In an article at MarketWatch last Thursday, Jeffrey Funk and Gary Smith warned that the venture capital system is breaking down. Big startup losses are a major factor:

For years, the two of us have been warning of the dangers to America’s startup system posed by big startup losses. In 2013, angel investor Aileen Lee coined the term “unicorn” for startups that were valued at $1 billion or more before they went public. We have been documenting the unprofitability of these unicorns along with their huge cumulative losses (see here, here, and here). Furthermore, almost 60% of America’s publicly traded unicorns have cumulative losses larger than their revenues — a figure that doesn’t include the dozens of publicly traded unicorns which have gone bankrupt or been acquired in the past two years.

Jeffrey Funk, Gary Smith, “America’s venture capital system is breaking down— taking tech startups with it,” MarketWatch, July 11, 2024

A key theme for the canaries to cheep about is that sources of venture capital are drying up:

Endowments, pension funds, trusts and their peers are the limited partners (LPs) that are at the heart of the venture capital system, since they channel funds to venture capital firms. Business Insider recently reported that a growing number of limited partners have begun reneging on their commitments. LPs are legally liable for money they have promised the VCs, but few VCs want the bad press and possible domino effects from suing LPs. Better to pretend that all is for the best in this best of all possible worlds. Keep collecting fees and keep hoping that greater fools will soon appear.

Funk, Smith, “Taking tech startups with it

How serious the current downturn will be, they say, depends on how long the current AI bubble lasts. Winter always comes, just not when many of us expect it. Read more here.