Panic in the air

The panic meter is back at an all time high probably since the pandemic started. We’re in midst of a 50%+ pullback on a majority of tech stocks. I’m not sure you can technically classify most tech stocks as pandemic stocks, but there’s correlation there. Cloud and SaaS stocks pumped alongside Zoom, Peloton, etc.

Now we’re in the midst of a gigantic pullback. Like many, my liquid portfolio is significantly down this past month and is now down significant in the past year. My retirement accounts are faring much better in the index fund world.

We’re starting to see some ripple effects in the private markets in reaction to the public market pullback. I know some investors are getting much more defensive.

I for one am welcoming this correction. As painful as the public market pullback has been for my net worth, corrections are generally good things and happen. Things were getting too frothy and perhaps millennial investors (including myself) needed a reminder that fundamentals still exist and stocks don’t always go up. The market will recover - the question is how long will it take.

On the private markets - I remain just as optimistic. The amount of innovation and talent in the tech world continues to increase year over year. It’s hard not to be bullish on tech when you look at the long-term. With that said, valuations needed to be brought back to earth a bit. People were raising too much money too quickly. Greed and egos got in the way of common sense cap table math.

Crazy thought, but perhaps $100m valuation seed rounds weren’t such a good idea. As a VC/investor, I do not understand how you can justify that from a portfolio construction viewpoint. From a company perspective, you are severely limiting your future opportunity to fundraise by raising at such a high valuation.

So while panic is in the air, I remain excited that common sense items for investors such as fundamentals and cap table math will start to come back. Our society as a whole will likely be better off in the long run.