Thread by @dunkhippo33

Every conversation I have with early stage VCs seems to lead to how crazy the market is.

And whether the frothiness will continue or stop in the next year

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1) To be clear, this is in reference to a lot of mind boggling series A rounds being done recently.

AND not every company is raising these crazy rounds. But enough to make ppl talk.

2) Specifically what I’m seeing a lot are companies with limited traction - what I would call “seed traction” get huge multiple mark ups on valuation.

Series A valuations at 100x (or more) of yearly revenue!

3) These are often in great companies but effectively series A investors are paying up a lot just to get their money in.

4) On one hand, this makes my paper returns look nice and some founders can avoid either dilution or raise a lot more capital per the dilution.

5) But there are high expectations for performance when you’re now worth say $90m and have < $1m runrate.

6) Its unclear when the party stops but my advice to founders who can raise this type of round would be to set expectations with your lead. If you don’t have clear PMfit, spending a lot of cash is probably not wise. And its worthwhile to stretch the money.

7) Downturns in mkts occur when investors get nervous.

There are a LOT of seed investors right now who are getting nervous but they don’t control the series A dollars. We’ll see if this has a trickle down effect.

8) To be clear, I don’t think we are headed for a recession. But a dip in valuations at the series A is quite plausible.

And we wouldn’t need a big dip to affect a lot of companies who raised one of these As to get “stuck”.

9) My advice to companies would be to pare back on burn if you don’t have pmfit. Even if you have a lot of cash.