Venture capital exploded in 2014, with bigger deals and more eye-popping valuations than anytime since the dot-com boom. So what happens next, and which opportunities will define 2015?
We asked several venture capital investors to reflect on the past year and give us their outlook for the next 12 months. Next in our series is Mark Suster, a partner at Upfront Ventures. Mr. Suster talks about the new capital in venture, the creep of valuations and the venture cycle versus the economic cycle.
What surprised you the most about 2014?
A couple of things surprised me in 2014. The first was the extent to which new entrants–corporate investors, hedge funds & mutual funds–piled into the late-stage VC market and drove up valuations and created new competition for deals. The second was the increasing sure-footedness and confidence of the great Asian Internet companies as they globalize, including Baidu, TenCent, Alibaba, Rakuten, Naver and others.
What do you think will be the biggest challenge for your part of the industry in 2015?
The biggest challenges for the venture capital industry will be the continued creep in valuations across all stages of the industry. In early-stage capital the influx of angels, seed funds and crowdsourcing has led to an 8% to 12% CAGR over the past four years for early-stage deals, while late-stage deals have seen a 24% CAGR due to increased competition as outlined above. Great companies will be built in this period, but times of over-capitalization in our industry don’t bode as well for long-term capital returns. The other big challenge is that as more tech companies become embedded in daily life they will abut industries that are regulated and will fight back. We’ve seen this already with Uber, Lyft and Airbnb. Expect more of this ahead....MORE
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