📈 Late-stage private marks reset 30-60% — down-round IPOs become the norm

“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”

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

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

“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.”

“the ultimate buyers of tech stocks are taking a 60% discount to what they were able to buy even just four months ago. 60%. So there is no public mark that will support a private mark unless it's also discounted by at least 60%. ... Any sophisticated buyer will have to tell them the truth, which is, I'm sorry guys, but the data says there's a 60% discount to this mark. Are you willing to accept it or not? Otherwise, the lights are going to go off.”

“not only are private valuations sort of sticky, but private marks are sticky. ... And companies only get remarked every couple of years. And so where it's a public market, it's get remarked every day. So it is hard to know what is the proper valuation of a company that raised money last year, because yes, valuation multiples have come way down”

“The thing to keep in mind is that all these late stage companies are mispriced. Doesn't matter whether you're the bottom decile or the top decile. ... You are massively mispriced. And there needs to be some correction between 30 and 70% on valuation.”

“If it happened in the public stocks, it deserves to happen in the private stocks too. Chamath's absolutely right about that. A lot of people aren't recognizing that fact.”

“I said, listen, the water is great right now. I am doing deals back at six to $12 million in the seed space with, you know, 200K in revenue and real founders and discipline. ... but the deals went from taking two, three days.”

“1 was very abrupt, and we didn't really start to see liquidity again until, with a few exceptions, Elon mentioned PayPal, but like 05, 6 ... it's usually a long window on the other side”

“The biggest mistake we will all make is to anchor ourselves to prices that we saw in the world over the last 18 months. Pretend you never saw them, not in venture, not in the stock market, because that is a delusional place to think we're getting back there. ... it's highly likely that they will never see that price again”

“it's definitely unprofessional and it's borderline idiotic for anybody with organized capital right now to be ripping money in because you don't know what the terminal valuation of a business is. ... At the end of the day, there is a buyer of last resort, and that is the public market investor. And he and she has said, no mas. ... Don't tell me that your thing is worth 50 times, 80 times, 90 times. It's worth 5.6 times.”

“I think we did a pretty good job over the last six months distributing out some gains, some realizations. We actually paid back our whole first fund. ... But in our second fund, we had about 120 million of a firm stock and we were sitting on it because we believe in the company and still do. And we're still sitting on it. And that was, that was like a hundred million dollar mistake.”

“They're predicting, they're forecasting that capital availability is going to decline about 75%. The amount of money that's venture money that's available to the ecosystem downs by three quarters. So if you try to raise in that environment, either you're not going to be able to, or investors are going to have all the leverage.”

“Anecdotally, I'm seeing people come back from rounds where they were expecting 40 or 50 million dollars. In some cases, like with 250K in revenue, 500K in revenue, they were living in a 200, 300 times revenue kind of world. ... they're now coming back with 10 million dollar caps, 15 million dollar caps on their notes.”

“We're investing, but we see that the pace of deal making has slowed way down because founders know that valuations have gone down, the fundraising environment is tougher. So last year, they're raising every nine months. Now they know they should probably be raising it once every two years.”

“And so then they slow down. So all I'm saying is I think that we are at the point of the cycle where constipation is setting in.”

“Series B, C and D is where there's this whole fight because there's existing investors, existing shareholders who are saying, I don't want to take a 50% write down, a 70% write down, a 30% write down over the last round and fighting and then doing inside rounds and bridge notes and all sorts of other shenanigans to not have to take a negative mark on their book.”

“It was like 100 times was the rule of thumb. So now there are some where their deals are getting done in the high 20s, I'd say, or even 30, if you believe that by the end of the year, it'll be more like 20”

“And my lord, people got a lot of credit. I mean, $50 million, $100 million evaluations without the revenue turned on.”

“Because these public valuations are the exit comps for the private markets. And those valuations do eventually trickle down. And so if there is a bubble in the public markets, it will trickle down to the private markets.”

“we would come in, we would do the work, and we would say the company is worth X. And that number typically was 50 or 60 percent lower than their last private valuation.”

“I just think, I think like going public seems like a fantasy at this point. I think the whole public markets exit idea is frozen for two years.”

“My hunch is that by the time the cash is actually distributed, the returns are going to revert to that orange line mean, which means there are hundreds of billions of dollars in markdowns sitting in LPs and GPs portfolios that are likely to come because nobody really thinks that the deals done in 15, 16, 17, 18 are going to be that far above the mean return.”

“So then you would say, oh, my gosh, well, if there's $500 or $600 billion of impairment coming down the pipe, maybe more, maybe it's going to be $750 million.”

“let's say you're a unicorn company, okay, and you raised at the peak, let's say second half of 2021, you raised $100 million at a billion-dollar valuation. And let's say you've got $50 million left in the bank, right, so you've burned $50 million. A lot of these founders are thinking that $50 million they've got left is only 5% dilution, but that's what it was historically. If you were to raise a new round today, you might only be valued at $250.”

“So, I was like, dude, your options are worthless. Like, you know, this is a real problem, I think, that's probably going to become very systemic for scaled unicorn software companies.”

“And I think like the next shoe to drop has to be these founders and these boards just saying, OK, let's just take the hard medicine. What's the real, you know, market clearing price and valuation? Let's get a third party to price it. And let's get new fresh equity and then move forward.”

“More than half of them, or basically half of them, are trading at 0.2 times the total cash they've burnt.”

“So the highly correlated portfolios in Silicon Valley are the ones that will get torched because most of those companies will receive very poor or no advice.”

“it's still a wake up call to the private markets that the valuations are still completely and utterly out of whack.”

“Well, if you do the math, the sum of the area above this black line is almost a trillion dollars around the world. And it is about $600 billion for US venture capitalists.”

“But it still seems like a super high quality business. And, you know, valuation wise, who knows what things are going to be worth when they ultimately come to market. There's certainly no one going public right now.”

“Over two thirds of companies now that have gone public since 2020 are worth less than the capital that they have raised as in the venture market. So if they were still private, they would be worth less than their preference stack.”

“But what people need to understand is that even if we revert all the way to the mean of eight, which I think at some point we will, that's still well below the bubble of 21 where they got to 16”

“And if you think it's getting back to 12 or 16, it's not happening, in fact, it's not happening.”

“I think the reliable way that we can look at this for the future is that we're never going to see these kinds of multiples again, unless rates are zero.”

“I think we're going to see in the second half of 23 and all of 24 is a lot of medicine being taken, a lot of down rounds, a lot of structure.”

“And at the same time, there are a lot of companies who don't want to see the writing on the wall and will do all kinds of gymnastics to try to stick a landing on a contorted financing.”

“And now what little cash they had left may also be gone, which means those valuations are even more impaired, which means that the LPs that gave them the money are even more underwater.”

“Number two, Stripe basically takes a 50% haircut, which is the single best-run, most highly valued company in Silicon Valley. Again, that's going to eviscerate a lot of TVPI in a lot of people's portfolios, a lot of theoretical money that LPs were going to get.”