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The great VC pullback of 2022

mattturck.com

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Re: The great VC pullback of 2022

#31

Post by mupuff1234 »

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.

Re: The great VC pullback of 2022

#32

Post by smilliken »

orzig wrote: post #11

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...

There's reporting bias, where some deals are only disclosed/discovered later.

Re: The great VC pullback of 2022

#33

Post by nradov »

scarface74 wrote: post #23
seibelj wrote: post #17

Earlier quoted context omitted.

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.

And then only 10% “payoff” for the investors, even fewer payoff for the employees.

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.

Re: The great VC pullback of 2022

#34

Post by andreimackenzie »

colesantiago wrote: post #2

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.

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.

Re: The great VC pullback of 2022

#35

Post by mritchie712 »

lumost wrote: post #27

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 ba…

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).

Re: The great VC pullback of 2022

#36

Post by mritchie712 »

electric_muse wrote: post #10

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.

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.

Re: The great VC pullback of 2022

#37

Post by version_five »

mupuff1234 wrote: post #31

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. Al…

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

Re: The great VC pullback of 2022

#38

Post by mupuff1234 »

version_five wrote: post #37
mupuff1234 wrote: post #31

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. Al…

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 w…

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.

Re: The great VC pullback of 2022

#39

Post by lumost »

mritchie712 wrote: post #35
lumost wrote: post #27

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 ba…

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).

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.

Re: The great VC pullback of 2022

#40

Post by weatherlite »

imjk wrote: post #24
weatherlite wrote: post #5

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.

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.

Agreed. The question is how bad the effect will be, no way to foresee it.
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