Unpopular opinion: the VC-fueled startup bubble will pop in the next 6-12 months. Once the froth has been purged, expect Series A-E round valuations to come down 30-50%. The 2021-2022 VC vintage may go down as the worst-performing on record.
Maybe the sleep regression is getting the better of me, but I can’t seem to shake the inner cynic shouting in my head:
“Did Tiger really do 361 deals last year, i.e. 4 shy of one a day?”
“How is a pre-revenue company worth $500 million?”
“Did someone really pay $69 million for Beeple’s jpg/NFT?”
“Can SPAC premiums really increase this fast?”
“Does FOMO + Greater Fool Theory + Free Money = Lalapalooza Effect?” [not the good kind']
In other words: WHAT THE F^@& IS GOING ON??!!
Asset allocation
While the Fed is printing $224 billion PER MONTH (~$6.7 trillion over 30 months), it is understandable sections of the economy are awash in capital. But at the same time, holding cash is not a viable option given its currently be devalued by 10-15% per year. What is an investor to do?
It would appear the consensus VC decision has been: Check-raise.
Source: Pitchbook, US deal activity, including mega-rounds ($100 million or more), 10/17/21
Awkward stop sign
The Fed is expected to continue to increase the rate hikes it begun this year. With rate currently in the 0.25-0.33% range, seeing rates in the 4-5% range over the next 12-18 months is not out of the question. This would decimate parts of the venture ecosystem.
So the question becomes: how will the Fed pace their rate hikes?
Will they ease into it like when you see a stop light quarter-mile out and you patiently brake so that you can eventually cruise through the green light once it flips, avoiding a hard stop? Or will they decelerate like a student driver who didn’t see the stop sign behind the overgrown redwood branch (PG&E is behind on their trimming), thus making everyone’s butt pucker up?
Time will tell, but Jay-Pow seems likely to be as aggressive on the brakes as he was on the gas.
Buckle up.