E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update & more

the implication of that is that it means that late-stage venture is pretty badly mispriced. ... And I think you're going to have to knock these things back by 50, 60 percent. I think you saw the first real big movement there yesterday, which was the Instacart print, right? We went from a $40 billion valuation to I think it was 24

Some of them are probably going to have to IPO at down rounds. I think that's sort of the takeaway.

I think the vast majority of companies that come public in the next 12 months are going out below their last-round valuation.

I'm looking here at a list. GoPuff at $40 billion, Canva at $40 billion, Klarna at $45 billion, Discord at $15 billion, Ripple at $15 billion, Grammarly at $13 billion. These don't make sense given that if they were public, they would be trading at 50% of that.

Snowflake this year will grow its free cash flow at over 100% a year. Next year, probably, you know, 80 or 90% free cash flow, not just revenue, free cash flow. ... That business, so let's say we reduce the multiple by 50%, but the company's growing top line and free cash flow by 100%. Doesn't take you very long to grow through the multiple compression.

when you think in the public tech markets, what is a reliable, must-own company? Well, I would put Snowflake in the list of these must-own high-growth software businesses, right?

most of these businesses that rely on Facebook and Google and Instagram for customer acquisition, those input costs are going up. And the reason you know that is that's $2 trillion of market cap that doesn't give a flying fuck what's happening in startup land. They're going to make their numbers. Right. ... Those are the most important companies in the world. They will ratchet up the prices. And so your input costs are going up. It's not just the physical supply of materials that I think is going up. It's just the cost of customer acquisition is going to probably go up by 20, 30, 40 percent.

Neobanks are another example. The number of Neobanks that have been funded at exorbitant valuations, where the problem is all of these financial services companies are essentially an arbitrage on rates. When rates are zero, they take that money at 0% and then they can go and execute a business model and sell that money at 1% and take the difference. But when their cost of capital is 2 or 2.5 or 3%, the whole business implodes on them. So you're going to see a bunch of these financial services companies get under pressure.

If you look at, you know, during the two-year period during COVID, the multiples had risen to some insane level, right? And because of all the liquidity that had been pumped into the system. So as soon as you saw the charts that way, you could just see where things were headed, which is back to historical averages.

the number one question I get from GPs, venture capitalists and others right now is when are we going to bounce back? Let me be absolutely clear. There is no bouncing back to where we were the last 18 months. That was the outlier. That was the make-believe.

We've had this ridiculous culture of no governance, uncapped notes, just pushing. I see it on the boards I'm on. You guys probably see it too. Some people just pushing top line growth, never discussing unique economics, never discussing the bottom line. ... And they created these crazy Fugezi markups. They raised bigger funds based on it. And they just were never the adults in the room, the stewards of capital. It's infuriating.

if you have a bunch of capital allocators, Jason, to your point, who are unsophisticated about investing, probably very sophisticated operationally, but fundamentally don't know what they're doing, and they're coming and transforming an organization that should be a disciplined, discerning allocator of capital and turning them into a velocity deal machine.

Now, here we are again. We're worried about this inflationary boogeyman. And the Chinese government basically extended these tax cuts, increased the tax cuts, and essentially said we're going to be very stimulative in the economy, especially through the back half of the year.

PMI in January came in at 0.2 versus the consensus estimate of 0.6. That means the producer level of inflation was meaningfully less than we expected. ... That's why I think there's also a probability by the middle of the summer, the Fed in the United States is saying we now see a balanced risk between growth and inflation.

So we have this interconnected world, this idea that we're de-globalizing. ... What we do doesn't impact anybody else. That ship has sailed a long time ago, and the Chinese see this.

I tweeted a few weeks ago, the Fed's probably behind the curve on recession, not inflation, right? We have massive demand destruction going on right now in the US economy.

I think the markets are mostly moving upwards for the short term and then I think volatility is going to come back. I'm just trying to find good long-term businesses and just kind of close my eyes and not have to look at these stock prices every day.

for us in moments like this, and I've lived probably through five of them in the public markets, we always do the same thing. Degross, take risk down. First thing is like have less chits on the board. Number two, reduce the number of outliers. Pull in the risk curve, right? For me, I want to own five or six things, because remember, I'm the biggest LP in the fund.

I'm not betting this way with our book. But if I had to guess, we are going to have a period of significant escalation on both sides before they both get to the table. Macron said this week that we still have the Europeans have not made a decision about the embargo of Russian oil that will collapse the Russian economy. And oil will go to 180 or $200 a barrel. I think that's a real likelihood.

how can the United States be under so much inflationary pressure, where China is effectively telling you that we are in a contraction and a recessionary period. And so if that's where China is, there's a risk that we may already be there or entering that.

Look at what's going on in the world with energy prices. We've never had oil over $120 and not gone into a recession. We're facing a global slowdown. That will have big implications for inflation, big implications for rates.

This war, the longer it drags on, the longer it basically can spin out of control and become something worse that sucks us in. ... The longer it creates the risk of basically causing a recession in the United States.

This fall is when we'll start to see real price discovery. You couldn't pry a late stage dollar out of my hand right now, because I don't think that we have real price discovery going on.

Not because we won't get hit with the same valuation corrections that everybody else is going to suffer, but because a few years ago, we decided we were going to invest in a certain kind of company. I mean, high margin SaaS and marketplace businesses that were not capital intensive. ... And we turned down investments that were growing fast, but they had a horrible burn multiple. And so and I do think most of our companies raised last year when, you know, they made hay while the sun shined.

I don't think that there are, I don't want to be investing incremental capital into a late stage startup that's poorly run, that doesn't have their margins in line, and then having to work it out. Why do that? Again, I can just go in the S&P 500 and get 8%.