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The great VC pullback of 2022

mattturck.com

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Re: The great VC pullback of 2022

#61

Post by Kye »

boringg wrote: post #44
version_five wrote: post #41

Earlier quoted context omitted.

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.…

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.

Re: The great VC pullback of 2022

#62

Post by mvkel »

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…

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.

Re: The great VC pullback of 2022

#63

Post by slap_shot »

daveed wrote: post #16
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 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…

> 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.

Re: The great VC pullback of 2022

#64

Post by pbiggar »

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).

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.

Re: The great VC pullback of 2022

#65

Post by scarface74 »

nradov wrote: post #33
scarface74 wrote: post #23

Earlier quoted context omitted.

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.

Which is fine for the VC. They are well diversified. It sucks for employees.

Re: The great VC pullback of 2022

#67

Post by Animats »

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

Re: The great VC pullback of 2022

#68

Post by nradov »

scarface74 wrote: post #65
nradov wrote: post #33

Earlier quoted context omitted.

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.

Which is fine for the VC. They are well diversified. It sucks for employees.

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.

Re: The great VC pullback of 2022

#69

Post by Ekaros »

artemonster wrote: post #6

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

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?

Re: The great VC pullback of 2022

#70

Post by lumost »

mvkel wrote: post #62
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…

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.

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.

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