We’ve all been reading lately titles like “The VC Pullback”, “Startups can ride out the bumpy market by going back to basics” and “YC advises founders to ‘plan for the worst’ amid market teardown” and, indeed, in short term and especially in the US where everybody is very sensitive to public market shifts it’s a bit of a panic, but mostly because of the EXPECTED corrections in multiples at the top of the startup chain. The 200x ARR* approach was visibly unsustainable in long term.
It cascaded down to Series D, C etc. but as the shockwave propagated the impact slowed down from 60-80% value decrease for the moment to top 10% near series A.
Another effect of the top corrections is that everybody moves the money toward an earlier stage, as they expect that the phenomenon, regardless of how critical it will be, will be followed by a recovery a few years down the road. This means more money from top international VCs in the earlier stage and all of you are max closing into Series A.
We should also analyze the regional context, not just the global one. We have new, larger funds in the region – like Catalyst, LAUCNHub, Eleven etc. all got oversubscribed and jumped from like ~30M to 60, 70 and above. More governments in the region started allocating money for state venture startups, like Bulgaria which allocated to state-owned VCs like Vitosha Venture, while Greece already selected its new 13 VCs and doubled down on the existing 9… etc. In Romania, the entire industry is expecting the call for the 400M from PNRR and obviously, all this money needs to go somewhere.
Some closing thoughts. As Sequoia Capital says in a recent report, “When capital was free, the best performing companies were capital consumptive“, together with Charles Darvin’s quotation says “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change,” here are some thoughts to consider:
And the most important element – keep a cool head! Don’t just act on rumours or sensational news and reach out to your investor for a second opinion in any specific situation.
“You cannot overtake 15 cars in sunny weather… but you can when it’s raining.” AYRTON SENNA
There is opportunity ahead. Recognize it.