Everyone Was Talking About Falling Startup Valuations at a VC Event

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The popular VC conference in LA, Upfront Summit, finally returned after a two-year hiatus.
On stage and off there was a common theme: Venture deals are taking longer to complete.
Startups are being valued at considerably less, especially fintech and insurtech ones.

After being cancelled a year ago and postponed this year, the glitzy Upfront Summit finally returned last week, bringing hundreds of VCs, limited partners, founders and — because this is LA — celebrities like Laura Dern and Paris Hilton to the Los Angeles soccer stadium for two days of panels, networking and parties.

Happy to ditch

Zoom

, top partners from Sequoia and Bessemer huddled outside in the mostly vacant stadium seats to talk deals. Inside, VCs chatted up LPs (those who invest in venture funds) from giant organizations like UTIMCO and the David and Lucile Packard Foundation (which invests the late HP cofounder’s billions) trying to snag a few more million for their lastest funds.

Yet on stage and off everyone was talking on a common theme: Venture deals are taking longer to complete and startups are being valued at considerably less — sometimes dramatically so — than they were just a few weeks ago after a record-breaking 2021.

“We’re already seeing signs there is retrenching happening,” Nagraj Kashyap, the North American head of Softbank Vision Fund, told the audience. “2022 is already very different.”

Fintech companies have been the most discounted, meaning their valuations slashed from last year, according to Kashyap.

Whereas last year fintechs were valued like fast-growing tech companies, this year they are seen as staid banks and insurance companies.

“We do see a bigger swing than we’ve seen in general software,” Kashyap said of fintechs compared to other software startups.

Insurance tech, or so-called insurtech startups, have been even more severely battered, with several VCs saying privately that many VCs won’t go near the sector.

In this more cautious fundraising climate, Kashyap said fewer investors are chasing the same startups which means investors are seeing less competition and feeling less urgency to close. Term sheets that would have closed in two weeks or faster last year are now sitting around for a month and a half.

Last year, founders complained about ultra-competitive VCs offering “exploding” term sheets, where they were forced to decide in 24 hours whether to accept a deal. But Ann Miura-Ko, co-founding Partner at Floodgate said the pressure has now flipped the other way. Founders are demanding that VCs make their decision in a day, something she compared to trying to find a husband in the course of a few seconds at a bachelor auction.

“All I had seen is you without your shirt,” Miura-Ko said, a metaphor for barely getting to know founders. “I couldn’t find a situation where that worked.”

While this conference is known for its very LA over-the-top entertainments like fireworks, marching bands and performances by John Legend, this year’s event was somewhat toned down. Still, there was star power, with Insecure creator Issa Rae opening the summit by talking about investing in South LA and seven-time Grammy winner Alanis Morissette closing it with a panel on the creative process.

And valuations were not the only thing slimming down. Perhaps inspired by Upfront managing partner Mark Suster losing 65 pounds in 18 months, this year’s conference offered a noticeably healthier assortment of food.