12/15/2022: Venture Valuations are Down Sharply
We are experiencing Series BCD crunch at the moment
Private company valuations are cratering after the meteoric rise in 2021. According to the startup law firm Cooley, valuations and volumes are dropping across the board for venture deals in Q3 2022. Cooley handled 298 venture financings for Q3 2022 with $8.1B total raised, down from 332 deals and $16.6B raised for Q2 2022 and 401 deals and $24.3B in Q1 2022. The deal pace is the slowest since Q4 2019.
I am not too surprised with these numbers. My theory is that easy money has been fueling the irrational exuberance across asset classes in the past decade. The free money during 2020 and 2021 pushed many asset classes straight into speculative bubbles i.e. real estate, cryptos and pre-ipo stocks. The party is now over and we have to deal with the hangover and the mess that was created during the party.
Two early stage companies I invested in shut down this past week. Chances are there are many more to come in 2023. I didn’t really invest in companies with outrageous valuations and aggressive burns during the 2020-2021 super bull cycle. I heard a good number of them have folded recently. I believe I mostly invested in prudent and resourceful founders. But some businesses require a lot of capital to build and grow and it’s just a lot harder to raise money these days so they had to close. Some companies have been limping along for years but the tightening is the last straw that forced them to fold. It’s already a pretty nerve wrecking year for early stage investors in 2022. 2023 is probably going to be worse than 2022 and the brutal J-curve bottom will likely land sometime in 2024. I am hopeful that I will come out of this downtown stronger but the pains will be inevitable.