[hncommenter13]

Interesting piece. But speaking as someone who was formerly a very junior VC through the dot-com era, there most certainly can be a negative spiral.

The public and private markets aren't as distinct as they might appear to be. A VC buying shares in a private company at valuation X must believe that a sale is possible at a big multiple of X, and soon. Some VC will be the last investor before the company goes public or is acquired. And that last private investor has to sell to another buyer, either a strategic acquirer with cash (or highly-valued stock) or an investor making a purchase in an IPO. And if those exits don't look as rosy as they used to (seen the share price movements of publicly-traded tech stocks lately?), the whole thing runs in reverse.

Worse, if the companies needing financing aren't cash-flow positive or profitable (and few are), existing investors' stakes will be diluted as prices drop. Investors might want to slow the pace of investments to reserve cash to fund the needs of their existing companies, rather than take bets on additional companies needing cash.

Also, while speed is good for startups, "time diversification" used to be considered a good thing for VC investors, who really are playing a portfolio game. The worst-performing funds from the dot-com era were those raised and invested in 2000, just before the peak of the bubble. Of course, at the time, no one knew it was the peak.

Almost no one working in VC now would remember it, but there was a short recession in the early 90s that greatly affected the VC industry. The fund I worked for had been founded in the mid-80s, and reading the old investor letters was fascinating. Admittedly early stage tech was a far smaller industry back then (the dollars thrown around now make the deals I worked on in the dot-com era look positively quaint), but so were the burn rates.

[cs702]

One other thing that happened in the dot-com era, which is also happening today, is that many new companies would spend fresh funds raised from VCs and even from IPOs to buy products and services from each other, spending money aggressively to deliver such products and services, and generating revenue growth that would look impressive in the short run... but ultimately would prove unsustainable. Such growth can last only as long as there is an ongoing supply of fresh capital!

At the extreme, some companies in the dot-com era engaged in dubious "round-trip revenues" behavior, e.g., agreeing to buy a certain dollar amount of another company's products/services only if the other company agreed to do the same, with neither company actually needing to do so for ordinary business purposes. I don't know if this is happening today too, nor to what extent.

[onlyrealcuzzo]

This seems to be A LOT of Series A SaaS.

Theoretically, who cares. If you can convince people to buy your product - even if only to scratch each other's backs - that's better than all the other people who can't / don't have the network.

[JumpCrisscross]

> while speed is good for startups, "time diversification" used to be considered a good thing for VC investors, who really are playing a portfolio game

To expand on this, as the article notes, the old game might have been (stylised) ten Series A investments, three of those raise a B and one raises a C. Today, all ten raise a B and then three months later a C. Valuations (perception of risk) go up (down). But has actual risk been reduced?

The Information‘s “The End of Venture Capital As We Know It” [1] argues that yes, software start-ups have become less risky over the past decade. I agree with this in part. (Cautiously. I make more money when Silicon Valley valuations go up, so of course I’d like that argument. It also sounds like “this time is different.”) Even if true, we may have overshot the mark. In a way, those mis-placed follow-on bets on doomed unicorns are VC’s analogy to leverage—it’s amplifying a single company’s effects on the portfolio.

[1] https://www.theinformation.com/articles/the-end-of-venture-c...

[lumost]

Objectively, software bets are less risky than 20 years ago. There are more well understood business models, more ways to reach customers, fewer technical risks (putting a consumer website meant dropping 7 figures on hardware and hoping you had the right team to make things work), and a better understanding of what a defensible business looks like.

On the flip side a reduction in risk is no guarantee of success, there are new risks related to having ~100 copy cat companies - or having your business replicated by a mega-cap. Lower risk means lower barrier to entry.

[jacquesm]

> Some VC will be the last investor before the company goes public or is acquired.

Or goes bust.