[PreMoney SF 2015] CB Insights >> "Venture-nomics: A Quantitative Look At Bubbles, Unicorns, Fund Formation, Corporate VC, Int'l Market Opps + More"

Frothy, but…

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“According to CB Insights…” From the NY Times to Bloomberg, CB Insights data is used by hundreds of leading media outlets every week

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Lots of bubble chatter


Many smart folks say things are bubbly From investors to journalists, the cries of a bubble have intensified as of late

“Now there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand and what might pop it. In our view the current bubble is an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm. Some indications that we are pretty far along include: •  The rejection of conventional valuation methods; •  Short-sellers forced to cover due to intolerable mark-to-market losses; and •  Huge first day IPO pops for companies that have done little more than use the right buzzwords

and attract the right venture capital.”

David Einhorn, Greenlight Capital

“I think there’s two things are going on: One, there’s quite a bit of capital availability out there, and if you look at how low-interest rates are, and what are the alternatives to invest capital and get return, that causes asset prices to rise. The stock market’s up, as well. You know, this is a cyclical industry, and when times get good, they get really good. Last time we saw that was 1999 and many of the people at this conference might not have been paying attention, because they were in high school. But money is definitely freer flowing today than it was three or four years ago.”

Bill Gurley, Benchmark Capital


“For me a bubble is simple, it’s when people are paying significantly higher prices for any asset class that is in great excess of the underlying value of that asset. (One area that is subject to that definition right now is) late-stage financing of tech companies of companies like ZocDoc, or maybe even Dropbox, AirBnB and Uber. I’m not arguing (late-stage investors) are crazy, I’m arguing they’re irrational.”

Mark Suster, Upfront Ventures

As with so many of the telltale signs of a bubble, I have seen this before. When times are so good that executives are willing to disregard the difference between ethical and unctuous behavior, it’s just one sign that the end, relatively speaking, is near. It’s not the only sign. The over-supply of journalism jobs covering the technology industry, for example, is a good indicator.

Adam Lashinksy, Fortune

“It’s been a steady sequence of very large rounds. It means we are in bubble territory…No one wants to say because nobody wants to break it. Everybody wants to cash out before its over. …We are seeing expansion of valuation even from the seed stage all the way up…(There is) desperation to not miss out on what will be the next big thing.”

George Zachary, CRV

Many smart folks say things are bubbly From investors to journalists, the cries of a bubble have intensified as of late


Other signs Things that made us go huh?








In God we trust, all others must bring data


Why it’s a bubble


What’s a unicorn? Unfortunately, this term was adopted by our industry. I apologize.

Private companies valued at over $1B. Generally refers to companies in high-growth sectors of tech, life sciences and energy. But mostly tech. Unicorn exits are private companies which have exited for over $1 billion via M&A or IPO.


Lots of new VC funds being formed

Source: Venture Capital Raising Barbell


Lots of new unicorns More and more companies are getting valued at a billion dollars in the private markets


VC deal and funding activity is down, but… Deal activity involving VCs has actually declined for 3 straight quarters


Investment to private companies hit new highs Private equity, hedge funds, mutual funds and sovereign wealth funds are all investing big dollars


Much easier to raise at a billion than exit at one Stark difference in the # of companies raising at a billion dollar valuation vs those which exit at one


IPO activity has been blah Q1 2015 was grim


But private IPO activity has been increasing $100M+ financings are increasingly common


Private + public IPO activity is trending up An atypical cast of characters has helped the “IPO” market stay strong


The new cast of characters Here’s some of the names we’re seeing in the large rounds


Hedge funds are active and competing Tiger Management offspring (Tiger Cubs) are getting more and more active and competing with each other


Corporate VCs deals & funding are up Corporates are investing at a fast and furious pace in private companies

Source: 2014 Corporate VC Report


More corporate VCs jumping in Corporates are investing at a fast and furious pace in private companies

Source: 2014 Corporate VC Report


Find & stalk smart money investors Monitor strategies and deals of investors and uncover new sources of dealflow in your areas of focus

Common refrain from some VCs is that many of these investors are “dumb money”. Of course, that also conveniently ignores returns of most VCs.


Price/Revenue multiples of unicorns Some of these companies are being valued at seemingly eye-popping valuations

Source: Uber and Slack have significantly higher valuation multiples than other unicorns


Private & public market multiple disconnect A look at Dropbox (private) vs Box (public)

Source: The Dropbox valuation is irrational


Wait a minute… Why it’s NOT a

bubble


Some more perspective Unicorns as % of Nasdaq 100 total market cap


Source: Disrupting Honeywell: The Startups Unbundling Honeywell in the Smart Home

Unbundling Honeywell Attacking industrials


Source: Unbundling the Automobile

Unbundling the Automobile Attacking Automobiles


Source: Disrupting P&G and the Consumer Packaged Goods Industry

Unbundling P&G Attacking consumer packaged goods (CPG)


Source: Disrupting Honeywell: The Startups Unbundling Honeywell in the Smart Home

Unbundling FedEx & UPS Attacking logistics


Source: Disrupting Wells Fargo, Citi and Bank of America

Unbundling Wells Fargo, Bank of America, Citi Attacking banking


Source: Disrupting Wells Fargo, Citi and Bank of America

The old guard are waking up Tech is not just attacking tech

Goldman Sachs issues this ominous sounding report about an “expanding class of competitors to capture profit pools long controlled by banks.”

“Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and – these entities believe – effectively by using Big Data to enhance credit underwriting. They are very good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks.”

Jamie Dimon, Chairman and CEO JP Morgan Chase & Co.


But they’re also not investing in innovation


Most new VCs are small 70% of new funds are less than $100M in AUM

Source: Venture Capital Raising Barbell


Every tech unicorn combined is worth < than Facebook Private markets are frothy but not a material part of tech

Source: The Value of Every US Tech Unicorn Combined is Still Less Than One Facebook


Some more perspective Unicorns as % of Nasdaq 100 total market cap

3.5%


Public markets are not crazy The lack of IPOs is a good sign that throwing the label “tech” onto something is not enough for a lofty public market valuation

Source: The Compression ins SaaS Valuations


Ho-hum companies get punished For all the chatter about retail investors getting shut out of IPO gains, public market prudishness has protected them as well


A bubble requires rapid expansion AND contraction And the private markets are seeing the expansion happen. There is no public scorecard to force the contraction.

Some investors will lose money on these bets. And they’ll be replaced by new investors who dismiss “those guys” as dumb. The opaqueness of the private markets let you bury the dead very quietly.


Questions Want the deck? Disagree? Let’s chat.

@asanwal

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[PreMoney SF 2015] CB Insights >> "Venture-nomics: A Quantitative Look At Bubbles, Unicorns, Fund Formation, Corporate VC, Int'l Market Opps + More"

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