From the founders and friends I’ve heard from in Silicon Valley, the mood is pretty glum there outside of the AI bubble.
- VCs are dealing with the indigestion of investing in too many companies at crazy valuations that aren’t making their targets. Layoffs, resetting, down rounds, and shutdowns.
- VCs are also struggling to raise new money as their big LP investors are sitting on the sidelines. Interest rates are up, tech stocks are down, and IPOs are on hold.
- SaaS startup founders who raised big in 2020 and 2021 are struggling to meet their growth targets. Their vision of what their company will be has been reset and it’s not so easy to recruit, raise money, or face their own investors. Venture debt needs to be repaid in full now.
- Employees and leaders at big tech have had to face many rounds of layoffs, reorganizations, paths to profitability, and fewer perks at the office. Maybe even have to go back to the office a few days a week.
The COVID-era tech bubble took a good thing to crazy heights. Now it’s not so crazy anymore. Reality is not so much fun after you lived above reality for so long.
This isn’t to say the Silicon Valley approach is wrong or even “I told you so.”
They just create their own hyper boom and bust cycles that will happen again.
Their game is to think big to win big or lose big. If it doesn’t work out, try again. That’s part of what makes Silicon Valley special. And brutal.
It’s just 1000% more painful for individual founders and their teams who are stuck in overfunded zombie companies with no hope of winning. Or for the founders who get ousted or have to shut down their startup experiments.
It’s a binary win-lose for founders in the big funding game, but not for VC investors.
VCs feel the pain too, but they still get their big 2% fees even if most of their investments flame out. And some of their investments are doing fine. They are playing the power law to optimize their average return in their portfolios.
In the long run, reality wins every time. Bubbles happen and then they burst.
The AI hype cycle is underway and it will eventually get to reality too. A few winners and lots of losers.
Meanwhile, practical SaaS founders who self-funded or took a little practical funding are chugging along. No layoffs, no resets, no VC guns to their heads.
It may actually be easier for them to grow in markets where they don’t face overfunded competitors anymore.
There are many games to play in the SaaS business sport.
Choose your game wisely.
#practicalfounders
