VCs to corporate investors: Back off generative AI
Plus: M&A holds strong for the youngest startups, and VC valuations slump persists
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Corporate investors are pouring huge sums into generative AI startups, rankling traditional VCs that are getting squeezed out of deals.
Corporations only participated in about a quarter of generative AI deals last year, but they drove the bulk of the $29 billion that was invested globally, according to PitchBook data. It's impossible to say exactly how much, but the data shows that CVCs were tied to 80% of VC deal value flowing into generative AI companies.
VCs are voicing frustration over the effect corporate investors are having on the ecosystem. Among the reasons are onerous deal terms that make future exits difficult if the company wants to sell to a competitor and rising valuations spurred by corporate competition, writes PitchBook's Jacob Robbins.
“They can have an outsized influence on companies,” said Kirby Winfield, founding general partner at Seattle-based pre-seed investor Ascend. “We tell our companies to stay the hell away from corporates.”
Founders of seed-stage startups are increasingly willing to sell early
2023 was a dismal year for VC-backed M&A, but it wasn't as bad for seed-stage startups, Marina Temkin reports.
Founders saw that the environment for fundraising was becoming more difficult, and thatal secondary share sales at the Series A stage had ceased. Instead, they sprang to sell their young companies early.
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Prices fall for early-and late-stage startups
VC valuations continued to slide from their peaks in 2021 and early 2022, with only pre-seed and seed deals bucking the trend. While median early-stage and late-stage valuations fell to their three- and five-year lows, respectively, an abundance of small funds competing for seed deals helped to keep prices up for companies in those categories.
Not only did 2023 see a dismally low number of IPOs, but the median valuation of startups that managed to make a public debut declined to the lowest level in a decade. Although M&A activity also dropped, acquisition valuations increased year-over-year, according to our 2023 Annual US VC Valuations Report, sponsored by Morgan Stanley At Work and Mintz.