That the venture capital market is incredibly lively right now is not news. Data from 2021 paints a picture of a startup fundraising game at full speed, with more capital, unicorns, and nine-figure deals than ever before.
And let me tell you, some venture capitalists are tired of that. PitchBook contains a post detailing how startup prices are too high from an investor’s point of view. This startup investment and the resulting valuations that may have gotten out of hand is not an unpopular perspective. Reuters’ New Year’s forecast series included the idea that startups “seek to raise capital in 2022 May [have] To sell stocks at a lower valuation than before,” to point to another example.
But what is overlooked in the discussion of the prices that venture capitalists and other private market investors pay for emerging stocks is the fact that They still do it.
This is, of course, a choice.
Venture capitalists have the ability to stop writing checks. They can hit the brakes – and fast. We saw this in 2020 when, for several weeks while the early COVID uncertainty reigned, venture capitalists around the world started spinning gigs around their existing portfolio companies. So, is is being Possible for investors only, well, Not Little.
If a group of enterprising investors decide to go on an effective strike, it will have an effect. This effect will be to reduce competition, and possibly lower overall valuations for startups in the near term.
Will that happen? of course not. Venture capitalists invest capital in the business with revenue multiples which they know to be high prior cause. They do this because they believe it is the best transition from where they are currently in the market. The game here is very simple: invest existing money, enjoy paper money from other investors, raise more money, and repeat until AUM makes you feel important.
This is the reason for the complaints – I don’t mean here to mention any particular investor; I’ve noticed that most of them just whine while they’re casual, so point to investors saying out loud what other people are thinking – it’s a bit silly to me. Investors complain about their own activity.
For founders who can access ever more capital at lower prices, I wish. You may not find yourself in the evaluation trap. But would I feel bad about the investment class? never.