Dotcom 2.0?
David Peterson

The Nasdaq has fallen nearly 20% in 2022. In dollar terms, that’s over $5 trillion in value lost since its November peak (more than the Nasdaq’s dollar losses through the entire dotcom bubble unwinding from 2000–2002). To put the losses into perspective:

Almost two-thirds of the Nasdaq’s 3,000 plus members have fallen by at least 25 per cent from their 52-week highs…. Almost 43 per cent have lost more than half their value, and nearly a fifth have tumbled over 75 per cent.

Here’s another way to understand the rout in public markets. Of the 76 companies in Bessemer’s Cloud Index, every single one is down. The average company is down 53% from its 52-week high.

And here’s yet another way to understand what’s happening, this time from Ed Sim over at Boldstart. Hashicorp was valued at 40x+ ARR at its peak. It’s now valued at 20x. Gitlab was valued at 55x+ ARR at its peak. It’s now valued at 20x. The days of companies, other than the very best, being valued at 100x ARR are gone.

When venture capital investors drone on about multiple compression, this is what they’re talking about. Across the board, valuations have taken a significant haircut. That portfolio company that just raised at 75x ARR? They’re wondering if in the public markets it might be worth closer to 20x, and if so, how that affects their ability to raise their next fund.

Of course, venture capital investor navel-gazing can be a bit tiresome. So if you’re a founder, you’re probably wondering how this affects you. Here’s how I would think about it:

• Cash is king. This isn’t Dotcom 2.0. At least not yet. But it’s useful to remember that the Dotcom bubble didn’t burst overnight. It was a slow deflating over the course of 18 months between 2000 and 2002. Having 24+ months of runway right now gives you the freedom to ride this out. So, see if you can lower burn to increase runway (or better yet, become default alive).

• Adjust valuation expectations and fundraising timelines. Late stage investors are worried about overpaying. Early stage investors are worried about investing too quickly and needing to go back to their LPs too early. There’s still a lot of money out there chasing amazing companies, but the result of all this is likely a slight slowdown. (This is already happening.) Fundraising may take a bit longer and valuations may be a bit lower. Adjust accordingly.

In other words, the game hasn’t changed. But the rules are shifting.

See you all next week,
David

EVENTS

Apr 11 / How to Employ Category Design as a VC
David Peterson, Partner at Angular & Al Ramadan, CEO of PlayBigger

May 11/ The Importance of Culture and Values As You Scale a Business
Oren Kaniel, Co-Founder & CEO, AppsFlyer

FROM THE BLOG

Why Building a “Compound Startup” Might be the Next, Great, Non-Obvious SaaS Play
Or why “just focus” might be bad advice.

Enterprise & Deep Tech VC in Europe & Israel 2021
A data-driven look at a record-setting year.

Shifting Left, Shifting Right
Are we on the cusp of a new era of empowered non-engineers?

The Problem with Engineering-led Growth for Early Stage Startups
What kind of growth team you need to hire depends on the stage of your company.

EUROPE & ISRAEL FUNDING NEWS

Israel/Security. Axonius raised $200M for its cybersecurity asset management platform.
Spain/Communications. Typeform closed $135M for its cloud-based surveys and form builder application.
Turkey/Marketing. Insider raised $100M for its growth management platform that helps digital marketers drive growth across the funnel, from Acquisition to Activation, Retention and Revenue.
France/SME Financial Services. +Simple closed $98.5M for its online insurance platform for freelancers, small and medium businesses.
Spain/Fintech. Capchase raised $80M to help a fintech company that helps SaaS companies finance the growth of their operations with cash tied up in future monthly payments.
Sweden/Insurance. Insurely raised $17.5M for its open insurance platform that makes it possible for insurers and financial players to access real-time data from the insurance market.
Israel/Security. SafeBase raised $17M for its smart trust centre for B2B SaaS companies to close enterprise deals by streamlining the security assessment process.

WORTH READING

ENTERPRISE/TECH NEWS

Cooperative AI. In “Restoring and attributing ancient texts using deep neural networks,” a recent paper published in Nature, researchers present “Ithaca,” a new deep neural network that can help reconstruct missing parts of ancient texts. It’s easy to view this sort of technological advance as a threat (AI is coming for ancient world historians, now?!), but in reality, it’s a complement. Ithaca alone achieves 62% accuracy when restoring damaged texts. However, when historians used Ithaca in concert with their own expertise, they were able to improve their accuracy from 25% to 72%.

$$$ for EVs. Venture-backed startups in the electric vehicle space raised upward of $20 billion in 2021 (more than double the amount raised in 2020). New investment isn’t just chasing new electric vehicles either (especially as investors realize how difficult it will be for newcomers to compete with the scale of traditional automakers), but for charging infrastructure and grid management as well. Read more from Crunchbase News here.

Innovation regulation. Interesting thread from David Marcus, who used to lead Novi (Meta’s crypto play) as well as Facebook Messenger, on why the EU keeps falling behind despite having “all the talent and resources to be a leading region in the world.” The whole thread is worth a read, but here’s Marcus’ main message to EU politicians and regulators (emphasis mine): “Historically the way most European countries tried to stimulate innovation is through advantageous government grants and subsidies. This is not the way. Favorable regulation and policies will enable global competitiveness. Restrictions and short-sighted policies will almost inevitably produce the opposite outcome and make Europe fall even farther behind. Web3/crypto is going to redefine the internet as we know it. The EU still has a chance to be a relevant player alongside the US.”

HOW TO STARTUP

Crash advice. Josh Wolfe of Lux Capital, on CNBC this past week, sees echoes of the 2000–2001 crash in the current market. He estimates there’s a 60% chance that we are in “March of 2000” for a broad segment of the market that has been overvalued, which suggests we’ll see a long, slow decline in share prices (as people’s beliefs that “this time is different” slowly unwind). We’re already seeing knock-on effects in private markets. His advice to startups? Husband your cash. Watch the whole interview here.

HOW TO VENTURE

End of an era. Late stage venture was the best deal in private markets for a few years, says Jason Lemkin. That’s likely over. Similarly, Semil Shah of Haystack throws some cold water on private market investors who are going to fundraise any time soon: “U.S. endowments & foundations exposed to VC have likely lost “multiple hundred of billions” in private book value so far in 2022, but it will take many months for the marks to hit.” Lindel Eakman, LP at Foundry, concurs. Many late stage funds likely hit their high water marks in 2021 and will struggle to realize the fund multiples they are showing. LPs may mark down these holdings, though Eakman thinks it will take a year-long down-cycle for that to happen. Regardless, LPs currently “feel full” and overexposed. Eakman leaves us with this: “There has to be a slowdown in capital raising. GPs are deploying too quickly and LPs are pushing back enough for vintage diversification. There is A LOT of dry powder but a sustained downturn will make even the drunkest of GPs deploy more slowly.”

PORTFOLIO NEWS

Vault Platform will be featured in a webinar on the implications of the EU Whistleblowing Directive and what it means for organizations with over 250 employees in the EU. Register here to join.

Forter was named to Fast Company’s annual list of the Top 10 Most Innovative Finance Companies of 2022.

JFrog, in honor of International Women’s Day, shared how they #breakthebias, and are building a culture of diversity and inclusion.