State of Series A's and VC Dry Powder:

  • Median round for Series A is now $7 million, down 26% year over year.
  • Pre-money valuation for Series A is $40 million, down 17% from the previous year.
  • The venture capital market has stabilized for funding new companies, but there may be a one to two-year period of distress for companies that raised during the peak years of 2020 and 2021.

Misconceptions about VC Dry Powder:

  • VCs do not actually have the money in their bank accounts. It is sitting with LPs (limited partners) such as endowments and sovereign wealth funds.
  • LPs are facing liquidity issues due to commitments made to multiple funds and the need to distribute 5% of assets each year.
  • Marks on private company valuations are often inaccurate, but there is no incentive for LPs to push GPs (general partners) to get them right.

LP-GP Dynamics and Belt Tightening:

  • LPs are reducing commitments or being more cautious in deploying capital due to concerns about portfolio performance and liquidity needs.
  • This reduction in commitments will result in less capital available for new funds in the future, leading to higher bars for investment opportunities.

Impact on Portfolio Companies:

  • The bar for investment will likely get higher over the next few years as capital availability decreases.
  • Some portfolio companies may face distress if they raised during the peak years and are running out of money or not meeting growth expectations.
  • Enterprise software companies may be affected by customers' austerity measures and increased focus on vendor consolidation.

The IPO Window Opens:

  • There are signs of an opening IPO window with companies like Arm, Instacart, Reddit, Stripe, Klaviyo going public or considering it.
  • Non-traditional companies like Shark Ninja, Hava, Surfair also went public recently.
  • However, some companies may be forced to go public due to limited options or financial pressures.
  • The success of IPOs will vary, with some experiencing significant pops and others facing challenges in the market.

Macro Picture:

  • Inflation is cooling down, but there are concerns about deflation risk.
  • Extreme weather events like wildfires and high temperatures are becoming more frequent and have a negative impact on communities.