Well, if we weren’t already THERE, then we certainly are NOW. So much for a soft landing in venture land. The SVB crisis just made it real.
The cycle turn for venture has been greatly discussed over the last year. It’s true, valuations were down, capital was slowing, LPs were cooked, and GPs were tight. It was all reflected in the valuations, specifically in the public markets, and trickling down in the last couple of quarters to the early stage.
Companies responded as they felt increased pressure and heard but perhaps didn’t LISTEN to concerns of a greater cyclical nature. They didn’t feel it in their sales pipelines and their balance sheets seemed fairly solid. We knew what burn looked like and what it would take to get more capital after we drew down the venture debt available. Everyone had a plan, most of which included raising money over the next 18 months.
NOW, we have those same balance sheets that just shrunk runway by a meaningful amount. We know that there aren’t/won’t be enough banks to pick up where SVB left off and most of that venture debt is now gone. We should expect meaningfully less availability (no new?) and much more credit focus until the next cycle. That means….”Cash is King”, again.
We will all have to recalibrate and make tougher decisions as any flexibility has been taken out of the system. GPs know that equity will have to replace debt runway. A further winnowing of the portfolio just happened. CEOs know that equity is going to be more expensive and harder to get. They will also have to make tougher decisions. LPs are going to take a more critical eye towards VC generally, and even more so to adding new managers. Things just got tight. We’re THERE, NOW.
Now that we got a reprieve and we can make payroll this week…What does your new plan look like from here? Time to get back to work.
March 13, 2023