Venture Mania Is Drying Up

In today's Masters Series, adapted from the January 10 issue of the free Altimetry Daily Authority e-letter, Rob explains why high interest rates have led to less venture funding... and why the pain won't be limited to real estate stocks... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: The days of "free money" are coming to a close... Coworking "tech" startup WeWork got a lot of help from venture capital throughout the 2010s. But recent rate hikes have caused firms to tighten their purse strings... meaning WeWork's venture-fueled stability came to an end last year. Rob Spivey, director of research at our corporate affiliate Altimetry, says this isn't an isolated incident. While WeWork's downfall is [likely the first in a string of real estate bankruptcies](... it also means venture-backed startups are running out of cash across all sectors. In today's Masters Series, adapted from the January 10 issue of the free Altimetry Daily Authority e-letter, Rob explains why high interest rates have led to less venture funding... and why the pain won't be limited to real estate stocks... --------------------------------------------------------------- Venture Mania Is Drying Up By Rob Spivey, director of research, Altimetry The past two years have been a bruising time to be a startup... In 2023 alone, no less than 3,200 private venture-backed businesses vanished. Those companies had raised $27.2 billion in venture capital ("VC")... all of which is now worth zero. VC mania was one of the best ways to gauge the impact of near-zero interest rates over the past decade. Investors got used to money being "free." They bet on companies that could rake in multibillion-dollar profits in the distant future. The odds didn't matter if it meant a seat at the table of the next Amazon (AMZN)... Alphabet (GOOGL)... or Tesla (TSLA). But as the Federal Reserve started aggressive interest-rate hikes in 2022, investors started to reconsider the value of those low-probability moonshots. VC firms got far more selective with their cash. That meant VC-backed startups began to burn through their reserves... before they were able to turn a profit. It's how we ended up with today's 3,200-company trash heap. And one of those companies was none other than coworking "tech" startup WeWork (WEWKQ). WeWork was built up in the venture-fueled mania of the 2010s... and has been brought down by the cash spigot being shut off. Today, we'll dig into how the tough VC environment pushed this business over the edge. --------------------------------------------------------------- Recommended Links: [Is a 'Market Heart Attack' Coming in 2024?]( In 2009, Joel Litman warned investors about 57 different companies that were about to go bankrupt... 50 of which collapsed within days. Now, he has stepped forward with another big warning – an imminent "heart attack" for the U.S. markets and economy. If you own a single share of stock, a business, a mortgage, or a loan of any kind... this will affect you. [Get the full story here](. --------------------------------------------------------------- [Regime Change at the Federal Reserve?]( The Fed just started rolling out new technology that'll "shake the U.S. financial system." It'll likely go down in history as the biggest change to money since Western Union launched its "lightning lines" in the early days of the telegraph. [Here's everything you need to know (including three steps to take to profit)](. --------------------------------------------------------------- WeWork clawed its way to nosebleed valuations by repackaging an old business model... Regular Altimetry Daily Authority readers know we've been following the real estate startup closely over the past year. Co-founder Adam Neumann had been marketing it as a "tech" company since WeWork got its start in 2010. Neumann managed to fool investors for nearly a decade. By the time WeWork tried to go public in 2019, it had reached a lofty $47 billion valuation. But it all fell apart when investors realized there was nothing special about WeWork. The only differences between this coworking company and its peers were a few more bells and whistles and better branding. Neumann promised to transform the world of office work through troves of data and new revenue streams. In the end, he lost billions of dollars for investors. As we wrote yesterday... It didn't matter how hard Neumann pushed the fun tech-firm atmosphere... WeWork was nothing but a real estate business... Like many other real estate companies, rising interest rates made it much harder for WeWork to operate... Its interest expenses exploded from $100 million in 2019 to more than $500 million in 2022... and its revenue fell by about $200 million. That was enough to doom the business. WeWork had previously been able to push off these issues... by raising billions of dollars in cash and debt each year. But it couldn't do that with the funding markets closed. And without new investment to fuel its losses, WeWork declared bankruptcy in early November. When the music stopped, WeWork found itself without a seat... And it won't be the last company left scrambling as cash runs out. We explained yesterday that WeWork likely kicked off a string of real estate bankruptcies. But the pain won't be limited to one sector. Plenty of startups raised a lot of cash in the good years of 2020 and 2021 – and before. Many of those companies are still operating as "zombies." They can't afford the interest on their debt, making them the "walking dead" of the investment world. Or they're close to running out of money as venture funding remains closed... with interest rates well above 2021 levels. Even if the Fed cuts rates a few times this year, it won't be enough to save them. This isn't the time to dive into beat-up VC-funded startups. They've exhausted their cash... and the usual outlets have all dried up. If you're not careful, you could get caught holding the bag for the next WeWork. Regards, Rob Spivey --------------------------------------------------------------- Editor's note: Rob believes we're approaching a downturn... and this isn't a good time to pour money into speculative VC stocks. In fact, he and Altimetry founder Joel Litman are urging folks to explore opportunities outside the stock market entirely... They're urging subscribers to consider their favorite "backdoor" approach... which could deliver double-digit income... triple-digit capital gains... and comes with legal protections, making it far less risky than many other types of investing. Best of all, you don't have to touch a single stock. [Learn more here](... You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberryresearch.com. Please note: The law prohibits us from giving personalized financial advice. © 2024 Stansberry Research. 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