Thoughts of the day — my conversation with Harry Stebbings

Every so often, I’ll go on a bit of a spew about the markets, psychology, and how to have a prepared mind as someone who has been “in it” for more than three decades. Cool Hand Luke I am not, but someone who has a measure of perspective and calm associated with my life and markets experience, for sure. And when my friend Harry calls to have a free-form discussion around topics of the day (including such far-reaching items as raising kids who are good people, how to cultivate a successful marriage and beyond), it’s impossible to say no.

Here are the links to the desktop podcast and Spotify download if you’re interested.

We discussed three areas specific to the venture business (among many others, including:

Startup valuations and pricing: tl;dr mid-late stage companies with top decile metrics will continue to command premium valuations due to VC market being awash in liquidity, as well top pre-seed and seed stage teams with strong pedigrees and reputations. Early stage (Series A and B) companies who are not obviously nailing product-market fit as reflected by superior metrics will find it increasingly difficult raising venture dollars, liquidity aside. The traditional “barbell” will get increasingly stretched, with the best companies and teams on either end (very early / very late) will dominate the activity with everyone in between struggling to get good rounds done.

Fund deployment timelines: tl;dr fund deployment timelines, which have fallen from 3–4 years to 12–18 months, will reset as investors across the stage spectrum become increasingly discriminating and non-rocketship companies with multiple external term sheets will need to manage cash and growth metrics far more intensely than when money was “easy”. And it will be the VCs around the table who will need to step up, help portfolio companies develop more adaptive survival strategies and, in certain circumstances, step in with additional capital to bridge the best prospects with the best plans and the most attractive TAMs if things work out.

Impact on M&A and IPOs: tl;dr during sharp valuation downdrafts tech M&A generally spikes as mega-cap companies awash with cash and well-funded late stage companies look for strategic buys at attractive prices. However, a newly-emboldened FTC makes it less likely that an M&A boom will be driven by the FAANGs as any steps to consolidate power or to further increase consumer lock-in will be met by intense regulatory resistance. The IPO window will continue to be open for the very best companies who have both proven unit economics and whose plans don’t show them bleeding cash for the next 3 years, but chronic money-losers who are in spaces that aren’t viewed as “hot” will struggle to get out and trade well.

I hope you enjoy it. Much peace, love and calm to all.

Roger