There is a time of reckoning coming for start-ups in Silicon Valley that will result in layoffs and consolidations in the industry, tech investor Chris Sacca said Tuesday.
"We're in this era where money has essentially been free," he said in an interview with CNBC's "Power Lunch."
"We have a generation of some companies that have been able to creep along without anyone giving their businesses a lot of scrutiny, really. Now I think as things slow down, investors become a little more cautious and want to actually peek beneath the covers and see what's there. Some of these companies aren't going to be able to raise [capital] again."
One such example is the ride-sharing company Lyft, which still doesn't make money on a marginal basis per ride, he said.
"They just don't have the kind of offering that Uber does. And so I don't think they survive this in the current form," said Sacca, who is an Uber investor.
However, he isn't comparing the current situation to the tech crash of 2000, when there were companies with almost zero revenue.
"What you have now are companies that have real business models but the contributory margins aren't there, the underlying health isn't there," said Sacca. "Believe me, it's expensive to run a company in San Francisco. … What it costs to run one of these things is really off the charts right now."
Venture capitalists appear to already be tightening the purse strings, according to a report out last month.
Venture-backed companies worldwide raised $25.5 billion in the first quarter of this year, down from $27.9 billion in the first quarter of 2015, according to CB Insights' and KPMG's quarterly Venture Pulse report. Just five start-ups surpassed a $1 billion valuation in the first quarter of 2016.
Jack Dorsey 'uniquely talented'
Meanwhile, the early Twitter investor still believes Jack Dorsey is the right CEO for both Twitter and Square as long as he strengthens his management teams.
Sacca was an early advocate for Dorsey after Twitter CEO Dick Costolo stepped down last June.
However, that support was contingent upon a strengthened role for COO Adam Bain and bringing in co-founder Evan Williams in some consulting capacity, Sacca explained.
"We haven't seen both of these moves made and I think the company has struggled as a result," he said. "It's really hard for one person to cover two very challenging companies in an era of struggles around growth, et cetera. I sincerely hope he strengthens his benches in both companies."
The Silicon Valley investor called Dorsey, who founded both Twitter and Square, a "uniquely talented" person who built two phenomenally successful companies.
Despite its troubles, Twitter is still worth billions, Sacca noted.
"There's only one Jack Dorsey on this planet. He's an incredible person. The employees deeply believe in him, but there's only so many hours in the day. I think he can do both jobs if he has very strong people around him," he added.
Twitter stock is down more than 36 percent year to date. The social media company posted mixed quarterly results last month and gave sales guidance that disappointed Wall Street.
On Friday, Square reported an adjusted quarterly loss of 14 cents a share on $379 million in revenue. Analysts had expected Square to post a loss of 9 cents a share on $344 million in revenue, according to a consensus estimate from Thomson Reuters. However, it raised its 2016 guidance.
Hillary Clinton for president
Sacca also threw his support behind Hillary Clinton for president, who he said has reached out to Silicon Valley and has a pro-innovation platform.
"I don't want a crazy populist. I don't want somebody playing on the fears of the nation. I don't want somebody shutting down the immigration we depend on to bring the best engineers in the world and the best entrepreneurs to build their companies here," said Sacca.
"I want this country to continue on the path of success we've been on."
— CNBC's Christine Wang, Anita Balakrishnan and Jacob Pramuk contributed to this report.