Thoughts on the Market, from 4Q22

Happy New Year, everyone! Hopefully you got some rest over the holidays as we put 2022 behind us.

As far as new dealflow goes, this past quarter felt like one of the quietest we’ve experienced. A fitting finish to a much less frenetic year than those past. While there has been a flurry of activity around AI lately, it can sometimes feel like people are just looking for something to get excited about. 

In our corner of the world, the downturn is continuing to grind on, and everyone’s attention is mostly turned inward. Founders are heads down, trying to navigate the paradigm shift, and investors are primarily focused on helping those founders within their portfolios.

In short, this past quarter has been a stark reminder that, at its core, venture is about patience. 

Startups are hard, and building a world-class business takes a long time.
And for us investors, finding and partnering with the best founders is hard, and building a world-class firm that can do that consistently takes time.

It was easy to forget about patience over these past few years, when meme stock and SPAC mania took hold. When you could get rich in 24 hours dropping Ponzi tokens or pictures of rocks on retail investors; when you could take an unviable Series B rocket company public with no scrutiny or governance; and when anyone with a Substack could raise a new, larger fund every 12 months on the back of fast crossover markups…

There was no incentive to being patient.

You were actually punished for being patient.

If you couldn’t close a deal with a company within 48 hours of meeting them, you were going to lose. And if you weren’t taking aggressive term sheets from crossover funds every 3-6 months, you’d have to watch your competitors do it.

But in these past 12 months, to quote Biggie, “things done changed.” 

I was on a trading floor during the 2008 financial crisis, and I learned firsthand how much it can hurt you when you’re focused on making trades rather than making money.

When the biggest opportunities arise, you need to be in position to see them, and you need the resources available to capitalize.

And while building NerdWallet, I learned firsthand how long it takes to build sustainable value: it was more than two years before we could take our first paychecks, more than five before anyone had ever heard our name, and more than 12 to reach the public markets. 

So now, we remind ourselves every day that it’s not our job to deploy capital. It’s to make money. And to do that sustainably and consistently takes time.

I’m putting this here as a reminder to us as much as anyone else: we don’t get bonus points for speed.

Diligence of new opportunities should be as much about building relationships as it is about analyzing companies, since these relationships will be with us for many years to come.

We have to be ready to face the inevitable bad news that comes with doing anything worth doing. We have to be ready to have the hard conversations and make the difficult decisions required to overcome that bad news and build something of lasting value.

No one gets to sugarcoat everything with additional capital and exuberant headlines anymore. 

It’s been almost three years since Marc Andreessen said, “it’s time to build.” That message got lost when the primary things people were building were social media followings and Ponzi schemes.

Now the tide has gone out, the market has slowed to a crawl, raccoons are getting washed out, and as we tell our portfolio founders, “startups are hard again.”

With patience, we can and are building for a better tomorrow, and the next day, and the next.