Dear Investors, Friends of Fitz and other Friends:
This spring when we circulated our year end audit for 2022 we noted that we were fortunate to be among the few venture funds with no write downs in either our Fund I or Fund II portfolios (audited by an independent third party) and this remains the case (gross IRRs now 36% and 35%, respectively). This was noteworthy in light of Tiger Global writing down its portfolio in 2022 by 33%, erasing $23 billion in value. Softbank similarly took a 30% write down across its portfolio between April and December of 2022. We are aware, however, that we are nevertheless in a tenuous market environment and therefore remain sanguine about the road ahead. The venture debt market is essentially defunct right now in the post Silicon Valley Bank debacle, and this hamstrings startups looking for debt financing to buy inventory, fuel expansion or extend runway. The equity markets are slightly more active, but most VCs are cautiously evaluating every startup with more rigor than ever before (getting close to Fitz Gate’s strict due diligence process and discipline around valuation), and the only startups that appear to still be attracting frothy valuations are those relating to AI, large language models, and some biotech startups. This is both good and bad news of course. Valuations are more attractive and reasonable in the seed stage as we look to make one or two more final investments out of Fund II (and soon Fund III). On the flip side, we have to be vigilant with respect to our existing portfolio companies in Fund I and II to ensure they remain well positioned to exit or raise additional capital on attractive terms. We are fully engaged in helping our portfolio companies in any way we can to ensure long term favorable outcomes. One bright spot is that despite the drop in tech stocks between 2021 and 2022, the tech heavy Nasdaq is up about 25% in 2023 (good data point for private company comps).
A few of our portcos that have gone out to raise capital in the first half of 2023 have done so at healthy valuations despite this market because they continue to outperform. For example:
Newsguard Technologies (Fitz Gate I portfolio company) raised $2.1 million in its Series A2 round from new and existing investors (including another follow-on round from Fitz Gate I). New investors have not been publicly disclosed.
Celestial AI (Fitz Gate II portfolio company) raised $100 million in June 2023 in a Series B round led by IAG Capital Partners, Koch Disruptive Technologies and Temasek’s Xora Innovation fund. The round, which brings Celestial AI’s total dollars raised to more than $165 million, will be used to support the production of Celestial’s photonics platform by expanding the company’s engineering, sales and technical marketing departments. Read more about the company here: Techcrunch Article.
Jim and Mark continue teaching venture capital both at the Princeton Graduate School and at Rice University (MBA and undergrads). This spring Jim and Mark gave a presentation at Princeton’s “GradFutures Conference” which was open to all Princeton graduate students as well as graduate students from across the Northeast. The topic was “Essentials of Funding a Startup”. You can watch it here: Jim and Mark lead seminar at Princeton’s GradFutures Conference.
As always, thank you for your support of Fitz Gate, and don’t hesitate to reach out to us.
Jim Cohen and Mark Poag, General Partners
