The Simple Reason Startups That Just Raised $100s of Millions Are Doing Layoffs

And U.S. IPOs Down 94.1%

We see it almost every day. A startup that literally just raised $40m, $50m, $100m or more … does layoffs. What??

What’s happening on Twitter and the internet these days is confusing on so many levels.

And one of the most confusing things is that:

• Many of the best SaaS and Cloud companies

• That are growing really quickly and

• Also just raised massive funding rounds are …

• doing layoffs.

This, at first, doesn’t sound like it makes sense.  Why would some of the best B2B companies that just recently raised $50m, $100m, $200m+ in just the last year do layoffs?  Can they really have spent it all already?

Of course not ;). Those huge rounds are still mostly in the bank, and most of these bigger unicorns are doing well.

No, what’s happened is a realization that, at least in today’s climate, if you raised at a huge valuation — the next round just isn’t going to come.  Almost no matter how well you do.

And that’s a huge change.  Maybe there will be an insider round, maybe someone will step up.  But you can’t count on it anymore.  Almost all of these big unicorn and decacorn rounds assumed more money either would be coming, or at least, could be coming later if needed.

That’s on hold for now.  For the most part, Growth Stage investing, roughly deals at $500m valuations and up, is frozen now.

And these deals are frozen because public market valuations have fallen 75%.

Jason ✨Be Kind✨ Lemkin @jasonlk

My summary of Venture Markets in Nov 2022: Series B and later even worse than looks in data: 85%+ of investing here has simply ceased Seed and Early Series A: Deals take longer but off about 40%. Some have slowed down but most vets don't care too much about today's macros.

If you raised at a $2 billion, $3 billion, $5 billion, etc. valuation last year, you may still have 90% of the raise in the bank.  But most folks that did raise at these high valuations assumed more capital would come, at least later.  At least in a few years.

Now, their investors and the markets are saying — No More Capital is Coming until the IPO.  Even for most of the very best unicorns.  That’s it.

So folks are now stretching their capital, even capital they raised just a few months ago that they didn’t even think they’d need … further.

And if it doesn’t stretch far enough, way out into 2024 and beyond … now they are sometimes doing layoffs.  Even if they are growing like a weed.  Because it’s seen as just too risky today to assume any more late-stage capital will come.

Add to that the fact that IPOs are down 94%+, and the IPO window, for now, is effectively closed or close to it … you just need to make that money last.  Even if you have tons.

A Deep Dive on Where the VC Markets Are With Sam Blond, Partner at Founders Fund:

U.S. IPOs Down 94.1%

So we’ve talked quite a bit about how SaaS revenues are the best ever, but the public markets are way down.  Down 75% from their peak.

And so are IPOs.  While we all can sort of sense it — the breakneck pace of IPOs in late 2020 and 2021 are clearly behind us — it can be hard to quantify.

Axios and Renaissance Capital have the latest data.  IPO proceeds in the U.S. are down a stunning 94.1%.

Now, this is to be expected.  IPOs are fair-weather events.  When times are good, like 2021, everyone rushes to IPO.  Even SPACs with zero revenues, and some marginal SaaS companies.

And when markets are down, the best can still IPO.  Mobileye broke a 270+ day drought. But even the best tend to wait, if they don’t need the money.  Then tend to wait until the market is up, so they can get a higher price for the shares they do sell or float.

So it’s not that bad, but it’s still an important metric.  If the IPO window stays mostly closed for a little while, no one cares.  You just IPO a little bit later.

But down 94.1% sure is a lot.

Ben Bergman @thebenbergman

The IPO drought will last until “at least a year from now,” says @roelofbotha #WSJTechLive