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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 t

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?
    - Workaccount2 3y ago
      Nothing you are saying is new to the math PhD's who line the offices of finance companies. But the market still overwhelmingly (but not entirely) prices things on current trends. Practically infinite wealth awaits you if you can figure out how to implement your cyclical trends into profitable investments.
    - darkerside 3y ago
      If you had that attitude in the 2010s, you are no longer in business. You can't anticipate the next cycle. You need to play the game that's in front of you.
- dustingetz 3y ago
  the 2-and-20 compensation model for fund managers incentivizes these boom/bust cycles; you need the markups to raise the next bigger fund so you can lock in and grow your 2% yearly fee. When it all crashes down, everyone can say "wasnt just me, nobody could have seen this coming" and the LP has little alternative. The point is not for a projection to be accurate, the point is to say something that various stakeholders believe (and ideally then go work themselves up into a big money orgy, which is where the big exit money is made by skilled players) See also: "Mimetic Societies. The leaders of mimetic societies create rituals mimicking some aspects of what they observe having worked in the past. Not because they think it might work, but because their followers think so." https://x.com/scottastevenson/status/1729914687846769061?s=20 https://x.com/scottastevenson/status/1729914687846769061?s=2...
  - mavelikara 3y ago
    In 2-and-20, isn’t 2% the fee, not 20%?
    - dustingetz 3y ago
      2% per year! but thx i will edit
    - aatd86 3y ago
      Both are fees. 2pc is the mgmt fee. 20 the performance fee. Just being pedantic :o)
- __loam 3y ago
  Nobody predicted the fed would raise rates as quickly as they did.
  - mint2 3y ago
    I agree that most people bet that rates would not rise fast. But it’s a classic case of wishful thinking to not consider that and instead act like the highly unusual period of rock bottom rates was a permanent fixture. Rates were going to rise, it was always a question of when and how fast.
  - MrMan 3y ago
    [dead]

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?
  - Workaccount2 3y ago
    Nothing you are saying is new to the math PhD's who line the offices of finance companies. But the market still overwhelmingly (but not entirely) prices things on current trends. Practically infinite wealth awaits you if you can figure out how to implement your cyclical trends into profitable investments.
  - darkerside 3y ago
    If you had that attitude in the 2010s, you are no longer in business. You can't anticipate the next cycle. You need to play the game that's in front of you.
dustingetz 3y ago
the 2-and-20 compensation model for fund managers incentivizes these boom/bust cycles; you need the markups to raise the next bigger fund so you can lock in and grow your 2% yearly fee. When it all crashes down, everyone can say "wasnt just me, nobody could have seen this coming" and the LP has little alternative. The point is not for a projection to be accurate, the point is to say something that various stakeholders believe (and ideally then go work themselves up into a big money orgy, which is where the big exit money is made by skilled players) See also: "Mimetic Societies. The leaders of mimetic societies create rituals mimicking some aspects of what they observe having worked in the past. Not because they think it might work, but because their followers think so." https://x.com/scottastevenson/status/1729914687846769061?s=20 https://x.com/scottastevenson/status/1729914687846769061?s=2...
- mavelikara 3y ago
  In 2-and-20, isn’t 2% the fee, not 20%?
  - dustingetz 3y ago
    2% per year! but thx i will edit
  - aatd86 3y ago
    Both are fees. 2pc is the mgmt fee. 20 the performance fee. Just being pedantic :o)
__loam 3y ago
Nobody predicted the fed would raise rates as quickly as they did.
- mint2 3y ago
  I agree that most people bet that rates would not rise fast. But it’s a classic case of wishful thinking to not consider that and instead act like the highly unusual period of rock bottom rates was a permanent fixture. Rates were going to rise, it was always a question of when and how fast.
- MrMan 3y ago
  [dead]