My dad is always the first person to remind me: Business is inextricably linked to human nature.
So I stopped inhaling my chicken sandwich yesterday when he texted me a market meltdown article from The Atlantic, accompanied by just four words: "What do you think?" Usually, my dad and I are phone-talkers, so when he texts me about a work-related topic in the middle of the day, I know it’s because he’s wondering if we’re on the verge of something serious.
And we very well could be. Yesterday, the S&P 500 closed down by 3%, clocking its biggest single-trading-session loss since 2022. Japan’s Nikkei 225 had its worst day of trading since 1987. On Sunday, Goldman Sachs raised the probability of a recession within the next year, and this is all on the heels of a surprisingly unfavorable job report last week.
We’re at the point in the market spiral where Fed governors are sweating, online articles for recession-specific indicators are proliferating, and people are perhaps starting to be scared because it’s unclear what will happen next. But talking to VCs the message I got was pretty self-assured: We’re not worried.
"The reality is that it doesn’t change what we do at all," said Latif Peracha, M13 partner. "Our timescales are so long that unless you have a company that’s truly on the brink of an IPO, it doesn't really factor into how we feel in our day-to-day."
I got quite a few answers to this effect, reminding me that a recession fear spiral is exactly the sort of situation where venture’s somewhat removed from the hullabaloo: Nagraj Kashyap, Touring Capital general partner, via email said that "venture capital is, by its very nature, a long-dated asset class, so economic cycles don’t affect the industry as much as they do the market for public equities." And, especially if you're investing at the early stage, the macroeconomic environment "has little bearing on the ultimate success of those investments," Chip Hazard, Flybridge Capital general partner wrote via email.
It’s not that it doesn’t matter, per se. (I don’t think any VCs I know would be happy if we were drop-kicked into a recession tomorrow.) It’s just that the long cycle of venture necessitates asking different questions, about outcomes fairly far in the future.
"Being overly reactive to a very bad day in the public markets is the wrong way to do this job," said Nima Wedlake, Thomvest Ventures managing director. "It’s really important for us to think about, say, whether the nature of software adoption is changing at large enterprises. What do tools like ChatGPT mean for how quickly pure SaaS companies can grow? Those are some of the conversations we’re having—less so around the macro piece."
Pankaj Kedia, founder of 2468 Ventures and an LP in more than ten funds, was even more stark: "Any VC who's too worried right now about a possible recession probably isn't thinking the right way…I’ll go even stronger and say that that person is in the wrong business."
Sure. I do still have questions about this chorus of optimism. For example, if public companies are pinched, aren’t there fewer enterprise customers willing to spend on the flood of services that venture-backed AI and SaaS startups are offering? Are we really sure that LPs are going to be amenable to the risks of VC if their public markets investments are crumbling?
But a fortune teller looking into a crystal ball is never going to tell you "You’ll have a slice of pepperoni pizza for dinner tonight." Similarly, a VC is probably never going to say "This stock market dip is a huge problem for me this afternoon."
You could also make the case that these "no sweat" responses to recession fears also tie back to a harsh reality—that the last few years have been characterized by precariousness that’s especially hammered venture. Wedlake even described the last stretch as a "mini-recession" specific to VC; whether you agree or not, it’s undeniable that the volume of Black Swan events over the last stretch has been memorable. From the pandemic to the collapse of SVB to the implosion of FTX, at a certain point, a vanilla recession seems pretty darn manageable, especially if you live on long time horizons.
As a macroeconomics nerd, I’ve spent the past few months struggling to articulate the link between venture and the broader economic climate. I even sometimes think VC runs on its own rhyming, time-turned cycle.
"We’re investing early in these technologies that take a decade-plus to materialize," said Peracha. "It’s all interrelated, from the macro to the micro into the venture market. But it’s hard to connect one-to-one data because by the time you do that, it might not be relevant anymore."
So, though it’s in my nature to keep trying, I won’t attempt to make sense of it any further. At least, not today.
Moritz vs. Andreessen…In a Financial Times op-ed, Michael Moritz made an impassioned case: That for all the noise that big names like Marc Andreessen and Ben Horowitz have made, "Trump will not prevail" in Silicon Valley. He writes: "They are, I suspect, seduced by the notion that because of their means, they will be able to control Trump. And, I imagine they are also committing another cardinal error: deluding themselves that he will not do what he says or promises." Moritz, whose first career was as a journalist, stepped away from Sequoia Capital last year after almost four decades.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
Submit a deal for the Term Sheet newsletter here.
Nina Ajemian curated the deals section of today’s newsletter.
