Anyone paying attention in the industry knew in 2019, pre-pandemic, that something wasn't quite right. Companies were hiring way more people than they needed, growing way too fast, building products that didn't make sense, pivoting to increasingly user hostile products, etc. But it kept going because VC and other investor money just kept flowing in.
Then pandemic hit. Everyone who thought things weren't right in 2019 expected the reality check to finally be cashed and for a major industry correction to happen. It should have happened. But it didn't.
Instead the Fed poured incredible amounts of money into the market. We saw stocks instantly u-turn and companies that in 2019 you were suspicious of were all of a sudden getting even more ridiculous valuations.
This happened for what is in retrospect and obvious reason: Big name investors and VCs needed time to cash out. And they got it. We saw two years of record numbers of IPOs. Myself and many others pointed out over a year ago that something wasn't right, that this looked like investors rushing to cash in their chips and get out before everything came crashing down.
Inflation started to rise, and indeed the game came to an end. Now we're going to see a crash that will be much harder than we though we would have seen in 2020 because policy has allowed already unhealthy companies to explode and grow even larger. And they're all interconnected so it's going to be ugly.
How many of your company's customers are other start ups or other tech companies? We have a generation of companies led by people who have never really seen a recession, forget one that impacts tech, completely clueless about what's coming. First we saw consumer spending absolutely wreck big name companies bottom lines. But this is very likely to start spreading as more startups that depend on other startups revenue streams start to miss their targets.
This current generation of founders might be clueless about recession and major downturns, but the people in charge at places like Sequoia sure as hell aren't.
HUGE conspiracy theory here. Also, you are giving VCs too much credit. They're not super smart, with a few exceptions.
When the market is not that optimistic anymore and people are in conservation mode, there's no one to pass the bag to anymore so VCs have to appropriately adjust which businesses they are going to invest in and the valuation.
This is why hype, signaling and FOMO plays such an important role in fundraising. It is about whether the startup can generate enough promise to convince others that they're a high growth investment vehicle and not as much about whether they are profitable in the short term.
Startups with cash on hand and generating cash from operations will have some bumps in the road and probably take a big hit to their valuation, but with make it through. Startups still trying to figure out how they’re going to “make money” and without a ton of cash on hand to give them a long runway likely won’t make it through the next 18 months.
Inflation started to take off about April last year, and was 7.9% at the end of February this year when Russia invaded Ukraine. Since then it rose about a half percent and then started to drop, as sanctions have been implemented.
The answer to the why of all of this is super easy: greed.
Their portfolio companies can go bankrupt. It is a Darwinian (survival of the fittest) moment for all the companies at this time.
We’re experiencing a (likely) shrinking economy, with fewer customers who are spending more conservatively. VCs want their companies to succeed and preserve wealth.
I believe fed is on a pause.
Cheap money has been a plague on tech. Even bucket shop crypto shitheads like Parcl were getting 10's of millions of dollars. The party is officially over for charlatans like them.
Yeah, "here we are" but we may have to get through a very rough patch for a couple of years before getting to the next run up.
Economics is the biggest “bro science”
This is definitely not investment advice.
When I saw that CryptoLand video last year I immediately through of the E-Trade monkey superbowl commercial.
However, there is still risk that could make this current situation last longer and be more painful than I think we anticipate. If corporations start laying off workers and/or if the general public gets spooked enough to stop spending, that could actually induce a deeper recession than I think you and I are currently expecting.
No doubt there is some short-term negative news coming out this summer. The question is what the sentiment will be like come early fall. I think that's when we will know how bad this is going to be. It might be over by then. Hopefully.
"Adaptability"
> 1. Must be adaptable. “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
It's too much information in some cases, that we assume will be verbally given (and then later members of the audience are expected to cross reference to dig deeper on), mixed with filler.
They're telling their portfolio companies to shore up their balance sheets and extend their runways in case raising money at previous peak multiples continues to be difficult.
> Time to get your team's commitment for the path forward or... politely ask them to lighten the lifeboat
That's a gem.
Somehow, I feel like I’m being served ads.
By a hedge fund.
Walk away.
The economic limit is not on the availability of capital, it is on productive assets to put capital into. e.g. This isn't a water shortage, it's a bucket shortage. The maximalist view of returning the most to shareholders at the cost of becoming completely unmoored from reality is the direct consequence of a board installing a their rep at the helm to pump and dump the asset for them, and said rep writing a self justifying book moralizing their role in the experience afterwards. It's a critical and necessary role, but managers are not builders, they are extractors, and in a deluge, it's not the people with the promises who prevail, it's the ones building the rafts.
Anyone who has thought seriously about what this downturn is and what is causing it also knows that there are technology solutions that can and will turn it around. No company with product market fit will ever go down for lack of capital, it needs you more than you need it. The most volatile and powerful force on earth is human desire, and beautifully, right now it is suppressed by a small cadre of people who think they can subdue, contain, and manage it.
There has been no greater opportunity to disrupt and bring down mammoths since the the holocene era. The FAANGs growth period is behind them, which means they have peaked and they arguably now more defensive of their market share than they are innovative, which leaves a huge gap open. Nobody likes them anymore, to where blowing off their recruiters doesn't even merit a quip on personal slack channels. They're disco. Bets against the dominance and longevity of the platforms has become optimism for the human spirit, and that's a precarious place for them to be. Their whole strategy is to be short customer satisfaction, but without the regualtory monopoly holds that other predatory companies with terrible service have (credit agencies, HMOs, retail banks, cable and wireless operators, etc).
The reason the platforms want moderation and censorship is because in exchange it consolidates their market share via regulatory backing under the pretext of safety, so no new competitor can come to market unless they can meet the moderation requirements. That's how much they know their product sucks, that they are willing to get into bed with government to mandate that nobody can use anything else. That's the opportunity. To invent ice cream in a market full of shit sandwiches.
Pessimism is predicated on a zero sum model where you tell stories about a change in its balance, and given change is constant everywhere, all predictions of change in zero sum models are necessarily solipsisms. They aren't wrong it's just misleading and lame. (I do it myself a lot, optimism is a muscle that needs training.)
Anyway, this is to say my own plan is to listen to people, build tools for them, ship products, and iterate. Our greatest risks come from when we take our eyes off the road to worry about the fuel gauge. That slide deck provoked me anyway. Kind of them to share it, as it's really amazing to see their insights, but also to know for sure that mine really are way better.
Similar "Recovery will be Long", "Survival of the Quickest", etc, themes.
(it isn't the same deck)
A finite mindset?
> "I want to take you back to early 2000 ..."
Does the world still look like the early 2000s?
