The VC Downturn in 6 Charts | Hacker News Reader

The VC Downturn in 6 Charts

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59 pointselsewhen49 comments

Smaller VCs will wind down existing funds and be unable to raise another round, then those firms will close (“take a pause to reassess”). VC was a low-interest rate fueled bubble as by definition any yield is better than 0 or negative yields.

VC will obviously continue to exist but with fewer and better firms. More quality companies will be invested in.

If I was an associate at a VC firm I would jump ASAP to corporate strategy, investment banking, or whatever it is you are qualified for other than this.

> If I was an associate at a VC firm I would jump ASAP

Probably good advice if working at a tech company. Perhaps not such great advice if you’re in VC and want to stay in VC. Things like firm loyalty, length of tenure, etc are all valued much more in VC than in tech companies.

If you try to pull the “switch jobs ever 2 years for a pay bump” trick in VC, you’ll never end up climbing the ranks and will remain on the bottom.

I just don’t know if there’s a path for a junior level person in a shrinking VC world. If you actually built and sold businesses yourself as an entrepreneur, and have real connections, then definitely you have a future but likely you wouldn’t be a junior associate.

VC became this weird white-shoe consulting / ibanking path which is bizarre to me because the entrepreneurial journey is so unique and difficult. Definitely one of those “you have to live this to understand” situations to me.

I know there is now a generation of well-heeled Stanford and MIT alums who grew up with money and lean on their parents’ SV connections just like at banks and law firms with the Ivy League. If you aren’t those people I would think about a new career. I can spot a grizzled VC pretty quickly compared to the soft ones that were a PM at Stripe for a couple years or whatever they say their journey to VC was.

> I just don’t know if there’s a path for a junior level person in a shrinking VC world.

Sure there is. Bring in good deals and help close them.

Associates (as in Junior VCs) are generally expected to exit within 2-3 years - either start their own company (bunch of YC alums are ex-Associates), join CorpDev+Strat or PMs teams at investments, or join a VC oriented MBA program line Wharton or GSB and then become Sr Associate.

There are some Associates who become partner track but very very few.

Any reason why you think investment banking won't see the same tailwinds as VC?

I’m not an investment banker but my understanding is M&A is far larger than tech, so you can do deals in a variety of industries. You could also go into private equity.

I assume higher interest rates are also decreasing the attractiveness of private equity and to some extent M&A (although at the end of the spectrum, companies going bankrupt can probably lead to a increase in a specific type of M&A)

There is a contagion component here. A lot of mid size and larger VC funds raised funds specifically to invest in smaller VC funds. While poor performance of these smaller funds won't affect the return profile of their primary funds, it will drag on overall performance from the LPs point of view.

A lot of "fine" mid size and large VCs are going to have much less appealing overall profiles.

The first VCs to go are the small third tier or solo VCs.

And the ones caught up in the SPAC or crypto adjacent hype and used up their fund to buy the top of the 2020-2021 bubble in speculative nonsense.

I agree regarding leaving VC as an associate. Many of these positions are not partner-track. Also, in a world in which term sheets were being signed in 48 hours, it isn't clear what skills they've been building (no financial analysis, little-to-no due diligence, no deal sourcing).

Yeah, what skills transfer is there to a time of due dilligence that should mean something now versus being investor X in Wag’s Nth series raise because you can run digital shoulders with the big VCs and Ashton Kutcher…

This might be true but it is better for everyone. When the sun was shining everyone and their mothers became VCs due to personal connections. They brought nothing else to the table. They didn't know what was a good startup. They depended on hype and VC networks of other equal fools.

Those VCs are dead. Gone away. Swept up in the storm. Good riddance. And along with them the dumb companies which should never have seen the light of day.

This is a necessary market adjustment, painful for some whose products were weak but a requirement if we are to continue the incredible feats of innovation that is expected in tech.

Yet Tim Draper remains active and free, who proselytized Elizabeth Holmes and encouraged investments in her, then bitched that the US shouldn’t prosecute her (by which he clearly meant him next) because it would stifle ‘fake it till you make it’ spirit, now proselytizes bitcoin.

The world is bizarre, and, born in Chicago, I’m inclined to think filled with shameless crooks.

I do agree with the environment changing and less adaptable, less useful companies will fold and faux VCs will evaporate Which I think is good. The startup scene and VC scene was clearly about hype and growth. Of the last decades lots of innovation, but, what are the top companies from this time period? I am curious of analysis of ZIRP era startups that are really strong and would like a list to just peruse. There is of course what seems like the SoftBank effect, which seemed to exist to lose and push hype around the least capable businesses that fade when growth at all costs is the goal.

Anyway, has been truly interesting to see how things play out and actually which technology has changed lives and the future of society.

Sounds a lot like how everyone became a real estate “investor” when rates were low and no one was considering the downside of taking in more debt.

I'm seeing VCs wanting 10k MMR and am left wondering why I would need a VC at that point. That's quit your job and have a lifestyle business territory.

Some markets require outsized upfront investment in order to fund investments for the purposes of land grabs or standing out from the market. It tends to look like upfront R&D (pharma, biotech, but also SaaS companies like Snowflake) or upfront Sales & Marketing (C3.ai has >$200m ARR and less than 100 customers, you need a lot of sales and marketing to make that happen including stuff like their billboard on the 101 north of SFO).

VC is like steroids for your business. You might not need them, and once you take them you unfortunately can't really stop taking them. But in some cases, they really do help.

I like the steroid analogy, though Im not sure it's positive. Judging by the state of most recent IPO companies, there seems to be a terrible comedown from those steroids, the business that take them become addicted to them, they're "performance enhancing" by covering up a non existent go to market with "user growth", and the VCs become drug dealers pushing you to take more and get you hooked.

I'd rather consider a traditional business loan with that kind of revenue.

Fwiw it was meant to be neutral / descriptive, not positive or negative. I've been close to quality businesses built both with and without VC money, there are pros and cons to both. I just hate seeing the "venture capital is bad don't take it under any circumstances" line because there are circumstances where it can be the difference between success and failure.

> wondering why I would need a VC at that point

You probably don't. Most companies don't need VC money. VC money is essential for certain sorts of startups (those needing a huge upfront monetary investment just to get on the starting blocks). If yours isn't like that, you're probably better off going with a more traditional financing route.

Its so you can try to build a business with > 1B valuation.

If you want to build a lifestyle business, go ahead and please do not take any VC money.

If you want to build a business that is large, globally impactful, and has the potential for great success or dramatic failure, VC money (or other debt/investment) is generally required for that, dependent on the market of course.

A lot businesses that we use daily (uber, airbnb, wework) which are great products would never have made it under today's environment. Not a comment on if this is good or not, just an observation that the Fed indirectly funded innovation. These companies might be questionable businesses, but have products people love.

At the same time a lot of innovation was for stuff like Facebook, Snapchat, Instagram, etc. Lots of focus on making a quick buck at the expense of humanity's long term prospects.

Indeed, it's a balance. The Fed indirectly controls our explore / exploit trade-off.

I don't know if I agree. All these existed all over the world in the same or similar forms, it's just that none of those had the fuel to grow to global scale.

Maybe what Fed did was to subsidise businesses who didn't have to be that big after all.

Tell me again, why AirBnB-Uber-WeWork have to be different companies? They do the same thing for a different product category through different UI.

I'm not sure that there's such a big tech innovation in the rental business with slightly different scheduling. Selling dollar for pennies is also not that big of an innovation, all these products were great when subsidised and once they actually have to make money, they are no longer that compensative.

IMHO the cheap money was toxic, weakened the signal, disturbing the SnR and the US will suffer from this until learns again how to make products that people willing to pay for.

I won't comment on Airbnb because I work there, but for Uber and WeWork, the fact that they're global is a feature in and of itself. It's great that I can request a ride in a city I've never been to, in my native language, without having to look up a local taxi company's phone number or download their app, and with relatively low risk of getting scammed or extorted.

I don't know if Uber or WeWork are or will ever be good investments, but their products are clearly great for users. The fact that they abstract away the underlying hard problems so effectively that they seem like they should be the same app is just a testament to this. But the underlying problems that they're solving are fundamentally very different. WeWork doesn't need Uber's complicated routing and matching algorithms, for example. And unlike WeWork, Uber probably doesn't have architects or construction engineers on staff.

Of course they have an utility but the question is if it is that big of an utility to warrant the current or their peak valuations. Also, bulldozing over the local laws and regulations is not that big of an abstraction to act as a moat, nor is the routing algo or anything else. There were/are so many companies doing it, it's just that they didn't have the deep pockets to compete against companies who sell a dollar for pennies.

I'm amused that your three examples, Uber, Airbnb, and WeWork, are (at best) problematic companies.

and that's the generous interpretation!

You can be sure that easy money for a few and widespread anticompetitive practices also destroyed plenty of possible great things.

Wow, you quote 3 businesses, two of which exist not because of some grand innovation but by blatantly ignoring regulation all over the world. The founder of the third one was running borderline fraud until finally he was forced out when the firm nearly blew up (unrelated to the fraudulent behavior).

You really could've picked better examples :)

Pre-2020 there was a lot of discussion about if the 2010s decade was sustainable.

These charts don't go back further than 2020.

Would've been much more interesting to get some attempt to answer that original question - are bad times coming or just back to "good but less insane" times?

Good.

VC just doesn't bring a lot of value to the people when it comes to tech companies. "Small businesses" are better.

That being said be leery of companies that are selling themselves as "small business" in contrast with startups. I've seen this a lot over the last year, and in each case the management has been . . . problematic at best.

People who are starting a business will just start a business and call it a business. People who are marketing themselves as a small business right now, and comparing it to a startup, seem to be a weird third group.

Could you go a bit more in details of what you mean here? What strange things have you seen?

"Small business" is weird term.

The Small Business Administration defines a "small business" as one with revenue between $1 million and $40 million, and between 100 and 500 employees. To my mind, no business on that scale is a "small business".

As a result, for decades, I've considered "small business" to be essentially a meaningless term.

A startup is a specific sort of thing, and may or may not be a small business (even by the SBA's definition). I've long avoided labelling my startups as a "startup" because that term comes loaded with all sorts of implications I'd rather avoid.

I do what you mentioned: my business is a "business". No adjectives are necessary.

Resilient business can mean "more attune to actual need" or it can mean "hardened addiction and enforcement" .. the real world contains both.. but when the population's income and opportunity shrink, it is not the feel-good companies that win the money.

"the people" use products from dozens VC-companies every day

This presumes said products would not exist without VC-companies, which I will gladly assert is false nearly 100% of the time.

Would've been much more informative if they showed data from at least 2018 onwards.

Worth pointing out it looks somewhat up over a 2.5 year scale!

I think we really are going to have a hard time setting good expectations & doom & gloom will be upon us- not just in VC but broadly- because of the absurd height that markets climbed to. Did it ever make sense? How do we compete with well-fueled (0% interest among other factors) mania again? How do we live in it's shadow?

> How do we live in it's shadow?

From my own personal business experience: times of economic downturn are the best times to start a business. Even more so if the economic downturn is largely just in people's minds.

The chart that shows the total amount invested per quarter indicates that we are back down to 2020 levels. Deals are harder to get for sure, speaking from experience as a first time founder in Canada. But I would argue 2021 was the outlier and we are just going back to "normal".

Gee, VCs... sucks that all your investments are doing so poorly. But if you were so good at investing, wouldn't you have picked better companies to invest in? Git gud.

Most the data they show only goes back to 2021 which was still when VC/tech hiring was in it's mania phase.

could this thread be sub-texted as "To the fed's hammer everything(including VC capital) is a nail"?

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