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At Inman Connect New York last month, a panel of venture panelists chatted about the term “dry powder,” a euphemism for available cash and brought up as it relates to a slow period in venture capital distributions.
Or maybe not.
TechCrunch reported that the start of 2023 has been more active than many anticipated, stating that $8 billion in new capital commitments were made in the last week of January alone, a contrarian bit of activity given Bloomberg’s December report that VC activity is at a 20-year low.
Funds making news include two from New Enterprise Associates (NEA), totaling more than $6 billion and two from Cowboy Ventures’ totaling $260 million. FJ Labs announced two funds as well, also stockpiling $260 million, according to TechCrunch. Sapphire Sport raised a second fund of $181 million, Volition Capital’s fifth round finished with $675 million, while Kearny Jackson surfaced $14 million and Dimension, $350 million.
NEA has funded iBuyer Opendoor and website builder Placester. Cowboy Ventures has put money behind vacation home platform Getaway and fintech investment property lender, Kiavi. FJ Labs has backed real estate home equity lending provider EasyKnock and Boston-based Volition has funded proptechs lesser known to practicing agents but not to large-scale lenders or landlords.
TechCrunch attributed the activity to previous relationships between LPs (limited partners) and funds.
“Partly, they continue working with certain managers because they’ve already invested the time and effort in building relationships with those individuals, but also, given the often long stretch between an investment and an outcome, LPs are hesitant to part ways with a manager whose deals may be trending in the right direction but haven’t yet exited,” TechCrunch’s Connie Loizos said.
Fifth Wall, perhaps the most well-known of moneymakers focused on the “built space,” or proptech, closed on an $866 million fund in December, perhaps the first sign that venture capitalists are optimistic about proptech and the economy’s overall stability entering 2023.
In an interview with Inman, Fifth Wall managing partner and co-founder Brendan Wallace said they see the real estate technology reaching maturation.
“Those more mature businesses can become consolidators, companies that can drive M&A in the space, and the landscape has become more broad and sophisticated, and nuanced,” Wallace told Inman, who also stated that institutional investors — funds and their investors — realize the increasing impact of real estate on the economy and their funds.
“If you look at the growth of proptech, it actually exceeds the growth of fintech, which has been an enormous money maker to venture capital, the reasons for that are obvious,” he said. “Real estate is a larger percentage of US GDP than financial services and it’s by far a less technologized sector.”
For Inman Access, ERA Ventures managing partner and former Warburg Realty President Clelia Peters chatted with David Eisnberg, co-founder and managing partner of Zigg Capital, about the state of the 2023 venture capital market.
Eisenberg was mostly positive, citing that funds are going be less “venture” focused and more return-oriented.
“Venture capital has been a subsidy for the overall innovation that’s happening in residential transactions, and that subsidy is being pulled back,” he said. “Because that capital is more expensive, that capital is saying, ‘I want to see the ROI.’ That’s generally a healthy thing.”
At Inman Connect New York in January, Jordan Walton, of private equity firm Bregal Sagemount, said much the same. He’s either seeing companies that show signs of long-term stability or that need cash right away to stave off having to make hard decisions.
“It all comes down to economics for these companies, the markets have really said, profitability above growth is the priority of the moment,“ he said.
TechCrunch also spoke with OpenAI CEO Sam Altman, whose company makes Chat GPT. It’s a great time to be a startup, because those investors who were there for the good times of the last two years are gone, meaning those left are that much stronger, Altman said.
“At the time when all of the tourists are leaving, and all of the people who [were] starting startups or raising their seed fund or whatever because it was the fashionable thing to do are leaving, this is when the great value gets created,“ he said.
Peters herself is hoping Altman’s take is the right one as her firm backed construction proptech Welcome Homes with $29 million. The deal closed in the fall but was announced in January.
While the creation of new funds is generally a good sign, the pain may not be over, Eisenberg said.
“I think at least for the next few months, possibly the next few quarters, the dominant news that a well-branded proptech is going to be putting out is [about] cost reductions, more so than financings.”
