“There’s more dry powder powder than ever before.”
“There’s never been a better time to start a startup.”
“Discipline is the new scale.” (OK, OK, I made that last one up, but didn’t you kind of believe it?).
The tech industry loves generalizations — and don’t worry, I enjoy my fair share too — but as the downturn continues to play out, it’s increasingly important to think about the structural changes that may be forming in the venture capital landscape. Venture firms, unlike unicorns, often don’t have hundreds of employees to cut. Instead, venture firms cut costs in quieter ways.
At TechCrunch Disrupt last week, General Catalyst’s Niko Bonatsos said that venture firms have to go through natural selection cycles and that it will be “survival of the fittest.”
“It’s a very painful activity for anyone who has gone through that stuff,” Bonatsos said on stage with Coatue’s Caryn Marooney. He talked about how the hundreds of new VC firms will either decide to merge with each other to “build a more enduring franchise,” saying some will leave the VC profession and others will lose senior partners to retirement and have tp figure out what the future of their firms will look like.
Tracking personnel activity in venture land offers a few examples. For example, Initialized Capital’s co-founder Garry Tan is leaving the firm to join Y Combinator as president. Tan’s exit is shaking up the firm he helped found. He held down the fort after the firm’s other co-founder, Reddit’s Alexis Ohanian, stepped away in 2020.
Another team that has had its fair share of internal changes over the pandemic is Backstage Capital. The firm cut the majority of staff four months ago, impacting nine of the 12-person team. The layoff comes nearly three months after Backstage Capital narrowed its investment strategy to only participate in follow-on rounds of existing portfolios. This workforce reduction further underscores that the venture capital firm is struggling to grow, both externally due to its lack of dry powder and internally.
Marooney, a GP at Coatue, says that firms “have to earn the right” to survive. “There was the path where you did some investments and made money. It’s like, no, you’ve got to earn the right and not everybody is going to earn that right … and I think that is healthy,” the investor said.
I’ll end with a term we’ve been dancing around all through the intro, which is “quiet quitting.” Bloomberg Beta investor Roy E. Bahat posted a thread describing how seasoned venture capitalists may be quietly going into “easy mode,” aka, becoming a less active, minimum viable player of the team. Maybe their name helps the firm close new funds with LPs, and maybe their calendar doesn’t need to be busy with a ton of introduction calls, just annual investor meetings.
If we combine quiet quitting with natural selection cycles and the difficulty of tracking just how active a venture capitalist is, we experience a confusing, fragmented landscape. No one is incentivized to say that they aren’t doing business as usual, which creates a landscape of extremes.
Sure, there are natural career cycles, but I imagine it is getting harder to track who is doing what and how often in a remote world where a partner at a VC firm has been diluted to mean many, many things. Today, there are the investors doing the ghosting due to the sheer deal flow out there, and there are the investors who are becoming ghosts themselves. Ha.
Just something to keep in mind. In the rest of this newsletter, we’ll talk about Clubhouse, the latest in tech layoffs and why $1 billion in capital can’t save AV tech.
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