About a year ago, we published a quarterly letter to our limited partners — in which we talked about the risk that the “…industry as a whole will see a 3x decrease in returns…” and commented on some of the irrational behavior we were seeing in the market. Specifically, we focused on the changes to entry and exit prices — and how the sharp increase in entry prices over the last several years might impact returns for the venture asset class.
Recently there’s been a marked change in market sentiment — which has begun to impact startup valuations at every stage. Investors are beginning to realize that picking the right entry price makes the difference between a picking a great company and generating great investment returns. And the market is waking up to the fact that many investors may have invested in great companies at inflated prices.
Given the public conversation that’s occurring about the health of the market right now, we thought it would be helpful to publish our latest letter to our limited partners — and we do so here, completely unedited. While we don’t anticipate making most future LP communications public, we did want to continue to participate in this important discussion.