showing a 6.5 percent annual increase in inflation could prove a critical inflection point for the financial sector throughout this year. The report’s finding that inflation had actually dropped over the course of a six-month rolling basis is particularly heartening, he said.
“Looking beyond six months, we should see inflation starting to come down, if not this year, then fairly soon. We’ve seen hints that it’s coming down,” said Kim. “If that happens, it’s going to be great for venture capital and private equity folks.”
The news may be a light at the end of the tunnel for distressed fintechs, spurned SPACs (special purpose acquisition companies) and declining digital currencies, but some likely won’t make the distance before significant support arrives. According to the data research website Crunchbase, global venture funding in 2022 reached $445 billion, marking a 35 percent decline from the $681 billion invested in 2021.
‘Wait and see’
David M. Grinberg, a partner at Sidley Austin LLP’s Century City office and a member of its mergers and acquisition practice, said institutional investor clients advocated for a “wait and see” approach around the end of last year. While the good news from the Fed may…
Read the full article here
