Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The great VC pullback of 2022

mattturck.com

Post reply on HN
Print view View original

41–50 of 110 posts

Re: The great VC pullback of 2022

#41

Post by version_five »

mupuff1234 wrote: post #38
version_five wrote: post #37

Earlier quoted context omitted.

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.

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.

Re: The great VC pullback of 2022

#42

Post by mritchie712 »

lumost wrote: post #39
mritchie712 wrote: post #35

Earlier quoted context omitted.

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…

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.

Re: The great VC pullback of 2022

#43

Post by boringg »

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.

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.

Re: The great VC pullback of 2022

#44

Post by boringg »

version_five wrote: post #41
mupuff1234 wrote: post #38

Earlier quoted context omitted.

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.

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.

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

Re: The great VC pullback of 2022

#45

Post by astura »

jasfi wrote: post #29
davidkuennen wrote: post #12

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.

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.

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.

Re: The great VC pullback of 2022

#46

Post by spamizbad »

weatherlite wrote: post #40
imjk wrote: post #24

Earlier quoted context omitted.

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.

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.

Re: The great VC pullback of 2022

#47

Post by electric_muse »

boringg wrote: post #43
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.

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 - t…

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.

Re: The great VC pullback of 2022

#48

Post by shock-value »

spamizbad wrote: post #46
weatherlite wrote: post #40

Earlier quoted context omitted.

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

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.

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.

Re: The great VC pullback of 2022

#49

Post by gralx »

rdtwo wrote: post #26
imjk wrote: post #24

Earlier quoted context omitted.

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.

Yeah the idea is to burn labors and wages to the ground and finish off get middle class.

That's certainly an idea.

Re: The great VC pullback of 2022

#50

Post by gsibble »

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.

Post reply on HN