Your comment is unbalanced, because it only considers costs while ignoring gains, assuming that “cheap liquidity” also creates valuable gains.
Or perhaps your comment is tautologically true: liquidity is defined as cheap when the economic returns are strongly negative overall?
[1] “Cheap liquidity” is a terrible definition, because liquidity is predominantly considered a good thing in functioning markets, and cheap transactions are usually seen as good as well. I am assuming you mean “cheap liquidity” to mean “cheap money” (not a clear definition either) or that “raising funds is easy for startups and costs them relatively little”.
Perhaps the art of bootstrap is not discussed enough here.
In this one, I'd point to the title ("Extend your Runway"), and if you really picked at those nits I might fall back to "Default Alive."
All advice in these articles applies to the other kind of businesses ("makes $10k and spends $100k/month...") that likely got in that position by what in some cases is basically a ponzi scheme of fund raising, which was completely fine until just a few days ago and then they realized it's not going to work forever. This then resulted in a widespread panic and all this advice about "how to survive" and suddenly realizing that you should also "make the product amazing". These should be default rules to live by for any business, is all that I am saying.
By definition if you are profitable you don't need external capital to exist and thus don't need vc money
Given two companies competing on the same problem, where one is profitable and one isn't, which is likely to come out on top? I'd argue it's the one that brings in the most money (via profits + funding). At early stages, funding will almost always be greater than profits. A profitable company that does not seek investment will eventually lose out to an unprofitable one that has funding because it will grow faster. At some point, the larger company will seek to optimize for profit, acquire the profitable company, or become the default company for the problem space (a near-monopoly).
The sad state of current affairs is that the market is optimized to promote dominance, not capital efficiency.
Quite a while. Demographics meant an incredible amount of capital flow in the last two decades as the largest generation in American history, the boomers, reached the height of their careers and investments. That party is over. 2022 is the peak of the curve for boomer retirement. As they retire that money is leaving the market. Gen X is small and their capital peak won't be nearly as high. Millennials won't be reaching that level of earning for at least another decade if not longer.
I don't see how this piece follows. Why would career retirement stop rich people from investing (as LPs) in VC funds?
Uh, you might want to look at population growth numbers. Also post-boomer.
However I can't help but feel the bubble will burst eventually and it will be a success to run a VC-backed startup for a few months without seeing it become a shitshow.
I can't complain though, salaries are skyrocketing in my area and getting a major raise is easier than ever. It must be scary for founders / owners though.
There has been a lot of FOMO from businesses into tech after covid. But most of these tech undertakings haven’t really been fully implemented or had a chance to show their impact.
Its entirely possible that a lot of businesses will realize that their massive new tech teams didn’t really translate into a healthier bottomline. Perhaps they overhired, overengineered, or simply didn’t have the culture or expertise or even the need to go all-in on tech.
This assumes there's another job waiting for you at the end of it. Raises and job offers remaining plentiful at the same time funding is drying up would require quite specific circumstances to continue - namely, that none of the companies driving today's offers depended on cheap money to get to where they are. If a substantial group of them did, there may not be much of a next round.
That said, a lot of what we see right now appears to just be crowd-following, a lot of what really happens will depend on if businesses see substantial customer exits, not just funding tightening. But if, say, there's a big enough startup crunch to hit AWS's bottom line in such a large way that they start laying people off, suddenly you can start seeing potential feedback loops pushing salaries down and difficulty of finding a job up.
I will say there's probably about to be a bunch of WEB3 crypto bros about to need a new job, to which I say good riddance; the days of them grifting people is probably over.
If you're a startup engineer employed by such founders, why wouldn't that mean it's also scary for you?
Not all founders are VC backed . It’s only the ones that are and never thought about how to turn a profit that should be scared.
interest rates are rising (i.e. cost of borrowing money) and at least on VC (i.e. provider of money) has also signaled publicly - https://avc.com/2022/05/how-this-ends-2/
That said, what's really at issue is that funds will focus on their winners. So even if the money is still cheap and the valuations are still OK, the marginal and "come on, you can literally never be a profitable entity" companies are going to be sacrificed.
So if a VC "raised" a huge fund and the market shifts and all the sudden their LPs might not like a bunch of huge capital calls, the VCs will become more conservative. Ultimately the VCs customer are the LPs, and they won't do anything that is going to piss off all their customers.
The even better strategy is to invest whatever cash there is into those things more likely to recover quickly rather than sketchy startups as there are likely quite a few undervalued things in the market that could recover by a sweet 10-20% in the next month.
And since that money technically belongs not to the investors but rather conservative entities they represent (like pension funds) they are going to have to do conservative things in times like this. Hence the temporary lack of liquidity for startups.
As sibling comments have mentioned, of course, whether the GP exercises that contractual right is far more complex and based on the relationship to the LP; and indeed, VC is a relationship driven game, so the natural behavior on part of the GP is to take their time, see how things shake out, use leverage to get better deals and take a wait and see approach.
The point is, though, if a VC chose /not/ to take a wait and see approach and instead go out guns blazing to take advantage of a buyer's market -- they would be within their rights to do that.
Seems like all markets for the last 15 years (since 2007-2008) have just been tracking the fed.
Since we've started printing we seen a huge rise in wealth inequality and more billionaires than ever, but we don't fight the inflation with high taxes on them so assets they use (high end real estate, art, crypto, yachts) have blown up as have things they invest the extra money into (middle class housing). We should be getting ride of the extra cash floating around with higher taxes.
For example, if you are a SaaS company, you have a good story and team, and your TAM makes sense, you could have previously hit $300k-$1M ARR and raised a Series A. Some startups were even raising A's pre-revenue. In the new environment, that ability will likely dry up.
1. Government Bonds 2. Cash (hoarding it) 3. Early Stage Startups
The most fun and promising is #3, because they will take a few years to reach public markets anyway, and by that time there should be another bull cycle. In the meantime, things need to be built anyway. Especially startups that build stuff that people need or things that save money (like metaverse saves on traveling) because they'll cut down on non-necessities (including entertainment, travel and fuel).
The two companies I personally run are 10 and 4 years old, respectively, and have never taken VC, let alone IPO. They have been designed to help communities in the hard times ahead, with their own social networks, coins, etc.
https://news.ycombinator.com/item?id=31435407
I've heard of VCs at all stages opting to sit out for a quarter or two to see how things shake up before resuming any deals. It was suggested that fundraising right now could take 9-12 months -- 1-2 quarters for folks to sit on the sidelines, and then another 1-2 quarters to kickstart their best deals. Plan accordingly.
If you aren't going to be able to raise money in the next year, this is even more important, no?
That company with lot of easy money could be your customer or your customer’s customer , or the employer of your customer.
You could be a neighborhood coffee shop in the bay, with belt tightening, your customers now will think twice about spending or worse be laid off with no money to spend at all.
It could just be the number of people being laid off will depresses salary or getting a job harder if you are looking for a new role, or your company is now finding cheaper replacement to you now in the market easily, making your job lot less safe.
It is easy to say that it was all too good to last everyone should have known, Many have staked their careers on the current market of 10 years . Taken loans for expensive college degrees, bought houses on mortgages assuming salary , got married started families and so on .
Real lives are going to be damaged by this downturn .
n = 5 so make of that what you will.
I try to write helpful content first, and only then plug the company, so this is good feedback, thanks.
Which is… harsh.
And it wasn't just one shitty product either. But I still agree with you because most of our revenue came from large, well-known, public companies.
That said, VCs raised a ton of money the last couple of years and eventually it has to get invested.
In short: no, going forward it makes the same amount of sense as it did yesterday and also 10 years ago. Prevailing market forces aren't what makes a good investment.
