The Coming Apocalypse… of September 2021

While most companies and VCs are focused on the public market collapse of the past month, there have not been tremendous ripple effects throughout the venture market as of yet. Early stage round numbers and sizes are still holding strong and VCs with already-raised funds seem to be continuing to deploy at about the same pace. While startups may run out of funding over the next 3–6 months at higher rates than the pace of the past 6 months, there doesn’t appear to be a catastrophic near term outlook.

Many companies raised rounds in the past 6 months and are now adjusting their burn to last another 18 months. Those slated to run out of cash in the next 12 months are, from what we’ve seen, raising insider bridge rounds to provide them with 18 months of runway. Generally speaking, companies and VCs agree that with 6 months to ride out the near term economic impacts of coronavirus and 12 months of renewed growth all will be well — so companies are budgeting to an 18 month window to raise their next round.

While that all makes sense on paper, there’s a game theory component at play here. If most companies and VCs are now putting themselves on an 18 month clock that begins March 2020, then there will be a massive percent of venture backed companies looking for their Series A or Series B 18 months from now — in September of 2021. Given that there’s no reason to expect the number of Series A or B investments to increase then, there will clearly be unprecedented levels of competition for those A and B rounds.

Typically a fund will see a relatively well distributed flow of deals throughout the year — in the last decade there hasn’t been a single convergence point where so many companies will run out of money at the same time. September 2021 will be that point in time.

So while I don’t expect a toxic environment for startups in the near term — just dinosaurs being killed by faster predators — there is a mass extinction event looming on the horizon. Get your asteroid binoculars ready and set your clocks for September 14, 2021.