Davis: The denominator effect forces VCs to stretch deployment pacing
Mark Davis · Startup Acquisition Stories with Mark Davis - Managing Partner at Interplay · Aug 2, 2022 · at 15:22
Mark Davis, Managing Partner at Interplay, explains how institutional portfolio rebalancing triggers VC pacing slowdowns during market downturns.
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“The reaction that they end up having is saying, Hey we're overweighted venture. We're not going to give any money to new V to VCs for a while. And VCs know this. And so the net result is VCs say, okay, well, it's going to be really hard to raise capital. Let's hold our breath. Let's, you know, instead of doing 10 deals this year, let's do 10 deals over the next two years, five deals a year. So we can be raising in a more favorable economic environment when the LPs are gonna be ready to give us cash again. And the result is there's a short, there's a reduction in the amount of capital going into startups, affects valuations, affects hiring, affects everything.”
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