Few contrarian buyers out there, and for many startups there is plenty of cash in the bank.
“In 2021, there were more than 3,000 M&A deals globally involving a VC-backed company getting bought, according to Crunchbase. Halfway through the third quarter of this year, just under 1,600 startups have found a mate in the market.“
Derivatives and shorting have made their way into the private market.
Selling interest increased to 80% of open order interest at Caplight, while the buy side has dropped to 20%, according to Javier Avalos, CEO of the private-market derivatives marketplace. It was previously fairly even or a 60/40 split, he said. “We basically saw the demand side of the Caplight marketplace go away for the past few months,” he said.
One interesting aspect of tech is how circular it is, making it prone to downside leverage – “Tech, unlike other sectors, disproportionately sells to itself.”
“The circularity goes beyond VC investments,” he added. “Today major tech companies incubate their own customers at a pace and scale not seen in any other industry.”
Using a machine learning model Sparkline Capital were able to cluster firms in similar technologies and then look at how venture investment in these tech clusters evolved over time.
This leads to the following chart of cycles.
“In the dot-com bubble, venture capital firms threw money at internet companies. Next, Blackberry and iPhone ushered in the mobile age. Then, Facebook’s success sparked a wave of investment into social networks. Artificial intelligence grew steadily over the past decade, while blockchain burst on the scene a few years ago. Climate tech investment faded after an initial burst but is now seeing a resurgence.“
Minsky cycles are a concept that has seen its star rise since the financial crisis.
The idea, often summarised as “stability breeds instability”, is now incorporated into policy maker playbooks around the world.
This was a brilliant piece bringing the concept to venture.
“The key Minsky idea is that increasing capital inflows reduce perceived risk“.
Venture is going through this, driven by “shortening time” which boosts IRR, and the key question is whether true risk has actually decreased, or, we are in classic cycle.
Nearly 7% of venture capitalists (VCs) were previously founders.
This paper, using the VentureSource database, asks if this group is any good at investing?
Successful founder-VCs have investment success rates that are 6.5% higher than professional VCs.
If you are an unsuccessful founder-VC your investment success is actually 4% lower than professionals.
The reason isn’t down to deal quality but value add – “Using an instrumental variables approach to separate unobservable deal quality from value-add, we find that the outperformance of successful founder VCs is consistent with them adding more value post investment.“
Thoughtful analysis of the venture landscape given the current state of public markets from Redpoint ventures.
The background is – public high performing SaaS firm valuations have fallen below their 10 year average now (see chart).
Past public market corrections led to 10 quarters of decline in venture dollars invested of varying severity. The great recession, for example, saw a 30% fall.
“Currently many companies in private markets (particularly at late stage) are in “price discover” mode in fundraises with everyone trying to figure out market price – rounds are taking longer to get done and “willingness to pay” spreads are wide“
Great profile of Roelof Botha, one of three Sequoia partners who steward the firm.
He is also the man behind the firm’s latest transformation – into effectively a permanent capital vehicle investing cross the company life-cycle whether private or public.
