Race Capital General Partner Edith Yeung and G Squared Founder and Managing Partner Larry Aschebrook spoke during a panel hosted by CNBC at the 2024 Internet Summit in Lisbon, Portugal.
Rita Franca | Noor Photos | Getty Images
LISBON, Portugal — The venture capital industry is having a tough time right now, as a lack of big IPOs and M&A activity sucks liquidity out of the market while buzzy artificial intelligence startups dominate attention.
Speaking at the Web Summit technology conference in Lisbon, two venture capitalists – whose portfolios include multibillion-dollar artificial intelligence startups Databricks Anthropic and Groq – said things have become more difficult because they Unable to cash in on some long-term investments.
“In the United States, when you talk about the presidential election, the stupid thing is the economy. In the venture capital world, the stupid thing is just liquidity,” said Edith Yeung, general partner at Race Capital, an early-stage venture capital firm based in Silicon Valley. .
Liquidity is the holy grail for venture capitalists, startup founders, and early-stage employees because it gives them the opportunity to realize gains on their investments—or, if things go sour, losses.
When a venture capital makes an equity investment and the value of its equity increases, it’s just a paper gain. But when a startup IPOs or is sold to another company, their equity is converted into cash, allowing them to make new investments.
Yang said Lack of IPOs over the past few years It has created a “very difficult” environment for venture capital.
At the same time, however, investors are flocking to buzzing artificial intelligence companies.
“What’s really crazy is that over the past few years, OpenAI’s dominance has actually been dictated by the big tech companies, Microsoft’s world,” Yeung said, referring to OpenAI, the creator of ChatGPT A staggering valuation of $157 billion. OpenAI is backed by Microsoft, which has invested billions of dollars in the company.
“The IPO market hasn’t happened yet”
Larry Aschebrook, founder and managing partner of late-stage venture capital firm G Squared, also believes that although companies such as OpenAI are experiencing huge financings, finding liquidity is becoming increasingly difficult, which he calls “a little crazy.”
“Because the IPO market hasn’t existed yet, money, founders and employees are all looking for liquidity. Then, several rounds of funding will replace generational types of businesses,” Ashbrook said during the panel discussion.
While these deals are important, Ashbrook said they don’t help investors because more money is tied up in illiquid private stocks. G Squared itself was an early supporter of Anthropic, a basic artificial intelligence model startup that competes with Microsoft-backed OpenAI.
Ashbrook used a cooking metaphor to argue that venture capital is starved of lucrative stock sales that would allow them to realize returns. “If you want to cook, you’d better sell some stocks,” he added.
Looking for opportunities beyond OpenAI
Both Yeung and Aschebrook said they are excited about opportunities beyond artificial intelligence, such as cybersecurity, enterprise software and cryptocurrency.
At Race Capital, Yeung said she sees opportunities to make money from investments in areas like enterprise and infrastructure — not necessarily always artificial intelligence.
“The key for us is not to think about what’s going to happen, it’s not necessarily an exit in two or three years, we’re really very long-term,” Yang said.
“I think by 2025, if President (Donald) Trump can make a comeback, I think there are some other industries that will be very interesting. Cryptocurrency, of course, has definitely made a comeback.”
Meanwhile, Aschebrook said that at G Squared, cybersecurity company Wiz is an important portfolio investment and that the company has achieved OpenAI-level growth.
The startup, which refused $23 billion takeover bid GoogleJust four years after its founding, annual recurring revenue (ARR) reached the $500 million milestone.
Wiz is now Aiming to reach $1 billion in ARR Roy Reznik, the company’s co-founder and vice president of research and development, told CNBC last month that by 2025, that number will double from this year.
“I think there are a lot of signs… that are not in the media for raising $5 billion in two weeks, but are doing well in our portfolio and are tomorrow’s stars today,” Ashbrook said.
