Dear all,
In last month’s newsletter, I questioned whether you wanted to see the glass half full or half empty regarding Tech investing. Well, the events that unraveled this past month around SVB and a perhaps wider banking crisis have made this question even more relevant. As a result, founders and investors, once again, must recalibrate their thinking and strategies.
Let’s start with you, founders. With the fall of SVB, many startups who were expecting to postpone the tricky question of their valuation to better times are now confronted with the need for fundraising in an ever tighter environment than just before the current banking crisis. Tighter not because there is no liquidity but because private market valuations are necessarily made in light of those tech companies that went public over the recent period. Well those valuations are strongly down (on average by 70%) (see our Medium article on this subject, supra), and this trend has now come to VC land. As a result, more challenging times are ahead for founders, with difficult choices to make, notably on layoff decisions.
What about you, investors? The upside of the situation is that VC funds can now be picky again and should benefit from both lower valuations and more investor-friendly deal terms. Private Equity investors, on the other hand of the spectrum, are also seeing the glass half-full as they pursue dialogues with Management teams willing to reduce their sometimes abyssal cost structure, with Meta paving the way here, and to put a strong emphasis on efficient growth, while recognizing that PE firms can be the right partners for their next phase of development.
This latest crisis has not diminished our optimism about Tech in the coming years. The major macro trends driving digital transformation still represent a massive opportunity for investors and founders. But leveraging their potential will require greater vigilance and discipline, both at investor and founder level. That starts with facing reality and making hard decisions now. They will both lead to better survival rates amongst startups and to many opportunities for Private Equity as these companies become “fixable” and embrace a different track than the one that might have been the first choice. Then will come the time to diligence these companies to pick the winning ones, and as you know, we have the solution for that. Please feel free to reach out, and we will be glad to help.
Have a great read, and see you soon!