Are We Near the End of the Startup Downturn?

Startups valuations and VC appetite may not turn until crypto bottoms

Are We Near the End of the Startup Downturn?
Source: Carta

Startups valuations and VC appetite may not turn until crypto bottoms.

During boom times, startup founders & CEOs are encouraged to remain focused on product and distribution and to avoid obsessing about competition and the macro environment. It’s during tough times that they realize that VCs take their funding cues from public markets. For example see posts by these notable VCs:

What Does the Post Crash VC Market Look Like?
At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem…
Figma’s 50x ARR Multiple & What it Means for Startup Fundraising by @ttunguz

The best startups with profitable unit economics can remain focused. But to an extent, every startup CEO/Founder is now a macroeconomic analyst. There are a lot of competing views. One simple, albeit grim fact is that the Federal Reserve typically doesn't stop raising the Fed Funds rates until it is above the CPI.

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Bull case - inflation is rapidly falling, job growth will slow, and prices come down fast. Bear case, inflation is structural, and the Fed needs to hike well past current estimates.

Any bear case will cause a sustained drop in public markets and will have a real impact on VC fundraising and the global startup ecosystem.

An under appreciated leading indicator is the crypto markets. Crypto has been called everything from human salvation, to an inflation hedge, to worthless. Not often mentioned is that crypto markets may be a levered reflection of appetite for technology investments.

At their core, Bitcoin and Ethereum are platforms, no different than Web 2.0 platforms like Facebook. They just happen to exist with Day 1 democratized ownership and incentive structures.

Quantitatively, correlation between Bitcoin and the Nasdaq is nearly 1:1 since 2015.

It is unlikely that tech markets, public or private, with bottom until crypto bottoms. And the latter may happen first, and could be a good leading indicator to get bullish about startup valuations.

It’s anyone’s guess when that happens, but financial markets tend to have deep price memory. Bitcoin has strong price memory at $20k and at $11-13k. A sustained drop below $20k would be a leading indicator of continued bearishness in technology valuations and fundraising. A bounce above 20k would be bullish for tech.


Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.