Late Stage Growth Market:

  • Pace of late stage growth deals is down dramatically in 2023 compared to previous years.
  • Companies that have executed well and have reasonable expectations of value are still able to raise capital.
  • Some companies with significant cash on their balance sheets from previous rounds may not be motivated to raise new capital at the current valuations.
  • Valuation resets may be necessary for companies with high burn rates and low growth.
  • Late stage growth is currently the least active part of the market, but there is still potential for companies with good economic models and clear paths to profitability.

Resetting Valuations:

  • Companies should actively consider resetting their valuations if they were inflated during previous funding rounds.
  • Resetting valuations can benefit both investors and employees by aligning expectations with the company's true value.
  • The process of resetting valuations may involve reducing equity incentives for employees and adjusting preferred stock terms for investors.

IPO Market:

  • The IPO market has seen a recent resurgence after a period without any tech IPOs or large strategic M&A activity.
  • Three companies recently went public at scale, indicating that growth is not dead.
  • The performance of these IPOs should not be viewed as indicative of the underlying companies' value, as factors such as trading volumes and macroeconomic conditions can influence short-term performance.
  • Late stage growth market being frozen does not necessarily indicate a delayed opening for the IPO window. Companies can go public when they have a good economic model, predictability, and a balance between revenue and path to profitability.

Efficient Pricing:

  • Efficient pricing can lead to reduced valuations, which may impact companies that previously raised money at higher valuations.
  • However, efficient pricing also creates an opportunity for institutional investors to build positions in promising companies over time.
  • Investors should focus on the fundamentals of a company's business rather than short-term price fluctuations.

AI Deals:

  • AI remains a fundamental trend with significant potential impact.
  • Valuations for AI companies may currently be frothy, but caution is advised due to the gap between valuations and company performance.
  • Some investors are being cautious in 2023 given the high valuations in the AI market.

Glass Half Full:

  • Despite challenges, there are still opportunities for growth and investment in the current market.
  • The glass can be seen as half full or half empty depending on perspective.
  • Companies that focus on their business fundamentals and execution have a higher chance of success regardless of market conditions.

Late Stage Market for AI Deals:

  • Late stage investments in AI companies may face pricing challenges due to inflated valuations.
  • Investors need to carefully assess valuation discrepancies and consider the long-term potential of AI companies.

Growth Landscape Overview:

  • The question is what should be the underlying return in growth.
  • Assuming a 50% IRR (Internal Rate of Return) requires specific knowledge that the market doesn't know.
  • Companies' growth rates should compound similarly to how the market compounds unless they are inefficiently priced.
  • There is uncertainty about whether any growth deals are getting done and at what price.
  • Some growth companies may struggle to raise funds, especially those with little revenue but significant cash reserves.

The Great Reset: Valuations Need to Change:

  • Companies should actively consider resetting their valuations.
  • Valuation resets can have benefits, such as aligning expectations and attracting new investors.
  • VC firms may hesitate to reset portfolio valuations when raising funds from the same limited partners (LPs).
  • The structure of funding rounds can play a role in valuation resets, with some structures being acceptable while others are not.

Are the Public Markets Creeping Open:

  • ARM, Instacart, and Klaviyo going public may suggest that the public markets are opening again.
  • The performance of IPOs like Instacart's 75% discount on its last round raises questions about the desired response from going public.
  • Woody believes more companies should go public at discounts to their last private round.

Late Stage Growth is Dead and Revenue Multiples:

  • Late-stage growth deals may be less attractive due to current market conditions.
  • It is uncertain how long this situation will last.
  • Assessing revenue multiples today depends on whether there is a "new normal" or if it remains consistent with past trends.
  • Revenue multiples in 12 months could differ from current levels.