I mean the comparison to car salespeople is a bit harsh but yeah anyone who is dealmaking plays some kind of games to varying degrees.

There is a broader narrative that they are trying to point to that is LP money isn't showing up in the same way now that there are other opportunities to generate returns in the macro market. Combine that with geopolitical risks and public tech companies valuations getting crushed - the market isn't as plush as it was say 3-6 months ago. Also - look at SPACs - complete collapse of that market.

He's saying what any reasonable market watcher would say: the market is in a very turbulent time - very rich deal flow and easy money from 2021 is not what you will find in 2022 in the current environment.

Whether you believe him or not - that's your prerogative. I have found many founders to be mostly unaware of macroeconomic and/or the fundraising market conditions until they need to get money (not a slight but rather they need to focus their time elsewhere). This is a PSA to those people who need a bit of a heads up - SPAC dead, fundraising is slowing down dramatically, IPO market crickets). Hopefully it changes soon as we get some indicators we are back in a bull market and valuations get a reset to a more reasonable range.

You're right -- it's a bit harsh. I've been on both sides of the investment committee meetings. As a result of that, I've seen (and delivered) this messaging before.

Matt's an excellent investor and someone I respect and trust. So are the other investors putting up orange flags for their portfolio. It's smart to be prepared early.

But it always seems like investors get giddy with excitement about saying the "sky is falling" and things are about to become far less founder-friendly. This tends to cause a lot of unnecessary panic within the entrepreneur community, especially new founders. And I've seen people make decisions that contribute to manifesting the very situation they're scared of.

I've checked in with a handful of friends with their own funds recently. Most seem to take a cooler tone: deals are still flowing. Things may be slightly adjusted, they admit. Low-quality businesses aren't getting as much attention. But the world is still spinning. And it doesn't sound as bad as one might assume reading this article.

And some interesting dynamics are playing out that are founder-friendly: cash-rich funds from the later stages are coming down earlier. They're competing for the same deals as smaller funds, but they're much less price sensitive. Matt Turck called this out directly. I've directly seen recent deals where this happened. It's kind of breaking the model for some early-stage funds, who need to get their main ownership chunk early and don't have as much capital to follow-on later. They just can't compete with these check sizes and valuations.

So it's also making it a lot harder for investors right now, too.

That's a fair assessment and there are a lot of different impacts to be aware of. Like you said founders who are hypersensitive and might over react probably need a slightly less responsive response to VC. Tough power dynamic though so I get why founders would react.

The cash-rich funds are coming in as there aren't good looking exits at this point due to the inflated valuations / overall market conditions. Might be helpful for founders for sure. Curious how this will impact the broader community and how that will play out on their actual fund returns. Definitely puts the squeeze on smaller seed / angel investors

Thanks both for a thoughtful discussion.

Just one important nuance -- VCs like me who come in early and stay with portfolio companies for 5-10 years are both on the "buy" and "sell" side of the market.

So yes, a slower VC funding environment does impact valuations favorably for VCs, for net new investments (the "buy" side), so I'm talking my book to some extent.

BUT net new investments is only a part of the job (<50% for sure) for a VC like me. Most of my time is spent working with my existing portfolio (sitting on boards, etc). And a harsher environment is bad news for my existing portfolio (and/or anyone's portfolio), and me (and/or investors like me) as a result. Like a lot of VCs, I've looked like a "genius" for the last couple of years as many of my investments became unicorns, with huge paper markups. Now it's likely that the pace of markups is going to slow down significantly. Perhaps we're entering a world of flat valuations - or even downrounds? No markups is not a good look for VCs - makes it harder to raise the next funds, etc.

So yes, in the long term, it's good for VCs if we're able to invest in (the right) companies in the 2022-2023 cohort at lower valuations. But that will take 8-10 years to manifest into concrete results, by the time those companies become very big. In the meantime, VCs won't have a lot of fun navigating a flat round/downround environment (if it does indeed materialize) with their existing portfolio.

Great points! Thanks for hopping in and adding extra color.

Navigating a whole portfolio through a flat/down environment sounds incredibly stressful.

If the driver of these changing environments is predominantly investor perception, public early warnings seem like they would accelerate or exacerbate them.

For example, if you publicly announce you’re expecting flat or down rounds (and similarly lowering your offers on new deals), it’s almost like applying downwards price fixing pressure. The next investor in your businesses feels they can also offer less without losing the deal. In this way, the warning manifests the crisis.

To protect the portfolio valuations, it would then seem strategic to prepare and react in private. But public warnings seem more strategic towards lowering valuations of new deals.

That’s why I’m naturally skeptical about the motivation for signaling.

I don't really agree with this, with what I've seen. Or maybe we're just interpreting tea leaves differently. I think in a lot of cases, "market is moving in their favor" is not lower valuations, but higher valuations in the verticals that the VC is themselves investing in. Some of that might be signalling for later-stage VCs to invest at later rounds. But I think, other than the onset of Covid, and the last 6 months, I haven't seen an overly negative messaging. It might be true that the immediates (lower valuations) benefit them, but the long-term (no later-stage funding) is not in their favor.

That's a great nuance. I was referring to it being in their favor for dealmaking.

Here's another one from 1 month ago: https://www.linkedin.com/posts/darian314_founders-activity-6...

I read this in a more friendlier way...

> But I think, other than the onset of Covid, and the last 6 months, I haven't seen an overly negative messaging.

But that is exactly when they could and did do the messaging - if you were out there saying VC is drying up from July 2020 to December 2021 you would have looked like a moron; but the negative messaging was very apparent the months prior and after that window.

It is absolutely in investors interests to paint a narrative of economic downturn - they are bidding to buy something, and they want to buy it at the best price they do so.

I'm not saying that is unscrupulous - that's how dealmaking works, but it is very real.

Take it for what its worth from a random internet stranger, but Matt is a good dude. I'm a founder and I wouldn't change any of the advice he's laid out here.