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
January 15, 2016 National Venture Capital Association : $58.8 Billion in Venture Capital Invested Across U.S. in 2015, According to the MoneyTree Report
“With almost $60 billion deployed to startup companies in 2015, the venture capital ecosystem is strong and healthy, and committed to helping entrepreneurs get their breakthrough ideas off the ground and into the marketplace,” said Bobby Franklin, President and CEO of NVCA. “While a handful of unicorns and late-stage funding rounds by nontraditional investors continue to grab the headlines, more than half of all deals in 2015 went to seed and early stage companies, with more than 1,400 companies raising venture capital for the first time. Entrepreneurs in 46 states and the District of Columbia raised venture capital in 2015, a testament to the reach of the venture capital industry and the strength of startup ecosystems across America.” (read more…)
CATEGORY: capital, valuation, VC
January 13, 2016 Eric Paley via Tech Crunch : When Burn Rate Outweighs Enthusiasm
It doesn’t matter whether a company’s burn rate is $10K per month or $10 million per month, companies die when their burn rates are greater than investor enthusiasm. Burn rate is a bet on the potential of a business. That bet, re-evaluated at each round of funding, is based on the belief of venture capitalists that multiples of value will be created with the money they invest in a company. Unfortunately for founders, enthusiasm can be fickle while burn rates are stubborn. The two can easily get out of sync. (read more…)
CATEGORY: leadership, profitability, resilience
November 1, 2015 Cambridge Associates : Venture Capital Disrupts Itself: Breaking the Concentration Curse
For the 18 years covered by this analysis, the top 100 investments accounted for a percentage of total value creation that ranged from a minimum of 72% in 2012 to a maximum of over 100% across several years, making this a robust data set to analyze (our methodology is described in the sidebar). The top 100 deals’ total gains outstripped the total gains of the asset class in each of the years that marked the dotcom crash (1999 to 2003) and in 2005 and 2006 (Figure 1). This fact was particularly salient in 2000, when the asset class as a whole generated a net loss, while the top 100 showed a gain, as well as in 2001, when the total gains of the top 100 accounted for 217% of the asset class’s gains. (read more…)
CATEGORY: VC, winner take all
November 1, 2015 Will Gornall and Ilya Strebulaev : The Economic Impact of Venture Capital: Evidence from Public Companies
Over the past 30 years, venture capital has become a dominant force in the financing of innovative American companies. From Google to Intel to FedEx, companies supported by venture capital have profoundly changed the U.S. economy. Despite the young age of the venture capital industry, public companies with venture capital backing employ four million people and account for one-fifth of the market capitalization and 44% of the research and development spending of U.S. public companies. From research and development to employment to shear revenue, the companies funded by venture capital are a major part of the U.S. economy. (read more…)
September 27, 2015 Mark Suster via Medium : Why I Fucking Hate Unicorns and the Culture They Breed
If you’re fortunate enough to raise $100 million early-on to build your startup — congratulations. But to all of the 99.999% of other startups out there please know that this isn’t the success by which to measure yourself. Measure yourself in gym visits, in 3-yard gains, in sacrifice and dedication. Avoid the metaphorical parties and the alcohol and the extra pounds and know that your gains will come in lines of code and purchase orders and signed offer letters and repeat purchases. And during your year in the gym nobody may notice. It may have to wait until way down the road when you come out 80 pounds lighter. (read more…)
CATEGORY: leadership, resilience, valuation