PitchBook data shows VC slowdown, but Birmingham experts remain positive
Birmingham experts are optimistic despite the uncertainty that exists across the country when it comes venture capital deals.
The VC market in the United States has continued to grow since last year. Instability abroad and stubborn inflation rates, as well as several high-profile failures of banks, combined with a slew of positive macroeconomic indicators, spread a cloud of fear across the market.
Jared Weinstein is the co-founder and general partner of venture capital firm Thrive.
He said that 'Venture capital funding has dropped by over 50% from its peak globally'. This is true in all regions, from Silicon Valley to Birmingham. In due course, venture funding will recover, but we are doubling down to make Birmingham an attractive city for founders. This requires investing in support programs that will help founders along their journey, but also a culture of risk-taking and celebrating failure. We can cultivate these things and great founders are likely to make Birmingham their home. Capital will also follow.
Martha Underwood of Prismm, ExecutivEstrogen and Prismm called Birmingham's VC community engaged.
"But given the uncertain market', she continued, 'VCs take deeper dives on business models and profitability during due diligence.
Matt Jaeh is the local managing director of Techstars and co-founder ProctorU. He said that Techstars will not slow down.
He said that 'we are actually investing more', moving from 10 to 12. 'On a local and national level, I see a lot of interest and investment in seed and pre-seed-stage companies', he said, adding that Redhawk Advisory, and Alabama Futures Fund, are also active.
Jaeh stated that he sees a slowdown in the larger seed to Series A rounds because of a few factors. The first is the economy.
Jaeh stated that there is still much market insecurity and instability. This has a negative effect on investors because they are experiencing more losses with moderate to moderate-low-risk investments. They do not want to risk more on VC, the most dangerous class of investment.
He said that other factors include increased borrowing costs, signs of bank instabilities, and existing portfolios.
Jaeh stated that 'VCs who have money ready to invest and have made bets on startups a year ago or more would rather support their current portfolio than take a risk on something else'.
He cited the expansion of Builders + Backer’s accelerator program in Birmingham, for which the city offered incentives, as a sign of progress.
I am very impressed by the submissions of the Alabama Launchpad's latest cycle and proud of my companies, Idyllo Coffee and Domestique Coffee. I'm excited for the new cycle, which just opened. Launchpad is a great way to start for any founder.
The Pitchbook/NVCA Venture Monitor Report states that the deal value in Magic City decreased from $37.75 to $16.37 in the first quarter 2023 compared with the same period in 2018. The number of deals has also dropped, but not significantly, from 11 down to 10.
PitchBook data largely comes from self-reporting, and certain funds don't report to PitchBook. This can cause numbers to be skewed and prevent the company from providing a complete picture of VC activities in the Magic City.