Turbulence for startups

Typically, the private markets will lag a bit behind the public markets when it comes to pull backs and corrections. Unfortunately, I believe that’s what we’re seeing here in 2022.

While there have been some glimpses such as companies going under (Fast) and companies revaluing their stock (Instacart), I do not believe that we’re even touching the tip of the iceberg when it comes to the tech correction.

Many companies raised large sums of money at crazy valuations last year. Many, possibly a majority, will not be able to grow to sustain those multiples. For companies that are not able to grow as they had anticipated, they will either have to work towards profitability or raise money at a downround to sustain their growth.

While the former may sound like the lesser of two evils, the reality is that most will have to enact layoffs in order to work towards profitability and reducing burn. Layoffs are almost part and parcel at startups and even some of the best companies have had layoffs. With that said, I believe we’re due for an industry-wide cuts coming later this year.

On top of layoffs, I have heard rumblings that downrounds are coming. Companies that need cash will need to raise money one way or another and if they do not have the growth to maintain their last valuation levels, they’ll need to raise at a down round.

In the long run, the best companies, products and teams will always prevail. But we should be well prepared for the heavy turbulence along the way.