This week I caught up with a VC investor. He shared that he’s working on a deal recap deal. The company raised in 2021 at an inflated valuation, hasn’t grown into that valuation, and is running out of cash. The proposed valuation is a material discount from the 2021 valuation, which the investor finds interesting.

I’ve pondered recap deals quite a bit in 2023. A few thoughts:

• An investment being attractive because it’s discounted from an inflated valuation doesn’t make sense to me. A discount on an overpriced item doesn’t guarantee it’s a good buy—just that it’s less overpriced. It’s more logical for an investor to independently determine what the company’s worth given the current (not projected) traction. If the proposed price is less than (or equal to) the investor’s independent valuation, it could be an attractive investment for that investor. If it’s more, not so much.
• It isn’t easy for CEOs who founded companies in the growth-at-all-costs era to adjust their mindset about how they’ll grow. That being so, for an investor, it’s critical to understand whether the CEO has really bought into efficient growth with a focus on eventually generating cash flow or rather still believes in growth at all costs and is waiting for things to “get back to normal.” I’ve found that many CEOs will say they’ve made the adjustment, but their actions tell me they still have the old mindset. I believe that efficient growth is significantly harder than growth at all costs and that significantly fewer CEOs are capable of succeeding at the former.

I suspect we’ll continue to see recaps in 2024, and as the earlier recaps succeed or fail, investors will start evaluating opportunities more deeply than just looking at discounts from inflated valuations.

Today I was listening to an interesting conversation on YouTube that included several VC investors. It touched on a variety of topics, but one that stuck with me is why, from a talent-availability perspective, now is the best time to start a company. Here are some takeaways:

• The cost of talent is lower internationally than in the U.S. This labor arbitrage isn’t new, but managing international teams is easier than ever now. A company can build an entire team that’s international, which materially reduces expenses and burn.
• AI is helping teams be 20%–30% more productive, which means that small teams are efficient and fast. This could allow small teams to reach hundreds of thousands or millions in revenue.
• Large public tech companies’ headcounts are projected to be flat or negative, which will lead to an abundance of technical talent being available. They were talking about the Silicon Valley area, but there could be a case that this is true in other places too.

I agree that talent availability has changed from what it was three or more years ago. Whether we’re entering the golden era of talent availability is another question. I’m not sure, but time will tell.

If you’re interested in listening to the talent-availability part of this conversation, you can go here.

This is my one-hundred-ninety-seventh weekly reflection. Here are my takeaways from this week:

• Rough start – This year didn’t start off the way I’d planned. I encountered personal and professional setbacks, but I made the best of the hand I was dealt. Expecting week two to be better.

Week one hundred ninety-seven was another week of learning. Looking forward to next week!

The most successful people, especially founders, are lifelong learners. They have a curiosity and thirst for knowledge that’s on another level. This is well known and something people often talk about. Successful people explore and apply new things.

One trait I’ve noticed that’s closely related is their tendency to adopt new tools and methods. Most of these people are focused on something they care deeply about. In the case of founders, it’s solving a problem. And they’re always trying to find a better way to do what they care about. This often leads to an attitude of open-mindedness about trying new tools and ways of doing things. When they find a promising one, they figure out how it can help them do what they care about more efficiently and incorporate it into what they’re doing.

This doesn’t mean they love trying every latest gadget or guru philosophy; it means they’re not set in their ways when it comes to how they do the thing they care about. They’re married to a destination (what they care about) but willing to explore a more efficient path to get there if one presents itself.

A few months back, I shared that 2023 was shaping up to be a lackluster year for initial public offerings (IPOs). The year is officially over and the final tally is in. We ended 2023 with 154 IPOs, a decrease from 2022’s 181 offerings and a dramatic drop from 2021’s 1,035 offerings. Post global financial crisis, 2023 had the second-fewest IPOs. The lowest count was 133 offerings in 2016.

I view IPOs as an indicator of public-market investor sentiment, and I’m curious to see if IPO activity changes materially in 2024.

If you want more annual IPO data, take a look here.

Fred Wilson shared his 2024 predictions yesterday. Wilson is a well-known VC and general partner at Union Square Ventures. Here are a few of his points that I took note of:

• A soft landing is likely given decreasing inflation and interest rate hikes being less likely.
• There’s more innovation in today’s environment than any other time in his forty-year career.
• This year will be the coming-out party for “the new energy stack.”
• The business of venture capital will need to find its new norm. We’re a couple of years into a transition that will take until 2025, at least, to play out.
• Capital markets will likely be robust in 2024.

Wilson is a seasoned investor who’s been through a few cycles and achieved outsize returns. Given his track record, I enjoy reading how he’s thinking about things. His predictions may or may not come to fruition, but they’re interesting perspectives to consider.

I think public markets will set the tone for the year. If public markets are flat or continue to march higher in Q1 2024, we’ll likely see most of Wilson’s predictions become reality. If public markets start to decline in Q1, his predictions are less likely to transpire.

I hope the new year is off to a great start for everyone!

Today is the last day of 2023. The place slowed down this year. People were much more optimistic than in 2022. For me personally, it was another good year. I definitely experienced ups and downs, but overall I learned and grew a ton. I’m thankful for the opportunity to experience another year, and I’m excited for what 2024 has in store.

This week I listened to a friend describe a proposal they’d been presented with. I recognized it as a classic “heads I win, tails you lose” scenario: the party on the other side from my friend would win regardless of the outcome. To be fair, these situations don’t always end badly: if the other party wins, you could win also. But if you lose, they still win.

I’m not a fan of this type of situation because of the misalignment of incentives. The other party is fine regardless of the outcome, so they usually have minimal incentive to push for an outcome that benefits you. This is different than a situation where your incentives are aligned and you win or lose together—in that case, the other party is much more likely to push for the outcome where you both win.

These situations are much more prevalent that people realize, but I do my best to identify and avoid being part of them.

This is my one-hundred-ninety-sixth weekly reflection. Here are my takeaways from this week:

• Second-guessing – This week I had a plan for how I wanted to execute a task. Something happened and I second-guessed myself and the task didn’t get executed. The lesson learned? Stick to the plan!
• Christmas – I had a great time with friends and family for Christmas.
• 2024 – Three days from the new year. I’m excited about what’s in store for 2024.

Week one hundred ninety-six was another week of learning. Looking forward to next week!