Silicon Valley venture capital funds are reining in their operations in an attempt to reassess the market situation. Money is leaving the big funds as investors reel from recent turbulence. Chamath Palihapitiya of Social Capital explained pulling back during an episode of the “All-In” podcast, saying, “I could barely stand the idea of me putting money to work right now—of my own capital—without any answers.” The Wall Street Journal’s Berber Jin reports:
Venture firms are scaling down the megafunds they raised during the technology bull market, showing how startup investors are pruning their ambitions despite a sharp rebound in the value of publicly traded tech stocks.
For much of the past decade, Silicon Valley investors raised larger and larger funds in the hopes of capturing more of the fast-expanding technology market. As startups swelled in size, venture capitalists wrote massive checks to companies that looked little like the scrappy young businesses that the venture industry was designed to support.
The strategy backfired when the technology market crashed early last year, leaving megafunds with overvalued stakes in startups that had little prospects of going public. SoftBank’s first Vision Fund, a $100 billion vehicle launched in 2017 that popularized a brasher approach to investing, has shed billions of dollars in value this year as it writes down the value of its startup stakes.
Some venture leaders say they are abandoning the once-popular strategy in favor of a more modest investment approach.
In March, venture firm Y Combinator eliminated a growth investment arm called Continuity that had plowed more than $3 billion into late-stage startups, citing the need to refocus its efforts running its startup accelerator.
Y Combinator built a name running the accelerator program, which provides funding and training to founders building new companies. The firm launched Continuity in 2015 and invested more than half of the unit’s latest fund of $1.4 billion when startup valuations peaked in 2021 and 2022.
Social Capital, the venture firm run by the serial SPAC promoter Chamath Palihapitiya, earlier this year abandoned its plans to raise a $1 billion fund. In his “All-In” podcast, Palihapitiya said he made the decision after the market crash made it difficult to assess the value of his existing startup portfolio.
“I could barely stand the idea of me putting money to work right now—of my own capital—without any answers,” Palihapitiya said in the podcast. “But then the idea of having a bunch of sovereign-wealth funds and folks that were ready to work with us, I don’t know, just not the right time.”
Action Line: “Just not the right time.” Your money needs some answers. Compound interest is one. Preservation of capital is another. When you’re ready to ask the questions, let’s talk.
