Why Now Is the Best Time to Invest in Startups

Venture capitalists and angels are running scared. Venture funding is down 53% from last year.

But let me tell you why now is the best time to invest.

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1) Lower valuations. Companies only get so big.

There are fewer than 50 private tech companies worth more than $10 billion (“decacorns”). We can treat $10 billion as the approximate ceiling for an exit.

So if you get into a startup at a $50 million valuation, you have just 1/5th the upside of someone who got in at $10 million.

Right now, I’m seeing seed round valuations cluster around $10-12 million. Last year, I routinely saw seed rounds between $20-35 million.

So, our returns from the 2022 vintage should be far better than usual!

Think of it like grocery shopping. If you love eggs, you’re going to buy more if they’re 50% off, aren’t you?

2) Less competitive rounds. It can be hard to get into the best startups, no matter how much you’re willing to pay.

But these days, I get into almost any company I want. Investors have the bargaining power in today’s market.

3) Easier recruiting. The biggest problem startups have isn’t raising money.

It’s finding awesome employees!

When Facebook was offering every Tom, Dick and Harry $400,000 a year, startups couldn’t compete. But now that most of Big Tech is doing layoffs, startups can snap up top engineers.

4) The job is easier! Many of the least viable startups have given up raising money and will probably go out of business soon.

This means fewer deals in my inbox than last year. 2021’s frenetic pace has been replaced with a more stately one.

So what’s missing? Mostly, it’s the $100 million seed rounds in crypto companies with no product or customers.

Fine by me!

5) History is on our side. Time and time again, the most iconic companies have been founded in downturns.

Uber, Airbnb, LinkedIn, the list goes on and on. Maybe it’s a coincidence.

Or maybe downturns really are a better time to build.

Either way, I like my odds in a down market.

What do you think of today’s bear market in tech?

Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on tech:

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Photo: “A Street Called Awesome” by moonlightbulb is licensed under CC BY 2.0.


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