Praying to the god of appreciation. Something has happened in the last 7 years… | by Mark Suster | December 2022

Something happened in the last 7 years in the startup and venture capital world that I hadn’t experienced since the late 90’s – we all started praying to the valuation god. It wasn’t always like that and frankly it took a lot of joy out of the business for me personally.

What happened? How can our next phase of the journey seem brighter, even with more uncertain days for startups and capital markets?


I started my career as a programmer. In those days, we did it for the joy of solving problems and seeing something we created in our brains come to fruition in the real world (or at least the real, digital world). I have often thought of creative endeavors where one has a quick turnaround between idea and realization of one’s work as one of the more satisfying experiences in life.

There was no money train. It was 1991. There were startups and a software industry, but barely. We still loved every moment.

The web browser and thus the WWW and the first internet companies were born around 1994-95 and it was a golden period where everything seemed possible. People built. We wanted new things to exist and solve new problems and see our creations come to life.

And then in the late 90s money crept in, swept into town by public markets, instant wealth and an absurd sky-rocketing of valuations based on no sensible calculations. People proclaimed it was a “new economy” and “the old rules didn’t apply” and if you questioned it, “you just didn’t get it.”

I started my first company in 1999 and admittedly got swept up in it all: magazine covers, fancy conferences, artificial valuations and easy money. Sure, we were building SaaS products before the term even existed, but at 31, it was hard to delineate reality from what all the money around us was telling us we were worth. Until we weren’t.


The dot com bubble had burst. No one cared about our valuations anymore. We had nascent revenues, ridiculous cost structures and unrealistic valuations. So we all stopped focusing on this and just started building. I loved those salad days when nobody cared and everything was hard and nobody had money.

I remember once seeing Marc Andreessen sitting in a booth at The Creamery in Palo Alto and no one seemed to notice. If they didn’t care about him, they certainly didn’t care about me or Jason Lemkin or Jason Calacanis or any of us. I’d see Marc Benioff in line for Starbucks at One Market in San Francisco, and probably few people could pick him out of the line then. Steve Jobs still walked from his house on Waverly to the Apple Store on University Ave.

In those years I learned how to build products the right way, price products, sell products and serve customers. I learned to avoid unnecessary conferences, avoid non-essential costs and strive for at least a neutral EBITDA if for no other reason than no one was interested in giving us more money.

Between 2006-2008 I sold both companies I had started and became a VC. I didn’t make enough to buy a small island, but I made enough to change my life and do some things I loved out of a love of the game versus a necessity to play.


While I was a VC in 2007 and 2008, those were dead years because the market evaporated again due to the Global Financial Crisis (GFC). Almost no funding, many VCs and tech startups cratered for the second time in less than a decade after the dot com burst. In retrospect, it was a blessing for anyone who became a VC back then because there were no expectations, no pressure, no FOMO and you could figure out where you wanted to make your mark in the world.

Starting in 2009, I started writing checks consistently, year in and year out. I was in it for the love of working with entrepreneurs on business problems and marveling at the technology they had built. I had realized that I didn’t have it in me to be as good a player as many of them did, but I had the skills to help as a mentor, coach, friend, savings partner and patient capital provider. Over the course of 5 years, I sat on the boards of real businesses with meaningful revenue, strong balance sheets, no debt and on the way to some interesting exits.

During this era, from 2009-2015, most of the founders I knew were involved in building great and sustainable companies. They wanted to build new products, solve problems that weren’t solved by the last generation of software companies, and grow revenue year over year while keeping costs in check. Raising capital was still difficult but possible, and valuations were linked to underlying performance metrics, and everyone accepted that the ultimate exit – either through M&A or IPO – would also be based on some level of rational pricing.


Aileen Lee of Cowboy Ventures first coined the term Unicorn in 2013, ironically to signal that very few companies ever achieved a $1 billion valuation. 2015 had come to mean for the market a new era where the business fundamentals had changed, companies could easily and quickly be worth $10 billion or MORE, so why worry about the “entry price!”

I wrote a post in 2015 recalling at the time how I felt about all of this, titled “Why I Hate Unicorns and the Culture They Breed.” I admit that my writing style back then was a bit more carefree, provocative and opinionated. The past seven years have softened me and I yearn for more inner peace, less anxiety, less resentment. But if I were to rewrite that piece, I would only change the tone and not the message. Over the last 7 years we have built cultures of fast money, instant wealth and valuations for valuation’s sake.

This era was dominated by a ZIRP (zero interest rate policy) from the Federal Reserve and easy money in search of high yields and encouraging growth at all costs. You had access to our ecosystem of hedge funds, cross-over funds, sovereign wealth funds, mutual funds, family offices and all the other sources of capital that drove up valuations.

And that changed the culture. We all began to pray at the altar of the almighty appreciation. It was nobody’s fault. It’s just a market. I find it funny when people try to blame VCs or LPs or CEOs as if anyone could choose to control a market. Ask Xi or Putin how they are doing.

Valuations were a measure of success. They were a way of raising cheap capital. It was a way to make it difficult for your competitors to compete. It was a way to attract the best talent, buy the best startups, grab headlines and continue to grow your… valuation.

Instead of increasing revenue and keeping costs down and building good corporate cultures, the market was chasing valuation. In a market that does this, it becomes very difficult to do anything else.

And the rate party lasted until November 9, 2021. We had lampshades on our heads, tequila in our glasses, loud music and maybe too much sand, and burning men, and art exhibitions and three commas. The overhang was bound to sting and last longer and cause some people to stop playing the game altogether.

We are still trying to find our sober balance. We’re not there yet, but I see signs of sobriety and a new generation of startups that have never had access to the Kool Aid.


Valuation obsession was not limited to startups. In a world where LPs benchmark VC performance on a 3-year time horizon from the deployment of your fund (is your 2019 fund in the top quartile!!??) you have to pray to the valuation gods. Up and right or perish. I see your $500 million fund and I get you a $1.5 billion fund. Top it off! Oh, $10 billion? Whew. Hey, we have to raise again next year. Let’s deploy faster!

We were told that Tiger was going to eat up the VC industry because they put in capital every year and didn’t take board seats. How does that advice hold up?

So now our collective companies are worth less. If we made them public, we’re naked now. The tide has gone out. If they are private, we still have fig leaves covering us because some rounds can raise debt vs. equity or can finance with terms such as multiple liquidation preferences or full-ratchets or convertible notes with caps. But this is still about valuations, and none of it is fun anymore.


I don’t have a crystal ball for 2023-2027, but I do have some guesses about where the new sober markets might go, and just like in our personal lives, a little less alcohol might make us fundamentally happier, healthier, for the right. reasons and able to wake up every morning and continue our journeys in peace and for the right reasons.

I enjoy more discussions with startups about the ROI benefits of customers using our products rather than the coolness of our products. I enjoy more focus on how to build sustainable businesses that don’t rely on ever more capital and logarithmically increasing valuations. I find comfort in founders who are in love with their markets and products and visions – regardless of the financial consequences. I am convinced that money will be made from people who frugally and diligently follow their passions and build things of real substance.

There will always be outliers such as Figma or Stripe or perhaps OpenAI or similar that create a fundamental and persistent and massive change in a market and that collect oversized returns and valuations and rightly so.

But the majority of the industry has always been made by amazing entrepreneurs who build out of the industry’s extreme spotlight and build 12-year “overnight successes” where they wake up with $100m+ in revenue, positive EBITDA and a chance to control their own destiny.

I’m enjoying myself again. It’s really the first time I’ve felt this way in 5 years or so.

I told my colleagues at our annual holiday party this past week that 2022 has been my most fulfilling as a VC, and I’ve been doing this for > 15 years and almost 10 more as an entrepreneur. I feel this way because no matter how much entrepreneurs get kicked in the shins by the financial markets or by the customer markets, I always find someone who dusts himself off, cuts the coattails after the cloth and continues determined to succeed.

Deep down, I love working with entrepreneurs and products, strategy, go-to-market, financial management, pricing and all aspects of building a startup. I guess if I loved spreadsheets and valuations and benchmarking, I’d be working in the even more lucrative world of late-stage private equity. It’s just not me.

So we’re back to building real businesses. And that personally gives me much more joy than obsessing over valuations. I feel confident that if we focus on the former, the latter will take care of itself.

Photo of Ismael Paramo on Unsplash

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