Greed vs Fear | Down Round E1


– The current climate is one
of a kind of question mark. Everybody’s asking, is
this the end of the bubble? – Right now, it’s that
moment when the party’s ended and somebody’s flipped on the lights and you don’t know how the
rest of the night’s gonna go. – I wouldn’t say we’re in a
significant downturn right now, but there’s no question
that the market has turned. Every time that the market starts to get a little bit more frothy,
there’s somebody out there that’s saying it’s a bubble. And everyone wants to be the person who calls the next bubble. – A downturn, a softening,
whatever you wanna call it. I think everybody’s been
trying to label this market since Q4 of last year, even longer. It’s a mistake to even call
it a bubble now in my opinion, we need a new word. (bright music) – I start with the
premise that a slow down isn’t necessarily a bad thing. You need a little bit of
scarcity to get people focused. – We had sort of a bubble, a mini-bubble that didn’t
quite pop, which is good, where the market got over-valued. There were too many unicorns, too much money flowing into startups. – We’re seeing upstream
markets starting to tighten, we’re seeing deals take
slightly longer to close, so we’re definitely seeing
a tightening in the market. – What we’ve seen is
this sort of contraction in the number of growth rounds, where, you know, those valuations that were paid back in 2015 are no longer there. – There’s sort of the that
thing you read in the papers, you know, the sky is falling
and the end is nigh out here. It’s not what we see. Down rounds worth 3% of all
rounds of funding a year ago, and they’re in the 20s now. – For the companies that
are able to to raise money, even if that money is at a
lower price than the last round, so the dreaded down round, if that money gets them to an end point where they’re self-sustaining, then it’s absolutely worth doing. – There’s a big fuss around down round. And there’s a stigma,
you know, in the market for anyone who goes through that. The down round is better than going bust. – The supposed bubble that we’ve had over the last couple of years, it’s been called a dry bubble, as opposed to the bubble in 1999, 2000. – How was 1999 different from 2016? Radically. People felt like they needed
to rush out to the internet and stake their claim. – I lived through the bubble
in 1999 as an entrepreneur. That bubble, a lot of those
companies went public. – When the ball drops on the year 2000, it will be a momentous event for the world and for the US economy, which is closing in on its
longest expansion ever. – It was a public market, and
it was a tech-driven bubble. – Really bad behavior was
happening across the board. There were many companies
that were highly unprofitable that were being taken public by bankers, that is was almost like if
you got allocated IPO shares, it was like making money for nothing. – The first dot com bubble collapse left a scar on a lot
of older tech workers. – The difference here, companies
are just not going public. And that’s another problem. – You have a lot of companies
that should have gone public still being valued at private valuations. – Lacking a healthy IPO market, the capital kind of gets
stuck at the companies. And so I’ve called this
capital constipation. – As a consequence, investors
are getting very hesitant and very nervous. – If why look at the great
kind of tech bellwethers, you know, Microsoft, Apple, Amazon, much of the economic
value of those companies is available to the public market. One of the things I worry about is, the unicorn market has
become very selfish. – I’ve had clients that
were painting a picture of 50 to 100 billion in
their expected value someday. That is changing. – It really begs a question of, you know, how are you gonna make
money on these companies? Because to go public, you’re actually taking a step backwards in valuation. – If you look at the leaders in this trend towards staying private longer, people talk about Facebook, but I think you can even look
before Facebook, at Google, who was really brought
into the public market somewhat kicking and screaming. – Now we’re almost in the
anti-unicorn sort of movement, where people will try and get below a billion-dollar valuation, because people have
become extremely skeptical and snarky about the unicorn valuation. – I think as things slow down, the rate of change of
the rate of change slows. It’s like the top of the roller
coaster where you get there, you’re still going up a little bit, but you feel that dipping
feeling in your stomach. – If you look at history,
every eight to 10 years, you have a recession. We’re here. – Everybody’s looking for a bubble and looking for the end of the bubble. That means greed is winning
over fear right now. But fear isn’t gone.

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