January 28, 2023

Forget flat — small cuts are the new up

When venture markets flip from greed to fear, there’s a meme that goes around in startup circles that flat is the new up. It’s shorthand for the idea that in more difficult market conditions, a startup defending its prior valuation in a proximate venture round is as good as raising new capital at a higher valuation in better investing conditions.

The brutal repricing of tech companies in the last year has led to some notes — including from this publication — that we had once again found ourselves in flat = up territory. Today, however, the game looks a little bit different.

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News that Stripe is reportedly trying to execute a soft layoff by culling lower-performing staff landed today, along with news that Databricks, one of the other most valuable startups of all time, trimmed its internal (409A) valuation by a modest amount, around 7%.

Naturally, you might look at the news and think, dang, some of those unicorns did get out of pocket last year! After all, fintech giant Stripe took a 28% haircut to its own internal valuation earlier this year, so surely we’re seeing signs of excess being drained out of the market?

Actually no, not really.

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