Atman Monthly Update — The Liquidity Crunch — May 2023
Firstly, we would like to thank all the new LPs that committed to our fund in the past six weeks. There are a lot of new relationships in our capital base, and we are grateful for your trust in our quest to partner with inevitable people.
At the later stage, the venture capital market faces a liquidity crunch, with a significant spread in the bid and ask prices. Promising companies are waiting before raising capital, hoping for more favorable conditions in 2024. This holds true both for the US and LatAm.
Due to the closed IPO window, we have observed a rise in flat or down rounds and highly structured transactions featuring more aggressive liquidation preferences. Less founder-friendly terms and conditions are becoming commonplace for companies seeking capital within the next 12 months. However, the bid-ask spread will inevitably tighten as all cash-burning companies will eventually need to raise additional capital from the market.
When comparing IPO numbers from 2021 versus 2023, the liquidity flow has decreased dramatically. In 2021 alone, over 182 venture-backed tech companies went public in the US, with a collective market cap of $906 billion. So far, in 2023, less than 10 IPOs were in that category.
At the pre-seed and seed stages, we see investor discipline scattered between firms that are back at clear ownership targets and valuation sensitivity on one end, and on the other end, firms that are living in the generative AI bubble with a lack of discipline.
Such market dynamics provide unique opportunities for astute investors. In Q1, we looked at over 130 companies but did not make a new investment as most companies we liked remained overpriced. We remain committed to investing in companies and founders that align with our inevitable ethos.
Despite facing headwinds, the U.S. stock market has shown impressive resilience. The Federal Reserve recently raised the benchmark interest rate to 5–5.25% and hinted that this might be the last hike for the year. The market is not anticipating the long-term implications of rate hikes and instead views the robust jobs report as a sign of a vibrant economy.
While the financial sector has faced challenges this year, with regional banks experiencing difficulties due to the rise in interest rates, the overall impact on the broader market has been minimal.
Earnings reports have been mixed, with most companies beating low analysts’ estimates despite a lack of earnings and sales growth. This raises questions about the accuracy of analysts’ estimates or the market’s willingness to overlook the current stagnation and focus on future growth potential 6 to 9 months down the line.
The key factors influencing 2024 projections include the timing of macro headwinds easing up and when we can expect re-acceleration in the market. The longer the macro headwinds persist, the greater the likelihood of downward adjustments to 2024 numbers. Conversely, if there is an early resolution to these challenges, it increases the likelihood of upward revisions to 2024 projections.
In conclusion, we remain steadfast in our investment strategy, navigating the market with discipline and a focus on quality. Our commitment to inevitable partnerships and seeking opportunities aligned with our investment ethos remains unwavering.
Part I
Mini-Bio:
I’m Sharona Cohen, originally from Israel. These days I live in San Francisco with my husband Nave and our adorable pitbull, Auggie.
Two sentences about DSTNC:
We founded DSTNC in 2021, a pioneer fashion and lifestyle marketplace for the modern endurance athlete. Our platform offers a wide selection of premium, performance-driven products to empower athletes to reach their full potential, no matter their activity level.
Part II
Quick Stats:
How much have you raised?
$1.8M
How many companies have you started?
2
What industries do you have expertise in?
e-Commerce, Consumer, Fashion
Part III
1. What has been one of your biggest lessons so far in business?
It’s easy to get caught up in the rush and momentum, which is why it’s crucial to specifically carve intersections to look at the bigger picture. To recalibrate and reroute if necessary. It’s where you ask the tough questions. The benefits are immeasurable.
2. What book(s) have changed/shaped your life?
“Man’s Search for Meaning” by Viktor E. Frankl, a Holocaust survivor and psychologist. A memoir that explores the human capacity for resilience.
3. If you could have dinner with anyone, dead or alive, who would it be with and why?
Bernard Arnault, chairman and CEO of LVMH. His transformative leadership elevated and reshaped the fashion and luxury industry. I think a conversation with him would be fascinating.
4. What do you believe to be true that you cannot prove?
Karma. When you work to build a better world, the world will help you do just that. Also, mind over matter, in all aspects of life.
The Atman team was together in person in the Bay area for the Brazil at Silicon Valley event — a conference organized by Stanford and UC Berkeley students, gathering some of the biggest names in the Brazilian tech ecosystem. The event had names such as Scale AI’s founder and CEO, Alexandr Wang, Vinod Khosla from Khosla Ventures, and Orkut Büyükkökten, the founder of Orkut, a great part of Brazilian culture in the 2000s.
Our team was also present at the Latin America Tech Forum in Miami, organized by Riverwood Capital.
Both events gave our team opportunities to meet new potential LPs, founders building new companies across the US and LatAm, and catch up with colleagues from the industry.
Lastly, Pedro Sorrentino was invited by Hall Martin to participate in the Investor Connect’s podcast. During the episode, Sorrentino talked about his journey of coming to the US, his first years in venture capital, and his future perspectives on tech, VC, and AI.
The Atman team was together in person in the Bay area for the Brazil at Silicon Valley event — a conference organized by Stanford and UC Berkeley students, gathering some of the biggest names in the Brazilian tech ecosystem. The event had names such as Scale AI’s founder and CEO, Alexandr Wang, Vinod Khosla from Khosla Ventures, and Orkut Büyükkökten, the founder of Orkut, a great part of Brazilian culture in the 2000s.
Our team was also at the Latin America Tech Forum in Miami, organized by Riverwood Capital.
Both events gave our team opportunities to meet new potential LPs, founders building new companies across the US and LatAm, and catch up with colleagues from the industry.
Lastly, Pedro Sorrentino was invited by Hall Martin to participate in the Investor Connect’s podcast. During the episode, Sorrentino talked about his journey of coming to the US, his first years in venture capital, and his future perspectives on tech, VC, and AI.
