This is a good exposition of a normal dynamic in the public markets. I don't think it will be as dramatic in the private markets because spirals require liquidity and regular price updates neither of which happen in private markets.
That said the idea that once you think you know how to do a strategy (whether that's in bond trading or in growth rounds) its utility decreases as everyone copies it is very true, and a key aspect of how markets get efficient.
> spirals require liquidity and regular price updates neither of which happen in private markets
They do. They’re just slower and more opaque.
If institutional backers stop letting Tiger et al raise ten- and eleven-figure funds, growth-stage capital could dry up. That means term sheets vanishing, expected funding going away. Some firms will lean up and survive. Many won’t be able to. Those that raise will raise at worse terms. All of which affects the prices at which these companies’ shares trade on the secondary market, which feeds back into the fundraising difficulty (for funds and companies alike), with the added dimension of employee compensation and morale.
For companies with the massive burn and breakneck growth the current environment has encouraged, the snap could come quite fast. That hole in investors’ portfolios could then extend the pain to their more-disciplined peers. As another comment notes, illiquid markets melt down all the time. They just do so more ambiguously and more dramatically, with the bottom falling out as the top deckers keep sunning.
That said the idea that once you think you know how to do a strategy (whether that's in bond trading or in growth rounds) its utility decreases as everyone copies it is very true, and a key aspect of how markets get efficient.