Welcome to the fourth issue of Volunteer Capital Insights! We are always excited to have you join us as we explore insights on global events every other week. Unfortunately, this week has seen devastating news around the world. VCI extends our best wishes to everyone affected by Hurricane Helene and those impacted by rising global tensions. In this week’s edition, we dive into the next boom in venture capital, the massive stimulus enacted by the Chinese government, and the escalating tensions in the Middle East.
A special thanks to Peter Costa from Costa’s Corner for his help in editing and guiding us through this week’s issue. Don’t forget to check out his Substack for more great content!
Let’s break it down!
Venture Capital
The Next Supercycle in Venture Capital
The first “supercycle,” at least since I’ve been around, kicked off when Steve Jobs held up the iPhone in 2007. The introduction of the App Store put software at everyone’s fingertips and forever changed how we interact with the digital world. Suddenly, apps were everywhere, and entire industries built on each other. Venture capitalists rode this wave, funding every new app, service, and platform, fueling unprecedented growth. Today, life without these innovations is unthinkable. Seriously, what’s your screen time today?
But lately, things have changed. The venture capital market has hit a rough patch, with major players like Tiger Global contributing to the downturn. Companies once drowning in capital are now struggling for funding and fighting to stay alive. The era of endless cash is over, and startups that were overfunded during the boom are falling apart. Tiger Global’s aggressive capital deployment backfired, as valuations tanked about 30%, on average. Deal flow has slowed, marking nine straight quarters of decline, and the pace of investments has fallen off since the peak of 2020. The party might seem over - but the next wave is already upon us, and it promises to be even bigger.
Enter artificial intelligence: the dawn of the next supercycle. OpenAI, with its $150 billion valuation despite ongoing losses, is the poster child for this new era. AI is the battleground everyone is racing to win, and it’s an exciting time for the venture world. We’re seeing breakthroughs in everything from robotic exoskeletons to autonomous cargo flights, even electric-powered trailers. It truly is the ultimate arms race. AI is set to become the driving force behind everything, whether we’re ready to admit it or not. While I could write a book on my opinions of AI, I’ll keep it brief for now - just know we’re on the brink of something big. With more capital and intelligence than ever before, venture capital has never been this thrilling - or this full of potential. So buckle up, It’s going to be a fun comeback.
By: Will Gusanders
Economics
China Flooded with Stimulus
On September 24, the Chinese central bank unveiled an extremely aggressive stimulus package in an effort to rescue the Chinese economy from recent deflationary trends and other significant issues. This move is part of a larger effort to reverse the country’s slowing economy, which has been weighed down by deflation, high unemployment (especially among youth) , rapidly decreasing M1 money supply, and a real estate crisis. Stimulus measures include rate cuts, increased stock market liquidity, and support for the real estate sector, such as lower mortgage rates, reduced down payments on second homes, and $284.43 billion in sovereign bond stimulus. The Chinese markets reacted extremely positively to the news, sending the CSI 300 index up by 8.5% for its best day since 2008.
Although stock prices surged, there is still plenty of skepticism about whether the stimulus will have long-lasting effects. Many analysts believe these measures may only provide temporary relief and lack the depth to address the core structural issues in the economy, such as sluggish domestic consumption, a real estate bubble, high levels of debt, and a rapidly aging population. China’s bond market reflects this uncertainty, with yields on 30-year government bonds continuing to fall. While the stimulus may have improved short-term market sentiment, it remains to be seen whether it can truly dig China out of the economic hole it has been digging for decades.
By: Scotty Brown
Geopolitics
Israeli Incursions into Lebanon Threaten Global Oil Markets, Inflaming Price Volatility
On September 30th, the Israeli military launched a targeted ground invasion of southern Lebanon, seeking to eliminate Hezbollah positions. The Israeli Air Force has also launched targeted airstrikes on Hezbollah’s headquarters in Beirut, Lebanon, killing their leader, Hassan Nasrallah. These recent escalations in Gaza and Lebanon have strained Israeli relations with Iran and Syria. The U.S. military has bolstered its defense posture in the Middle East this week with increased infantry and warplanes, preparing for an imminent ballistic missile attack by Iran.
Any further escalations in the Middle East could put tremendous stress on the oil and gas production industry. Iran accounts for roughly 4 million barrels per day of worldwide oil production (as of December 2023), and if conflict were to spill over into other Middle Eastern countries, over 16 million barrels per day of global oil production would be jeopardized. Vital shipping routes in the Gulf of Oman, Persian Gulf, and Mediterranean Sea would also be at risk, further threatening export capabilities.
After Hamas launched an attack on western Israel in October 2023, Brent crude rose $2.25 to $86.83 a barrel, with U.S. crude prices also increasing. This attack led Israel to order a production pause at Chevron’s Tamar gas field and nearly jeopardized their largest oil field, Leviathan. Even with this palpable volatility, Brent crude only added 1.56%, reaching $73.10 a barrel, while Texas International Futures were up 1.09% following the killing of Hassan Nasrallah. Analysts argue that an all-out war between Israel and Iran might not severely affect oil supplies or prices. However, they warn that if the Strait of Hormuz—where one-third of natural gas and one-fifth of oil exports pass—were closed, prices could jump to $100 per barrel. Some analysts place that number even closer to $125 per barrel—levels not seen since the Russian invasion of Ukraine. Brent crude closed on September 30th at $71.65 a barrel, jumping almost 4% to $74.6 by October 1st lunch in reaction to the ground invasion.
Even if analysts have fully priced in an Israeli-Iranian conflict, a significant blow to the oil and gas exporting capabilities of the Middle East could cause substantial impacts on the energy markets.
By: Joshua Reaves
Mergers & Acquisitions
M&A Snapshot
PepsiCo has announced that it has entered into a definitive agreement to purchase Garza Food Ventures, also known as Siete Foods. The total transaction value sits at $1.2 billion, making it the one of the larger food industry deals of the year. Lazard acted as a financial advisor to Siete, and Centerview acted as PepsiCo’s advisor. Siete is a company that was started by the Garza family as a way to eat healthier, and has rapidly grown its presence in grocery stores across the country. The transaction drew large amounts of demand with offers coming from other strategic acquirers and many financial sponsors. This deal comes as no surprise with deal volume continuing to increase across the M&A landscape as economic conditions stabilize and borrowing costs come down. Over the years PepsiCo has looked to broaden its product range by offering healthier snacks, and its purchase of Siete reflects this strategy.
By: Charlie Curtis