Dear Clients,

[Erik to write intro blurb]

Sincerely,
AWM Ventures

Brandon Averill, Erik Averill, Justin Dyer, and Robert McConchie

Market Updates with Justin Dyer, CFA

While society is still not completely back to “normal,” it certainly feels like the world is a lot closer to normal than where we were at the peak of the pandemic. And that feels great! People are taking vacations again, though staying closer to home or at least in the same country, our National Parks expect record setting visitation, and hard hit industries are seeing a surge in demand. That being said, there are still challenges and questions ahead, both for the course of the pandemic and investors alike. There is no shortage of new terms in the common lexicon that highlight some of these questions – delta variant, cryptocurrencies, Personal Consumption Expenditures (“PCE”), Special Purpose Acquisition Companies (“SPAC”), etc.

What does the world look-like post pandemic? Is crypto an actual asset class? Is inflation here to stay? Are SPAC’s a good investment?

You can find any number of hypothetical answers to these questions but it’s fair to say that only time will reveal the truth.

Public Market Update – A Brief Around the World Tour of Markets

It was all in the black for the major markets and asset classes around the world in the second quarter. Both developed and emerging markets had mid to upper single digit returns, bonds had slightly positive performance and real estate top the charts with low double digit returns. The biggest questions on the minds of investors were related to inflation and the ever present pandemic. The market consensus around inflation seems to be pretty clear that it will not last long, or that it is “transitory” in nature. The consensus around the pandemic is ever changing. Will the new variant cause policy makers to introduce new measures to stop the spread? How well will the vaccines work as the virus mutates? Will the Olympics be successful?

On Stocks

Equity markets around the globe posted positive returns in the second quarter as the roll-out of vaccines accelerated. Looking at broad market indices, US and non-US developed markets outperformed emerging markets for the quarter. The S&P 500 reached a new all-time high in late June and there were positive returns across major sectors as well. Larger companies generally outperformed smaller companies but the strength in smaller companies to start the year still has them on top year-to-date. As the quarter came to a close, markets seemed to pause in order to digest all the relevant information that has come to light recently.

On Bonds

In the US, interest rates on intermediate and longer-term bonds reversed course in Q2 and fell across the maturity spectrum. This drove bond prices higher and as a result performance was positive. Short term bonds were unchanged. Despite the positive movement the broad based bond indices remain slightly negative for the year. The picture around the world was also mixed depending on the country but the global indices produced similar numbers to the US and squeezed out slightly positive performance. Inflation protected bonds benefited from the continued concern around inflation. The risky areas of the bond market (e.g. High Yield) continued their outperformance and remain the best performing bond sector year-to-date.

On the Economy

The global economy continued to gain steam in the first two months of the quarter but started to moderate towards the end of the period. Most of the economic focus was on inflation data and the US Federal Reserve (Fed) meeting in June. Policy makers continued to downplay the concern around inflation despite some very big increases in inflation measures and the market seemed to agree. Given the improving economic situation in the eyes of the Fed, they updated their forecasts to telegraph the potential for an earlier than expected rise in interest rates. This was considered to be a more “hawkish,” or conservative, move by the Fed. The change caught many by surprise. Overall, economic activity reported in the quarter showed the Q1 GDP grew by an annualized 6.4%, slightly lower than expectations. The jobs situation also saw marked improvement with weekly data continuously reaching new pandemic era lows. As of the date of this letter, further simulative policy is in the works with a massive infrastructure bill being hotly debated in Congress.

Company Updates, an Executive Summary

Private Markets

It was a banner year for venture capital in 2020, and the first half of 2021 saw continued interest and momentum in venture activity and funding. Amidst this backdrop, deal activity flourished as investors became more accustomed to the new norm of meeting founders over Zoom. The closing of deals accelerated as FOMO attracted strong interest and rapid investment from traditional and non-traditional investors. VC activity saw exceptionally high growth within a few sectors, including delivery, robotics, logistics, automotive, fintech, health tech, and cloud computing.

SPACs set a new annual record for capital raised in just one quarter, with 281 deals representing $83B of capital raised (2020 saw 230 deals and $70.4B raised in the whole year). In addition, exit activity remained strong with 50 VC-backed companies listing publicly in the quarter (versus 9-21 on average from 2015-2020), and nearly 600 acquisitions were consummated totaling $57B in deal value.

Digging further into the numbers, according to PitchBook, investors deployed $69B into VC-backed companies in the U.S. in Q1, across 3,987 ﬁnancing rounds. This was a 92.6% increase (in dollar terms) compared to the first quarter of 2020, and if this pace is maintained, we could see a record-setting $280B of venture funding in 2021 across 16,000 rounds.

Angel and seed deal financings recorded its highest quarterly total on record, with over 1,500 deals representing $1B in deal value, while valuations remained flat versus Q4 ’20. Early-state deal activity continued to drive demand representing $14.5B of deal value across 1,170 deals while seeing valuations rise 15.3% and 28.7% on a median and average basis, respectively, versus Q4 ’20. In addition, mega-deals continued to lead the market with 167 deals at or over $100M closing in the quarter, representing $41.7B in capital investment - putting 2021 on track to set a new annual record on both a count and value basis, and valuations skyrocketed, nearly doubling on a median and average basis versus Q4 ’20.

Although second quarter statistics have yet to be released, VC activity appears to have remained strong in the quarter as investors continued to compete for the most attractive deals. Likewise, the capital markets activity has remained very active, including traditional IPOs, direct listings, and M&A. Despite some rumblings from the Federal Reserve around potentially raising rates sooner than anticipated, the verdict is still out on whether that comes to fruition.

Companies in the News

Coinbase

Went public via a direct listing on 4/14/21.

Exabeam

Raised $200M at a $2.4B valuation on 6/1/21, a 2.7x mark up from their previous round. Hired former McAfee President Michael DeCesare as President and CEO in June 2021. Upon being hired, DeCesare announced his vision to make Exabeam a significant player in the security operations market.

Guild Education

Raised $150M in June 2021 Series E round at a valuation of $3.75B, a 3.5x mark up from their last funding round. Guild plans to use the money to expand its team of coaches, oﬀer more short-term certiﬁcate opportunities and improve its outreach to HBCUs.

Impossible Foods

Company’s artiﬁcial “ground beef” products were approved for school lunches in several districts across Washington and Oklahoma, with more states to come.

UIPath

Went public via an IPO on 4/20/21 at a $35B market cap. NPC ﬁrst invested in May 2019 at a $7B valuation.

Lime

Recently developed seven new vehicle types to make their scooters more accessible for those with physical disabilities, including a three-wheeled, sit-down motorized scooter.

AWM Ventures Recap: Q2 2021