Sunday Reads …The Glut of Overpriced Companies in The Private Markets

Happy Sunday.

I am heading out on my long weekly ride after I finish this post.

Tomorrow I am excited to be attending Springboard at The Coronado Navy Seals Base for a one day workshop on leadership and networking with special operator entrepreneurs. I’ve lived on Coronado for years but never gotten a tour of the base.


Yesterday I mentioned that I have been reading quarterly letters and mea culpa’s from some of the ‘best in the investing business. I know of two funds that I am a personal investor in that are down over 50 percent the last year and that does not count their private sidecar investments.

I will start with Softbank and Masa who somehow has already lost 2/3 of his fortune. That seems impossible since the Nasdaq is only down 30 percent from all-time highs. Anyways, he is cutting investments by 50-75 percent.

YC (Y Combinator) is advising founders to ‘plan for the worst’ amid the market teardown. Much respect for YC, but they have been so loose with this last generation ‘notes and high valuations’ that will take years to work through the system.

Josh Wolfe, a very successful venture capitalist shared excerpts from his quarterly letter that had some great ‘what were we thinking‘ anecdotes. Definitely have a scroll and a read.

I have written here before that I never could have imagined a post Softbank/WeWork and Theranos world filled with 10 more Softbanks, but that we got (Tiger, Coature, D1 etc.). We might have been lucky that Theranos and WeWork never got public and imploded retail investors, but now we have a private market filled with hundreds of Unicorns from Softbank and its clones that will have to work through the system.

At the seed stage level, Bobby Goodlatte summed up how I have felt the last 18 months mostly sitting on my hands:

It’s not difficult to deploy a seed fund that superficially looks successful:

You just go logo shopping. Get tiny allocations in hype deals, pay up for A, B rounds, ignore portfolio construction. It’s much more difficult to deploy a seed fund that actually returns multiples.

What about the tens of thousands of LP’s from this last 2-3 years of crazy prices and activity? Paddy Cosgrave summed up how people feel best:

I’m not sure how long this all takes to work through the system, but it will be messy and it will not be covered by a financial media focused on politics, inflation, rising rates and the stock market.

How ‘accredited investors’ and venture capitalists behave will have a lot to do with how bad it gets in the private markets.