Prashant Matta: "I am finally ready to call a market bottom"

Panache Ventures general partner Prashant Matta suggest founders and investors must get back to playing offence.

I am finally ready to call a market bottom.

I know you have heard about the doom and gloom in the venture market. All you have to do is look at the VC X-sphere (RIP Twittersphere) over the last couple of years. Many have tried and failed to predict when the current venture downcycle (except AI) will end. From the pandemic highs to the recent lows, the sentiment has been stubbornly defensive. But I am finally seeing early indicators to call a market bottom. It is time to play offence or get left behind.

Private markets are hard to predict because of the inherent lack of reliable information and near-real-time data. The best VCs read market signals in combination with their own proprietary data, track record, and experience (i.e., gut), deeply understanding that their mission is to invest in visionary entrepreneurs and technologists and to help them build high-growth businesses.

For any market to function properly, you need to understand both the supply and demand dynamics. A lot has already been reported on the plummeting venture investment volume and the tough fundraising environment. This data tracks the number of venture investments in a specific quarter and is usually self-reported by venture funds to databases maintained by organizations such as the CVCA, PitchBook, and Crunchbase. I call this the supply-side data. This data is important and helpful in understanding the venture financing environment; however, it is a lagging indicator.

The demand side data—i.e., the number of startups and founders coming to market—is more difficult to gauge. If you are a late-stage VC, you could look at early-stage financings and build a deal pipeline. However, as a former late-stage VC, I know it would still be challenging to foresee predictable demand. Moreover, what if you are an early-stage fund such as Panache Ventures looking to invest up to $50 million in pre-seed stage startups over the next two years?

Thanks to advancements in AI, Panache Ventures has been actively tracking startup formation data over the last two years. The fund scrapes social media and online datasets to identify new technology startups that are being created in Canada, providing a pulse on the future demand for capital. Most importantly, it focuses on the founders, who drive the demand for VC dollars. To our knowledge, this dataset is unique and Panache Ventures is sharing it publicly for the first time. My hope is that the founder and investor community can band together and steer the market narrative to one of growth and optimism.

Technology startup formation points to future demand for capital

Panache Ventures’ analysis shows a significant boost in new Canadian startup formation in 2024, setting the stage for stronger investment activity.

By the numbers:

• In the first half of 2024, over 800 new technology and software-related startups were launched in Canada, a notable expansion from the previous year. Company creation was especially strong in sectors such as AI, climate tech, FinTech and SaaS.
• More than half of the companies were founded in Ontario.
• Over 30 percent of the companies are operating in stealth mode, indicating that many founders are quietly bootstrapping and building before they raise their first round of capital.

Why it matters:

• The data highlights a shift in Canada’s entrepreneurial landscape. After a relatively slower 2023, the surge in startup creation indicates that founders are gearing up to build.
• Investors who have been cautious in recent years may become more active due to the uptick in deal flow in the coming quarters.
• As startup creation grows, there will be more opportunities for early-stage investments. Robust early-stage financings will also result in greater late-stage investment opportunities in the coming years.

The increasing startup formation activity, declining cost of capital due to lowering interest rates, improving macro and liquidity conditions, accelerating technical advancements, and thriving entrepreneurial ambition give me the confidence to call the market bottom. I don’t expect the venture ecosystem to party like it’s 2021 but the worst is over and the venture market will soon find a new level of equilibrium. Get ready to play offence.

Prashant Matta is a managing partner of Panache Ventures, a leading pre-seed stage venture capital fund.

Feature image courtesy Pixabay.

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