Over the next 18 months, we will see an unprecedented number of startups that will shutdown, conduct layoffs, and close down rounds.
Here is an overly simplified deep dive:
Before I dive deep into my observations, here are my disclaimers:
• Market cycles are normal.
• Market corrections are healthy.
• I have no idea what will happen.
The Bar
For public markets, trillion dollar market caps were being hit with AAPL, AMZN, TSLA, etc.
For startups, Hectocorns ($100B) replaced the Decacorn ($10B) as the outcome.
There are now 1,000 Unicorn startups ($1B) with two joining the club every day.
The bar was lifted.
The Boom
Over the past 18 months, seed stage valuations went from < $10M to $100M+.
Companies were raising at 200x revenue, pre-revenue hype/FOMO, or on the pedigree of the founding team.
It didn't make sense to join an early-stage startup. It made sense to start one.
The Acceleration
For early-stage investors:
• Funds were being raised faster than ever.
• Capital was being deployed faster than ever.
• Startups mark-ups were happening faster than ever.
Paper mark-ups removed the J-curve allowing fund managers to accelerate this cycle.
The Correction
With interest rates going up, public tech stocks have taken the biggest hits.
I won't go into why that is... but it happened.
Some tech stocks are down 80% from their highs last year:
• $SHOP: -66% from ATH
• $ZOOM: -74% from ATH
• $PTON: -81% from ATH
The Lag
Private market valuations tend to lag public market valuations.
Today, late-stage growth startups are seeing the impact on their valuations.
Before long, we will see this trickle down to early-stage startups.
The days of 100–200x multiples will be behind us.
The Hurdle
With valuations coming down, startups that have raised super high valuations will face the biggest risk.
They make some progress but not enough to clear a market correction.
In other words, they have to skip a round with the same amount of capital and time.
Here's an overly simplified example:
• Startup raises a seed round at $100M.
• They make progress on shipping product, hiring a team, and getting to $2M in revenue.
• But, Series A valuations have come down to $50M for that same traction.
So, now what?
If you're a startup founder:
Become default alive.
• Get the company to place where it can continue indefinitely if it receives no more funding.
• Lower your burn multiple (net burn / net new revenue) to 2x or better.
• If you can raise cash, raise cash.
Here's my go-to career advice for when people ask about joining a startup:
1. Vet the company like a VC
- Ask for the recent deck & valuation
- Vet the track record of the leadership team
- Trajectory of meeting this year's goals
Would you invest $10K or $100K w/ conviction?
2. Ask these questions for yourself:
- Is it a role fit?
- Is it a culture fit?
- Is it a mission fit?
If it aligns across all three, it's most likely a good decision. Cut all opportunities that don't fit all three.
3. Connect the two together:
- Do you believe this will be a 100x outcome?
- Is it the right fit for you?
One of our investors asked me about what I learned from Skillshare that I’ll apply to Otis. Here’s what I wrote:
1. Build an experienced team as early as possible 2. Get feedback on big strategic decisions early 3. Play to my strengths and hire around my weaknesses (back to #1)
If I could pick one, it would be around hiring amazing people and getting the f*ck out of their way. Our COO at Skillshare did such a great job that I realized he would be a far better CEO than me at scaling the company. I got the f*ck out of his way and the company has grown 4x.
Everyone tells you to improve your weaknesses. Nah, play to your superpower strengths. You'll get 10x leverage improving your strengths than making 10% incremental improvements on your weaknesses. Be aware of the latter & minimize them but find your Luka step-back 3.
1) Podcasts will be funded, sold and monetized like content tech startups. We will see seed/growth rounds, acquisitions and revenues reaching close to $xxx,000,000 for a media company that rolls them up.
2) New entrepreneurs will start tackling problems that older entrepreneurs felt were impossible to tackle because of network effects: social networks. We will see a new social network emerge that competes with Facebook on data privacy, micro-communities, and quality engagement.
3) ChinaTech will continue its dominance globally. Chinese start-ups will make up the majority on the $10B+ valuation list as they expand outside of China. The world will start paying attention and look at them as innovators and not purely as copycats.
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