Venture Capitalists Are Sitting on $300 Billion 💰

🐺 Hi pack-mates,

This is Howling Markets, , the venture capitalist ready to risk it all to help your knowledge succeed in the financial markets!

Today we will be covering:

• Education: What Are Venture Capital Groups? 💲

• MIM Gets Struck By a $6.5 Million Exploit 💣

• Venture Capitalists Are Sitting on $300 Billion 💰

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Are Venture Capital Groups?

Venture capital (VC) groups are limited partnerships formed by wealthy investors to provide funds to start-ups which might not be able to raise funds otherwise. The objective of a VC group is to assist a company through its early life stages until it is able to either go public or raise funds through other channels.

The limited partners of the VC groups often sit on the board of the start-ups and provide valuable guidance on how to grow the business, and most importantly, they have long-term motivation, usually aiming to achieve their objective in 7 to 10 years.

More specifically, the life of a venture capital deal can be divided into three stages:

1. Fundraising: the VC group is formed by finding partners willing to contribute funds over a long-term time horizon until they achieve a portfolio target amount.

2. Investing: to limit the risks associated with investing in a start-up company that might not even have a product line yet, investments are often dispersed in different phases:

   1. Seed Investing: the first round of investments before the firm is even structured as a company. Seed investments often account for around 60% of the total investments.

   2. Early Stage Investing: these are intermediate investments amounting to around 25% of the capital financing.

   3. Later Stage Investing: these are the final investments made to prepare the company to be sold to future investors. Later stage investing is about 15% of the total investments.

3. Exit: finally, once the company is ready to be either sold to the public through an IPO or to be bought by a larger company through a merger & acquisition, the VC group exits the investments and earns its profits.

MIM Gets Struck By a $6.5 Million Exploit

Magic Internet Money (MIM) is a very particular stablecoin built by Abracadabra.money pegged to the value of the United States Dollar.

MIM coins are obtained by borrowing them directly from the Abracadabra.money protocol by using as collateral some crypto assets that are deposited on the protocol. The unique aspect, and functionality, of this stablecoin comes from the fact that the assets used as collateral can even be interest bearing tokens, meaning crypto assets that pay a periodic interest rate.

Because of this, by using them as collateral, a holder can earn interest from them while benefiting from the liquidity of a stablecoin to perform day-to-day activities in the crypto world.

Additionally, the protocol even accepts staked cryptocurrencies as collateral, an incredible upside for all the crypto holders working as validators. As a reminder, staked cryptos are those tokens which are held “frozen” on your account to be used in order to validate transactions and create new blocks in Proof-of-Stake blockchain.

As a result, MIM tokens are widely used for liquidity transformation which consists of transforming some illiquid assets into more liquid ones.

However, on Tuesday, this protocol has been hit by an exploit regarding a rounding error in the minting process of the MIM tokens.

This exploit amounted to $6.5 million and as soon as it was made public, MIM got struck by a flash crash causing the price to crash down to $0.76. Soon after, MIM developers announced that they would be buying back tokens to then burn in order to achieve the 1:1 peg.

Today’s Howling Question

And now, it is time for our howling question!

In the previous news section we mentioned IPOs. Which of the following best defines what an IPO is?

Is the process through which a company goes private

a) Is the process through which a company goes public by issuing bonds for the first time

b) Is the process through which a company goes public by issuing shares for the first time

c) Is the process through which the convertible bonds of the company are transformed into stocks

d) Is the process through which a company goes public by issuing shares for the second or more time

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Venture Capitalists Are Sitting on $300 Billion

Investing in start-ups is one of the riskiest activities in the market. Because of this, VC groups tend to invest in hundreds of different companies. Because around 90% of start-ups fail and it is up to the remaining 10% to make up for the losses and generate a solid profit.

However, during more uncertain times it becomes harder to identify strong investment opportunities and as a result VC groups might substantially decrease their investments to avoid increasing the failure rate.

During the post-pandemic period, interest rates fell down to extremely low levels, and thanks to the government’s aid, many people were able to start a small online business or some kind of activity. Because of this, between 2020 and 2022 VC groups were able to raise a record $435 billion.

Then during 2023 venture capitalists were able to invest around half of this amount while the unspent reserves, also called “dry powder”, were set aside to be spent on the next opportunities.

Today, the industry is sitting on $311 billion of dry powder, and even if many analysts expect investments to pick up again in the future, they also believe that it will be a relatively slow recovery.

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Tuesday, the stock price hardly moved, with the SPX closing just -0.06% with respect to Monday. However, this is to be expected as everyone is waiting for the Feds chair Jerome Powell to speak on Wednesday, so we should expect some volatility during the next trading session

On the other hand, bond yields continued with their strong downward pressure while approaching the 4% level. The 10 year US government bond yield closed -1.03% down, expressing that the markets are expecting great news from the next FOMC.

Answer

The correct answer is c) Is the process through which a company goes public by issuing shares for the first time.

An Initial Public Offering (IPO) is the process through which a private company issues shares for the first time, seeking public investors in order to raise funds through the equity markets. After an IPO, the company’s shares will be publicly traded on the stock markets.

This process is usually assisted by an investment bank which will have the role of doing the research, filing the paperwork and then purchase all the shares before reselling them on the market.

Howl-Worthy Memes 😂

🐺 See you next time!

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