About a month ago, I wrote a tweet storm on the changing startup financing and employment environment. This blog captures aspects of that tweet storm and some of its predictions and extends them further. Like all predictions this is what I view as a highly likely scenario versus the only potential future path for the next 3-18 months or so.
The high level view is that things have yet to get truly bad in private tech. 2021-2022 were an anomaly due to COVID policies which both created an incredibly cheap low interest money environment, pumped the stock market, and facilitated adoption of certain types of tech. This environment led to both excess in fundraising but also in hiring. This means that as money transitions back to to "normal" levels teams that were hired too far ahead need to shrink. Many areas (hiring plans, valuations, time venture capital raised lasts, etc) are roughly reseting to 2018/2019 norms, which themselves were all time highs prior to the COVID era.
If interest rates and money supply continue to tighten and a recession happens, then things should get worse. The below largely deals with the base case of things roughly stay where they are now. More likely, things will get worse before they get better. Nonetheless, it is still a great time to start a company.
So what do the next few quarters look like?
Valuations will continue to drop and are not stable yet
Private markets tend to lag adjustments in public markets by 3-9 months and tend to adjust from the later stage, pre-IPO companies first to the pre-seeds last. Private technology startup valuations are still unstable and for some stages will continue to drop.
Series D and later have come down and closer to public comps with pre-IPO companies roughly at public comparables. When you fundraise matters a lot - rounds started 3-4 months ago are pricing much higher than rounds kicked off now. more......Read more...