Welcome to the latest issue of The Exchange! With the sunset of TechCrunch+ this month, the Exchange column and its newsletter are also coming to an end. Thank you for reading, emailing, tweeting and hanging out with us for so many years.
PS A special thanks from me to Anna, who has been a brilliant lead writer for this newsletter since she took it over. She deserves endless credit for her email work.
Today on The Exchange, we’re looking at follow-up chapters, counting down some of our favorite historical Exchange listings, and discussing what we’re excited to report for the rest of the year! — Alex
Continuity funds
The sequel seemed like an apt topic from our perspective. It’s also very timely: “The biggest source of liquidity now will be continuation funds,” predicted VC Roger Ehrenberg in a recent episode of the 20VC podcast.
In case you’re not familiar with the term, let’s go back in the FT for definition:
Follow-on funds, which are common in private equity [PE] but rarely in venture capital, it is a secondary investment vehicle that allows them to “rewind the clock” for several years on certain assets in old funds by selling them into a new vehicle that they also control. This helps backers of a VC fund, known as “limited partners,” to divest themselves of their investment or exit.
If you’ve been following the last few months of venture capital activity, the “why now?” is easy to answer. As the StepStone Ventures team told our colleague Becca Szkutak in its December 2023 Investor Survey: “With portfolios full of unrealized value, fewer immediate exit opportunities and longer waiting periods on the horizon, GPs are starting to get creative to generate liquidity . “
In practice, a fund continues to see new investors invest in existing portfolios, but it “reflects today’s valuations,” Ehrenberg said. That repricing and the potential conflict of interest surrounding it sounds challenging in theory, but Ehrenberg doesn’t think so. “You have net new investors looking at a portfolio, so they are the price setter, not the existing manager.”
It is not only very large funds like Insight Partners and Speed of light who can explore this option, either. “It’s a viable strategy for a decent business district,” Ehrenberg told 20VC host Harry Stebbings.
Whether it’s follow-on funds, strip sales or secondaries, there’s a clear push for VC to find solutions to their often vicious cycles, as we’ve already seen with the rise of permanent and listed funds. A common thread in today’s economy is that projects and companies don’t have the time they need to fully succeed, so even if it means a temporary discount, it’s good to hear that net investors are willing to give portfolios more time to shine.
RIP The Exchange
The Exchange started life in late 2019, before it even had a name. It quickly became a daily column during the week, and later this weekend newsletter. For those of you interested in the historical quirks of making media products, The Exchange was a TechCrunch+ product on the website, but the weekend issue was sent as a free email. Why was that? Because at the time we didn’t have the in-house technology to send out subscriber-only emails!
Over the life of The Exchange on TechCrunch+ we’ve shipped more than 1,000 columns and newsletters, making it the largest and—if we can—the most impactful project driving subscribers to our paid product. Exchange and TC+ have been inseparable, so it makes sense to retire them together. However, as with any project that combines work and personal passion, we will miss him.
Since its inception, the $100 million ARR club and the early days of the pandemic filled with stock market crashes and fear, the Stock Exchange was set to record the 2020-2022 startup boom and its subsequent end. We’ve gone from counting monster rounds and a blizzard of IPOs to watching venture capital dry up and startup exits become rarer than gold. It was wild.
Anna took over the Exchange newsletter in early 2022, around the time Alex became editor-in-chief of TechCrunch+. Columns continued to be a team effort, but we had to divide and conquer to keep our production at full tilt.
Below is a list of some of our favorite Exchange listings. Of course, we couldn’t go back to the entire archive — which you can find here — so consider this a partial download of the hits:
- The $100M ARR Club (December 2019). The start of a long-running series looking at pre-IPO startups. A bunch of participants like Monday.com later went public.
- Why is everyone building OKR software? (January 2020). Our first “startup cluster” style post, looking at what we’ve found to be an unusually busy part of the tech startup’s endeavor.
- API startups are so hot right now (May 2020). API startups will remain hot for years to come, building on the model that Twilio helped pioneer. It is interesting to think back to May 2020, when there was still plenty of fear in the market. We didn’t know what was coming next.
- Don’t hate low-code and no-code (May 2020). The low-key, no-code discussions have become somewhat muted as the method of creating software that non-programmers manipulate and bend to their will has become more of a table stake than a controversial product choice. However, this was not always the case.
- Startups have never had it so good (July 2021). By mid-2021, it was clear that the market for startup stocks was in a new era, with investors piling cash into every software company that moved.
- How to Make the Math Work for Today’s High Startup Valuations (July 2021). The huge boom in funding we noted before was the expectation that software development would be faster and take longer than previously expected. This turned out not to be true.
- What could stop the startup boom? (September 2021). We were concerned a little later in 2021 that the pace of investment was not entirely sustainable. The market would remain hot for a while longer, but our notes on potential disruptors to the startup boom were pretty accurate. Interest rates have really changed the game.
- More LP transparency overdue (Jan 2022). VCs will tell you what they’re investing in, but they’re often tighter about their backers. We argued that startup founders should have more information about where their capital ultimately comes from.
- Why You Shouldn’t Ignore Europe’s Deep Tech Boom (February 2022). An interesting narrative that has been shaping up in recent quarters is Europe’s entrepreneurial and startup resilience during the current slowdown in private market capital investment. We said European deep tech was poised to do well. And well, we were right.
- Yes, it has become more difficult for startups to raise funding (July 2022). By mid-2022, it was clear that the boom times were over, despite the exuberance of 2021 extending into early 2022.
- The rise of platform engineering, an opportunity for startups (December 2022). Instead of investing in more developers, why not spend to help them become more productive? Subsequent cuts to developer payrolls made it clear that the era of mass hiring was behind us, making the thesis here all the more relevant.
- The mirage of dry dust (January 2023). After an inglorious end to 2022, the optimistic view was that VCs had a lot of dry powder—capital to work with—that they were sitting on. Surely those funds would be unleashed and bring back the good times? Anna argued that some of the venture capital theoretically sitting on the sidelines was less “real” than it seemed.
- A core of the SaaS business model is under extreme pressure (August 2023). One way software companies grow is by selling more of their services to customers over time. But last August it was clear that net retention was suffering, meaning that a lot of the organic growth that startups could once count on was evaporating.
- Will the power of data in the age of Albania leave startups at a disadvantage? (August 2023). If AI brings data to life, then do the companies with the most data win the day? And if so, where does that leave startups?
- Rainbow or storm? (September 2023). After discussing improving fintech outcomes, Anna dug into the use of artificial intelligence to combat fraud. It was an interesting development of the usual narrative about AI and fraud, which involves AI enhancing fraudulent activity rather than curtailing it.
- Klarna’s financial brilliance is my favorite tech story right now (November 2023). After seeing its valuation decline, Klarna did not slow down and instead continued to grow and improve its financial performance. Alex gave them a big thumbs up for the progress made.
- WeWork’s bankruptcy is proof that its core business never really worked (November 2023). What else can we say about WeWork other than that it was a weird rental arbitrage play that never had a very good core business.
- Why I am moderately crypto-bullish in 2024 (January 2024). Before spot bitcoin ETFs, this column suggested that this year could be fruitful for cryptocurrencies as a whole. So far, so right.
- Yes, the increase in tech redundancy you’re feeling is real (January 2024). And to cap off some of our favorite or most memorable appearances, the recent spate of layoffs has been anything but a mirage. Unfortunately.
We are not finished
While The Exchange is closing, we still have big plans to cover this year. Luckily, we’re both still at TechCrunch, so you’re not getting rid of us. Alex wants to work on the health of the unicorn, the state of debt financing in 2024, and how artificial intelligence will find market at the operating system level. Anna is curious about AI hubs beyond San Francisco, the GP stakes they invest in, and whatever S-1 we can get our hands on.
Thanks again for reading the Exchange post and newsletter. We are very grateful to have spent so much time with you on this project. Onward and upward!
