You Never Count Your Money When You’re Sittin’ At The Table

I was driving home from somewhere or other this week, talking on the phone to a friend.  She wanted to know if I was going to the HLTH conference in October (yes) and she asked if I like going to Vegas, as she is not a huge fan of that town.  As much as I hate to admit it, I freaking LOVE Las Vegas.  I will take any excuse to go there.  Why? Well, two reasons.

One, how can you not love a place where no matter how hard you try, you will not be the weirdest person present.  You can do/wear/act nearly any way you want in Vegas and hardly be noticed.  It’s one of the few places you can go to be unabashedly yourself and no one could possibly care how kooky you are when you show up.   Love that.

Two, I love to gamble. I mean, let’s be real, it’s kind of what I do for a living.  I mean, I do it in a researched, planful, -ish informed kind of way, but in the end you put your money on 17 black and hope the ball lands in the right slot 10 years or so later. I wrote a blog post about this years ago, found here). Meetings in Vegas amount to work-sanctioned opportunities to play craps at night.  This is the kind of 24 hour work cycle I can feel good about.  May the games begin!

Did you know that on a roulette wheel, the 17 is surrounded by the 5 and the 32?  I knew that.  That’s how much of a dork I am.  Though I have to say my real game is craps. I could play craps until my knees need replacing from standing too long.  Anyone want odds on when I’ll need that knee replacement?  I can link anything to health care if you give me a minute.

Anyway, I hung up the phone with my friend after my fulsome defense of Las Vegas and, as if the universe (or at least my cell phone) was listening, The Gambler, sung by Kenny Rogers, was playing on the car radio.  Now that is a great song.  And many a Board member/investor has quoted the line “you gotta know when to hold them, know when to fold them, know when to walk away, know when to run.”   That’s the famous line from the song that most people would know.

But as I listened to this Golden Oldie (Rogers’ version is nearly 50 years old!) I realized this was the wrong line of the song for this particular moment in investing history.  The stanza everyone should be quoting right now is this one,

“You never count your money when you’re sittin’ at the table,

“There’ll be time enough for counting when the dealin’s done.” 

I say this because we are still in the middle of the great valuation reset, and being an investor right now is kind of like this.

 

Yes, the Fed cut interest rates this week, and the stock market seems mostly happy about it, but venture capital is a lagging indicator of market conditions, not a leading one.  So even if this Fed action and, heaven help us, whatever happens November 5^th, is a plus for the stock market, the world of venture capital is still going to be wandering in the woods for a while.

According to PitchBook’s US VC Valuation Report, published in August 2024, “the pandemic-era highs are long gone, and for many startups that means finally coming to grips with a cut to their valuation. Flat and down rounds for VC-backed companies hit a decade-high in the first half of 2024, comprising 28.4% of all deals.”  And by the way, they are not expecting things to get better anytime soon, saying in another report.  Rather they expect it to stay worse before it gets better if the last two market crashes were any indication.

Deep breaths friends.  We will all survive if we follow Kenny Rogers’ advice.  In fact, that’s why the other Gambler song verse is so important.   If you base your win/loss record on interim valuations that are established PRIOR to exit (aka, at a time other then when the dealin’ is actually done), you are deluding yourself.  High valuations are nice and all and seem to make some people think that their…crowd sizes…are extra big.  But it’s kind of like counting your chips at the craps table when you’re not yet walking away.  You might look down to see a Supersize Doritos bag size pile of chips while you’re playing, but it’s only when you slink back to your room with the chips and your high heels in your hand that the pile is worth counting.  Same goes for venture investments.  Your Series A, B, C valuations may be big, but, as Shania Twain would say, “that don’t impress me much.”  The giant check you get from an acquirer?  Now that’s another story. I can listen to that song all day long.

Some investors are getting frustrated that they can’t find good enough deals to invest in right now.  The great companies that have great (aka appropriate) valuations at this moment are kind of few and far between.  Far too many of the deals I and others are seeing right now are, as I like to say, good ideas and bad investments, largely due to their CEO’s and/or prior investors inability to recognize that valuation gravity is real.  When we finally get a full alignment between valuations and value-creation metrics, we will be back to wild and crazy VC check-writing.

The one exception to this rule is that we are still seeing wild and crazy VC check writing when it comes to deals that have AI on their bingo boards.  Seriously, people, will we ever learn?  While I and everybody else knows that AI will be ubiquitous at some point, it is the rare early company in a new technology frenzy that makes it to the finish line.  A few companies will be the exceptions that prove the rule.  The rest will be the seedlings that bloom into our next valuation crisis, ensuring that I might actually see a 4^th venture market correction in my career.  Given that the best bet to place right now is on Xanax futures.  I’m going on all in.