☕️ Dry powder

FOMO has been replaced by JOMO in the VC market

August 08, 2023

Good morning.

It’s an interesting moment in time for the VC sector. Some of the biggest operators in the US have had to scale back their ambitions in their latest fundraising efforts, as the overheated startup market cools down.

The Information had an interesting and somewhat contrarian explanation for this dynamic overnight. One of the driving factors behind this is that “venture capitalists don’t know what to do with the cash they’ve already got”. VC funds in the US are sitting on US$271bn ($412bn) in dry powder, according to the report, very high levels historically and a near doubling from 5 years ago.

VCs only generate fee income once they have deployed capital, and are therefore inherently keen to get deals done. But it’s harder to justify an investment when there is no FOMO and instead more of a JOMO (joy of missing out) vibe in the market. Especially when your LPs can earn decent interest by leaving their money in the bank.

On the other hand, the level of dry powder also means that when sentiment shifts, the floodgates could well open and the pace of VC dealmaking could ramp up fast.

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MARKET MOVERS

*Stock data as of the market close. Commodities and crypto data in USD.

Market News: When Mitt Romney’s private equity shop wants something it tends to get it. And so it was yesterday when Bain Capital struck a deal to acquire aged care home operator Estia Health after five months of trying. Bain’s offer of $3.50/sh, was accepted by the Estia board, which is chaired by the histute corporate raider Gary Weiss. The deal, struck at a 50% premium over the trading price before Bain’s first bid in March, values Estia’s equity at $838m.

THE QUICK SYNC

  • US VC firms are sitting on US$271bn in dry powder. (The Information).

  • Three of Australia’s big four banks are scaling back their VC operations. (AFR)

  • Tesla’s CFO and ‘master of coin’ stepped down after 13 years with the automaker, raising questions about succession. (CNN)

  • Paypal launched a US dollar backed stablecoin. (Reuters | Yahoo Finance)

  • The ATO met with former PwC Australia boss Luke Sayers during a probe into the accounting group’s tax leaks. (The Australian | AFR)

TRADING FLOOR

M&A:

  • TPG Capital warns InvoCare that unless a deal can be reached on a sale at a lower price, it is ready to withdraw from the deal. (AFR | The Australian)

  • Pupuk Kaltim is the preferred bidder for Incited Pivot’s Australian fertilisers business. (AFR)

  • OreCorp’s $240m buyout proposal from Silvercorp Metals could trigger more deal talks at Kalgoorlie’s Diggers and Dealers conference. (The Australian)

  • National Veterinary Associates has called in Jeffries to market VetPartners. (AFR)

  • Chalice Mining received approaches from large and mid-cap Australian miners. (The Australian)

  • Barrenjoey has been negotiating with Avidys Group for Mineral Technologies. (AFR)

  • Emerald Resources has received acquisition approaches for its Cambodia mining developments from Chinese suitors. (The Australian)

  • Tri-Star Group increased its Omega Oil & Gas Limited stake from 15% to 19%. (AFR)

  • GUD Holdings is selling Davey Water Products to reduce debt and reinvest in a strategic shift into higher growth areas. (AFR)

  • CLP is still in talks with prospective partners after Macquarie dropped talks to potentially buy 50% of EnergyAustralia. (AFR)

  • Suncorp investors would prefer cash rather than scrip in any bid from Bendigo & Adelaide Bank for its bank. (AFR)

Capital Markets:

  • Pantoro is seeking to raise $30m with Euroz Hartleys and Petra Capital drumming up interest. (AFR)

  • Group1 Sports is seeking to raise $3m at a $7.5m pre-money valuation. (AFR)

  • Steve Baxter is hoping to raise $60m to fund companies developing weapons and other defence technologies. (AFR)

VC:

  • Side Stage Ventures launches a $15m seed fund backed by Linktree cofounders. (BNA | StartupDaily)

  • MicroFleet, an ebike charging startup, has landed a $500,000 grant from iMOVE Cooperative Research Centre. (StartupDaily)

Others:

  • Allegro Funds’ Toll Global Express is still struggling to turn a profit. (The Australian)

  • Magellan Financial’s Abbey Cook has joined Fairlight Asset Management. (AFR)

  • Vijay Cugati took over the reins as Allens’ head of M&A. (AFR)

  • GCB Constructions creditors were told that they will have to wait on legal stoushes results totalling $17m. (BNA)

  • David Jones could cut up to 100 roles as part of an extensive review by Anchorage Capital. (SMH)

THE WATERCOOLER