Founders: Become default alive

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. Stay alive.
If you’re a startup employee: Do your diligence and avoid overvalued companies. • Valuation: 200x revenue multiple • Cash: <6 months runway • Burn Multiple: 5x If you still decide to join a new startup with these red flags, understand the risks.
If you’re an investor: Stay patient. • Invest into anti-fragile startups. • Don’t get attached to paper markups. • Stay away from hype/FOMO deals. Price is what you pay. Value is what you get.
The Good News The most epic companies were started and built during bear markets: • Google (1998) • Coinbase (crypto bear market 2018 – 2020) • Bitcoin 🙂 Great companies will succeed regardless of the market. They get stronger, not weaker. Keep building.

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