I am not sure what will cool the investment climate more. The fact that facebook's IPO was a disaster or that PG sent this letter and recommends to be cautious.
Facebook IPO disaster, coupled with Yelp and Groupon and the others, is the real death knell. PG's letter merely states the obvious.
The goal of the VC game is to get 10x+ returns. That only happens for early or mid-stage investors if there are investors down the line investing at higher valuations. Those late stage investors depend on the IPO exit. If the late-stage investors lose confidence (which is what appears to have happened), the mid-stage investors lose confidence and thus the entire market contracts.
From the other side, the entire wall street game is crashing. People, for better or for worse, are convinced that the entire equities game is a sham. Volumes (which lead to commissions and revenue for the firms) are down in all of the asset classes, and the bonds have reached near-ponzi yields (swiss bonds actually have negative yield, which means investors are actually paying interest ...), so the "retail investor" who traditionally buy into the IPOs aren't playing a significant role anymore
But PG's argument is the Facebook IPO will put off investors investing in __startups__, this is the very definition of early investors, which for facebook has made a few billionaires and many millionaires.
You have to work backwards. The penultimate round of investors depend on future investors to buy in at a higher valuation. The third to last group depend on the second to last group. And you can walk this all the way back to the seed stage. If there are few people left at the end to buy up the IPO then the late stage investors dry up and the ripple works its way back to the seed and angel rounds.
I'm thinking that too. Reminds me of the "RIP Good Times" Sequoia effect. And now, other prominent investors are posting in agreement with this article, furthering the ripples.
