Announcing 23mile Capital – Restructuring Support and Capital for Venture-Backed Startups
The venture landscape is shifting and we’re here to help investors and founders with the transition
Is venture capital as we know it dying?
Venture-backed startups and their investors are facing significant challenges in the past three years that call into question the entire future of the asset class:
Graduation from Seed to Series A at an all-time low: according to research by Carta, only 24.6% of US startups that raised a Seed round in Q4 2021 have raised Series A, 3 years later. This is down from an average of 46% for those that raised in 2017.
Startup closures at all-time high: the number of startup shutdowns on Carta hit a new high in Q1 2024, with 254 company closures—a 58% increase compared to 2023.
Unicorns are stuck in “no-man’s land”: as of December 2024, there are over 1,200 unicorns globally. 61% of the US-based unicorns have not raised another round since 2021.
The situation is not any better with the VCs.
Venture capital lags the S&P 500: since 2021, the US stock market benchmark has returned 28% returns year on year. VC? -25% according to Hamilton Lane’s private markets report.
Distributions back to LPs are also at an all-time low: according to Carta’s “VC Fund Performance 2024”, funds from the 2017 vintage, just 14.3% of funds have a DPI greater than 1x. Similarly, a report by Redpoint Ventures show that only 20% of Funds from the 2020 vintage have made any distributions after 4 years. At the same time after closing, the 2017 vintage had almost double, 37% with distributions greater than zero.
IPO market “shut”: there were 17 tech IPOs in 2022, 2023 and 2024. In 2021 alone, there were 126! Before the Covid-driven boom, there were an average of 35 tech IPOs per year between 2016 and 2019.
What are the Causes of the Founder and Investor Downturn?
Why are so many startups shutting down?
Why can’t large, scaled startups successfully IPO?
Why are investor returns so consistently disappointing?
All massive market shifts happen for a confluence of factors and this is no difference. The biggest factor creating existential threats to venture landscape is rising rates. In the past two years, the fed rates have risen to almost 5%, a 17-year high.
There is reduced LP interest in investing with GPs when risk free rates are decently high. HNIs and institutions would rather place funds in secure bills or public markets than illiquid VC funds. Especially when these VCs don’t have performance that matches the risk profile.
The high-risk, high-reward power law approach to venture investing works when it works. But the lower capital availability, following a period of exuberance is having a marked impact on VC-backed startups across funding stages.
Early-stage startups that have raised seed to series A funding to purse venture scale growth are facing challenges as the requirements to raise further rounds has changed dramatically. Compounding matters is ongoing disruption from generative AI adoption.
At the later stage, startups that raised millions of dollars in funding are stuck in zombie land as they don’t have the metrics to either IPO or be acquired. In many cases, funding terms such as liquidity preferences mean founders and early investors will receive nothing in the event of an exit at prevailing market terms.
What’s come Next for Venture Capital?
“Insanity is doing the same thing over and over again and expecting different results” – Albert Einstein
For an industry associated with innovation, it’s ironic that many VCs are so resistant to change. But change the industry must if it wants to remain relevant. What would need to be true for founders, investors, LPs and other stakeholders to be genuinely happy with the state of venture capital? One thing: exits! Exits mean:
Wealth creation for founders and early investors. These funds become available to be invested as angel investments creating new startups.
Returns to VCs and LPs. Healthier DPI means LPs have the incentives and ability to invest in existing and emerging fund managers.
Society wins from more jobs and reduced inequality.
For venture capital to remain relevant to innovative founders, the industry needs to return to its roots. Early VCs were real partners in growing their portfolio companies and it is only in recent years that it evolved into a spray-and-pray approach.
In Comes 23mile
We are excited to announce the launch of 23mile. 23 mile offers venture-backed startups capital and restructuring support to help them transition from hyper-growth mode to a more sustainable approach.
Mission statement: empower ambitious founders to overcome challenges and create great outcomes for all stakeholders in the long run
What makes us unique is the combination of capital, restructuring support and M&A advisory we offer. We also create a true partnership where we build long-term success for all stakeholders - founders, investors and employees
23mile takes its name from the stage in a marathon where the worst is over but there's still work to do to get to the finish line. That's what we exist to do - to get founders through the toughest patch of their founder journey.
For venture-backed founders seeking to take their destinies into their hands, we’re here for you.
For venture capital funds who need help orchestrating exits for portfolio companies, we’d be happy to help.
Our team of founders, investors, bankers and potential acquirers are ready to roll up their sleeves and work with you to get startups back on the path that frees founders from the cycle of endless fundraising and impossible targets.
If you’d otherwise like to be part of our mission, we’re all ears as well.
