So this is a simple post. It would almost do better as a Quora answer, if folks still really read Quora.
But I thought it was worth writing up, because what’s happening on Twitter and the internet these days is confusing on many levels.
And one of the most confusing thing 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%.
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.
(stretch budget image from here)