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VC Fund gives money back, says the market for mature startups is too weak
- nytesky 2y agoIs this a bellwether or an outlier?
- ackbar03 2y agoI'm a bit surprised, since it seems the fed is about to start a easing cycle
- Mistletoe 2y agoThey like it when it is like shooting fish in a barrel when interest rates were zero for much of the previous decade. https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS
- stackskipton 2y agoThey are unlikely to drop it to Zero like they did 10 years ago.
- slimginz 2y agoIs there even a way to know at this point?
- rtkwe 2y agoOnly really answerable in the future. It really does feel like valuations are completely insane now for anything founders can brand as a tech company with money chasing hype instead of actually following the realistic valuations of companies. A pop feels inevitable though.
- quelsolaar 2y agoIts not weak, its just not as crazy strong as people thought it was a few years back.
- rmbyrro 2y agohttps://archive.is/Eku28 https://archive.is/Eku28
- ajsharp 2y agoImportant distinction: this is for a growth fund ("mature companies" in the article). Growth funds are typically fund dedicated to either later stage financings or follow ons from earlier stage rounds that the firm invested in. Growth funds are heavily reliant on an active M&A market, or companies that are likely to IPO. M&A is effectively dead right now, and many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
- CharlieDigital 2y ago> M&A is effectively dead right now Curious if there is a reason why M&A is slow; any reading?
- bpodgursky 2y agoAnti-trust
- bbor 2y agoBrings a tear to the eye… there are good things in the world! Nature is healing!
- jordanb 2y agoHigher interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE.
- JumpCrisscross 2y ago> interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE Reasonable hypothesis, but not quite. LBOs' share of American buyouts has been falling monotonically since at least 2015 [1]. Buyouts have increasingly been smaller add-on acquisitions, with tech dominating activity. [1] https://thesource.lseg.com/TheSource/getfile/download/bf99ca9a-a80a-4215-8538-44d8539e8ccf https://thesource.lseg.com/TheSource/getfile/download/bf99ca...
- Oras 2y agoIsn't that an opportunity to get better deals if the market is weak?
- deleted 2y ago[deleted]
- cubecul 2y agoIf the bar for a successful IPO is high, it gets harder to underwrite these pre-IPO investments, etc etc trickle down to early stage as well
- vecter 2y agoWeak probably means too much VC competition relative to the number of good investment opportunities, leading to higher valuations, fewer investments in top companies, and lower expected returns.
- Sam_Odio 2y agoWonder if CRV is reacting to the same underlying trends causing Warren Buffet to sell stock (e.g., Cape / Shiller PE ratio is close to an all-time high)...
- whatshisface 2y agoP/E ratios are not going to drop until some kind of socialist revolution reverses the movement of money from the budgets of people who spend it to the bank accounts of people who invest it. When control over dollars shifts from people who want goods and services to people who want capital assets, the price of a capital asset (P) must go up as demand rises even while the price of what it manufactures (E) goes down. Ever hear "there are no alternatives to stocks?" The alternative to stocks in the past was consumption; not so when concentrations of wealth cannot be spent in a thousand lifetimes. It's the perfect storm for crazy P/E. If you believe Piketty's work, that kind of reverse shift never happens gradually, and these P/E ratios represent the "maturity" of a period of relative peace and stability. It's worth mentioning, as an aside, that as long as inflation is positive, investors do not actually need to see earnings.
- giansegato 2y agoImportant detail is that they're both divesting from later stage deals, and doubling down on early stage ones
- JumpCrisscross 2y ago> they're both divesting from later stage deals, and doubling down on early stage ones Source for doubling down or divesting? It looks like they're holding course on early stage and pausing on late.
- fidotron 2y agoI am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed. This would have been an OK move if there was more anti monopoly enforcement on FAANG (plus MS and Adobe) but there isn’t. The result is established players get to dump sub standard products on the market and remove the oxygen from the room for competition to emerge.
- pclmulqdq 2y agoLina Khan has done more to kill the startup market than anyone else in the world. But it's okay because she's making sure there's enough competition in the market for mid-range luxury handbags.
- BoiledCabbage 2y ago> kill the startup market than anyone No, what killed the startup market is that people now have to pay for money. There is a whole lot of junk people are willing to do when money is effectively free. When people have to actually pay for money, all of that crap goes out the window.
- nine_zeros 2y ago> I am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed. On the flip side, it has also helped customers who are now benefiting from the competition between Figma and Adobe. The quality of Figma has only improved since, and I am happy for them to earn my dollars.
- stackskipton 2y agoPeople are expecting too much with anti monopoly enforcement. Google is on round two with anti trust. Read here if you want to know more https://www.bigtechontrial.com/ https://www.bigtechontrial.com/ (Sponsor is very into anti monopoly) However, this is 50 year of court inertia she is trying change. It doesn’t go fast.
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- nsedlet 2y agoMaybe this is a dumb question but I thought valuations had fallen a bunch since mid 2022 and now lots of VC firms are struggling with companies (especially mid-to-late stage) who raised at much higher valuations than they can now get in the market. But this firm is saying that current valuations are too high to make new investments. Would it not be a good time to invest in later stage startups? Or is the issue that the forward growth potential of these companies is lower now for some reason.
- ritzaco 2y agoprivate valuations are weird. There's some abstract idea that 'valuations have fallen' for sure - people are saying things like "I don't think COMPANY_BLAH that raised $100M at a $1B valuation is actually worth $1B" But it was never officially 'worth' that much in the same way as a market cap of a public company anyway. If they do a downround, where they raise money at a lower valuation than the previous one, that's generally bad for everyone, so there's a strong tendency to try to 'wait it out' and just pretend they're still worth $1B and hope the market recovers and no one has to write down their investments.
- mandevil 2y agoValuations have "fallen" but not actually fallen: there are very bad consequences to raising what's known as a "down-round"(1) so no one is actually doing that unless they are absolutely forced to. So no company is interested in actually allowing an investment at that lower valuation. They only do that if they are absolutely forced to, because they desperately need the money. So while yes, when the valuations go down seems like a perfect time to buy (buy low, sell high!), in these closed markets it is difficult to find someone to accept your money when it is down. This is a big difference from the publicly traded market, where you can essentially always buy stock. But in these private markets, everyone agrees that the value of a share of company X is lower than before, but no one is willing to sell you a share today at that price, so you can't actually invest your money. 1: Where the top-line valuation is below the previous valuation. This is extremely bad for a company because investors almost always have protections for a down-round, so the loss generally is felt entirely by the workers and the founder.
- paxys 2y agoThe current batch of tech "decacorns" (Stripe, Databricks, Canva, Chime, Miro, Discord, Ripple, Brex, Airtable etc) all raised money at unrealistic valuations in 2020-2021, and with the subsequent tech cool off the market today can simply not sustain the same numbers. With no IPOs or acquisitions on the horizon, and no appetitive for down rounds, there's essentially a funding stalemate for companies at that stage (unless you have "AI" in your name of course).
- nytesky 2y agoMost of these have been around for nearly a half decade, can’t they just remain private companies operating off their profits? What is the mechanism for VC investors exiting when it just goes private, what payoff will they accept?
- churchill 2y agoIt's not possible: for most of these companies, their business model is built on burning VC, getting increasingly higher valuations, and then dumping on retail traders. For instance, Stripe is valued at >$70b. They processed $1 trillion in payments in 2023, brought in $12 billion in revenue, which is 1.2% of payment volume. $100 million in profits. Running as a modest private business just doesn't make sense when you've raised venture capital at 700x your annual profits. So, IPO it is.
- nytesky 2y agoWhat do you mean dumping? Google IPO was a huge windfall for retail investors and VC, right. If Stripe can’t exit successfully, why not pay VC back at % rate they can afford, and then run the business off of the $100M profit?
- churchill 2y agoGoogle, Facebook, and Apple are extreme outliers. This list covers tech stocks that IPO'd in the last bull run. Check what the declines look like. https://www.trueup.io/tech-stock-declines https://www.trueup.io/tech-stock-declines Out of 17 YC companies that have gone public, 3-4 have been delisted, 7 have lost >80% of their value, another 7 has lost 10% to 50% of their value. Only Reddit and Instacart have gained 47% and 31% respectively. Sounds a lot like bagholding to me. Here: https://www.marketsentiment.co/p/the-yc-report https://www.marketsentiment.co/p/the-yc-report Regarding Stripe, if investors own just 50% of the company (highly probable, given how much they've raised), it'd take 350 years to pay them off. Payments is a high-volume, low-margins business. In fact, even if Stripe 10x'd their revenues, it'd still be 35 years before they bought out all their investors. if you think I'm being unfair, look at the numbers Paypal and Adyen are doing and assess their valuation and you'll realize Stripe is extremely overvalued. Adyen is trading at 60x profits; PayPal is trading at 2.7x revenues and 19x profits.
- jordanb 2y agoI assume this is committed funds right? So they're not giving anything back they're just releasing the commitments?
- tempsy 2y agoI don't think it's just a "market" thing at this point. Reality is if you're not a Tier 1 VC, which CRV really isn't, then you cannot get into good deals that would make any sense.
- tgtweak 2y agoI think if you look at a lot of funds right now, you'll notice that they're all struggling to place. It's a question of inventory and while multiples are low (naturally as parking your capital in a savings account is yielding 5%) companies are not selling for less. I have seen multiples in ecommerce/saas startups go from 40-50x (early stage companies <5m ARR) to 15-20x. The appetite to sell your company for less than a 10 year DCF is really not there for founders. Cashflowing companies when capital costs are high are something you typically hold on to. It's musical chairs and the music is currently stopped until interest rates break or until buyers (and their investors) start getting hungrier for acquisitions. This "sorry we can't place your $275M" scenario is a step in the latter's direction. T1 funds are also slowing down a lot since their main handoff is IPO and that is also dry.
- churchill 2y agoI'm seeing a lot of commenters blame this on M&A and nothing could be further from the truth. The ZIRP era pumped so much money into startups that a good majority will struggle to grow into their valuation or raise again at anything other than a down round. I can still vividly remember December 2021, when Airbyte raised $150m at a $1b valuation - with less than $1M in annual revenues. Or has anyone forgotten Fast.co burning $120M/year while bringing in $600k in annual revenues and flying their CEO around the world to live like a celebrity, skydive, and show off company merch? LMAO. And these are just a few of the more obvious examples. At some point, founders stopped selling to customers and starting raising and spending VC as their main business. This past couple of months Bolt (one-click checkout) is about to raise at a $14b valuation with less than $28M in annual revenues, or a whopping 500x valuation. Hell, NVIDIA is currently trading at 50X revenues, despite being so important to the AI revolution. No one has learnt anything and the rate hikes have not flushed out all the malinvestment.
- Vegenoid 2y agoI'm hopeful that this will lead to a shift in the tech culture to slower-growing, long-term, sustainable businesses.
- churchill 2y agoLMAO. Wait until rates go down a bit. The party will continue like it never stopped. All it takes is for Masayoshi Son to make a $1b bet on a "Uber for Pets" startup and the game is on :)
- plaidfuji 2y ago“We think there’s a stronger market for overvalued early-stage AI startups than there is for overvalued later-stage SaaS/blockchain/biotech startups”
- candiddevmike 2y agoThey're a few years too late.
- tschellenbach 2y agoPart of this is also just the bubble from the last few years. Everything that startups spend money on has become more expensive. Right now there is less funding available, but prices haven't adjusted.
- dzonga 2y agosounds like the same story as the YC continuity fund. difficult to help startups grow, if they never reach the growth stage. that's why a robust pre-seed / seed stage ecosystem is necessary.
- sub7 2y agoHoly shit the line of LPs for these guys' next fund will be able to cross the Pacific
- max_ 2y agoThe role of a VC is supposed to be such that they invest in "infantile" businesses so they can become "mature". But alot of people seem to be playing valuation Ponzi's instead of facilitating the growth of young businesses. It's really easy to do well in VC. But the strong herd effect made me realise that alot of VCs are just "me too" investors. I am not surprised by this. Majority don't "build the future" like the marketing material suggests. It's all a veneer. Very few VCs actually do "Venture Capital". It's not exploratory it's just "Herd Capital"
- sib 2y ago"It's really easy to do well in VC" It's relatively easy as a General Partner in VC to collect fees leading to a decent salary for a while. It's quite hard (rare) to do well enough to outperform the public markets consistently on a risk- and liquidity-adjusted basis. If you look at the metrics on fund performance, most of them are really pretty bad.
- max_ 2y agoThey are bad because 99% are herd animals. The for instance look at public markets. Passive S&P allocations outperform most hedge funds. You can outperform 99% of hedge funds just by buying the S&P. The same goes for VCs. Just by spraying small checks over a wide spectrum you can do very well (outperform the S&P and most VCs). But 99% prefer "me too" investments. Paul Graham talked about this: "Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction." Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do." ... "I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure. It seems obvious. But I've proposed to several VC firms that they set aside some money and designate one partner to make more, smaller bets, and they react as if I'd proposed the partners all get nose rings. It's remarkable how wedded they are to their standard m.o." — link https://www.paulgraham.com/googles.html https://www.paulgraham.com/googles.html
- BookInsights 2y ago[flagged]
- jiveturkey 2y agoSeems to me one can draw a direct line to the continuing tech job market outlook.
- hackable_sand 2y agobro telling startup founders to stay in their lanes heard