#Venture capitalists

[dreaminginthedeepsouth]

Max Gustafson

* * * *

LETTERS FROM AN AMERICAN

March 12, 2023

Heather Cox Richardson

At 6:15 this evening, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin J. Gruenberg announced that Secretary Yellen has signed off on measures to enable the FDIC to fully protect everyone who had money in Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York. They will have access to all of their money starting Monday, March 13. None of the losses associated with this resolution, the statement said, “will be borne by the taxpayer.”

But, it continued, “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”

The statement ended by assuring Americans that “the U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe.”

It’s been quite a weekend.

On Friday, Silicon Valley Bank (SVB) failed in the largest bank failure since 2008. At the end of December 2022, SVB appears to have had about $209 billion in total assets and about $175 billion in deposits. This made SVB the sixteenth largest bank in the U.S., big in its sector but small compared with the more than $3 trillion JPMorgan Chase. This is the first bank failure of the Biden presidency (while Donald Trump Jr. tweeted that he had not heard of any bank failures during his father’s presidency, there were sixteen, eight of which happened before the pandemic). In fact, generally, a few banks fail every year; it is an oddity that none failed in 2021 or 2022.

The failure of SVB created shock waves for three reasons. First, SVB was the major bank for technology start-ups, so it involved much of a single sector of the economy. Second, only about $8 billion of the $173 billion worth of deposits in SVB were less than the $250,000 that the FDIC insures, meaning that the companies who had made those deposits might not get their money back quickly and thus might not be able to make payrolls, sparking a larger crisis. Third, there was concern that the problems that plagued SVB might cause other banks to fail, as well.

What seems to have happened, though, appears to be specific to SVB. Bloomberg’s Matt Levine explained it most clearly:

As the bank for start-ups, which have a lot of cash from investors and the initial public offering of stock, SVB had lots of deposits. But start-up companies don’t need much in the way of loans because they’ve just gotten so much cash and they don’t yet have fixed assets. So, rather than balancing deposits with loans that fluctuate with interest rates and thus keep a bank on an even keel, SVB’s directors took a gamble that the Federal Reserve would not raise interest rates. They invested in long-term Treasury bonds that paid better interest rates than short-term securities. But when, in fact, interest rates went up, the value of those long-term bonds sank.  

For most banks, higher interest rates are good news because they can charge more for loans. But for SVB, they hurt.

Then, because SVB concentrated on start-ups, they had another problem. Start-ups are also hurt by rising interest rates because they tend to promise to deliver returns in the long term, which is fine so long as interest rates stay steadily low, as they have been now for years. But as interest rates go up, investors tend to like faster returns than most start-ups can deliver. They take their money to places that are going to see returns sooner. For SVB, that meant their depositors began to need some of that money they had dumped into the bank and started to withdraw their deposits.

So SVB sold securities at a loss to cover those deposits. Other investors panicked as they saw SVB selling at a loss and losing deposits, and they, too, started yanking their money out of the bank, collapsing it. Banks that have a more diverse client base are less likely to lose everyone all at once.

The FDIC took control of the bank on Friday. On Sunday, regulators also shut down Signature Bank, based in New York, which was a major bank for the cryptocurrency industry. Another crypto-friendly bank, Silvergate, failed last week.

Congress created the FDIC under the Banking Act of 1933 to restore trust in the American banking system after more than a third of U.S. banks failed after the Great Crash of 1929, sparking runs on banks as depositors rushed to take out their money whenever rumors suggested a bank was in trouble, thus causing more failures. The FDIC is an independent agency that insures deposits, examines and supervises banks to make sure they’re healthy, and manages the fallout when they’re not. The FDIC is backed by the full faith and credit of the government, but it is not funded by the government. Member banks pay insurance dues to cover bank failures, and when that isn’t enough money, the FDIC can borrow from the federal government or issue debt.

Over the weekend, the crisis at SVB became a larger argument over the role of government in the protection of the economy. Tech leaders took to social media to insist that the government must cover all the deposits in the failed bank, not just the ones covered under FDIC. They warned that the companies whose deposits were uninsured would fail, taking down the rest of the economy with them.

Others noted that the very men who were arguing the government should protect all the depositors’ money, not just that protected under the FDIC, have been vocal in opposing both government regulation of their industry and government relief for student loan debt, suggesting that they hate government action…except for themselves. They also pointed out that in 2018, under Trump, Congress weakened government regulations for banks like SVB and that SVB’s president had been a leading advocate for weakening those regulations. Had those regulations been in place, they argue, SVB would have remained solvent.

It appears that Yellen, Powell, and Gruenberg, in consultation with the president (as required), concluded that the collapse of SVB and Signature Bank was a systemic threat to the nation’s whole financial system, or perhaps they concluded that the panic over that collapse—which is a different thing than the collapse itself—was a threat to the nation’s financial system. They apparently decided to backstop the banks to prevent more damage. But they are eager to remind people that they are not using taxpayer money to shore up a poorly managed bank.

Right now, this appears to leave us with two takeaways. The Biden administration had been considering tightening the banking regulations that were loosened under Trump, and it seems likely that the need for the federal government to step in to protect the depositors at SVB and Signature Bank will make it much harder for those opposed to regulation to keep that from happening. There will likely be increased pressure on the Biden administration to guard against helping out the wealthy and corporations rather than ordinary Americans.

And, perhaps even more important, the weekend of panic and fear over the collapse of just one major bank should make it clear that the Republicans’ threat to default on the U.S. debt, thus pulling the rug out from under the entire U.S. economy unless they get their way, is simply unthinkable.

LETTERS FROM AN AMERICAN

HEATHER COX RICHARDSON

[lilithsaintcrow]

“And if OverDrive goes belly-up at some point in the future, crushed by KKR’s leveraged debt, it’s going to take down access to the digital catalogs of nearly every public library in North America. Between now and then, I expect the user experience to degrade precipitously.”

[21by72]

Venture Capital 101: Everything You Need to Know

Venture capital is a key funding mechanism that empowers startups by providing substantial financial backing, expert guidance, and networking opportunities to help them scale effectively. It involves equity-based investments from venture capital firms or individuals in high-potential startups during their early or growth stages. This funding supports R&D, market expansion, team building, and enhanced production. To secure venture capital, startups must craft a strong business model, highlight market performance, showcase team strengths, and leverage strategic networking opportunities, such as industry events like the 21by72 Global Startup Summit. Authenticity and realistic projections are critical to gaining investor trust and achieving long-term success.

[productiveandfree]

5 Helpful Resources When Getting Started In Business

Starting a business can seem daunting, but with the right tools, it doesn’t have to be. Provided you do the research, have a solid plan, and are motivated, you can be a success story.

You’re certainly not alone. According to the latest figures, over 60,000 new businesses were created in Canada during 2024. Impressively, 78.5% of small businesses survived their first year.

The following five helpful resources can help you be one of the successful ones.

1.      Business Listings

Most people think of starting a business as starting from scratch. However, it’s often challenging to come up with a new idea. It can be particularly frustrating when you look through business listings and find someone is already doing what you want to do.

That’s why, before you start your business, you should consider purchasing an existing business. Whether you’re interested in Edmonton or Vancouver, Find Businesses 4 Sale has something to offer you.

Taking on an existing business requires the same skills and commitment as starting a new one. The big difference is that you should start seeing a profit sooner.

Business listings will show you what businesses are available. This is useful if you’re looking to buy a business or if you want to see the current level of competition. Knowing what you’re competing against will help you produce a better product or service.

2.      Template Designs

Starting and running a new business is time-consuming. You must create and chase leads, record customer details, arrange supplier contracts, and even log and pay invoices. That’s just a fraction of the work involved.

If you don’t get help, you’ll quickly find yourself bogged down in the daily grind. This will prevent you from moving the business forward, which is essential for success.

Fortunately, you can get templates that effectively automate many of these tasks. Whether you’re looking to start and grow an email list or simply want to make invoicing easy, you’ll find a template that can help.

This is an effective way of freeing up your time to focus on driving your business forward.

3.      Education/Mentoring

Starting a business doesn’t mean stopping your education. The better your knowledge of business and your industry, the easier it is for you to succeed.

You don’t need to go back to traditional school. However, taking a class at a business school is a great way to improve your entrepreneurial skills. There are courses available in leadership, management, and even problem-solving!

An online course is usually the most flexible option which is beneficial when you’re running your own business.

Alongside this, make sure you maintain the education of any new staff members. This will help them feel valued and provide you with the best possible work ethic.

Where possible, set up a mentoring system where each member of your team helps another to grow in their role.

4.      Industry Specific Publications

Running a business means constantly being on top of the latest industry news. You never know when something the government’s change will affect your industry.

By subscribing to and reading all the industry-specific publications, physical and online, you’ll be able to keep your company at the forefront of development. It will also keep your business legal.

It’s not just about legislation. Monitoring industry publications helps you keep your finger on the pulse of the industry. It will help you understand what your competitors are doing and how you can do it better.

5.      Finance Firms

All businesses, whether new or well-established, experience cashflow difficulties. This is when you need to turn to finance firms.

New businesses often seek venture capitalists to get their businesses off the ground. Established businesses may need a cash injection when they experience a slowdown or want to expand.

Don’t wait until you need the money to contact finance firms. Speak to them today and cultivate a relationship. When you need them you’ll have already laid the groundwork. That makes the whole process much smoother.

Bonus Tip

One of the biggest issues that business startups face is a lack of willingness to ask for help. It doesn’t have to be financial. A new business owner may be struggling to understand the industry legislation or some other piece of information.

If that’s you, the best thing you can do is ask for help. Other business owners will be happy to advise you. There are also a variety of institutions which can help you navigate the pitfalls of starting a business and come out on top.

Summing Up

Choosing to start your own business is an exciting and scary proposition. It doesn’t have to be. You simply need to prepare yourself and use as many resources as you can to improve your knowledge and managerial style. Your customers and employees will thank you for this. In return, you’re likely to create a thriving business.

Share in the comments below: Questions go here

[procurement-insights]

AI Dime A Dozen Post Reader Reactions!

Are VCs investing too much in a provider's AI technology and not enough in the people behind it?

One of the AI industry’s top experts and most vocal supporters had a few things to say on LinkedIn about yesterday’s post. The following exchange not only uncovers issues that need to be discussed openly, but it also makes for pretty good reading. Paul Baier Executive Fellow @HBS and CEO of GAI Insights | We help innovative AI leaders and vendors drive value with GenAI Jon W. Hansen “failed”…

[menjeet]

The woes of Byju's

Just as everyone thought the layoffs winter can’t get any more frigid and worse, looks like Byju is going to be laid off from Byju’s. Every Edtech company has three components 1) Education 2) Technology 3) Business and management. That Byju Raveenran is an accomplished tutor is a well known fact. That his classes and method of teaching had immense potential to go online was also there which was…

[mammutblog]

i wanted to draw tim in an MIT sweater since this tiktok

[imakemyownnotes]

Okay, underrated supervillain idea:

Facilitator/venture capitalist. Doesn't actually do any of the shenanigans themselves, but secures funding and resources for any intrepid mayhem producer.

"You're trying to build a giant rat maze for the heroes? I know a guy in manufacturing who'll do a bang-up job."

"Death ray, huh? Let's talk about what specs you're looking for, I have several plans that might fit your needs."

"I'm sorry to hear about your trusted lieutenant's betrayal! Let me introduce you to Hans, he's very friendly and enjoys shooting people."

"The heroes are all going to a birthday party instead of falling into your perfectly laid trap? I think I know the caterer, she owes me a favor. I'll get the cake delivered to the your location and you can use it as bait."

"Here, I made a secure email server for all your henchmen so you can give them nefarious orders more easily. No, it's operated by Google, they're on our side."

No ego, no axe to grind, just a friendly helping hand in the corner of evil.

[jenny-osborne]

Angel Investors Vs Venture Capitalists - Complete Guide 2023

Angel investors and venture capitalists play a significant role in startup financing. They are both vital funding sources for early-stage businesses but differ in various aspects.  Angel investors, also known as private investors or angel funders, are typically high-net-worth individuals who invest their personal funds into startups during the early stages of development.  Angel Investors Vs…

[shareyourideas]

What are the Types of Investors in India?

[koyelghosh88]

In a bid to boost investment and encourage entrepreneurship, the Indian government is contemplating a new framework aimed at reducing the tax burden on private equity (PE) funds and venture capitalists.

[21by72]

Venture Capital for Startups: A Comprehensive Guide

Do you want to raise large-scale capital for your startup? Or are you looking to understand venture capital for future fundraising? We have put together a comprehensive guide on venture capital funding, where we will discuss what it is, its types, how to raise venture capital for startups, and the pros and cons of working with venture capital firms.

What is Venture Capital for a Startup?

Venture capital is the type of funding one can raise on a large scale. Venture capital firms offer finance to startups in return for equity rights. They are financial institutions that pool money from diverse HNIs and invest in startups in the hope of large profits to give to these HNIs and keep a part of it. Therefore, these firms conduct thorough research and due diligence before investing in startups.

Venture capital firms offer financial, advisory, and operational support to startups and help them perform well. They have industry experts who help startups better understand the market, adapt to market trends, and improve their operations to maximize profits.

Typically, venture capitalists invest in startups with established success or at least a well-researched minimum-value product. However, in promising cases, they might offer pre-seed funding (funding required to build an MVP, conduct market research, and more).

After a specific time, venture capitalists are likely to plan an exit. When venture capital gains enough profit from their investment or identifies a downfalling trend for the startup, they exit the investment. For this, they might sell their shares to investors, other venture capital firms, an IPO, or the startup owner.

Types of Venture Capital Funding

Following are the few types of venture capital startup funding you must know before raising funds for a startup.

1. Seed Funding

Seed funding is the type of startup funding raised when the company is in the ideation stage and lacks a physical product. Venture capital firms are likely to invest a small amount in this stage. Here, the investment gets utilized to build an MVP, conduct market research for product-market fit, improve offers, and more.

2. First Stage or Series A funding

The first stage, series A funding, is the most popular way to raise venture capital funding. Here, the startups have an MVP and conduct market research to sell their product. They need the venture capital for production, selling, and marketing the product. A practical and well-researched pitch deck and promising products will likely secure startup venture capital.

3. Expansion Funding

Expansion is a sign of growth and success. Therefore, you can seek financial support from venture capitalists to expand your business to new markets, tap new target audiences, and improve quality with high-end technologies. You can also contact your existing venture capitalists or other venture capital firms for more funds.

4. Late-Stage Capital

Successful startups with a track record often raise funds for many purposes. Such firms usually need to revamp their structure, need more working capital, or want to boost their production capacity. Therefore, they reach out to venture capital firms to improve their profits.

5. Bridge Financing

When a firm decides to pursue a Merger, Acquisition, or IPO, it often needs short-term financial support. Some venture capitalists might make such investments.

Raising venture capital funding might take up to 6-8 months. So, to raise funds without running out, you need to start planning. Let’s look at the process of raising venture capital for startups.

How to Get Venture Capital for Startups?

Here is the step-by-step guide to securing venture capital funding.

1. Find the venture capital firms

There are thousands of venture capitalists in the country and hundreds in cities. They each offer funding and specialized support. You need to identify which venture capitalists are a better fit for you. You can evaluate these venture capital firms based on their reputation, their expertise, their track record, and the competition you might face.

2. Initial calls and meetings

You can start by contacting venture capital firms to inquire about any investment opportunity they might consider. Try to set up a quick call or physical meeting to secure a spot for a chance to present your pitch. Create an elevator pitch to introduce yourself and briefly describe your startup and how they can benefit from investing in it.

3. Present your pitch deck

Prepare and present your pitch effectively. Your pitch must include factual data about your startup, business model, supporting market trends, the value you can provide them, and more.

4. Thorough due diligence

Prepare your papers related to startup, business approvals, and identity for due diligence. Here, they will thoroughly conduct a back check of your startup to ensure you are legitimate and that they avoid scams.

5. Negotiation of venture capital funding

Once they are sure about the potential of your startup and willing to invest, you negotiate. The venture capital for startups includes equity rights dilution. So, negotiate the amount they invest and the equity you offer to reach a profitable point for both. Avoid dilution of equity, which can cause you to lose the authority to make the final decision.

6. Finalization of the funding

Once the details about the startup funding get finalized, you create an agreement letter and legalize the venture capital funding.

Pros of Venture Capital Funding

Some benefits of opting for venture capital funding:

Expert advice

You can directly access advice from industry experts on every startup stage. It helps you tackle any problem and identify market trends from which to profit.

Free from repaying debts

In venture capital for startups, you offer equity in return for the investment. Therefore, you are free of any debts. So, you can continue working even if you face business losses without fretting about payback.

No collateral needed

Unlike loans, you do not need collateral to invest in your business.

Networking opportunities

You can access the network from venture capital firms and connect with industry people, including potential business partners, customers, or investors.

Cons of Venture Capital Funding

The following are the drawbacks of venture capital funding.

Loss of equity

You lose ownership by a certain percentage due to the dilution of equity through venture capital funding.

Performance pressure

To keep venture capital firms and their investments secure, you should perform well and show your potential. If your performance dips significantly, they may withdraw their investment.

Dependency on venture capital firms

You need to include venture capital firms in every decision for the startup, which might cause delayed decision-making.

Risk of conflict

There is a high risk of conflict with different goals and thinking. A significant conflict may result in investors pulling out funds.

Conclusion

Venture capital is for startups that need large-scale investment. A startup can raise venture capital funds at diverse stages of startup like seed funding, expansion, or when they need to grow more once they have established themselves successfully. It would help if you considered how much finance you need, the equity you want to offer, the expertise you need, and the reputation of the venture capital before deciding on the venture capital firms to raise funds. Raising venture capital funds includes finding the right venture capitalists, pitching ideas, due diligence, and final negotiation. The process might last around 6-8 months, so start early.

Networking can help you find the right firm and secure an investment through referrals. 21By72 can help you network well with investors to build business relationships with our Global Startup Summit, which has attendees from across the globe. Check our website to learn more.

[kumbhverse]

Invest In The Future Of Startups With Kumbh

Investing in startups can be risky but also very rewarding. Investors and Venture Capitalists are always on the lookout for the next big thing, the next unicorn, the next disruptive innovation that will change the game. It's a race to find the most promising startups, but it's not always easy to know where to look. That's where Kumbh comes in.

Kumbh is a comprehensive venture funding platform that connects investors with early-stage startups seeking seed funding. With a focus on innovation and growth, Kumbh provides a range of investment opportunities to help investors diversify their portfolios and support the future of startup innovation. Whether you're a seasoned investor or just starting out, Kumbh has something for everyone.

Investing in startups is not just about making money, it's about supporting the future of innovation. With Kumbh, you can invest in the next big thing and be part of the change. You can help startups turn their ideas into reality and shape the future of industries. Kumbh provides a unique opportunity to invest in promising startups that have the potential to disrupt entire industries and create new markets.

Kumbh offers a range of investment opportunities, from equity crowdfunding to startup funding platforms, to help investors find the right investment for their portfolio. By diversifying your portfolio with Kumbh, you can reduce your risk and increase your chances of success. Kumbh provides a comprehensive platform that makes it easy for investors to find and invest in the most promising startups.

Are you an investor or venture capitalist looking for new investment opportunities? Check out Kumbh and discover the next big thing in startup funding. With Kumbh, you can invest in the future of startups and be part of the change. Join the community of investors and entrepreneurs who are shaping the future of industries and creating new markets. Invest in the future of startups with Kumbh.

[immaculatasknight]

How big is your tick?

[reportwire]

A Step-by-Step Guide to Venture Capital Due Diligence | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own. Venture capital firms typically follow a due diligence process when evaluating potential investment targets. That means founders and their businesses are carefully examined, so the startup team should be aware of how to deal with it. Usually, the process at Leta Capital involves seven steps. Here are those steps, along with what…