The Purse
The Purse
Startup investors warn of 'dark times ahead'. And listen to our podcast interview with Sara Zulkosky from Recast Capital
0:00
-1:02

Startup investors warn of 'dark times ahead'. And listen to our podcast interview with Sara Zulkosky from Recast Capital

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.

***

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.

Share


News in Brief


Financial news

Crypto: bitcoin, ethereum, DeFi & NFTs


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.

The Purse Ltd. Copyright 2022 & All Rights Reserved.

The Purse provides content for informational purposes only, we do not recommend products or services or provide investment advice. Please do your own research or speak to a financial adviser.


Discussion about this episode