In our 360 blog we're aiming to explore some of the important themes and topics relevant to any technology business as it scales, from leadership and management, to team building and talent development. But we thought we'd actually start by looking at a question we're getting asked every day, 'What's happening in the market, are we in another tech bubble that's about to burst?'
The truth is we don't know. No one does. The market has been running red hot for the past couple of years. Never before has the war for talent in the sector been so fierce, with battles being fought in every major tech hub around the world to retain and recruit the best executives. At another time we'll take a closer look at what this means for companies of all sizes and the steps they need to be taking if they aren't already, But back to the question at hand. We spent last week in San Francisco and the debate about 'Unicorn' sustainability and an ominous bubble continued to rumble on both sides of the Atlantic. Whether you’re cheering on the Andreessen Bulls or are a fan of the Gurley Bears it’s now impossible to ignore. Things are fundamentally different from the dot.com boom & bust and there’s little denying the later stage market has become distorted, but are things about to change? If you have let much of the chatter pass you by we have linked to a few of the more circulated viewpoints from the past few months: The Andreessen Bulls Mark Andreessen Benedict Evans Miguel Helft Sam Altman The Gurley Bears Bill Gurley Mike Moritz Mark Cuban The unease of later stage valuations is becoming increasingly clear. The last couple of years has seen frantic competition between funds fighting to get a piece of the action in later stage tech deals. Many have argued that it is some of the mutual funds with access to vast sums of capital that have largely been the root cause of the valuation inflation we see today, but we have started to see some of these same investors begin to mark down the valuation of their holdings which until recently have only been going one way. In recent times Fidelity shaved 25% of the value of their investment in Snapchat, BlackRock did something similar to Dropbox. Putting an accurate value on any private tech company is always tricky as there are lots of factors at play, but there does seem to be a change afoot. Public markets by comparison have remained on a more even keel.. Tech stocks haven't fared particularly well post-IPO in 2015, and late stage private tech companies that are overvalued today and plan to list on the public markets are going to be in for a bumpy ride. Square recently raised eyebrows by setting its IPO price at $9/share, down from the initial guide price set by its advisers ($11-13) and significantly lower that the valuation they achieved at their last funding round ($15+). In the event it appears to have been a sound strategy; Square's share price 'popped' in the first few days of trading and so it is being viewed as a success. The industry will be watching very closely how it continues to perform in the weeks and months ahead, but at the time of writing Square is valued at around $4.2bn, and not the $6bn valuation it achieved at its last private round. Fred Wilson wrote last month of the blurring lines between Private and Public markets, and this is certain to be a major talking point in the months ahead. Marc Benioff also warned of the dangers of staying private too long, and the important and unavoidable exercise companies have to go through in becoming public. So what can we can expect from the year ahead? Here's the 2016 outlook from two experienced VCs; Tomasz Tunguz of Redpoint and Mark Suster of Upfront The Tech industry is a cyclical beast and the 360 view is that a little heat needs to be released if the up cycle is to continue longer term. Whether it’s the Fed raising interest rates or a spectacular flame out of a later stage ‘darling’ that’s a trigger, we do expect a bruising correction for some in the year ahead rather than what others have predicted in a Hindenburg-esque disaster that’ll vaporize investors and set the industry back years like the last time around. Comments are closed.
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