All-In E146: Did the Fed break the VC model? Plus IPOs, M&A, revaluing unicorns & more
Episode 146 • 9/22/2023
Key Discussion Points:
- Recent IPO Activity & Market Conditions
- Discussed several major IPOs including Instacart, Klaviyo, and ARM
- Highlighted issues with IPO structure - typically only 6-7% float vs ideal 15-20%
- Examined Klaviyo's strong metrics: 56% growth, 119% net revenue retention
- Analyzed challenges with Instacart's business model shift toward advertising revenue
- Fed Policy & Market Impact
- Fed signaled rates will stay "higher for longer"
- Market expectations for rate cuts pushed out to late 2024/2025
- Implications for startup funding and valuations given higher cost of capital
- Discussion of need for companies to extend runway through mid-2026
- Venture Capital Industry Changes
- Limited Partners becoming more selective, cutting managers and commitments
- Shift in focus toward early-stage investing and differentiated strategies
- Need for better performance to beat 5-7% risk-free returns
- Challenge of down rounds and recapitalizations for overvalued companies
- Auto Industry & Labor Issues
- Analysis of UAW strikes and impact on traditional automakers
- Discussion of Tesla's competitive advantage with non-unionized workforce
- Concerns about US auto industry competitiveness vs China
- Debate over economic viability of union demands
- Science Corner: Autoimmune Disease Breakthrough
- Discussion of new research on treating autoimmune conditions
- Novel approach using glycosylated proteins delivered to liver
- Potential applications for multiple sclerosis, diabetes, and other conditions
- Represents new therapeutic modality distinct from current treatments
Key Takeaways:
The episode highlighted significant challenges facing the venture capital industry with higher interest rates persisting longer than expected. Companies need to adapt to a "capital scarcity" environment vs previous era of abundance. The discussion emphasized need for operational efficiency, longer runways, and realistic valuations in current market conditions.