“Wherefore Art Thou?”
While we are far from literary scholars here at GroundBreak, this often-quoted line from Romeo & Juliet is often misinterpreted as Juliet asking: “WHERE are you, Romeo?” In fact, she is asking “WHY are you, Romeo?” – In other words, WHY is your surname Montague? To us, it’s a timely double entendre perfect for examining the current state of VC industry.
Where Are You, VCs?
It’s of course a fair question (and lots of founders we speak with have been asking as much), but there’s been quite a bit of ink spilt already on the topic (Crunchbase, Pitchbook, TechCrunch) with lots more likely in coming months. Yes, of course the VC landscape is going through a period of painful price discovery. Similar to the housing market, it’s likely to follow 3 basic phases:
Demand dries up (investors retrench) and supply (founders) sit on the market.
Activity plumets (we are here).
Prices correct.
The founders that understand this dynamic quickly and react will survive and will find themselves with the financial resources necessary to handle the business challenges that lie ahead. The founders that don’t, well, they’re rolling the dice.
Why Are You, VCs?
This is perhaps the more interesting question. Why do VCs exist? Why are we called Venture Capitalists? In our view, VCs exist to provide capital and expertise to founders at the thinnest edge of the risk spectrum. In exchange for taking that outsized risk, they should expect to generate outsized risk-adjusted returns.
In the fervor of the last several years, this balance has changed, and risk has increasingly outstripped reward. Rather than acting as responsible gatekeepers, many in our industry have focused more on ingratiating themselves to founders, contributing to a largely unhealthy founder fascination that has distorted the market. No, founders do not walk on water and, yes, you can hold them to account when necessary, as is your fiduciary duty. It’s about stewardship and execution, not celebrity and exploitation of fads.
Hell, Adam Neuman was somehow able to convince investors he was worth another multi-million-dollar-bet after years of abusing investor capital simply by wrapping the word crypto around the letters ESG (link).
But nothing last forever, and we have started to see what happens when the waters get choppy. No more Gulfstreams or golf retreats. The taps have run dry (Tiger, a16z, many others). What will remain when all is said and done are VC that are serious about investing THROUGH a cycle. Ones that have seen ups and downs and that are prepared to fund in both good times and bad. Therein lies the answer to “Why are you, VCs?”. The 20x, 30x, 40x revenue multiples may go away but the funding and the support shouldn’t.
This is what we aspire to as a firm. One that will battle in the trenches with founders until we have a win, and not pop the champagne a moment sooner. If that’s the kind of partner you want, great. Let’s do business.
Sending More Ladders Down
While the broader market activity is catching its collective breath, we hope to continue finding ways to help new technologies and great founders get into this otherwise fear-inspiring market. It is in that energy that we’re announcing our early-stage venture incubator in partnership with the DMZ. We invite any and all Proptech ventures and founders to apply and leverage our networks and skillsets to their advantage. It’s a great time to start building, together!
See: press release ; landing page ; application link
From your friends at GroundBreak Ventures