We are now seeing a reset in VC and there will be casualties at portfolio and GP levels. Some LPs will get burned, too, because the market’s trajectory has meant that performance was not a reliable indicator of the quality of a manager in VC. Everyone was showing good returns – the good, the bad and the ugly. Those less likely to suffer will be those able to dig deeper to understand what the team had that would help them navigate a more challenging environment.”
As a VC, you haven’t really lived until you’ve been an investor in a multi-billion-dollar company that goes to zero. I’ve lived through that. It’s terrible. There will be a few of these. That said, I’m not as concerned about early stage, where funding is more linked to operations and companies meeting milestones.”
Numerator and denominator effects are likely to begin impacting LPs. Private markets – and VC especially – have outperformed, so the numerator is large. We don’t anticipate valuations deteriorating anywhere near as fast as in public markets, so the denominator effect will be significant. That may lead to a period where LPs get stuck and can’t make new commitments because they lack liquidity, making the LP-GP partnership of paramount importance.”
We are entering a new paradigm. We think there are new opportunities coming through. We’re not investing right now because we need to assess and understand the macro environment, what the impact of high inflation and interest rates will be on our investments, in particular as the Covid-induced state funding is still unwinding. Now is a good time to be thinking about the shape of future investment opportunities.”
