How SoCal’s VC Community is Grappling With a 'Brittle' Economic Climate

Samson Amore

Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.

How SoCal’s VC Community is Grappling With a 'Brittle' Economic Climate
Evan Xie

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2021 was a record year for venture capital, but the bull run is petering out. As the national economy weathers rising inflation rates, a looming credit crunch, bank collapses and a continuing crush of tech layoffs, venture investors are getting skittish.

PitchBook Data, an analytics service that publishes quarterly reports on the American venture capital community, found that VC fundraising, overall deal count and exit value in the first quarter of this year are all trending downward.

The recent report proved what VCs have been saying behind closed doors: the risk-taking that used to define their careers is now a liability, and they’re eager to sit on their dry powder (financial reserves kept on hand) rather than deploy it as investments into potentially risky startups.

Here’s a couple trends in the VC ecosystem worth noting.


“Deal flow is down”

The first quarter of 2023 saw far fewer deals than the previous two years – around 3,000 deals, compared to about 5,000 during the first quarter of 2022.

“Deal flow is down, valuations are down, and VCs are focused more on supporting their own portfolio companies than on investing in new companies,” explained Paul Voois, managing partner at the Cove Fund, an Irvine-based pre-seed and seed-stage venture fund that invests mainly in local tech startups.

Voois said in his experience, deal flow from VCs to companies in Southern California is “significantly down,” and added it’s “overall a very tough environment for companies to raise money.”

VCs are finding fundraising difficult

PitchBook estimates VCs in 2022 raised $170.8 billion, the highest in eight years. But 2023 appears so far to be on the downswing.

PitchBook’s data found that if funding trends continue as they have for the first quarter of this year, then “2023 is on pace to have the lowest fundraising total since 2017.” So far this year, VCs across the U.S. have only raised $11.7 billion across 99 funds.

That said, Rashmi Gopinath, general partner at Manhattan Beach-based B Capital Group, told dot.LA her firm hasn’t had any issue raising capital, and announced a new $500 million fund to invest in healthcare startups in March. B Capital Group is also accelerating its investment in artificial intelligence and cybersecurity startups, Gopinath said.

Jordan Noone, co-founder of Malibu-based Embedded Ventures, told dot.LA PitchBook’s recent data tracks with what he’s seen in LA’s venture community.

Noone added that he has seen “the taming down of the mega-fund” in recent months as VCs realize they don’t need to raise as much capital if they’re not going to invest it all.

“It’s a very brittle fundraising process,” Noone said, noting that companies “going to zero overnight,” alongside bank failures and “big examples of fraud in the industry” don’t help. There’s ample VCs and ample startups, Noone said, “but the matchmaking process is just brutal.”

Exits are minimal

This lined up with data about later stage companies seeking exits – when companies either go public or undergo a merger or acquisition. The mega-exit, once the gold standard for VCs, is not as attainable.

Fewer deals overall led to fewer exits in the first quarter of this year. PitchBook reported $5.8 billion in exit value was closed in 2022. That might sound like a lot, but it’s less than 1% of the total exit value generated in 2021. Indicating that this year is on track to have much fewer (and, potentially, less valuable exits) than before.

“There will likely be a shift away from late-stage investing and a refocus on early-stage [and] growth-stage investment where valuations and capital requirements will be more manageable,” said Harpreet Walia, an attorney and venture capital chair at Los Angeles-based Michelman & Robinson.

There is, however, still time for this trend to correct itself. In a recent report, Morgan Stanley predicted that industries like energy, healthcare and some tech companies will see a resurgence in mergers and acquisitions since private equity and venture firms have a “record amount of uninvested capital.” Gopinath noted that B. Capital Group is focused on generative AI and healthcare, and added, “we have a number of late-stage portfolio companies getting ready for public filings once the markets get to a more stable position.”

SPAC deal slowdowns could affect valuations

But the reticence to go public via a blank-check or SPAC deal will likely endure. “SPACS were used by VCs as a mechanism to have an exit outcome in a company that otherwise was not necessarily positioned for a strong exit,” Noone said, noting that most SPAC deals have come “crashing back to reality over the last 12 months” as many have lost most of their value.

Valuations are also dipping. PitchBook reported that in Q1 2023, the average late-stage VC pre-money valuation (the value of the company excluding a pending investment or deal) was down nearly 17% from 2022. The average pre-money valuation for late-stage companies fell more than $100 million to an average value of about $159 million, according to data from PitchBook.

To that end, Walia said he thinks valuations are more important to late-stage companies that are “looking for a shorter path to IPO,” but aren’t as key of a metric for early-stage startups.

But even if valuation isn’t the end-all measurement of a company’s worth, it is still something investors pay attention to, Voois said.

“Valuation is always important, and we’re in a ‘buyers market,’ meaning investors have more negotiating leverage than a year ago,” Voois said. “Even so, it is taking time for the drop in valuation in the public and later stage VC markets to trickle down to seed stage. We are still seeing overinflated expectations.”

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Wonder Dynamics: Redefining the Animation Landscape
Wonder Animation

🔦 Spotlight

Happy Friday, LA!

Wonder Dynamics, a Los Angeles-based company founded by Tye Sheridan and Nikola Todorovic, has launched Wonder Animation, a beta feature that is poised to transform the landscape of video production. Acquired by Autodesk in May, Wonder Dynamics is leveraging this innovative tool, which harnesses artificial intelligence to turn standard video footage into captivating 3D animated scenes, making sophisticated animation techniques more accessible to filmmakers of all budgets.

Wonder Animation allows creators to shoot from multiple angles, with the AI reconstructing these shots into a dynamic 3D space. This functionality enables filmmakers to seamlessly blend live-action scenes with interactive virtual environments while preserving original camera movements. Users can customize various aspects, including animations, characters, lighting, and camera tracking data, and the tool integrates smoothly with popular software like Maya, Blender, and Unreal Engine.

What sets Wonder Animation apart is its emphasis on artistic control. Unlike many AI tools that impose rigid outcomes, this feature empowers creators to guide their projects, ensuring that their unique style remains front and center.

As the boundary between video and 3D animation blurs, Wonder Animation invites creators to experiment and innovate in exciting ways. This development marks a significant step forward in digital storytelling, democratizing access to high-quality visual effects and making sophisticated animation achievable for a broader range of filmmakers.

With the global animation market projected to reach approximately $400 billion in 2024 and grow to over $587 billion by 2030—reflecting a compound annual growth rate (CAGR) of about 5%—tools like Wonder Animation are more relevant than ever. This growth underscores the increasing demand for animated content and highlights the necessity of innovative solutions to meet filmmakers’ evolving needs. For those looking to elevate their storytelling, Wonder Animation may just be the key to unlocking new creative horizons. According to Statista, this upward trend in the animation market emphasizes the significant opportunities ahead.


🤝 Venture Deals

LA Companies

  • Evite, an online platform enabling users to design, send, and manage digital invitations and eCards with tools for event organization and guest tracking, has received a strategic growth investment from Francisco Partners to accelerate innovation and expand its product offerings. - learn more
LA Venture Funds
  • F4 Fund participated in a $4.1M Pre-Seed funding round for Further, a platform designed to help first-time homebuyers determine how much home they can afford by providing personalized insights on interest rates and lender requirements, giving users a clear view of their purchasing power. - learn more
  • Alexandria Venture Investments participated in a $10M Seed funding round for CrossBridge Bio, a company focused on developing advanced dual-payload antibody-drug conjugate (ADC) therapies, with the funds supporting preclinical development of its next-generation cancer treatments. - learn more
  • Clocktower Ventures participated in a $5.6M Series A funding round for Morada Uno, a startup in Mexico focused on making apartment rentals easier by providing a platform that connects tenants with landlords and simplifies processes like lease agreements and rent payments. - learn more
  • Skyview Capital participated in a $5M Series A funding round for Web3 chain game A-World, a tower defense battle game set in the metaverse on the BNB Chain, where players build hero towers to defeat waves of monsters. - learn more

      LA Exits

      • Drive Hospitality, a leading provider of personalized parking and hospitality services, including valet, concierge, bell services, parking management, and advanced technology integration, has been acquired by Propark Mobility. - learn more
      • Vebu Labs, located in El Segundo and specializing in custom automation solutions for the food industry—including the innovative 'Autocado' system that automates the peeling, coring, and scooping of avocados to enhance operational efficiency—will be acquired by Serve Robotics. - learn more

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            Big Wins: Dodgers Take the Title ⚾, ChatGPT Levels Up🚀

            🔦 Spotlight

            Happy Friday, LA! It’s been a week of big wins, on and off the field. 🎉

            ⚾️ First up, let’s talk Dodgers. With a thrilling 7-6 comeback victory over the Yankees in Game 5, the Dodgers clinched their eighth World Series title, their first since 2020. The city is buzzing, and fans are ready to celebrate! A parade kicks off this morning at 11 a.m., starting at City Hall and winding down to Flower Street, with a ticketed celebration at Dodger Stadium for those wanting to keep the festivities going.

            Image Source: Dodgers

            💻 Meanwhile, in the tech, OpenAI just rolled out a game-changing update for ChatGPT. Plus and Enterprise users can now access real-time internet search, powered by Microsoft Bing, bringing ChatGPT's responses fully up-to-date. This means users can now ask about the latest news, hotspots, or recent LA startup announcements, and ChatGPT will pull in fresh, relevant answers directly from the web. Previously limited to information up to 2021, ChatGPT’s new browsing capabilities make it a valuable digital assistant for anyone needing real-time insights in fast-paced industries like tech and entertainment.

            Image Source: ChatGPT

            🔍 The real-time search feature also includes “Browse with Bing,” allowing ChatGPT to source information from multiple sites for detailed answers to complex questions. Whether you’re exploring the latest venture capital trends in LA or curious about the best local spots, ChatGPT’s new browsing power helps you stay ahead with the latest info. This leap forward in AI functionality makes ChatGPT even more versatile and powerful for everyone, from business owners to everyday users.

            From the Dodgers’ World Series win to OpenAI’s latest ChatGPT update, there’s a lot to celebrate in LA this week. Here’s to champions, innovation, and a city that’s always pushing boundaries. 🌆✨


            🤝 Venture Deals

            LA Companies

            • Final Boss Sour, a Los Angeles-based gaming-themed snack company specializing in healthier sour snacks, has raised a $3M Seed funding round led by Science Inc. to expand its product offerings and operational capabilities. - learn more
            LA Venture Funds
            • Smash Capital led a $50M Series B round for Read AI, a productivity-focused AI company, bringing its total funding to $81M. The company offers a platform that enhances meeting efficiency through features like note-taking, summarization, and transcription. Additionally, Read AI introduced "Read AI for Gmail," a free Chrome extension that integrates information from various applications, reducing the need to switch between apps. The funds will be used to increase the company's headcount in engineering, data science, and business teams. - learn more
            • Distributed Global participated in a $25M funding round for Nillion, a company that provides decentralized privacy solutions designed to secure sensitive data using advanced technologies like secure multi-party computation. - learn more
            • Act One Ventures participated in a $5M Seed funding round for Latii, a construction materials supply chain startup, to enhance its platform that connects contractors with suppliers, aiming to streamline procurement processes and reduce costs in the construction industry. - learn more
            • SmartGateVC participated in a pre-seed funding round for Ritual Dental, a company revolutionizing dental care by integrating advanced technology and microbiome science to provide personalized, preventive treatments. - learn more

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                Billion-Dollar Milestones and Snapchat’s New Features

                🔦 Spotlight

                Happy Friday Los Angeles!

                This week’s spotlight showcases LA’s thriving tech scene, featuring Snapchat’s latest feature updates and two local startups Liquid Death and Altruist, making TechCrunch’s Unicorn List for 2024.

                Image Source: Snap

                Snapchat’s recent fall updates bring fresh features, including a new iPhone camera shortcut for instant snaps, Halloween-inspired AI-powered Lenses, and Bitmoji costumes inspired by Mean Girls and Yellowstone. Bitmoji stickers now reflect trending Gen-Z expressions like “slay” and heart symbols for added flair in chats. Plus, the “Footsteps” feature on Snap Map allows users to track their past adventures privately, adding a nostalgic touch.

                Image Source: Liquid Death

                ICYMI, two LA startups joined the Unicorn Club—achieving valuations over $1 billion. Liquid Death, based in Santa Monica, is a canned water company with edgy branding and a humorous sustainability focus. Known for viral marketing and brand partnerships, it redefines bottled water as a lifestyle brand and environmental statement. In March, Liquid Death closed $67 million in strategic financing, raising its total funding to over $267 million and valuing it at $1.4 billion.

                Image Source: Altruist

                Altruist, a Culver City-based fintech platform, offers financial advisors streamlined tools to better serve their clients. With a user-friendly investment and account management platform, Altruist has gained strong traction in the finance world. In May, it announced a $169 million Series E funding round, bringing its total funding to over $449 million and earning a valuation of $1.5 billion.

                Together, Liquid Death and Altruist exemplify LA’s capacity for innovation across diverse sectors, from lifestyle branding to fintech. Whether reshaping financial tools or redefining sustainable branding, these companies showcase LA’s unique entrepreneurial spirit. Go LA!

                Check out TechCrunch’s 2024 Unicorn List here. And don’t miss Snapchat’s latest features—perfect for adding some fun, connection and maybe a few selfies this weekend!


                🤝 Venture Deals

                LA Companies

                • Freeform, a company bringing AI to metal 3D printing, raised $14M in funding from NVIDIA’s NVentures and AE Ventures to further develop its AI-powered 3D printing technology for industrial-scale production. - learn more
                LA Venture Funds
                • Anthos Capital participated in a $70M Series D round for Carbon Robotics, which develops AI-powered robotics for precision agriculture, and the funding will be used to accelerate the growth of its autonomous weeding technology. - learn more
                • Anthos Capital participated in a $3.5M seed round for Plasma Network, aimed at expanding access to USDT stablecoins on the Bitcoin network, with the investment supporting the network’s growth and efforts to enhance stablecoin accessibility through the Lightning Network. - learn more

                LA Exits


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