📈 Startup mass extinction event in late 2023 and 2024

“We have to go back to the historic statistical average, which means that a 50 to 60 percent mortality rate seems pretty reasonable. By the way, in the dot-com bubble, that's what we went through. In 2001 to 2005, we had a 50 percent mortality rate.”

“Now the problem is that so many of these series B, C, D and E companies have a true market value. They're not a valueless company, but the true market value of them is probably less than the total preference stack of the capital that's gone in. So they're worthless.”

“I actually think this tweet storm is basically correct is, you know, I've referred to on this show before that I think one of the things that built up during this bubble is latent startup mortality. So many startups that should have died from not being able to raise the next round lived because they're able to raise money.”

“I'm also starting to see really gnarly term sheets, people foreclosing on businesses, people offering like literally had a term sheet come in, like we're going to forgive the last note and take this business over for a dollar and everybody gets wiped out.”

“I mean, it is going to be a hard period with a lot of resets, a lot of restructuring, a lot of cap tables. There's a lot of mess to clean up.”

“so many of those companies have a valuation that's less than their preference stack. And as a result, those founders that work there and those employees that are there are getting their equity wiped out. They'll have to get restructured.”

“But if you're a series C stage startup, you're a late stage startup with a, it's called a pre-AI model, the spigot has just turned off completely.”

“What is their incentive to really mark their book down 50%? They don't have an incentive. Why would they do that? They would rather let it decay down naturally.”

“A bunch of this tiger stuff got released. I mean, their funds are underwater, just like Masi Yoshisan's fund is underwater.”

“And we've talked a lot about the statistic that I've shared a bunch publicly on how 70 percent of publicly traded companies that have gone public since 2020 are trading below their total cash invested since founding, which should translate to an estimate that call it somewhere in the order of 70 percent of private companies are probably worth less than their preference stack.”

“And so the question there is, how many of those companies are just going to stop spending because they're just not going to exist?”

“There's a lot of failure going on in Silicon Valley right now. You know, Sacks, you talk a little bit about having paths for exit and options for SaaS companies. But there are many sectors in startup land that don't have those sorts of options in biotech, in SYNBIO, in FinTech, in direct-to-consumer, e-commerce.”

“The money is being sucked out of the system like the tide before a tsunami. And the tsunami is going to be all the failures and bankruptcies.”

“There are 1,400 unicorns at the end of 2022, and 100% of them will likely do a down run. And if you said, what is the average that they're going to be down, it's over 50%.”

“It's only going to get worse over the next 18 months.”

“I think 60% go to zero.”

“But now we're in a situation in which we're going through two years of intense turmoil and a lot of companies aren't gonna make it. A lot of companies are restructuring. A lot of companies are gonna take down rounds”

“I think there's going to be a one to two year period of distress for all these companies that raised in the peak, 2020, 2021, and are now running out of money and they don't have enough revenue, they're not growing fast enough, and or their burn is too high, and all those companies are going to be facing down rounds or restructurings or they're not going to be able to raise.”

“Remember, we had 1,000 unicorns at the end of 2021 And I've said 100% of those are going to do a down round. And we're still in the early stages of that reset to occur.”

“And I can tell you like most startups in startup world right now are in the danger zone... if you're a startup with sub one million of ARR and you're in the danger zone, you're probably just gonna have to pack it in”

“New options are issued and a round is done at a significant discount. And there's a huge recap and a pay to play and all this other sort of stuff starts to play out that the original founders in the company get wiped out. ... I think that's the scary scenario that's likely going to play out”

“This is the bubble of 2021 working its way through the system ... So I think you're going to see this dynamic for the next 18 months or so. But this is not a new dynamic. This is the lagging indicator of what we've been talking about since the regime change of the first half of 2022”

“I'll just note when a company does shut down, that process typically takes two or three quarters ... anything you're seeing in 2023, that might be a shutdown where the employees were all laid off in late 2022”

“The one that needs cash continuously and will for a long period of time is really screwed”

“It was a rager, folks. People partied well into the next day, and we're still seeing the cleanup.”

“I run into two and three person teams every day that I think are exceptionally talented, who should be inside of a company.”

“a lot of businesses that raised a lot of capital at a very high valuation, and then you have this multiple compression that's just happened in the last two years, their valuation effectively, if they were to go public today or get sold, is less than the capital they raised. And that's the most extreme scenario where suddenly all the common shareholders get wiped out in terms of their return.”

“My take on this is that this was a bailout... This company wasn't going anywhere, and it raised hundreds of millions of dollars.”

“the general tone here is a deep tech investment is very likely to fail because you spend so much money before you even know... So it's a tough data point for other deep tech companies that need to raise a lot of capital.”