Is this recession going to be like the commercial production of fusion energy? Always around the corner despite nothing indicating we are anywhere near a recession.
Keep in mind it's hard to have a recession when unemployment is in the 3s, and there is still high demand for products and services across the economy. But I guess if we really want to have a recession we can.
The transitional period when the current next big thing you previously invested in is not delivering and has been replaced by a new and shiny next big thing with higher predicted returns.
All the layoffs aren't an indication we're nearing a recession? Yes unemployment is currently low but I see that turning around in a big way imminently
Layoffs in tech. Not hearing much about other parts of the economy. Totally possible I haven't seen the reporting but I'd argue that tech/growth industries suffering layoffs don't really indicate a recession by itself even if they are large.
> All the layoffs aren't an indication we're nearing a recession?
No. The layoffs are really just in tech, and a fairly specific subset of tech companies at that. They are happening as a result of poor hiring decisions those companies made (hiring too many people).
The layoffs too date are much smaller than the Covid-era hiring. Certainly a bit of a correction. But otherwise spending and jobs overall are still strong. So... which way will it go?
It's just weird, because fundraising is hitting record levels, but funding is dropping. [0]
So there's a lot of "dry powder" (I hear that phrase constantly to describe the situation) just sitting there, doing nothing. What are the VC funds preparing for? What are investors being sold on?
Given all the tech layoffs, my bet is there will be a whole lot of new startup growth coming soon that will "ignite" that dry powder.
There is a crazy amount of dry powder in the U.S. financial system. A lot of the money printed during the pandemic is just sitting there, growing at ever-higher risk-free interest rates.
Quick reminder here. Money sitting at banks in “risk free” interest rates is losing money in real terms. There arent a lot of good investments in the market right now especially when adding inflation costs.
In the old days, you had to load [gun]powder into your weapon along with the projectile. Dry powder burns hotter and faster, shooting your projectile farther, faster, straighter, and deadlier.
Also in the old days of naval warfare, if you won a battle it was accepted that the other ship (what was left of it) was your prize. Everyone in the chain of command had a predefined percentage of the ownership, with an eighth or so divided evenly among the common sailor. This ownership stake was converted into cash either by your own government or a private prize broker depending on the circumstances.
An exceptionally successful deployment would leave the common sailor with enough money to retire; the captain of the ship might even become fabulously wealthy.
But anyway. Keeping your powder dry on the way to the battle is important if you want to win, get your prize, and retire from all that cash.
I think a lot of VC and IB take the metaphor way too seriously, but you can see how many parallels there are!
No self respecting VC can miss out on ChatGPT mania. Take whatever you are doing and reframe it as a ChatGPT application. This will get their juices flowing almost immediately (see Pavlovian response). Make sure you do not demonstrate an actual implementation however because reality may intervene in their thinking and prevent closing the deal. Finally prepare for a future pivot.
> So there's a lot of "dry powder" (I hear that phrase constantly to describe the situation) just sitting there, doing nothing. What are the VC funds preparing for?
The Fed is reducing its balance sheet to zero and the boomers are retiring. Some might argue it is a return to sanity/normalcy and you will have fewer money guys to plow enormous sums into juiceros and FTXs going forward.
Am I the only one who thinks this may be a good thing? We saw ridiculous growth in marginal VC firms; they SHOULD experience the same trials that their portfolio companies are now facing. The funds are actively managed and then wound down; why shouldn't the larger organizations do this as well? If you're VC firm is no longer relevant, and was only raising money because low interest rates the alternative investments so poor, good riddance.
I went to a top university. Everyone I know from it who became a VC wasn’t impressive, above-average, or even average in some cases. However, they were extremely money obsessed.
Long ago I read a memoir from a Hollywood writer whose name escapes me at the moment. One of her points was that many of the people making deals in Hollywood were not so much "extraordinary" as "extra ordinary". They were the people who actually liked standard middlebrow Hollywood fare. That gave them a competitive advantage in producing dreck because they weren't troubled by things like "artistic vision" or "scruples".
VC is a sales business. Their business is to sell startups for money. In fact, I would say that money is really their only value, so you really want them to be money obsessed.
Oh, VCs themselves as zombies. Usually, it's VC-funded companies that become zombies - they can pay their own ongoing bills, but not pay off their investment. They have positive value, so they're not just shut down.
VCs prefer a hard fail. Then they don't have to manage the ongoing company. Apparently zombies have become so common that some VC firms are now stuck with a portfolio of zombies.
When you think about it, most of Alphabet's non-ad projects are zombies. They lose money or don't make significant profits, and they're not growing into something big.
We saw this after the dot com crash and the GFC too. VC offices became sad places. Lots of meetings but no deal making. It’s during this downturn phase of the cycle that the 2% management fees charged by VC funds seem truly excessive.
Kids, remember to ask: 1) When did you last make a new investment, not a follow on? 2) When did you last raise a fund and how far through are you with your current fund? 3) How many new deals did you do in the last 12 months? 4) Which partner was the last one to lead a new investment. I joined a VC shortly after the dotcom crash and yes there were quite a few zombie funds around, even a few LPs attempting to sue for the return of those funds dry powder. Very few remained truly active.
TLDR: With interests rising and growth slowing down, it's getting harder for VCs to find capital. Therefore, some funds have stopped investing in new companies and are just managing their existing portfolio. These funds will most likely slowly wind down their activities and shed employees as the size of their portfolio dwindles.
Unclear to me how it's an issue for investors however.
I think the issue is that the VC funds are sitting on billions of unallocated capital with interests rates at levels not seen in decades. LPs might want their money back for that sweet risk free return but VCs aren't going to return even though they're not investing it either.
Readit News
Keep in mind it's hard to have a recession when unemployment is in the 3s, and there is still high demand for products and services across the economy. But I guess if we really want to have a recession we can.
The transitional period when the current next big thing you previously invested in is not delivering and has been replaced by a new and shiny next big thing with higher predicted returns.
The rest of the economy appears to be doing just fine.
Since tech has had many years of growth while the rest of the economy has suffered don't expect much sympathy for laid-off tech workers.
No. The layoffs are really just in tech, and a fairly specific subset of tech companies at that. They are happening as a result of poor hiring decisions those companies made (hiring too many people).
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So there's a lot of "dry powder" (I hear that phrase constantly to describe the situation) just sitting there, doing nothing. What are the VC funds preparing for? What are investors being sold on?
Given all the tech layoffs, my bet is there will be a whole lot of new startup growth coming soon that will "ignite" that dry powder.
[0] bizjournals.com/sanjose/news/2023/02/15/despite-us-fundraising-activity-hitting-record-h.html
I highly doubt your described situation exists.
Also in the old days of naval warfare, if you won a battle it was accepted that the other ship (what was left of it) was your prize. Everyone in the chain of command had a predefined percentage of the ownership, with an eighth or so divided evenly among the common sailor. This ownership stake was converted into cash either by your own government or a private prize broker depending on the circumstances.
An exceptionally successful deployment would leave the common sailor with enough money to retire; the captain of the ship might even become fabulously wealthy.
But anyway. Keeping your powder dry on the way to the battle is important if you want to win, get your prize, and retire from all that cash.
I think a lot of VC and IB take the metaphor way too seriously, but you can see how many parallels there are!
The Fed is reducing its balance sheet to zero and the boomers are retiring. Some might argue it is a return to sanity/normalcy and you will have fewer money guys to plow enormous sums into juiceros and FTXs going forward.
VCs prefer a hard fail. Then they don't have to manage the ongoing company. Apparently zombies have become so common that some VC firms are now stuck with a portfolio of zombies.
When you think about it, most of Alphabet's non-ad projects are zombies. They lose money or don't make significant profits, and they're not growing into something big.
Unclear to me how it's an issue for investors however.
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