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Many VCs have stopped investing this year

186 points by ZeljkoS 3y ago

TomK32 3y ago
More like: After a two-year spike in the number of active investors in US VC it returns to 2020 levels.
- magicalhippo 3y ago
  I see this in other reporting as well. "Massive drop in X" or similar, when reality is it's returning to pre-Covid levels. Almost like journalists collectively forgot how the world was before Covid.
  - j4yav 3y ago
    To be fair to the journalist who wrote the linked article, they showed the spike and years previous to covid.
  - c048 3y ago
    Outrage sells. While some might include pre-covid statistics, the vast majority won't.
    - zztop44 3y ago
      Yet this one does.
  - passwordoops 3y ago
    I think it's less about journalists being sensational and more the nature of business reporting (in the journalistic and financial sense) that everything must be compared quarter-to-quarter or year-to-year
  - robertlagrant 3y ago
    > I see this in other reporting as well. "Massive drop in X" or similar, when reality is it's returning to pre-Covid levels. Should it not be reported on, when the rise was reported on? It is a massive, newsworthy, drop and one of the side-effects of Covid wasn't "may increase dealmaking", so it shouldn't be assumed to recede alonside Covid.
    - magicalhippo 3y ago
      Feel it's more about how the stories are angled. So often it seems phrased like things during Covid was the norm, rather than things returning to normal.
    - _heimdall 3y ago
      One of the side effects of printing $4T+ in new money is an increase in dealmaking. Most of the new money was poured into the top of the system and it had to go some where, investors threw much of it towards the tech industry as it seemed they could at least keep working and where potentially building businesses that would boom during such a massive a pandemic response. The recent drop in dealmaking is important and newsworthy. I think the point being made above was simply that reporting seems to ignore the context of how this year's investing compares to 2019 before the massive influx of inflationary cash rolled in.
  - TomK32 3y ago
    Thus the interesting question a journalist should research would be: Why did spike during the Covid years happen?
    - shortrounddev2 3y ago
      Federal reserve
  - _heimdall 3y ago
    > Almost like journalists collectively forgot how the world was before Covid. Well that tracks, journalists also seem to have collectively forgotten what the world was like during Covid too. Most journalism today is way too focused on what's right in front of them that can give the most sensationalist headlines. Context doesn't really matter when its all about clicks and engagement.
    - sigmoid10 3y ago
      Well, the fact that this stuff still makes it to the front page of hacker news and generates this very discussion right here proves them right. After all, media is not about providing information. It's a business to generate income by grabbing your attention.
      - throwaway0665 3y ago
        Especially when it's a blog post by the marketing team of a private company
      - jollofricepeas 3y ago
        This. I agree. The HN community largely likes to criticize media but fundamentally they don’t understand it. “The media is a business to generate income by grabbing attention” This has always been true. Media has been sensationalist since it first started as word of mouth being spread by sailors and politicized as directed by government and business interests. Once adopted by business interests, it has been forced to reach as many eyeballs as possible in order to be profitable. Read the histories of journalism, Pulitzer, Hearst, the Spanish American War and other examples. Freedom of the press is the most important thing and libel /defamation laws are what’s important. https://en.m.wikipedia.org/wiki/History_of_journalism https://en.m.wikipedia.org/wiki/History_of_journalism https://en.m.wikipedia.org/wiki/Yellow_journalism https://en.m.wikipedia.org/wiki/Yellow_journalism
        _heimdall 3y ago
        This situation is media is nothing new, but its drastically amplified by digital media platforms. When journalists could spent weeks or months on a major piece and publish it in a newspaper they didn't have constant, immediate feedback. At best they could look at paper sales and industry recognition. Today journalists see very quickly what lands and what doesn't. They can even A/B test headlines to game attention. The shorter feedback loop can also easily lead to a focus on what one can publish today to get shares and likes, losing much of the integrity that may likely have been on the table when the work stands on its own and you can't immediately watch analytics as soon as its published.
  - eduction 3y ago
    The article includes a six year chart of total VC funding from 2018 to present that clearly shows the context of the COVID spike.
- octacat 3y ago
  Negative titles attract more attention, clicks and more money from ads.
deleted 3y ago
[deleted]
jeffreygoesto 3y ago
Why though? Now you could get some bargains?
- klabb3 3y ago
  That’s weird indeed. Perhaps they weren’t buying because companies were promising but because money was cheap.
  - shortrounddev2 3y ago
    Yes. There are many companies and technologies out there which made little sense but had money dumped in it because it was cheap to do so. Cryptocurrency is one example
- j4yav 3y ago
  Even smart money follows the herd.
- pge 3y ago
  Because the overall financing market is tighter, they are holding back money for their portfolio companies (that may not be able to raise money from new investors), rather than invest in new companies.
- yread 3y ago
  I know a guy (in Europe) who didn't get B-series money because the investor cancelled few days before the notary appointment because of SV Bank troubles in the US
- mupuff1234 3y ago
  5.5% risk free gain is a barging compared to most startups.
  - dehrmann 3y ago
    2.5% of that is lost to federal and state taxes. Inflation is running at 3.1%. So you're losing 0.1%.
kozikow 3y ago
I think what should be mentioned in the article is bridge rounds. I know various startups that have done it. In my feeling, at least half of the 38% would be explained by VCs raising bridge rounds for their existing portfolio companies. Rather than come clean that all your valuations came down by 2-3x (the reality of what valuations are circulating on the market nowadays) just do things like raise convertible note with a cap of last round valuation and don't announce it on pitchbook/crunchbase. It's not easy for VCs to just pause investing or invest in some other stuff than their "thesis" - some have agreements legally binding on what they would invest in and timeframes for spending the capital.
- dgellow 3y ago
  What are bridge rounds?
  - remus 3y ago
    A round of funding in between major rounds of funding, often in the form of more cash from existing investors. https://learn.angellist.com/articles/bridge-round https://learn.angellist.com/articles/bridge-round
- jgalt212 3y ago
  > don't announce it on pitchbook/crunchbase Isn't the entire value of pitchbook that they get data that is not "announced"?
- rightbyte 3y ago
  > In my feeling, at least half of the 38% would be explained by VCs raising bridge rounds for their existing portfolio companies. Heh. That sounds like a sunk cost fallacy on the VCs end. Either an investment is a good deal or not.
  - riffraff 3y ago
    Not necessarily, a VC needs to show it's doing good business to raise money from investors, hiding your losses helps with that, in the short term.
te_chris 3y ago
The mediocre VC glut is almost worse than - and extremely symbiotic with - the mediocre startup glut. Good riddance to both.
- billy99k 3y ago
  You can say 'good riddance', but this just means when you get laid off, it will be harder to find a job, because the only companies around are the large/established tech companies.
  - colesantiago 3y ago
    And the fault lies with the VCs and the startups they have backed with no path to being a business that generates revenue or even becomes profitable. Instead, today's startups lives off fundraise to fundraise and when the party stops, they inevitably shutdown.
    - teitoklien 3y ago
      That is fine, and it’s called risk taking from private capital towards an economy Which funds jobs in each market and drives innovation. It’s called having a positive outlook towards an economy, you don’t want that capital to stay in banks owned by top 1% cuz that’s where it’ll stay if you don’t make an environment where they’ll use it to fund more jobs for the masses and gamble it away for a chance at something greater It’s why having deflation or 0 inflation in an economy is bad, because they want people to invest back and take risks in an economy ? So why celebrate a pause, unless you want the country to go down into flames. This isnt money where the government will bailout these VCs, this is them taking risks, creating jobs, spurring innovation, knowing fully well they might lose it all.
      - kaoD 3y ago
        That's a very nice way to put it, but in reality this turned out to be money not spent wisely and instead distorting the market. This often does not lead to innovation, see e.g. the absolutely zero innovation that we got from the cryptocurrency craze. It could even stifle innovation by distorting the market in weird ways, driving away the money from productive (but less speculative) endeavors. > It’s why having deflation or 0 inflation in an economy is bad, because they want people to invest back and take risks in an economy ? You can also tax the shit out of large capital in a non-linear fashion which, unlike inflation, will not hit the small savers. This will still encourage that capital to not stay in banks, while helping small savers to build capital (which is the only way to really drive out the oligopoly) instead of riding the funding wave and hoping for an exit out of a business built on burning money which will only make the corporate conglomerates even bigger when they acquire you (which is your only incentive as a business-owner, to strive for an exit, since otherwise you'll just be hemorrhaging money from your "business"). Note I don't think this is the way to go, I just think the common narrative (which I saw implicitly in your comment, forgive me if I'm wrong) is just a rose-tinted glance at our current situation in post-capitalism.
colesantiago 3y ago
We will be seeing many startups layoff folks, pause hiring and shutdown in 2024, if they aren't able to make any money and keep relying on fundraising from vulture capitalists. As expected, the cheap money era is dead, and we will be seeing lots of VCs pressuring and demanding sky high valuations of the startups they've backed for their ROI.
- _heimdall 3y ago
  That's not really a prediction of 2024 as much as an explanation of what I've already seen in the tech startup world in 2023. Hiring has slowed for many and paused for some, and the focus already had to shift from how to show growth to how to show revenue.
  - j4yav 3y ago
    Not disagreeing with you, but noting there are still a lot of companies that raised so much cheap money they can basically run for 200 years, barring investor pressure. Typically they raised at such high valuations they may never achieve a positive investor outcome, but they also will never run out of money.
    - _heimdall 3y ago
      Inflation alone would likely burn through any of that cash much faster though, and that's assuming investors didn't mind leaving the money parked there and avoided clawing it back or forcing an exit.
- CSMastermind 3y ago
  I hope the cheap money era is dead but it seems like the Fed is already planning rate cuts ahead of the election.
  - mrangle 3y ago
    Virtually the entire economy is predicated on cheap money. Upending that norm means major changes in lifestyle for most of the population. I don't just mean doing more with less. I mean that a good portion of white collar workers will be diverted into blue collar work if they are lucky: a lot of it characterized by menial pay and bad working conditions.
hubraumhugo 3y ago
Here are my observations of the VC market as a founder who is currently closing a round: - When in (little) doubt, it's always a no. VCs have to take care of their existing portfolio (bridge rounds) and are only opting in for new deals that look like very safe bets (very strong growth or deep tech defensibility). - Due dilligence takes much longer - Valuations are down as expected although it's not that bad at early stages. The most affected are startups that raised pre-seed/seed rounds at 20M valuations and now face challenges raising series A without product-market fit and only minimal revenue. - More focus on capital efficient business case planning. Current raise should give you 24 months of runway instead of just 12-18. - Growth projections become more conservative (and IMO more sustainable). Previously, VCs always prioritized strong growth over reaching break-even. That is changing now.
- itsoktocry 3y ago
  >Growth projections become more conservative (and IMO more sustainable). What good are any of their growth "projections" if they oscillate between extremes at the whims of the economy? If two years ago they predicted huge growth, and now those projections have to heavily adjusted down, are these even forecasts? Or are they merely saying "if tomorrow is like yesterday, we'll be fine"? The time for projecting slower growth was years ago, when everything was going crazy.
  - ethbr1 3y ago
    Arguably, adjusting growth projections on the basis of current macroeconomic performance is preferable. Anything else is tantamount to predicting macroeconomic trends... which, if they have a magic ball for, they can use to make a lot more money than in VC.
    - itsoktocry 3y ago
      >adjusting growth projections on the basis of current macroeconomic performance is preferable. Really? The economy is cyclical. It means you will always be behind the curve; predicting high growth when low growth is around the corner, and vice versa. We can see this in reality; how much garbage did they invest in 2020-2022? You're probably better off never changing strategy, kinda like buying a broad based ETF. Being adaptable is, probably, equally as valuable for strategy. But that's not really "projecting". >if they have a magic ball for, they can use to make a lot more money than in VC Forecasting isn't about having a magic 8 ball, it's about assigning probabilities to potential future outcomes. In 2021 when people where buying monkey jpegs for millions of dollars and stonks were all the rage, would a reasonable person think the future growth prospects were higher or lower in the short term?
physicsguy 3y ago
A lean market and higher interest rate now isn't a bad thing for the long term. It focuses minds on what is actually a good product, making businesses profitable, etc. etc...
- Andrex 3y ago
  I'm honestly struggling to see a downside. Less "innovation"?
  - rm_-rf_slash 3y ago
    Fewer VC-funded hyper growth companies means a smaller pool of experienced developers to hire from for other ventures. Not the end of the world here but worth accounting for some of the silver lining of zero interest rate policy.
  - kridsdale1 3y ago
    Less chat apps that simply say “YO”
    - octacat 3y ago
      nooo, chat apps are good (developing an open source XMPP server)
  - Parmenidea 3y ago
    Honestly, yes. I had a deep skepticism of a lot of VC-backed moonshots/SPACs in 2021. However, it’s hard to deny that these moonshots were at least aimed in the right direction — way more capital going to EVs, biotech, quantum computing, etc. You get some frauds in the mix (Nikola), but it’s socially utile to have a few of these projects gaining traction instead of highly profitable zombies. ZIRP also seemed to be shifting investment tides toward green projects and away from oil. The new regime has allowed pollution to continue, and powered tyrannical governments like Saudi Arabia.
- DLA 3y ago
  So much yes! Perhaps this shift in capital supply will fund fewer copy cat "X for Y" type businesses (Uber for Y), (Tinder for Y), etc. and focus on truly innovative ventures. I think true innovation in the energy and biotech spaces, to name a few, would still find capital. Like the saying goes, "nothing focuses the mind like half the budget."
Hnrobert42 3y ago
So, back to 2019 levels?
alberth 3y ago
Vast majority of VCs also fail. Don’t forget that the vast majority of VCs either fail or don’t beat the market.
selfselfgot 3y ago
[dead]
cma 3y ago
Headline here was for changed from the site's "38% of VCs disappeared from dealmaking in 2023."
philip1209 3y ago
What happened to "buy low, sell high"? Isn't it a good time to invest?
lpolovets 3y ago
It's not clear to me that the title of the post is the logical conclusion from the post's content. The post talks about fewer investors in VC rounds, but the definition of an investor is just anyone who made 2+ investments. I imagine that includes angel investors, family offices, etc? I'm a VC, and ~100% of the seed VCs I know are still making new investments. For Series A and later, it's also ~100%, but at a slower pace. I do know a bunch of angels and family offices that ramped up a few years ago and then paused when the market corrected. (The thing that made me suspicious here is that the graph shows the number of investors grew from 5,000 to 7,500 a few years ago, but there's no way we got 2,500 new VC funds in a single year in 2021.)
Nemi 3y ago
From the included chart it looks like we are back to the pre-pandemic “good times” in total deals, down from the “Must-invest-in-everything crazy times” of the last couple of years. Is this really bad news?
- godzillabrennus 3y ago
  Cash invested today by VC is likely still committed capital from before this slowdown. With corrections in valuations, with high interest rates available in FDIC insured accounts, and the public markets overall performance, I don’t see venture capitalists attracting much new investment anytime soon.
upvote_test_act 3y ago
Good!
eschneider 3y ago
VC investment will pause for a bit. Then VCs will miss out on the next "Next Big Thing." Then VCs will pile in on copycats. It has always been thus.
happytiger 3y ago
Isn’t this normal for an organization seeking 11,000 percent growth with a 20% management fee to stop investing when futures point to uncertainty and new bets don’t necessarily get a follow round raised? VCs can’t afford to get their reputation obliterated by investing in a stage of early growth when they don’t have confidence they’ll be able to take the investment to that kind of exit, so they end up being deeply risk adverse — aka they don’t want to start things they can’t finish - and therefore end up being quite sensitive to economic uncertainty.
danjl 3y ago
No VC investment activity happens between November 20th and January 5th every year! Nothing new.
__lbracket__ 3y ago
I passionately hate VC profession and wish this profession would just die. VC backed companies, with rare exceptions, end up being a net negative for the world. After the initial few years of hype, the level of their products, customer service, environmental impact, treatment of workers etc all decline. Failure after failure, the Patagonia-wearing VCs sit there with intelligent frowns or knowledgeable smiles evaluating something they know nothing about most of the time, producing results that are no better than a coin toss.
- thecleaner 3y ago
  yet these companies are why software developer salaries are high. If this goes your way, its the engineers who will be affected. the patagonia guys will just move to consulting and make partner etc. Which btw is another bullshit profession which doesn't make anything other than ppts.
  - __lbracket__ 3y ago
    Which brings up an age old conundrum: How is market rewarding the pencil pushers and punishing value creators

186 points by ZeljkoS 3y ago

TomK32 3y ago

More like: After a two-year spike in the number of active investors in US VC it returns to 2020 levels.

magicalhippo 3y ago
I see this in other reporting as well. "Massive drop in X" or similar, when reality is it's returning to pre-Covid levels. Almost like journalists collectively forgot how the world was before Covid.
- j4yav 3y ago
  To be fair to the journalist who wrote the linked article, they showed the spike and years previous to covid.
- c048 3y ago
  Outrage sells. While some might include pre-covid statistics, the vast majority won't.
  - zztop44 3y ago
    Yet this one does.
- passwordoops 3y ago
  I think it's less about journalists being sensational and more the nature of business reporting (in the journalistic and financial sense) that everything must be compared quarter-to-quarter or year-to-year
- robertlagrant 3y ago
  > I see this in other reporting as well. "Massive drop in X" or similar, when reality is it's returning to pre-Covid levels. Should it not be reported on, when the rise was reported on? It is a massive, newsworthy, drop and one of the side-effects of Covid wasn't "may increase dealmaking", so it shouldn't be assumed to recede alonside Covid.
  - magicalhippo 3y ago
    Feel it's more about how the stories are angled. So often it seems phrased like things during Covid was the norm, rather than things returning to normal.
  - _heimdall 3y ago
    One of the side effects of printing $4T+ in new money is an increase in dealmaking. Most of the new money was poured into the top of the system and it had to go some where, investors threw much of it towards the tech industry as it seemed they could at least keep working and where potentially building businesses that would boom during such a massive a pandemic response. The recent drop in dealmaking is important and newsworthy. I think the point being made above was simply that reporting seems to ignore the context of how this year's investing compares to 2019 before the massive influx of inflationary cash rolled in.
- TomK32 3y ago
  Thus the interesting question a journalist should research would be: Why did spike during the Covid years happen?
  - shortrounddev2 3y ago
    Federal reserve
- _heimdall 3y ago
  > Almost like journalists collectively forgot how the world was before Covid. Well that tracks, journalists also seem to have collectively forgotten what the world was like during Covid too. Most journalism today is way too focused on what's right in front of them that can give the most sensationalist headlines. Context doesn't really matter when its all about clicks and engagement.
  - sigmoid10 3y ago
    Well, the fact that this stuff still makes it to the front page of hacker news and generates this very discussion right here proves them right. After all, media is not about providing information. It's a business to generate income by grabbing your attention.
    - throwaway0665 3y ago
      Especially when it's a blog post by the marketing team of a private company
    - jollofricepeas 3y ago
      This. I agree. The HN community largely likes to criticize media but fundamentally they don’t understand it. “The media is a business to generate income by grabbing attention” This has always been true. Media has been sensationalist since it first started as word of mouth being spread by sailors and politicized as directed by government and business interests. Once adopted by business interests, it has been forced to reach as many eyeballs as possible in order to be profitable. Read the histories of journalism, Pulitzer, Hearst, the Spanish American War and other examples. Freedom of the press is the most important thing and libel /defamation laws are what’s important. https://en.m.wikipedia.org/wiki/History_of_journalism https://en.m.wikipedia.org/wiki/History_of_journalism https://en.m.wikipedia.org/wiki/Yellow_journalism https://en.m.wikipedia.org/wiki/Yellow_journalism
      - _heimdall 3y ago
        This situation is media is nothing new, but its drastically amplified by digital media platforms. When journalists could spent weeks or months on a major piece and publish it in a newspaper they didn't have constant, immediate feedback. At best they could look at paper sales and industry recognition. Today journalists see very quickly what lands and what doesn't. They can even A/B test headlines to game attention. The shorter feedback loop can also easily lead to a focus on what one can publish today to get shares and likes, losing much of the integrity that may likely have been on the table when the work stands on its own and you can't immediately watch analytics as soon as its published.
- eduction 3y ago
  The article includes a six year chart of total VC funding from 2018 to present that clearly shows the context of the COVID spike.
octacat 3y ago
Negative titles attract more attention, clicks and more money from ads.

deleted 3y ago

[deleted]

jeffreygoesto 3y ago

Why though? Now you could get some bargains?

klabb3 3y ago
That’s weird indeed. Perhaps they weren’t buying because companies were promising but because money was cheap.
- shortrounddev2 3y ago
  Yes. There are many companies and technologies out there which made little sense but had money dumped in it because it was cheap to do so. Cryptocurrency is one example
j4yav 3y ago
Even smart money follows the herd.
pge 3y ago
Because the overall financing market is tighter, they are holding back money for their portfolio companies (that may not be able to raise money from new investors), rather than invest in new companies.
yread 3y ago
I know a guy (in Europe) who didn't get B-series money because the investor cancelled few days before the notary appointment because of SV Bank troubles in the US
mupuff1234 3y ago
5.5% risk free gain is a barging compared to most startups.
- dehrmann 3y ago
  2.5% of that is lost to federal and state taxes. Inflation is running at 3.1%. So you're losing 0.1%.

kozikow 3y ago

I think what should be mentioned in the article is bridge rounds. I know various startups that have done it. In my feeling, at least half of the 38% would be explained by VCs raising bridge rounds for their existing portfolio companies. Rather than come clean that all your valuations came down by 2-3x (the reality of what valuations are circulating on the market nowadays) just do things like raise convertible note with a cap of last round valuation and don't announce it on pitchbook/crunchbase. It's not easy for VCs to just pause investing or invest in some other stuff than their "thesis" - some have agreements legally binding on what they would invest in and timeframes for spending the capital.

dgellow 3y ago
What are bridge rounds?
- remus 3y ago
  A round of funding in between major rounds of funding, often in the form of more cash from existing investors. https://learn.angellist.com/articles/bridge-round https://learn.angellist.com/articles/bridge-round
jgalt212 3y ago
> don't announce it on pitchbook/crunchbase Isn't the entire value of pitchbook that they get data that is not "announced"?
rightbyte 3y ago
> In my feeling, at least half of the 38% would be explained by VCs raising bridge rounds for their existing portfolio companies. Heh. That sounds like a sunk cost fallacy on the VCs end. Either an investment is a good deal or not.
- riffraff 3y ago
  Not necessarily, a VC needs to show it's doing good business to raise money from investors, hiding your losses helps with that, in the short term.

te_chris 3y ago

The mediocre VC glut is almost worse than - and extremely symbiotic with - the mediocre startup glut. Good riddance to both.

billy99k 3y ago
You can say 'good riddance', but this just means when you get laid off, it will be harder to find a job, because the only companies around are the large/established tech companies.
- colesantiago 3y ago
  And the fault lies with the VCs and the startups they have backed with no path to being a business that generates revenue or even becomes profitable. Instead, today's startups lives off fundraise to fundraise and when the party stops, they inevitably shutdown.
  - teitoklien 3y ago
    That is fine, and it’s called risk taking from private capital towards an economy Which funds jobs in each market and drives innovation. It’s called having a positive outlook towards an economy, you don’t want that capital to stay in banks owned by top 1% cuz that’s where it’ll stay if you don’t make an environment where they’ll use it to fund more jobs for the masses and gamble it away for a chance at something greater It’s why having deflation or 0 inflation in an economy is bad, because they want people to invest back and take risks in an economy ? So why celebrate a pause, unless you want the country to go down into flames. This isnt money where the government will bailout these VCs, this is them taking risks, creating jobs, spurring innovation, knowing fully well they might lose it all.
    - kaoD 3y ago
      That's a very nice way to put it, but in reality this turned out to be money not spent wisely and instead distorting the market. This often does not lead to innovation, see e.g. the absolutely zero innovation that we got from the cryptocurrency craze. It could even stifle innovation by distorting the market in weird ways, driving away the money from productive (but less speculative) endeavors. > It’s why having deflation or 0 inflation in an economy is bad, because they want people to invest back and take risks in an economy ? You can also tax the shit out of large capital in a non-linear fashion which, unlike inflation, will not hit the small savers. This will still encourage that capital to not stay in banks, while helping small savers to build capital (which is the only way to really drive out the oligopoly) instead of riding the funding wave and hoping for an exit out of a business built on burning money which will only make the corporate conglomerates even bigger when they acquire you (which is your only incentive as a business-owner, to strive for an exit, since otherwise you'll just be hemorrhaging money from your "business"). Note I don't think this is the way to go, I just think the common narrative (which I saw implicitly in your comment, forgive me if I'm wrong) is just a rose-tinted glance at our current situation in post-capitalism.

colesantiago 3y ago

We will be seeing many startups layoff folks, pause hiring and shutdown in 2024, if they aren't able to make any money and keep relying on fundraising from vulture capitalists. As expected, the cheap money era is dead, and we will be seeing lots of VCs pressuring and demanding sky high valuations of the startups they've backed for their ROI.

_heimdall 3y ago
That's not really a prediction of 2024 as much as an explanation of what I've already seen in the tech startup world in 2023. Hiring has slowed for many and paused for some, and the focus already had to shift from how to show growth to how to show revenue.
- j4yav 3y ago
  Not disagreeing with you, but noting there are still a lot of companies that raised so much cheap money they can basically run for 200 years, barring investor pressure. Typically they raised at such high valuations they may never achieve a positive investor outcome, but they also will never run out of money.
  - _heimdall 3y ago
    Inflation alone would likely burn through any of that cash much faster though, and that's assuming investors didn't mind leaving the money parked there and avoided clawing it back or forcing an exit.
CSMastermind 3y ago
I hope the cheap money era is dead but it seems like the Fed is already planning rate cuts ahead of the election.
- mrangle 3y ago
  Virtually the entire economy is predicated on cheap money. Upending that norm means major changes in lifestyle for most of the population. I don't just mean doing more with less. I mean that a good portion of white collar workers will be diverted into blue collar work if they are lucky: a lot of it characterized by menial pay and bad working conditions.

hubraumhugo 3y ago

Here are my observations of the VC market as a founder who is currently closing a round: - When in (little) doubt, it's always a no. VCs have to take care of their existing portfolio (bridge rounds) and are only opting in for new deals that look like very safe bets (very strong growth or deep tech defensibility). - Due dilligence takes much longer - Valuations are down as expected although it's not that bad at early stages. The most affected are startups that raised pre-seed/seed rounds at 20M valuations and now face challenges raising series A without product-market fit and only minimal revenue. - More focus on capital efficient business case planning. Current raise should give you 24 months of runway instead of just 12-18. - Growth projections become more conservative (and IMO more sustainable). Previously, VCs always prioritized strong growth over reaching break-even. That is changing now.

itsoktocry 3y ago
>Growth projections become more conservative (and IMO more sustainable). What good are any of their growth "projections" if they oscillate between extremes at the whims of the economy? If two years ago they predicted huge growth, and now those projections have to heavily adjusted down, are these even forecasts? Or are they merely saying "if tomorrow is like yesterday, we'll be fine"? The time for projecting slower growth was years ago, when everything was going crazy.
- ethbr1 3y ago
  Arguably, adjusting growth projections on the basis of current macroeconomic performance is preferable. Anything else is tantamount to predicting macroeconomic trends... which, if they have a magic ball for, they can use to make a lot more money than in VC.
  - itsoktocry 3y ago
    >adjusting growth projections on the basis of current macroeconomic performance is preferable. Really? The economy is cyclical. It means you will always be behind the curve; predicting high growth when low growth is around the corner, and vice versa. We can see this in reality; how much garbage did they invest in 2020-2022? You're probably better off never changing strategy, kinda like buying a broad based ETF. Being adaptable is, probably, equally as valuable for strategy. But that's not really "projecting". >if they have a magic ball for, they can use to make a lot more money than in VC Forecasting isn't about having a magic 8 ball, it's about assigning probabilities to potential future outcomes. In 2021 when people where buying monkey jpegs for millions of dollars and stonks were all the rage, would a reasonable person think the future growth prospects were higher or lower in the short term?

physicsguy 3y ago

A lean market and higher interest rate now isn't a bad thing for the long term. It focuses minds on what is actually a good product, making businesses profitable, etc. etc...

Andrex 3y ago
I'm honestly struggling to see a downside. Less "innovation"?
- rm_-rf_slash 3y ago
  Fewer VC-funded hyper growth companies means a smaller pool of experienced developers to hire from for other ventures. Not the end of the world here but worth accounting for some of the silver lining of zero interest rate policy.
- kridsdale1 3y ago
  Less chat apps that simply say “YO”
  - octacat 3y ago
    nooo, chat apps are good (developing an open source XMPP server)
- Parmenidea 3y ago
  Honestly, yes. I had a deep skepticism of a lot of VC-backed moonshots/SPACs in 2021. However, it’s hard to deny that these moonshots were at least aimed in the right direction — way more capital going to EVs, biotech, quantum computing, etc. You get some frauds in the mix (Nikola), but it’s socially utile to have a few of these projects gaining traction instead of highly profitable zombies. ZIRP also seemed to be shifting investment tides toward green projects and away from oil. The new regime has allowed pollution to continue, and powered tyrannical governments like Saudi Arabia.
DLA 3y ago
So much yes! Perhaps this shift in capital supply will fund fewer copy cat "X for Y" type businesses (Uber for Y), (Tinder for Y), etc. and focus on truly innovative ventures. I think true innovation in the energy and biotech spaces, to name a few, would still find capital. Like the saying goes, "nothing focuses the mind like half the budget."

Hnrobert42 3y ago

So, back to 2019 levels?

alberth 3y ago

Vast majority of VCs also fail. Don’t forget that the vast majority of VCs either fail or don’t beat the market.

selfselfgot 3y ago

[dead]

cma 3y ago

Headline here was for changed from the site's "38% of VCs disappeared from dealmaking in 2023."

philip1209 3y ago

What happened to "buy low, sell high"? Isn't it a good time to invest?

lpolovets 3y ago

It's not clear to me that the title of the post is the logical conclusion from the post's content. The post talks about fewer investors in VC rounds, but the definition of an investor is just anyone who made 2+ investments. I imagine that includes angel investors, family offices, etc? I'm a VC, and ~100% of the seed VCs I know are still making new investments. For Series A and later, it's also ~100%, but at a slower pace. I do know a bunch of angels and family offices that ramped up a few years ago and then paused when the market corrected. (The thing that made me suspicious here is that the graph shows the number of investors grew from 5,000 to 7,500 a few years ago, but there's no way we got 2,500 new VC funds in a single year in 2021.)

Nemi 3y ago

From the included chart it looks like we are back to the pre-pandemic “good times” in total deals, down from the “Must-invest-in-everything crazy times” of the last couple of years. Is this really bad news?

godzillabrennus 3y ago
Cash invested today by VC is likely still committed capital from before this slowdown. With corrections in valuations, with high interest rates available in FDIC insured accounts, and the public markets overall performance, I don’t see venture capitalists attracting much new investment anytime soon.

upvote_test_act 3y ago

Good!

eschneider 3y ago

VC investment will pause for a bit. Then VCs will miss out on the next "Next Big Thing." Then VCs will pile in on copycats. It has always been thus.

happytiger 3y ago

Isn’t this normal for an organization seeking 11,000 percent growth with a 20% management fee to stop investing when futures point to uncertainty and new bets don’t necessarily get a follow round raised? VCs can’t afford to get their reputation obliterated by investing in a stage of early growth when they don’t have confidence they’ll be able to take the investment to that kind of exit, so they end up being deeply risk adverse — aka they don’t want to start things they can’t finish - and therefore end up being quite sensitive to economic uncertainty.

danjl 3y ago

No VC investment activity happens between November 20th and January 5th every year! Nothing new.

__lbracket__ 3y ago

I passionately hate VC profession and wish this profession would just die. VC backed companies, with rare exceptions, end up being a net negative for the world. After the initial few years of hype, the level of their products, customer service, environmental impact, treatment of workers etc all decline. Failure after failure, the Patagonia-wearing VCs sit there with intelligent frowns or knowledgeable smiles evaluating something they know nothing about most of the time, producing results that are no better than a coin toss.

thecleaner 3y ago
yet these companies are why software developer salaries are high. If this goes your way, its the engineers who will be affected. the patagonia guys will just move to consulting and make partner etc. Which btw is another bullshit profession which doesn't make anything other than ppts.
- __lbracket__ 3y ago
  Which brings up an age old conundrum: How is market rewarding the pencil pushers and punishing value creators