Friday Letter: It’s as if the VC community is in a bubble

We’re officially in a recession, but most people in the venture community wouldn’t know these are hard economic times for some if they were to peruse recent headlines making the rounds.

Among the venture-related news this week that caught my attention was the IPO of venture-backed Snowflake. Although as of midday Thursday, the bloom was fading after its blockbuster IPO as its shares were taking a tumble. The company’s public market debut is seen as a harbinger of more venture-backed exits to come.

In addition, Greylock Partners this week reportedly closed on $1 billion for its latest fund, as initially reported by Bloomberg. It is the firm’s fifth billion-dollar fund since 2001. And it follows a pattern of mega-fund (funds $500 million or larger) closures we’ve seen through much of this year and which will likely continue for the remainder of 2021. Through Q2, about two dozen mega-funds have closed in the US, including Tiger Global, General Catalyst and Lightspeed Venture Partners, among others.

Of course, as I’ve reported, emerging managers are having difficulty, but for the most part, established funds are not encountering issues with the capital calls and wrapping up their latest vehicles amid the pandemic and economic downturn.

And neither are exits hampered. As Snowflake demonstrates, the industry is seeing momentum building up again for exit activity following a modest second quarter.

You can read more about how LPs’ fears of large markdowns from GP’s portfolio companies did not materialize by checking out Marina Temkin’s story from Monday here.

Remember in March when the covid-19 pandemic escalated and various states issued shelter-in-place orders? Back then, there was a definite feeling of slowness. Activity, be it deals, fundraising or exits, seem to have down-shifted a gear or two.

But they’ve sped back up. I talked to several VCs this week, including a sole GP fund manager and a principal at a large mega-fund, and they all said they’re busier now than ever before. It’s as if we’re in a bubble one said, separate from the economic calamity and job losses impacting others in the country.

One GP I spoke to this week said that this has been the busiest fall season in memory. “There’s no slowdown. Valuations are strong. And there’s a lot of available capital out there for entrepreneurs to build things.”

Whether this carries over into 2021 is the main question.

Let me know what you think. Do you have a positive or robust outlook for the rest of 2020 and next year? Or do you think the hectic VC activity will slow, given the ongoing concerns over the coronavirus and a weakened economy?

I would love to hear from you. You can reach me at agoldfisher@buyoutsinsider.com and I’m open to voice and video calls.