November 2026
“The stock market significantly impacts startups; for instance, poor performance of public companies in the stock market leads to low revenue multiples, adversely affecting startups. Conversely, the 2021 stock market bubble, with its high multiples, enabled startups to raise capital at very high valuations.“
— Dalton Caldwell, Standard Capital
“We may never know where we’re going, but we’d better have a good idea where we are.“― Howard Marks, Mastering the Market Cycle
Everything in venture works in 10 year cycles tied to the cost of capital. It works like this. High inflation means low spending means high interest rates means high cost of capital means high unemployment means bust times means low interest rates means low inflation means low cost of capital means low unemployment means boom times means high spending means high inflation. Then we basically run this loop every 10 years for all of capitalism. You’ll notice I said venture but actually everything runs on this. Every asset on the planet.
The loop has one engine and it’s interest rates. Another term for interest rates is “cost of capital” and everything runs on the cost of capital. Because the interest rate is the price of money itself and every asset on earth is priced in money borrowed from somewhere. When central banks cut rates to fight a recession, they are making the future cheap. When they raise rates to fight inflation, they are making the future expensive. And that one dial, turned back and forth reprices every asset you own and every company you’ll ever build.
Here’s the mechanism. A business is worth the discounted value of its future cashflows and the discounting is done at effectively the interest rate. When rates are near zero, a dollar arriving in a decades time in 2035 is worth almost a dollar today, so companies whose entire value lives in the distant future, which is to say startups, are suddenly worth fortunes in the present.
The interest rate is a sort of hurdle risk free rate where you can keep the money in a bank account and earn the risk free rate literally with no risk. That’s why it’s there. So when you invest in anything, you’re implicitly saying this asset will perform better than and return above the risk free rate so as to justify the higher risk of doing that instead of getting the “free return” by keeping the money safe and in a bank account.
When rates go up to say 5%, that same 2035 dollar gets marked down, year after compounding year by 5% per year, and the distant future goes on sale. This is why the 2021 zero rate world paid 50 and 100 times revenue for software companies and the 2026 world pays 5 to 10 times for the same companies, growing the same way, run by the same people. The companies didn’t change. The price of the future changed.
And notice which assets swing hardest because the amplitude isn’t evenly distributed. A corner shop earning its money this year barely notices rates because its value is mostly near term cash. Property swings harder because it’s long duration and leveraged, but land has a floor under it, you can stand on it, someone will always pay rent. Businesses swing the hardest and within business is the subset of startups which swing even harder again.
A startup is the purest long duration asset ever invented, one hundred percent of its value is in the future years and zero percent of it is standing on anything, so when the price of the future moves, venture multiples don’t adjust, they convulse. Same physics everywhere, from bonds to houses to unicorns. Venture is just the asset class standing closest to the amplifier with the furthest out in the future cashflows which can therefore be discounted to the present the harshest. So when the cost of capital increases, venture multiples compress the fastest.
Now here’s the part of the conversation that I think is genuinely not understood, even by people inside the industry, and it’s about knowing which part of the cycle you’re actually in, because the cycle lies to you. In 2025, the headlines said venture was booming, deal value rebounded to within sight of the 2021 record, AI startups were raising rounds that made the pandemic look restrained. Boom times, right? Super cycle? Except at those same times there was actually less real venture capital than ever, and the way to see it was to stop counting the money and start tracing it. Where the money comes from and where it was going before it showed up here.
Classic venture funds seeding new startups, the actual venture industry, raised the lowest total since 2018, at a third of the fund count of the 2021 peak. First time funds nearly vanished. The number of venture firms in existence actually fell for the first time in the first outright decline ever recorded in the history of the industry. Meanwhile the headline deal numbers were being carried by $100 million plus mega rounds, roughly 70% of all funding written by sovereign wealth funds, corporate balance sheets like Microsoft and Nvidia, and crossover public market investors. This isn’t traditional venture capital, this is capital that in a normal cycle would have arrived after the IPO.
That’s the tell. What used to be IPOs are staying private for much longer, so the money that used to buy the IPO is coming upstream to buy the same companies pre listing, passing through venture shaped growth vehicles on the way. The biggest firms are, functionally, trying to become a type of early public market investors. Andreeson Horowitz is trying to be Fidelity and Sequoia is trying to be Vanguard because quite literally that’s whose money it is. It’s not venture money in any traditional sense. It’s public markets index money showing up in venture. The growth stage of venture capital has become the earliest stage of public market investing.
So the correct reading of 2025 wasn’t boom. Strip out the migrated IPO money and what’s left is a classic venture industry that had been shrinking for years, with the broad middle, the ordinary Series B software company, unable to get funded or achieve liquidity. The reason is the same one, because companies are not IPOing at the rates they used to. IPOs are what refill LP pockets and LPs are who fund new venture funds. No IPOs equals no distributions. No distributions equals no new funds, regardless of how spectacular the private mega rounds look on paper.
One narrow corridor of the market, the growth stage emulating early public markets was booming, and everyone standing outside the corridor was in the deepest trough since the GFC, and both groups were reading the same headlines. You can think you’re in a super cycle and actually be in a trough. Don’t ask how much money is flowing. Ask whose money it is, what created it, and what refills it, because money created by a zero rate environment is on loan from that environment, and when the rates come back, so does the money, all at once, in reverse.
Time in the market beats timing the market is gospel, and for public index investing it’s true, you can’t pick the good and bad days but missing the best handful of days means missing most of the returns, so you buy and never sell. But that advice is built for an asset you can buy in any quantity on any day and hold through anything. A business is not that. Selling a business is a single, enormous, unrepeatable transaction, and its price is the product of two numbers: what you built, and the multiple the cycle is currently paying for it. You control the first number with a decade of your life. The cycle controls the second, and the second can influence the outcome more.
Let’s say your company does $10 million in revenue. At the top of the cycle in the boom years, software is trading at 10 times revenue and your company is worth $100 million. In the trough years, the same company trades at 2 times revenue, call it $20 million. For the trough version of you to be worth what the peak version of you was worth, you need to grow revenue 5X, and at a very good 50% a year growth, growing 5X takes the better part of a decade.
The multiple moving from 2 to 10 did in one repricing what ten years of excellent operating would have done. In public index investing, timing the market might win or lose you a few percent. In selling a business, timing the market is worth more than a decade of your life. Time in the market beats timing the market, except when the market is pricing the one thing you will only ever sell once, and then timing isn’t a factor. It’s actually most of the outcome.
So the rule, stated plainly, the best time to sell a business is when multiples are expanding, and the worst time is when they’re contracting, and this matters more than almost any operational decision you will ever make. The window opens for maybe a few years every cycle. The founders who sold in 2021 at 30 times revenue were not 30 times better than the founders selling identical companies in 2024 at 3 times; they were standing in the open window, some by genius, most by luck.
And the reverse discipline is just as important, do not sell in the trough unless you’re forced to because the multiple you’ll get will be bad and there’s almost nothing you can do about it. The whole point of being unkillable is that nobody can make you transact at trough prices. Troughs only hurt the people who have to sell in them, and have to is almost always a financing and planning failure, not a market one.
Property runs the same cycle with the volume turned down. Yields compress when rates fall and expand when they rise, the best time to sell development stock is into the expansion, and the worst conversations of my career have been with people forced to settle projects into a contraction. But dirt has an intrinsic floor and a rental income and infinite patience, so the property cycle bruises where the venture cycle amputates.
The lower the asset’s duration and the harder its floor, the more time in the market wins; the longer the duration and the softer the floor, the more timing is everything. Index funds sit at one end, startups at the other, and most of the bad advice in finance comes from people applying one end’s gospel to the other end’s assets. This is the most important takeaway, don’t think about a startup through the lens of index investing.
There is a corollary to this concept which is that startups need to grow into their valuations in the era that they’re in. A company that exists for many decades will be alive through many of these cycles. But at each point in the cycle the underlying business will be valued differently and the startup has to grow into each of the valuations ascribed to it. There’s another super concept here which is that the bigger a startup gets, the more its revenues have to converge with and meet reality. If you’re fundraising in boom years it is easier and the valuations are higher than when you’re fundraising in trough years and you have to plan for these cycles.
When a startup is funded, it is almost always overpaying for the future. Then the revenue growth has to catch up to that future. If the revenue doesn’t grow enough or fast enough to catch up to that future, then the entire financing stack of the startup is underwater. All of the equity in the business has been eaten by the preference stack of the financiers of the company.
This is a hidden risk that founders of slow growing but mature startups don’t factor in and it can catch them by surprise. The solution isn’t to fundraise your way out, it’s to keep costs lower and grow the revenue to surpass the inflated valuations such that you aren’t reliant on macro financing markets but from the revenues of the business itself. Doing this makes you immune to the market.
The other way is to not play the venture funding game at all and become entirely cycle agnostic and just be trying to build the biggest company you can be. Taking the view that you will continuously compound capital and grow revenues forever as quickly as you can and become a monster company eventually. In this version, the growth rate is less important because it doesn’t matter how fast you’re growing but just that you are.
The metric that matters here is how long you’re alive for. Something growing at 10% per year will eventually become a monster if it’s alive for 100 years. Which is why many of the largest companies in the world are businesses that were founded hundreds of years ago. They are growing slow but they are growing and intend to be around for a long time.
One of the problems though is when you’re inside the cycle it’s hard to remove your own performance from the outcome because you think you’re causing it. Founders think they’re geniuses when they’re at the top of cycles and get large multiples and think they’re terrible when they’re at the bottom and get small multiples. But really, it has nothing to do with them. The market is not a verdict about the quality of the business, even though it seems like it is. It’s a verdict on the cost of capital on the people and companies that can buy the shares of your business.
The greatest companies in history also go through this exact same cycle. In 1999 you could buy Microsoft shares for 25X revenue, in 2012 you could buy Microsoft shares for 2X revenue, in 2026 you can buy Microsoft shares for 10X revenue. In that 25 years all Microsoft did was grow revenues but the value of the business changed wildly.
Troughs feel from inside it like they’re permanent, personal, like proof the game is broken and you arrived too late. Like the water has gone out and all the ships are washed ashore. Especially for founders that have only ever built with a tailwind behind them and have never sailed with a headwind against them. Because that’s exactly what it is. But then the tide comes right back and all the ships start floating again.
It’s a phase of a cycle that has run every decade for all of capitalism and the capital that vanished didn’t die, it’s parked in risk free assets waiting for the rate cycle to turn, and when it turns the money will come flooding back and the multiples will expand and the same journalists currently writing obituaries will write about the new golden age as though it fell from the sky. Then it’ll turn again and we’ll repeat it again.
2021 was a high. 2026 is a low. 2031 will be a high again and so on and so on. Your career is maybe four or five of these 10 year cycles. You don’t get to pick which phase you start in. You only get to know which phase you’re standing in, build in the troughs when everything is cheap and nobody believes and sell in the peaks when everything is expensive and everybody does. Then we go back and forth till we’re all dead or billionaires. Just survive till you get there.