Dear VCs: If you want startup prices to come down, stop paying higher prices

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The venture capital market is incredibly exuberant at the moment, that’s not news. Data for 2021 paints a picture of a startup fundraising game at peak velocity, with more capital, unicorns and nine-figure deals than ever before.

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And let me tell you, some venture capitalists are tired of it. pitch book have a post up description How startup prices are too high from an investor’s point of view. While startup investment and the resulting valuation may have gotten out of hand, this is not an unpopular approach. Reuters’ prediction series The idea for the new year included that startups are “seeking to raise capital in May 2022″. [have] To flag another example,” to sell shares at a lower valuation than before.

But missing from the discussion of prices that venture capitalists and other private market investors are paying for startup shares is the fact that They still do.


This, of course, is an option.

Venture capitalists have the ability to stop writing checks. They can hit the brakes – and quickly. We saw this in 2020, when for several weeks, while early-Covid uncertainty reigned, venture capitalists around the world began to wagons around their existing portfolio companies. so it Is It’s possible for investors, well, No For a moment.

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If a group of venture investors effectively decided to go on strike, it would have an impact. And that effect would be to reduce competition, perhaps driving down overall startup valuations in the short term.

Will this happen? No way. Venture capitalists are putting capital to work at revenue multiples even as they know they are past highs. They are doing this because they think it is the best move from where they are currently sitting in the market. The game here is very simple: invest in existing funds, enjoy paper markups from other investors, raise even bigger funds, repeat until your AUM makes you feel important.

That’s why complaints — and I don’t mean to exclude any particular investor here; Most are only content to stay off the record, I’ve seen, so having to say out loud to investors what others are thinking — somewhat silly to me. These investors are complaining about their activity.

For founders who can access more capital at lower prices than ever before, Godspeed. You may never find yourself in the trap of evaluation. But would I feel bad for the investment class? never.

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