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The Fed no longer predicts a recession. Economic data is turning more positive, eg housing starts exceeded forecasts. 80% of public companies beating earnings estimates - three percentage points higher than the 5 year average.

On the other hand, enough uncertainty permeates the market to depress prices. Public software companies’ share prices have fallen 10% on average in the last 30 days dotted with positive notes like the stabilization cloud growth rates for Microsoft & Google.

Classical computer programming is about rules. What does a program do when a user inputs 4 + 7? Or a credit card number? Or clicks on a button. I spent years as a programmer translating human rules into rules the computer would understand.

One day, with enough experience, the number of exceptions to rules dawns on a programmer. It’s no different than english.

Imagine writing a text-to-speech program :

Home & tome rhyme. So does comb. But not come.

Carta released their state of the market report. A few data points stood out to me

Downrounds constitute 20% of all rounds, up 2x from historical norms. Bridge rounds account for 38% of all rounds in Q2. Cooley reported 2.9% of rounds recapitalized the company. Recaps effectively delete the previous cap table & start a new one.

These are all signs of the harder fundraising times.

The glass-half full view is that 80% of all rounds are flat or up.

What will a venture capital turnaround feel like? Will it be gradual or sudden? What will change the sentiment in the market?

In 2008, I had just become a venture capitalist. Three months later, Lehman fell & the Global Financial Crisis started. CNBC played in the lobby of our office & I remember watching domino tip domino into a cascading collapse.

Activity slowed to a crawl during the subsequent & I tried to understand their impact on private markets for the first time.

If a startup raised a top quartile Seed round, Series A, B, & C, they typically would have grown headcount by about 6% in the last twelve months. The headcount growth rate for all other companies? About double at 12%.

Here’s the catch : the difference isn’t statistically significant.

In fact, comparing the headcount growth rates across top quartile fundraisers to bottom 3 quartile fundraisers, the result is the same. No statistically significant difference in headcount.

Earlier today, New Relic announced its sale to Francisco Partners & TPG for $6.5b.

The acquisition is notable for two reasons.

First, it accelerates the momentum within the technology buyout space.

At its current pace, technology buyout volumes of venture-backed technology companies will tie or exceed the ten year high, charted in 2022 of about $20b.

PE buyouts provide 2023’s slower M&A market liquidity & activity, perhaps will begin to spur strategic/corporate acquirers into action.

AI will automate 25-50% of white collar work including data analysis. Does that mean will data teams shrink in size?

On the contrary, while AI can automate some work, it will also demand much more from data teams.

Typical tasks - writing SQL & charting data - will become mostly automated. This ease of use will enable data teams to focus elsewhere : on the sea of demand for data coming from the edges of the company.

I’m watching public company earnings to identify early trends in the software market to inform startups’ plans for 2023. Yesterday, Microsoft & Google announced earnings. Amazon, Cloudflare, & Mongo announce soon.

At last, we see a change in slope in the annual growth rates of the cloud services. Both Google & Microsoft announced growth rates in GCP & Azure that held steady from one quarter to the next.

There are two forces in tension : overall cost reduction efforts by companies & the desire to invest in AI.

The Pilgrims who journeyed across the Atlantic to colonize America raised four rounds of financing sent via ship each year during the summer.

The second round of financing, the Series A, was the hardest to raise because the colonists missed plan : pirates pillaged their beaver pelts.

Free delivery to rural Americans created the retail catalog boom of the 1890s pioneered by Aaron Montgomery Ward. Catalog fraud soon blossomed.

To compete with Dr. John Harvey Kellogg, Charles Post founded a wellness clinic in Battle Creek, Michigan, which served Grape Nuts as a breakfast. The two companies would pivot to form two great cereal giants that would co-opt medical marketing techniques claiming to cure cancer with corn flakes to grow.

For many startups today feel like they are operating under dark skies. It’s supposed to be hard - you’re changing the world.

Reflecting on the last three quarters :

Startups have parted with colleagues to extend runway in a difficult fundraising market.

Some have significant balance sheets & discovered the ostensible product-market fit isn’t as strong as the business may have believed.

Muted valuation multiples have replaced the neon pink sticker price valuations of the early 2020s.