VC Winter is here, and it's going to be freezing

[Here's a Letter I sent to Heroic's portfolio today. Some recipients suggested I publish it, as it may be of service. So here it is, unedited.]

You have never received an email like this from me, and it’s probably been four years since I have communicated with the entire portfolio at once. Here are my opinions (not necessarily those of any institution or LP or partnership or other people at Heroic) on what’s happening right now in the world of venture funding.

Venture capital funding is about to freeze — basically entirely — for the next 3 to 5 months. Some time in the next 5 to 15 months, funding will pick up again, at a good pace, but at much lower valuations.

I would give a 90% probability to this scenario, with a 10% chance that there is some sudden improvement in the macro conditions that probably only temporarily forestalls the moment (“Sudden outbreak of peace in Ukraine!” “Fed backs off and continues QE yet again!”). 

If you’re under 40 years old, you’ve probably never seen this before. The distance in time since the last such episode makes for a potentially especially dangerous brew of conditions. Many late-30 somethings and early-40 somethings are now in Important Roles as “Partners” (that means real partners and social promotion partners) at venture firms or other financial institutions. Many are also in C-level roles at various companies. Many of these will think they “lived through the 2008 downturn” while they worked at MegaCap company or a Management Consulting Co or an Investment Bank and therefore believe they know what Winter looks like because they saw the cancellation of free food or dry-cleaning or a reduction in annual bonuses or the cessation of daily trash pickup in their cubicles. They don’t. In wintry conditions, such individuals will operate very fearfully. Many will seek to save their careers before anything else. Be aware.

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