In a recent phone call with a startup CEO, one of Tiger Global’s partners was asking a lot of questions: about the business and its outlook, about its position in the market. These phone calls had been standard, but the partner had never asked so many questions. 

“It was very different,” says the CEO, who spoke on condition of anonymity as Tiger Global is the company’s largest investor. “I can’t say if there was fear in that conversation…It was a new Tiger to me,” the CEO added.

For the past decade, seemingly everything that could go right in Silicon Valley has. The streets were awash with VC money, and startups were turning away offers. The phrase “unicorn”—a private startup valued at $1 billion or more—was coined in 2013, and by last year there were more than 1,100 of them. VCs have gotten rich, LPs have gotten rich—and so have founders. A total of $621 billion was invested in startups last year—and $294 billion in 2020, according to CB Insights. The party kept on rolling right through the Obama and Trump administrations. Even the onset of COVID—which prompted Sequoia Capital to update its famous “RIP Good Times” memo with the warning that the coronavirus was a “Black Swan” moment—proved to be just a blip. More unicorns. More exits. More IPOs.

But this winter felt different. There were rumblings for months: that the market was long due for a correction, that the Federal Reserve was printing too much cash, that inflation rates were too high, or, in December, that markets were beginning to fall. By May the Nasdaq-100 Technology Sector Index was down more than 30% from the beginning of this year, effectively shuttering the IPO market, with a few exceptions. The Fed continues to lift interest rates, making borrowing capital more expensive, and enticing limited partners (which include the pension plans, insurance companies, university endowments, and family offices that invest in venture capital and private equity firms) to look beyond the private markets at other, potentially less risky investments. 

Now the axe is falling. Instacart reduced its valuation by nearly 40% earlier this year, citing market turbulence and potential employee upside. Buy now, pay later behemoth Klarna is reportedly looking to raise new capital at a 30% discount to its last post-valuation, and it announced this week it was cutting 10% of its employees. Some tech founders who speak with Fortune say that, while it’s still early, conversations with investors are changing.

“I think in terms of raising near-term capital, which thankfully we don’t need to, I’m certainly seeing counsel that you should expect valuation compression and things of that nature,” says Michael Fitzsimmons, CEO of human intelligence–based hiring platform Crosschq. Still, conversations with his investors, which include Tiger Global and Bessemer Venture Partners, have been pretty standard, he says. Most investors are thinking about a five- to seven-year exit horizon, he says, and aren’t focused on the near-term market swings.

But even some of the oldest venture capital firms on Sand Hill Road say something different is happening now than in the early days of the pandemic—and founders should ready themselves to get through it on the other side.

“We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic,” says a note in a slide deck obtained by Fortune that Sequoia Capital shared with founders last week—the latest iteration of its infamous dire warnings surrounding a market correction. “We expect the market downturn to impact consumer behavior, labor markets, supply chains and more.”

An early-stage crypto firm recently sent its portfolio companies a letter, seen by Fortune, referencing the downturn and how founders should prepare for it: “We’re in a new market reality similar to the Dot-com crash.” And Y Combinator is urging tech founders to “prepare for the worst,” according to a copy of a letter it issued at the end of last week, which was also seen by Fortune. “Regardless of your ability to fundraise, it’s your responsibility to ensure your company will survive if you cannot raise money for the next 24 months.”

“No shit,” one founder, tired of warnings to keep cash on hand from his investors, told Fortune. “Thanks for the advice.”

More worrisome for VCs and their portfolio companies: There’s reason to believe this downturn could be much more painful than the epic dotcom crash. By today’s standards, those companies were relatively modest in size. Private companies have scaled faster and stayed private for longer—meaning this crop of giant startups has more employees, more money invested, and further to fall. Today’s unicorn class is worth some $3.7 trillion, according to CB Insights. 

Whether or not VCs have made more diligent bets this time around, these companies have hundreds of thousands of people on staff and touch every corner of the economy—and yet their cash burn rates or income statements are entirely invisible to all but a select few. If they start to implode, the whole economy would feel it.

Big dogs out to play

Tiger Global, the hedge fund investor that has become one of the most fast-paced venture capital investors in the past two decades, epitomizes how sour things have become in the public markets.

Tiger’s public fund, which is a separate vehicle from the one that makes its private investments, has reportedly shaved an alarming $17 billion this year—one of the largest reported hedge fund losses in history. 

It’s later-stage investors like Tiger Global, which straddle both the public and private markets, that are some of the first to be alerted to an impending downturn—as there is a wide lag between publicly traded stocks and private ones owing to illiquidity and available metrics. 

Later-stage investments, which are nearest to exits on the public markets, are typically the first to tighten up their valuations and funding rounds, and it’s already showing up in the early data.  Industrywide April data from Crunchbase showed that late-stage funding was down 19% from last year. Median valuations for early-stage companies have generally been on the climb each month of this year, per AngelList data, but later-stage post-money valuations have been more sporadic.

While some firms are retreating to the sidelines, others are plowing more money into deals. Firms including Insight Partners, SoftBank, and Tiger Global have upped the number of deals they’ve completed in the first quarter of this year compared to last, according to Crunchbase data. Fidelity, T. Rowe Price, and Altimeter Capital have all taken a step back.

For Fidelity, it started taking a closer look at its private investments in late 2021, according to Karin Fronczke, who leads Fidelity’s private market investments for its mutual funds—about half of which hold at least one private company.

“We’re watching and feeling every moment what’s happening in the public markets,” Fronczke says. “The direct line to how that might have implications to private companies and our private shareholding is immediate because we’re owning these companies in the same fund.”

But even for investors stepping up the activity, where and how that money is deployed is looking slightly different. At Tiger, for example, which announced 30 deals in April, more than half of those investments were made in early or seed stages, per PitchBook data. Go back a year to April 2021 and nearly 90% of the firm’s announced investments had been in later-stage rounds.

Strong companies will continue to garner interest, says Simon Wu, a partner at Cathay Innovation. “The number of people interested in private, late-stage technology companies hasn’t changed, because you still want to be in a position to be able to work with them earlier because there is a large value capture. However, I think the bar for what these companies were looking at and comparing them to has changed.”

It could take a really long time for a downturn to show up in a venture capital fund’s performance—if it does at all. A traditional firm reports performance to limited partners on a quarterly basis, but those numbers can fluctuate widely based on exit activity, up or down rounds, and portfolio company growth. Theoretically, even if there was a down round, there could still likely be price appreciation to an investment if the portfolio company is reporting strong and rising revenue figures. Basically, it’s complicated. Venture capital firms that made strong bets on good companies should be fine. Others will struggle, or are already doing so: SoftBank, a major investor in WeWork, Didi Global, and Coupang, reported a net loss of $20.5 billion for its Vision Fund portfolio for the year ending in March.

Any potential impact of the downturn on performance for Tiger’s private fund—which has led or been a large participant in rounds including payments unicorn Stripe, Chinese retail clothing giant Shein, and money transferring application Revolut—isn’t yet apparent. However, there’s a stark difference in the current dynamic between its public and private investments, as the private fund has experienced many up rounds and significant growth among its portfolio companies, a person familiar with Tiger Global says.

The person, who spoke on condition of anonymity, says that Tiger plans to raise a new fund this year or next (it just raised a $12.7 billion fund earlier this year). There’s already been interest from existing LPs, the person says—and the firm has no intentions of slowing down. It has continued to join rounds for existing portfolio companies, including freight forwarder platform Nowports, which Tiger backed in December. Tiger joined its recently closed latest funding round, which valued the company at more than $1 billion. (A Tiger Global spokeswoman declined to comment on the firm’s performance and didn’t respond to a request for comment on whether the firm plans to raise a new fund.)

Four tech founders who recently raised capital told Fortune that Tiger Global’s partners on the private side continue to be very supportive of their portfolio companies. “Despite what’s happening in the markets, my conversations with Tiger have been upbeat,” says Jack Altman, CEO of Tiger-backed employee management platform startup Lattice. “They’re still actively looking at a bunch of companies to invest in, and they seem to believe that despite the high prices in the market the past couple of years, they’re happy with their portfolio of companies and still feel good about the long term for the companies they’ve invested in.”

Here’s another way some are looking at it: Dozens of firms have recently raised multibillion-dollar funds, and that outstanding cash has to be invested. 

“It’s committed, and that capital is not going to sit on the sidelines,” says Mike Torosian, a partner at Baker Botts who counsels emerging technology companies.

We’ve seen this before

Two weeks ago, the global network startup Subspace, backed by VCs including Evolution VC Partners, Lux Capital and Valor Equity Partners, announced that it was closing its doors owing to financial constraints, effective immediately. More than 90 employees of the fast-growing connectivity company are out of a job.

“The timing was just so poor,” says Justin Grow, the former vice president of Subspace’s global network, who says that, if the company had just made it a few more months, overhead would have dropped. Grow was one of the startup’s first dozen employees when he joined the company shortly after its Series A round in 2019. 

There were a series of factors at play in the company’s closure—and it wasn’t related to market conditions, a person familiar with the matter says, asking not to be identified. ​​The startup had ambitious goals, a high run rate, and timing hadn’t panned out for some key contracts, the person notes.

While there may have been other factors at play with Subspace, troubled private markets will only make it that much harder to get a company off the ground. Even with 2021’s near-bottomless coffers, the current startup failure rate is around 70%.

And recent history shows how dry cap tables can get. In the early 2000s, corporations were taking a public beating. Required to disclose their own venture investment losses—losses independent venture firms can keep private, and often go to great lengths to do so—corporate America admitted to shockingly high losses.

In the first nine months of 2001, a whopping $5.7 billion had disappeared off Microsoft’s balance sheet. Wells Fargo’s venture capital losses notched $1.2 billion. A corporate venture newsletter reported at the time that corporations had lost more than $9.5 billion in collective startup investments during the second quarter of 2001 alone.

This was the aftermath of the dotcom boom—and it would lead to an enormous reversal in the industry. Many corporations dropped their venture arms. The amount of venture capital dollars invested, which had soared to $6.2 billion at the beginning of 2000, dwindled to $848 million in the third quarter of 2001.  

Twenty years later, there’s a whole lot more money at stake (although some VCs say there’s also a stronger set of companies). Try trillions of dollars. 

But as far as the layoffs, they’re on the rise. At least 28,000 people have already lost their jobs in 2022, per Layoffs.fyi—already more than all of last year combined. Carvana, Netflix, Wells Fargo, and Robinhood are some of the companies moving first on that front. But the wave is crossing into the private markets, too—with Latch, or Outside, cutting staffers in recent weeks. Even Klarna—one of Europe’s most dazzling unicorns, wasn’t immune.

Regardless of whether a downturn may be long-lasting or not, strong startups will emerge. Companies like Yahoo, Airbnb, and GitHub all grew up during down cycles. Conviction, strong business models, and cash on the balance sheet are the triple threat that allowed companies to weather the last downturn. And thankfully for most companies coming out of 2021, they have a plethora of cash to get them through a few years—even if those years turn out to be far leaner than anyone could have guessed a few short months ago.