Monday, August 31, 2015

Venture Capital: Who Will Buy My Sweet Young Unicorn?

The last time we did the "song from 'Oliver'" schtick was December 1, 2014's "Commodities: 'Who will buy my sweet red copper?'", ending with:
...Here's the deflationary spiral engendered by a lack of purchasers from the movie Oliver, everything just grinds down: 
Who will buy my sweet red roses?
Two blooms for a penny.
Who will buy my sweet red roses?
Two blooms for a penny. 
Will you buy any milk today, mistress?
Any milk today, mistress? 
Who will buy my sweet red roses?.....
And from Wolf Street, August 28, 2015:

“We’re Seeing the Beginning of a Liquidity Crisis” in the Startup Boom, Suddenly
Stock markets have been volatile recently, plunging and soaring alternately on vertiginous slopes, sometimes the same day, and now folks that supply the juice to the startup ecosystem – VCs, pension funds, mutual funds, hedge funds even – are getting nervous. 
They need to know where this market is going. They need to know if they can exit at a big profit, or if their investment and hopes will get dragged down with these startups when it all falls apart. 
“Periods like this are pretty much your worst nightmares,” Sam Hamadeh, CEO of private-company financial intelligence provider PrivCo, told the LA Times. “There are literally meetings across Wall Street, where road show schedules were being planned, that are now about thinking, ‘Can we get late-stage funding to raise capital?'” 
Big bucks are at stake. In the US, 76 venture-funded startups have “valuations” of over $1 billion. Uber sits at $50 billion, Airbnb at $25.5 billion. Palantir, intelligence and law-enforcement darling funded in part by the CIA, reached $20 billion; revenue-challenged Snapchat $16 billion. And so on. 
“Valuations” in quotes because they’re negotiated by a handful of people behind closed doors. Tidbits are then leaked to the Wall Street Journal for the sole purpose of hyping the startup to investors. The WSJ tracks these leaked tidbits. No one put that much money into the companies. Actual investments are a small fractions of these valuations. But nevertheless, it’s been crazy out there. 
Or was – until the stock market went haywire. 
“If broadly speaking, public investors are resetting valuations, then the private market has to follow,” Eric Liaw told the LA Times. He’s a partner at Institutional Venture Partners, which invested in Snapchat, among others. 
The stock market, after going nowhere for a year and then jumping up and down like mad, might actually, after all these years, give up its bullish ghost and head south. That would imperil the entire startup scene. It happens after every boom. 
Funding would become scarce. The next round, if there is one, might be a down round, with lower valuations than prior rounds. Some investors and employees might have to watch their gains go up in smoke – without being able to sell. If there is an IPO or a buyout, it too might be a disappointment. And employees who broke their backs for these startups would realize just a how demoralizing the process can be. 
But those are the lucky ones....MORE
Aarrgh, them with the broken backs be the lucky ones and the living will envy the dead.