Episode Summary
Executive Summary: In this episode of This Week in Startups, Jason Calacanis hosts Ben Gilbert and David Rosenthal from Acquired FM to discuss the current state of the VC market in 2023, characterized by retrenchment and a return to fundamentals. They analyze Y Combinator's shutdown of its continuity fund, the distortions caused by zero interest rate policies, and the impact on startup valuations and company building. The conversation also covers AI's rapid adoption, the future of social media platforms like TikTok and Twitter, and Amazon's strategic challenges.
Main Topics: Current State of VC Market in 2023 (Priority: 5/5): Discussion on the shift from 2021's exuberance to 2023's retrenchment, with startups focusing on profitability and realistic valuations. Early-stage valuations have dropped from $10M to $5-6M, and growth-stage multiples have fallen from 100-200x revenue to 13-15x. Y Combinator Shutting Down Continuity Fund (Priority: 4/5): Analysis of YC's decision to close its $700M growth fund and lay off 17 people. Theories include retrenchment to core business, LP resistance, and potential conflicts with founders expecting follow-on funding. Zero Interest Rate Policy (ZIRP) Distortions (Priority: 4/5): Examination of how cheap capital enabled innovation in AI and EVs but also created unsustainable bubbles in crypto and ride-sharing. The return to higher rates is seen as healthy for business fundamentals. AI as the Next Technology Wave (Priority: 5/5): Discussion on AI's rapid product-market fit, with ChatGPT reaching 100M users quickly. Debate on hallucination issues, the importance of citations, and the competitive landscape between OpenAI, Google, and Meta. Social Media Landscape: TikTok vs. Twitter (Priority: 3/5): Analysis of TikTok's potential sale, with wildcard buyers like Samsung and Microsoft considered. Twitter's improvements under Elon Musk, including video and lists, are contrasted with TikTok's global reach. Amazon's Strategic Challenges (Priority: 3/5): Discussion on Amazon's need for Bezos's return, the lack of a 'next AWS,' and potential acquisitions like Uber or DoorDash. The Palm scanning product and Amazon One are highlighted as innovations.
Key Arguments: The VC market has normalized, with startups focusing on profitability and realistic valuations, moving away from the 'raise at any cost' mentality of 2021. Y Combinator's shutdown of its continuity fund is a strategic retrenchment to focus on its core early-stage accelerator business, avoiding conflicts with founders and LPs. Zero interest rate policies were beneficial for capital-intensive innovations like AI and EVs but created distortions in crypto and ride-sharing, leading to unsustainable bubbles. AI has achieved rapid product-market fit, but challenges remain around hallucination, citations, and training data pollution from AI-generated content. TikTok's potential sale could involve unlikely buyers like Samsung, while Twitter under Elon Musk is improving stability and features, though it remains a 'current thing' for many users. Amazon needs Bezos's return to restore urgency and focus, with potential acquisitions in delivery (Uber/DoorDash) and a need to cut underperforming bets like Alexa. Apple's $1B/year movie production push is seen as a marketing play for Apple TV+, while its car project (Titan) struggles to achieve category-changing innovation.
Data Points: Early-stage valuation drop: From $10M to $5-6M - Median pre-seed valuation has halved from 2021 levels. Growth-stage revenue multiples: 13-15x - Down from 100-200x in 2021, reflecting market normalization. YC Continuity Fund size: $700M - Fund was closed, with 17 layoffs. ChatGPT user adoption: 100 million users - Achieved rapidly, indicating strong product-market fit. Amazon advertising revenue: $30-40 billion run rate - Described as 'free money' with no COGS. Apple movie budget: $1 billion per year - For theatrical releases to boost Apple TV+ subscribers. Space launch cost reduction: 100x since late 1980s - Enabled by SpaceX and others, making space startups viable.
Pivotal Quotes: "I think this higher interest rate, real cost of capital thing is good for the world. It's certainly good for investors." — David Rosenthal: Discussing the benefits of ZIRP ending and return to business fundamentals. "It is so clearly the next technology wave. And like, it is massively hyped. Is it overhyped? I don't know." — Ben Gilbert: On AI's rapid adoption and potential as the next major tech wave. "I think it's day two at Amazon. I think everyone just needs to admit that." — Ben Gilbert: On Amazon's transition from growth to maturity, needing focus on core pillars.
Implications: The podcast signals a return to disciplined investing and company building, with AI as the dominant opportunity. Founders should focus on profitability and realistic valuations, while investors should prioritize fundamentals over hype. The social media and tech landscape remains volatile, with potential M&A and strategic shifts ahead.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.