ESO's Monthly Start-Up

December 2023

The 12 Days of Venture Capital

Happy last month of the year!

It’s been quite a wild ride for startups and venture capital in 2023, and we appreciate all of our subscribers who have been reading the newsletter and following along with us. This issue marks ESO’s Monthly Start-Up’s 1 year anniversary, and we are looking forward to many years to come!

That being said, we at ESO are starting to get into the Christmas spirit, and its fitting our December issue of the newsletter will reflect that. You may have heard of the 12 Days of Christmas, but instead of partridges in a pear tree, here is our 12 Days of Venture Capital.

12 Startups Eyeing 2024 IPOs.

After two tough years for private companies looking to exit, there is finally some optimism surrounding the IPO pipeline for 2024. According to the Information, twelve of these companies looking to go public in 2024 include Reddit, Stubhub, Turo, SeatGeek, Shein, ServiceTitan, Rubrik, Skims, Klarna, Ibotta, Navan, and Cohesity.

11 Venture Funds Closed over $1B in 2023.

2023 has been a notoriously challenging year for venture funds to raise, though it did not stop these 11 funds from making it happen. According to Pitchbook, there were 11 successful funds raised in 2023 with Fund sizes over $1 billion. The funds include the following: New Enterprise Associates 18 ($3.1B) by New Enterprise Associates, Technology Crossover Ventures XII ($2.8B) by TCV, B Capital Global Growth III ($2.1B) by B Capital Group, OrbiMed Private Investments IX ($1.9B) by OrbiMed, Bain Capital Venture Fund 2022 ($1.4B) by Bain Capital Ventures, Lux Ventures VIII ($1.2B) by Lux Capital, Cosmic - Aleph 3 ($1.1B) by Cosmic Management, 270 Growth Fund I ($1.0B) by JP Morgan, C2 Investments ($1.0B) by CCMCO, Greylock XVIII ($1.0B) by Greylock, and RTP IV ($1.0B) by RTP Global.

$10 Billion Raise.

This amount marks the biggest raise of the year, and it went to arguably the company of the year: Open AI. Microsoft put in the funds back in January of this year as part of a “multi-year” agreement that valued the company at $29b.

9 Companies That Raised over $1B in 2023.

Although funding rounds have dried up a bit in 2023, there were still 9 companies that were able to raise over $1 billion in funding. They were as follows: OpenAI ($10.0B), Stripe ($6.5B), Inflection AI ($1.3B), Juul ($1.3B), Anthropic ($1.3B), Metropolis ($1.1B), Generate Capital ($1.0B), Redwood Materials ($1.0), and StackAV ($1.0B).

80% Chance of Rate Cuts Priced in.

This is the percentage chance the bond market is currently pricing in a pivot from rate hikes to rate cuts by May 2024. Everything goes back to the Fed, and nothing shuts the door on the cheap money era like the Fed having made 11 interest rate hikes since March 2022. 4 of these hikes have been in 2023 alone. Looking into 2024 though, rate cuts would mean a more forgiving investing and fundraising environment for both VCs and start-ups.

7 Notable IPOs.

We finally saw some tech IPOs in 2023, and some other notable ones as well. They were as follows: Klaviyo ($9.2B), Instacart ($9.9B), Neumora Therapeutics ($2.5B), Oddity ($1.6B), Cava Group ($2.5B), Arm ($4.9B), and Birkenstock ($1.5B).

6 M&A Events over $1B.

Fire sales may have dominated the news this year, but according to Crunchbase, there were still some big M&A events for the year with exit values over $1b. They were DTx Pharma ($1B), Versanis Bio ($1.3B), Mosaic ML ($1.3B), Scopely ($4.9B), Mint Mobile ($1.4B), and NJOY ($2.8B)

$50 Billion Valuation.

This was Stripe’s post money valuation following their employee tender offer. Stripe made major headlines this year, but not for the reason that most people thought they would. Instead of their long awaited IPO, the company instead raised a $6.5 billion round at a valuation of $50 billion to provide liquidity to current and former employees on their stock options.

4 Bank Failures in the First Half of the Year.

Over 10 weeks that started in March of this year, a string of US banks with combined assets of over $500 billion collapsed. Silvergate Capital was the first domino to fall, as Silvergate Bank was liquidated March 8th. Silicon Valley Bank went 2 days after, with Signature Bank following shortly after, and eventually First Republic Bank. The latter three of these banks represented the 3 of the 4 biggest bank failures ever, with the banks having $209B, $110B, and $229B in assets, respectively.

$300 Billion.

This is the approximate amount of dry powder that VC’s are sitting on right now. For VC’s that were able to raise in 2022 and 2023, most of that money is still sitting on the sidelines. From Q3 2022 to Q3 2023, deal count is down 36%. This is in addition to the decline that occurred between Q3 2021 and Q3 2022 of 27%. As we move into 2024, many startups have likely run out of options to delay funding rounds, and the battle for some of this dry powder stash will be on.

2 Major VC Founders Brought to Justice.

All that glitters isn’t gold, and investors learned that the hard way with the fall of FTX at the end of last year and Theranos in 2018. 2023 was the year of recompense however, with Elizabeth Holmes starting to serve her over 11 year sentence in May, and Sam Bankman-Fried being found guilty on all seven counts related to fraud and money laundering.

1 Big Winner for the Year: AI.

You would have to be living under a rock this year to not hear about the AI boom taking over the VC world. The release of ChatGPT at the end of 2022 led to a frenzy in 2023 of investors trying to get their money to startups focusing on it and alarm bells over the speed it was being developed. One thing is for certain as we go into 2024: AI is still king in the VC world.

Tips of the trade

A section where we provide helpful tips for anyone with stock options or shares at private companies.

Exercise ISOs without owing any tax!

When you exercise Incentive Stock Options aka ISOs, you have to pay AMT on your “gain” based on the difference between your strike price and the current FMV.

Every year the IRS sets an AMT exemption allowing for some AMT related events to occur without impacting taxation. In 2023, that AMT exemption number is $81,300. This exemption allows employees to exercise a certain number of ISOs every year without triggering AMT.

The amount may be small if there is a large delta between your strike price and the current FMV. Even so, exercising options without a tax hit is a great strategy to consider with your employee equity. It allows you to purchase your equity for as cheap as possible (aka your strike price) and accrue exercised shares yearly so that you don’t leave the entire exercise for when you depart.

Here’s how you determine how many ISOs you can exercise without triggering AMT:

  1. Using whatever tax software you prefer, enter your full tax situation - not including the hypothetical ISO exercise (Note the number that you either owe or get back based on your tax filing)

  2. Go back through your filing and add your ISO exercise.

  3. Play with the number of options exercised until you have the largest number of options included without changing the number from step 1.

  4. This final number of options is the amount of ISOs you can exercise without triggering AMT.

You can also use our AMT Calculator for a simple, quick calculation (not as precise as your choice of tax software).

Financing your option exercise can be expensive and a require a large capital outlay. Feel free to reach out to us to discuss your options for partnering with ESO to exercise your options risk-free.

The ESO Fund does not provide legal, financial, or tax advice.

Public Multiples Check-in

Following historical trends, November was a strong month for the markets, with all three of the major indices ending November at least 8% higher, bucking a three-month losing streak. The rally has a lot to do with market sentiment that the Fed will not raise rates again this cycle. The Nasdaq Composite led the way, ending the month up 10.7%, while the S&P 500 and Dow gained 8.9% and 8.8%, respectively. Multiples for the sectors we follow continue to trail lower or flat. The largest declines were for Enterprise SaaS and Healthtech which are down 17% and 14%, respectively. Crytocurrency continues to see the largest year over year multiple increase at a 55% uptick.

December Outlook: Inflation and interest rates will continue to be top concerns for the market going into December. Additionally, analysts are concerned rising consumer debt levels may put a dent into holiday spending. With some signs of a recession there and some not, there’s a continued divide amongst analysts on how they think the economy will fair going into next year.

Startups that are still hiring!

Open positions are per the company's website.

About ESO Fund

ESO Fund empowers startup employees to turn their stock options into reality. Since our inception in 2012, we've been dedicated to providing risk-free financing for the exercise of stock options, ensuring that individuals can seize the opportunities embedded in their equity.

Our mission is simple: to make equity compensation accessible and understandable. Through our innovative solutions, we've assisted countless individuals at 650+ companies in realizing the full value of their stock options, contributing to the success stories of numerous startup employees.

For more information on ESO Fund and how we can help fund your option exercise, please refer to our website at www.esofund.com!