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The great VC pullback of 2022

mattturck.com

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Re: The great VC pullback of 2022

#91

Post by electric_muse »

mattturck wrote: post #72
boringg wrote: post #58

Earlier quoted context omitted.

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…

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 ( So…

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.

Re: The great VC pullback of 2022

#92

Post by ardit33 »

cubes wrote: post #66

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

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.

Re: The great VC pullback of 2022

#93

Post by abirch »

oarabbus_ wrote: post #86
abirch wrote: post #74

Earlier quoted context omitted.

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.

>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?

Are you discussing internal projects because Facebook, Amazon, Apple, and Google have been profitable for a while. Netflix lost growth and was crushed.

Re: The great VC pullback of 2022

#94

Post by oh_sigh »

gigaflop wrote: post #19
jacquesm wrote: post #7

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 supp…

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.

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?

Re: The great VC pullback of 2022

#95

Post by treis »

pan69 wrote: post #82
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…

> 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?

Because a 1% chance of turning the company around is better than a guaranteed slow bleed to insolvency.

Re: The great VC pullback of 2022

#96

Post by outside1234 »

abirch wrote: post #93
oarabbus_ wrote: post #86

Earlier quoted context omitted.

>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?

Are you discussing internal projects because Facebook, Amazon, Apple, and Google have been profitable for a while. Netflix lost growth and was crushed.

Nit: Netflix had negative growth and an outlook for a lot more negative growth.

Re: The great VC pullback of 2022

#97

Post by Animats »

umeshunni wrote: post #80
Animats wrote: post #67

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…

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

Those things were newer then. By now, most of the easy and highly profitable things you can start doing for $500K have been tried.

The Web opened up a big range of possibilities. Most of them have been done. Smartphones opened up more. Most of them have been done. These little startups mostly rode on the coattails of the previous New Big Thing.

But there is no current New Big Thing ecosystem. The last four or so attempts have flopped.

Now, there are big expensive things to do. Electric car manufacturing. Rare earth mining. Wind farms. Vaccine development. Wafer fabs. But those all have a big price of entry and established entrants.

Re: The great VC pullback of 2022

#98

Post by flyinglizard »

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.

Startups usually don’t leverage their valuations (unlike real estate etc) and don’t do significant debt raising, so other than a few banks margin calling high flying founders who took personal loans against equity, the notional hit shouldn’t have much ripple effects.

Re: The great VC pullback of 2022

#99

Post by abraxas »

adventured wrote: post #88
tschellenbach wrote: post #75

Earlier quoted context omitted.

Just to be clear, it's not just VC. This high valuation bubble applies to all companies, including public ones.

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 fr…

How these prices reached those levels without anyone batting an eyelash a mere 20 years after the last dotcom bust is beyond belief. It's never "different this time", folks.

Re: The great VC pullback of 2022

#100

Post by j_not_j »

adventured wrote: post #88
tschellenbach wrote: post #75

Earlier quoted context omitted.

Just to be clear, it's not just VC. This high valuation bubble applies to all companies, including public ones.

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 fr…

So they are on sale? Time to buy?

/s

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