The Welcomed Bifurcation

Nasdaq is now in bear market territory and plenty of tech companies have tumbled more than 60% from their peak.

So the question that naturally arises is what will be the impact in the US VC activity and valuations? I will direct my answer to the late stage VC segment, which represents 2/3 of the VC volume and where Fabrica Ventures is active.

But firstly it is important to have in mind that:

* The VC funds still have lots of capital (dry powder) to be allocated, as never before in history — ditto for Corporate VC

* Most traditional asset classes are in big trouble. Simply put, there is no alternative (TINA): even the rocks know that bonds and real estate are in bubble territory; the S&P 500 should suffer dearly in the upcoming recession (Walmart recent plunge was only a tasting); LBO does not mix well with rising interest rates.

Adding the inescapable trend that “tech” will eat the world; investors shall then continue to flock into VC. Indeed, the largest US investors (pension funds and endowments) have already shifted towards VC in search for their must achieve 7-8% actuarial goal.

Returning to the original question, in the near term, what shall happen to the US late stage VC market?

A bifurcation phenomenon is now being shaped:

1) Flight to quality — the transformation leaders will still get breakneck valuations. The workforce management startup Rippling announced this week a $250 million funding round at a valuation over 100x annual revenues.

2) Extensions to consolidate markets. Checkr and SpotOn, two of the Fabrica Ventures portfolio companies, just announced extensions of $120M and $300M, respectively, in order to buy smaller competitors expanding geographies and products.

3) Massacre of the tech-enabled / ultra late stage startups, such as Instacart and Chime. No tech moat, no long-term value (it seems obvious now…). Ultra is more speculative and, thus, short-termism.

Conclusion

Evolution has not been a straight line. Depuration periods happen in any evolutionary process.

We, at Fabrica Ventures, believe that our investment approach of focusing on a narrow (but relevant) investment thesis (B2B and tech) increases the odds of success, especially during depuration periods.

We bring together a (skin-in-the-game) talented group, profiting from hundreds of years of accumulated relevant experience conquered in the entrepreneurship battlefield.

We deeply analyze the fundamentals of every investment; we always do a thorough homework.

We are located in Palo Alto to symbiotically live late stage VC 24 hours a day.

Hence, we welcome the bifurcation!