PodcastsAll-In with Chamath, Jason, Sacks & FriedbergE141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner
All-In with Chamath, Jason, Sacks & FriedbergThu Aug 10 2023
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.