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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?

#31

Post by sytelus »

ChuckMcM wrote: post #29
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 comp…

But is that the right strategy? Going public sure forces you to reveal lot of things you rather not and bring in expensive SAP and KPMG guys to do SO. But considering so much "free" money flows in during IPO, wouldn't it be good strategy to go public if you can?

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

#32

Post by ThomPete »

beambot wrote: post #28
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).

Which makes the original point made even stronger.

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

#33

Post by lnanek2 »

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…

This is basically what Capital in the 21st Century said too. People who reinvest money they make into making more money are getting richer. Those who spend it are not. Pretty straight forward.

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

#34

Post by ThomPete »

As I have mentioned in another thread.

We don't have a tech bubble we have a Silicon Valley valuation bubble, one a16z is part of themselves.

The discussion isn't whether tech companies are under or overvalued, they are most likely in general undervalued.

The discussion is whether the kind of investments that companies like a16z and other VC companies make are over valued or even valuable.

In other words, they are setting up a straw man about tech funding in general but the very issue is that it's not the tech sector in general that is having insane valuations tied to it but a small but important subset.

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

#35

Post by spotman »

pkaye wrote: post #23
thorfish wrote: post #17

Earlier quoted context omitted.

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.

would love to hear examples of successful startups that did not do any marketing. especially ones that are tech/Internet startups.

also - while AWS can make infrastructure convenient to scale up, rarely is it cheaper. It certainly can feel cheaper in the beginning as its pay-as-you-go, but averaged out over N years it's not. AWS also has reserved pricing to aid with this, but most startups are not in a position to commit to either real hardware or 3 year contracts up front.

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

#36

Post by cdnsteve »

Why are IPOs no longer viable? Too much red tape? It seems that investors and their money have a better chance underground (private) where public stocks are either too slow to get a return or the return amount would be much less.

Why does it seem all the money is in the US and not in Canada? More investors? More money? Taxes?

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

#37

Post by thorfish »

pkaye wrote: post #23
thorfish wrote: post #17

Earlier quoted context omitted.

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.

Obviously it varies quite a bit. Some consumer companies can spend very little on sales and marketing. But many consumer companies and nearly all B2B companies spend an enormous amount. Look at a company like New Relic. They took four rounds of venture, plus two rounds of private equity. They were spending 70% of their operating budget on sales and marketing. It was expensive the whole way. It costs a lot of money to develop a product to the point where it is better than the status quo, and then a lot more money to market it.

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

#38

Post by spitfire »

ripberge wrote: post #19

When Andreesen talks about "tech funding", what do they mean by this? A lot of VC funding that used to go to "tech" companies is now going into much less profitable types of businesses that should not be considered "tech". Businesses that most VC's don't really have a lot of experience with. For example, their investments in Soylent, Walker and Co, Dollar Shave Club. It is REALLY hard to make money in these types of…

If your business has a website, it is now a "tech" company.

It's a brave new world.

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

#39

Post by hipcactus »

fsk wrote: post #30
TTPrograms wrote: post #7

Earlier quoted context omitted.

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.

Can you elaborate on this last statement?

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

#40

Post by nugget »

beambot wrote: post #28
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).

How important is a liquidation preference on a $500m round which values Uber at $40b? Not very.

Moreover, most of the institutions doing these late stage rounds and secondaries are the same banks and asset management firms that float the IPOs.

One of the unintended consequences from SOX is the creation of this public-private funding environment where huge private firms and high net worth individuals can invest, but small retail investors are shut out until the venture firms believe the company's value has plateaued (Slide 30). We saw this happen with Facebook, for which there is a ton of second market valuation data from 2007 through the IPO to the present. If you believe that small retail investors should be protected from themselves when it comes to early stage investing, this is a good thing.

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