VCs are scared when they should be greedy
(Context: I&#x27;m a VC)<p>Some great points in the post, but I also see a few additional dynamics at play:<p>1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don&#x27;t want to deploy the rest of your fund quickly, you want to spread it out over a few years and get a good average cost basis. Second, there&#x27;s a healthy fear among VCs that LP capital will be much harder to secure in the next 1-2 years. And you don&#x27;t want to deploy the rest of your current fund in the next 6 months if you won&#x27;t have a new fund ready to go for 18 months.<p>2) Most VCs (and founders) hate down rounds. So a lot of existing companies are stuck because they previously raised at $X valuation, and now the market price is $0.75X, and either the VC doesn&#x27;t want to push for a down round or a founder won&#x27;t accept it, or both.<p>3) Aaron mentions this in the blog post, but everyone is worried about downstream investors. Our fund is big enough to lead a seed round, but it can&#x27;t put a dent in a Series A, so we depend on Series A investors eventually backing our seed companies. And Series A investors often depend on Series B investors to invest a lot in the next round. And so on. If the entire growth stage market grinds to a halt -- and it seems like it basically has -- then early stage investors start worrying about making new investments because there&#x27;s way less downstream funding available. So even if a seed VC believes this is an amazing time to build a company and there are lots of great seed opportunities out there, they might still slow down investing a lot if they know their companies will need more funding and that funding doesn&#x27;t seem to be there right now.<p>4) I&#x27;ve been a VC for about a decade, and the gap between VC and founder valuation expectations is greater than it&#x27;s ever been during that time. 3 months ago, a median seed round was at $20m post, and a lot were at $25m-$30m post. Now I still see a lot of seed founders looking for $20m-$30m post, but a lot of VCs believe we should be back to 2020 valuations of $10m-$15m post. The gap between an expectation of, say, $13m post on one side and $25m post on the other side is <i>huge</i>, and lots of conversations never even begin because of that mismatch.