Something that’s not flying high are the valuations at one high-profile VC firm. But it could just be the first of many to be taking a hit.

What’s on deck:

• Markets: Buying a home isn’t going to get cheaper anytime soon.
• Tech: Here’s what to expect when Apple reports its earnings later today.
• Business: How Big Pharma avoids paying big taxes in the US.

VC markdown meltdown

Union Square Ventures, historically considered one of the top-performing venture firms, marked down the value of seven of its funds by nearly 26% this year, writes Ben Bergman.

The data comes from investment returns Ben obtained for Utimco, the investment firm that manages the $65 billion endowments of the University of Texas and Texas A&M systems. The firm’s investments in USV funds went from being valued at $201 million at the end of February to $149 million by the end of May.

At first glance, it might appear as if Union Square Ventures has simply made some bad bets. Other venture holdings in Utimco’s portfolio — Sequoia Capital, Y Combinator, and GGV Capital — remained mostly unchanged.

USV has had a pretty incredible track record with Utimco, delivering a nearly 60% annual return (excluding fees), but nothing lasts forever. Past performance is not indicative of future results, as the old saying goes.

But the returns could also be a glimpse into the pain that’s set to hit the wider VC market.

Venture firms are required to value their holdings, but there is plenty of wiggle room. Shares in startups aren’t regularly traded — as with a public company — so there’s plenty of room for discretion.

So while VCs were happy to update valuations when business was booming in 2020 and 2021, they’re probably less enthusiastic to make adjustments now that the tech market has largely tanked.

Which brings us back to USV. Since the firm has largely outperformed the wider market over the years, “they aren’t really terribly worried about writing down unrealized gains,” one Bay Area VC told Ben.

However, funds that haven’t delivered the same eye-popping returns to investors may not be as keen to mark down funds.

Of course, one can play that game for only so long. Insiders have already warned an “extinction event” is on the horizon for startups. If companies start going under, VCs will have no choice but to adjust valuations. But at that point, their investors might feel blindsided.

So VCs are left with a choice: Get ahead of the bad news early by taking a more realistic look at their holdings, or hope the sky-high valuations of just a few years ago can make their return, however implausible that may seem.

3 things in markets

1. The January 6, 2021, Capitol riot played a role in Fitch’s decision to downgrade US credit. A top official told Reuters the insurrection was brought up in meetings with the Treasury prior to making the controversial decision to downgrade the US from AAA to AA+. It’s only the second time one of the major credit-ratings agencies had lowered the US government’s debt-repayment score.
2. How to get in on the AI investing bandwagon. Goldman Sachs estimated AI investments could account for as much as 4% of the US economy by 2025, hitting $100 billion. From specific semiconductor-related companies (Marvell Technology, Synopsys) to tangential industries, notes from three banks outline how to make smart bets in AI.
3. Home prices aren’t slowing down anytime soon. Buckle up, prospective homebuyers. Home prices could rise 6% in 2023 and 7% in 2024, according to an estimate from the American Enterprise Institute Housing Center.

1. What to expect from Apple’s earnings call. One Wall Street analyst predicted “another flex the muscle moment” for the iPhone maker. All eyes are on Apple’s performance, because it could set the tone for the broader stock market.
2. Big Tech companies no longer pay employees the most. New data shows that engineers are likely to get more money at smaller companies like Databricks or Stripe. They replace giants like Facebook and Google, which had long been among the highest-paying companies.
3. “Death by LLM” — AI is competing with online communities. Sites like Wikipedia and Stack Overflow thrived as shared information hubs. People could post questions on a forum and have people chime in. But AI tools like ChatGPT can now give people straightforward answers immediately — without having to wait on or deal with others.

1. Big Pharma’s big tax dodge. Americans pay the highest prices globally for lifesaving medications. Yet of US pharmaceutical companies’ $100 billion of combined profit, they said $90 billion was made abroad and only $10 billion came from US operations. That means tax revenue from US sales is being paid abroad, rather than being reinvested at home, Brad Setser and Tess Turner write for Insider.
2. Ex-Google recruiter says “everyone fails” at following up after applying for a job. Nolan Church said that when he worked at DoorDash, the company took calls with 90% of applicants who’d sent personalized messages.
3. What Elon Musk should do to successfully transform X into a killer app, according to a Fortune 500 project-management expert. He needs to execute ruthlessly, said Te Wu. This includes treating it like a complete business transformation and clarifying the vision.

Pimples, Barbie, & more

• Gov. Ron DeSantis of Florida says he has “sympathy” for some student-loan borrowers. He supported bankruptcy as an option.
• How to pop a pimple, from an expert in the field. Dr. Sandra Lee, aka Dr. Pimple Popper, offers tips on how to safely pop zits.
• Taylor Swift has reportedly shelled out $55 million in bonuses to the Eras tour staff. That includes $100,000 to each of the roughly 50 truckers who worked on the 17-week US leg of the tour.
• Canadian Prime Minister Justin Trudeau announced a split from his wife. He and Sophie Grégoire Trudeau were married for 18 years.
• Freelance writers share how to make a living off Fiverr. They revealed strategies like how to secure clients and promote their own work.
• A Goldman Sachs analyst was found dead in a New York creek. CEO David Solomon said the firm was shocked and saddened to learn of the 27-year-old’s death.
• Leaked email: Jeff Bezos is tightening his return-to-office policy. He told employees at his space company Blue Origin that “Blue is a work-from-work company.”
• Barbie is still very much about life in plastic. A fake campaign by environmental activists about Mattel going plastic-free duped some news outlets.

Earnings, Trump, Lollapalooza

• Earnings on deck today: Apple, Airbnb, Nintendo, and other companies. See our calendar here.
• Former President Donald Trump is scheduled to appear in court at 4 p.m. ET. The arraignment (a session when someone formally reads the defendant the charges against them) is about Trump’s efforts to overturn the 2020 election results.
• Lollapalooza kicks off today in Chicago. Billie Eilish and Karol G are the music festival’s first-day headliners. Other Lollapalooza headliners are Kendrick Lamar, The 1975, Odesza, Tomorrow X Together (also known as TXT), the Red Hot Chili Peppers, and Lana Del Rey.

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