VC Fund gives money back, says the market for mature startups is too weak
nytimes.com
nytimes.com
> M&A is effectively dead right now
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/bf99ca...
The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.
The other reason isn't so much weakness as much as pandemic-era valuation madness. Reasonably priced, a lot of start-ups would sell for less than their last valuation. That would seriously cut into the founders' pay-outs, which are usually based on common stock.
Both Databricks and Snowflake are in the process of integrating Iceberg capabilities into their own lakehouses, because the industry is consolidating towards Iceberg, especially after Clickhouse and Dremio integrated Iceberg support in 2022.
This is why Snowflake preemptively announced the Polaris Catalog right before the acqusition by Databricks was announced.
Databricks, Snowflake, Dremio, and Clickhouse are all competing for the same piece of the pie, and much like Cybersecurity in the late 2010s to early 2020s, there is a drive to "everything" platforms, and RFPs can absolutely get sank due to lack of capabilties in comparison to a vendor.
The big issue is a number of startups in that space raised at very favorable terms with Growth Funds in 2019-23, which made them extremely expensive to acquire versus to either build in-house or conduct a tuck-in acquisition.
What's I've noticed is that if it costs greater than $100-150M to acquire, it's difficult to make a case for acqusition versus build in-house unless you are extremely behind and need an internal culture change (eg. Cisco and Robust Intelligence being similar in magnitude to Cisco's previous foray into SDN w/ Meraki)
Series C and below remains fairly robust ime, as we can see with Dig Security, Talon Security, Robust Intelligence, NeoSec, etc.
The main open question right now is about AI Security and Safety - specifically, whether to build or buy.
Most other segments (DSPM, OT Security, Vulnerability Management, CNAPP, etc) have largely been acquired and consolidated.
The thing is, there aren't that many startups in the space left that garner mutual interest in acquisition.
It's basically bimodal now, whereby
- a number of Series B/C startups have enough cash in hand to potentially do a tuck-in for a Seed or Series A AI Safety/Security startup and as such don't want to get acquired by a larger company because they have a strategic path forward to differentiating themselves from larger players [Acquirers interested, Startups uninterested]
- a number of Series E/F companies that have raised capital at multi-billion valuations but do not have a path forward to generate revenue at those valuations (eg. Lacework valued at $9B but ARR shy of $100M) [Startups interested, Acquirers uninterested]
Most notably, the earlier stage startups are now founded by startup founders who already have a $1M-50M net worth now due to successful cybersecurity exits in the 2019-23 period (IPO or acquisition). You can see this first hand in the Israeli and Bay Area cybersecurity startup scene.
Another reason is the AI craze. Everyone and their dog is focusing on being a/the dominant power in that area, so interest in "old tech" is waning.
And the last/smallest factor is that many of those individuals who exited in the last few years are hesitant where to put their money, and there is not much space for multi-billion dollar established companies to make acquisitions when they're all forced to let people go as a result of the post-/mid covid hiring spree and anti-trust authorities worldwide being very critical of more agglomerations at the moment - some because of strategic reasons (Europe in particular isn't looking too friendly to more of their companies being bought out by foreigners), some because they do not want to risk even more companies growing too-big-to-fail.
If you have a company that raised a 100m of preferred at a 500m valuation, are you going to take an offer for 150m? Most founders are just going to keep grinding hope things get better.
1. Anti-trust activity takes a HUGE portion of the liquidity that does M&A out of the market. That has a dynamic effect -- other players who are not under direct anti-trust scrutiny think twice about their potential M&A activity. This, in theory, should reduce M&A prices (reduction in supply supply), but this is probably largely offset by point 2. 2. Inflated valuations from 2021 era. Lots of companies raised ridiculous late stage rounds around this period. Then interest rates rose. Now your company that raised on 100x ARR is worth a lot less than it was. But the company still has to grow into and beat it's last valuation. Combined with the M&A dynamics, it's much harder to justify a post-money above what your last raise was if that raise was a post-covid valuation, unless the business is just truly on ripping (e.g. Wiz).
Edit: clarity
Management fees. Carry is performance based.
Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.
Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway.
Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.
This isn't unique to growth equity but commiting to a capital-calling fund in general.
> no one really wants to be interested in increasing their exposure to PE or growth equity anymore
PE and VC suffered relative to private credit [1][2]. (Basically, folks want to lend to private companies more than they want to buy stakes in them.)
It's unclear whether growth is being uniquely impacted versus private equity in general, early-stage VC inclusive.
[1] https://www.institutionalinvestor.com/article/2dk6rmatv89c9u...
[2] https://www.bloomberg.com/news/articles/2024-10-01/jpmorgan-...
AKA, we've made a loss, but don't want to admit it yet.
If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
If you over declare, you pay more tax. (you'd pay perhaps 1% of the asset value every year, and that would replace income tax, capital gains tax, etc)
If you under declare, someone else will come take your asset off you for whatever value you said.
Suddenly this whole idea of "unrealised gains/losses" goes away, as does fake valuations for tax avoidance.
How would this work?
Sounds like a bonanza for developers.
Like, 99% of the activity under such a mechanism would be transfers of financial assets.
This should completely replace income tax. Copyright terms should also be 10 years, maybe 15 max. Patents could probably stay as is, but I don’t see any problem reducing them too.
Sure. This is a totally different proposal.
Would note that you could go a long way to making this proposal electorally appealing by exempting primary residences. (In my experience, the assessed value of a home is at best loosely related to its market value.)
The number one waste of space in the US is people’s excessively large footprint, causing enormous consumption of energy and infrastructure costs that are borne by future generations.
All these detached single family homes on 0.1+ acre lots are massively expensive and the people living in them hardly pay taxes proportionate to the benefit they receive from the government. Instead, our society takes from the working class via income tax.
If you want to live in a detached home on a large lot, be ready to pay the appropriate land value taxes.
If you want to conserve and use less of society’s resources, live in an apartment building.
Since the tax formula would be a power law function, it would inherently not be punitive to the vast majority of Americans who don’t live on outsize plots of land.
Massively needing a source.
> it would inherently not be punitive to the vast majority of Americans who don’t live on outsize plots of land
DOA. Partly due to the electoral college. Partly due to American optimism and aspiration. Perfect is the enemy of the good.
Physics.
Energy = acceleration * mass * distance.
The more stuff you move further distances, the more energy you need.
Obviously, more people living in a square mile will use less energy per person than fewer people living in a square mile.
Think about all the energy needed to move water/sewer/trash/gas/police/ambulances/etc in and around a neighborhood where 100 people live in a Barcelona style communal living versus 100 detached homes on 0.1 acres each.
The huge knock on effects of the latter is that it then necessitates personal vehicle transport, which then compounds into more space being needed for huge arterial roads and highways, which then makes neighborhoods unwalkable, further necessitating personal vehicle transport, and so on and so forth.
> DOA. Partly due to the electoral college. Partly due to American optimism and aspiration. Perfect is the enemy of the good.
I’m under no illusion, but I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary.
Zoning, however, is the mutandis. LVTs absent zoning reform would not be expected to change much in cities. Zoning reform absent LVTs would spark a systemic boom in densification.
Zoning reform and LVTs are thus orthogonal, with the scant interaction being almost entirely defined by the ratio of unbuilt structures due exclusively to zoning or land hoarding. I asserted that ratio is close to one, due to ample evidence for the former. I asked you for evidence of the latter; "physics" is not a response.
> I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary
This is, by definition, extremism. It's generally seen as a red flag, communicating lack of commitment and/or dogmatic delusions.
Yes, but exempting homes from LVTs would counteract some of the incentive for densification. I would even go so far as to say excessive space for homes (which goes along with infrastructure that prioritizes cars) is causing knock on effects like kids not being able to roam around outside, and hence causing having kids to be a bigger burden, and so on and so forth.
>Zoning reform absent LVTs would spark a systemic boom in densification.
I would challenge this assumption, as many people prefer suburban quality of life that depend on not living in densely populated communities. Could be from simply preferring more space for themselves or their cars to being in school districts with higher proportions of kids from richer parents.
>I asked you for evidence of the latter;
I am not sure what you are referring to by former and latter here, but when I mean "waste of space", I mean front a big picture view in terms of resource/energy consumption on a societal level as well as knock on effects of sedentary lifestyles, less interaction with neighbors, and so on.
Physics is the answer to the resource/energy consumption part of why it is a "waste of space". If the goal was to ever meaningfully reduce emissions or consumption of various resources, then it would have to involve denser communities.
I would say that both zoning reform and LVT is necessary to accomplish broad reform.
>This is, by definition, extremism. It's generally seen as a red flag, communicating lack of commitment and/or dogmatic delusions.
Unfortunately, my conclusion from observing humanity so far is that it is extremely difficult to reach consensus when the decision involves lots of short term individual sacrifice in exchange for long term societal benefit. I would say that my hopes now lie with technological progress, rather than say, paper straws or recycling plastics, as those seem to be distractions meant to placate.
Lets say any item worth over $10k (including cars, land, houses, companies, etc) would be part of the system.
Another way of looking at it is "all items in the nation are always for sale, and if you don't want to sell you better choose a high price".
Obviously if you don't want your stuff taken, declare a high value. But you'll pay a bit more tax for the privilege.
Just like a car dealer changes the sticker prices on his cars every few days,
this is ridiculous
So Bob is not only out a car, but down $1,800k to boot?
This would ensure that people's labor and their bodies would be put to the most efficient economical use as well as increase tax revenue.
It would also solve the problem of undercompensating of workers. If your employer values your experience and knowledge, they would have to pay a premium for it, otherwise a competitor would buy you out from under them.
Lots of people hoard their time, spending it with friends, family, and children. This would force that time and labor into the market, where it could be taxed and contribute to social good.
A woman reading a book or singing to their child creates no taxable income, and doesn't contribute to GDP. Under the current proposal, If She didn't pay sufficient income tax on the time she selfishly hoards, a company like hooters could buy her and put her labor to more productive use.
Private ownership would become impractical for the hoi polloi.
The wealthy would need to pay a new class of bureaucrats to keep asset values up to date, to continuously incorporate new information into their marks. Everyone else would be better off renting--owning a car would be risky as it could be snatched from you at a moment's notice due to an overnight shift in the metal markets.
Remarkably similar to a feudal system, actually.
EDIT: What am I thinking, you'd just move all your financial assets overseas and maintain as little real property as possible domestically. The same thing folks do in the Gulf countries where the monarch gets stealsy from time to time.
This would make investment bankers and lawyers happy and nobody else.
Note that any company with a '40 Act investor already has public valuations per those investors' opinions published--it's how you get "Fidelity marks down value of Twitter stake again" headlines [1].
> this whole idea of "unrealised gains/losses" goes away
As does the entire American private capital market, including small business, since illiquid investments now become punitively expensive to hold.
The more I think about it, the more impressive this proposal becomes in terms of solving almost zero problems while actively making the problem worse in different ways.
[1] https://www.reuters.com/technology/fidelity-marks-down-value...
Best alternative I can think of is a soft fascism where the government receives a small stake in the company each year instead of cash. Then holds or auctions it as some bureaucrat sees fit.
Yes. It's not even difficult to imagine. Management undervalues group assets to buy them on the cheap for themselves.
It's not my imagination, I've seen how they sell the same assets back for a profit after enjoying some tax depreciation for a while too.
That feels problematic. How much is your wedding band? Or the urn with your grandma’s ashes? Or the favourite teddy bear of your child? Or all coppies and rights to your wedding photos?
I hope you declare them high enough or people might just take them for the lolz.
Probably it would be much more lucrative to snatch up the homes of older folks who accidentally misdeclared. With the right PR you can even label your victims as tax cheats! What a “beautifull” system!
Ports would tax ships on the value of their cargo. It wasn't viable for the port to create valuations themselves, so they left it up to the ship, but the port had the right to buy the cargo at that price.
The scheme kind of works well if it's liquid commodities (e.g. grain, oil, lumber) and the purchasing right is held by a non-capricious authority (i.e. one that only exercises that right to call a bluff).
Taking a down-round on an IPO can be very damaging to a company. Since employee equity is based on options, that puts those options underwater and means employees will make nothing in the IPO. Internally, the company is doing 409a valuations and admits in writing that the valuation is down.
RSUs are kind of unworkable if the valuation will increase significantly before the shares become liquid since you owe taxes on their value as they vest whereas ISOs let you defer taxes until at least exercise if not sale.
You and your dad run a plumbing business. Every year you have to pay someone 10k to get a valuation. Then strangers can buy a piece. Do you have an operating agreement? If not he can force a sale if the company.
I don't think this is a great policy.
Pretty problematic to force the sale of assets from private individuals in anything remotely resembling a free country.
That aside, wouldn't this just result in megacorps owning literally everything in a matter of a few years?
Isn't the market what determines the value of a company? If they can't get the IPO price they want, then they aren't worth what they think they are.
Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.
Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.
But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.
This phrase is distilled nonsense. Executive privilege [1] has precisely nothing to do with the principal-agent problem [2].
[1] https://en.wikipedia.org/wiki/Executive_privilege
[2] https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
My House has a public valuation, but the value it me is much higher, so It is not for sale.
Im sure there are several things that you dont buy for their market price because they have less value to you. You dont go into the store and buy every Item you see, or put every item you own for sale.
With all that said, my point was to highlight the role of choice in deciding to sell or not. I wouldn't recommend selling your car if you owe more than the market price, and don't have money for a replacement.
11.129B market cap.
There's an appetite for companies with low profitability, but promising future growth.
The VC fund in the article is basically saying "We believe that anyone buying late-stage startups at these valuations is a fool and is unlikely to get a better price when it goes to the public markets, and we are not going to be the greater fool with your money."
The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
This is bad.
Of course someone could say "well they're not forcing you to buy the IPO'd stock!", and that's sort of true, but only in the strictest sense. My 401k, like I think nearly everyone's, is a mutual fund, and it invests in a little of everything. I also buy ETFs that do the same thing, because it's really the only way to preserve wealth, for better or worse. Even if I, for example, thought that WeWork's business model was unsustainable, I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.
I have a lot of VTI stock right now, which if I understand correctly invests in basically everything in the America stock exchanges, though I guess an argument could be made that I should have known that dumb companies being included in there was always a risk.
Still, I don't have to like it, and I do think that a lot of these companies IPOing when they don't really have any way of actually making money is an issue waiting to happen.
Hold it for 10-30 years and it’ll be up and to the right. On average 10% gains in a year, though like anything it always fluctuates
I agree it's a good investment for long-term stuff, it's the fund that I recommend to everyone.
Personally I feel like it's a bigger issue for individual investors that in recent years companies now IPO only in later stages or not at all and that much of the more profitable bits of the growth curve are now accessible only to the private markets.
From a VC perspective, you can exit as other funds rebalance into the stock at the inflated valuation.
Some other approaches:
* Buy long-dated put options for companies you think are overvalued, so your overall portfolio (retirement account+personal trading account) has 0 exposure to stocks you don't like. If a stock's price goes down, exercise the option before its expiration date and profit.
* Assemble a portfolio of sector ETFs and exclude the tech sector. Or buy regional ETFs in regions with low tech exposure. (If you're American, I recommend buying ex-America ETFs for hedging purposes anyways, since your career already gives you significant exposure to the American economy.)
Granted, you will be paying higher fees with these approaches, but given how dominant tech stocks are, if you really believe they are significantly overvalued, I think you should be willing to pay those higher fees.
You are not going to make much shorting in general unless you have a nose for identifying the next Theranos et al.
Every 401k has multiple fund choices, so pick one that does not invest in recent IPOs.
In fact this should be very easy because most funds don't participate in recent IPOs! Depending on the 401k, you might not even have any fund that invest in recent IPOs.
I've done that, out of necessity -- the US IRS hates foreign ETFs, and I live out of the US.
Market movers are almost certainly a Parato 80/20 thing, and most of the growth of the stock market, or even the S&P, is in a handful of companies.
Find the prospectus of any local Index funds and then start looking at their top 50 picks; cross reference that with a few others. Pull the 20 that stand out the most.
It's just general market conditions. Once interest rates fall, tech VC will go right back to the grift.
Biotech has also seen a major slowdown this year too, despite the huge $43b, $14b, $10.8b, $10b, $8.7b, $7b and $7b [1] acquisitions last year and all the usual IPOs. It's just interest rates catching up to everyone's funds.
[1] Seagen, Karuna Therapeutics, Prometheus Biosciences, Immunogen, Cerevel Therapeutics, Reata Pharmaceuticals, Mirati Therapeutics
But the U.S. population has to want it rather than voting emotionally again.
> But the U.S. population has to want it rather than voting emotionally again.
Why would the US population want:
>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
? IMHO those greater fool-based moneymaking schemes can go die in a fire.
>>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
I was the one that originally wrote that. Bear with me for a second.
I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.
As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
We may recognize that building castles on sand is a bad idea. Perhaps our economies, and the rules that create incentives (perverse or otherwise) should be different than they are.
Fact is, we have a lot of fucking castles built on sand right now. If they crumble, a lot of people will be left to wander among the rubble.
I do hold a deep despise for the billionaire class that was the ultimate beneficiary of this whole "building castles on sand" activity. It's not them who will lose the most when everything crumbles though.
I get that, we as software engineers have indirectly benefited from the scam.
> As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
I don't think it's hard to say. If the general population was made understood the full situation, they'd tell us software engineers to get lost along with the billionaire VCs, because the general population are the ultimate greater fools that pay for it all (either directly through the stock market, or indirectly through the businesses who make so much through monopoly off of them that they can easily afford to be greater fools).
We software engineers have had a pretty privileged time while a lot of people have been struggling (viz. the whole "learn to code" bandwagon from a few years ago).
Nonetheless, I don't think you are wrong. I'll just point out that the monopolies you refer to, and the billionaires that ultimately benefit from it exist due to policies and laws that directly benefit them so they achieve that very position.
I don't deny that we lived though a privileged time - I was perhaps lucky that I had aptitude and interest in coding right at the time when the profession was on the rise.
While some may be deeply concerned about AI taking jobs (which I think is complete bullshit), my main concern is a shift in economic conditions that will severely reduce demand for developers due to less money moving around the sector.
I believe the the ones that will suffer the most are the newcomers. Either recent graduates that are coming to the market at the worst possible time, or those that switched professions very recently only to find the promised land had withered before they arrived.
Oh well. Time will tell.
Yes, it wasn't pushed by software developers, but it wasn't some fake thing either. The main driver was the anxiety and stress a lot of people have about their economic situation. Software development was seen as one of the few achievable "good" job as precarity crept into many previously stable types of employment. The "parties interested in flooding the field with newcomers" just took advantage of the situation.
Where? I wouldn't be surprised if deflation becomes a real concern in the near future. Eurozone is already at 1.8% YoY
Unemployment has bottomed out again at 4%.
The stock market has been making all time highs.
The fed is lowering rates.
None of these measures says anything about human health or anything other than the fact of dollars exchanging hands
Egyptian, roman, French etc… slave colonies probably had the best economic productivity on the planet. Who cares?
FOMO and free cash can work like magic for all kinds of assets.
They did this to avoid any changes to their sky high valuation, as if they went and fundraiser it would have tanked it.
At this point I think they’re hoping to meander along until they’re forced into fire sale or they get acquired for their customer base
If interested, look up "Valuation: Measuring and Managing the Value of Companies"
There are several markets involved here.
> then they aren't worth what they think they are.
Which is an indication that your market is corrupt or lacks the information discovery necessary for accurate pricing information to be generally available.
In theory, the market will bounce back so IPOing now is effectively selling low.
Historically, there were two main paths for startups, IPO and being acquired by a larger competitor. The latter path is now a lot more difficult, due to the DoJ, the EU and whatever the UK's thing was called suing everybody who tries to do an acquisition.
In the long run, this means fewer startups will get acquired, fewer startups will have an opportunity to exit, the potential upside for VC firms is going to diminish drastically, fewer companies will get funded, which will ultimately lead to the incumbents having all the power and startups having none. This is a very bad thing.
What’s to say startups don’t start being creative or truly innovative and focus on making and selling products while making a profit?
I’m sure another viable exit strategy will be discovered
If your only business model is to get bought out by a larger company capitalism SHOULD world to reduce the number of startups.
Also, the incumbents just buying everyone up also = incumbents having all the power, and is also a very bad thing. Hence the creation of antitrust laws, and the concept of it being baked into foundational capitalist thought.
For me that sounds much more desirable than having a handful of extremely highly valued giga corporations. It cannot be long term good to have so much valuation concentrated to what less than 10 or so companies...
No, the company founders should be allowed to set their own goals and not have them dictated by regulators.
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.
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
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.
What matters more is change relative to it's market cap at IPO. And yes this is significantly worse for newer companies. There is a clear trend showing the 2010-2022 tech IPO market pushed valuations pre-IPO to insane levels such that post-IPO growth was limited or even negative meaning retail investors never had an opportunity to hold equity.
Personally, I assume they'll do some layoffs & cut spending to increase their margins, by, say, 4-5x, before they IPO.
How are you meant to profit when you have a product that costs a lot to run, that has an expected price of $0.
Being an AI startup that was founded before about 1 year ago is actually a liability.
The way we thank about AI has radically changed in the last year, maybe last two years if you were really forward thinking.
Any AI company before then will have a mountain of business logic and technical architecture that they need to throw away and redo.
I would assume that if the underlying models were already good, about the only thing an LLM might be good for would be filtering new info and/or presenting information in a useful way, both of which can be added to an existing flow?
Their current model is much better, because their training data is much better than feeding everything in.
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.
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.
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.
However, this is 50 year of court inertia she is trying change. It doesn’t go fast.
I would refer people to JumpCrisscross’ remarks which are clearer than my own, such as: “The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.”
People are way too emotional about Figma and Adobe and do not see the forest for the trees.
Until Google, Apple, Amazon and Microsoft are broken up, or seriously splintered, other anti trust action is not merely irrelevant but counter productive as it just entrenches the positions of the established players.
Ensuring market competition helps consumers.
An investment industry whose endgame is destroying the product they created by selling it to their competitor is not an industry we need. IPO is a positive societal exit. Selling to another investor is a positive societal exit. Selling to a competitor so the can smother it should've never been a primary exit and that's being fixed. That's a good thing.
Absolutely. The whole subject of this article is the difficulty of startups securing late stage funding. This means a lot less competition for FAANG. Look at how Meta has not needed to buy anyone in ages and is essentially fine, yet historically was spending vast amounts. Only tiktok, with clear state support, has come close to disrupting anything slightly.
Were it not for the AI wave the tech world would be a trainwreck right now.
It was never true or long term competition if FAANG just buys them up. That isn't actual market competition if it only exists for a blink of time.
You've misdiagnosed the problem. The problem was letting Meta buy up all of it's competition until almost nobody wants to compete in it's market. The problem was exactly letting market leaders buy up their competition. The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
You're arguing your conclusion as your premise.
This is a question of is it good for market leaders to be able to buy up their competition? And the answer is "no".
It is almost like I said this right at the start and you are all ignoring it.
Punishing a relatively small player (Adobe) has had this knock on effect on the entire ecosystem that coincidentally benefits the larger players by making their already big positions unassailable. Follow the second order effects here.
Edit to add: > The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
The point is that in a world that tolerates the ongoing existence of FAANG (+Adobe +Microsoft +Oracle etc.) as the monopolies they already are you must allow large acquisitions in order to enable the emergence of new competitors, either directly or as a result of the founders making a second shot. Otherwise their defensive moat is just hilarious.
The absolute best option is to break up the monopolies, then be stricter about their emergence in future i.e. through blocking acquisitions. But you cannot do this by starting at the end like this, as it makes it worse.
You keep asserting this without any evidence. I keep explaining why this is false.
Instead of asserting it again, would you mind explaining how you view that Adobe being allowed to purchase Figma in anyway increases competition with any FANNG companies?
You keep failing to read what I wrote.
> Instead of asserting it again, would you mind explaining how you view that Adobe being allowed to purchase Figma in anyway increases competition with any FANNG companies?
You are the one making assertions with no evidence. You even make assertions about what I have said which are obviously wrong.
Either attempt to actually explain the specific link, the specific steps between A and B, or admit there is nothing more you're giving than empty assertions.
Someone who refuses to support his/her points is not worth debating.
Means Adobe are included, as it says at the very top.
Stopping them buying Figma achieves nothing good. Their monopoly is on print and publishing tools, and no one has been close to them since the actual crime of the acquisition of Macromedia and subsequent killing of Freehand.
Had Figma been bought at the valuation Adobe were offering the founders would, given a few years, be free to leverage their expertise and now vast resources on whatever is more valuable at the time, and now that is lost.
Now though you will certainly suffer because when Figma inevitably goes to hell the only remaining option will be the janky self hosted clone as no one will be able to fund proper competition for it or any replacement.
(I mean die or get picked off for peanuts by someone like Atlassian or ServiceNow.)
This isn’t abstract, it is exactly what MS Teams has done to that whole segment.
I couldn’t make heads or tails of your posts here until I read this. “Anti-monopoly action is good, even regarding Adobe, except for the Figma acquisition in particular, which should have happened” doesn’t really make sense unless your starting point is “the desired outcome is that specifically the Figma folks get overnight super rich” and then you work backward to construct an economic reason for that.
The point is unless you dismantle the core print publishing monopoly Adobe will simply produce a crap Figma, bundle it in Creative Cloud, and Figma will die a slow death. At least if Figma is acquired it gets the chance to do the opposite.
My priority is the widespread availability of high quality products and services, which requires rewarding those that make them, and a competitive marketplace without people engaged in product dumping.
This makes sense. If Adobe makes a crap Figma copy and Figma dies, that is bad. If Adobe buys Figma, makes it terrible, and then it dies, that is good. In both scenarios Figma is dead, but in the Good one the Figma founders cashed out.
You literally posted that the ideal outcome is that the Figma founders could leverage their newfound wealth to do… something(?) with all their new cash, which has zero to do with Figma as a product or the users that get screwed.
You know Signal was funded by a WhatsApp founder? That sort of thing.
And MySpace Tom is now a travel photographer. This is an equally relevant tidbit of knowledge regarding antitrust and the future of Figma.
> My priority is the widespread availability of high quality products and services
Seriously?
We need to move away from the mindset of companies getting built to be acquired and then all their product innovation gets snuffed out and their users suffer: it's wasted economic output.
More startups and more innovation gets created when founders have higher hopes of a positive exit, and in turn, this is good for the world at large.
When a startup becomes FCF positive quickly, and can sustain their growth, they generally don't want to get acquired (eg: Facebook, Snap...) and generally aim for an eventual public IPO. But this is a high bar, which only a small number of companies reach.
The ones that do choose to get acquired, often do so because they are not as optimistic about their own sustainable growth as outsiders might think. If they can't make a reasonable exit via an acquisition, then their equity becomes zero and their years are wasted.
From a founder point of view, acquisitions act as a significant floor of value for the time and effort that the founders and employees are risking. This negative Expected Value risk taking drives innovation and growth for all, significantly curtailing acquisitions makes it severely more negative EV. Worse, the impact of this will not be felt immediately so the new FTC will be able to claim political and populist wins; it will show up in reduced startup creation in the years to come.
[1] Figma feels like it has a reasonable chance of surviving on its own, and become genuinely disruptive to Adobe in the future. But if it dies and goes to zero, then I will feel sad and unhappy that the acquisition was blocked.
Because this is why founders are founders.
No, I disagree. It is a negative for the world at large if people are incentivized to build businesses solely so that they can be acquired by some big tech company.
Even if one hopes (unrealistically, IMO) that sufficiently-large hypercorps will save us from this fate by collapsing under their own weight, why not just cut out the middleman and break up the huge players now, rather than suffering under their market tyranny while hoping for it to happen on their own?
A startup being attractive for an acquisition is also quite different from being attractive to clients and users, and therefore that’s an incentive structure that is worse for clients and users.
Large companies often get bloated & collapse as well. This has always kept me from being to concerned with them over the long term.
I would watch a documentary on what Microsoft had to do to get Activision. It seemed they spent a lot on the best legal team money could buy & on political capital as well. There were a ton of different angles too such as mobile gaming where Microsoft can't compete easily, studios where Microsoft has a lot, the Activision harassment fallout, the foreign competitors (Sony & Nintendo), cloud gaming competition.
Figma & Adobe had a lot less competition pre-AI wave so I understand the push back on that one. Especially due to Adobe's past on buying competition, killing it off & little innovation. Ironically now with all the AI startups I think Adobe has a lot of competition.
The Spirit/JetBlue airlines M&A being stopped is still my biggest head scratcher.
I personally think Figma & Adobe should have been allowed to merge though as companies like Affinity offer a very competitive product. I also was in favor of all the above M&As though.
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.
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.
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.
I have to imagine this priority shift is in part due to the money markets being what they are.
In these cases, companies raise funds at the same valuation as their previous round, often labeled as Series A+ or Series C+ or Series B Extension.
Another, less common strategy involves using a SAFE (Simple Agreement for Future Equity), which will convert to equity during the next priced round.
Source for doubling down or divesting? It looks like they're holding course on early stage and pausing on late.
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.
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.
difficult to help startups grow, if they never reach the growth stage. that's why a robust pre-seed / seed stage ecosystem is necessary.
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"
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.
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."
heard