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U.S. Tech Funding – What’s Going On?

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Re: U.S. Tech Funding – What’s Going On?

#21

Post by encoderer »

TTPrograms wrote: post #6

This doesn't really directly address the issue of valuations for the unicorns. P/E valuations are probably insane by most metrics - the type of user base growth required to get them in line (P/E wise) with other companies is on the order of double-digit percentages of the global population IIRC. This doesn't really mean there's a "tech bubble", though. It's possible we'll see a massive correction to those companies,…

Facebook revenue grew 8000% from 2007 to 2014. Clearly not all "unicorns" will perform this well. And maybe none will. But possibly they avoided discussion of these companies' P/E because the data is both unavailable and unreliable given their size?

It's not just a canard that these companies are "not focusing on revenue".

Re: U.S. Tech Funding – What’s Going On?

#22

Post by nathantotten »

thorfish wrote: post #13
npkarnik wrote: post #9

Earlier quoted context omitted.

Many highly valued tech companies do secondary offerings to allow average employees to get some liquidity. Sure, the general public may not "get in early" but M&A is far less risky for both VCs and general investors. If mostly "sure things" make it to IPO, it's far less likely for the general public to be exposed to the meltdowns that made the headlines circa 2000-2001. The flipside is that until the startups IPO, th…

Yeah, but as I understand it, employees can usually only sell about 20% or so in secondary offerings. Six months after the IPO, they can liquidate 100%.

Good point. I wonder what the numbers are on how this affects the returns for employees.

Re: U.S. Tech Funding – What’s Going On?

#23

Post by pkaye »

thorfish wrote: post #17
pkaye wrote: post #11

Earlier quoted context omitted.

I see it as the cost of forming a startup is much lower now so they can stay private longer. Combined with VC companies and angel investors flush with money, they are keeping the companies private longer to capture more of the gains. Then there are established companies who want to stay relevant who throw money at startups with no profit in sight but cool technologies. My guess is that in the end, problems will come…

I see it as the cost of forming a startup is much lower now so they can stay private longer. I don't think that is true. Sales and marketing is still very expensive. SaaS needs a lot more cash investment than traditional software, since you are only making the money back gradually. Many of these unicorn software companies are raising a half dozen rounds. Also, the easier it becomes to write software the for the inter…

I don't agree. Lots of startups don't have sales and marketing in the early stages. The grow through word of mouth or iterate/pivot to find something that becomes a hit. Somebody like Yahoo would need to buy and maintain a lot of servers to scale up but now with cloud computing, you can grow quite a bit with Amazon AWS until you implement your own infrastructure.

Re: U.S. Tech Funding – What’s Going On?

#25

Post by [deleted] »

nostrademons wrote: post #12
michaelvkpdx wrote: post #4

My takeaway- the VC's have leveraged the money from their successes to create a vortex that sucks in money from consumers, into privately owned companies, back into VC pockets, and back into more companies that get more people to spend more money. The tech vortex that is sucking away quality of life from the middle class and padding the billionaires (and large company) bank accounts. Throwing out a few bones on occas…

That's the way capitalism has always worked - it is up to you to make deals that increase your overall level of happiness, and it's up to your counterparties to ensure that those deals also increase their happiness. In past years, instead of "VCs" the villains have been hedge funds, private equity, corporate raiders, giant conglerates, corporations in general, investment trusts, robber barons, and colonial empires. I…

[deleted]

Re: U.S. Tech Funding – What’s Going On?

#27

Post by timr »

Note that they use the valuations of public companies to argue that the market isn't overvalued, then spend 90% of the presentation arguing that all of the value is being "created" in the private markets, and that IPOs are dead.

Moreover, they're basically arguing that it's logical for investors to pile into these late-stage deals, because waiting around for IPO is a losing strategy.

If you believe this data, it doesn't tell you that there isn't a bubble. It says that if there is a bubble here, it's mostly happening off the books, and depends on the huge public exits of a handful of mythical creatures.

Also, slide 38 is an argument for the "No Exit" way of looking at startups: we've got a boom in low-cost, early-stage deals (2x growth since 2009), coupled with an ever-more-ruthless culling of the herd, where most of the aggregate funding goes into fewer (<20) hot deals than ever. Investors are taking a cheap call option on your youth.

Re: U.S. Tech Funding – What’s Going On?

#28

Post by beambot »

sharkweek wrote: post #14

I thought Dan Primack had a solid response: http://fortune.com/2015/06/15/andreessen-horowitz-why-were-n... "Andreessen Horowitz’s presentation treats the relative lack of tech IPOs as a sign of market health. As I wrote last week, there is a much less charitable way to view it. Moreover, the lack of IPOs also means that the public markets have yet to validate many of these unicorn valuations."

Except that the valuations are meaningless without understanding all the other undisclosed terms granted to the VCs in the latter rounds (eg. liquidation preference, participating preferred, etc).

Re: U.S. Tech Funding – What’s Going On?

#29

Post by ChuckMcM »

thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

And the more interesting follow up, which I really hadn't thought about, was that the value is being returned privately. That explains for me why hedge funds are investing in private companies. If these companies then develop a process of 50 / 50, where if you're in at Stage X then at Stage Y you can sell 50% of your holdings and buy in at your pro-rata share. Then you can invest, get returns, and never have the company go public (caveat the number of investors rule).

Re: U.S. Tech Funding – What’s Going On?

#30

Post by fsk »

TTPrograms wrote: post #7
j_baker wrote: post #2

Robert Shiller had an interesting analysis of the current stock market's "frothiness": http://www.businessinsider.com/robert-shiller-stock-market-b... Basically, the stock market is a bit overvalued, and people expect that trend to continue. However, peoples' level of confidence in the stock market pricing is very low. To me, if there's a coming crash, it's going to be because investors are overly anxious rather than…

Hopefully gradual increase in interest rates will result in stabilization of stock value as people pull out for safer low-rate returns (which are basically non-existent now). Then again the fed sure is taking their time...

The problem is that banks are leveraged to the hilt.

If you have 30x leverage in 5 year duration bonds, and interest rates go up 1%, you lose 150%!

ZIRP (0% interest rates) is a wealth transfer to big banks, a backdoor bailout.

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