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I think this crisis will be less about whether or not good startups survive and more about a big valuation reset.
There is actually a huge amount of venture capital in the market relative to prior periods. Much of that is reserves of VCs that have grown 2-5X over their last several funds. Plus you have a proliferation of opportunity funds and growth vehicles.
Companies that were performing before the crisis will eventually perform again. This crisis is less about business model viability for startups and more of a liquidity shock due to evaporating revenues.
This is in the backdrop of many years of inflated company valuations. Especially at the mid and late stages. There was already a reset occurring as some weaker companies have been pummelled in the public markets. Covid-19 has massively accelerated this.
So, you have lots of capital + good businesses + startups facing liquidity constraints + VC's that feel like they've been overpaying for years.
The result will be a lot of deals getting done but with really tough terms. It's a chance for large funds to reset their average cost basis. And even if there is competition for a round, the best one can expect is clean terms on very modest valuations.
And this will persist for quite some time, but will take some months to flow through the ecosystem. Tough terms on late stage rounds will make series A and B investors more price sensitive, which will flow down to seed investors.
Now more than ever, the antidote will be capital efficient businesses that can scale without raising huge amounts of outside capital. As our friends @fcollective have said, VC is a hell of a drug. The startup market is about to be forced into rehab
