Welcome to our #117 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on prominent startup investors such as Sequoia Capital, Y Combinator and Lux Capital warning early stage companies of ‘dark times ahead’.
Global stock markets have plunged since November (2021) as the economic environment becomes more difficult. Surging inflation and rising interest rates is slowing growth and many expect a global recession.
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You can review the news in brief so you stay on top of global financial, economic and investing trends.
And don’t forget to listen to The Purse Podcast interview with Sara Zulkosky, Co-Founder & Managing Partner at Recast Capital. We talk about the emerging manager market and diversity in venture. Please enjoy!
I hope you enjoy this week’s newsletter.
Until next week,
Jana
Startup investors warn of ‘dark times ahead’
Boom times are ‘unambiguously’ over as startups are told to prepare for ‘winter’
Prominent startup investors such as Sequoia Capital, Y Combinator, Lux Capital are warning early stage companies of ‘dark times ahead’, as reported by CNBC.
The global stock market has been dropping since November (2021) and tech stocks, in particular, have been hit hard. It is no surprise that the Nasdaq is on track for its second-worst quarter since the 2008 financial crisis.
Institutional investors which invest in venture funds, have pulled back from the private market, as their public portfolios continue to suffer losses.
Coming out of an extended 13 year bull market in technology; the Nasdaq gained 11 years during this time period, and the US venture capital industry has increased sevenfold from a decade earlier, this is a shock to VC investors and startups alike.
Venture capital will be harder to access and at lower valuations
‘Cheap cash’ is no longer coming to the rescue from cross over hedge funds. And VC funds will tend to hang on to their cash (for longer) in a less competitive environment (which drives down valutions).
According to Sequoia, there is no ‘quick-fix policy solution’. They do not expect a ‘swift V-shaped recovery like we saw at the outset of the pandemic’.
Sequoia has told companies to cut costs and ideally be prepared to act in the next 30 days. Job cuts and hiring freezes have already become a key focus for big public tech businesses like Snapchat and Facebook.
Deena Shakir, Partner at Lux Capital, has told CNBC that the firm has been advising startups to:
Think long term
Extend runway to 2+ years
Reduce burn and improve gross margins
Set expectations that near-term future financings are unlikely to look like what they may have expected 6-12 months ago.
Companies that raised at high valuations may be grappling with high burn rates and will be having difficult conversations with investors.
Other startups may simply not have enough cash to get them through and will be forced to raise funding sooner than expected, at a much lower valuation.
Startup CEOs are having to make difficult decisions about how to ‘stay afloat’ and ensure they have enough cash or runway.
In an email sent by Y Combinator to founders last week, they emphasised that many competitors will not plan well and therefore startups can gain market share just by staying alive.
Conversely, VC firms and angel investors who have been patient and have sufficient capital to deploy during the downturn, will find a ‘bargain’ or two.
News in Brief
Financial news
The S&P 500 gained 6.6% this week, snapped 7-week losing streak, and posted its biggest weekly gain since November 2020.
The US Federal Reserve Fed officials raised possibility of ‘restrictive’ policy to fight inflation.
US annualised Q1 GDP revised down to negative 1.5% from negative 1.4% previous estimate. Growth is slowing and by more than expected.
The European Central Bank’s (ECB) balance Sheet has hit fresh ATH. Also fits well with the inflation topic being discussed in Davos at the World Economic Forum (WEF).
UK Chanceller, Rishi Sunak U-turns on ‘energy profits levy’ in £15bn cost of living package.
The WEF in Davos started this week. Previous economic certainties such as free trade, globalisation, debt, inflation, and growth are under scrutiny. Is globalisation dead? What's next for inflation? How high will interest rates go? Are we headed for a global recession are some of the questions people are trying to answer.
At the WEF, according to George Soros: with the disruption of supply chains, global inflation is liable to turn into global depression.
After the stock market meltdown, tech-bottom signals have yet to scream ‘buy now.’ Whilst valuations look more attractive, Nasdaq 100 P/E near long-term average but the backdrop doesn’t. Allocation to tech sector is at lowest since 2006, the Bank of America survey shows.
Crypto: bitcoin, ethereum, DeFi & NFTs
Bitcoin has beat rival Ether by most in 7 months after some market-watchers have pointed to a glitch in the process of making the Ethereum network less energy-intensive as fueling worries in the space in recent days.
Bitcoin suffered minimal losses this week, about 0.87%, while Ethereum sank 9% to $1,792. Several so-called Ethereum killers, aka smart contract-enabled layer-1 blockchains, were among the biggest losers.
Ethereum's merge is coming and the stakes couldn't be higher. The most important upgrade in blockchain history is slated for August. And the outcome of the Ethereum merge has huge implications for all of crypto.
On Tuesday, the European Central Bank published a report titled "Decrypting financial stability risks in crypto-asset markets" as part of a biannual review. The report warns that crypto could pose a threat to financial stability if it remains unregulated.
Andreessen Horowitz raises $4.5bn crypto fund to take advantage of bargains in down market.
‘I Still Take Salary in Bitcoin’ Miami Mayor Suarez says at World Economic Forum in Davos. He stated that the plunge of the TerraUSD stablecoin has not changed his vision for promoting the cryptocurrency industry in the city.
The Fed finds that unbanked Americans are turning to crypto at a higher rate. 12% of Americans bought or used cryptocurrency in 2021, according to the U.S. Federal Reserve's annual survey on financial well-being.
On Friday, Tesla/SpaceX CEO Elon Musk tweeted that SpaceX will soon start accepting Dogecoin for merchandise payments. The announcement briefly pumped the price of DOGE.
Alexis Ren enters NFT world with Sirens, a women-led project aimed towards mental wellness and eco-villages.
The Purse Podcast
We cover the following in our conversation:
The emerging fund manager market
Investing in emerging managers
Diversity in venture & maximising returns
How do we encourage more female LPs to invest?
Please enjoy! Listen on Apple Podcasts and Spotify+
Coffee Break? Read This
We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and @janicka.
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