Although private markets are rebounding along with an IPO market that just saw the highest grossing quarter since 2021, some newer VC firms aren’t counting themselves among the recent winners.
“What we’re seeing right now is the collapse of a lot of the young venture capital firms,” Jason Calacanis said in an interview on CNBC’s Last Call. “With ‘venture tourism’ going away and all these faux founders going away, and retail public market speculators going away, we’re starting to see—finally, after two years—the burn off of the excess.”
Calacanis, an early investor in Uber and Robinhood, said he expects about 15% of the newer VC firms to not make it to their next funding rounds. He also said this is a good thing. Beginning about five years ago, he noticed more investors making “flashy” moves but without doing their due diligence.
A major red flag for Calacanis was a group of investors who got caught up in “venture tourism”—plopping down tens or hundreds of millions of dollars and not even getting a board seat in return.
Calacanis is not alone in noticing the shifting investor landscape. Last week, Jay Ritter, a finance professor at the University of Florida’s Warrington College of Business, told Coins2Day that while the markets are heating up, investors are becoming more discerning when it comes to growth companies.
“In 2020 and 2021, private markets and public markets got excessively exuberant about young growth companies,” said Ritter. “The markets were giving high multiples without indicators that justified it.”
The problem was a lack of distinction between companies with solid business plans and others facing more difficult paths to profitability, Ritter noted previously. Calacanis detailed in the CNBC interview that too many founders were focused on achieving unicorn status—a valuation of at least $1 billion—instead of building a quality firm.
Investors doing more and better research, argued Calacanis, can help reduce debacles like WeWork. At its peak in 2019, the co-working space company was valued at $47 billion, but while preparing to go public, massive cracks in WeWork’s financial foundation became apparent. By the time it actually went public, in 2021, WeWork’s valuation was $9 billion, a figure that shrunk to $44.5 million by the time it filed for bankruptcy in November 2023.
“It’s delightful that money is being dropped from the sky into companies,” Calacanis said in the interview, “but it’s a huge distraction and in fact it can drown some companies.”