[HN Gopher] The great VC pullback of 2022
___________________________________________________________________
The great VC pullback of 2022
Author : imartin2k
Score : 181 points
Date : 2022-04-29 07:59 UTC (15 hours ago)
(HTM) web link (mattturck.com)
(TXT) w3m dump (mattturck.com)
| dekhn wrote:
| Does anybody else stop reading when they see that half the
| content is memes? Even if there's some brilliant text in there,
| the visual content is very distracting and subtracts from the
| quality of the presentation.
| cubes wrote:
| This seems reminiscent of the (in)famous R.I.P. Good Times deck
| that Sequoia distributed to there portfolio companies back in
| 2008: https://articles.sequoiacap.com/rip-good-times
| ardit33 wrote:
| Which ended up being a serious mistake, and miscalculation (or
| bad prediction) of what happened. Late 2008 early 2009 were not
| good to raise money or for tech hiring. But by late 2009 and
| early 2010 things picked up again in force. Google and Facebook
| got into a tech talent war, and hiring, and funding (of mobile
| companies) picked up massively.
|
| What they predicted a long 'nuclear winter', was just a
| 6-9months period.
| softwaredoug wrote:
| The Tech class is creating a bubble simply based being divorced
| from problems of actual people. Nobody needs web3 on NFTs. These
| problems appeal to woke or libertarian tech bro's view of some
| theoretical, distant scifi future techies want to believe in.
| Solving these problems matter increasingly little to the vast
| majority of the society trying to solve more fundamental
| problems.
|
| You wonder if the center of entrepreneurship will move away from
| tech companies to more practical concerns for a while?
| nipponese wrote:
| I agree with you on automatic juice pouch squeezers, but
| ironically, NFTs are not a tech class demand in that non-
| accredited idiot "investors" are driving demand.
| weatherlite wrote:
| Can have serious consequences for headcount and salaries if we
| are entering a bear market. I also hope this article doesn't age
| well but it is definitely worrying.
| imjk wrote:
| This is literally the policy aim of the Fed right now.
| Unemployment is at historical lows with inflation running
| rampant. The ostensible aim of interest rate hikes is slowing
| inflation, but the byproduct is a cooling in the broader
| markets and economy, which in turn, affects the labor market.
| rdtwo wrote:
| Yeah the idea is to burn labors and wages to the ground and
| finish off get middle class.
| gralx wrote:
| That's certainly _an_ idea.
| gsibble wrote:
| Certainly seems to be what they are trying to do.
| weatherlite wrote:
| Agreed. The question is how bad the effect will be, no way to
| foresee it.
| spamizbad wrote:
| Nobody wants to say the quiet part out loud but... It's bad
| politics in the United States to have a strong labor market
| for too long: you have lots of anxiety among small and
| large businesses and you have inflation pressure. So
| they're going to manufacture unemployment to cool
| everything down.
| shock-value wrote:
| Another more optimistic way of looking at it is the idea
| that as we transition into a higher interest rate
| environment, there will be short term pain as
| unprofitable businesses downsize / go under, their
| workers are let go, but they eventually make their way
| into healthy/sound companies that now have the scope to
| grow and contribute to real macroeconomic growth rather
| than just the nominal smoke and mirrors of the recent
| economy.
| spamizbad wrote:
| I hope you're correct. Those businesses closing will cool
| off the job market and people will be left behind. Lots
| of people never recovered from the 2008 crash.
| Animats wrote:
| Funding startups to do what?
|
| The next big thing?
|
| - 2016 was the year of self-driving cars.
|
| - 2017 was the year of 3D TV
|
| - 2019 was the year of VR
|
| - 2021 was the year of NFTs.
|
| Augmented reality is probably the next item for that list.
|
| Here's the current YC batch.[1] Too much crypto crap. Lots of
| "Salesforce for X". Lots of "Payment thing for Outer Nowhere". An
| asteroid mining company. I can see throwing $500K at a lot of
| things to see what sticks, but little on that list matters.
|
| [1] https://www.ycombinator.com/companies?batch=W22
| umeshunni wrote:
| You can also say the same about any batch:
|
| https://www.ycombinator.com/companies?batch=W12
|
| Lots of payment apps
|
| Lots of cloud for X
|
| Mobile apps for the Y industry
|
| Uber for Z
| lumost wrote:
| Having been at a series C+ company that ran out of money. There
| are a few things to keep in mind if you are working at a non-
| profitable startup.
|
| 1) Investors need to invest in _something_ , not continuing
| operations. Companies who are about to run out of money will
| often claim to pivot in a different direction, launch new
| products, or go on hiring binges. A good sign that something is
| amiss is when all of this isn't backed by any customer interest,
| the internal story is meh, and leadership is steadfast that this
| is the direction.
|
| 2) At some point all of the senior leadership needs to focus on
| getting VC money, or selling the business. You may have high
| pressure dates one month, and then an erie calm where no one
| seems to care about anything. Because frankly, leadership has
| stopped caring about the business and it no longer matters to the
| company.
|
| 3) A debt round shows up, these are usually life support rounds
| for companies missing their metrics. The company doesn't want to
| lose valuation, but they don't have any deals lined up yet. The
| debt is to keep the show going while they figure things out.
| Caveat: Debt rounds because the company aims to be profitable,
| aren't that bad.
|
| 4) Implosion, if the company has a high burn and no offers - then
| something has to give. The thing to give is the $NewIdea, not the
| core product - however if the core product is shrinking/mature
| the core product team may see layoffs as well.
|
| At this point, if I consider a startup - I look to join just
| after a funding round has closed. This means that the money to
| build your product is there, the work will be new, and the
| company doesn't have to go through hijinks. The worst time to
| join a company is when they say they are working on a funding
| round.
| mritchie712 wrote:
| I agree you'll hear a lot of "we're still pulling the round
| together" if you interview at a series C company right now.
|
| But if they really are near closing it, the best possible time
| to join is before the new 409a (not after).
| pbiggar wrote:
| This is good advice. However bear in mind that the moment a
| term sheet arrives, the old 409A is invalid. So if the
| company is fundraising, make sure you get your options
| allocated immediately (even if that requires the board to
| have to sign off outside of their regular meeting cycle).
| Otherwise, once the term sheet arrives, you will get your
| options at the new strike price and there's not much the
| company or you can do about it.
| lumost wrote:
| Perhaps, but most Series C equity is already paper money for
| employees. Companies are going to Series D/E/F rounds with
| regularity - and you may be looking at 5+ years to liquidity.
| A company that is getting tepid investor interest likely
| won't see a major upswing in valuation for their next round.
|
| Consider that as you join a company working on its next
| round, you may have a 50% chance of major company
| restructuring which can range from the project you were
| promised vanishing, to you being laid off. A 15% chance that
| you get a free doubling of your equity comp on the next 409A
| valuation (which may be insignificant, have a 90 day exercise
| window, or other hijinks). While having a 35% chance that
| nothing major happens.
|
| Unlike an investment portfolio, I have a finite productive
| lifespan where I can do good work and receive a good payoff
| for it. Getting stuck at a company going nowhere, or worse
| getting laid off from one is not a good way to spend that
| time.
| mritchie712 wrote:
| Fair points, I'm just saying if you can trust the founders
| (e.g. you knew them before they started the current
| company) then it's in your best interest to join before the
| next round.
|
| If you're joining as employee 400 and don't know the
| founders, then yes, joining before the round is risky.
| pan69 wrote:
| > Companies who are about to run out of money will often claim
| to pivot in a different direction, launch new products, or go
| on hiring binges.
|
| Why would a company that is about to run out of money go on a
| hiring binge?
| treis wrote:
| Because a 1% chance of turning the company around is better
| than a guaranteed slow bleed to insolvency.
| svachalek wrote:
| I think you have cause and effect backwards.
| mvkel wrote:
| You're describing the risk/reward calculation.
|
| If you want to join immediately after the round is closed, your
| risk is lower, but so is your reward.
| lumost wrote:
| Sure, but the relative risk to you as an _employee_ is much
| higher if the round is not favorable. As an employee, you
| likely joined because of.
|
| 1. Career opportunity (build a new team/product/service etc.)
|
| 2. To make more money
|
| The risk that these don't come together for you are _much_
| higher as an _employee_ , compared to some possibility of
| getting shares at a small discount. If the company thinks
| that their raise is a sure thing, then they are likely to
| offer you fewer shares and make vague promises about future
| valuations anyway.
|
| Even if the company isn't sure about their raise, they are
| likely to pitch your offer on the post-money valuation of
| their hypothetical, un-financed funding round.
| abirch wrote:
| I'm an old fart who was around for the dot com days. Huge red
| flag the minute leadership shifts from growth to profitability.
| Usually a good time to update your CV.
| AndrewUnmuted wrote:
| Wish I had read this very comment years earlier in my life.
|
| Let that be my way of saying: this comment is dead-on.
| oarabbus_ wrote:
| >Huge red flag the minute leadership shifts from growth to
| profitability.
|
| Hasn't over 2/3rds of FAANG done this since the beginning of
| the year?
| deadbunny wrote:
| We're still considering FAANG startups?
| abirch wrote:
| Are you discussing internal projects because Facebook,
| Amazon, Apple, and Google have been profitable for a while.
| Netflix lost growth and was crushed.
| nitsky wrote:
| > The worst time to join a company is when they say they are
| working on a funding round.
|
| If the company is doing well, this can be the best time,
| because your stock will immediately appreciate significantly.
| b20000 wrote:
| 1) you need people and money for success. you need to spend on
| marketing or customers won't know about your product. in my
| experience investors expect products to find adaption in some
| free/magic/viral way if they are any good. of course that is a
| simplification.
| gsibble wrote:
| This isn't good for startups being able to hire and retain
| talent. Engineering compensation, especially for those with
| experience, has increased significantly over the last 2 years and
| smaller rounds at lower valuations will make it increasingly
| difficult for startups to retain talent when they can make 2-4x
| as much at a large public company that can afford them.
|
| Shame.
| tschellenbach wrote:
| The value added by employees at larger companies is also taking
| a major hit due to the lower revenue multiples.
| artemonster wrote:
| Yeah I mean how can most (and even billion dollar valued!)
| startups forever bleed money and need to raise Series XYZ. As if
| this whole startup scene is just like the pyramid, but with extra
| steps
| Ekaros wrote:
| I have long wondered about so when and how are you going to
| make money? And do you really think that there is no
| competition or new entrants in the market? Be it food delivery,
| taxi services or streaming... Or social networks...
|
| If the big names are kinda messy looking, how well are smaller
| ones?
| orzig wrote:
| Let's get concrete: Q1'22 had 8.8k deals[0], which is 19% lower
| than last quarter.
|
| >> How many deals do you think they will report for Q2'22? <<
|
| I'll start, disclaiming that I have no domain or specific
| knowledge: 7.5k
|
| [0]https://www.cbinsights.com/research/report/venture-
| trends-q1...
| smilliken wrote:
| There's reporting bias, where some deals are only
| disclosed/discovered later.
| aliswe wrote:
| Do quarters vary, I mean maybe it's better to compare YoY?
| jacquesm wrote:
| Yes, they do. Q1: 30%, Q2: 20%, Q3: 20%, Q4: 30%
|
| This is my internal stat over the last 15 years or so (since
| 2007), there have been a few exceptional years but overall it
| seems to hold. Q4 and Q1 of the year following usually have a
| lot of post holiday season deal making that then results in
| deals being inked either still in Q4 or in the first three
| months of the new year, then things slow down a bit while all
| the new portfolio companies are integrated and then the
| holiday season starts. So come September everybody is back in
| the traces and ready for a new batch.
| Kye wrote:
| Makes me glad the platform I use for fundraising and
| subscriptions (Ko-fi) doesn't depend on VC. They're a bit slower
| than a VC-dependent company on shipping features, but I've seen
| the other side of that as a former long-time user of Patreon
| watching it not change in any good way for over half a decade
| while improvements and vital missing functionality are a
| perpetual "maybe." A real Tortoise v. Hare situation.
| jacquesm wrote:
| Interesting. Maybe my customers are in a different market than
| where this was based on but I haven't seen a slowdown, either in
| deal volume or in the size of the individual deals. Bumper Q1 in
| fact and Q2 looks quite strong so far. Obviously the war in
| Ukraine has a lot of people worried and I have seen some
| immediate impact of this in some of the start-ups I looked at
| (because they either had a development or a support department in
| Ukraine) but for the most part it looks as long as the war does
| not escalate further or draws in other European territories that
| the impact on the start-up/VC scene will be limited.
|
| What I do still see is a reluctance to invest in the
| hospitality/travel industry which used to make up a fair
| percentage of the investments. Most likely this is still an
| effect of the ongoing pandemic. This money seems to have shifted
| mostly towards fintech where the number of deals is up and so are
| the valuations.
|
| What's with all the self quotes by the way? It doesn't really add
| much credibility if you are quoting yourself to make the point
| you are making, that doesn't add evidence, it just creates a
| circle.
| gigaflop wrote:
| The self-quotes really threw me off once I realized they were
| self-quotes. Most of them seem like self-comments, which would
| feel better if added as some sort of sidebar instead of
| interrupting the content.
| oh_sigh wrote:
| Agree. I see it a lot recently where people embed their own
| tweets into articles they write. And often they don't even
| directly refer to the tweet in the main text - it is more of
| a weird mini summary of a few paragraphs of text just placed
| in there. Why? Is it in hopes readers will click through to
| twitter and follow the author?
| petra wrote:
| What technology sectors will likely experience a bear market ?
| And what will continue to get solid investments from VC's ?
| nobodyandproud wrote:
| Does this provide more opportunity (and risk) for the equities
| market in the earlier phases of a promising business?
|
| Rather than just being a place for successful early ventures to
| cash out?
| ryanSrich wrote:
| If you can get to solid growth and PMF in the pre-seed and seed
| round, you're better off taking $20m-$50m in an acquisition
| than trying for a series A. Reason for this is that once you
| raise a Series A, you're pretty much on the highway to hell
| (billion dollar valuation) or bust. There isn't much room in
| the middle for investors in the B+ rounds. They want companies
| that are going to be massive.
| davidkuennen wrote:
| Having bootstrapped my own app I can't fathom how some other apps
| with millions of VC money will every turn a profit.
|
| My app provides me a nice income, but it's far from anything able
| sustaining teams of dozens of people. And I'm pretty sure
| throwing money on ads wouldn't change that.
| dboreham wrote:
| You are looking at the darts that didn't hit the bullseye, or
| fell on the floor.
| seibelj wrote:
| You are thinking small and that's fine. It is wonderful to
| bootstrap an app and make income. However some ideas are much
| larger and need a big team and years of effort before the big
| payoff.
| scarface74 wrote:
| And then only 10% "payoff" for the investors, even fewer
| payoff for the employees.
| nradov wrote:
| Venture capital as an aggregate investment class might only
| generate returns in the 10% range, but no VC would invest
| in an individual deal with such a low expected return. For
| early stage A-round deals they're targeting something like
| a 1000% return, and then those targets decline somewhat for
| later rounds.
| scarface74 wrote:
| Which is fine for the VC. They are well diversified. It
| sucks for employees.
| nradov wrote:
| How does it suck for employees? They still get paid. Any
| stock options or grants are essentially a lottery ticket.
| Anyone taking a job offer expecting to get rich on that
| basis is a fool.
| scarface74 wrote:
| Private companies usually pay less in tech in cash than
| public companies cash+RSUs. Even in the current brutal
| stock market environment, at least your RSUs are
| guaranteed to be worth _something_ and you can diversify
| when you vest.
| TheRealNGenius wrote:
| don't know why you're being downvoted. You just presented
| objectively true facts.
| adventured wrote:
| I didn't downvote, but I'm fairly certain the downvotes
| come from the "you're thinking small" part - it comes
| across as condescending, even if it wasn't meant that way.
| If the parent chopped off the first sentence it would
| dramatically change the perceived tone toward a neutral to
| positive one. That is, the first sentence is largely
| unnecessary (it adds nothing other than the risk of people
| taking it quite negatively).
|
| Like so:
|
| It is wonderful to bootstrap an app and make income.
| However some ideas are much larger and need a big team and
| years of effort before the big payoff.
| jasfi wrote:
| Wouldn't more money allow you to spend more on marketing and
| sales, which in theory could drive more profit? I think that's
| part of the bet.
| astura wrote:
| A lot of these VC funded marketing efforts end up being
| selling dollars for 75 cents. Sure, it might get you tons of
| growth but that that is really difficult to translate to
| profit.
| papito wrote:
| Your app is making money? That's very nice. But have you tried
| selling the PROMISE of more moneys sometime in the future? Lots
| and lots of moneys. Just say things like "We are trying to
| elevate the world's consciousness" and "community-based EBITA!"
| davidkuennen wrote:
| Sounds a lot like crypto to me.
| math-dev wrote:
| Silicon Valley was a great show
| tchock23 wrote:
| Those quotes came from Wecrashed about WeWork.
| nkingsy wrote:
| They're from wework's own s1.
| colesantiago wrote:
| Is this supposed to be relatable to us developers employed at
| these tech companies propped up by VC money?
|
| Maybe it's just me as I'm just a developer in europe, but I don't
| get the VC world at all.
| draw_down wrote:
| andreimackenzie wrote:
| Honest and collaborative companies will be as open as they can
| about their cash burn rate and prospects for more funding. If
| this aspect of the business is not done well, it can have
| pretty sudden and unpleasant consequences for the folks doing
| the work on the front lines. As a dev, you might feel like you
| are building a something awesome one month, and the company
| suddenly has no cash left to pay anyone the next.
|
| My experience in the US is that companies can cut it pretty
| close between funding rounds - just a few months, and those
| moments can be nerve-wracking if you like what you're doing.
| j4yav wrote:
| As an example, if you are looking for a job and trying to pick
| a stable company, understanding some of these dynamics could
| help. But I don't think it's essential for everyone to
| understand it or anything.
| atanasovskib wrote:
| I guess for now you shouldn't worry unless you plan to join/co-
| found an extra-early stage startup
| twofornone wrote:
| My reading is that VC backed jobs/salaries are going to become
| somewhat less secure if this trend continues/accelerates, but
| it's probably a little early for devs to feel the impact. Might
| influence job searching as startups become higher risk.
| dustingetz wrote:
| How exactly does the fed funds rate flow through categories of
| financial entities that end up inflating growth equities and
| therefore VC returns? I understand the total cash in the system
| is vaguely leveraged/multiplied by borrowing, but this borrowed
| money flows through which parties specifically and how do these
| vaguely spoken of economic forces actually interact?
| csomar wrote:
| I don't think even the Fed knows that. They are really playing
| with different instruments and seeing there effect on the
| economy. They have no idea how money flows and propagates. (see
| how high inflation surprised them).
| electric_muse wrote:
| VCs love to tell everyone the market is moving in their favor
| (lower valuations, fewer deals, etc). It's like car salespeople
| telling you this car won't last long.
|
| Some of it may indeed be true, but it's in their favor to give
| founders anxiety. It's a negotiating tactic, not a public service
| announcement.
| mritchie712 wrote:
| Take it for what its worth from a random internet stranger, but
| Matt is a good dude. I'm a founder and I wouldn't change any of
| the advice he's laid out here.
| daveed wrote:
| I don't really agree with this, with what I've seen. Or maybe
| we're just interpreting tea leaves differently. I think in a
| lot of cases, "market is moving in their favor" is not lower
| valuations, but higher valuations in the verticals that the VC
| is themselves investing in. Some of that might be signalling
| for later-stage VCs to invest at later rounds. But I think,
| other than the onset of Covid, and the last 6 months, I haven't
| seen an overly negative messaging. It might be true that the
| immediates (lower valuations) benefit them, but the long-term
| (no later-stage funding) is not in their favor.
| electric_muse wrote:
| That's a great nuance. I was referring to it being in their
| favor for dealmaking.
|
| Here's another one from 1 month ago:
| https://www.linkedin.com/posts/darian314_founders-
| activity-6...
| tehlike wrote:
| I read this in a more friendlier way...
| slap_shot wrote:
| > But I think, other than the onset of Covid, and the last 6
| months, I haven't seen an overly negative messaging.
|
| But that is exactly when they could and did do the messaging
| - if you were out there saying VC is drying up from July 2020
| to December 2021 you would have looked like a moron; but the
| negative messaging was very apparent the months prior and
| after that window.
|
| It is absolutely in investors interests to paint a narrative
| of economic downturn - they are bidding to buy something, and
| they want to buy it at the best price they do so.
|
| I'm not saying that is unscrupulous - that's how dealmaking
| works, but it is very real.
| boringg wrote:
| I mean the comparison to car salespeople is a bit harsh but
| yeah anyone who is dealmaking plays some kind of games to
| varying degrees.
|
| There is a broader narrative that they are trying to point to
| that is LP money isn't showing up in the same way now that
| there are other opportunities to generate returns in the macro
| market. Combine that with geopolitical risks and public tech
| companies valuations getting crushed - the market isn't as
| plush as it was say 3-6 months ago. Also - look at SPACs -
| complete collapse of that market.
|
| He's saying what any reasonable market watcher would say: the
| market is in a very turbulent time - very rich deal flow and
| easy money from 2021 is not what you will find in 2022 in the
| current environment.
|
| Whether you believe him or not - that's your prerogative. I
| have found many founders to be mostly unaware of macroeconomic
| and/or the fundraising market conditions until they need to get
| money (not a slight but rather they need to focus their time
| elsewhere). This is a PSA to those people who need a bit of a
| heads up - SPAC dead, fundraising is slowing down dramatically,
| IPO market crickets). Hopefully it changes soon as we get some
| indicators we are back in a bull market and valuations get a
| reset to a more reasonable range.
| electric_muse wrote:
| You're right -- it's a bit harsh. I've been on both sides of
| the investment committee meetings. As a result of that, I've
| seen (and delivered) this messaging before.
|
| Matt's an excellent investor and someone I respect and trust.
| So are the other investors putting up orange flags for their
| portfolio. It's smart to be prepared early.
|
| But it always seems like investors get giddy with excitement
| about saying the "sky is falling" and things are about to
| become far less founder-friendly. This tends to cause a lot
| of unnecessary panic within the entrepreneur community,
| especially new founders. And I've seen people make decisions
| that contribute to manifesting the very situation they're
| scared of.
|
| I've checked in with a handful of friends with their own
| funds recently. Most seem to take a cooler tone: deals are
| still flowing. Things may be slightly adjusted, they admit.
| Low-quality businesses aren't getting as much attention. But
| the world is still spinning. And it doesn't sound as bad as
| one might assume reading this article.
|
| And some interesting dynamics are playing out that are
| founder-friendly: cash-rich funds from the later stages are
| coming down earlier. They're competing for the same deals as
| smaller funds, but they're much less price sensitive. Matt
| Turck called this out directly. I've directly seen recent
| deals where this happened. It's kind of breaking the model
| for some early-stage funds, who need to get their main
| ownership chunk early and don't have as much capital to
| follow-on later. They just can't compete with these check
| sizes and valuations.
|
| So it's also making it a lot harder for investors right now,
| too.
| boringg wrote:
| That's a fair assessment and there are a lot of different
| impacts to be aware of. Like you said founders who are
| hypersensitive and might over react probably need a
| slightly less responsive response to VC. Tough power
| dynamic though so I get why founders would react.
|
| The cash-rich funds are coming in as there aren't good
| looking exits at this point due to the inflated valuations
| / overall market conditions. Might be helpful for founders
| for sure. Curious how this will impact the broader
| community and how that will play out on their actual fund
| returns. Definitely puts the squeeze on smaller seed /
| angel investors
| mattturck wrote:
| Thanks both for a thoughtful discussion.
|
| Just one important nuance -- VCs like me who come in
| early and stay with portfolio companies for 5-10 years
| are both on the "buy" and "sell" side of the market.
|
| So yes, a slower VC funding environment does impact
| valuations favorably for VCs, _for net new investments_
| (the "buy" side), so I'm talking my book to some extent.
|
| BUT net new investments is only a part of the job (<50%
| for sure) for a VC like me. Most of my time is spent
| working with my existing portfolio (sitting on boards,
| etc). And a harsher environment is bad news for my
| existing portfolio (and/or anyone's portfolio), and me
| (and/or investors like me) as a result. Like a lot of
| VCs, I've looked like a "genius" for the last couple of
| years as many of my investments became unicorns, with
| huge paper markups. Now it's likely that the pace of
| markups is going to slow down significantly. Perhaps
| we're entering a world of flat valuations - or even
| downrounds? No markups is not a good look for VCs - makes
| it harder to raise the next funds, etc.
|
| So yes, in the long term, it's good for VCs if we're able
| to invest in (the right) companies in the 2022-2023
| cohort at lower valuations. But that will take 8-10 years
| to manifest into concrete results, by the time those
| companies become very big. In the meantime, VCs won't
| have a lot of fun navigating a flat round/downround
| environment (if it does indeed materialize) with their
| existing portfolio.
| electric_muse wrote:
| Great points! Thanks for hopping in and adding extra
| color.
|
| Navigating a whole portfolio through a flat/down
| environment sounds incredibly stressful.
|
| If the driver of these changing environments is
| predominantly investor perception, public early warnings
| seem like they would accelerate or exacerbate them.
|
| For example, if you publicly announce you're expecting
| flat or down rounds (and similarly lowering your offers
| on new deals), it's almost like applying downwards price
| fixing pressure. The next investor in your businesses
| feels they can also offer less without losing the deal.
| In this way, the warning manifests the crisis.
|
| To protect the portfolio valuations, it would then seem
| strategic to prepare and react in private. But public
| warnings seem more strategic towards lowering valuations
| of new deals.
|
| That's why I'm naturally skeptical about the motivation
| for signaling.
| mupuff1234 wrote:
| As a bystander not viewing this through SV lens, I do somewhat
| hope that the VC bubble bursts (although I 100% feel bad for low
| level employees that will suffer).
|
| Looking at the market during 20-21 it seemed like it was acting
| in ways that, at least to me, feel like market
| manipulation/fraud/pyramid scheme (see SPACs). Companies that
| barely even had a product were "valued" at billions - it just
| doesn't make sense.
|
| Also, the author seems to lack any type of real self reflection
| about the VC industry or the current state of affairs.
| version_five wrote:
| When / if the bubble bursts, it will be as bad or worse than
| the dotcom and subprime bubbles. Tech and vc is not an
| insulated think like maybe it once was, it's the current
| equivalent of the 80s junk bonds, it's a ponzi scheme that
| could unravel hard. That will be really bad for a lot of
| people.
|
| I added the "if" because I'm not convinced it will play out
| that way because we're in some weird post-capitalist mode now
| where money is infinite. I think we're more likely to just slip
| further into sort of neo-feudilism where there is always VC
| money to reward the right kinds of people and behaviors and the
| actual business matters even less. I don't know if that's
| better than a big collapse, I just think that's what will
| happen
| BeFlatXIII wrote:
| Full collapse ahead, let's go go go!
| mupuff1234 wrote:
| I'm not sure I see it.
|
| Yes, it will hurt a few thousands currently working in
| overvalued growth startups, but profitable companies will
| continue to chug along just fine as they have hoards of cash
| and very low debt.
|
| Basically a return to a state where a "Unicorn startup" is
| actually somewhat rare.
| version_five wrote:
| My view is based on the amount of notional money that
| exists due to the high valuations. Once that disappears,
| it's going to trigger a much bigger collapse, same as the
| mortgages did. It's not about the employees that are
| directly involved (though they will be hurt too), it's the
| relationship with the whole financial system.
| tomatocracy wrote:
| Mortgages were a large part of the credit bubble prior to
| 2008, but very far from the only part. It also extended
| to consumer credit, leveraged loans, bank and insurer
| funding, more or less every credit market. And mortgages
| are and were a much larger part of the economy too than
| VC is now. This isn't to say VC hasn't experienced a
| bubble over the past few years or that there won't be a
| broader downturn, just that I'm pretty sure VC won't be
| something which causes contagion like that.
| boringg wrote:
| I disagree I can't see this taking down the whole
| financial system. Is VC way more intertwined in the whole
| financial community? Yes - however a lot of LP money can
| take a cut to their returns and still be fine.
| Endowments/sovereign funds/oligarchs not getting > 5-15%
| a year isn't a country wide economic crisis. Also for
| VC's/start ups to unwind can be much more controlled
| compared to say mortgage backed securities. Timelines
| vary and are opaque to the investment community. It would
| be an unwind compared to a collapse _if it even went
| there_
| Kye wrote:
| Possible scenario: tech crash->rent price crash in
| overheated markets->all the national and international
| firms that bought up all the houses to rent them out
| crash. It just depends on how much those firms depend on
| markets that depend on tech/finance money to cover their
| loan, tax, insurance, etc payments. All it takes is a few
| to try and dump their stock of houses and apartments to
| pay bills.
| tschellenbach wrote:
| Just to be clear, it's not just VC. This high valuation bubble
| applies to all companies, including public ones.
| adventured wrote:
| A lot of the high valuation / high multiple stocks from the
| latest bubble have already cratered.
|
| Snowflake has gone from $405 to $171.
|
| Zoom has gone from $406 to $99.
|
| Shopify has gone from $1762 to $426.
|
| Unity has gone from $210 to $66.
|
| Square has gone from $289 to $99.
|
| Roblox has gone from $141 to $30.
|
| Coinbase has gone from $368 to $112.
|
| Robinhood has gone from $85 (really $50-$60 stable) to $10.
|
| Rivian has gone from $179 to $30.
|
| Twilio has gone from $412 to $111.
|
| DocuSign has gone from $314 to $88.
|
| Etsy has gone from $307 to $92.
|
| Pinterest has gone from $81 to $20.
|
| Roku has gone from $490 to $92.
|
| Beyond Meat has gone from $160 to $36.
|
| Peloton has gone from $129 to $17.
|
| Draft Kings has gone from $64 to $13.
|
| Teladoc has gone from $174 to $33.
|
| Virgin Galactic has gone from $57 to $7.
|
| Palantir has gone from $29 to $10.
|
| DoorDash has gone from $257 to $74.
|
| Cloudflare has gone from $221 to $86.
|
| Fastly has gone from $66 to $15.
|
| DigitalOcean has gone from $133 to $39.
|
| UiPath has gone from $90 to $17.
|
| Asana has gone from $145 to $26.
|
| Atlassian has gone from $483 to $224.
|
| Okta has gone from $276 to $119.
|
| And so on.
|
| This is a massive ongoing collapse and it's holding (we're
| 5-6 months into the persistent decline), there is no rebound
| occurring.
|
| The bubble is over (and has been for a while now). It makes
| sense there would be a sizable VC pullback from the public
| market crash that is happening to the more bubbly (and less
| profitable) companies.
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