Interview, Fireside Chat
Tom Loverro: The Ultimate Startup Survival Guide for 2023 | 20VC #977
- The venture and technology asset classes are projected to expand significantly over 10, 20, and 30-year horizons, despite short-term LP commitments in 2023 and 2024 likely remaining smaller than the 2020–2021 peak.
- Public software multiples have already corrected to 2016–2018 levels, while private market multiples are transitioning to pre-pandemic pricing, specifically 10 to 15 times forward ARR.
- Down rounds are anticipated to occur for companies that raised at inflated valuations in 2020–2021, though fewer may materialize than market fundamentals suggest due to VC psychology against them.
- A "calm before the storm" is expected where companies raise capital at the end of the current year and next year due to an investor time shortage for triage, followed by a potential flood of deal activity in the second half of this year and the following year.
- Founders with six to twelve months of runway are advised to initiate fundraising immediately rather than waiting, as raising at the last second risks being ignored or forced into down rounds, and restarting fundraising after a delay creates a "smelly fish" reputation.
- Bridge rounds lasting less than six months are deemed insufficient to achieve milestones, whereas six-month durations are the minimum viable timeframe, with one speaker noting no successful short-term bridge rounds in an eight-year career.
- Pay-to-play provisions pose a dilution risk for investors who fail to participate in new rounds, while companies may face pressure to cut burns to avoid "zombie mode" lifestyle business status.
- Employee equity grants are expected to be underwater initially, though 409A prices may remain lower than preferred round valuations, necessitating new incentive strategies to retain top talent.
- Venture capital deployment cycles are shifting back to a three-year timeframe to align with LP expectations, contrasting with the 9 to 12-month rapid deployment of 2021 that risks LP commitment refusals.
- IVP's 2023 vintage is projected to be the first in a decade where temporal diversification offers a distinct benefit, and investment books should reflect markdowns within the past 12 months due to returning market gravity.
- Founders are encouraged to lean out of winners in stages, utilize marketing spend more aggressively during the downturn to lower Customer Acquisition Costs, and hire better talent from large incumbents that are currently frozen.
- Seed and Series A pricing will not return to 2011 levels of 1.5x pre-revenue in the near future as corrections cascade slowly from public markets, while early-stage investors will prioritize recent data points over older performance metrics.
- Secondary market volumes are projected to increase over the long term, even as current volumes peak when assets are overpriced, and future governance will demand board members who remain accessible during crises.
- The current correction is described as potentially worse than the Great Financial Crisis due to the prevalence of pre-product companies raising on hype at hundreds of times revenue.
- Investor behavior regarding dry powder may involve artificially inflating books to maintain marks, while deal flow data suggests an uptick in Q4 with at least two potential down rounds occurring in the immediate week.