What's really happening in growth stage VC amidst the downturn?

ventureunlocked.substack.com

TL:DR Summary

  • We are experiencing a reversion to the mean as the market downturn is acting to offset the late 2020-2021 spike in asset prices. We anticipate new deal data to validate this observation starting with Q2 (and certainly Q3) numbers. 
  • Private company mark downs will take quarters (or years), not months to fully be represented. 
  • The market reset provides a return to a rational environment where underwriting of deals has shifted away from a “growth at all costs” mentality, and inclined toward fundamental metrics such as margins, capital efficiency, and the current public market comps. 
  • 2020/2021 vintage year late-stage funds that had accelerated deployment timelines are at the highest risk of underperformance. 
  • Large hedge/crossover funds have generally vacated the late-stage private markets, instead opting for earlier stage or public market investing. It’s uncertain whether this is simply transitory.  
  • Deal velocity has slowed down dramatically, with a particular slowdown in $50MM-$100MM+ ‘mega rounds’ as bid/ask spreads between companies and investors remains large. 
  • Growth stage investing will return to being a dependable area of investment marked by lower risk and shorter times to liquidity. However, generating outsized performance will require careful manager and deal selection as the extended bull market era where “everyone wins” is unlikely to be seen anytime soon. 


Follow me @samirkaji for my weekly thoughts on venture capital TL:DR Summary We are experiencing a reversion to the mean as the market downturn is acting to offset the late 2020-2021 spike in asset prices. We anticipate new deal data to validate this observation starting with Q2 (and certainly Q3) numbers.

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