11 ms·

The great VC pullback of 2022

223 points by imartin2k 5y ago

artemonster 5y ago
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 5y ago
  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?
  - artemonster 4y ago
    Sorry I dont get your point
weatherlite 5y ago
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 5y ago
  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 5y ago
    Yeah the idea is to burn labors and wages to the ground and finish off get middle class.
    - gralx 5y ago
      That's certainly an idea.
    - gsibble 5y ago
      Certainly seems to be what they are trying to do.
  - weatherlite 5y ago
    Agreed. The question is how bad the effect will be, no way to foresee it.
    - spamizbad 5y ago
      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 5y ago
        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 5y ago
        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.
colesantiago 5y ago
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 5y ago
- j4yav 5y ago
  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 5y ago
  I guess for now you shouldn't worry unless you plan to join/co-found an extra-early stage startup
- twofornone 5y ago
  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.
- andreimackenzie 5y ago
  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.
jacquesm 5y ago
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 5y ago
  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 5y ago
    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?
electric_muse 5y ago
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.
- daveed 5y ago
  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 5y ago
    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-6914350025728819200-OWLB https://www.linkedin.com/posts/darian314_founders-activity-6...
    - tehlike 5y ago
      I read this in a more friendlier way...
  - slap_shot 5y ago
    > 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.
orzig 5y ago
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-q1-2022 https://www.cbinsights.com/research/report/venture-trends-q1...
- aliswe 5y ago
  Do quarters vary, I mean maybe it's better to compare YoY?
  - jacquesm 5y ago
    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.
- smilliken 5y ago
  There's reporting bias, where some deals are only disclosed/discovered later.
davidkuennen 5y ago
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.
- papito 5y ago
  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!"
  - math-dev 5y ago
    Silicon Valley was a great show
    - tchock23 5y ago
      Those quotes came from Wecrashed about WeWork.
      - nkingsy 5y ago
        They’re from wework’s own s1.
      - math-dev 4y ago
        Wow!
      - papito 4y ago
        I actually read Billion Dollar Loser this year, and the show is dead on. The book has more WTF moments in it, but the show's S-1 fiasco was juicer, if I remember correctly.
  - davidkuennen 5y ago
    Sounds a lot like crypto to me.
dustingetz 5y ago
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 5y ago
  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).
- __derek__ 4y ago
  Minimal impact (probably). Most money in VC has an extremely long duration (e.g., pensions, endowments), so investing it in ultra-short-term assets is not a desirable option. Low long-term rates have a bigger impact, but that's a chicken-and-egg problem: the amount of institutional money seeking long-term returns exceeds the amount of safe assets, putting downward pressure on yields and pushing institutional money into riskier assets. This safe asset shortage is unrelated to the Federal Funds Rate on overnight lending.
lumost 5y ago
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 5y ago
  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).
  - lumost 5y ago
    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.
mupuff1234 5y ago
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 5y ago
  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
  - mupuff1234 5y ago
    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 5y ago
      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.
gsibble 5y ago
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 5y ago
  The value added by employees at larger companies is also taking a major hit due to the lower revenue multiples.
Kye 5y ago
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.
petra 5y ago
What technology sectors will likely experience a bear market ? And what will continue to get solid investments from VC's ?
nobodyandproud 5y ago
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 5y ago
  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.
dekhn 5y ago
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 5y ago
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 https://articles.sequoiacap.com/rip-good-times
- ardit33 5y ago
  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.
Animats 5y ago
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 https://www.ycombinator.com/companies?batch=W22
- umeshunni 5y ago
  You can also say the same about any batch: https://www.ycombinator.com/companies?batch=W12 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
  - Animats 5y ago
    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.
softwaredoug 5y ago
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?
- rib3ye 5y ago
  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.
pedalpete 5y ago
Does anybody have thoughts/insights on how this is affecting the Angel pre-seed community?

223 points by imartin2k 5y ago

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 5y ago
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?
- artemonster 4y ago
  Sorry I dont get your point

weatherlite 5y ago

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 5y ago
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 5y ago
  Yeah the idea is to burn labors and wages to the ground and finish off get middle class.
  - gralx 5y ago
    That's certainly an idea.
  - gsibble 5y ago
    Certainly seems to be what they are trying to do.
- weatherlite 5y ago
  Agreed. The question is how bad the effect will be, no way to foresee it.
  - spamizbad 5y ago
    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 5y ago
      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 5y ago
        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.

colesantiago 5y ago

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 5y ago
j4yav 5y ago
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 5y ago
I guess for now you shouldn't worry unless you plan to join/co-found an extra-early stage startup
twofornone 5y ago
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.
andreimackenzie 5y ago
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.

jacquesm 5y ago

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 5y ago
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 5y ago
  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?

electric_muse 5y ago

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.

daveed 5y ago
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 5y ago
  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-6914350025728819200-OWLB https://www.linkedin.com/posts/darian314_founders-activity-6...
  - tehlike 5y ago
    I read this in a more friendlier way...
- slap_shot 5y ago
  > 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.

orzig 5y ago

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-q1-2022 https://www.cbinsights.com/research/report/venture-trends-q1...

aliswe 5y ago
Do quarters vary, I mean maybe it's better to compare YoY?
- jacquesm 5y ago
  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.
smilliken 5y ago
There's reporting bias, where some deals are only disclosed/discovered later.

davidkuennen 5y ago

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.

papito 5y ago
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!"
- math-dev 5y ago
  Silicon Valley was a great show
  - tchock23 5y ago
    Those quotes came from Wecrashed about WeWork.
    - nkingsy 5y ago
      They’re from wework’s own s1.
    - math-dev 4y ago
      Wow!
    - papito 4y ago
      I actually read Billion Dollar Loser this year, and the show is dead on. The book has more WTF moments in it, but the show's S-1 fiasco was juicer, if I remember correctly.
- davidkuennen 5y ago
  Sounds a lot like crypto to me.

dustingetz 5y ago

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 5y ago
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).
__derek__ 4y ago
Minimal impact (probably). Most money in VC has an extremely long duration (e.g., pensions, endowments), so investing it in ultra-short-term assets is not a desirable option. Low long-term rates have a bigger impact, but that's a chicken-and-egg problem: the amount of institutional money seeking long-term returns exceeds the amount of safe assets, putting downward pressure on yields and pushing institutional money into riskier assets. This safe asset shortage is unrelated to the Federal Funds Rate on overnight lending.

lumost 5y ago

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 5y ago
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).
- lumost 5y ago
  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.

mupuff1234 5y ago

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 5y ago
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
- mupuff1234 5y ago
  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 5y ago
    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.

gsibble 5y ago

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 5y ago
The value added by employees at larger companies is also taking a major hit due to the lower revenue multiples.

Kye 5y ago

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.

petra 5y ago

What technology sectors will likely experience a bear market ? And what will continue to get solid investments from VC's ?

nobodyandproud 5y ago

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 5y ago
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.

dekhn 5y ago

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 5y ago

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 https://articles.sequoiacap.com/rip-good-times

ardit33 5y ago
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.

Animats 5y ago

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 https://www.ycombinator.com/companies?batch=W22

umeshunni 5y ago
You can also say the same about any batch: https://www.ycombinator.com/companies?batch=W12 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
- Animats 5y ago
  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.

softwaredoug 5y ago

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?

rib3ye 5y ago
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.

pedalpete 5y ago

Does anybody have thoughts/insights on how this is affecting the Angel pre-seed community?