Ridgeline Quarterly Update (Q1 2023)
Updates on deals, portfolio news, and interesting things in our world
One Big Thing
Ridgeline's first quarter of 2023 was quieter than usual on the dealmaking side, as we were patient in securing new deals and only had one company raise follow-on capital.
With that, we thought it would be appropriate to share our experiences and thoughts on the recent fall of Silicon Valley Bank (SVB) and how we see that affecting our portfolio over the long term. The subjects of cause and responsibility are certainly important but probably better for a different author to sort out, frankly. We want to share some of the lessons we learned as a firm and what we think the future might bring. Bottom line, we came away feeling grateful for our steady and competent founders.
Credit: Ian Foley (iantoons.com) via Fortune Term Sheet
During the highest points of the SVB crisis, we found it helpful to have open, multi-channel communication with our portfolio companies and LPs about the evolving situation. Our founders did an excellent job of distilling their individual positions, and we were able to concisely pass that info along to our LPs.
We also worked closely with other investors and our federal government contacts to gain a better understanding of the impact on our portfolio and what steps we could take to mitigate any potential future risks. Ultimately, we believe that this experience has highlighted the need for more diversified banking options for our industry, and we will be actively exploring a wide set of options to ensure the healthy growth and success of our portfolio companies.
We learned the importance of being vigilant and proactive in monitoring the financial health of the institutions that serve as our partners. We also recognized the importance of having a diversified group of banking options to help mitigate ongoing risk. As a firm, we will continue to prioritize open and honest communication with our portfolio companies and LPs, and we will work closely with industry experts to stay informed and prepared for any potential future challenges.
We expect that the main long-term affect on venture capital post-SVB is a new focus on treasury management. Debt deals will still get done by a smaller set of players, and start-ups and venture firms will have their money spread across other banking options in the market.
On the deal side, there seemed to be an uptick in companies seeking funding of late, driven largely by the hype-machine pendulum swing away from Web3 into the AI space. Interestingly, while companies are back in market, we expect pacing of deals to continue to be far slower than this time last year and mainly centered around the early-stage market. The Series B and Series C markets are very quiet, and we expect that to remain so throughout most of 2023.
Follow-on Investments
Q-CTRL raised another $27.4 million in funding. The Series B extension comes nearly 14 months after the startup raised its $25 million Series B in November 2021. Salesforce Ventures, Alumni Ventures, ICM Allectus, Mindrock Capital participated in the latest round.
Portfolio Updates
Neural Magic partnered with Striveworks to add fast GPU-less model deployment options in Chariot MLOps Platform.
RKVST hired Cindy Vestergaard as its new Vice President of Special Projects and External Relations.
Satellite Vu appointed Alan Bettridge as its Chief Commercial Officer and secured £81m in commitments for its Early Access Programme.
Altana was named one of the most innovative logistics companies in 2023 by Fast Company.
From the Blog
We are committing to more content creation and putting our companies and our investment decisions out in the open. We think this will elevate our founders and companies and also signal to the world what matters to us.
Why We Invested in Eion: Permanent Verifiable Carbon Removal from Farmland | By supporting Eion, we hope to support the decarbonization of agriculture as much as we can, and heal the soil while we’re at it.
Ridgeline Founder Stories: Ben Harvey, CEO of AI Squared | We were fortunate to highlight Ben Harvey, CEO of AI Squared (AI2) in our Ridgeline Founder Stories. Ben has an incredible journey and is doing amazing work at AI2.
Interesting Stuff
The thread above by former Redpoint partner, Tomasz Tunguz, is exactly what we are seeing in the market. Interestingly round sizes have remained elevated, which confirms our assumption that there is a real flight to quality at all stages.
Tomasz also shared some very interesting data from a go-to-market survey and the changes start-ups are seeing in their sales cycles across different end customers and business models.
These two trends combined with a glut of companies going out for their next fundraise over the next 6-10 quarters will result in a lot of difficult decisions for founders and their investors. Elad Gil laid it bare here in a must read post.
We found this short piece by Sequoia on how Generative AI would affect the software development market to be quite informative. Portfolio company, Sourcefield, is living this transition now, recently incorporate AI assistance into its product. Ed Sim from Boldstart Ventures sees this as key to survival now.
For now, we think the AI boom has yet to show a clear avenue for value creation, but we are paying close attention to the infrastructure market and are lucky to have a few portfolio companies already embedded in this space. Namely, Neural Magic, Cornelis Networks and Wallaroo.
And finally, Battery Ventures’ quarterly update on the state of cloud spending is always an important resource for Ridgeline. While the next 12 months of spend seems clustered around larger, established categories, the survey indicates a clear increase in spend across emerging categories (AI/ML, data, developer tools) over the next 5 years.