📈 2021 is the peak of the risk-capital golden era

“what I'm worried about is taxes are going up big time, no matter what happens in Washington, spending is going up big time. We now have peacetime deficits that are the biggest that they've ever been. The national debt, the peacetime national debt is the highest it's ever been. ... I mean, there's a lot of things here that could upset the apple cart. And what I'm afraid of is we're going to look back at this year, the thousand unicorns being minted and say that really was the golden era and everything happened after that. We really screwed it up.”

“Sacks, you sound like the old guy at Starbucks that says that every generation and complains about the last generation were in the golden era and it's all downhill from here.”

“all this money that gets spent gets sucked out of the private economy somehow. It either comes from taxes or gets added to the national debt, but either way, it comes out of the private economy and resources that could be allocated to the next generation of innovative companies.”

“Keith and I just talked about how we're about to enter a very different kind of macro environment for growth stocks. And we don't know how long it's going to take. ... But there's no question that multiples and valuations are going to come down. And there's a lot of younger founders and investors who never lived through a bear market or a down cycle. And they're about to get a rude awakening.”

“The real problem is all these companies that I think raised a lot of money in private markets are now going to get stuck because if the public markets have compressed multiples by 30 to 50%, they are the ultimate buyer. ... All these private businesses and then all of the ones that were planning IPOs in the next 12 to 18 months are probably in a little bit more of a challenging spot than they were before.”

“if you look at private markets, it's obvious that they were getting ahead of themselves. ... So the idea that a private company with 20 million or 30 million in SaaS revenue was worth 50, 60, 70 times that, that's not the case right now in the public markets. And maybe it goes back down to 20 or 30, but you just have to have that runway to land the plane, correct? ... the sense of entitlement I'm seeing on all sides of the table right now, from founders to board members to investors, it just seems like everybody's in some sort of mad dash to secure some bag by any means necessary. And there's no focus on the customers and the product and the team.”

“He took SoftBank money. SoftBank, as you guys, as we all know, creates a very strong incentive and capitalizes businesses to go after kind of ultra, perhaps unnatural growth. ... the loss of jobs is the cost of capital with these ultra high growth incentives that are kind of being structurally built into the fundraising rounds in these later stage deals lately.”

“The root cause of why this is here, as far as I can tell, is not a company that doesn't have consumer demand. It's a company that may have been mismanaged for growth to meet the consumer demand because of too much money. ... maybe we overgrew because we were drunk on free money. And now we have to realize that we actually have too much capacity for the demand that actually exists.”

“listen, we may be going into a very different environment, and I think the company is worth the valuation we got, but if you just look at the public comps, valuations are down 30%, 40%. ... So if we were to take more money into the round at the same valuation, that's kind of a good deal for the company, and it gives us more runway, gives us more insurance.”

“to take a write down on 900 unicorns is going to cause a write down of hundreds of billions of dollars across all VC portfolios in aggregate, because they're not going to end up going public. ... they've all got these great marked books right now. You know, the books are all marked to 3X, you know, multiple and invested capital. And now they're going to end up having these liquidity events that are going to come in at shockingly low valuations. And there's going to be this great write down and retrenchment.”

“Mid-tier maybe, but my point is when you have 900 companies with a billion dollars in plus, they have to go public. They have to go public. Correct. You can't go public into a valuation framework that values you at 30 to 40% less of your last private mark.”

“One is The Athletic yesterday, which had raised money at 500 million just two years ago, just sold for about 500 million to The New York Times. ... And so there'll be plenty of those that occur. So there'll be a lot of pushes, I think, is my prediction of those 900 unicorns.”

“I think that the trickle down effect is inevitable, but I'm not sure it's fully kicked in yet. It's going to take a few high profile deals to land at, say, 50 times ARR instead of 100 times ARR in order for everybody to know that there's a new valuation level.”

“the public markets have massively corrected. And now finally, you know, we talked about this few few months ago, those new price levels have trickled their way down into venture markets. And so finally, you know, venture deals are starting to price at more reasonable prices. ... I think that the prices now are coming down because what I've heard is that the crossover investors like Tiger, like KOTU who are deploying all this money, they've really slowed down now. I think they're all kind of licking their wounds. And so like all of this money that was flooding into the venture space is kind of on pause right now.”

“But my private book was up a billion dollars. And I told the team, I'm like, no, this is not real. So we have to take those marks because, you know, you have other venture firms that are pricing these deals and we get audited K1s. ... And I said, this is not real. We were at best break even and probably lost money. But you can't, you can't not take these marks because like, you know, you have an entire fund complex that lives on these marks.”

“there's a significant disincentive for venture firms to take markdowns, to raise capital into a private business at a price that's lower than the prior round. Because when they do that, the marked value of their portfolio goes down. And then it makes it harder for that venture firm to go out and raise the next fund that they're going to try and raise from their LPs, because it looks like they're not good investors.”

“As everything was going up, these new fund managers are like, we're at 100 IRR, we're at 200% IRR, because this crypto investment we did got marked up. And I was just thinking about what Bill Gurley would always say, which I think is a Howard Marks quote, you can't eat IRR.”

“the overwhelming misvaluation of late stage private companies ... But I think the reality is that at some point in the next year or two, these other companies have to get public. ... The problem is if you're high burn and you were counting on yet another successive round or you're at a point in your life cycle where you need to go public, in the next two years, if you go public, you will get taken to the woodshed.”

“I think Tiger built a great business in providing late stage sort of passive, non-dilutive capital to companies, SaaS companies. ... I think those valuations are going to come down.”

“Tiger's model was, let's just get the multiples up. There's multiple expansion and growth, so we'll make money two ways when the company goes public in 18 to 24 months. Obviously, when the markets end up tanking and all those multiples compress, no growth rate is going to solve that problem for you.”

“I think an opportunity to move away from speculative behavior into real kind of cherry picking, productive, cash generating businesses ... I think the whole time frame around like speculative stuff is kind of wiped out. I think that that era is gone now.”

“deals are taking longer to close, people are starting to do diligence again, and people are discussing what the right valuation for this early stage startup is, which is good. ... late stage madness is gone. It's over.”

“Yeah, I mean, I think 100 times ARR is over, but we no one really knows where it's landing. So I've seen some deals get done at 60 to 80 times, but no one really knows where it should be.”

“I think that there's going to be a trickle down effect of what's happened in the market to privates. And the valuations are going to go back to their pre-COVID levels. ... So we're seeing a massive repricing of deals and that's going to continue.”

“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.”

“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%.”

“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.”

“we've been talking a little bit about the contraction in tech, the growth stocks having their multiples lowered, and we knew this was coming, but it's been a horrible week for large companies starting the layoffs”

“I think the worst means that there's an 18 month period where you cannot raise money on your terms, you have to raise money on the market terms. ... if you're not in a position to show good growth over these next two years, I would encourage you to just get your balance sheet in order to wait it out.”

“If they just slammed on the brakes three or four months ago, when we were talking on the spot about the coming downturn, they could still have $30 million in the bank. ... if you're a high-burn company right now, that's not generating a lot of revenue to go along with it. You better slam on the brakes and rationalize your cost structure before it's too late.”

“I've been on many calls with founders who've met with 50 VCs, and the conversations are moving to, you know, how many months to break even? And, you know, how many customers do you have? And how have they increased? And let's talk about the churn. It is getting super pragmatic out there. If you're a founder, and we said this a year ago, but it's worth stating here, this is not the moment I would try to over optimize. If you have a term sheet or money on the table, I would close it.”

“you look at all the engines of sort of growth and prosperity, the small caps, the recent IPOs, the growth stocks, they've been absolutely hammered. It really hasn't been this bad since the.com crash of 2000, and not just the April period, but all the way in October where it kept going. And then the 2008 real estate crash. So we're already top three worst situations for growth stocks in the last 20 years.”

“The crossover investors are washed out of the system, they're gone. I mean, Tiger's already deployed all of its capital, and I don't know when they're going to be back. ... Even if you had the same amount of money being raised and deployed, but it was happening over three years instead of one, that would be a two-thirds reduction in the availability of capital in the system.”

“In the contrast of everyone saying, hey, there's no capital available, there's no capital available. That's not true. There's more capital than has ever been available.”

“So those are commitments, it's not cash in the bank.”

“It's more like a sawtooth. It risks on is a very slow process and it's reflexive. So it grows and grows and grows and grows. And then risk off tends to be very abrupt. ... This cycle, risk on was from 2009 to five months ago. ... And risk off is five months. And the thing that's really tough about that is it requires mental adjustment very quickly”

“if somebody calls me up tomorrow and says, hey, Tiger's doing this deal at 75 times ARR. Do you want to do it? They would have to pry the dollar out of my fucking hand with a crowbar. I'm not risking my money or my partner's money doing something that we're not underwriting.”

“there's been a regime change in the public markets. The way that investors look at these companies is changing. It's not about growth at all costs anymore. ... What investors want right now, they still want growth, but they want it with low burn. High burn operations are going to get punished.”

“Because what David said I think is 100,000% right, what Sacks just said. There is a massive, massive regime change here.”

“If you were a VC last year, you should have been realizing as much as you can because valuation levels are really high.”

“If you're if you're a venture investor who took a longitudinal view on public market stocks and then have now seen 60 to 70 percent write downs of those same stocks that you could have distributed, you should still have something to answer to.”

“What I feel smart about, I'll be honest, is we had, I think, let's just say, I'm making up a number here, four to five times we were offered the opportunity to trim our positions in secondary with our winners from people who wanted to buy secondary shares. I did it probably four out of five times.”

“Tiger had huge funds. They were deploying very quickly, but there was a lot of so-called tourist money, basically money from crossover funds. Investors who are not primarily VCs came into the ecosystem over the last few years, and a lot of that was driven by sovereigns and by liquidity. So, you know, you can't forget that we had $10 trillion of liquidity pumped into the system over the last couple of years, and many billions of that found its way into the tech ecosystem.”

“But I would tend to think that this is an overly optimistic, overly rosy scenario.”

“I think when the tide goes out, we find out, right? And this is what's happening. The tide's out, and you're going to find all the weakness in the system. It's all going to get flushed.”

“So this whole like frothy environment that you had for in Hollywood last year, that's just over. The faucet's been turned off, and it's not even turned off to a trickle. It's just stopped.”