Tremendous

An angel investor's take on life and business

  • Adam Neumann Was Their Biggest Investor — Now He’s Their Biggest Competitor

    It didn’t take long for Adam Neumann to find controversy. Before starting his new residential real estate startup Flow, Neumann made a big investment in a company that’s suspiciously similar.

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    From an excellent report out yesterday in Forbes:

    When staff at real estate startup Alfred arrived at work last Monday morning, they were surprised to discover that their largest investor, former WeWork CEO Adam Neumann, appeared to have started a rival company — and raised $350 million to compete against them.

    Flow, Neumann’s splashy but mysterious new real estate venture, was aiming to build “the future of living,” influential venture capitalist Marc Andreessen wrote in a blog post announcing the investment. Alfred’s motto — “welcome to the future of living” — sounded uncomfortably similar.

    Neumann is still a major investor, though he has stepped back from the board.

    Neumann had wanted to acquire Alfred, but the terms of a new funding round blocked it. He appears to have set up Flow as a response.

    Investors in startups are not supposed to back competing companies.

    An investor is privy to tons of confidential information about a startup. Were that information disclosed to a competitor, even accidentally, it could cause serious damage.

    Starting a competing company rarely comes up, but should be out of bounds for the same reasons.

    Flow already appears to be cannibalizing Alfred’s business:

    Alfred may have already started seeing the effects of Neumann’s influence. One of the Norwalk, Connecticut, apartments where Alfred participated in the experiment with Greystar had been featured on Alfred’s site as an example of how it works with landlords. But when a Forbes reporter stopped by to speak to residents, one told them that the app the building offered for use was Carson, the Neumann-owned competitor. The Norwalk apartments have since disappeared from Alfred’s site.

    With a serious competitor that just raised $350 million, Alfred will find it hard to raise more money. Do investors want to back Alfred’s team against a more experienced and better funded rival?

    This controversy shows the danger of doing business with unscrupulous people. Neumann’s money was tempting, but the juice wasn’t worth the squeeze.

    Normally, a founder who created a multibillion dollar public company would be a great business partner — even if he’d made some mistakes. Mistakes help people learn.

    But we must distinguish between strategic errors and plain lack of ethics. You can learn strategy, but you can’t learn scruples.

    What do you think of Neumann’s return? Leave a comment at the bottom and let me know!

    More on tech:

    Will Adam Neumann Change Housing Forever?

    John Doerr’s Biggest Mistake

    Talking Startup Fundraising with Travis King of Launch Point Labs

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: WeWork and Flow founder Adam Neumann

  • John Doerr’s Biggest Mistake

    In 2007, venture capitalist John Doerr met an intriguing young entrepreneur. His name was Elon Musk.

    Musk pitched Doerr on investing in his new car company, Tesla. Doerr passed.

    The mistake cost him billions.

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    The legendary investor opened up on this major regret in an interview out this morning on Bloomberg:

    The billionaire chairman of Kleiner Perkins had the opportunity in 2007 to back “an ambitious, slightly crazy entrepreneur” named Elon Musk before he became the world’s richest man, but ultimately decided against it, as new car companies traditionally fail far more often than they succeed. 

    “That’s probably the worst investment decision of all time,” Doerr, 71, said…

    Doerr did wind up investing in an electric car startup. But it wasn’t Musk’s:

    “There have been 400 new car companies in the nation’s history. Every one but one has gone bankrupt. But I was still very attracted to the market, and we had the choice of backing a brilliant car designer by the name of Henrik Fisker, or an ambitious, slightly crazy entrepreneur by the name of Elon Musk at Tesla. Well, we made the wrong decision.”

    On paper, Fisker seems like a great bet. He designed iconic cars like the Aston Martin Vantage and had deep experience in the auto industry.

    What he didn’t have was a strong background as an entrepreneur.

    Musk had no real auto industry credentials. But he had co-founded PayPal and sold it to eBay for $1.5 billion.

    Whatever he may have lacked, Musk was an ace entrepreneur. He took that experience to Tesla and built it into a colossus.

    The lesson for me here as an angel investor is to not overvalue industry expertise. Sometimes it takes someone from outside an industry to revolutionize it.

    Amazon was Jeff Bezos’ first store. Travis Kalanick never owned a cab company.

    Founders should be familiar with the market they’re operating in. But if they need deep industry expertise, they can always hire for it.

    But what’s most instructive about Doerr’s mistake is how it never mattered! He backed Google, Amazon, and countless others early, changing the modern world and making a fortune in the process.

    Doerr’s experience illustrates one of my favorite things about venture capital. You don’t have to be right all the time.

    In fact, you only have to be right once.

    Investors: how much do you value industry expertise? Founders: how important is industry background to your startup?

    Leave a comment at the bottom and let me know!

    More on tech:

    Talking Startup Fundraising with Travis King of Launch Point Labs

    Record Funding for Climate Startups in Q2

    The Power Law (Part Four): The First Venture Deal

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    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: “John Doerr” by Thomas Hawk is licensed under CC BY-NC 2.0.

  • Why Hedge Funds May Pile into APE Shares

    Note: This is not financial advice

    This morning, new preferred shares of AMC Entertainment Holdings debuted on the New York Stock Exchange.

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    Interestingly, the new shares (ticker symbol APE) have the same ownership interest and rights as normal AMC shares. But as I write this, they trade for $5.80, versus $10.52 for AMC shares.

    The shares appear ripe for one of Wall Street’s favorite strategies: arbitrage.

    If the two share types have the same economic value, they should trade at the same price. Hedge funds often buy an underpriced security while selling short an equivalent higher priced one.

    The bet: the two prices will converge.

    I expect hedge funds to buy APE shares while shorting AMC common stock. On paper the strategy makes sense, but there’s a little problem…

    AMC shares are heavily shorted. 20% of the float has already been sold short.

    If hedge funds continue shorting the stock, they become vulnerable to a short squeeze. Huge run-ups in shares of AMC, GameStop Corp. and others have bankrupted hedge funds before, such as Melvin Capital Management.

    What’s more, both AMC and APE shares have passionate fanbases that can cause massive volatility. The human factor could cause a seemingly straightforward pairs trade to go very, very wrong.

    Hedge funds should heed the lesson of Melvin Capital and avoid shorting volatile meme stocks. But as Benjamin Franklin said:

    “Wise men don’t need advice. Fools won’t take it.”

    How do you think hedge funds will react to the debut of APE shares? Leave a comment at the bottom and let me know!

    More on markets:

    AMC’s 9 Million Missing Shares

    Is Melvin’s Gabe Plotkin Headed to Prison?

    Wall Street Banks Turn on Each Other as Federal Probe Looms

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Talking Startup Fundraising with Travis King of Launch Point Labs

    How do angels and VC’s choose companies to invest in? Why do some founders struggle in fundraising?

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    I dug into all that and more recently with Travis King, co-founder of Launch Point Labs. Some interesting points:

    2:42: How I choose companies to invest in

    6:57: How you can work backwards from the customer to the product

    8:44: How much help do founders need? And the ways I try to add value for startups.

    14:55: Today’s market slowdown and how I’m adapting.

    17:16: How angel investors can get burned.

    19:27: Lessons from the SaaS OG, Jason Lemkin

    23:35: Why some founders have unrealistic expectations about fundraising.

    27:26: Why there’s no substitute for traction

    28:49: Why I’m being brutally honest with founders in today’s tough market

    What questions do you have? What did we miss?

    Leave a comment at the bottom and let me know!

    Have a great weekend everyone! 👋🥳🎉

    More on tech:

    Record Funding for Climate Startups in Q2

    Angels Flocking to DTC Brands: Mistake or Opportunity?

    Will Adam Neumann Change Housing Forever?

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • AMC Shorts Take $653 Million Loss in August

    It’s been a rough August. And it’s not over.

    Short sellers in shares of AMC Entertainment Holdings have lost $653 million so far this month. From a new Bloomberg report:

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    Investors betting against the most well-known meme stocks have lost about $1.65 billion this month after the shares soared in value, prompting a short squeeze.

    AMC Entertainment Holdings Inc.’s 47% rally has pushed mark-to-market losses for short-sellers to $653 million, S3 Partners data show. Similar bets against Bed Bath & Beyond Inc. and GameStop Corp., which have surged 359% and 19%, respectively, in August, lost $1 billion combined.

    Bets against meme stocks like AMC and GameStop blew up hedge fund Melvin Capital Management, among others. But like moths to the flame, short sellers seem drawn to losing more.

    Many firms like Melvin heavily shorted multiple meme stocks. Rallies in several meme names at once multiplies their losses.

    Shorting a heavily shorted company is a recipe for a short squeeze. Add a fanatical retail following, and disaster could strike at any moment.

    The ideal short sale candidate is a failing company that isn’t heavily shorted. And you want something with no cult following.

    Or better yet, follow the counsel of a hedge fund manager I had dinner with recently:

    “Short selling is a great way to lose money.”

    I guess some are learning. As for the rest, bon chance.

    What do you think of short sellers recent losses? Leave a comment at the bottom and let me know!

    More on markets:

    AMC’s 9 Million Missing Shares

    Is Melvin’s Gabe Plotkin Headed to Prison?

    Shorts Having Their Worst Month Since January 2021

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Record Funding for Climate Startups in Q2

    My appointment got cancelled, so I get to spend the afternoon with you guys! And we’ve got some big news…

    As founders struggle with a down market, one corner of startupland is flush. Climate startups raised record funding in the second quarter.

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    From a report out this morning on Bloomberg:

    Carbon and climate startups have attracted record investments at a time when other industries are struggling to tap funds from venture capitalists.

    Buoyed by corporate and government pledges to cut greenhouse gas emissions, a record $1.4 billion poured into climate and carbon-focused startups in the second quarter of this year. That’s in stark contrast to the broader market for venture funding, which faces its largest quarterly percentage drop in nearly a decade, according to CB Insights.

    These startups have an incredible tailwind: $369 billion in government climate funding.

    There are billions of dollars for batteries, reducing emissions, and reforestation. A small portion of one of these categories is enough to make a $1 billion startup.

    I had a front row seat when huge government subsidies hit another part of tech — medical software. Before I became an investor, I worked on one of the leading platforms, Epic.

    When the 2009 stimulus pumped $25 billion into the sector, everything went bonkers.

    My phone started ringing off the hook with recruiters. And I started making a lot more money.

    I wasn’t any better at the job than I was before the bill passed. But all that government money had to go somewhere.

    Climate tech is about to be hit by the same kind of cash tsunami. And if you’re standing anywhere nearby, you’re going to get wet.

    I favor SaaS products with a positive climate impact. Think software to reduce a truck fleet’s fuel economy, for example.

    No scientific breakthrough needed, no messy and low margin “stuff,” just a proven business model applied to a new area. And it sells itself — even a climate change skeptic wants to save on fuel!

    I actually just invested in a climate tech company a couple of months ago. (I’ll give you more details when the deal is announced.)

    A great SaaS business is always yummy. A great SaaS business with a tailwind of government cash and regulation — chef’s kiss.

    What do you think of climate tech? Leave a comment at the bottom and let me know!

    More on tech:

    Will Adam Neumann Change Housing Forever?

    Angels Flocking to DTC Brands: Mistake or Opportunity?

    Seed Valuations Are…Up?

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor.

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: President Biden signs $369 billion in climate funding into law

  • Angels Flocking to DTC Brands: Mistake or Opportunity?

    Angel investors are flocking to Direct to Consumer (DTC) brands, even as venture firms have pulled back. From a report out this morning in Business Insider:

    A growing class of angel investors is now swooping in to write the early checks fledgling DTC-brand founders need to bring their products to market. While individual angel investors may not offer the large sums of cash or the pedigree and connections a blue-chip Silicon Valley VC can provide, they offer other advantages, DTC founders told Insider. Perhaps most importantly, they are willing to open their checkbooks to untested new brands as VCs analyze them more critically.

    “If you think about the early floodgates of VC money going into DTC, it was because they were using a specific playbook,” Eunice Shin, a partner at Prophet, a DTC consultancy, said. “That playbook is broken.”

    DTC brands like Peloton, Casper and Blue Apron used to be some of the best known names in tech. Now those companies are struggling and VC’s are wary.

    So founders go where they can: to angels. Angels usually ask fewer questions and may be unaware of the headwinds DTC is facing.

    Advertising, manufacturing and shipping costs have skyrocketed. Supply chains are a mess.

    Things started to go very wrong for DTC last spring. Apple released an iOS update that let users stop ad tracking, and almost all did.

    This meant apps like Facebook and Instagram had no idea who saw an ad.

    The update was a gut punch for DTC brands. A woman’s underwear startup that only ships in the US could waste its precious ad dollars advertising to men in Germany.

    Many startups saw their Customer Acquisition Cost (CAC) triple. What had been a solid business model no longer worked.

    And it’s going to get even worse. Google also plans to limit ad tracking next year.

    What happens when your advertising, manufacturing, and shipping costs skyrocket? You start bleeding red ink.

    VC’s are usually familiar with these problems facing DTC. Unfortunately, many angels are not.

    As scary as things may be in DTC land, a few companies have bucked the trend.

    Eight Sleep, which produces a heating and cooling cover for mattresses, is one great example. The cooler surface can greatly improve your sleep.

    Eight Sleep produces a highly differentiated and expensive product. Its mattress covers start at $1,845, and its mattresses are even more.

    This is the kind of consumer product that can still be a great business.

    It’s expensive enough to absorb a higher CAC. And it doesn’t have to fight it out with a dozen competitors.

    Still, I prefer SaaS. You’re not dependent on online ads, customers tend to stick around, and your product is infinitely scalable without any messy “stuff.”

    DTC brands are sexy.

    A yummy steak from Blue Apron is a lot more exciting than a SaaS revenue retention product. And it’s a service you could use yourself, unlike most SaaS products.

    But if we want to make returns, we have to focus on what’s financially viable, not just what’s exciting.

    What do you think about the DTC industry today? Leave a comment at the bottom and let me know!

    And now, I’m off to invest in some more boring SaaS companies. 🙂

    P.S. There will be no blog tomorrow. I have an appointment. See you Thursday!

    More on tech:

    Will Adam Neumann Change Housing Forever?

    Seed Valuations Are…Up?

    $500 Billion in Venture Capital is Sitting on the Sidelines

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor.

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Will Adam Neumann Change Housing Forever?

    He’s baaaack! Adam Neumann, the controversial WeWork founder, has a new startup called Flow.

    This time, Neumann plans to transform the home rather than the workplace. Details are scant, but Flow appears to be a sort of WeWork for apartments.

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    Today, venture firm Andreessen Horowitz announced a $350 million investment in the startup. The deal values Flow at over $1 billion before it has even launched and is Andreessen’s largest check ever.

    Neumann has bought over 3,000 apartments in Miami, Nashville and other Sun Belt cities. His plan may be to turn them into homes for digital nomads.

    Imagine buying a Flow membership, just like WeWork. In return, you get access to a hip apartment in any city you want, for as long as you want.

    No more taking chances on random Airbnb hosts and managing bookings. Who wouldn’t prefer a seamless, consistent experience?

    Shoot, I might even move in myself!

    Neumann’s strategy of buying up reasonably priced housing in the Sun Belt has succeeded before. Fundrise, through which I invest in real estate, has similar strategy and has made substantial returns.

    Americans are flocking to the Sun Belt, providing a strong tailwind of demand. Cities like Miami are cheaper and warmer than places like New York.

    So Neumann’s strategy seems sound — but is he the best person to execute it?

    Neumann has a history of erratic and unscrupulous behavior. He trademarked the word “We” and sold it back to his own company for millions of dollars.

    He also routinely bought buildings and leased them to WeWork, a huge conflict of interest. He even invested $13 million of company money into a wave pool startup.

    Neumann was too aggressive and unfocused at WeWork — which is fine. All founders learn with time.

    But I can’t excuse him for putting himself before his company, his employees and his investors. Unlike business strategy, ethics aren’t something you can learn.

    You either have them or you don’t.

    I wouldn’t invest in Flow given Neumann’s past. What’s more, a startup valued at over $1 billion before it launches is a major red flag.

    Historically, most such companies implode.

    However, Neumann has charisma and vision. He just might be the best salesman of his generation.

    Andreessen Horowitz may just prove me wrong and make a killing here. One way or another, I can guarantee it won’t be boring.

    What do you think of Neumann’s new startup? Leave a comment at the bottom and let me know!

    More on tech:

    Behind the Scenes of WeCrashed

    The True Story Behind WeCrashed

    What Can The Dropout Teach Investors?

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: WeWork and Flow founder Adam Neumann

  • Is Melvin’s Gabe Plotkin Headed to Prison?

    The SEC is investigating Melvin Capital Management for securities fraud. From a report that broke last night in The Wall Street Journal:

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    The U.S. Securities and Exchange Commission is looking into Melvin Capital Management risk controls and investor disclosure after the hedge fund was crippled by the meme-stock rally last year, said people familiar with the matter.

    The regulator has contacted investors in the hedge fund in recent months as part of an investigation into what Melvin founder Gabriel Plotkin and other senior executives told them following the meme-stock rally in January 2021 and whether it misled investors when it raised money last year.

    If Plotkin and other top Melvin executives lied to investors in a fundraising presentation, they committed a very serious crime: securities fraud.

    Securities fraud can be punishable by prison time, not to mention large fines. Of course, no one has proven anything yet against Plotkin or anyone at Melvin.

    When Melvin raised money last year, it had already suffered massive losses. Its losses during the meme stock rally of January 2021 were $6.8 billion, or more than half its assets.

    The worst days saw losses of over $1 billion. A day.

    If you’re raising funds and fighting for survival in a situation like that, you might be tempted to stretch the truth.

    We don’t yet know which fundraising presentations the SEC is looking into. But we do know that Melvin raised $2.75 billion last year from Citadel and Point72 Asset Management.

    Did Melvin lie in those presentations in order to secure the bag?

    When you rob mom and pop, it’s hard for the victim to fight back. But if you rob some of the richest and most sophisticated investors in the world, they can hire an army of lawyers to make your life very difficult.

    This investigation comes on top of a DOJ probe into Melvin’s short sales. That investigation too could result in prison time for insider trading if wrongdoing is found.

    In all, it’s not hard to see why Melvin shut down. It had lost a fortune, couldn’t get any more performance fees, and feds were circling.

    I don’t know whether Melvin did anything wrong. But I do know that today, I’m glad I’m not Gabe Plotkin.

    Do you think Melvin is guilty? Leave a comment at the bottom and let me know.

    Have a great weekend everyone! 👋

    More on markets:

    Melvin Capital Under Federal Investigation

    The Real Reasons Melvin Is Shutting Down: No Fat Fees and a Federal Investigation

    AMC’s 9 Million Missing Shares

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: Melvin Capital founder Gabriel Plotkin

  • Seed Valuations Are…Up?

    It may be tough times in startupland, but one area is bucking the trend: seed stage. Median pre-money valuations are up 33% year over year, according to a report released yesterday by Pitchbook:

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    Seed-stage investment has possibly held up better than any other stage to this point in the economic slowdown. Seed deal counts have remained elevated, and median deal sizes and valuations continue to grow. The median pre-money valuation for seed in 2022 has reached $12.0 million, 33.3% above 2021’s full-year figure of $9.0 million.

    Seed is my playground. And seed investors are wise to continue doing deals.

    Most companies at that stage won’t exit for ten years. By then, the economy and markets are likely to be completely different.

    Late stage deals have also been surprisingly resilient. Although the median deal size has dropped slightly, valuations are actually up 10% over 2021.

    This is harder to make sense of, because late stage startups are close to an IPO. That makes them more comparable to public tech stocks than a seed stage company.

    And holy mole, have public tech stocks gotten hammered! The NASDAQ is down 21% from its peak last year, and many major companies like Shopify are down over 70%.

    Yet somehow, it’s early institutional rounds that are struggling to get done.

    Early-stage valuations have started to mirror broader economic uncertainty and show signs of decline. While select startups continue to find success fundraising amid headwinds, quarter-over-quarter median pre-money valuations saw their first decline in ten quarters. The Q2 median pre-money valuation for early-stage VC was $52.0 million, exhibiting a 16.1% decrease from the Q1 2022 median pre-money valuation of $62.0 million.

    This is around Series A and Series B. The slowdown at this phase mirrors what I’ve heard from VC’s.

    Seed will likely continue to outperform other stages, given how much time the companies have to grow before they hit the public markets. But I still expect a drop in valuations in the rest of the year.

    Pitchbook’s report for the first half covers deals that closed in the first half, not deals that began then. Venture deals often take months to close.

    So, many of the deals we’re seeing were agreed to in Q1 2022 or Q4 2021. I’ve seen the market cool substantially since then.

    Founders should extend runway so they can get through this tough market. And investors should continue to fund great companies at reasonable valuations.

    That’s what I’ll be doing!

    What do you think of today’s funding market? Leave a comment at the bottom and let me know!

    More on tech:

    $500 Billion in Venture Capital is Sitting on the Sidelines

    Hedge Fund Giant Tiger Loses Over $18 Billion — Long Fund Down 64%

    The Startup Glossary

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: “Confused Dog meme” by Dianna Geers is marked with CC0 1.0.