I have not taken enough pitches in the last 60 days to know if seed prices have come down in any meaningful way.
I have been working through my pipeline and helping companies already in the portfolio.
I have a bunch scheduled over the next few weeks and assume a much different tone and dialogue.
Yesterday, Josh Kopelman, a legendary venture investor said:
I’ve seen more term sheets pulled in the last month than in the last decade.
That says two things to me (its a given that there was too much money sloshing around)…
Too many new investors with little or no experience have been running around writing term sheets for too long.
There are thousands of companies funded in the last 12-18 months that had these same investors NOT pull really poorly constructed term sheets at bad prices that will need to work through the system.
Bill Gurley sums up this issue well and founders best:
An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The “unlearning” process could be painful, surprising, & unsettling to many. I anticipate denial. Some thoughts:
1) Previous “all-time” highs are completely irrelevant. It’s not “cheap” because it is down 70%. Forget those prices happened.
2) Valuation multiples are always a hack proxy. Dangerous to use. If you insist, 10X should be considered AMAZING and an upper limit. Over that silly.
3) You may be shocked to learn that people want to value your company on FCF and earnings. Facebook trades at 14X GAAP EPS, & is growing 23%. What earnings multiple are you assuming?
4) Revenue & earnings QUALITY matter.
The venture firm A16z offered up ‘A Framework For Navigating Down Markets‘ that is a good read for founders in the growth stage.
I tell early stage founders the same thing ALWAYS:
Pick investors/partners you want to work with for next 10 years.
Focus on a price and valuation that helps you BUILD momentum with the capital you raise.
Way too many founders have risked all their momentum by maximizing price and ownership in the seed round. It is easy to blame the sloppy money coming from ‘green’ venture capitalists, but it is the founders responsibility to understand what Bill Gurley is saying above.
Back to work.
