The good times are over. And they didn’t even last that long.
The NASDAQ quickly bounced back from an over 30% fall in early 2020 as COVID raged. The tech stock index reached all-time highs last November, only to plummet a further 29% since.
Now, the tech stock rout is making its way into private markets. So what does this mean for early stage startups and angel investors like me who fund them?
Here’s what I see going on inside today’s market:
1) Deals are taking longer to close. A deal that might have closed in 1-2 months last year is taking 3-4 months now.
2) Valuations are down moderately. I am seeing declines of around 10-20% from the 2021 peak.
Publicly released numbers show less of a correction, but remember that there is often a several month lag between when a deal is priced and when it’s publicly announced. If valuations drop, it won’t be apparent to the general public until months after it happened.
3) High growth companies are still getting plenty of funding.
Seed stage and Series A startups that are growing revenue rapidly, in the range of 10-20% month over month or more, are raising almost as before. These are the strongest startups, and in a tougher market, investors will gravitate toward them.
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4) Some investors are increasing their pace of capital deployment.
I’ve actually invested a bit more than usual in the last two months as valuations have retreated. If you can invest in great companies for less than you could 6 months ago, you may want to deploy more cash than usual.
5) Crypto/NFT projects continue to command crazy valuations.
Bitcoin has fallen by more than half since November. NFT trading volumes on major exchange OpenSea are also down more than 50% since the beginning of this year.
Yet this, the most rah-rah of all venture sectors, seems to be going full speed ahead. I still see extremely expensive rounds in blockchain companies that have few if any customers and often not even a launched product.
The NFT area seems the most overheated of all. I recently saw a $1 billion valuation for an early stage NFT company.
It not only didn’t have a product yet, it didn’t even have a deck.
I expect a brutal correction in these markets in the coming months, leaving behind only the most useful and widely adopted projects.
In all, if startups focus on good, cash-efficient growth, I’m confident they’ll still find the funding they need in today’s market. But companies with no revenue, no product in market, heavy burn, and/or anemic growth are in trouble.
What are you guys seeing in early stage venture markets? And what do you think the future holds?
Leave a comment at the bottom and let me know!
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Photo: “2016/366/238 Proceed with Caution” by Edna Winti is marked with CC BY 2.0.
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If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!
I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!
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Use this link to sign up and you’ll save $15 on your first order.
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