TLDR:
Key Points:
- Newer VC firms are experiencing a ‘collapse’ due to exuberant valuations from five years ago
- Investors are becoming more discerning and focused on due diligence for growth companies
According to Fortune, some newer VC firms are facing challenges as the market corrects itself from exuberant valuations of the past. Notable angel investor Jason Calacanis, known for backing companies like Uber and Robinhood, believes that the current ‘collapse’ of these firms is a positive development. He expects about 15% of newer VC firms to not survive to their next funding rounds, citing the need for investors to do more thorough due diligence. This shift comes after a period where investors made flashy moves without adequate research, leading to increased ‘venture tourism’.
Calacanis is not alone in his observations, with finance professor Jay Ritter also noting a more discerning approach to growth companies in the market. Both experts highlight the importance of distinguishing between companies with solid business plans and those with riskier paths to profitability. Calacanis emphasizes the need for founders to focus on building quality firms rather than chasing unicorn status, and for investors to conduct better research to prevent debacles like WeWork.
The changing landscape of the investor market reflects a trend towards more cautious and data-driven decision-making. While the current market correction may lead to the downfall of some newer VC firms, it could ultimately strengthen the ecosystem by promoting a more thoughtful and thorough approach to investing in growth companies.
