Since then, we’ve been in a supposed tech frenzy where high interest rates have caused investors to turn Jekyll and Hyde into startup growth spending and burn their wallets for cash.
Valuations fell on VC portfolios, and startups reported staffing in alarming numbers to show they could live within their means.
When these founders admit their folly in hiring more people than they can afford and promise to be more prudent in the future, many VC operators simply switch. Scripts and more.
VCs were the ‘market’
The same people who created the bubble by writing bad checks, are now lamenting that the “market” is overheating.
Airtree Ventures partner Jackie Vulings said at the 2021 Startup Funding Environment conference: “We had two days to do due diligence on the deal. International funds came and competed with us in a way we never knew before.
Tony Holt, founder of Square Peg Capital, was of the same opinion, explaining that the business drivers that dominate the market today simply don’t apply in a low interest rate world.
“When you have very little capital expenditure, the horizon is so long that you don’t have to think about it. [profitability] In the near future,” he offered.
Our meeting’s critics hoped they would be forced to admit that – “No, you felt pressured by the competitive market and made bad investment decisions as a result.”
Nick Crocker of Blackbird Ventures was forgiving of his own mistakes when he told the Summit that he thought he was probably overstating the market’s frenzy.
“The problem was that a large number of investors were actually lining up to back fast-growing companies. So the logical thing for a founder to do was to grow really fast, because growing really fast earned you the reward of the additional round,” Crocker said.
“So in 2021 I see it as a logical choice.
“So anybody who says, ‘Oh, I was too careful’ in 2021 … and I said slow down and be agile, well, that’s stupid, because nobody’s going to reward agility in 2021.”
Crocker went on to lament that founders have suffered because “the world has turned on them in two quarters” and the market is not rewarding a growth-at-all-costs approach.
“I don’t buy into the ‘he was crazy and then he wasn’t’ kind of ‘everybody’s crazy,’ say. It’s like no, we’re all the same people who respond to certain stimuli, mostly rationally,” he said.
It was enough for a respectable investor to watch events remotely via live streaming online.
They said that the summit was generally wonderful and gave a dry assessment of the performance of their counterparts in a candid discussion the next day.
“Who forced them to do two days of due diligence 18 months ago and invest at crazy valuations? If they knew they were going to invest in a little due diligence bubble, then why did they do that?” asked the investor.
“And what about the investors who invested in the 2020 era fund, perhaps assigned to crazy valuations? Where is the responsibility of this group?”
The investor, who remains a prominent figure in the local industry and asked not to be named in this article, said it’s ironic that Crocker is pulling back from the most expensive deals in 2021 for a VC.
“What Nick failed to take on board was the long-term problems of irrational investment,” he said.
“This is not some intellectual discussion. If your fund is heavily invested in 2021 prices, this could be a dramatically underperforming fund, and your investors in that fund are a little f–ked.
VC professionals at large firms can be wary of missteps in 2021, given the strong performance of previous funds.
The failures of the company are justified when you realize that they can always be the result of startups, but this does not mean a lack of self-awareness.
An experienced investor said he thinks it’s not good for VCs to use herd mentality and fear of missing out as an excuse to do deals without due diligence.
“The VC firm that is now f-ked – 2020 funds will continue to do so as long as they can raise again in 2024,” the investor said.
“The key is when an investment like MilkRun or many others fail, the investors need to surgically address why the investment decision went bad.
“Usually that means something has changed in terms of unit economics or product/market fit, but the answer isn’t to just forget the loss and other investments are doing well… That alone stops the VC from taking responsibility for stupid decisions. “