[polote]

I really struggle to believe all this thing. We have some inflation because of covid stimulus and Ukraine war, sure. So the fed is going to increase the rate, sure. And everyone is panicking at the same time so markets are falling. Poor people have less money because they need to pay for more expensive food but all the others still have money to invest, so I don't understand what it changes for vc ( except for the money they lost investing in crypto)

[PheonixPharts]

What you're missing is the larger picture.

Anyone paying attention in the industry knew in 2019, pre-pandemic, that something wasn't quite right. Companies were hiring way more people than they needed, growing way too fast, building products that didn't make sense, pivoting to increasingly user hostile products, etc. But it kept going because VC and other investor money just kept flowing in.

Then pandemic hit. Everyone who thought things weren't right in 2019 expected the reality check to finally be cashed and for a major industry correction to happen. It should have happened. But it didn't.

Instead the Fed poured incredible amounts of money into the market. We saw stocks instantly u-turn and companies that in 2019 you were suspicious of were all of a sudden getting even more ridiculous valuations.

This happened for what is in retrospect and obvious reason: Big name investors and VCs needed time to cash out. And they got it. We saw two years of record numbers of IPOs. Myself and many others pointed out over a year ago that something wasn't right, that this looked like investors rushing to cash in their chips and get out before everything came crashing down.

Inflation started to rise, and indeed the game came to an end. Now we're going to see a crash that will be much harder than we though we would have seen in 2020 because policy has allowed already unhealthy companies to explode and grow even larger. And they're all interconnected so it's going to be ugly.

How many of your company's customers are other start ups or other tech companies? We have a generation of companies led by people who have never really seen a recession, forget one that impacts tech, completely clueless about what's coming. First we saw consumer spending absolutely wreck big name companies bottom lines. But this is very likely to start spreading as more startups that depend on other startups revenue streams start to miss their targets.

This current generation of founders might be clueless about recession and major downturns, but the people in charge at places like Sequoia sure as hell aren't.

[randomsearch]

Agree except I had assumed the VCs were being opportunistic in unloading, rather than actually shaping policy. Do you have any evidence that they shaped it? Seems there were other significant reasons for stimulus programmes not just saving VCs.

[ithkuil]

This is a common mechanism that powers conspiracy theories: when you see an opportunist profiting from a situation, you may be tempted to conclude that they had to do shaping the situation in their favour, especially if these actors are a group of wealthy connected people. The police/justice system also uses "motive" as a strong requisite for bringing suspicion on a person; it's a quite engrained psychological mechanism (and often fits reality quite well, until it doesn't)

[simonebrunozzi]

> This happened for what is in retrospect and obvious reason: Big name investors and VCs needed time to cash out.

HUGE conspiracy theory here. Also, you are giving VCs too much credit. They're not super smart, with a few exceptions.

[VinLucero]

To be fair… the top VCs disproportionately have a winner take all outperformance, and it is arguable that those same top 5 institutions are on average “super smart” to maintain said position over the long run

[throwaway_1928]

Well said. 2021 was the perfect year for VCs to unload their trash on the retail investor.

[Apofis]

Me thinks you're overstating it because you don't understand how VC's function. Venture Capitalists borrow money from Investment Bankers based on percentages. The market has lost all of its gains during the pandemic, that trend is still bearish. The risk percentages were adjusted, and now there's less money to go around. It's seriously basic math.

[Sylveste]

>The market has lost all of its gains during the pandemic

No it hasn't. Not even close.

[Apofis]

I'm assuming you don't really follow the news or the market due to your response.

Here:

- https://www.cnbc.com/2022/05/10/amazon-stock-has-lost-nearly...

- https://www.marketwatch.com/investing/index/ndxt?countrycode...

[lobocinza]

Have you taken inflation into account? Though also have to consider that growth stocks value also declined due to increasing interest rates.

[refurb]

"Venture Capitalists borrow money from Investment Bankers based on percentages.'

Me thinks you don't know how venture capital works?

[twayt]

On the outside, VC should theoretically be about value investing in the best startups that have sound fundamentals and can grow. Practically, when the market is optimistic and everyone wants to invest in high growth startups, the game can become about "passing the bag". Invest in a company at a low valuation in their seed or series A and wait for a later stage investor to come in and be the one left holding the bag. Ideally, the startup generates enough hype to IPO and then all the investors have a successful exit. You can see this trajectory with startups like WeWork.

When the market is not that optimistic anymore and people are in conservation mode, there's no one to pass the bag to anymore so VCs have to appropriately adjust which businesses they are going to invest in and the valuation.

This is why hype, signaling and FOMO plays such an important role in fundraising. It is about whether the startup can generate enough promise to convince others that they're a high growth investment vehicle and not as much about whether they are profitable in the short term.

[JCM9]

The market has cycles where is goes from loving startups that burn cash with the aim of “growing big” and then figuring out the business to absolutely despising these models and flushing them out of the system. We’re at that pivot point now in the cycle.

Startups with cash on hand and generating cash from operations will have some bumps in the road and probably take a big hit to their valuation, but with make it through. Startups still trying to figure out how they’re going to “make money” and without a ton of cash on hand to give them a long runway likely won’t make it through the next 18 months.

[throwawaylinux]

Is there significant inflation due to the Ukraine war?

Inflation started to take off about April last year, and was 7.9% at the end of February this year when Russia invaded Ukraine. Since then it rose about a half percent and then started to drop, as sanctions have been implemented.

[rzazueta]

A lot of the "inflation" is straight up corporate profiteering at this point. How else do you explain the record profits many companies experienced during and after the pandemic before the threat of rate hikes?

The answer to the why of all of this is super easy: greed.

[throwawaylinux]

I don't find that answer very satisfactory at all. Did they suddenly become greedy in 2020 where previously they were foregoing profit out of the goodness of their hearts?

Corporations are a tool, like a hammer. They're not good or evil. They exist and operate as they are permitted to. And human nature hasn't changed either, everyone is "greedy" to a first order approximation. So what has changed? What conditions have changed between now and then?

[bcassedy]

An inflation narrative gives cover for price hikes driven by greed.

[throwawaylinux]

It could do. And a greed narrative gives (poor) cover for price hikes driven by any number of other things. Just stating these things does not help us get an understanding though. I want to know what changed.

I'd be more inclined to believe the disruption from production to supply chains to storage and demand, migration, etc due to covid regulations (not just the Chinese lockdowns) to have had the major impact. But it could also be for example energy costs due to expensive green regulations, or cartel behavior from energy producers because energy prices have been a major leader in price increases and those affect virtually everything else. Just saying "greed" doesn't help understand anything. People are greedy, we already knew that. Aristotle knew that.

[bcassedy]

I'm not saying none of those things are factors. I am saying that you can find quotes of executives talking about how great it is to raise prices right now. And plenty of evidence of profit increases substantially above inflation.

[CamperBob2]

For any company making things -- well, to be fair, I can only speak for one of them -- the costs of goods sold has gone to the stratosphere.

This is not a joke, or an excuse, or an apology, just a statement of indisputable fact. Inflation hasn't really gotten started yet. And it's not (just) greed. An FPGA that cost us $40 at DigiKey two years ago is now $700 at $SKETCHY_CHINESE_BROKER. Somebody^WEverybody is going to pay for this.

[refurb]

You realize that inflation hit corporate profits too?

If a company has a profit of $10M and inflation is 10%, then the following year a profit of $11M is a "real profit" of $0.

[FormFollowsFunc]

Inflation in America has more to do with the COVID lock downs in China. Ukraine is having more of an effect on Europe which is highly dependent on gas from Russia.

[throwawaylinux]

What's the data or reasoning behind your claim? Inflation in Europe also started an upward trajectory early last year and became unusually high well before the war in Ukraine.

There were also very few COVID lockdowns in China in 2021, most were in early 2020 and then some major ones occurred in 2022 but those, like Ukraine, were well after inflation started to rise in USA and Europe. Not to say the early 2020 China lockdowns could not have caused later inflation, but is that what you are claiming?

[refurb]

China didn't start it's Covid lockdown until after inflation started.

[jagtesh]

> I don't understand what it changes for vc

Their portfolio companies can go bankrupt. It is a Darwinian (survival of the fittest) moment for all the companies at this time.

We’re experiencing a (likely) shrinking economy, with fewer customers who are spending more conservatively. VCs want their companies to succeed and preserve wealth.

[SkyMarshal]

When the Fed raises rates, they do so by reducing the quantity of money in the economy until rates hit their target. There's just less money sloshing around to be invested, and the banks and financial firms who are closest to money issuance and the Fed are more quickly and severely impacted by that.

[finikytou]

they want to create an event to what things will be in motion. a reset. it helps them clean their investments that will not work. usually there are two ways to do it. make someone else invest after your round or create a scenario in which it doesn't make sense for anyone to invest (except if you are an obvious winner with an amazing product). just as inflation is a buzzword that allows companies to mark up their price way more than they were before (but even when the inflation numbers were low or 1% I can garantee you that those companies products prices were increasing more than that. It is just that thanks to "inflation" they cant mark up to 10-20% now.) It is a scam and the looser as always will be the blue collar and the middle class.

[dominotw]

>So the fed is going to increase the rate, sure.

I believe fed is on a pause.