A core pillar in which the foundation of Clearpact was built upon, is the essence of transparency. This means we don’t sugarcoat and don’t shy away from telling you how it is. However, we pride ourselves on our ability to illuminate the positives of even the dimmest situations. Today’s startup and funding environment is one of those situations.

We have experienced firsthand the difficulties of starting a business, especially in today’s current market environment that has seen an increasing number of startup failures over the last 5 years (Figure 1.01). Based on the data provided by Carta, 543 startups have shut down through Q3 2023, already more than the 467 that shut down all of last year.

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Figure 1.01‍

Startups Shutting Down

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While some may interpret this negatively, we see this not only as a fortuitous opportunity for existing companies, but as a compelling story of success. With fewer entrants to the market, existing companies have more time to develop their product, entrench themselves within their market, and focus on long term growth initiatives without the immediate threat to competition. Additionally, these companies will glean greater attention from institutional investors as there is a more limited pool of investment options for them to deploy their capital. This could lead to these existing companies yielding higher valuations and negotiate even more favorable funding terms.

Private equity has record numbers of dry powder on the sidelines (Figure 1.02). Private equity firms raise capital from investors with the intention of deploying this capital but may face pressure to invest their dry powder within a specified timeframe, typically outlined in the fund's investment horizon aka “use it or lose it”. With fewer start ups, PE firms find themselves in a more competitive market, vying for viable investment opportunities into existing companies.

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Figure 1.02‍

Global Private Equity Dry Powder Trend, 2010-2023 ($B)

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This current state of the market, although difficult to navigate for some, provides a competitive advantage for existing early-stage companies. With less entrants into the market and record levels of capital to deploy, Private Equity groups will face competitive intensity which could lead to elevated valuations for existing, proven businesses. We understand that institutions have “tightened the belt” but from our conversations with some of the largest private equity groups in the space, the hunger to deploy capital remains persistent and strong companies will continue to recognize premium outcomes.