Here are my observations of the VC market as a founder who is currently closing a round:<p>- When in (little) doubt, it's always a no. VCs have to take care of their existing portfolio (bridge rounds) and are only opting in for new deals that look like very safe bets (very strong growth or deep tech defensibility).<p>- Due dilligence takes much longer<p>- Valuations are down as expected although it's not that bad at early stages. The most affected are startups that raised pre-seed/seed rounds at 20M valuations and now face challenges raising series A without product-market fit and only minimal revenue.<p>- More focus on capital efficient business case planning. Current raise should give you 24 months of runway instead of just 12-18.<p>- Growth projections become more conservative (and IMO more sustainable). Previously, VCs always prioritized strong growth over reaching break-even. That is changing now.
I think what should be mentioned in the article is bridge rounds. I know various startups that have done it. In my feeling, at least half of the 38% would be explained by VCs raising bridge rounds for their existing portfolio companies.<p>Rather than come clean that all your valuations came down by 2-3x (the reality of what valuations are circulating on the market nowadays) just do things like raise convertible note with a cap of last round valuation and don't announce it on pitchbook/crunchbase.<p>It's not easy for VCs to just pause investing or invest in some other stuff than their "thesis" - some have agreements legally binding on what they would invest in and timeframes for spending the capital.
A lean market and higher interest rate now isn't a bad thing for the long term. It focuses minds on what is actually a good product, making businesses profitable, etc. etc...
It's not clear to me that the title of the post is the logical conclusion from the post's content. The post talks about fewer investors in VC rounds, but the definition of an investor is just anyone who made 2+ investments. I imagine that includes angel investors, family offices, etc? I'm a VC, and ~100% of the seed VCs I know are still making new investments. For Series A and later, it's also ~100%, but at a slower pace. I do know a bunch of angels and family offices that ramped up a few years ago and then paused when the market corrected.<p>(The thing that made me suspicious here is that the graph shows the number of investors grew from 5,000 to 7,500 a few years ago, but there's no way we got <i>2,500 new VC funds</i> in a single year in 2021.)
I passionately hate VC profession and wish this profession would just die. VC backed companies, with rare exceptions, end up being a net negative for the world. After the initial few years of hype, the level of their products, customer service, environmental impact, treatment of workers etc all decline. Failure after failure, the Patagonia-wearing VCs sit there with intelligent frowns or knowledgeable smiles evaluating something they know nothing about most of the time, producing results that are no better than a coin toss.
Isn’t this normal for an organization seeking 11,000 percent growth with a 20% management fee to stop investing when futures point to uncertainty and new bets don’t necessarily get a follow round raised? VCs can’t afford to get their reputation obliterated by investing in a stage of early growth when they don’t have confidence they’ll be able to take the investment to that kind of exit, so they end up being deeply risk adverse — aka they don’t want to start things they can’t finish - and therefore end up being quite sensitive to economic uncertainty.
From the included chart it looks like we are back to the pre-pandemic “good times” in total deals, down from the “Must-invest-in-everything crazy times” of the last couple of years. Is this really bad news?
We will be seeing many startups layoff folks, pause hiring and shutdown in 2024, if they aren't able to make any money and keep relying on fundraising from vulture capitalists.<p>As expected, the cheap money era is dead, and we will be seeing lots of VCs pressuring and demanding sky high valuations of the startups they've backed for their ROI.
VC investment will pause for a bit. Then VCs will miss out on the next "Next Big Thing." Then VCs will pile in on copycats. It has always been thus.