Startups Build Cash War Chests

"Many large startups continue to extend their runways to initial public offerings with increasingly later-stage funding rounds, as they build up cash war chests to hold out for more favorable market conditions, analysts say.

But apart from stretching typical launch-to-exit life cycles of venture-backed startups, late-stage fundraising rounds risk diluting equity held by earlier investors, analysts say.

Despite a sharp decline this year in overall venture-capital deal making, global startups between January and mid-July closed 63 Series F or later rounds -- the alphabetic system used to denote successive startup funding deals -- according to market researcher PitchBook Data Inc.

A decade ago, startups were generally considered ripe for an IPO after their third significant fundraising round, typically labeled Series C. In 2012, for instance, there were 63 Series F or later rounds closed over the course of the entire year, PitchBook said.

The pace of this year's late-stage funding deals is down from 2021, when a surge of investor capital lifted the number of Series F or later rounds above 200, PitchBook said. But they are roughly keeping pace with 2020, and running ahead of 2019, PitchBook said.

"In a tough IPO market like the one we're seeing in 2022, it could make sense to hold off," said Brian Lee, senior vice president of data firm CB Insights' intelligence unit.

SingleStore, for instance, should be large enough for an IPO by next year, Raj Verma, the cloud-database startup's chief executive said, adding, "As of right now, we are in no rush to go public."

San Francisco-based SingleStore this month announced a $116 million Series F round, led by Goldman Sachs Asset Management. SingleStore said it currently has a valuation of more than $1.3 billion.

After hitting a record high in the first three months of the year, the number of late-stage funding deals closed by U.S.-based startups in the second quarter tailed off 10% to roughly 1,400, according to a separate report by PitchBook and the National Venture Capital Association. The report defines late-stage as Series C or later.

Companies that recently closed late-stage rounds are well-positioned to weather tougher economic times, said Conor Moore, head of KPMG's venture-capital practice. These startups can now "pick a perfect time to go public, as opposed to being at the mercy of having to go public when the cash was running out," he said." [1]

1. Startups Build Cash War Chests
Loten, Angus. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 27 July 2022: B.13.