WirtschaftsWoche: Mr. Rudigier, like many start-ups, is the US venture capital industry in a frosty phase?
Martin Rudigier: It’s been in the winter for quite a while. At the end of last year in particular, the activity of venture capitalists plummeted. Now there are new rounds of financing again. The difference is that now the bar is set much higher for start-ups that can be funded, and fewer start-ups are being provided with capital. This is also noticeable in the ratings.
How low are the ratings going?
Early financing is slightly less affected because startups have more time to grow their business before investors expect a return. In the later rounds, on the other hand, some entrepreneurs have to accept so-called down rounds with lower ratings, sometimes 50 percent less than in previous financing rounds. Mind you, these are often not bad companies. But the macro environment has changed a lot and investors have become more cautious.
Where is it particularly difficult to secure follow-up financing?
Generally for companies that do not yet have any sales. In the heyday of SPACs (listed shell companies that buy up companies – the editors) in 2020 and 2021 such companies were in great demand. In many cases, they had a great vision and promised investors high returns, but were very capital-intensive and sometimes had rather questionable business models. So high risk. Such companies are having a difficult time at the moment.
To person
Martin Rudigier heads the venture capital fund of the auto supplier Hella in San Francisco, which according to the data service provider Pitchbook is worth 120 million dollars. The former Daimler manager has lived in Silicon Valley for seven years and is also privately active as a business angel and investor in the high-tech valley.
Are the days of IPOs via SPACs over for now?
I hear from startups that they still get requests from SPACs, which only have two years to complete an acquisition. In the meantime, however, this alternative to the classic IPO is no longer attractive for start-ups. On the one hand, the vehicle’s image is burnt. And then the risk is high that the SPAC investors will use their option and withdraw their capital again. In the worst case, you are then listed on the stock exchange, there is hardly anything left of the promised capital, and you still have to deal with all the costs for lawyers and bankers.
So has the whole SPAC boom brought nothing?
I wouldn’t say it like that. There are certainly companies that would otherwise not have been financed to the same extent and have taken advantage of the brief hype surrounding SPACs. I’m thinking, for example, of the lidar manufacturer Luminar, which is now very well known in the market and now also counts Mercedes among its customers alongside Volvo.
In which area is it still very difficult for start-ups to raise money?
At Crypto and Web3. Especially at Web3, almost everything was financed during the pandemic, 19 or 20-year-old students were able to collect several million dollars with little more than one idea. That’s over for now, people don’t even talk about Web3 anymore. And crypto, in turn, does not have it easy due to the scandals. In general, more attention is paid to basic metrics again. Are sustainable sales and profits even possible, or is the supposed business model more like a Ponzi scheme? That may sound silly, but to be honest, that was unfortunately the case with some companies.
Is the money now flowing into artificial intelligence?
In my observation, generative artificial intelligence has replaced Web3 as an investment topic. As a lender you now have the problem that the ratings are very high. At Incubator Y Combinator there are currently a number of start-ups that are developing applications related to generative artificial intelligence. In times of ChatGPT this is certainly exciting. Personally, I don’t like investing in such hyped topics.
