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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?

#11

Post by pkaye »

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…

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 when the established companies slow down in acquisitions and the VC companies and angel investors get tired of startups which can't show profit.

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

#12

Post by nostrademons »

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.

In return, the average person has gotten information at their fingertips, sheep-throwing, Farmville, Candy Crush, easy travel bookings, a place to stay in every city, a computer on every desk, the ability to fly through the air, a car of their own and a house in the suburbs, and many other things.

The reason money gets drawn away from "the average person" and collects in "billionaires and large companies" is because the average person values money for what it can do for them, while billionaires and large companies value money as a scorecard. Naturally, it makes sense that money will flow away from people who want it so they can spend it, and toward people who want it so they can hoard it. If you're unhappy with this arrangement, decide which side you would rather be on and then act accordingly.

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

#13

Post by thorfish »

npkarnik wrote: post #9
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…

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%.

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

#14

Post by sharkweek »

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."

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

#15

Post by foobarqux »

Lot's of points to dispute:

Slides talk about S&P IT but no one is concerned with IT public market valuations (at least relative to the rest of the public market). The concern is with private tech market.

Slides talk a lot about how the amount of funding is justifiable but the question is whether the valuations are. Lower amounts of funding do suggest there is less at risk, however.

How do you reconcile slide 37, which suggests that fund raising is as difficult as ever, with the widely held view that money is flowing freely today.

You can't own an index of unicorns (slide 32)

etc.

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

#16

Post by foobarqux »

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%.

They also don't get a real market price for their shares.

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

#17

Post by thorfish »

pkaye wrote: post #11
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…

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 internet, the more a startup has to do. Yahoo! could get to a breakout stage just by having an HTML page full of links. That's not going to cut it these days. So I'm not sure overall if starting a company is much cheaper, even at the early stage.

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

#18

Post by jsprogrammer »

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…

>In return

In return for what? I've read your post several times now and it's unclear what you are referring to.

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

#19

Post by ripberge »

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 businesses when compared to software. They could be in for a rude awakening...

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

#20

Post by nostrademons »

jsprogrammer wrote: post #18
nostrademons wrote: post #12

Earlier quoted context omitted.

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…

>In return In return for what? I've read your post several times now and it's unclear what you are referring to.

In return for forking over the vast majority of their income. It doesn't just vanish (well, except for credit card interest...that does just vanish). The "vortex" that the grandparent's referring to is the money that customers are shelling out for services, which then becomes a tech company's revenue. But in return for shelling out that money, they get mobile phones, cloud storage, a place to stay in every city, on-demand transportation, access to service professionals, a second income stream, exposure for their business, and many other things of value.
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