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Yukako Kiso has been planning restaurant gatherings among friends and strangers for as long as she can remember. But the nights always end in the same awkward way, with a “big fat check” sucking the energy out of the room.
So in 2021 she started a social dining app called Cuculi, named for the Japanese goddess of connection, to assuage bill-splitting anxiety and solve another quintessential problem for New Yorkers: making new friends. Users can set up and advertise “public tables” via the Cuculi platform, where diners can mix and mingle with others looking to connect.
“People move to New York City, and they start their new life, not knowing anybody,” said Kiso, Cuculi’s CEO.
Cuculi has taken in about $420,000 through fundraising from friends and family and made $100,000 in revenue during its first three years. The app has roughly 7,000 users who pay $1 each to set up or attend a public table. Cuculi also receives a cut of the restaurants’ revenue from bills; they say their partners have made just over $1 million from their users’ reservations.
But the platform, like many other early-stage startups in New York, has struggled to raise money from venture capitalists. The stagnant IPO market may be partly to blame. Stubbornly high interest rates, an unpredictable public market and an aggressive regulatory environment are stifling activity. The hesitancy to go public leads to a trickle-down effect on the local tech ecosystem: a lack of IPOs or mergers limits the flow of capital, and highly skilled tech employees who are tied up in equity can’t move forward in their careers or start new companies.
“There are real risks to the broader tech ecosystem when you have fewer exits,” said Julie Samuels, president and executive director of Tech:NYC, an organization representing the city’s tech industry.
In the first quarter of 2024, dealmaking slowed year-over-year by most measures in the New York market. There was just $4.2 billion in capital invested, a 23% decrease from the first quarter of 2023, and 401 deals, a 31% plummet from the same period last year, according to data from research firm PitchBook. The firm said it was the lowest count since the fourth quarter of 2018.
The number of new venture capital-backed companies entering the New York ecosystem, in addition, has been off to a rough start in 2024. In the first quarter, there were 128 deals among city startups raising VC funds for the first time, a 24% decrease from the first quarter of 2023. The deals were worth a total of $322.4 million, a 63% nosedive from the same period last year, PitchBook data says.
There have also been limited public offerings: Just six companies located in the city have had IPOs so far in 2024. There were 24 exits — liquidity events which include mergers — in the New York-area in total in the first quarter, a 38% fall from the first quarter of 2023, according to PitchBook.
IPOs and mergers benefit a local tech sector because they put capital back in the hands of people who have had experience building a successful company, according to Maria Gotsch, president and CEO of the Partnership Fund for New York City, the $180 million investment arm of the city’s leading business membership organization.
She said there is a “dandelion effect” among tech workers, where an employee cashes out and starts a new company or becomes an angel investor, helping early-stage startups get off the ground.
“Some retire to the Caribbean,” Gotsch said, “but others say, ‘I want to do that again, and I have an idea.’”
Getting the ‘tourists’ out
Local venture capitalists say that the slowdown isn’t cause for alarm but rather a return to earth from the sky-high dealmaking and subsequent IPOs that defined 2020 and 2021.
Most of the firms that debuted during the dealmaking bonanza that defined 2020 and 2021 have seen their stock take a nosedive, said Brian Cohen, a founding partner of Kips Bay-based VC firm New York Venture Partners, which specializes in seed stage companies, and chairman emeritus of investor network New York Angels. He said that he “shed a tear” for many of them.
“People wanted that IPO so badly that they did not do the due diligence that would have stopped [them] from investing,” he said. Many investors are forced to apply more appropriate scrutiny now that money is no longer “sloshing around in a bathtub,” he added.
Many of the companies that defined the golden age of IPOs in the city have since fallen from grace. To name a few, real estate platform Compass, which debuted in April 2021 at $20.51 per share has since tanked to $3.28. Rent the Runway, also listed in October of 2021 at $342, currently trades at $13.22. WeWork, which at first traded for $392.80 per share, recently traded at 16 cents after its bankruptcy. West Village-based Squarespace, which IPOed in May 2021, lasted just three years on the public market; on May 13, London-based private equity firm Permira acquired the company for $7 billion. The website builder, which had been valued at $10 billion at one point, had fallen about 24% from its debut.
However, there are signs that the frozen IPO market is thawing. There have been several high-profile success stories this year, such as San Francisco-based Reddit, whose shares jumped 48% upon its debut in March. The company’s revenue also climbed by 48% in the first quarter, according to Reddit’s inaugural earnings report filed in May. Also, shares of Walmart-backed Ibotta, a Denver-based company that offers cash-back rewards for grocery brands, jumped 17% during its April Wall Street debut. Reddit recently traded at $62, while Ibotta was trading at just under $105.
Some investors believe that the current environment culls the entrepreneurs who aren’t serious enough to ride out less-than-ideal market conditions.
“I’m happy. You get the tourists out,” said Zach Aarons, co-founder and general partner at Midtown-based venture capital firm MetaProp. “The only people crazy enough to start a company are not thinking about anything else. That’s what you need to be an entrepreneur.”
In the meantime, Cuculi has turned to a new group of fundraisers: its users. Those who have direct experience with the platform have so far given around $50,000, money that will go toward scaling the platform to other cities, according to chief financial officer and co-founder Aleksandar Tisinovic.
“That was really encouraging,” said Tisinovic. “It gave us more of a sense of responsibility to make this work.”
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Amanda Glodowski , 2024-05-16 11:48:08
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