Markets in Freefall

Musk Raises $7 billion for Twitter purchase

Markets fell over 5% Thursday on the day Elon Musk announced he had raised $7 billion to help the purchase of Twitter. What are we to think? Bull market for tech, or bear market? Content from @danrose999 @elonmusk @mattturck @EricNewcomer @ttunguz @Samirkaji @sether


  • Venture in Crisis?
    • Elon’s $7 bn bonus
    • The VC Pullback, Protocol
    • The Endgame, Matt Turck
    • 5 Key points about early Venture, Q1 2022, Angellist
  • The Rest of Venture
    • Follow On Investing, Tomasz Tunguz
    • Allocate Series A, Samir Kaji
    • Growth of Micro Funds, Pitchbook
    • USVs new fund
    • April 2022, Most Active Investors
    • IRR is a Vanity Metric
  • Essays of the Week
    • Freedom is for Nazis
    • American Venture Capital’s Importance
  • Startup of the Week
    • Netflix
  • Tweet of the Week
    • Dan Rose on how to navigate a downturn


This week’s content seems to point in two opposite directions. On the one hand, Elon Musk has been able to gather at least $7 billion to bolster his purchase of Twitter. On the other hand, public markets are in a rapid slide for tech stocks. Many writers are predicting this will bring in a challenging time for startups and venture funds. Musk’s success in garnering partners seems to indicate strong optimism for the future of Twitter, and indirectly, tech. The market crash seems to be full of signals in the opposite direction. So what gives? Venture Capital markets care a lot about which signal is the more valid.

Matt TurckThe Great VC Pullback of 2022 – and also Eric Newcomer The EndGame – tend to the pessimistic side.

Matt Turck:

“One final open question: what does this mean for the venture capital industry? Certainly VC had experienced unprecedented levels of evolution (or disruption) over the last couple of years – crossover funds, mega-funds, solo GPs, emerging DAOs in crypto. What happens to all of this, over the next few years?

My general sense is that we will see some level of reversion back to the original model.

His prediction is that all innovation in Venture Capital will be clawed back.

There are indications that this is wrong. For example, Samir Kaji announced the funding round for Allocate, his participatory venture platform. And Pitchbook announced that 2021 saw a record 339 Micro-VC funds raise over $5 billion. Certainly, both represent an innovative approach that signals optimism.

And the fact that Sequoia Capital, Andreessen Horowitz, Binance, Larry Ellison, The Kingdom of Saudi Arabia, The Qatar Fund, and others are happy to value Twitter above $50 billion would seem to pour cold water on the thesis that we are in a challenging time for tech investing.

“The swath of investors features firms that have put money into the development of the cryptocurrency ecosystem. Andreessen Horowitz has a portfolio including cryptocurrency exchange Coinbase Global Inc. and Dapper Labs Inc., the maker of NBA Top Shot. DFJ Growth also invested in Coinbase, according to its website. Sequoia has put money in crypto exchange FTX. 

Binance said its involvement is “as a supporter of Elon Musk’s plans for Twitter and an investor,” a spokesman said. Mr. Zhao tweeted that the investment was “a small contribution to the cause.”

Mr. Musk said he is in talks to bring more current Twitter shareholders, including co-founder Jack Dorsey, into the company after the buyout.

Mr. Musk has told potential investors in Twitter that he could return the company to public markets after a few years of ownership, The Wall Street Journal reported earlier this week. The world’s richest man, by some measures, Mr. Musk leveraged a wide network of associates to come on board for his plans.”

So what are the immediate consequences of the public market pullback on the three Venture Capital asset classes?

There are a number of things that need disentangling.

The Public Markets

There is no doubt that the public markets are responding to macroeconomic and geopolitical issues by re-valuing growth and revenue down to lower multiples. This is reflected in the decline of up to 70% in the value of some public companies. Whether this is a short-term or medium-term hit on valuations will be determined by inflation, interest rates, and wars.

Late Stage Investing

Late-stage investment in companies seeking a public listing is likely to slow. Valuations recently achieved will likely be hard to defend as new funding rounds are required. Many late-stage funds will suffer valuation hits as their portfolio companies are forced to raise capital at lower valuations than last time, or delay raising until they grow into their old values via growth.

Venture Investors

Venture investors focused on B through D rounds will also slow down and invest less per round as valuations adjust to the new realities. Funds will preserve capital until the IPO landscape improves.

Early Stage Investors

Seed and Series A rounds will continue to benefit from the large growth of Micro-VC and the proliferation of new startups. This is where the impact of the re-valuations will be light. Both valuations and the number of deals will be strong.

This differential impact is best thought of as both short-term and tactical. The Musk deal is a far stronger signal as to the real health of technology in general and Twitter in particular.

The Twitter Deal

Major new investments by seasoned investors in generation-defining technology will not stop or even slow.

The Twitter investor group is investing because they see a platform with 2-300 million active users that really should become a lot larger. Perhaps as big as 2-3 billion.

Twitter’s $54 billion valuation pales in comparison to that of Facebook ($563 billion even after the correction). Musk’s plans for Twitter to become a global, open, but authenticated, platform speak to his ambition that it should become the “pulse” of humanity. If he can even approach that vision these investors will do very well indeed.

So how should entrepreneurs react to the market pullback?

The challenge for entrepreneurs is to be more like Musk. Consider big outcomes and chart a path to them. Seek investors who think big and long term. Change the world.

This is not a time to shrink back from the precipice. Neither is it Thelma and Louise’s time. But it is a time to be relevant to the future and seek the early-stage funding needed to arrive there. As the market forces investors to be more choosy it is important to stand out from the long line of startups seeking funding. Using an analogy from “America’s Got Talent” – you have to be the 4 year old who shocks the judges by singing perfect Rigoletto in a deep baritone. You have to be so good that nobody can say no.

There is no lack of capital. But there are a limited number of places worth putting it. Become one of those places.

More in the Video.


A couple of additional things. I was on a BBC Radio show this week (available globally). What Really Happened in the Nineties is a season focused on the 1990s. Episode 4 is titled “The Internet” and I was interviewed.

What Really Happened in the Nineties? - 4. Internet - BBC Sounds

What Really Happened in the Nineties? – 4. Internet – BBC Sounds

Episode 4: Internet As a new bill goes through parliament that hopes to ensure online safety, Robert Carlyle takes us back to a time when the internet seemed like a force for good, an online utopia where friends could reunite. But, as he reminds us, the 90s was also the decade that witnessed the first prosecution for cyberstalking and when the term trolling was coined. Professors Helen McCarthy and John Naughton take us back to the days of AltaVista, Ask Jeeves, and the cyber-cafe. We hear from Keith Teare, one of the people behind the world’s first cyber-cafe called Cyberia, who explains why they never made a profit, despite having coffee shops across the world and an online dating site.  •  Share


The series appears at the same time as Chuck Klosterman’s book “The Nineties” in which I also appear.

_____________________________________________ The Nineties: A Book eBook : Klosterman, Chuck: Kindle Store

The Nineties: A Book – Kindle edition by Klosterman, Chuck. Download it once and read it on your Kindle device, PC, phones or tablets. Use features like bookmarks, note taking and highlighting while reading The Nineties: A Book.  •  Share



Venture in Crisis?

Elon Musk Gets $7 Billion in Fresh Financing for Twitter Deal — WSJ

A Saudi prince, Larry Ellison and a bitcoin exchange are among 19 investors joining in on the Tesla CEO’s bid for Twitter • Share

The 19 Investors Backing Elon Musk’s Twitter Deal: Here’s the List — WSJ

Larry Ellison, Sequoia and Binance are among investors Tesla CEO says he has received commitments from • Share

Ellison, Binance and others are putting $7 billion into Musk’s Twitter deal

Elon Musk gets by with a little help from his friends. He now has several big-name investors on board with his Twitter purchase, including Larry Ellison, Binance, a16z and Sequoia Capital. A total of 19 investors helped secure $7.14 billion in new funding for Musk’s $44 billion buy, according to an SEC filing Thursday.

Saudi Arabian investor Prince Alwaleed bin Talal, who has for years backedTwitter and was initially hesitant to support Musk, also pledged to invest in Musk’s purchase vehicle. The prince agreed to roll over his $1.9 billion investment in the company, which reduces the amount Musk has to raise for his purchase.

“I believe you will be an excellent leader for Twitter to propel & maximise its great potential,” Alwaleed tweeted Thursday.

Musk named Strauss Capital, Brookfield, Baron Capital’s Bamco and others as investors in the filing. Ellison, who is on Tesla’s board and a friend of Musk, chipped in $1 billion. VyCapital and Sequoia Capital, which dropped $700 million and $800 million apiece, have invested in Musk’s Boring Company. Binance, which shares Musk’s love of crypto, committed $500 million.

Musk isn’t done bringing in new investors, either. He’s holding more conversations with current Twitter shareholders like Jack Dorsey to contribute to his purchase, according to the filing.

The new investments helped cut Musk’s $12.5 billion margin loan against his Tesla stake to $6.25 billion, the filing states. The Tesla CEO’s borrowing plans had rattled the automaker’s investors, sending shares plunging.

Another potential concern for Tesla shareholders: CNBC’s David Faber reports Musk plans to serve temporarily as Twitter’s CEO after the deal closes.

Musk also recently told potential investors that he wants to take Twitter public again after a few years, sources told the Wall Street Journal. Twitter officials have said the deal is expected to close later this year, pending shareholder and regulatory approval. • Share

The great VC pullback of 2022

Are we witnessing a major VC pullback? Is it temporary? What does that mean for startups? Certainly the topic du jour in startup circles.

Here’s what I’m seeing.


Yes. The market is a bit all over the place, not everyone fully agrees on what’s happening, and certainly a number of financings are still taking place. But the pullback is real and already starting to show in the data (CB Insights Q1’22 report).

My sense is that the current reality of the market is a lot worse, because deal data is a trailing indicator — financings are often announced months after they closed.

We’ve rapidly, perhaps brutally, transitioned from a hyper frothy VC environment to a world where many deals are not getting done.

As tends to be the case, the correction started happening in public markets (sometime in H2 2021), then propagated down to the private venture growth market (Q1 2022), then to the Series A/B stage (currently). Venture tends to work as an assembly line, with each investor depending on the next stage (either a next round of financing or a public company IPO exit) for their short term success. As the next stage becomes trickier, the natural inclination is to slow down activity to avoid having more investments slam into a wall. It takes a few months for that cycle to happen, and for a bear market to trickle down from post-IPO to seed.

In a lot of conversations with VC friends, I’m told people have hardly made any net new investment in 2022. The growth market seems effectively dead right now. Tiger, after a very intense couple of years at the growth stage, seems to have moved overnight to seed/Series A. The two firms I’m seeing consistently active at the growth stage right now are Insight and Softbank.

Only two parts of the market have been spared so far:

  • seed: plenty of financings still happening at the seed level. No real compression on valuations yet. YC is as frothy as ever. Arguably, the seed stage should be the most recession-proof area of venture, because seed companies are 6–10 years away from a meaningful exit, and no one can predict where the market will be then. Also, checks are smaller, especially seen from the perspective of the very large multi-stage firms that have earmarked hundreds of millions of dollars to seed the seed stage.
  • crypto: the web3 market largely follows its own logic. Many investments are token based, rather than equity based, so to some extent web3 companies a less immediately caught in the propagation logic mentioned above. Also, market traction can be somewhat circular and self-reinforcing in the web3 world, as companies and projects tend to be closely intertwined. Finally, after an explosion of crypto VC funds, there’s arguably a lot more money chasing deals, than truly exciting companies and projects just yet.

It also seems that the pullback is mostly a US phenomenon right now. From all my conversations with European friends, for example, things continue to be frothy over there. My sense is that the current US situation will propagate internationally sooner rather than later. continue reading The great VC pullback of 2022 • Share

The Endgame

The tech downturn persists, forcing startups to grapple with reality

The NASDAQ Composite Index is down 22% since the start of the year. It’s fallen more than 5% already today.

After a fleeting surge in late March, it looks like the tech downturn is here to stay. Interest rates, not the pandemic, are bringing the party to an end.

Private market investors have gotten the message.

But startup founders aren’t all ready to hear the bad news: their startups are worth less than they’re willing to admit. But, if they’re lucky, they’ve got enough cash in the bank to ignore the world trembling around them. Venture capitalists on their boards are recommending layoffs. Late stage private investors are sitting on their hands, waiting for valuations to fall further.

Last year’s frothy valuations are so quickly forgotten.

As one investor told me, funding rounds this year will be tough: “The great companies are going to be flat. The good companies are going to have to be open-minded to some down rounds.”

The bad companies, good luck.

Layoffs all around. • Share

5 Key Data Points about the Early Venture Market in Q1 2022

Angellist published their quarterly state of venture report. I wrote down five data points that struck me:

  1. Q1 2022 was the most active quarter ever in Angellist history, and likely venture history. The term sheets signed in November and December closed in Q1, which may buoy these figures. In addition, late-stage investors moving into the seed stage market also buttress these stats.
  2. 83% of rounds in Q1 were up-rounds, which is statistically identical to Q4. late-stage market prices have declined about 30%. No parallel compression exists in the early-stage market, yet.
  3. Startup valuations. The 75th percentile of Seed startups raises at 30m valuation and Series A at $100m. Seed has become the new A. $100m post is consistent with what I’ve seen in the market for the most sought-after investments. Some raised a seed first; others particularly in infrastructure decide to go straight to A.
  4. 65% of seeds choose to raise capital via SAFE, a form of debt, rather than an equity round. If Seed is the new Series A, then this implies a meaningful change. Most SAFEs forgo a board-of-directors. A decade ago, businesses raising $3–5m Series As would elect a board. This data point confirms founders have maintained leverage in fundraising conversations.
  5. Web3 deals represented more than 11% of investments, the largest share, superseding fintech and healthcare. Web3 is a term that will disappear like web2 and mobile investing before it. It encapsulates software, infrastructure, and consumer services- unlike the other buckets which are more narrow. While the segmentation may skew the data somewhat, the data point does underscore investor interest in the category broadly. • Share

The Rest of Venture

Imagine You’re a Venture Capitalist…

Imagine you’re a venture capitalist. You find a great company. You buy 16% of the company for $8m at $50m post-money valuation. Six months later, the company raises $100m at $500m. Things have gone very well.

Your 8m has 10xed. Naturally, you ride an imaginary horse around the room, galloping with glee.

Now you face an important strategic question: Do you invest your full pro-rata of $8m? Pro-rata is the right to invest more to maintain their percentage ownership. Venture firms reserve capital for these financings.

If you invest an additional $8m to maintain your ownership, the investment multiple falls to 3.3x: 80m / (8m + 16m). Two-thirds of your dollars are invested at a much higher price.

Which path do you pursue? Stay pat to maximize the investment multiple? Or double down to $16m and juice the holding value — the total value of the position?

Tomasz Tunguz • Share

Introducing Allocate announcing our Series A round!

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape. We’re thrilled to announce the closing of our $15.3MM Series A round led by M13 Ventures, with participation from SignalFire, Bedrock Capital, Intera Capital, Secocha Ventures, and returning investors Broadhaven Ventures, Ulu Ventures, Urban Innovation Fund, Fika Ventures, Basis Set Ventures, Tusk Ventures, and Anthemis Group. • Share

US micro-funds play to their strengths in 2021 — PitchBook News & Analysis

Micro-funds — venture investment vehicles that raise $50 million or less — collected nearly $5 billion across a record 339 US funds in 2021, according to PitchBook data.

These funds offer unique benefits to the VC industry that cannot be easily replicated by larger funds — such as enabling firms to take risks on young companies operating pre-product and diversify their portfolios on both a geographic and sector basis.

“Micro-funds have really adapted to the changing market while also changing the market,” said Kyle Stanford, a senior analyst at PitchBook.

On the LPs’ side, micro-funds provide an opportunity for firms that are either too small to access large funds or are looking to simply get a foot in the door of venture and test out the strategy alongside other investment theses, according to PitchBook’s latest analyst note on the topic.

The rise in the number of micro-funds correlates strongly with the rise in seed deal count in the US.

PitchBook News & Analysis • Share

USV 2022 Funds

We are pleased to announce that we have raised two new funds: a $275M Core Fund and a $350M Opportunity Fund. The new funds will be our eighth early stage fund and our fourth opportunity fund, respectively. We plan to invest our new funds around the same thesis as our previous funds: we are looking

We plan to invest our new funds around the same thesis as our previous funds: we are looking for opportunities in the market that align with our Thesis 3.0. We will continue to invest in both Web2 and Web3 companies and projects. We have made our first investment from the new Core Fund in Slope, a B2B BNPL platform that we recently wrote about. […]

The post USV 2022 Funds appeared first on Union Square Ventures. • Share

Tiger, Gaingels, Insight Most Active Investors In US Market In April As 2Q Starts

The usual suspects lead the way, with Gaingels, Tiger Global and Insight Partners again sealing the most deals in US-based startups last month, according to Crunchbase data. • Share

IRR is a vanity metric

I’m observing that IRR is a metric that is becoming an increasing focus in venture, replacing fund return multiple as the key metric of success. I understand the draw of IRR, and — as a fund draws to a close — there’s no question it’s an important metric. LPs have plenty of options for where to put their money and IRR is an easy way for them to compare how their money grows across various investment options and a convenient way to determine whether they believe they’ve been adequately compensated for the relative risk and varying degrees of liquidity available to them across different asset classes. BUT (and you knew there was a but here given the post title…) it’s…

The post IRR is a vanity metric appeared first on VC Adventure. • Share

Essays of the Week

Freedom is for Nazis

pirate wires #68 // the rise of “moderate” political censorship, “astonishing individual freedom,” and nourishing the soul’s desire

Astonishing individual freedom (a bad thing, actually). For years, the internet free speech debate went something like this: one group of people in a position of power censored another group of people with less power. The less powerful group yelled “hey, what about free speech?”, and Team Yay Censorship rebutted with “stop crying, private companies are not bound by the First Amendment.” Now, the exact question of free speech in the context of oligopoly social media giants has never been litigated in our highest courts. But assuming political censorship of this kind would stick if given the chance, shopping center cases upholding a right to political protest on private property all be damned, it would still not address the contentious heart of the matter. For the most part, no one is fighting over the legal tradition of “free speech.” For years, we’ve been fighting over “free speech” the value, with legality a clever bit of cover. Historically, separate from law, Americans have valued the right of their neighbors to political dissent, and we’ve looked back on violations of this norm with considerable shame. This is why, until now, censors have run from the argument in honest terms. We all grew up believing political censorship is evil, and so proponents of the stuff have had to lie about their real intentions, likely to themselves as much as to the rest of us. But this week, awash in a thousand “Elon Musk is doing violence by talking” think pieces, it became clear beyond all doubt that free speech — the shared value — is dead. Arguments departed entirely from questions of law, and were made explicitly on behalf of political censorship as a moral good in the pages of our most storied institutions. • Share

Venture Capital Is One of America’s Most Important Economic Superpowers. Let’s Not Undermine It. | AEI — American Enterprise Institute

As a long-time comic book fan, I often frame America’s many economic strengths as superpowers. And it’s not just a fun (some would say indulgent) writerly gimmick. It actually makes some sense as an analytical tool. Some superpeople are born with their abilities, such as Superman (at least under a yellow sun) or the X-Men. Kind of like how America is blessed with abundant natural resources and a natural, feisty entrepreneurial spirit that immigrants have brought with them since the country’s very beginning. Of course, these powers can be lost. Nativism can be kryptonite for attracting global talent.

Other special abilities are the product of hard work and smarts. Think Batman and his martial arts skills and crime-fighting gadgets. Or Tony Stark building his Iron Man techno-armor. Similarly, some of America’s greatest strengths are the result of persistent effort and smart decisions: a rule-based democratic capitalist system where private property is respected and entrepreneurial success is rewarded. Another one: a highly educated public with the world’s best university system. American Enterprise Institute • Share

Startup of the Week

Why Investors Tuned Out Netflix

Netflix shares have enjoyed an incredible run over the past decade. Subscriber growth seemed limitless, profitability was improving, and the pandemic gave us a compelling case for watching TV at home.

Things took a drastic turn on April 19, 2022, when Netflix announced its Q1 results. Rather than gaining subscribers as forecasted, the company lost 200,000. This was the first decline in over a decade, and investors rushed to pull their money out.

So, is there a buying opportunity now that Netflix shares are trading at multi-year lows? To help you decide, we’ve provided further context around this historic crash.

Netflix Shares Fall Flat

Over the span of a few months, Netflix shares have erased roughly four years worth of gains. Not all of these losses are due to the drop in subscribers, however.

Prior to the Q1 earnings announcement, Netflix had lost most of its pandemic-related gains. This was primarily due to rising interest rates and people spending less time at home. Still, analysts expected Netflix to add 2.7 million subscribers.

After announcing it had lost 200,000 subscribers instead, the stock quickly fell below $200 (the first time since late 2017). YTD performance (as of April 29, 2022) is an abysmal -67%.

What’s to Blame?

Netflix pointed to three culprits for its loss in subscribers:

  • The suspension of its services in Russia
  • Increasing competition
  • Account sharing

Let’s focus on the latter two, starting with competition. The following table compares the number of subscribers between Netflix and two prominent rivals: Disney+ and HBO.

The post Why Investors Tuned Out Netflix appeared first on Visual Capitalist. • Share

Tweet of the Week