Despite the doom and gloom out there, there’s still a lot to love when looking ahead in the VC space – as long as you know where to look.

At Florida Funders, we use data to inform our unique strategy and provide our investors and portfolio companies with the best opportunities and outcomes. One great example of this kind of high-value data is Pitchbook’s Venture Monitor report. After reviewing the latest Q2 report, I wanted to share some highlights of the current outlook for venture capital.

While we haven’t witnessed the same exuberant highs of previous years, there are intriguing developments in the VC space. Below, I delve into key trends, challenges, and opportunities faced by startups seeking funding in the current landscape and provide insights into Florida Funders’ approach to these market conditions – the same approach that’s backed our long-standing track record of success.

The Venture Capital Landscape

There’s no denying that the venture capital landscape has experienced a lull compared to past years, with deals completed, exits, and fundraising falling short of historical highs. Nevertheless, we see current volatility as an opportunity and can’t overlook the promising growth within certain sectors, including AI, which has shown resilience despite the broader market trends.

Florida Funders sees the value of investing in high-performing niche sectors and we’re excited about the growth we continue to see in many of our AI portfolio companies, including Leverage, Cast AI, Togal.AI, Xgen, Satisfi Labs and more. We continue to utilize our reasoned, research-backed strategy to find and fund the most promising early-stage tech investments in any market environment.

Embracing Down Rounds and Insider-Led Rounds

As anticipated, down rounds have become more common, accounting for 14.2% of total completed rounds. Many companies are opting for insider-led rounds in response to current market conditions, suggesting that companies are deferring raising significant rounds and instead seeking continued support from existing investors. Florida Funders fully embraces this strategy, supporting founders in whom we’ve already invested and who demonstrate substantial progress. Taking this approach allows us to secure more equity at attractive prices and position ourselves for significant ownership stakes when market liquidity rebounds.

Optimism in the IPO Market

While the IPO market has remained relatively closed, there’s optimism on the horizon. The recent success of the CAVA IPO doubling in value on its first day of trading indicates that the IPO window may be gradually opening up. As market conditions evolve, there may be potential opportunities for both investors and startups to explore public offerings. Stay tuned.

Seed and Angel Investing

Seed and angel investing have encountered recent challenges. Deal value has decreased 27.5% from the previous quarter, deal count slipped 24.7% compared to the same period last year, and seed revenue multiples have also declined. Several factors contribute to this downturn, including heightened due diligence leading to longer timelines for deal closures and investors dedicating more time to nurture their existing portfolio companies.

As Seed investors, we‘ve become increasingly selective, conducting thorough due diligence before making investment decisions. Because of this, we’ve seen the median deal size grow, with more seed investment dollars flowing into fewer companies demonstrating higher quality and higher valuation.

Challenges in Early Stage VC (Series A and Series B)

Startups seeking early-stage funding face significant challenges as they strive to raise $1.50 for every $1 available in the market. This tight funding landscape makes it challenging for early-stage companies to secure the necessary rounds for growth. Yet, investor terms are favorable, providing a silver lining amidst investor difficulties.

In the current climate, investor signaling has become a critical factor in follow-on investments. When external investors show interest in participating in new funding rounds, it also serves as a positive signal for existing investors to be encouraged to participate.

Saxon Baum’s Outlook

At Florida Funders, we pride ourselves on maintaining resilience during uncertain times. While larger Series A and Series B rounds have become more challenging to raise, we’ve adapted our strategy by offering bridge rounds of financing to support our portfolio companies, allowing existing investors to participate. Our keen focus on Florida and the Southeast has enabled us to avoid overpaying for deals, resulting in most of our portfolio companies steering clear of down rounds, provided they continue to experience growth.

Despite undeniable market volatility, we look forward to helping our portfolio companies reach impressive milestones in 2023.

Fundraising Progress and an Optimistic Outlook

Our fundraising efforts have been fruitful, with Florida Funders’ Fund 3 recently reaching its first close. The success of our Fund 1 distributions and reinvestments from limited partners (LPs) demonstrate the viability of our strategy even in less-than-ideal market conditions. Over the years, we have grown our brand and investor base, attracting new Family Offices and Institutional Investors for our new Fund, growing our investor network, and adding exciting new companies to our portfolio.

While the current venture capital landscape may not mirror previous years’ vitality, there’s still ample potential for strategic investments. As we see promising growth in niche sectors, a turning tide in the IPO market, liquidity returning to the market, and opportunities to continue supporting existing investments, we remain committed to adapting our approach and supporting our portfolio companies during these challenging times.

All this to say – we’re optimistic about the future of venture capital, confident that the next few years will be great ones for investors and entrepreneurs.

Looking to get more active in the VC landscape as an investor? Learn more about investing with Florida Funders.

To see more Q2 data and insights, read the Pitchbook report here.