What Does the Post Crash VC Market Look Like?

I do already see a return of normalcy on the amount of time investors have to conduct due diligence and make sure there is not only a compelling business case but also good chemistry between the founders and investors.

What Happens Next?There is a LOT of money still sitting on the sidelines waiting to be deployed. And it WILL be deployed, that’s what investors do. Pitchbook estimates that there is about $290 billion of VC “overhang” in the US alone. But I believe it will be patiently deployed , waiting for a cohort of founders who aren’t artificially clinging to ... See more

Our conclusion was that this isn’t a temporary blip that will swiftly trend-back up in a V-shaped recovery of valuations but rather represented a new normal on how the market will price these companies somewhat permanently. We drew this conclusion after a meeting we had with Morgan Stanley where they showed us historical 15 & 20 year valuation ... See more

What happens in the public markets is highly likely to filter back to the private markets because the ultimate exit of these companies is either an IPO or an acquisition.

This happens slowly because while public markets trade daily and prices then adjust instantly, private markets don’t get reset until follow-on financing rounds happen which can take 6–24 months.

Of these companies that become well financed we only need 15–25% of those to pan out to return 2–3x the fund. But this is all driven on the assumption that we didn’t write a $20 million check out of the gate, that we didn’t pay a $100 million pre-money valuation and that we took a meaningful ownership stake by making a very early bet on founders an... See more

Valuations will get reset. First in late-stage tech companies and then it will filter back to Growth and then A and ultimately Seed Rounds.

And reset they must. When you look at how much median valuations were driven up in the past 5 years alone it’s bananas. Median valuations for early-stage companies tripled from around $20m pre-money valuations to $60m with plenty of deals being prices above $100m.

Anybody who has studied the VC industry knows that it works by “power law” returns in which a few key deals return the majority of a fund.

From 2019 to May 2022, the market was down considerably with public valuations down 53–79% across the four sectors we were reviewing.