Edith Yeung, general partner at Race Capital, and Larry Aschebrook, founder and managing partner at G Squared, speak on a CNBC-moderated panel at Web Summit 2024 in Lisbon, Portugal.
Rita Franca | Null Photo | Getty Images
LISBON, Portugal — It’s a tough time for the venture capital industry right now, with hot artificial intelligence startups dominating attention while blockbuster initial public offerings and a lack of M&A activity suck liquidity from the market.
At Web Summit, a technology conference held in Lisbon, two venture investors whose portfolios include multibillion-dollar AI startups Databricks Anthropic and Groq announced that they are cashing in on some of their long-term investment funds. The situation has become even more difficult, he said. period bet.
“In the US, when we talk about the presidential election, we’re talking about the stupid economy. And in the VC world, it’s really all about stupid liquidity,” says Race Capital, an early-stage VC firm based in Silicon. said general partner Edith Yong. Valley spoke on a panel moderated by CNBC earlier this week.
Liquidity is the holy grail for VCs, startup founders, and early employees to give them a chance to make a profit on their investments, or realize a loss if the going gets tough.
Even if a VC makes a stock investment and the value of that stock increases, it is only a paper profit. But when a startup IPOs or sells to another company, that stock is converted into cash, making it available for new investments.
Yeung said the lack of IPOs over the past few years has created a “very tough” environment for venture capital.
But at the same time, investors are flocking to hot AI companies.
“What’s really crazy is that for the past few years, the dominance of OpenAI has been determined by the Big Techs, the Microsofts of the world,” said Yeung, who is behind ChatGPT developer OpenAI’s staggering $157 billion valuation. You mentioned the amount. OpenAI is backed by Microsoft, which has invested billions of dollars in the company.
“The IPO market is not happening.”
Larry Ashbrook, founder and managing partner of late-stage venture capital firm G Squared, said securing liquidity even as companies like OpenAI raise large funding rounds. agreed that it was becoming increasingly difficult, calling it “a little crazy.”
“With the IPO market not happening, capital, founders and employees are looking for liquidity. And we’re seeing funding rounds for generations of businesses,” Ashbrook said during the panel discussion. ” he said.
While these deals are important, Ashbrook suggested they may not be helping investors because more money is tied up in illiquid private equity. G Squared itself is an early backer of Anthropic, a foundational AI modeling startup that competes with Microsoft-backed OpenAI.
Using a cooking analogy, Ashbrook suggested venture capitalists are hungry for lucrative stock sales that lead to profit realization. “If you want to make dinner, you might as well sell your inventory,” he added.
Looking for opportunities beyond OpenAI
Yeung and Aschebrook said they are excited about opportunities beyond artificial intelligence, including cybersecurity, enterprise software and cryptocurrency.
Race Capital’s Yeung said he sees opportunities to generate returns from investments in sectors that include enterprise and infrastructure, but not necessarily AI.
“The important thing for us is not to think about what could happen. Not necessarily in terms of exiting in two or three years. We have really, really long-term goals,” Yang said. said.
“If I were president, I think it would be 2025.” [Donald] I think Trump could come back and there are some other industries that are very interesting. Indeed, cryptocurrencies are already making a solid comeback. ”
Meanwhile, at G Squared, cybersecurity company Wiz is a key portfolio investment and is experiencing OpenAI-level growth, Ashbrook said.
The startup turned down a $23 billion acquisition offer from Google, but has reached annual recurring revenue (ARR) milestones just four years after its founding.
Roy Resnick, the company’s co-founder and vice president of research and development, told CNBC last month that Wiz is currently aiming to reach $1 billion in ARR in 2025, double this year’s ARR. .
“I think there are a lot of logos that have raised $5 billion in two weeks that aren’t getting press, that are doing well in our portfolio, that are going to be the stars of today and tomorrow,” Ashbrook said. .
