Category: downturn
January 9, 2020 Wall Street Journal : Money-Losing Companies Mushroom Even as Stocks Hit New Highs
The combination of forces has pushed the percentage of listed companies in the U.S. losing money over 12 months to close to 40%, its highest level since the late 1990s outside of postrecession periods. This time there’s no recession, and stock market indexes are at or near record highs. That sounds scary, although it’s mainly worrying for investors in smaller companies. (read more…)
CATEGORY: downturn, profitability, risk, valuation
November 20, 2019 Runway Growth Capital : These are the Companies Most at Risk if Venture Funding Dries Up
Companies with soft, monetizable assets such as intellectual property in the form of patents, software code and contracts that are interested in securing debt growth funding should move quickly because most commercial banks do not find their collateral as attractive as that of brick-and-mortar businesses. And, frankly, they simply do not have the wherewithal to understand these forms of collateral and the confidence to stand by these companies when the economy is turbulent. (read more…)
September 10, 2018 SaaS Capital : How Do SaaS Companies Perform in a Recession?
A recession will slow the growth of an “average” SaaS company substantially. In the 2008 recession, the growth rate for arguably the best SaaS companies in the world (by virtue of them being public) fell from 40% to 10%. While the SaaS business model insulates companies from wild swings in revenue and profits, it does not make them immune, and cyclicality will negatively impact those SaaS companies with natural ties to cyclical industries or cyclical business functions. (read more…)
CATEGORY: downturn, resilience, SaaS
November 29, 2016 First Round Capital : State of Startups 2016
The bubble is deflating. We asked 700+ founders to answer one of the most frequently asked questions we receive: are we in a bubble? Last year 73% said we were. While this year the majority still say yes, it’s closer to a coin flip (57%), down 22% from 2015. Though the majority of founders say we’re in a bubble, 9 out of 10 founders believe that it’s a good time to be starting a company. All aboard! The unbridled optimism that drives founders is alive and well in tech: 18% of leaders say they’re certain they’ll build a billion dollar company. But that’s not to say there aren’t bumps along the way. The same percentage of leaders (18%) also report having executed a layoff in the last year. (read more…)
CATEGORY: downturn, valuation, VC
August 11, 2016 Wall Street Journal : In Tough Climate, New Investors Scoop Up Startups and Revamp for Sale
After trying for four years and not generating enough growth, Walter Chen decided to sell his work productivity startup, iDoneThis. The Las Vegas company couldn’t raise new funding or find a suitable strategic buyer after initially raising $900,000 in seed funding. So in November Mr. Chen and his co-founder sold to an unconventional hybrid venture capital-private equity investor (read more…)
CATEGORY: alternative financing, capital, downturn
May 24, 2016 Inc.com : Steve Blank on the Tech Bubble: ‘VCs Won’t Admit They’re in a Ponzi Scheme
On a broader level, Blank argues the fundamental purpose of venture capital has changed, inasmuch as VCs used to care more about sales and profit. From their perspective, "there was an unspoken but pretty solid rule: We needed five consecutive quarters of profitability and increasing revenues to go public," he explains. "The role of venture capital was to teach you how to turn your idea into a profitable company. The role of venture capital now is the greater fool theory." (read more…)
CATEGORY: downturn, valuation, VC
April 21, 2016 Bill Gurley : On the Road to Recap
The reason we are all in this mess is because of the excessive amounts of capital that have poured into the VC-backed startup market. This glut of capital has led to (1) record high burn rates, likely 5-10x those of the 1999 timeframe, (2) most companies operating far, far away from profitability, (3) excessively intense competition driven by access to said capital, (4) delayed or non-existent liquidity for employees and investors, and (5) the aforementioned solicitous fundraising practices. More money will not solve any of these problems — it will only contribute to them. The healthiest thing that could possibly happen is a dramatic increase in the real cost of capital and a return to an appreciation for sound business execution. (read more…)
March 24, 2016 Bloomberg : Hedge Funds Pumped Up Silicon Valley. Now They’re Pulling Out
In recent months, venture capital firms and mutual funds have become choosier about which technology startups they’re prepared to back. Now hedge funds, after helping push valuations to dot-com-era heights, are getting more picky, too. (read more…)
February 10, 2016 Techcrunch : Secondary Shops Flooded With Unicorn Sellers
As the fortunes of billion-dollar companies like Evernote have fizzled, however, so has their shareholders’ enthusiasm. Says the cofounder of one secondary shop who asked not to be named, “We aren’t seeing huge discounts yet in the top 10 names, but people are trying to dump them. It’s not just one person calling you about a particular company. It’s four.” Says another secondary investor, who also asked not to be identified for this story, “We’re seeing an enormous uptick in inbound selling interest.” (read more…)
CATEGORY: downturn, secondaries, valuation
September 1, 2015 Inc.com : Yes It’s a Tech Bubble. Here’s What You Need to Know
"I define a bubble as something where assets have prices that cannot be justified with any reasonable assumption," says Jay Ritter, a professor of finance at the University of Florida's Warrington College of Business Administration who studies valuation and IPOs. While definitions of reasonable assumption vary, historically bubbles have occurred when, in an economic sector's development, the last money in is highly unlikely to realize a return that justifies the risk it has taken. How do you know when that moment has arrived? It's when those billion-dollar unicorns, as they're known among venture capitalists, begin to insist that their ultrahigh growth rates should not be subjected to conventional P/E-based valuation analysis. (Not that they could be, anyway, since their earnings are almost always a closely guarded secret.) (read more…)