Jahed Momand’s Post

In the recent wake of events, SVB, and the markets, we sent this note to our founders and Limited Partners. Dear Partners, The Venture ecosystem is wandering in the desert. Liquidity is dry. Headline media and podcasts will tell you that companies will fail, but they also don’t reconcile how that can happen despite record dry powder. Instead of relying on how people “feel” about what’s happening today, we decided to quantify and forecast the supply and demand of capital in our “Weather Report” (attached). By reconciling the forces at play, our analysis tells us. -We are about 1/3 of the way through the desert, where we expect maximum restructuring (strategy, capital, and talent) to hit in 12-18 months. -There is an annualized funding deficit of $100B+ in USA Series A-C, roughly 5x that figure globally. -Fewer founders will fail than you think, even with a massive shortage of capital that dwarfs any in the past. History would tell you that failure rates typically increase by 4-5% from typical levels. Make no mistake about it – the restructuring will be significant. Our advice to founders: -Call every debt line, close all primary rounds, do it now, and be willing to make concessions. -The value of capital will continue to increase as it becomes more scarce. -Hold your assets in the most liquid traditional banks, and do not take unnecessary risks. Concerning what happened with Silicon Valley Bank today: What's important to understand is that banks all have leverage. They use deposits, so almost by definition, any bank with a business model is dead if everyone moves. Since risk is nonzero and the cost, it's better to diversify your risk, if not all. As we enter the deep desert and the restructuring sets in, we decided to share with our LPs, our portfolio, and our broader partners the depth and extent of the liquidity shortage as quantified by our analysis and related lessons from history. We hope this is helpful to you. Arjun & Jake