San Francisco's Startups Are on the Mend

The fortunes of Silicon Valley startups rose and fell together like never before in recent years. Partly that was due to the indiscriminate tidal wave of money that washed through venture capital, but it’s also because many business-to-business software startups are closely connected as each other’s customers.

Brex Inc., a $12.3 billion San Francisco-based firm, epitomizes that trend as one of several fintechs whose customer base is focused on young companies and technology firms. So, the fact it is seeing some early green shoots of recovery among its clients could be good news not only for Brex but for many companies and investors in this world.

“Lots of companies are getting to the point where they can’t cut spending any more and some are starting to return to growth,” Brex Chief Financial Officer Ben Gammell told me recently.

There have been promising signs of a thaw for venture capital in fundraising and some new stock market listings, too. Still, plenty of portfolio companies remain zombies that were either absurdly overvalued at the peak or never should have got investment in the first place. Only 3% of nearly 63,000 VC-owned companies globally are on track for a successful exit via an initial public offering, according to an exit prediction model from PitchBook, a data and research firm owned by Morningstar Inc. About half of those startups are more likely to be sold to another company or investment fund, while 43% currently don’t have a likely exit, according to the model, which is based on a string of indicators including the timing and size of fundraisings, the number of investors, founders and employees, company locations and valuations.