Venture Apocalypse?
That Was The Week 2023, #7
Venture Apocalypse?
When speaks, it is worth listening. And when starts a Substack, it is worth taking notice. However, this week Marc revealed he had recently decided to abandon alcohol, and Chamath predicted that late-stage startup valuations might take three years to revive.
In the same week wrote a wonderful essay on Startup Decoupling & reckoning, predicting that many companies will run out of cash in the late 2023, early 2024 time frame.
Enough to drive a late-stage investor to drink, one might think.
Techcrunch's Connie Loizos interviewed Chamath, and he was sanguine:
So we're at that point in the market where all the boards of these private companies refuse to budge on valuation. And the reason is because it impacts meaningfully their DPI or their TVPIs that they've given to LPs. And so it's a very difficult part of the private markets right now to invest in, because you will not be allowed to do true price discovery because nobody wants to take the real hits.
. . . . [And for LPs] this is now just money bad. And when [more venture] folks leave the market, those companies now become more prone to get repriced accurately . . . [But] I honestly think that's like three years away. I thought it was going to be three quarters away
This rings true. Most investors will try to stave off the day that a company has to be re-valued downwards.
And Elad stated:
Tough times will in part become a test of character. As company after company goes through layoffs, failed fundraises, or outright fails we will see many different types of behavior both good and bad, from investors, founders and employees. It is good to remember in periods of pain that pain is temporary, that technology is a massive wave of change and global economic empowerment, and that many future opportunities are yet to come. It is tough not to get blinded by the moment, but one must strive to see and think clearly and act well in the times ahead.
This was after recommending shutting down a company rather than spending two years burning through cash at an unsustainable valuation.
Most of this narrative is focused on companies that raised capital in 2021. And within that group, companies that did Series A and beyond.
If you are a founder within that group, then what Chamath and Elad say is to be taken very seriously.
However, if you are an early-stage startup, this may be the best time to raise capital. And, of course, as OpenAI shows, big ideas with traction can still command large investments. The freshman startup class of 2023 will produce a lot of high-growth companies.
Anna Miura-Ko from Floodgate, writing an essay titled "Thank You, OpenAI" shines a light on the opportunities this new canvas creates for startups, especially after this week's announcement of an API for ChatGPT.
now, AI has entered the social consciousness, and it's changing the AI stack entirely. Whether it is implementing a vector database and the associated workflows to make that possible, or ChatGPT demonstrating the importance of UI in making AI accessible, the AI stack will be substantially different from our current enterprise stack, creating new opportunities for startups. In addition, because of the larger societal awareness, we are finding large enterprise customers are not only curious, they are willing to pay for solutions that will better automate their workflows creating more consistent and intelligent experiences.
Reading between the lines, many AI startups focused on discrete products will be funded starting now.
Within the combined struggle for later-stage companies to survive and the emergence of a new generation of startups, there is a tendency to overstate the negative and the positive. The right thing to do at these times is to build something amazing and have the world look and be impressed. Become a beacon of light that others find irresistible.
One such company this week is EvolutionIQ, our startup of the week. SignalRank's AI picked it, along with 14 other companies, as a potential unicorn. There were 115 Series B Rounds in the past 30 days. Evolution IQ and 14 others have strong signals implying future success. Congrats to them.