ENDEAVOR CATALYST


Endeavor Catalyst, investment arm of global entrepreneurship community Endeavor Global, recently held its invite-only annual investor meeting and shared insights on trends shaping global VC markets. As a $500M+ AUM firm with investments in 35 markets, Catalyst has a unique view into emerging-market trends. Through its lens we see a cooled but resilient market and new pockets of company building.

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  • The slowdown took hold only recently in emerging VC markets. Endeavor Catalyst uses a rules-based system to invest, joining Series A-and-beyond equity rounds going to Endeavor entrepreneurs, so its activity offers a unique “indexed view” into VC activity in emerging hubs. Its deal volume actually grew in Q2 2022 compared to the previous three months, per its internal data, but things started slowing in May 2022 and deal volume roughly halved in Q3. 
  • Time between rounds is dilating again, and unpriced rounds and extension rounds are proliferating. The best companies are no longer raising rounds in 6- or 9-month intervals. Meanwhile, SAFE and convertible notes are being used to address price uncertainty, even in rounds going to hotly pursued companies. As well, many of the best companies are raising extensions to their last financing rounds.
  • Despite the macro reversals, the globalization and spread of VC into new markets is not going away, “venture capital is becoming increasingly global every single year,” says Allen Taylor, managing director at Endeavor Catalyst. That is partly because of VC investors’ new comfort with Zoom investing, but also because of founder and angel “mafias” spawned by successful startups like Colombia’s Rappi, and the growth of homegrown VC industries in geographies including Latin America and Southeast Asia.

CHART: Round sizes ballooned in 2021, but series C size-growth decelerates in 2022

As seen below, median round sizes for deals with Endeavor Catalyst participation have increased steadily across stages, particularly in 2021. That said, Series C round-size growth (orange line) was much less pronounced for 2022 year-to-date, growing around 10% compared to 90% in 2021. 

Source: Endeavor Catalyst Annual Report

FURTHER ANALYSIS: The VC market turned on a pin in May 2022

When exactly did the downturn start? Due to a natural lag caused by how long it takes to move a deal across the finish line, the slowdown took some months to set in. Deals were getting done at the same fast clip seen in 2021 through April of this year, says Taylor, but those were likely rounds that had been negotiated earlier in the year, as far back as January. By May, there was a rapid slow-down in deals being completed.

In addition to slowing activity, Endeavor Catalyst has observed a few other changes in market dynamics: 

  • Massive-AUM asset managers known for prolific startup investments in 2021 and prior years have lessened or paused activity as the market slowed down. Over the past 10 years, Endeavor Catalyst has co-invested with more than 190 firms. Specifically, as of Q3 ’22 it had shared more than 60 deals with Softbank, Tiger Global, and Coatue, massive-AUM firms that also make public-market investments. But these firms have pulled back from Endeavor markets. “Softbank is still active but it’s down significantly from its peak,” says Endeavor Catalyst Managing Director Jackie Carmel. Tiger and Coatue are noticeably less active.
  • The market for tech and VC-backed IPOs has completely dried up. After a flurry of tech-name IPOs and SPACs in 2021. Morgan Stanley data shows 124 tech IPOs in 2021, and only one in 2022 through September 8th. “That’s pretty staggering,” says Carmel. 

Of note, Endeavor Catalyst only invests in priced equity rounds of $5M or more that are led by institutional investors and go to Endeavor-entrepreneur companies. Because of this rules-based approach, the trends in this brief capture a special subset of VC activity. These are deals going to high-quality founders — those selected through Endeavor’s competitive application process — whose companies raise significant Series A and beyond financings.

FURTHER ANALYSIS: Creativity in financing to weather uncertainty

Rising interest rates, war in Ukraine, and inflation have fanned uncertainty. One response, driven by investors and founders, has been the move toward SAFE and convertible notes, as well as extension rounds. These tactics allow both sides to move ahead in a murky market without getting hung up on differences in valuation expectations. 

That’s important given so much volatility and the lack of reliable comparisons (e.g. depressed prices for tech stocks in public markets). 

During the recent call with investors, Taylor shared that Endeavor Catalyst had seen 10 extension rounds into its companies in as many weeks, evidence of how popular this kind of vehicle had become as the chill set in for VC markets globally. 

As well, Endeavor Global research has picked up an uptick in debt rounds in some markets, including Latin America.  

Another trend contributing to the overall slowdown: founders are simply taking more time between fundraising efforts. They are reverting to the traditional 12 to 18 months between rounds rather than returning for capital in 6- or 9-month intervals to take advantage of the favorable financing climate. 

All this said, it would be exaggerated to say it has become a hostile environment for startups. The overall environment is still “founder-friendly,” says Taylor, with plenty of capital competing for opportunities. The best companies and founders are still being aggressively pursued, even if the average company is finding it tougher to get a term sheet. 

FURTHER ANALYSIS: New frontiers continue to break records even in 2022

Endeavor Catalyst made its first investments into companies in Ireland, Romania, and Ecuador this year. That shows that even in a down market there’s still an appetite for deals into companies in new markets. 

One Middle Eastern market, Saudi Arabia, has seen increased VC activity this year through September, rather than a slowdown. Meanwhile, Egypt and South Africa are among the top five fastest-growing markets for Endeavor Catalyst investments, and already have attracted 4% of cumulative Endeavor Catalyst deals each. 

CHART: Investments go to an increasingly diverse set of countries


As seen below, Endeavor Catalyst deals have increasingly gone to companies in Asia, the Middle East, and Africa. That said, Latin America remains the highest-volume region. 

Source: Endeavor Catalyst Annual Report

Of course the remainder of 2022 and beyond may see a downtick in money going to the less tested startup hubs. 

“Investors may pull back on that risk curve a little bit,” says Taylor. 

But that likely will be in the form of skipping more nascent markets — Pakistan, for example, or sub-Saharan Africa, he adds. Other, more well-explored markets covered by Endeavor will hold on to their newly earned status as proven startup hubs: that’s true of Latin America, Southeast Asia, Eastern and Southern Europe, as well as the US “between the coasts” (where Endeavor is also active).  

WHAT TO WATCH FOR: Emerging geographic trends in VC

Rapid digitization, thanks to smartphone and broadband penetration, is creating tailwinds for VC-backed companies in emerging markets. But the geographies Endeavor Catalyst is watching for particularly outsize growth are listed below.

  • In addition to Egypt and South Africa, which are among the top five fastest-growing markets for Endeavor Catalyst investments, the team believes three populous countries in particular are poised for accelerated entrepreneurship growth in the years ahead: Nigeria, Pakistan, and Vietnam. Endeavor launched a new office in Pakistan this year, as well as a new Singapore office to support founders across Southeast Asia.
  • Within Southeast Asia, the team plans to double down on key markets including Indonesia — already one of its top three countries for investments — and the Philippines, as well as Vietnam, says Caela Tanjangco, head of Asia and senior manager at Endeavor Catalyst. The region’s strong macroeconomics and new founder networks (including a diaspora of ex-Grab employees) are creating fertile ground for new-company formation. 

Southeast Asia is the “next frontier … we are very bullish on this region,” says Tanjangco.  

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