What To Do About The Downturn

This is going to be a shorter edition of the newsletter as we focus our attention on our upcoming AGM: Moonfire Pulse next Thursday. In attendance will be our founders, LPs, co-investors, members of the community and many wonderful special guests! It is our way of saying thank you back to all those that helped us get to where we are today.

Since early November we have been experiencing a deep pullback from public tech stocks. Today, we will be covering our thoughts on this pullback, its consequences and how to prepare for what will be a difficult 12-18 months in tech.

Onwards!

New Era of Tech: Taking Shelter as the Downturn Hits the Market

We don’t have all the answers on how to manage these shifts in the venture markets.  However, we can offer our opinions and some advice to help those looking to raise.

Public markets have been taking a beating for months now, but in the last few weeks this has started trickling down to European seed stage tech financing. It is clear the market has turned across the board and companies must now make hard calls, rethinking their finances, reducing burn rates, driving efficiency and re-calibrating at what level they can raise their next round at.

We are now in a new phase of global tech, where access to capital is simply incomparable to previous years. We may never see the same euphoria and rush of capital that saw valuation multiples pop over the last two years post the pandemic due to quantitative easing. The tech market works in extremes, from irrational exuberance to market despair, meaning this downturn could be a Minsky Moment, a downward spiral of interlocking and reinforcing factors. This market could be with us for the next 12-18 months or longer. As a founder, you must prepare to endure a more demanding period that will shape and challenge you like never before.

This current cycle has been triggered by the growth of inflation brought on by global political instability caused by the war in Ukraine, high energy prices and continued supply chain woes. In turn, this has caused interest rates to start to climb and investors have moved away from public growth stocks. The effect has been:

• 27% of stocks on the Nasdaq are down 50%+
• 5% of stocks on the Nasdaq are down 75%+
• On average, Nasdaq stocks are down around 30%
• The S&P500 has had its worst year in six decades (so far)

Change since Jan 1st, 2022; As of 12th May, 2022

Why are Public Markets Important?

They are the ultimate exit route for tech companies and they are also a leading indicator of valuations in the private markets. Private markets move much more slowly as they are only repriced once a transaction happens, which can take 12-24 months. Hence we are seeing the worst effects in growth stage investing, as their expected IPOs are so close and their valuations so overinflated. Earlier stages are insulated but this will not last.

Valuations have fallen dramatically to pre-pandemic levels while expectations and due diligence have increased. Companies will have to achieve the high growth of the past year with far less capital and those that could have coasted along in previous times will perish. High bars are being set by investors and companies will have to focus to reach them.

How one handles and manages cashflow is now of utmost importance. Investors will focus on your burn and want to know when you will hit cash flow breakeven. Investors will no longer just focus on growth and traction, but also what the cost was to get you there (ultimately showing your ROI).

What Should You Do?

As a founder, your priority is now survival. Your burn rate, cash position and runway are your new golden metrics. You should also be talking about your break even point, which is the ultimate number to get control of your destiny. When you have a handle on that number, you can choose when you raise or not.

There’s no doubt that this is going to be a rough year but, as always, many of the best companies are created during challenging times and we will keep our eyes and ears open for those category winners.

Moonfire Tokenomics Explorer

We're excited to announce the launch of our Moonfire Tokenomics Explorer. This is an interactive dashboard, powered by the Moonfire Tokenomics Data Set, which we open-sourced in March.

We built the Tokenomics Explorer for 2 reasons:

• Accessibility: While we love to explore data in CSV format or code, an interactive UI makes it much more accessible for a wider audience
• More features: The web UI lets us build insightful new features. The first one is live today! If you enter your own custom token distribution, we will show you if there are existing projects with similar distributions. This allows you to understand if your token distribution is common or rather non-standard.

You can try it out yourself on https://tokenomics.moonfire.com

Now that we released the first version of the Tokenomics Data Set and Explorer, we'll focus on adding more data and more features.

Stay tuned!

PODCAST OF THE MONTH

The Full Ratchet interviews Chuck Newhall about founding story of NEA

Nick Moran, the founder and General Partner of New Stack Ventures, interviews Chuck Newhall of NEA on The Full Ratchet. Chuck explores the founding stories of NEA and explains that Venture Capital evolved well before Arthur Rock with the idea of a 20% profit share going back thousands of years to Phonecian times.

GOOD READS OF THE MONTH

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
by Gregory Zuckerman

The first and fascinating look into the mind of Jim Simons, the shy billionaire who revolutionised Wall Street with Renaissance Technologies.
Jim Simons is the greatest moneymaker in modern financial history yet his strategies are shrouded in mystery. This book helps us glean valuable insights into his methods.

Thank you for tuning in. Not yet subscribed? We’ll sort that out for you here. If you know someone who’d love to read this newsletter, feel free to share it here. Wishing you a great rest of May!

Best,
Mattias
🌓🔥