The following is a quick note we sent to the Wall Street Journal in response to publishing an incorrect narrative on the state of venture investing and capital raising by startups. The title of the post is: “Why Its Hard to Get Startup Funding Now – And What To Do About It.” Their post was not written by staff, but they allowed a false narrative with no data and sloppy rationale to be perpetuated. (It was written by a bakery owner) They need to be better. They need to present critical thinking and this includes contrarian views around generating Alpha in one’s portfolio.
“While I appreciate the time it takes to put together a post, I find the substance of this off-base. There is a common media narrative that is getting lazy around this topic and very little data and contrarian thinking…both of which are critical for successful capital deployment.
The underlying premises on which the argument for capital restriction are based are flawed. Here is why:
“investors have less of an appetite for risky startups because they can get a guaranteed return on investments that are more secure.” Where do you see investors getting Alpha with less risk? The capital markets are a mess. Real estate is headed for a correction. Crypto is getting hammered etc etc. Institutional investors have nowhere to get yield which is why they continue to pursue alternatives.
“stocks have fallen and a correction in public-market valuation ultimately trickles down into the private markets.”
There is little correlation here. Savvy investors have been restricting their capital market exposure. Where do they put their cash? Not cash. They have to place it somewhere. With inflation eating away at 9% they are losing value rapidly every day it is not put to work. Private investments are largely immune from inflationary pressures.
The media narrative that startups are going to face hard times is a red herring. We actually see an increase in venture deals. Here is the key metric….late stage deals…Series B, C and beyond are getting reduced. These shift the numbers quickly because they tend to involve larger transactions. But this is not where the vast majority of entrepreneurs are active. We read about startup layoffs and round reductions etc….but if you read closely this is almost always limited to later stage companies….”unicorns” in many cases. Smaller, earlier stage….this is prime time.”