Investors are not worried because they now know that if things get bad enough the government will step in to stabilize things. Regular people will buy more things on credit until they can't pay, rather than downgrading their lifestyle. If things get bad enough and defaults start affecting the banks, well, the government will backstop that too. Our capitalism with airbags will not let pain become too bad any time a crisis starts to brew. Not saying this is a good thing but that's what we've been trained to expect.
The 2022 parallel that matters most for early-stage investors is not what happened to the Nasdaq but what happened to startup funding in the twelve months after. Seed valuations compressed. Bridge rounds multiplied. Angels who had written checks at 2021 prices spent 2023 explaining to founders why follow-on was no longer available. The pain did not show up in portfolios immediately but eighteen months later when companies needed their next round and the market had quietly changed the terms. If the chain reaction Ed describes plays out again, the same delay applies. The startups raising right now will feel it at Series A, not today.
Points well-made, but '22 was exogenous, whilst '26 is entirely self-inflicted. That distinction matters. Exogenous shocks are harder to resolve because no single actor controls the off-switch. In '22, the Fed had to fight inflation it didn't create and couldn't easily stop. Self-inflicted damage is different: There's one man who can change course, be pressured into changing course, or be replaced. Markets may simply be pricing in the probability that someone flips the switch, sooner or later. Calling that irrational seems a bit too strong.
Ed, while I understand FUD sells (especially podcasts!), I worry you get down and depressed delivering that message.
I recommend listening to this Carter Family tune every morning to balance that dark side.
https://youtu.be/UrI_ZAkgHBI?si=Q97nxEFiY1DUsXs2
Investors are not worried because they now know that if things get bad enough the government will step in to stabilize things. Regular people will buy more things on credit until they can't pay, rather than downgrading their lifestyle. If things get bad enough and defaults start affecting the banks, well, the government will backstop that too. Our capitalism with airbags will not let pain become too bad any time a crisis starts to brew. Not saying this is a good thing but that's what we've been trained to expect.
The 2022 parallel that matters most for early-stage investors is not what happened to the Nasdaq but what happened to startup funding in the twelve months after. Seed valuations compressed. Bridge rounds multiplied. Angels who had written checks at 2021 prices spent 2023 explaining to founders why follow-on was no longer available. The pain did not show up in portfolios immediately but eighteen months later when companies needed their next round and the market had quietly changed the terms. If the chain reaction Ed describes plays out again, the same delay applies. The startups raising right now will feel it at Series A, not today.
Points well-made, but '22 was exogenous, whilst '26 is entirely self-inflicted. That distinction matters. Exogenous shocks are harder to resolve because no single actor controls the off-switch. In '22, the Fed had to fight inflation it didn't create and couldn't easily stop. Self-inflicted damage is different: There's one man who can change course, be pressured into changing course, or be replaced. Markets may simply be pricing in the probability that someone flips the switch, sooner or later. Calling that irrational seems a bit too strong.