I’ve summarized the top curated resources for navigating the downturn – thought it would be useful for everyone to refer to if they’re looking to understand whats happening .
All the Links to resources are at the bottom
Summary:
On managing your burn:
There is no certainty on when things will get better. It could take 6 months or 2 years. The general advice is to maintain 24+ months of runway (30 months to be safe so you can raise with sufficient buffer)
Valuation multiples
Median public co multiples (those growing 20-30% YoY) were 13X+ before and are now down to 5.6X of revenue (60% down). For top tier public companies with growth higher than 40% YoY, the multiple is at 8X
Current activity
Right now, it is a terrible market and hence most companies are not raising. If you could raise, you probably did end of last year when it was a good time to do so. So there is low volume right now.
Rounds are either being done at the old price (they were close to being done when things changed) or are just not getting done at all.
Towards the end of this year & early next, there will be lots of cos that just cant wait anymore. Thats when we'll see a lot more data points
Seed / Series A fundraises
It will take longer to close and at lower valuations. The impact is not significant, yet (due to the above reason). The bar to raise is higher, will require more diligence and hence will take longer.
Deployment of capital
There is a belief that since many firms recently raised large funds – there is lots of idle capital
However, since deployment was so quick, a large part of these new funds have already been deployed
Remaining funds will be used to support existing portco
Eg: Tiger's $12.7B fund announced in March 2022 is already 65% deployed.
The same way startups think about their runway, VCs will be thinking about the limited amount of capital they have and will try to stretch it out.
Outlook
No one knows but those that have guessed have said that a recession is likely in the next 6 months (GDP growth likely be negative in Q2).
If you are a growth stage startup and need to raise, then be great
The advice here is generalised but nuances will apply for your specific business. Eg: it may make sense for a category creating company with top tier growth to continue to focus on growth over runway
Resources:
[1] Craft Ventures: Operating in a downturn [https://www.youtube.com/watch?v=vBkzm4a7iY4]
[2] Unseen Sequoia deck on “Adapting to Endure” [https://s3.documentcloud.org/documents/22036831/adaptingtoenduremay2022.pdf]
[3] YC note from Michael [https://twitter.com/refsrc/status/1527238287471292417]
[4] A16Z Framework: more relevant for revenue generating Series A and beyond companies [https://future.a16z.com/framework-valuation-navigating-down-markets/]
[5] Matt Turck, VC at FirstMark: [https://mattturck.com/vcpullback/]
[6] Personal experience from a Sequoia backed founder on what starting a company in 2000 was like: [https://twitter.com/schrep/status/1527520245362982912?s=20&t=NX-QGhQ5FBI1Id66zzlmIA]
[7] Ali Partovi providing a counter argument to being conservative: [https://twitter.com/apartovi/status/1527440722219061248?s=20&t=plBUZk93k50fCs0UupuCgw]
