Important distinction: this is for a growth fund ("mature companies" in the article). Growth funds are typically fund dedicated to either later stage financings or follow ons from earlier stage rounds that the firm invested in. Growth funds are heavily reliant on an active M&A market, or companies that are likely to IPO. M&A is effectively dead right now, and many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
That's the point. The value of a company is determined by the price that people are willing to buy & sell its shares at, but you don't have to be that person.
The VC fund in the article is basically saying "We believe that anyone buying late-stage startups at these valuations is a fool and is unlikely to get a better price when it goes to the public markets, and we are not going to be the greater fool with your money."
The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
Yeah, it really bothers me that as a society we've decided that ponzi schemes are actually fine as long as it has some loose "tech" branding associated with it. It seems like the startup strategy in Silicon Valley is "grow at all costs, worry about profit later, IPO, now it's the public's problem".
Of course someone could say "well they're not forcing you to buy the IPO'd stock!", and that's sort of true, but only in the strictest sense. My 401k, like I think nearly everyone's, is a mutual fund, and it invests in a little of everything. I also buy ETFs that do the same thing, because it's really the only way to preserve wealth, for better or worse. Even if I, for example, thought that WeWork's business model was unsustainable, I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.
>I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.
Some other approaches:
* Buy long-dated put options for companies you think are overvalued, so your overall portfolio (retirement account+personal trading account) has 0 exposure to stocks you don't like. If a stock's price goes down, exercise the option before its expiration date and profit.
* Assemble a portfolio of sector ETFs and exclude the tech sector. Or buy regional ETFs in regions with low tech exposure. (If you're American, I recommend buying ex-America ETFs for hedging purposes anyways, since your career already gives you significant exposure to the American economy.)
Granted, you will be paying higher fees with these approaches, but given how dominant tech stocks are, if you really believe they are significantly overvalued, I think you should be willing to pay those higher fees.
Most (all?) retirement plans offer you some amount of choice in funds to invest in, and most companies of the sort you're describing are not included in many of the more popular indices. For example, WeWork was never in the S&P 500. Similarly, target date funds are one of the more popular investments options available as by default and/or recommendation in retirement plans. The first one I checked (Fidelity's Freedom Index) applies its U.S. allocation to large caps, which again means it does not include many of the companies you have in mind.
Fair enough, I guess if the company never makes it to the S&P500 or NASDAQ-100 you're mostly shielded from this stuff if you do the default funds. There are some questionable tech companies on the S&P, like Uber for example, but not as many and nothing as dumb as WeWork.
I have a lot of VTI stock right now, which if I understand correctly invests in basically everything in the America stock exchanges, though I guess an argument could be made that I should have known that dumb companies being included in there was always a risk.
Still, I don't have to like it, and I do think that a lot of these companies IPOing when they don't really have any way of actually making money is an issue waiting to happen.
Yeah, I hear you. It definitely feels like there's been a shift toward investing based on sentiment rather than fundamentals, and there's certainly an argument to be made that's not a good outcome for society.
Personally I feel like it's a bigger issue for individual investors that in recent years companies now IPO only in later stages or not at all and that much of the more profitable bits of the growth curve are now accessible only to the private markets.
I believe Warren Buffet was opposed to robo-trading strategies for this exact purpose. If the bulk of the money is going to fund anything with a market cap greater than $X, then it is useful for VCs to pump a stock up to $(X + Y) market cap to acquire funding via rebalancing.
From a VC perspective, you can exit as other funds rebalance into the stock at the inflated valuation.
I think we just have near stagflation in Europe and a bad economy + inflation in the U.S. If certain wars are stopped, energy prices go to normal and the excess COVID money supply is gone, things will be as before.
But the U.S. population has to want it rather than voting emotionally again.
> But the U.S. population has to want it rather than voting emotionally again.
Why would the US population want:
>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
? IMHO those greater fool-based moneymaking schemes can go die in a fire.
>>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
I was the one that originally wrote that. Bear with me for a second.
I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.
As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
We may recognize that building castles on sand is a bad idea. Perhaps our economies, and the rules that create incentives (perverse or otherwise) should be different than they are.
Fact is, we have a lot of fucking castles built on sand right now. If they crumble, a lot of people will be left to wander among the rubble.
I do hold a deep despise for the billionaire class that was the ultimate beneficiary of this whole "building castles on sand" activity. It's not them who will lose the most when everything crumbles though.
> I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.
I get that, we as software engineers have indirectly benefited from the scam.
> As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
I don't think it's hard to say. If the general population was made understood the full situation, they'd tell us software engineers to get lost along with the billionaire VCs, because the general population are the ultimate greater fools that pay for it all (either directly through the stock market, or indirectly through the businesses who make so much through monopoly off of them that they can easily afford to be greater fools).
We software engineers have had a pretty privileged time while a lot of people have been struggling (viz. the whole "learn to code" bandwagon from a few years ago).
To be frank, the whole "learn to code" fiasco was pushed not by software developers. My impression was that it was pushed by parties interested in flooding the field with newcomers to push wages down.
Nonetheless, I don't think you are wrong. I'll just point out that the monopolies you refer to, and the billionaires that ultimately benefit from it exist due to policies and laws that directly benefit them so they achieve that very position.
I don't deny that we lived though a privileged time - I was perhaps lucky that I had aptitude and interest in coding right at the time when the profession was on the rise.
While some may be deeply concerned about AI taking jobs (which I think is complete bullshit), my main concern is a shift in economic conditions that will severely reduce demand for developers due to less money moving around the sector.
I believe the the ones that will suffer the most are the newcomers. Either recent graduates that are coming to the market at the worst possible time, or those that switched professions very recently only to find the promised land had withered before they arrived.
> To be frank, the whole "learn to code" fiasco was pushed not by software developers. My impression was that it was pushed by parties interested in flooding the field with newcomers to push wages down.
Yes, it wasn't pushed by software developers, but it wasn't some fake thing either. The main driver was the anxiety and stress a lot of people have about their economic situation. Software development was seen as one of the few achievable "good" job as precarity crept into many previously stable types of employment. The "parties interested in flooding the field with newcomers" just took advantage of the situation.
The previous grift is over, the new one (AI) is getting started. VC fund actually wants to exit the old market, where they are the greater fool at the bottom of the pyramid scheme, and enter the new one, where they can find new fools to unload on.
It's just general market conditions. Once interest rates fall, tech VC will go right back to the grift.
Biotech has also seen a major slowdown this year too, despite the huge $43b, $14b, $10.8b, $10b, $8.7b, $7b and $7b [1] acquisitions last year and all the usual IPOs. It's just interest rates catching up to everyone's funds.
An analyst on the radio talked about Saudi Arabia. Apparently their sheikh is tightening the budget and Arabs always were the biggest fool. It's having a huge impact on grifters world wide.
Value isnt singular. Every single transaction in the economy is the result of a difference in opinion about value.
My House has a public valuation, but the value it me is much higher, so It is not for sale.
Im sure there are several things that you dont buy for their market price because they have less value to you. You dont go into the store and buy every Item you see, or put every item you own for sale.
Agreed, but if I decide to sell my car, what I originally paid for it, what I think it's worth, or how much I've invested in repairs, or how much I still owe on it, all has nothing to do with the price I can get.
There are an infinite number of ways you might choose to price your car. If you want it sold in the next 30 minutes, you'll have to settle for what anyone has in their pocket. If you're willing to wait 20 years, you might get a much higher price. Anyone who has bought or sold a used car will know that market price is an average, in reality prices are diverse.
With all that said, my point was to highlight the role of choice in deciding to sell or not. I wouldn't recommend selling your car if you owe more than the market price, and don't have money for a replacement.
bit of a stretch to call that natural human language - forget the type of actual people that post there, it's been a massive astroturfing target for political and marketing bots for over a decade.
Yes, but the driving motivation is probably more financial than emotional. Trying to IPO at a price lower than the last valuation is announcing to the world that the last investors lost money, while simultaneously trying to convince the world to be the next investors.
In theory, the market will bounce back so IPOing now is effectively selling low.
> Isn't the market what determines the value of a company?
There are several markets involved here.
> then they aren't worth what they think they are.
Which is an indication that your market is corrupt or lacks the information discovery necessary for accurate pricing information to be generally available.
> If they have enough cash/free cash flow, they don't have to take money at a lower valuation
Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.
There isn't a return for shareholders if the valuations are lower. The problem is not management holding the business hostage today, the problem was investing at unsustainable multiples a few years ago.
Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.
> management holding the business hostage because they prefer their salary to shareholders having a return.
But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.
A startup I used to work for within a year of interest rates rising and lower spend by businesses and consumers ended up cutting staff by ~84% and they nearly 100% outsourced development (it may in fact be 100% now but idk for sure).
They did this to avoid any changes to their sky high valuation, as if they went and fundraiser it would have tanked it.
At this point I think they’re hoping to meander along until they’re forced into fire sale or they get acquired for their customer base
Not really, the DCF value of a company is sum of its discounted Future cash flows. But the value to a acquirer usually exceeds it because they can can extract a "hidden value" specific to them. It's called "acquisition premium"
If interested, look up "Valuation: Measuring and Managing the Value of Companies"
M&A is not dead. Not at 20/21 levels, but certainly not dead. Some sectors in tech are much stronger than others, now if you’re a company that is burning cash and doesn’t have an appealing growth profile then yeah you won’t get a deal done (source: me). IPOs are basically dead atm
> the IRR clock doesn't start until they call capital from the LPs
Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.
Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway.
Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.
Thanks for sharing your perspectives in this thread. You seem to have a lot of deeper knowledge about how all this works. Any guidance on what to follow or where to learn to understand these complex dynamics of the investment world? I feel like much of what I’ve seen is more like the basics.
I'm not sure if it's really anti-trust. I think companies are being stingy with M&A because most companies are no longer worth the acquisition cost. They're looking for more "strategic" buys as money isn't cheap anymore. You're still seeing M&A, it's just occurring with more complimentary companies that actually add value (or hires) to their existing portfolios.
It's not anti-trust in the case of smaller acquisition targets. There are also fewer strategic acquirers in some if not all markets. For example, if you built a good product 10 years ago on top of an open source project, there were a number of companies looking to grow by acquisition, such as RedHat, VMware, Rackspace, and Salesforce. Of those only Salesforce is still a factor.
Will echo what many have said here already, but with a slight twist:
1. Anti-trust activity takes a HUGE portion of the liquidity that does M&A out of the market. That has a dynamic effect -- other players who are not under direct anti-trust scrutiny think twice about their potential M&A activity. This, in theory, should reduce M&A prices (reduction in supply supply), but this is probably largely offset by point 2.
2. Inflated valuations from 2021 era. Lots of companies raised ridiculous late stage rounds around this period. Then interest rates rose. Now your company that raised on 100x ARR is worth a lot less than it was. But the company still has to grow into and beat it's last valuation. Combined with the M&A dynamics, it's much harder to justify a post-money above what your last raise was if that raise was a post-covid valuation, unless the business is just truly on ripping (e.g. Wiz).
A combination of interest rates and cap tables being all messed up from 2021.
If you have a company that raised a 100m of preferred at a 500m valuation, are you going to take an offer for 150m? Most founders are just going to keep grinding hope things get better.
Biggest one IMHO is interest rates. The days of virtually-free credit lines are gone for the near to mid future - at least until the situations in Israel/Palestine and Ukraine/Russia are sorted out, but even then, China may want to take over Taiwan leading to the next global crisis.
Another reason is the AI craze. Everyone and their dog is focusing on being a/the dominant power in that area, so interest in "old tech" is waning.
And the last/smallest factor is that many of those individuals who exited in the last few years are hesitant where to put their money, and there is not much space for multi-billion dollar established companies to make acquisitions when they're all forced to let people go as a result of the post-/mid covid hiring spree and anti-trust authorities worldwide being very critical of more agglomerations at the moment - some because of strategic reasons (Europe in particular isn't looking too friendly to more of their companies being bought out by foreigners), some because they do not want to risk even more companies growing too-big-to-fail.
> interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE
Reasonable hypothesis, but not quite. LBOs' share of American buyouts has been falling monotonically since at least 2015 [1]. Buyouts have increasingly been smaller add-on acquisitions, with tech dominating activity.
The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.
The other reason isn't so much weakness as much as pandemic-era valuation madness. Reasonably priced, a lot of start-ups would sell for less than their last valuation. That would seriously cut into the founders' pay-outs, which are usually based on common stock.
Databricks' acqusition of Tabular was absolutely strategic.
Both Databricks and Snowflake are in the process of integrating Iceberg capabilities into their own lakehouses, because the industry is consolidating towards Iceberg, especially after Clickhouse and Dremio integrated Iceberg support in 2022.
This is why Snowflake preemptively announced the Polaris Catalog right before the acqusition by Databricks was announced.
Databricks, Snowflake, Dremio, and Clickhouse are all competing for the same piece of the pie, and much like Cybersecurity in the late 2010s to early 2020s, there is a drive to "everything" platforms, and RFPs can absolutely get sank due to lack of capabilties in comparison to a vendor.
I can only really speak to Cybersecurity and other adjacent parts of Enterprise SaaS, and M&A activity is fairly strong in both.
The big issue is a number of startups in that space raised at very favorable terms with Growth Funds in 2019-23, which made them extremely expensive to acquire versus to either build in-house or conduct a tuck-in acquisition.
What's I've noticed is that if it costs greater than $100-150M to acquire, it's difficult to make a case for acqusition versus build in-house unless you are extremely behind and need an internal culture change (eg. Cisco and Robust Intelligence being similar in magnitude to Cisco's previous foray into SDN w/ Meraki)
Series C and below remains fairly robust ime, as we can see with Dig Security, Talon Security, Robust Intelligence, NeoSec, etc.
There have been a decent number of tuck-in acquisitions in 2024. Flow Security (CRWD) and Eureka Security (TNBL) were fairly notable.
The main open question right now is about AI Security and Safety - specifically, whether to build or buy.
Most other segments (DSPM, OT Security, Vulnerability Management, CNAPP, etc) have largely been acquired and consolidated.
The thing is, there aren't that many startups in the space left that garner mutual interest in acquisition.
It's basically bimodal now, whereby
- a number of Series B/C startups have enough cash in hand to potentially do a tuck-in for a Seed or Series A AI Safety/Security startup and as such don't want to get acquired by a larger company because they have a strategic path forward to differentiating themselves from larger players [Acquirers interested, Startups uninterested]
- a number of Series E/F companies that have raised capital at multi-billion valuations but do not have a path forward to generate revenue at those valuations (eg. Lacework valued at $9B but ARR shy of $100M) [Startups interested, Acquirers uninterested]
Most notably, the earlier stage startups are now founded by startup founders who already have a $1M-50M net worth now due to successful cybersecurity exits in the 2019-23 period (IPO or acquisition). You can see this first hand in the Israeli and Bay Area cybersecurity startup scene.
There's also the fact that antitrust regulators seem hell-bend on killing the M&A market entirely.
Historically, there were two main paths for startups, IPO and being acquired by a larger competitor. The latter path is now a lot more difficult, due to the DoJ, the EU and whatever the UK's thing was called suing everybody who tries to do an acquisition.
In the long run, this means fewer startups will get acquired, fewer startups will have an opportunity to exit, the potential upside for VC firms is going to diminish drastically, fewer companies will get funded, which will ultimately lead to the incumbents having all the power and startups having none. This is a very bad thing.
Any links handy to justify that claim? My impression from headlines was that some massive enterprise M&A was blocked recently but not so much "startup exits". Maybe I missed it though!
I don’t know very much about business - but having the goal of most new companies being to be bought by a larger company doesn’t really sound healthy to me.
Shouldn't goal for most companies to be self-sufficient and to generate reasonable dividends for their owners? Then depending on goals of owners they might or might not be private.
For me that sounds much more desirable than having a handful of extremely highly valued giga corporations. It cannot be long term good to have so much valuation concentrated to what less than 10 or so companies...
Man the 'it's really bad government is enforcing antitrust laws' crowd sure is pushing this hard on HN this week. You understand all of the original thought on capitalism explained how it was essential the government keep this type of control on markets in order for capitalism to work, right?
If your only business model is to get bought out by a larger company capitalism SHOULD world to reduce the number of startups.
Also, the incumbents just buying everyone up also = incumbents having all the power, and is also a very bad thing. Hence the creation of antitrust laws, and the concept of it being baked into foundational capitalist thought.
> late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
AKA, we've made a loss, but don't want to admit it yet.
If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
If you over declare, you pay more tax. (you'd pay perhaps 1% of the asset value every year, and that would replace income tax, capital gains tax, etc)
If you under declare, someone else will come take your asset off you for whatever value you said.
Suddenly this whole idea of "unrealised gains/losses" goes away, as does fake valuations for tax avoidance.
> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
That feels problematic. How much is your wedding band? Or the urn with your grandma’s ashes? Or the favourite teddy bear of your child? Or all coppies and rights to your wedding photos?
I hope you declare them high enough or people might just take them for the lolz.
Yeah. Maybe. That plan sounds hard. In particular at that level of disruption society will defect. You will owe all the food on paper, but nobody will enforce your right.
Probably it would be much more lucrative to snatch up the homes of older folks who accidentally misdeclared. With the right PR you can even label your victims as tax cheats! What a “beautifull” system!
Why should we let private profiteers benefit from the mistakes of the elderly. We should have the IRS snatch their homes directly for resale. This would optimize turnover and government revenue.
feigning an inability to distinguish between private property and personal property to manufacture resistance to reform of political economy, what a concept
> I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value
This would make investment bankers and lawyers happy and nobody else.
Note that any company with a '40 Act investor already has public valuations per those investors' opinions published--it's how you get "Fidelity marks down value of Twitter stake again" headlines [1].
> this whole idea of "unrealised gains/losses" goes away
As does the entire American private capital market, including small business, since illiquid investments now become punitively expensive to hold.
The more I think about it, the more impressive this proposal becomes in terms of solving almost zero problems while actively making the problem worse in different ways.
Ports would tax ships on the value of their cargo. It wasn't viable for the port to create valuations themselves, so they left it up to the ship, but the port had the right to buy the cargo at that price.
The scheme kind of works well if it's liquid commodities (e.g. grain, oil, lumber) and the purchasing right is held by a non-capricious authority (i.e. one that only exercises that right to call a bluff).
Taking a down-round on an IPO can be very damaging to a company. Since employee equity is based on options, that puts those options underwater and means employees will make nothing in the IPO. Internally, the company is doing 409a valuations and admits in writing that the valuation is down.
I wonder how this works for items that have far more value to the owner than the market value. Say shipping my personal belongings to another country. The value of my stuff is probably quite low, but it would be incredibly inconvenient and disruptive if it was purchased at it's market value and flipped on ebay.
Basically all early stage startups use ISOs. Public companies typically use RSUs. Some startups transition to RSUs before their IPO.
RSUs are kind of unworkable if the valuation will increase significantly before the shares become liquid since you owe taxes on their value as they vest whereas ISOs let you defer taxes until at least exercise if not sale.
> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
You and your dad run a plumbing business. Every year you have to pay someone 10k to get a valuation. Then strangers can buy a piece. Do you have an operating agreement? If not he can force a sale if the company.
Couldn't the annual valuations be gamed by insiders? Who's going to impartially decide the declared value?
Best alternative I can think of is a soft fascism where the government receives a small stake in the company each year instead of cash. Then holds or auctions it as some bureaucrat sees fit.
Private ownership would become impractical for the hoi polloi.
The wealthy would need to pay a new class of bureaucrats to keep asset values up to date, to continuously incorporate new information into their marks. Everyone else would be better off renting--owning a car would be risky as it could be snatched from you at a moment's notice due to an overnight shift in the metal markets.
Remarkably similar to a feudal system, actually.
EDIT: What am I thinking, you'd just move all your financial assets overseas and maintain as little real property as possible domestically. The same thing folks do in the Gulf countries where the monarch gets stealsy from time to time.
Bob declared his car to be worth $18k in 2023. Fred fills in an official form, pays $18k to bob, and takes bobs car. Perhaps a 1 month handover period is given, and perhaps a 10% 'hostile sale' fee is given to the government to prevent abuse of the system to take houses from grannies.
Lets say any item worth over $10k (including cars, land, houses, companies, etc) would be part of the system.
Another way of looking at it is "all items in the nation are always for sale, and if you don't want to sell you better choose a high price".
Obviously if you don't want your stuff taken, declare a high value. But you'll pay a bit more tax for the privilege.
Perhaps we could institute a similar law for people and tax their self reported value of their time/labor. If you under-report you can be press-ganged into slavery for a specified duration, say 1 year.
This would ensure that people's labor and their bodies would be put to the most efficient economical use as well as increase tax revenue.
It would also solve the problem of undercompensating of workers. If your employer values your experience and knowledge, they would have to pay a premium for it, otherwise a competitor would buy you out from under them.
poaching is currently inefficient. Poachers have find employees and many employees refuse the offer for selfish reasons, Even if the salary is higher and would generate higher income taxes. These people are cheating society of tax revenue and growth it would otherwise have.
Lots of people hoard their time, spending it with friends, family, and children. This would force that time and labor into the market, where it could be taxed and contribute to social good.
A woman reading a book or singing to their child creates no taxable income, and doesn't contribute to GDP. Under the current proposal, If She didn't pay sufficient income tax on the time she selfishly hoards, a company like hooters could buy her and put her labor to more productive use.
So now you have a full time job managing the declared value of all of your assets? Or perhaps you'd suggest families now have to hire an asset management firm?
If you show up at the tax assessor's office with a check for more than the self-reported value of my home, realistically plus the premium the government pays in eminent domain cases, you get the title. That idea is pretty much "eminent domain for all."
This is terrible. I don't want to loose a priceless family heirloom (grandma's Sheraton-style rocking chair from 1890s) just because someone wants it and can write a check for $1 more than the assessed value. That discounts sentimental value. And if I now have to declare sentimental value and pay taxes on it, I'd rather burn it to the ground (grandma would approve).
A lot of people hate eminent domain too, for that exact reason. I think libertarians want to get rid of it entirely because it's an involuntary transaction.
Not being born to a grandma who could afford a life stable enough to preserve and pass down such a chair is also an involuntary transaction, but libertarians don’t seem to talk about that.
That seems really annoying to deal with. It's possible it would lead to a better society eventually, but in the short term I'd rather speculators not buy my shitbox car out from under me because they spotted the chip shortage before I did.
I think that's the point, to free up all the economic activity that's being held up by patents, copyright and land underuse, and to get fair tax assessment on assets previously exempt from property taxes as a bonus.
I don't see how this has anything to do with patents or copyright. Presumably, those would be subject to this seizure mechanism and thus flow to those most willing to enforce their claims.
Like, 99% of the activity under such a mechanism would be transfers of financial assets.
A power law land value tax would take care of most of the problem at almost no cost (since land is assessed regularly anyway).
This should completely replace income tax. Copyright terms should also be 10 years, maybe 15 max. Patents could probably stay as is, but I don’t see any problem reducing them too.
> power law land value tax would take care of most of the problem at almost no cost (since land is assessed regularly anyway)
Sure. This is a totally different proposal.
Would note that you could go a long way to making this proposal electorally appealing by exempting primary residences. (In my experience, the assessed value of a home is at best loosely related to its market value.)
It would be electorally appealing, but would fail at one of the main benefits.
The number one waste of space in the US is people’s excessively large footprint, causing enormous consumption of energy and infrastructure costs that are borne by future generations.
All these detached single family homes on 0.1+ acre lots are massively expensive and the people living in them hardly pay taxes proportionate to the benefit they receive from the government. Instead, our society takes from the working class via income tax.
If you want to live in a detached home on a large lot, be ready to pay the appropriate land value taxes.
If you want to conserve and use less of society’s resources, live in an apartment building.
Since the tax formula would be a power law function, it would inherently not be punitive to the vast majority of Americans who don’t live on outsize plots of land.
The more stuff you move further distances, the more energy you need.
Obviously, more people living in a square mile will use less energy per person than fewer people living in a square mile.
Think about all the energy needed to move water/sewer/trash/gas/police/ambulances/etc in and around a neighborhood where 100 people live in a Barcelona style communal living versus 100 detached homes on 0.1 acres each.
The huge knock on effects of the latter is that it then necessitates personal vehicle transport, which then compounds into more space being needed for huge arterial roads and highways, which then makes neighborhoods unwalkable, further necessitating personal vehicle transport, and so on and so forth.
> DOA. Partly due to the electoral college. Partly due to American optimism and aspiration. Perfect is the enemy of the good.
I’m under no illusion, but I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary.
Most of the blue collar workers I know live in single family suburban homes. Factories are rarely located in urban centers, and corporate dormitories are no longer much of a thing in this country.
I don’t see why what color collar someone is labeled as is relevant. My assertion is simply that occupying surface area consumes an incredible amount of resources that are not proportionately represented in today’s methods of taxation.
You've switched from arguing for a land value tax to arguing for densification. LVTs shoulod cause densification ceteris paribus.
Zoning, however, is the mutandis. LVTs absent zoning reform would not be expected to change much in cities. Zoning reform absent LVTs would spark a systemic boom in densification.
Zoning reform and LVTs are thus orthogonal, with the scant interaction being almost entirely defined by the ratio of unbuilt structures due exclusively to zoning or land hoarding. I asserted that ratio is close to one, due to ample evidence for the former. I asked you for evidence of the latter; "physics" is not a response.
> I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary
This is, by definition, extremism. It's generally seen as a red flag, communicating lack of commitment and/or dogmatic delusions.
The unstated assumption here is that efficiency is the most important thing, rather than any of a number of other things we could value like stability, security, safety, reliability, and so on. The problem with efficiency-driven ideas is that they almost always will result in a bunch of people with money descending on a bunch of people without money and exploiting the difference to...make money.
There’s a similar concept with real estate taxes in some countries: you pay your tax based on self-reported valuation, but if you sell for a price that’s higher than this valuation then you have to pay adjusted tax for like 5 years back.
The current batch of tech "decacorns" (Stripe, Databricks, Canva, Chime, Miro, Discord, Ripple, Brex, Airtable etc) all raised money at unrealistic valuations in 2020-2021, and with the subsequent tech cool off the market today can simply not sustain the same numbers. With no IPOs or acquisitions on the horizon, and no appetitive for down rounds, there's essentially a funding stalemate for companies at that stage (unless you have "AI" in your name of course).
I would assume that if the underlying models were already good, about the only thing an LLM might be good for would be filtering new info and/or presenting information in a useful way, both of which can be added to an existing flow?
DeepL for example already used machine learning for their translations. Over the years they accumulated a massive amount of high quality data thanks to language experts they employ.
Their current model is much better, because their training data is much better than feeding everything in.
Most of these have been around for nearly a half decade, can’t they just remain private companies operating off their profits? What is the mechanism for VC investors exiting when it just goes private, what payoff will they accept?
A lot of them have built up user bases which are difficult to monetize at all. Discord users are having a collective meltdown right now at the change to require a subscription for large file hosting.
How are you meant to profit when you have a product that costs a lot to run, that has an expected price of $0.
It's not possible: for most of these companies, their business model is built on burning VC, getting increasingly higher valuations, and then dumping on retail traders.
For instance, Stripe is valued at >$70b. They processed $1 trillion in payments in 2023, brought in $12 billion in revenue, which is 1.2% of payment volume. $100 million in profits.
Running as a modest private business just doesn't make sense when you've raised venture capital at 700x your annual profits. So, IPO it is.
What do you mean dumping? Google IPO was a huge windfall for retail investors and VC, right. If Stripe can’t exit successfully, why not pay VC back at % rate they can afford, and then run the business off of the $100M profit?
Out of 17 YC companies that have gone public, 3-4 have been delisted, 7 have lost >80% of their value, another 7 has lost 10% to 50% of their value. Only Reddit and Instacart have gained 47% and 31% respectively. Sounds a lot like bagholding to me.
Regarding Stripe, if investors own just 50% of the company (highly probable, given how much they've raised), it'd take 350 years to pay them off. Payments is a high-volume, low-margins business.
In fact, even if Stripe 10x'd their revenues, it'd still be 35 years before they bought out all their investors. if you think I'm being unfair, look at the numbers Paypal and Adyen are doing and assess their valuation and you'll realize Stripe is extremely overvalued.
Adyen is trading at 60x profits; PayPal is trading at 2.7x revenues and 19x profits.
Comparing a companies current valuation to it's all-time or 52-week high isn't really useful. NVDIA is down ~14% from it's ATH but 25x it's initial market cap; it's certainly returned value to it's investors.
What matters more is change relative to it's market cap at IPO. And yes this is significantly worse for newer companies. There is a clear trend showing the 2010-2022 tech IPO market pushed valuations pre-IPO to insane levels such that post-IPO growth was limited or even negative meaning retail investors never had an opportunity to hold equity.
Adyen hires mainly in Europe where peak salaries can easily be 40% of American rates. They also have like 3,500 staff compared to Stripe's 8k (not sure whether it's before or after their recent layoffs).
Personally, I assume they'll do some layoffs & cut spending to increase their margins, by, say, 4-5x, before they IPO.
I am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed.
This would have been an OK move if there was more anti monopoly enforcement on FAANG (plus MS and Adobe) but there isn’t. The result is established players get to dump sub standard products on the market and remove the oxygen from the room for competition to emerge.
I am less sure about the Figma acquisition[1] in particular, but overall, I strongly agree with the general point that blanket blocking nearly-all acquisitions by Big Tech (except Microsoft for some reason) is wrong and short-term populism.
More startups and more innovation gets created when founders have higher hopes of a positive exit, and in turn, this is good for the world at large.
When a startup becomes FCF positive quickly, and can sustain their growth, they generally don't want to get acquired (eg: Facebook, Snap...) and generally aim for an eventual public IPO. But this is a high bar, which only a small number of companies reach.
The ones that do choose to get acquired, often do so because they are not as optimistic about their own sustainable growth as outsiders might think. If they can't make a reasonable exit via an acquisition, then their equity becomes zero and their years are wasted.
From a founder point of view, acquisitions act as a significant floor of value for the time and effort that the founders and employees are risking. This negative Expected Value risk taking drives innovation and growth for all, significantly curtailing acquisitions makes it severely more negative EV. Worse, the impact of this will not be felt immediately so the new FTC will be able to claim political and populist wins; it will show up in reduced startup creation in the years to come.
[1] Figma feels like it has a reasonable chance of surviving on its own, and become genuinely disruptive to Adobe in the future. But if it dies and goes to zero, then I will feel sad and unhappy that the acquisition was blocked.
Large companies growing even larger by acquisitions, and this being the standard exit for startups, is not good for the world at large. It only leads to concentrating more and more power in large corporations, and reducing meaningful competition in the market.
A startup being attractive for an acquisition is also quite different from being attractive to clients and users, and therefore that’s an incentive structure that is worse for clients and users.
Perhaps the government should make it a bit easier to go public, rather than restricting every other option. The SEC and FTC seem to be all-stick, no carrot.
> More startups and more innovation gets created when founders have higher hopes of a positive exit, and in turn, this is good for the world at large.
No, I disagree. It is a negative for the world at large if people are incentivized to build businesses solely so that they can be acquired by some big tech company.
Large players leverage their market position in anti-competitive ways to crush challengers, and this problem becomes more acute the larger the player gets.
Even if one hopes (unrealistically, IMO) that sufficiently-large hypercorps will save us from this fate by collapsing under their own weight, why not just cut out the middleman and break up the huge players now, rather than suffering under their market tyranny while hoping for it to happen on their own?
I would watch a documentary on what Microsoft had to do to get Activision. It seemed they spent a lot on the best legal team money could buy & on political capital as well. There were a ton of different angles too such as mobile gaming where Microsoft can't compete easily, studios where Microsoft has a lot, the Activision harassment fallout, the foreign competitors (Sony & Nintendo), cloud gaming competition.
Figma & Adobe had a lot less competition pre-AI wave so I understand the push back on that one. Especially due to Adobe's past on buying competition, killing it off & little innovation. Ironically now with all the AI startups I think Adobe has a lot of competition.
The Spirit/JetBlue airlines M&A being stopped is still my biggest head scratcher.
I personally think Figma & Adobe should have been allowed to merge though as companies like Affinity offer a very competitive product. I also was in favor of all the above M&As though.
We need to move away from the mindset of companies getting built to be acquired and then all their product innovation gets snuffed out and their users suffer: it's wasted economic output.
People are expecting too much with anti monopoly enforcement. Google is on round two with anti trust. Read here if you want to know more https://www.bigtechontrial.com/ (Sponsor is very into anti monopoly)
However, this is 50 year of court inertia she is trying change. It doesn’t go fast.
Wrong call for who? Adobe has a track record of absorbing and abandoning or stagnating excellent products. I loved Figma and hate Adobe, and many of its users felt similarly. It would've made investors rich, yes, but it would've taken one of the gems of the internet away from its community. I, for one, and very glad that deal got blocked.
For the economy as a whole, and the quality of products in it.
I would refer people to JumpCrisscross’ remarks which are clearer than my own, such as:
“The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.”
People are way too emotional about Figma and Adobe and do not see the forest for the trees.
I clearly stated at the top that they had failed to perform anti monopoly measures against FAANG and co. and this was the actual root of the problem.
Until Google, Apple, Amazon and Microsoft are broken up, or seriously splintered, other anti trust action is not merely irrelevant but counter productive as it just entrenches the positions of the established players.
An investment industry whose endgame is destroying the product they created by selling it to their competitor is not an industry we need. IPO is a positive societal exit. Selling to another investor is a positive societal exit. Selling to a competitor so the can smother it should've never been a primary exit and that's being fixed. That's a good thing.
Absolutely. The whole subject of this article is the difficulty of startups securing late stage funding. This means a lot less competition for FAANG. Look at how Meta has not needed to buy anyone in ages and is essentially fine, yet historically was spending vast amounts. Only tiktok, with clear state support, has come close to disrupting anything slightly.
Were it not for the AI wave the tech world would be a trainwreck right now.
> The whole subject of this article is the difficulty of startups securing late stage funding. This means a lot less competition for FAANG.
It was never true or long term competition if FAANG just buys them up. That isn't actual market competition if it only exists for a blink of time.
You've misdiagnosed the problem. The problem was letting Meta buy up all of it's competition until almost nobody wants to compete in it's market. The problem was exactly letting market leaders buy up their competition. The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
You're arguing your conclusion as your premise.
This is a question of is it good for market leaders to be able to buy up their competition? And the answer is "no".
> The problem was letting Meta buy up all of it's competition until almost nobody wants to compete in it's market
It is almost like I said this right at the start and you are all ignoring it.
Punishing a relatively small player (Adobe) has had this knock on effect on the entire ecosystem that coincidentally benefits the larger players by making their already big positions unassailable. Follow the second order effects here.
Edit to add:
> The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
The point is that in a world that tolerates the ongoing existence of FAANG (+Adobe +Microsoft +Oracle etc.) as the monopolies they already are you must allow large acquisitions in order to enable the emergence of new competitors, either directly or as a result of the founders making a second shot. Otherwise their defensive moat is just hilarious.
The absolute best option is to break up the monopolies, then be stricter about their emergence in future i.e. through blocking acquisitions. But you cannot do this by starting at the end like this, as it makes it worse.
I don't care about Figma or Adobe, but you simply haven't made a good case why antitrust enforcement is good in general but bad in this case. Your only argument is that it makes it harder for other companies to grow to that size, which is not an unintended consequence of antitrust enforcement. You can't have your cake and eat it.
Means Adobe are included, as it says at the very top.
Stopping them buying Figma achieves nothing good. Their monopoly is on print and publishing tools, and no one has been close to them since the actual crime of the acquisition of Macromedia and subsequent killing of Freehand.
Had Figma been bought at the valuation Adobe were offering the founders would, given a few years, be free to leverage their expertise and now vast resources on whatever is more valuable at the time, and now that is lost.
> the founders would, given a few years, be free to leverage their expertise and now vast resources
I couldn’t make heads or tails of your posts here until I read this. “Anti-monopoly action is good, even regarding Adobe, except for the Figma acquisition in particular, which should have happened” doesn’t really make sense unless your starting point is “the desired outcome is that specifically the Figma folks get overnight super rich” and then you work backward to construct an economic reason for that.
It is the wrong anti compete action to enforce against them. The correct thing would be to dismantle their publishing monopoly.
The point is unless you dismantle the core print publishing monopoly Adobe will simply produce a crap Figma, bundle it in Creative Cloud, and Figma will die a slow death. At least if Figma is acquired it gets the chance to do the opposite.
My priority is the widespread availability of high quality products and services, which requires rewarding those that make them, and a competitive marketplace without people engaged in product dumping.
>At least if Figma is acquired it gets the chance to do the opposite.
This makes sense. If Adobe makes a crap Figma copy and Figma dies, that is bad. If Adobe buys Figma, makes it terrible, and then it dies, that is good. In both scenarios Figma is dead, but in the Good one the Figma founders cashed out.
You literally posted that the ideal outcome is that the Figma founders could leverage their newfound wealth to do… something(?) with all their new cash, which has zero to do with Figma as a product or the users that get screwed.
As other responses to your original post have pointed out, it's quite likely Adobe would have turned Figma into yet another saas offering, dubiously supported and with onerous bloatware, and consumers would be left high and dry when it is inevitably sunsetted.
They will enshittify regardless of if Adobe buy them or not.
Now though you will certainly suffer because when Figma inevitably goes to hell the only remaining option will be the janky self hosted clone as no one will be able to fund proper competition for it or any replacement.
> I am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed.
On the flip side, it has also helped customers who are now benefiting from the competition between Figma and Adobe. The quality of Figma has only improved since, and I am happy for them to earn my dollars.
"To provide the best experience during our transition to Adobe, Figma users will now be required to download and install Adobe Update Manager native application running 24/7 with file access in order to use this web-based application."
Lina Khan has done more to kill the startup market than anyone else in the world. But it's okay because she's making sure there's enough competition in the market for mid-range luxury handbags.
No, what killed the startup market is that people now have to pay for money. There is a whole lot of junk people are willing to do when money is effectively free.
When people have to actually pay for money, all of that crap goes out the window.
Maybe this is a dumb question but I thought valuations had fallen a bunch since mid 2022 and now lots of VC firms are struggling with companies (especially mid-to-late stage) who raised at much higher valuations than they can now get in the market. But this firm is saying that current valuations are too high to make new investments. Would it not be a good time to invest in later stage startups? Or is the issue that the forward growth potential of these companies is lower now for some reason.
Valuations have "fallen" but not actually fallen: there are very bad consequences to raising what's known as a "down-round"(1) so no one is actually doing that unless they are absolutely forced to. So no company is interested in actually allowing an investment at that lower valuation. They only do that if they are absolutely forced to, because they desperately need the money.
So while yes, when the valuations go down seems like a perfect time to buy (buy low, sell high!), in these closed markets it is difficult to find someone to accept your money when it is down. This is a big difference from the publicly traded market, where you can essentially always buy stock. But in these private markets, everyone agrees that the value of a share of company X is lower than before, but no one is willing to sell you a share today at that price, so you can't actually invest your money.
1: Where the top-line valuation is below the previous valuation. This is extremely bad for a company because investors almost always have protections for a down-round, so the loss generally is felt entirely by the workers and the founder.
There are several strategies companies can employ. One common approach is to raise an extension or bridge round. Many startups are adopting this method, with estimates indicating that approximately 40% of current funding rounds fall into this category.
In these cases, companies raise funds at the same valuation as their previous round, often labeled as Series A+ or Series C+ or Series B Extension.
Another, less common strategy involves using a SAFE (Simple Agreement for Future Equity), which will convert to equity during the next priced round.
About a year ago my org made shaving costs our highest priority. Our infra team spent half a year slashing our cloud spend, and we've been pushing hard to become cash flow neutral.
I have to imagine this priority shift is in part due to the money markets being what they are.
That is possible, or hit break even. You'd be surprised how quickly a company can go from -50% margins to positive margins when their job is on the line.
private valuations are weird. There's some abstract idea that 'valuations have fallen' for sure - people are saying things like "I don't think COMPANY_BLAH that raised $100M at a $1B valuation is actually worth $1B"
But it was never officially 'worth' that much in the same way as a market cap of a public company anyway. If they do a downround, where they raise money at a lower valuation than the previous one, that's generally bad for everyone, so there's a strong tendency to try to 'wait it out' and just pretend they're still worth $1B and hope the market recovers and no one has to write down their investments.
Wonder if CRV is reacting to the same underlying trends causing Warren Buffet to sell stock (e.g., Cape / Shiller PE ratio is close to an all-time high)...
P/E ratios are not going to drop until some kind of socialist revolution reverses the movement of money from the budgets of people who spend it to the bank accounts of people who invest it. When control over dollars shifts from people who want goods and services to people who want capital assets, the price of a capital asset (P) must go up as demand rises even while the price of what it manufactures (E) goes down.
Ever hear "there are no alternatives to stocks?" The alternative to stocks in the past was consumption; not so when concentrations of wealth cannot be spent in a thousand lifetimes. It's the perfect storm for crazy P/E. If you believe Piketty's work, that kind of reverse shift never happens gradually, and these P/E ratios represent the "maturity" of a period of relative peace and stability.
It's worth mentioning, as an aside, that as long as inflation is positive, investors do not actually need to see earnings.
Only really answerable in the future. It really does feel like valuations are completely insane now for anything founders can brand as a tech company with money chasing hype instead of actually following the realistic valuations of companies. A pop feels inevitable though.
Part of this is also just the bubble from the last few years. Everything that startups spend money on has become more expensive. Right now there is less funding available, but prices haven't adjusted.
I don't think it's just a "market" thing at this point. Reality is if you're not a Tier 1 VC, which CRV really isn't, then you cannot get into good deals that would make any sense.
I think if you look at a lot of funds right now, you'll notice that they're all struggling to place. It's a question of inventory and while multiples are low (naturally as parking your capital in a savings account is yielding 5%) companies are not selling for less. I have seen multiples in ecommerce/saas startups go from 40-50x (early stage companies <5m ARR) to 15-20x. The appetite to sell your company for less than a 10 year DCF is really not there for founders. Cashflowing companies when capital costs are high are something you typically hold on to.
It's musical chairs and the music is currently stopped until interest rates break or until buyers (and their investors) start getting hungrier for acquisitions. This "sorry we can't place your $275M" scenario is a step in the latter's direction. T1 funds are also slowing down a lot since their main handoff is IPO and that is also dry.
Weak probably means too much VC competition relative to the number of good investment opportunities, leading to higher valuations, fewer investments in top companies, and lower expected returns.
It's relatively easy as a General Partner in VC to collect fees leading to a decent salary for a while.
It's quite hard (rare) to do well enough to outperform the public markets consistently on a risk- and liquidity-adjusted basis. If you look at the metrics on fund performance, most of them are really pretty bad.
The for instance look at public markets. Passive S&P allocations outperform most hedge funds.
You can outperform 99% of hedge funds just by buying the S&P.
The same goes for VCs. Just by spraying small checks over a wide spectrum you can do very well (outperform the S&P and most VCs).
But 99% prefer "me too" investments.
Paul Graham talked about this:
"Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."
Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do."
...
"I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure.
It seems obvious. But I've proposed to several VC firms that they set aside some money and designate one partner to make more, smaller bets, and they react as if I'd proposed the partners all get nose rings. It's remarkable how wedded they are to their standard m.o."
I'm seeing a lot of commenters blame this on M&A and nothing could be further from the truth. The ZIRP era pumped so much money into startups that a good majority will struggle to grow into their valuation or raise again at anything other than a down round.
I can still vividly remember December 2021, when Airbyte raised $150m at a $1b valuation - with less than $1M in annual revenues. Or has anyone forgotten Fast.co burning $120M/year while bringing in $600k in annual revenues and flying their CEO around the world to live like a celebrity, skydive, and show off company merch? LMAO. And these are just a few of the more obvious examples. At some point, founders stopped selling to customers and starting raising and spending VC as their main business.
This past couple of months Bolt (one-click checkout) is about to raise at a $14b valuation with less than $28M in annual revenues, or a whopping 500x valuation. Hell, NVIDIA is currently trading at 50X revenues, despite being so important to the AI revolution.
No one has learnt anything and the rate hikes have not flushed out all the malinvestment.
LMAO. Wait until rates go down a bit. The party will continue like it never stopped. All it takes is for Masayoshi Son to make a $1b bet on a "Uber for Pets" startup and the game is on :)
https://archive.is/Eku28
Important distinction: this is for a growth fund ("mature companies" in the article). Growth funds are typically fund dedicated to either later stage financings or follow ons from earlier stage rounds that the firm invested in. Growth funds are heavily reliant on an active M&A market, or companies that are likely to IPO. M&A is effectively dead right now, and many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
> many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
Isn't the market what determines the value of a company? If they can't get the IPO price they want, then they aren't worth what they think they are.
That's the point. The value of a company is determined by the price that people are willing to buy & sell its shares at, but you don't have to be that person.
The VC fund in the article is basically saying "We believe that anyone buying late-stage startups at these valuations is a fool and is unlikely to get a better price when it goes to the public markets, and we are not going to be the greater fool with your money."
Emphasis on the "and" in "buy and sell". It is not one or the other, you need agreement to have a price.
I wonder if that means that the grift is over.
The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
This is bad.
Yeah, it really bothers me that as a society we've decided that ponzi schemes are actually fine as long as it has some loose "tech" branding associated with it. It seems like the startup strategy in Silicon Valley is "grow at all costs, worry about profit later, IPO, now it's the public's problem".
Of course someone could say "well they're not forcing you to buy the IPO'd stock!", and that's sort of true, but only in the strictest sense. My 401k, like I think nearly everyone's, is a mutual fund, and it invests in a little of everything. I also buy ETFs that do the same thing, because it's really the only way to preserve wealth, for better or worse. Even if I, for example, thought that WeWork's business model was unsustainable, I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.
>I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.
Some other approaches:
* Buy long-dated put options for companies you think are overvalued, so your overall portfolio (retirement account+personal trading account) has 0 exposure to stocks you don't like. If a stock's price goes down, exercise the option before its expiration date and profit.
* Assemble a portfolio of sector ETFs and exclude the tech sector. Or buy regional ETFs in regions with low tech exposure. (If you're American, I recommend buying ex-America ETFs for hedging purposes anyways, since your career already gives you significant exposure to the American economy.)
Granted, you will be paying higher fees with these approaches, but given how dominant tech stocks are, if you really believe they are significantly overvalued, I think you should be willing to pay those higher fees.
Most (all?) retirement plans offer you some amount of choice in funds to invest in, and most companies of the sort you're describing are not included in many of the more popular indices. For example, WeWork was never in the S&P 500. Similarly, target date funds are one of the more popular investments options available as by default and/or recommendation in retirement plans. The first one I checked (Fidelity's Freedom Index) applies its U.S. allocation to large caps, which again means it does not include many of the companies you have in mind.
Fair enough, I guess if the company never makes it to the S&P500 or NASDAQ-100 you're mostly shielded from this stuff if you do the default funds. There are some questionable tech companies on the S&P, like Uber for example, but not as many and nothing as dumb as WeWork.
I have a lot of VTI stock right now, which if I understand correctly invests in basically everything in the America stock exchanges, though I guess an argument could be made that I should have known that dumb companies being included in there was always a risk.
Still, I don't have to like it, and I do think that a lot of these companies IPOing when they don't really have any way of actually making money is an issue waiting to happen.
VTI is a minimum ten year horizon type investment though, which is why it’s often praised by the Boglehead crowd.
Hold it for 10-30 years and it’ll be up and to the right. On average 10% gains in a year, though like anything it always fluctuates
I have absolutely no plans on selling my stock for the next ten years, but it still means that I'm investing in WeWork whether I like it or not.
I agree it's a good investment for long-term stuff, it's the fund that I recommend to everyone.
Yeah, I hear you. It definitely feels like there's been a shift toward investing based on sentiment rather than fundamentals, and there's certainly an argument to be made that's not a good outcome for society.
Personally I feel like it's a bigger issue for individual investors that in recent years companies now IPO only in later stages or not at all and that much of the more profitable bits of the growth curve are now accessible only to the private markets.
I believe Warren Buffet was opposed to robo-trading strategies for this exact purpose. If the bulk of the money is going to fund anything with a market cap greater than $X, then it is useful for VCs to pump a stock up to $(X + Y) market cap to acquire funding via rebalancing.
From a VC perspective, you can exit as other funds rebalance into the stock at the inflated valuation.
The beauty of market cap weighting is only entrance or exit forces a rebalance.
I think we just have near stagflation in Europe and a bad economy + inflation in the U.S. If certain wars are stopped, energy prices go to normal and the excess COVID money supply is gone, things will be as before.
But the U.S. population has to want it rather than voting emotionally again.
What bad economy? Labor market is a bit soft but still strong, GDP has been gangbusters for quarter after quarter.
> ...things will be as before.
> But the U.S. population has to want it rather than voting emotionally again.
Why would the US population want:
>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
? IMHO those greater fool-based moneymaking schemes can go die in a fire.
> Why would the US population want:
>>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.
I was the one that originally wrote that. Bear with me for a second.
I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.
As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
We may recognize that building castles on sand is a bad idea. Perhaps our economies, and the rules that create incentives (perverse or otherwise) should be different than they are.
Fact is, we have a lot of fucking castles built on sand right now. If they crumble, a lot of people will be left to wander among the rubble.
I do hold a deep despise for the billionaire class that was the ultimate beneficiary of this whole "building castles on sand" activity. It's not them who will lose the most when everything crumbles though.
> I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.
I get that, we as software engineers have indirectly benefited from the scam.
> As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.
I don't think it's hard to say. If the general population was made understood the full situation, they'd tell us software engineers to get lost along with the billionaire VCs, because the general population are the ultimate greater fools that pay for it all (either directly through the stock market, or indirectly through the businesses who make so much through monopoly off of them that they can easily afford to be greater fools).
We software engineers have had a pretty privileged time while a lot of people have been struggling (viz. the whole "learn to code" bandwagon from a few years ago).
To be frank, the whole "learn to code" fiasco was pushed not by software developers. My impression was that it was pushed by parties interested in flooding the field with newcomers to push wages down.
Nonetheless, I don't think you are wrong. I'll just point out that the monopolies you refer to, and the billionaires that ultimately benefit from it exist due to policies and laws that directly benefit them so they achieve that very position.
I don't deny that we lived though a privileged time - I was perhaps lucky that I had aptitude and interest in coding right at the time when the profession was on the rise.
While some may be deeply concerned about AI taking jobs (which I think is complete bullshit), my main concern is a shift in economic conditions that will severely reduce demand for developers due to less money moving around the sector.
I believe the the ones that will suffer the most are the newcomers. Either recent graduates that are coming to the market at the worst possible time, or those that switched professions very recently only to find the promised land had withered before they arrived.
Oh well. Time will tell.
> To be frank, the whole "learn to code" fiasco was pushed not by software developers. My impression was that it was pushed by parties interested in flooding the field with newcomers to push wages down.
Yes, it wasn't pushed by software developers, but it wasn't some fake thing either. The main driver was the anxiety and stress a lot of people have about their economic situation. Software development was seen as one of the few achievable "good" job as precarity crept into many previously stable types of employment. The "parties interested in flooding the field with newcomers" just took advantage of the situation.
> stagflation in Europe
Where? I wouldn't be surprised if deflation becomes a real concern in the near future. Eurozone is already at 1.8% YoY
Inflation is at 2.5%.
Unemployment has bottomed out again at 4%.
The stock market has been making all time highs.
The fed is lowering rates.
The previous grift is over, the new one (AI) is getting started. VC fund actually wants to exit the old market, where they are the greater fool at the bottom of the pyramid scheme, and enter the new one, where they can find new fools to unload on.
> I wonder if that means that the grift is over.
It's just general market conditions. Once interest rates fall, tech VC will go right back to the grift.
Biotech has also seen a major slowdown this year too, despite the huge $43b, $14b, $10.8b, $10b, $8.7b, $7b and $7b [1] acquisitions last year and all the usual IPOs. It's just interest rates catching up to everyone's funds.
[1] Seagen, Karuna Therapeutics, Prometheus Biosciences, Immunogen, Cerevel Therapeutics, Reata Pharmaceuticals, Mirati Therapeutics
I truly hope you are right, otherwise market conditions will only deteriorate further for whoever work in tech.
An analyst on the radio talked about Saudi Arabia. Apparently their sheikh is tightening the budget and Arabs always were the biggest fool. It's having a huge impact on grifters world wide.
Value isnt singular. Every single transaction in the economy is the result of a difference in opinion about value.
My House has a public valuation, but the value it me is much higher, so It is not for sale.
Im sure there are several things that you dont buy for their market price because they have less value to you. You dont go into the store and buy every Item you see, or put every item you own for sale.
Agreed, but if I decide to sell my car, what I originally paid for it, what I think it's worth, or how much I've invested in repairs, or how much I still owe on it, all has nothing to do with the price I can get.
There are an infinite number of ways you might choose to price your car. If you want it sold in the next 30 minutes, you'll have to settle for what anyone has in their pocket. If you're willing to wait 20 years, you might get a much higher price. Anyone who has bought or sold a used car will know that market price is an average, in reality prices are diverse.
With all that said, my point was to highlight the role of choice in deciding to sell or not. I wouldn't recommend selling your car if you owe more than the market price, and don't have money for a replacement.
100%. A lot of companies effectively waited too long to exit, and in retrospect probably should've gone public in 2021.
The Reddit IPO appears to be holding strong.
11.129B market cap.
There's an appetite for companies with low profitability, but promising future growth.
Reddit might be in an unusually good position since they hold a huge amount of natural human language they can sell.
bit of a stretch to call that natural human language - forget the type of actual people that post there, it's been a massive astroturfing target for political and marketing bots for over a decade.
r/HailCorporate
Yes, but the driving motivation is probably more financial than emotional. Trying to IPO at a price lower than the last valuation is announcing to the world that the last investors lost money, while simultaneously trying to convince the world to be the next investors.
In theory, the market will bounce back so IPOing now is effectively selling low.
> Isn't the market what determines the value of a company?
There are several markets involved here.
> then they aren't worth what they think they are.
Which is an indication that your market is corrupt or lacks the information discovery necessary for accurate pricing information to be generally available.
If they have enough cash/free cash flow, they don't have to take money at a lower valuation.
> If they have enough cash/free cash flow, they don't have to take money at a lower valuation
Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.
There isn't a return for shareholders if the valuations are lower. The problem is not management holding the business hostage today, the problem was investing at unsustainable multiples a few years ago.
Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.
> management holding the business hostage because they prefer their salary to shareholders having a return.
But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.
> the principal agent solution of equity and executive privilege
This phrase is distilled nonsense. Executive privilege [1] has precisely nothing to do with the principal-agent problem [2].
[1] https://en.wikipedia.org/wiki/Executive_privilege
[2] https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
Your house isn't always worth what you want it to be.
FOMO and free cash can work like magic for all kinds of assets.
A startup I used to work for within a year of interest rates rising and lower spend by businesses and consumers ended up cutting staff by ~84% and they nearly 100% outsourced development (it may in fact be 100% now but idk for sure).
They did this to avoid any changes to their sky high valuation, as if they went and fundraiser it would have tanked it.
At this point I think they’re hoping to meander along until they’re forced into fire sale or they get acquired for their customer base
Not really, the DCF value of a company is sum of its discounted Future cash flows. But the value to a acquirer usually exceeds it because they can can extract a "hidden value" specific to them. It's called "acquisition premium"
If interested, look up "Valuation: Measuring and Managing the Value of Companies"
M&A is not dead. Not at 20/21 levels, but certainly not dead. Some sectors in tech are much stronger than others, now if you’re a company that is burning cash and doesn’t have an appealing growth profile then yeah you won’t get a deal done (source: me). IPOs are basically dead atm
Right, better to give the money back and preserve IRR/ reputation than try to simply earn carry.
They aren’t giving it back they are converting it into a new fund for early stage companies. The article is click bate.
Oh i missed that part -- that makes way more sense.
> preserve IRR/ reputation than try to simply earn carry
Management fees. Carry is performance based.
FWIW, the IRR clock doesn't start until they call capital from the LPs.
> the IRR clock doesn't start until they call capital from the LPs
Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.
Yeah, that's a good point :)
Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway.
Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.
> how some of these big LPs are modeling opportunity cost against their growth equity commitments?
This isn't unique to growth equity but commiting to a capital-calling fund in general.
> no one really wants to be interested in increasing their exposure to PE or growth equity anymore
PE and VC suffered relative to private credit [1][2]. (Basically, folks want to lend to private companies more than they want to buy stakes in them.)
It's unclear whether growth is being uniquely impacted versus private equity in general, early-stage VC inclusive.
[1] https://www.institutionalinvestor.com/article/2dk6rmatv89c9u...
[2] https://www.bloomberg.com/news/articles/2024-10-01/jpmorgan-...
Thanks for sharing your perspectives in this thread. You seem to have a lot of deeper knowledge about how all this works. Any guidance on what to follow or where to learn to understand these complex dynamics of the investment world? I feel like much of what I’ve seen is more like the basics.
I'm not sure if it's really anti-trust. I think companies are being stingy with M&A because most companies are no longer worth the acquisition cost. They're looking for more "strategic" buys as money isn't cheap anymore. You're still seeing M&A, it's just occurring with more complimentary companies that actually add value (or hires) to their existing portfolios.
Yea, my company has done a few acquisitions. Ones from 4 year ago were head scratchers, what do they add? Last one has been clear value add.
It's not anti-trust in the case of smaller acquisition targets. There are also fewer strategic acquirers in some if not all markets. For example, if you built a good product 10 years ago on top of an open source project, there were a number of companies looking to grow by acquisition, such as RedHat, VMware, Rackspace, and Salesforce. Of those only Salesforce is still a factor.
Edit: clarity
Will echo what many have said here already, but with a slight twist:
1. Anti-trust activity takes a HUGE portion of the liquidity that does M&A out of the market. That has a dynamic effect -- other players who are not under direct anti-trust scrutiny think twice about their potential M&A activity. This, in theory, should reduce M&A prices (reduction in supply supply), but this is probably largely offset by point 2. 2. Inflated valuations from 2021 era. Lots of companies raised ridiculous late stage rounds around this period. Then interest rates rose. Now your company that raised on 100x ARR is worth a lot less than it was. But the company still has to grow into and beat it's last valuation. Combined with the M&A dynamics, it's much harder to justify a post-money above what your last raise was if that raise was a post-covid valuation, unless the business is just truly on ripping (e.g. Wiz).
A combination of interest rates and cap tables being all messed up from 2021.
If you have a company that raised a 100m of preferred at a 500m valuation, are you going to take an offer for 150m? Most founders are just going to keep grinding hope things get better.
Interest rates.
Biggest one IMHO is interest rates. The days of virtually-free credit lines are gone for the near to mid future - at least until the situations in Israel/Palestine and Ukraine/Russia are sorted out, but even then, China may want to take over Taiwan leading to the next global crisis.
Another reason is the AI craze. Everyone and their dog is focusing on being a/the dominant power in that area, so interest in "old tech" is waning.
And the last/smallest factor is that many of those individuals who exited in the last few years are hesitant where to put their money, and there is not much space for multi-billion dollar established companies to make acquisitions when they're all forced to let people go as a result of the post-/mid covid hiring spree and anti-trust authorities worldwide being very critical of more agglomerations at the moment - some because of strategic reasons (Europe in particular isn't looking too friendly to more of their companies being bought out by foreigners), some because they do not want to risk even more companies growing too-big-to-fail.
You are exactly right, money isn't (essentially) free right now. There are better returns elsewhere.
Anti-trust
Higher interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE.
> interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE
Reasonable hypothesis, but not quite. LBOs' share of American buyouts has been falling monotonically since at least 2015 [1]. Buyouts have increasingly been smaller add-on acquisitions, with tech dominating activity.
[1] https://thesource.lseg.com/TheSource/getfile/download/bf99ca...
Brings a tear to the eye… there are good things in the world! Nature is healing!
Anti-trust, yes. But also VCs funding a bunch of weak companies early stage for the last several years
> Anti-trust, yes
The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.
The other reason isn't so much weakness as much as pandemic-era valuation madness. Reasonably priced, a lot of start-ups would sell for less than their last valuation. That would seriously cut into the founders' pay-outs, which are usually based on common stock.
Tabular, for example, seemed to do OK finding a non-strategic buyer.
Databricks' acqusition of Tabular was absolutely strategic.
Both Databricks and Snowflake are in the process of integrating Iceberg capabilities into their own lakehouses, because the industry is consolidating towards Iceberg, especially after Clickhouse and Dremio integrated Iceberg support in 2022.
This is why Snowflake preemptively announced the Polaris Catalog right before the acqusition by Databricks was announced.
Databricks, Snowflake, Dremio, and Clickhouse are all competing for the same piece of the pie, and much like Cybersecurity in the late 2010s to early 2020s, there is a drive to "everything" platforms, and RFPs can absolutely get sank due to lack of capabilties in comparison to a vendor.
Right, my point is there are a few more strategic buyers outside the trillionaires club.
Ah ok! Crossed wires!
I can only really speak to Cybersecurity and other adjacent parts of Enterprise SaaS, and M&A activity is fairly strong in both.
The big issue is a number of startups in that space raised at very favorable terms with Growth Funds in 2019-23, which made them extremely expensive to acquire versus to either build in-house or conduct a tuck-in acquisition.
What's I've noticed is that if it costs greater than $100-150M to acquire, it's difficult to make a case for acqusition versus build in-house unless you are extremely behind and need an internal culture change (eg. Cisco and Robust Intelligence being similar in magnitude to Cisco's previous foray into SDN w/ Meraki)
Series C and below remains fairly robust ime, as we can see with Dig Security, Talon Security, Robust Intelligence, NeoSec, etc.
With the exception of Robust, all of those are 2023 acquisitions. 2024 is not shaping up nearly so well...
There have been a decent number of tuck-in acquisitions in 2024. Flow Security (CRWD) and Eureka Security (TNBL) were fairly notable.
The main open question right now is about AI Security and Safety - specifically, whether to build or buy.
Most other segments (DSPM, OT Security, Vulnerability Management, CNAPP, etc) have largely been acquired and consolidated.
The thing is, there aren't that many startups in the space left that garner mutual interest in acquisition.
It's basically bimodal now, whereby
- a number of Series B/C startups have enough cash in hand to potentially do a tuck-in for a Seed or Series A AI Safety/Security startup and as such don't want to get acquired by a larger company because they have a strategic path forward to differentiating themselves from larger players [Acquirers interested, Startups uninterested]
- a number of Series E/F companies that have raised capital at multi-billion valuations but do not have a path forward to generate revenue at those valuations (eg. Lacework valued at $9B but ARR shy of $100M) [Startups interested, Acquirers uninterested]
Most notably, the earlier stage startups are now founded by startup founders who already have a $1M-50M net worth now due to successful cybersecurity exits in the 2019-23 period (IPO or acquisition). You can see this first hand in the Israeli and Bay Area cybersecurity startup scene.
There's also the fact that antitrust regulators seem hell-bend on killing the M&A market entirely.
Historically, there were two main paths for startups, IPO and being acquired by a larger competitor. The latter path is now a lot more difficult, due to the DoJ, the EU and whatever the UK's thing was called suing everybody who tries to do an acquisition.
In the long run, this means fewer startups will get acquired, fewer startups will have an opportunity to exit, the potential upside for VC firms is going to diminish drastically, fewer companies will get funded, which will ultimately lead to the incumbents having all the power and startups having none. This is a very bad thing.
Any links handy to justify that claim? My impression from headlines was that some massive enterprise M&A was blocked recently but not so much "startup exits". Maybe I missed it though!
Sounds like a slippery slope fallacy.
What’s to say startups don’t start being creative or truly innovative and focus on making and selling products while making a profit?
I’m sure another viable exit strategy will be discovered
I don’t know very much about business - but having the goal of most new companies being to be bought by a larger company doesn’t really sound healthy to me.
Shouldn't goal for most companies to be self-sufficient and to generate reasonable dividends for their owners? Then depending on goals of owners they might or might not be private.
For me that sounds much more desirable than having a handful of extremely highly valued giga corporations. It cannot be long term good to have so much valuation concentrated to what less than 10 or so companies...
> Shouldn't goal for most companies to be self-sufficient and to generate reasonable dividends for their owners?
No, the company founders should be allowed to set their own goals and not have them dictated by regulators.
Man the 'it's really bad government is enforcing antitrust laws' crowd sure is pushing this hard on HN this week. You understand all of the original thought on capitalism explained how it was essential the government keep this type of control on markets in order for capitalism to work, right?
If your only business model is to get bought out by a larger company capitalism SHOULD world to reduce the number of startups.
Also, the incumbents just buying everyone up also = incumbents having all the power, and is also a very bad thing. Hence the creation of antitrust laws, and the concept of it being baked into foundational capitalist thought.
> late stage companies have valuations that are too high to IPO without taking a big valuation haircut.
AKA, we've made a loss, but don't want to admit it yet.
If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
If you over declare, you pay more tax. (you'd pay perhaps 1% of the asset value every year, and that would replace income tax, capital gains tax, etc)
If you under declare, someone else will come take your asset off you for whatever value you said.
Suddenly this whole idea of "unrealised gains/losses" goes away, as does fake valuations for tax avoidance.
> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
That feels problematic. How much is your wedding band? Or the urn with your grandma’s ashes? Or the favourite teddy bear of your child? Or all coppies and rights to your wedding photos?
I hope you declare them high enough or people might just take them for the lolz.
you are thinking too small. Buy up all the futures in food, 100x your stated valuation, and sell it back to the starving masses.
Yeah. Maybe. That plan sounds hard. In particular at that level of disruption society will defect. You will owe all the food on paper, but nobody will enforce your right.
Probably it would be much more lucrative to snatch up the homes of older folks who accidentally misdeclared. With the right PR you can even label your victims as tax cheats! What a “beautifull” system!
Why should we let private profiteers benefit from the mistakes of the elderly. We should have the IRS snatch their homes directly for resale. This would optimize turnover and government revenue.
feigning an inability to distinguish between private property and personal property to manufacture resistance to reform of political economy, what a concept
Are you saying that when they said “all assets” they actually meant “some assets”?
> I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value
This would make investment bankers and lawyers happy and nobody else.
Note that any company with a '40 Act investor already has public valuations per those investors' opinions published--it's how you get "Fidelity marks down value of Twitter stake again" headlines [1].
> this whole idea of "unrealised gains/losses" goes away
As does the entire American private capital market, including small business, since illiquid investments now become punitively expensive to hold.
The more I think about it, the more impressive this proposal becomes in terms of solving almost zero problems while actively making the problem worse in different ways.
[1] https://www.reuters.com/technology/fidelity-marks-down-value...
This is has actually been used before.
Ports would tax ships on the value of their cargo. It wasn't viable for the port to create valuations themselves, so they left it up to the ship, but the port had the right to buy the cargo at that price.
The scheme kind of works well if it's liquid commodities (e.g. grain, oil, lumber) and the purchasing right is held by a non-capricious authority (i.e. one that only exercises that right to call a bluff).
Taking a down-round on an IPO can be very damaging to a company. Since employee equity is based on options, that puts those options underwater and means employees will make nothing in the IPO. Internally, the company is doing 409a valuations and admits in writing that the valuation is down.
I wonder how this works for items that have far more value to the owner than the market value. Say shipping my personal belongings to another country. The value of my stuff is probably quite low, but it would be incredibly inconvenient and disruptive if it was purchased at it's market value and flipped on ebay.
Do many companies pay in options anymore? I’ve only seen RSU for years now.
Basically all early stage startups use ISOs. Public companies typically use RSUs. Some startups transition to RSUs before their IPO.
RSUs are kind of unworkable if the valuation will increase significantly before the shares become liquid since you owe taxes on their value as they vest whereas ISOs let you defer taxes until at least exercise if not sale.
> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.
You and your dad run a plumbing business. Every year you have to pay someone 10k to get a valuation. Then strangers can buy a piece. Do you have an operating agreement? If not he can force a sale if the company.
I don't think this is a great policy.
Couldn't the annual valuations be gamed by insiders? Who's going to impartially decide the declared value?
Best alternative I can think of is a soft fascism where the government receives a small stake in the company each year instead of cash. Then holds or auctions it as some bureaucrat sees fit.
> Couldn't the annual valuations be gamed by insiders?
Yes. It's not even difficult to imagine. Management undervalues group assets to buy them on the cheap for themselves.
>Management undervalues group assets to buy them on the cheap for themselves.
It's not my imagination, I've seen how they sell the same assets back for a profit after enjoying some tax depreciation for a while too.
> and allow anyone else to buy any of those assets for the declared value.
Pretty problematic to force the sale of assets from private individuals in anything remotely resembling a free country.
That aside, wouldn't this just result in megacorps owning literally everything in a matter of a few years?
You mean those megacorps that don't like to pay many taxes? Means individuals can simply buy stuff off the megacorps.
Won't individuals also have to do those valuations? What prevents someone from taking the stuff right off your hands, and so on ad infinitum?
"allow anyone else to buy any of those assets for the declared value"
How would this work?
> How would this work?
Private ownership would become impractical for the hoi polloi.
The wealthy would need to pay a new class of bureaucrats to keep asset values up to date, to continuously incorporate new information into their marks. Everyone else would be better off renting--owning a car would be risky as it could be snatched from you at a moment's notice due to an overnight shift in the metal markets.
Remarkably similar to a feudal system, actually.
EDIT: What am I thinking, you'd just move all your financial assets overseas and maintain as little real property as possible domestically. The same thing folks do in the Gulf countries where the monarch gets stealsy from time to time.
Bob declared his car to be worth $18k in 2023. Fred fills in an official form, pays $18k to bob, and takes bobs car. Perhaps a 1 month handover period is given, and perhaps a 10% 'hostile sale' fee is given to the government to prevent abuse of the system to take houses from grannies.
Lets say any item worth over $10k (including cars, land, houses, companies, etc) would be part of the system.
Another way of looking at it is "all items in the nation are always for sale, and if you don't want to sell you better choose a high price".
Obviously if you don't want your stuff taken, declare a high value. But you'll pay a bit more tax for the privilege.
Perhaps we could institute a similar law for people and tax their self reported value of their time/labor. If you under-report you can be press-ganged into slavery for a specified duration, say 1 year.
This would ensure that people's labor and their bodies would be put to the most efficient economical use as well as increase tax revenue.
It would also solve the problem of undercompensating of workers. If your employer values your experience and knowledge, they would have to pay a premium for it, otherwise a competitor would buy you out from under them.
Poaching is already a thing. Why do you need a press gang law on top?
poaching is currently inefficient. Poachers have find employees and many employees refuse the offer for selfish reasons, Even if the salary is higher and would generate higher income taxes. These people are cheating society of tax revenue and growth it would otherwise have.
Lots of people hoard their time, spending it with friends, family, and children. This would force that time and labor into the market, where it could be taxed and contribute to social good.
A woman reading a book or singing to their child creates no taxable income, and doesn't contribute to GDP. Under the current proposal, If She didn't pay sufficient income tax on the time she selfishly hoards, a company like hooters could buy her and put her labor to more productive use.
> perhaps a 10% 'hostile sale' fee is given to the government to prevent abuse of the system to take houses from grannies
So Bob is not only out a car, but down $1,800k to boot?
Surely you can't be serious. Say, in this fantasy world, my car appreciates $3k. Can Fred still pay $18k before I have a chance to re-assess?
If some asset changes in value, you could reassess at any time.
Just like a car dealer changes the sticker prices on his cars every few days,
Have you really thought this idea through before you write about it in public?
This will be fun with crypto. You assessed yesterday and it shot up in value and I take it off your hands at 3am.
So now you have a full time job managing the declared value of all of your assets? Or perhaps you'd suggest families now have to hire an asset management firm?
this is ridiculous
If you show up at the tax assessor's office with a check for more than the self-reported value of my home, realistically plus the premium the government pays in eminent domain cases, you get the title. That idea is pretty much "eminent domain for all."
This is terrible. I don't want to loose a priceless family heirloom (grandma's Sheraton-style rocking chair from 1890s) just because someone wants it and can write a check for $1 more than the assessed value. That discounts sentimental value. And if I now have to declare sentimental value and pay taxes on it, I'd rather burn it to the ground (grandma would approve).
A lot of people hate eminent domain too, for that exact reason. I think libertarians want to get rid of it entirely because it's an involuntary transaction.
Yeah eminently domain isn't great. But also it's better than the alternative which is having a country without roads.
Not being born to a grandma who could afford a life stable enough to preserve and pass down such a chair is also an involuntary transaction, but libertarians don’t seem to talk about that.
That seems really annoying to deal with. It's possible it would lead to a better society eventually, but in the short term I'd rather speculators not buy my shitbox car out from under me because they spotted the chip shortage before I did.
It might not be so bad if you were allowed to accept an increase in your tax assessment rather than selling at the new price.
> might not be so bad if you were allowed to accept an increase in your tax assessment rather than selling at the new price
Sounds like a bonanza for developers.
I think that's the point, to free up all the economic activity that's being held up by patents, copyright and land underuse, and to get fair tax assessment on assets previously exempt from property taxes as a bonus.
I don't see how this has anything to do with patents or copyright. Presumably, those would be subject to this seizure mechanism and thus flow to those most willing to enforce their claims.
Like, 99% of the activity under such a mechanism would be transfers of financial assets.
A power law land value tax would take care of most of the problem at almost no cost (since land is assessed regularly anyway).
This should completely replace income tax. Copyright terms should also be 10 years, maybe 15 max. Patents could probably stay as is, but I don’t see any problem reducing them too.
> power law land value tax would take care of most of the problem at almost no cost (since land is assessed regularly anyway)
Sure. This is a totally different proposal.
Would note that you could go a long way to making this proposal electorally appealing by exempting primary residences. (In my experience, the assessed value of a home is at best loosely related to its market value.)
It would be electorally appealing, but would fail at one of the main benefits.
The number one waste of space in the US is people’s excessively large footprint, causing enormous consumption of energy and infrastructure costs that are borne by future generations.
All these detached single family homes on 0.1+ acre lots are massively expensive and the people living in them hardly pay taxes proportionate to the benefit they receive from the government. Instead, our society takes from the working class via income tax.
If you want to live in a detached home on a large lot, be ready to pay the appropriate land value taxes.
If you want to conserve and use less of society’s resources, live in an apartment building.
Since the tax formula would be a power law function, it would inherently not be punitive to the vast majority of Americans who don’t live on outsize plots of land.
> number one waste of space in the US is people’s excessively large footprint
Massively needing a source.
> it would inherently not be punitive to the vast majority of Americans who don’t live on outsize plots of land
DOA. Partly due to the electoral college. Partly due to American optimism and aspiration. Perfect is the enemy of the good.
> Massively needing a source.
Physics.
Energy = acceleration * mass * distance.
The more stuff you move further distances, the more energy you need.
Obviously, more people living in a square mile will use less energy per person than fewer people living in a square mile.
Think about all the energy needed to move water/sewer/trash/gas/police/ambulances/etc in and around a neighborhood where 100 people live in a Barcelona style communal living versus 100 detached homes on 0.1 acres each.
The huge knock on effects of the latter is that it then necessitates personal vehicle transport, which then compounds into more space being needed for huge arterial roads and highways, which then makes neighborhoods unwalkable, further necessitating personal vehicle transport, and so on and so forth.
> DOA. Partly due to the electoral college. Partly due to American optimism and aspiration. Perfect is the enemy of the good.
I’m under no illusion, but I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary.
Most of the blue collar workers I know live in single family suburban homes. Factories are rarely located in urban centers, and corporate dormitories are no longer much of a thing in this country.
I don’t see why what color collar someone is labeled as is relevant. My assertion is simply that occupying surface area consumes an incredible amount of resources that are not proportionately represented in today’s methods of taxation.
You've switched from arguing for a land value tax to arguing for densification. LVTs shoulod cause densification ceteris paribus.
Zoning, however, is the mutandis. LVTs absent zoning reform would not be expected to change much in cities. Zoning reform absent LVTs would spark a systemic boom in densification.
Zoning reform and LVTs are thus orthogonal, with the scant interaction being almost entirely defined by the ratio of unbuilt structures due exclusively to zoning or land hoarding. I asserted that ratio is close to one, due to ample evidence for the former. I asked you for evidence of the latter; "physics" is not a response.
> I also don’t see a need to inconvenience myself with half measures if my countrymen are not willing to do what is necessary
This is, by definition, extremism. It's generally seen as a red flag, communicating lack of commitment and/or dogmatic delusions.
The unstated assumption here is that efficiency is the most important thing, rather than any of a number of other things we could value like stability, security, safety, reliability, and so on. The problem with efficiency-driven ideas is that they almost always will result in a bunch of people with money descending on a bunch of people without money and exploiting the difference to...make money.
There’s a similar concept with real estate taxes in some countries: you pay your tax based on self-reported valuation, but if you sell for a price that’s higher than this valuation then you have to pay adjusted tax for like 5 years back.
You just eliminated the right to hold assets and conduct most long term planning. Sounds terrible.
The current batch of tech "decacorns" (Stripe, Databricks, Canva, Chime, Miro, Discord, Ripple, Brex, Airtable etc) all raised money at unrealistic valuations in 2020-2021, and with the subsequent tech cool off the market today can simply not sustain the same numbers. With no IPOs or acquisitions on the horizon, and no appetitive for down rounds, there's essentially a funding stalemate for companies at that stage (unless you have "AI" in your name of course).
> unless you have "AI" in your name of course
Being an AI startup that was founded before about 1 year ago is actually a liability.
The way we thank about AI has radically changed in the last year, maybe last two years if you were really forward thinking.
Any AI company before then will have a mountain of business logic and technical architecture that they need to throw away and redo.
Why? Were the statistics, etc, not useful?
I would assume that if the underlying models were already good, about the only thing an LLM might be good for would be filtering new info and/or presenting information in a useful way, both of which can be added to an existing flow?
DeepL for example already used machine learning for their translations. Over the years they accumulated a massive amount of high quality data thanks to language experts they employ.
Their current model is much better, because their training data is much better than feeding everything in.
100%. This is misunderstood by investors.
Most of these have been around for nearly a half decade, can’t they just remain private companies operating off their profits? What is the mechanism for VC investors exiting when it just goes private, what payoff will they accept?
A lot of them have built up user bases which are difficult to monetize at all. Discord users are having a collective meltdown right now at the change to require a subscription for large file hosting.
How are you meant to profit when you have a product that costs a lot to run, that has an expected price of $0.
It's not possible: for most of these companies, their business model is built on burning VC, getting increasingly higher valuations, and then dumping on retail traders.
For instance, Stripe is valued at >$70b. They processed $1 trillion in payments in 2023, brought in $12 billion in revenue, which is 1.2% of payment volume. $100 million in profits.
Running as a modest private business just doesn't make sense when you've raised venture capital at 700x your annual profits. So, IPO it is.
What do you mean dumping? Google IPO was a huge windfall for retail investors and VC, right. If Stripe can’t exit successfully, why not pay VC back at % rate they can afford, and then run the business off of the $100M profit?
Google, Facebook, and Apple are extreme outliers. This list covers tech stocks that IPO'd in the last bull run. Check what the declines look like.
https://www.trueup.io/tech-stock-declines
Out of 17 YC companies that have gone public, 3-4 have been delisted, 7 have lost >80% of their value, another 7 has lost 10% to 50% of their value. Only Reddit and Instacart have gained 47% and 31% respectively. Sounds a lot like bagholding to me.
Here: https://www.marketsentiment.co/p/the-yc-report
Regarding Stripe, if investors own just 50% of the company (highly probable, given how much they've raised), it'd take 350 years to pay them off. Payments is a high-volume, low-margins business.
In fact, even if Stripe 10x'd their revenues, it'd still be 35 years before they bought out all their investors. if you think I'm being unfair, look at the numbers Paypal and Adyen are doing and assess their valuation and you'll realize Stripe is extremely overvalued.
Adyen is trading at 60x profits; PayPal is trading at 2.7x revenues and 19x profits.
Comparing a companies current valuation to it's all-time or 52-week high isn't really useful. NVDIA is down ~14% from it's ATH but 25x it's initial market cap; it's certainly returned value to it's investors.
What matters more is change relative to it's market cap at IPO. And yes this is significantly worse for newer companies. There is a clear trend showing the 2010-2022 tech IPO market pushed valuations pre-IPO to insane levels such that post-IPO growth was limited or even negative meaning retail investors never had an opportunity to hold equity.
Okay, ignore the section about ATHs. How about YC alumni company performance post-IPO?
They have a 0.8% efficiency? How are they running such a tight margin?
Adyen hires mainly in Europe where peak salaries can easily be 40% of American rates. They also have like 3,500 staff compared to Stripe's 8k (not sure whether it's before or after their recent layoffs).
Personally, I assume they'll do some layoffs & cut spending to increase their margins, by, say, 4-5x, before they IPO.
Does Ripple actually have any revenue?
I am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed.
This would have been an OK move if there was more anti monopoly enforcement on FAANG (plus MS and Adobe) but there isn’t. The result is established players get to dump sub standard products on the market and remove the oxygen from the room for competition to emerge.
I am less sure about the Figma acquisition[1] in particular, but overall, I strongly agree with the general point that blanket blocking nearly-all acquisitions by Big Tech (except Microsoft for some reason) is wrong and short-term populism.
More startups and more innovation gets created when founders have higher hopes of a positive exit, and in turn, this is good for the world at large.
When a startup becomes FCF positive quickly, and can sustain their growth, they generally don't want to get acquired (eg: Facebook, Snap...) and generally aim for an eventual public IPO. But this is a high bar, which only a small number of companies reach.
The ones that do choose to get acquired, often do so because they are not as optimistic about their own sustainable growth as outsiders might think. If they can't make a reasonable exit via an acquisition, then their equity becomes zero and their years are wasted.
From a founder point of view, acquisitions act as a significant floor of value for the time and effort that the founders and employees are risking. This negative Expected Value risk taking drives innovation and growth for all, significantly curtailing acquisitions makes it severely more negative EV. Worse, the impact of this will not be felt immediately so the new FTC will be able to claim political and populist wins; it will show up in reduced startup creation in the years to come.
[1] Figma feels like it has a reasonable chance of surviving on its own, and become genuinely disruptive to Adobe in the future. But if it dies and goes to zero, then I will feel sad and unhappy that the acquisition was blocked.
Large companies growing even larger by acquisitions, and this being the standard exit for startups, is not good for the world at large. It only leads to concentrating more and more power in large corporations, and reducing meaningful competition in the market.
A startup being attractive for an acquisition is also quite different from being attractive to clients and users, and therefore that’s an incentive structure that is worse for clients and users.
Perhaps the government should make it a bit easier to go public, rather than restricting every other option. The SEC and FTC seem to be all-stick, no carrot.
Large companies have great distribution channels that smaller companies can benefit from.
Large companies often get bloated & collapse as well. This has always kept me from being to concerned with them over the long term.
> More startups and more innovation gets created when founders have higher hopes of a positive exit, and in turn, this is good for the world at large.
No, I disagree. It is a negative for the world at large if people are incentivized to build businesses solely so that they can be acquired by some big tech company.
Why?
Large players leverage their market position in anti-competitive ways to crush challengers, and this problem becomes more acute the larger the player gets.
Even if one hopes (unrealistically, IMO) that sufficiently-large hypercorps will save us from this fate by collapsing under their own weight, why not just cut out the middleman and break up the huge players now, rather than suffering under their market tyranny while hoping for it to happen on their own?
> except Microsoft for some reason
I would watch a documentary on what Microsoft had to do to get Activision. It seemed they spent a lot on the best legal team money could buy & on political capital as well. There were a ton of different angles too such as mobile gaming where Microsoft can't compete easily, studios where Microsoft has a lot, the Activision harassment fallout, the foreign competitors (Sony & Nintendo), cloud gaming competition.
Figma & Adobe had a lot less competition pre-AI wave so I understand the push back on that one. Especially due to Adobe's past on buying competition, killing it off & little innovation. Ironically now with all the AI startups I think Adobe has a lot of competition.
The Spirit/JetBlue airlines M&A being stopped is still my biggest head scratcher.
I personally think Figma & Adobe should have been allowed to merge though as companies like Affinity offer a very competitive product. I also was in favor of all the above M&As though.
plausible, but dylan and early employees seem rich
Yes, won’t someone think of the poor founders and their desire to exit?
Do you want founders or not want founders?
Because this is why founders are founders.
Nah, they just lost the game of musical chairs.
We need to move away from the mindset of companies getting built to be acquired and then all their product innovation gets snuffed out and their users suffer: it's wasted economic output.
People are expecting too much with anti monopoly enforcement. Google is on round two with anti trust. Read here if you want to know more https://www.bigtechontrial.com/ (Sponsor is very into anti monopoly)
However, this is 50 year of court inertia she is trying change. It doesn’t go fast.
Wrong call for who? Adobe has a track record of absorbing and abandoning or stagnating excellent products. I loved Figma and hate Adobe, and many of its users felt similarly. It would've made investors rich, yes, but it would've taken one of the gems of the internet away from its community. I, for one, and very glad that deal got blocked.
For the economy as a whole, and the quality of products in it.
I would refer people to JumpCrisscross’ remarks which are clearer than my own, such as: “The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.”
People are way too emotional about Figma and Adobe and do not see the forest for the trees.
So you start by saying anti-trust action is negative for the economy, then quote someone who says we should have more anti-trust action?
I clearly stated at the top that they had failed to perform anti monopoly measures against FAANG and co. and this was the actual root of the problem.
Until Google, Apple, Amazon and Microsoft are broken up, or seriously splintered, other anti trust action is not merely irrelevant but counter productive as it just entrenches the positions of the established players.
Ensuring Adobe can't squash competition helps FAANG? No.
Ensuring market competition helps consumers.
An investment industry whose endgame is destroying the product they created by selling it to their competitor is not an industry we need. IPO is a positive societal exit. Selling to another investor is a positive societal exit. Selling to a competitor so the can smother it should've never been a primary exit and that's being fixed. That's a good thing.
> Ensuring Adobe can't squash competition helps FAANG?
Absolutely. The whole subject of this article is the difficulty of startups securing late stage funding. This means a lot less competition for FAANG. Look at how Meta has not needed to buy anyone in ages and is essentially fine, yet historically was spending vast amounts. Only tiktok, with clear state support, has come close to disrupting anything slightly.
Were it not for the AI wave the tech world would be a trainwreck right now.
> The whole subject of this article is the difficulty of startups securing late stage funding. This means a lot less competition for FAANG.
It was never true or long term competition if FAANG just buys them up. That isn't actual market competition if it only exists for a blink of time.
You've misdiagnosed the problem. The problem was letting Meta buy up all of it's competition until almost nobody wants to compete in it's market. The problem was exactly letting market leaders buy up their competition. The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
You're arguing your conclusion as your premise.
This is a question of is it good for market leaders to be able to buy up their competition? And the answer is "no".
> The problem was letting Meta buy up all of it's competition until almost nobody wants to compete in it's market
It is almost like I said this right at the start and you are all ignoring it.
Punishing a relatively small player (Adobe) has had this knock on effect on the entire ecosystem that coincidentally benefits the larger players by making their already big positions unassailable. Follow the second order effects here.
Edit to add: > The bad thing you said is what's being prevented here and somehow you're against it. That line of reasoning doesn't follow.
The point is that in a world that tolerates the ongoing existence of FAANG (+Adobe +Microsoft +Oracle etc.) as the monopolies they already are you must allow large acquisitions in order to enable the emergence of new competitors, either directly or as a result of the founders making a second shot. Otherwise their defensive moat is just hilarious.
The absolute best option is to break up the monopolies, then be stricter about their emergence in future i.e. through blocking acquisitions. But you cannot do this by starting at the end like this, as it makes it worse.
So anti-trust action is good against FAANG and bad against Adobe? What's the general principle here?
You lot are so blinded by Adobe hate you cannot even read what I actually wrote.
I don't care about Figma or Adobe, but you simply haven't made a good case why antitrust enforcement is good in general but bad in this case. Your only argument is that it makes it harder for other companies to grow to that size, which is not an unintended consequence of antitrust enforcement. You can't have your cake and eat it.
Or you are so blinded by big four hate that you cannot apply the same principles to all wannabe big fours.
“FAANG and co. ”
Means Adobe are included, as it says at the very top.
Stopping them buying Figma achieves nothing good. Their monopoly is on print and publishing tools, and no one has been close to them since the actual crime of the acquisition of Macromedia and subsequent killing of Freehand.
Had Figma been bought at the valuation Adobe were offering the founders would, given a few years, be free to leverage their expertise and now vast resources on whatever is more valuable at the time, and now that is lost.
> the founders would, given a few years, be free to leverage their expertise and now vast resources
I couldn’t make heads or tails of your posts here until I read this. “Anti-monopoly action is good, even regarding Adobe, except for the Figma acquisition in particular, which should have happened” doesn’t really make sense unless your starting point is “the desired outcome is that specifically the Figma folks get overnight super rich” and then you work backward to construct an economic reason for that.
It is the wrong anti compete action to enforce against them. The correct thing would be to dismantle their publishing monopoly.
The point is unless you dismantle the core print publishing monopoly Adobe will simply produce a crap Figma, bundle it in Creative Cloud, and Figma will die a slow death. At least if Figma is acquired it gets the chance to do the opposite.
My priority is the widespread availability of high quality products and services, which requires rewarding those that make them, and a competitive marketplace without people engaged in product dumping.
>At least if Figma is acquired it gets the chance to do the opposite.
This makes sense. If Adobe makes a crap Figma copy and Figma dies, that is bad. If Adobe buys Figma, makes it terrible, and then it dies, that is good. In both scenarios Figma is dead, but in the Good one the Figma founders cashed out.
You literally posted that the ideal outcome is that the Figma founders could leverage their newfound wealth to do… something(?) with all their new cash, which has zero to do with Figma as a product or the users that get screwed.
> You literally posted that the ideal outcome is that the Figma founders could leverage their newfound wealth to do… something(?)
You know Signal was funded by a WhatsApp founder? That sort of thing.
> You know Signal was funded by a WhatsApp founder? That sort of thing.
And MySpace Tom is now a travel photographer. This is an equally relevant tidbit of knowledge regarding antitrust and the future of Figma.
That's some forest you're having us see
Adobe already tried to make a crap figma. That failed and they've shut it down. I don't think they'll try again just yet.
> Adobe will simply produce a crap Figma, bundle it in Creative Cloud, and Figma will die a slow death
> My priority is the widespread availability of high quality products and services
Seriously?
As other responses to your original post have pointed out, it's quite likely Adobe would have turned Figma into yet another saas offering, dubiously supported and with onerous bloatware, and consumers would be left high and dry when it is inevitably sunsetted.
They will enshittify regardless of if Adobe buy them or not.
Now though you will certainly suffer because when Figma inevitably goes to hell the only remaining option will be the janky self hosted clone as no one will be able to fund proper competition for it or any replacement.
People can just switch to the actual Adobe version, or use Zeplin.
So when Figma dies because Adobe bundle their worse product with Creative Cloud and it destroys the market for Figma you will be A-OK with it?
(I mean die or get picked off for peanuts by someone like Atlassian or ServiceNow.)
This isn’t abstract, it is exactly what MS Teams has done to that whole segment.
Figma will likely have a lead over Adobe's worse product. But if Adobe's worse product becomes better, then that's good for the consumer as well.
> I am going to say it: blocking the Figma acquisition was the wrong call. The result is that the ability for startups to exit via acquisition has been severely curtailed.
On the flip side, it has also helped customers who are now benefiting from the competition between Figma and Adobe. The quality of Figma has only improved since, and I am happy for them to earn my dollars.
It was still the right call for the consumer though. Otherwise we’d see it become another enshittified creative cloud product.
"To provide the best experience during our transition to Adobe, Figma users will now be required to download and install Adobe Update Manager native application running 24/7 with file access in order to use this web-based application."
Lina Khan has done more to kill the startup market than anyone else in the world. But it's okay because she's making sure there's enough competition in the market for mid-range luxury handbags.
> kill the startup market than anyone
No, what killed the startup market is that people now have to pay for money. There is a whole lot of junk people are willing to do when money is effectively free.
When people have to actually pay for money, all of that crap goes out the window.
Maybe this is a dumb question but I thought valuations had fallen a bunch since mid 2022 and now lots of VC firms are struggling with companies (especially mid-to-late stage) who raised at much higher valuations than they can now get in the market. But this firm is saying that current valuations are too high to make new investments. Would it not be a good time to invest in later stage startups? Or is the issue that the forward growth potential of these companies is lower now for some reason.
Valuations have "fallen" but not actually fallen: there are very bad consequences to raising what's known as a "down-round"(1) so no one is actually doing that unless they are absolutely forced to. So no company is interested in actually allowing an investment at that lower valuation. They only do that if they are absolutely forced to, because they desperately need the money.
So while yes, when the valuations go down seems like a perfect time to buy (buy low, sell high!), in these closed markets it is difficult to find someone to accept your money when it is down. This is a big difference from the publicly traded market, where you can essentially always buy stock. But in these private markets, everyone agrees that the value of a share of company X is lower than before, but no one is willing to sell you a share today at that price, so you can't actually invest your money.
1: Where the top-line valuation is below the previous valuation. This is extremely bad for a company because investors almost always have protections for a down-round, so the loss generally is felt entirely by the workers and the founder.
To get around this will companies just extend their runway with a line of credit or some other form of debt?
There are several strategies companies can employ. One common approach is to raise an extension or bridge round. Many startups are adopting this method, with estimates indicating that approximately 40% of current funding rounds fall into this category.
In these cases, companies raise funds at the same valuation as their previous round, often labeled as Series A+ or Series C+ or Series B Extension.
Another, less common strategy involves using a SAFE (Simple Agreement for Future Equity), which will convert to equity during the next priced round.
About a year ago my org made shaving costs our highest priority. Our infra team spent half a year slashing our cloud spend, and we've been pushing hard to become cash flow neutral.
I have to imagine this priority shift is in part due to the money markets being what they are.
Also, for the heavy loss making sectors, the marketing budget became close to 0.
That is possible, or hit break even. You'd be surprised how quickly a company can go from -50% margins to positive margins when their job is on the line.
private valuations are weird. There's some abstract idea that 'valuations have fallen' for sure - people are saying things like "I don't think COMPANY_BLAH that raised $100M at a $1B valuation is actually worth $1B"
But it was never officially 'worth' that much in the same way as a market cap of a public company anyway. If they do a downround, where they raise money at a lower valuation than the previous one, that's generally bad for everyone, so there's a strong tendency to try to 'wait it out' and just pretend they're still worth $1B and hope the market recovers and no one has to write down their investments.
Important detail is that they're both divesting from later stage deals, and doubling down on early stage ones
> they're both divesting from later stage deals, and doubling down on early stage ones
Source for doubling down or divesting? It looks like they're holding course on early stage and pausing on late.
Wonder if CRV is reacting to the same underlying trends causing Warren Buffet to sell stock (e.g., Cape / Shiller PE ratio is close to an all-time high)...
P/E ratios are not going to drop until some kind of socialist revolution reverses the movement of money from the budgets of people who spend it to the bank accounts of people who invest it. When control over dollars shifts from people who want goods and services to people who want capital assets, the price of a capital asset (P) must go up as demand rises even while the price of what it manufactures (E) goes down.
Ever hear "there are no alternatives to stocks?" The alternative to stocks in the past was consumption; not so when concentrations of wealth cannot be spent in a thousand lifetimes. It's the perfect storm for crazy P/E. If you believe Piketty's work, that kind of reverse shift never happens gradually, and these P/E ratios represent the "maturity" of a period of relative peace and stability.
It's worth mentioning, as an aside, that as long as inflation is positive, investors do not actually need to see earnings.
I assume this is committed funds right? So they're not giving anything back they're just releasing the commitments?
Is this a bellwether or an outlier?
Only really answerable in the future. It really does feel like valuations are completely insane now for anything founders can brand as a tech company with money chasing hype instead of actually following the realistic valuations of companies. A pop feels inevitable though.
I'm a bit surprised, since it seems the fed is about to start a easing cycle
They like it when it is like shooting fish in a barrel when interest rates were zero for much of the previous decade.
https://fred.stlouisfed.org/series/FEDFUNDS
They are unlikely to drop it to Zero like they did 10 years ago.
Is there even a way to know at this point?
Its not weak, its just not as crazy strong as people thought it was a few years back.
Part of this is also just the bubble from the last few years. Everything that startups spend money on has become more expensive. Right now there is less funding available, but prices haven't adjusted.
I don't think it's just a "market" thing at this point. Reality is if you're not a Tier 1 VC, which CRV really isn't, then you cannot get into good deals that would make any sense.
I think if you look at a lot of funds right now, you'll notice that they're all struggling to place. It's a question of inventory and while multiples are low (naturally as parking your capital in a savings account is yielding 5%) companies are not selling for less. I have seen multiples in ecommerce/saas startups go from 40-50x (early stage companies <5m ARR) to 15-20x. The appetite to sell your company for less than a 10 year DCF is really not there for founders. Cashflowing companies when capital costs are high are something you typically hold on to.
It's musical chairs and the music is currently stopped until interest rates break or until buyers (and their investors) start getting hungrier for acquisitions. This "sorry we can't place your $275M" scenario is a step in the latter's direction. T1 funds are also slowing down a lot since their main handoff is IPO and that is also dry.
sounds like the same story as the YC continuity fund.
difficult to help startups grow, if they never reach the growth stage. that's why a robust pre-seed / seed stage ecosystem is necessary.
Isn't that an opportunity to get better deals if the market is weak?
Weak probably means too much VC competition relative to the number of good investment opportunities, leading to higher valuations, fewer investments in top companies, and lower expected returns.
If the bar for a successful IPO is high, it gets harder to underwrite these pre-IPO investments, etc etc trickle down to early stage as well
The role of a VC is supposed to be such that they invest in "infantile" businesses so they can become "mature".
But alot of people seem to be playing valuation Ponzi's instead of facilitating the growth of young businesses.
It's really easy to do well in VC. But the strong herd effect made me realise that alot of VCs are just "me too" investors.
I am not surprised by this.
Majority don't "build the future" like the marketing material suggests. It's all a veneer.
Very few VCs actually do "Venture Capital". It's not exploratory it's just "Herd Capital"
"It's really easy to do well in VC"
It's relatively easy as a General Partner in VC to collect fees leading to a decent salary for a while.
It's quite hard (rare) to do well enough to outperform the public markets consistently on a risk- and liquidity-adjusted basis. If you look at the metrics on fund performance, most of them are really pretty bad.
They are bad because 99% are herd animals.
The for instance look at public markets. Passive S&P allocations outperform most hedge funds.
You can outperform 99% of hedge funds just by buying the S&P.
The same goes for VCs. Just by spraying small checks over a wide spectrum you can do very well (outperform the S&P and most VCs).
But 99% prefer "me too" investments.
Paul Graham talked about this:
"Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."
Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do."
...
"I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure.
It seems obvious. But I've proposed to several VC firms that they set aside some money and designate one partner to make more, smaller bets, and they react as if I'd proposed the partners all get nose rings. It's remarkable how wedded they are to their standard m.o."
— link https://www.paulgraham.com/googles.html
“We think there’s a stronger market for overvalued early-stage AI startups than there is for overvalued later-stage SaaS/blockchain/biotech startups”
They're a few years too late.
Seems to me one can draw a direct line to the continuing tech job market outlook.
I'm seeing a lot of commenters blame this on M&A and nothing could be further from the truth. The ZIRP era pumped so much money into startups that a good majority will struggle to grow into their valuation or raise again at anything other than a down round.
I can still vividly remember December 2021, when Airbyte raised $150m at a $1b valuation - with less than $1M in annual revenues. Or has anyone forgotten Fast.co burning $120M/year while bringing in $600k in annual revenues and flying their CEO around the world to live like a celebrity, skydive, and show off company merch? LMAO. And these are just a few of the more obvious examples. At some point, founders stopped selling to customers and starting raising and spending VC as their main business.
This past couple of months Bolt (one-click checkout) is about to raise at a $14b valuation with less than $28M in annual revenues, or a whopping 500x valuation. Hell, NVIDIA is currently trading at 50X revenues, despite being so important to the AI revolution.
No one has learnt anything and the rate hikes have not flushed out all the malinvestment.
I'm hopeful that this will lead to a shift in the tech culture to slower-growing, long-term, sustainable businesses.
LMAO. Wait until rates go down a bit. The party will continue like it never stopped. All it takes is for Masayoshi Son to make a $1b bet on a "Uber for Pets" startup and the game is on :)
Holy shit the line of LPs for these guys' next fund will be able to cross the Pacific
bro telling startup founders to stay in their lanes
heard
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