The job market remains strong. Private employers added 184,000 jobs last month, the biggest increase since July, according to ADP’s latest employment data. Median wages increased by just over 5%, and by 10% for those who changed jobs. Official employment numbers are expected to be released by the Labor Department on Friday.
One of the many economic drivers behind a healthy job market is entrepreneurship: startups that bring new ideas to the world and put people to work. But this is not a great time for that entire ecosystem. Venture capital investment fell in the first quarter of this year, following the worst year for startup funding since 2019, according to Pitchbook.
Vivas Kumar is the CEO of a startup called Mitra Chem.
“We are studying the chemicals contained inside the batteries that power electric vehicles,” Kumar said.
Right now, startups that want to supply America’s electric vehicle fleet have a lot of work to do, and it costs a lot of money. So Mr. Kumar needed to raise $60 million last year.
“When we went to pitch to venture capital firms, it quickly became clear that they were not in a position to support the current round,” he said.
Mr. Kumar’s company was not alone.
“It’s been really tough,” said Kaidi Gao, a VC analyst at Pitchbook. The number of new venture capital funds fell by 60% between 2022 and 2023, and the amount invested in startups fell by a third. That was around the same time the Fed started raising interest rates, and that’s no coincidence.
“From an investor’s perspective, when interest rates were kept very high, they were able to put their money into something really safe, like government bonds,” she said.
While safe bets may seem to pay off very well, bets on startups don’t. According to Gao, there is another reason why venture funds themselves are having trouble raising money. This is because they haven’t been able to convert much of their previous investments into cash.
“We’re not seeing any mass withdrawals,” she said.
An exit — be it a shiny IPO or acquisition by Google — is often the pot of gold at the end of a startup’s rainbow. That movement has slowed in recent years, leaving many investors’ money locked up in companies waiting for their big moment.
“I wouldn’t say it’s a vicious cycle, but it’s a vicious cycle, and that’s where the whole hardship comes from,” she says.
Fortunately, Mitra Chem’s Vivas Kumar has found a way around the venture capital slump. He visited potential clients, including General Motors, and raised $60 million. Many other startups weren’t so lucky.
“The only thing that determines the success of a business is timing, whether the market is ready or not. There are a lot of great ideas out there, but the time has just not come yet due to the lack of funding,” says Kumar. he said.
Once the market recovers, he says, he has no doubt these ideas will come back to the fore.
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