Many VCs have stopped investing this year
pitchbook.com
pitchbook.com
- 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.
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.
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.
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?
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.
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=2...
Just being pedantic :o)
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.
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.
Isn't the entire value of pitchbook that they get data that is not "announced"?
Heh. That sounds like a sunk cost fallacy on the VCs end.
Either an investment is a good deal or not.
IMO bridge rounds aren’t driven by the investor’s fear of a markdown - they’re driven by the belief that the founder+team can figure it out and get to the next stage. When risking even more cash on a company that isn’t an obvious winner, you really have to believe in the team.
So a bridge round isn't about "throwing good money after bad", it's about VCs still believing in the business and not wanting to have to sell another part of the company on the cheap.
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.
Not the end of the world here but worth accounting for some of the silver lining of zero interest rate policy.
Almost like journalists collectively forgot how the world was before Covid.
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.
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.
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.
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.
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.
(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.)
Instead, today's startups lives off fundraise to fundraise and when the party stops, they inevitably shutdown.
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.
> 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.
[Destruction of America’s middle class](https://seekingalpha.com/article/4346450-federal-reserve-and...)
> The crypto currency craze while definitely was a horrible phase, it did end up giving america a lot of advantages, it incurred a ton of demand for american GPU tech which helped it advance faster and have more cash reserves to take risks, this allowed usa to get a headstart to AI which if it uses well, will usher in a new era of innovation for you guys. You might argue that we could just spent 1/20th the amount in gpu market and gotten the same result, but truth is prolly wouldn’t have happened that way.
> 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 never happen, it’ll cause all of the money to flee out of america overnight, it’s the reason why usa and europe is desperately trying to increase the minimum corporate tax rate globally. In a post globalised world, it’s no longer as simple as just pulling a lever.
> which is the only way to really drive out the oligopoly
The way to drive oligopoly out is by breaking up oligopolies and bringing competition into the market, usa has done this several times, standard oil, AT&T, etc.
You cant shove people’s wallet out into the ocean, and tell them they either spend it or lose it, they’ll panic, they’ll scream for safety, if they cant keep the money in bank, where will they invest ? The most safest and established businesses, ala those oligopolies.
You cant force them to spend and then expect them to start gambling left and right, they’ll instead just want to find safer shores.
The only reliable way to breaking up monopolies is to break up monopolies.
> just a rose-tinted glance at our current situation in post-capitalism.
You’re right, after reading a few more responses i realised i made the comment a bit too hastily and impulsively not seeing through what everything i said actually meant.
But I also don’t think, it’s that “wrong” even the most greedy want to invest in the sane things, if people invested in so many unsustainable businesses, it means there weren’t enough sustainable options to put in that money in the first place.
If USA had not created that 0% interest rate environment, it wouldn’t have been able to take any advantage of the petro dollar benefits.
Initially USA had expected the middle east to invest all their earnings into america, that they got paid with usd for oil, instead most of the money went to asia. That was just the first sign of trouble in usa.
That along with stupid government policies around offshoring so much production to a communist country like China didnt help either.
So yes, i agree with you, it was a bad move, but it wasn’t VCs that created america’s impending ruin, its government policy.
The entire US government is captured by corporate interests and has been for decades. [0]
Voters have effectively no say over who runs for congress or president, as those are controlled by party leaders who are - you guessed it - sponsored by "interest groups." Even at the local level, corporate governors are focused on district chairs (like Anne Wheeler in PW County, VA) to push through all manner of things like rezoning, tax credits etc... for "development."
We're dealing with exactly this right now with Amazon pushing data centers into our farmland and depleting our Aquifer. [1]
[0]https://publicintegrity.org/politics/state-politics/copy-pas...
People will always try to corrupt a powerful force like government.
You can cry, shoot VC, destroy them, jail them, whatever, there will always be this VC class
Politicians should be held accountable, they got the vote, they got the protection (police, bodyguards, secret service)
If they betray people for money, then that means they write bad policians.
In CCP, there are a ton more corrupt businessmen who’d love to write their gov’s policy in everything. Yet CCP successfully controls them, breaks them up, write pro consumer policy.
And heck they are run by a dictator !
American politicians have no excuse to write bad policies, its those politicians who should be held accountable, VCs will always try to corrupt politicians, if not them, than foreign governments will happily pay up and take that spot.
It’s not an excuse If a corrupt gov makes bad policies
Then that’s it. It. Makes. Bad. Policies.
Always has always been
I'm unaware of an example where this is not true. Every single major "innovation" came at the cost of some indigenous person's property or is exploiting a worker who is in crisis. In fact when US producers run out of people to exploit in the US, corporations pushed politicians to pass "treaties" such as NAFTA etc... to expand the pool of exploitable labor while ensuring the previous workers cannot compete.
USA spends 6x more money on every american in healthcare, spends more on weapons than next 5 militaries combined, spends way more than any other country on education per child.
No USA isn’t an anarcho capitalist societ, it is just a WILDLY inefficient country hijacked by utopian bullshit people who think money grows on trees, finances bad policies, then facepalm and hide their incompetence, cuz typically people with utopian ideas are terribly bad at reaching that utopia.
This isn’t the 50s or 60s, governments have done a lot to improve the lives of average americans, its just the latest versions of it, are incompetent and the public is to forgiving to them.
Too many politicians who lack drive, intellect and sheer will. When you have presidents and senators older than the average life expectancy of a lot of middle income countries.
This is what happens. Usa isnt some evil doomed country run by anarchists, it’s a country that has saved itself from many threats before, and rediscovered itself many times and pushed through. It needs to fix itself again, NAFTA is not the problem, it’s what’s keeping the americas still “barely” competitive and giving a chance to reshoring manufacturers
Nope: https://www.epi.org/blog/naftas-impact-workers/
"USA spends 6x more money on every american in healthcare"
https://www.cnn.com/2023/01/31/health/us-health-care-spendin...
It's tough for me to not look at your claims as not malicious given how thoroughly and completely they have been debunked by the record. The fact taht you use spending as some kind of proxy for good says your foundational conception of what society is for is flawed.
So I'm not sure what else there is to say.
> it is just a WILDLY inefficient country
It has worse outcomes because it wastes a lot, that’s what I was saying.
> It's tough for me to not look at your claims as not malicious
You are too quick to think, everyone on this planet is out to get you or has “malicious” and “evil” intentions.
> "NAFTA is a good thing for usa" Nope: https://www.epi.org/blog/naftas-impact-workers/
You’re missing the long term idea around NAFTA, it’s to make America competitive again and curb its reliance on other continents like europe or asia.
They want to reshore manufacturing to usa and its neighbours. This is necessary.
The way you just shut it up and say “nope” that it removes short term bargaining power for american workers.
It’s like talking about the industrial revolution or the agricultural revolution which brought efficiencies and made those countries more productive.
Back then they argued that it was removing bargaining power of people working at farms, that it was taking away jobs like being a tailor at a sweatshop working your way to death.
Standard of living of americans are much better now, NAFTA long term is planned to be like that, it may fail, but bets are on to make it succeed.
I’d recommend talking to a therapist, all this anarcho capitalism, a random HN commenter being somehow “malicious” and this “evil agenda” to change people’s opinions on HN, idk this is too much drama. Just have a civil conversation, we are humans, not demons or angels.
I suggest reading Diogenes
I have a great therapist already though ;)
Hell, I'm not even bitter, good on you all who got the grift! It was absolutely a grift, though.
Just a decade back it would be unthinkable to have Chinese companies compete on anything besides cheapness against US tech.
- Also, chinese companies get advantage from their currency not being the global currency, while usd being the global currency allows usa to spur up almost infinite debt and loans without any penalties, or severe inflation, it forces the federal reserves in keeping usd a stable reserve store.
This makes american exports significantly uncompetitive, while china can make its exports cheaper. Not to mention fewer regulations, negligible IP enforcement, obscene strategic IP theft from american companies at the nation state level, have all helped china reach this stage.
This wasn’t caused by VC , but rather American politicians sleeping and fighting amongst themselves when they were awake, while china ate your lunch.
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.
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.
I have my doubts they'll actually do that and I suspect that Powell was just "jawboning" because they're trying to engineer a soft landing through talk.
The fact that they're even talking about cutting rates now means that the cheap money era is not over and the they're feeling political pressure to cut rates. If we do hit a recession you can bet that they'll slash rates to zero again. They have never once stated any kind of commitment to higher rates and I don't understand how people on the internet read any level of hope into the idea that their viewpoint has changed in any fundamental way.
Don’t forget that the vast majority of VCs either fail or don’t beat the market.