Bothsides of the Table


Much has changed in the past four months of the technology startup world and how outsiders value the business. Of course it’s too early to predict whether this is a trend or an aberration but the smartest people I know in the industry are predicting the former.

The startup industry may be “resetting,” which doesn’t mean a “crash” but rather just a resetting of valuations, timescales, winners/losers, capital sources and the relative emphasis of growth rates vs. burn rates.

As we noted in our  survey of more than 150 VCs we know in the industry, many saw drops in Q4 valuations last year with nearly all of them projecting decreases in 2016.

And when prices are dropping on a VCs existing companies in market, there is a substantial reduction in FOMO (fear of missing out) for new deals, which means that investors take their time in making investment decisions. Deflationary economics are well understood – in a market when prices are dropping one prefers to wait a few months to see if prices stabilizes before committing. We do this in our consumer lives with everything ranging from housing purchases to public stocks.

Why does this matter?

The single best (and most important) article I’ve read on the topic was published today by Joseph Floyd asking whether Black Friday was a DiSaaSter or a Reversion to the Mean. That’s economics (or statistics) for asking whether price ratios of how investors value companies was simply coming back to historical norms.

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Dan Primack and Fred Wilson sat down for an interview last week at the Upfront Summit and the results were amazing. It’s 25 minutes and it’s both a pleasure to watch and is super insightful.

You can watch the interview embedded above of click on this link: Dan Primack interviews Fred Wilson at the Upfront Summit.

The interview was wide ranging and discussed everything from USVs investment thesis over the past 10 years to what some emerging themes are around blockchain and artificial intelligence.

As by now you likely know they had a brief discussion about public markets including about whether Uber should go public. But there was another element that was very subtle and nicely handled that I’d like to expand upon.

Dan asked Fred about “generational change” at USV and in the VC industry more broadly. Fred talked about places who had done this exceptionally well – like Benchmark and Sequoia – and how and why USV is thinking about it.

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Why Uber Should Go Public


Posted on Feb 6, 2016 | 0 comments

“It has been said that democracy is the worst form of government, except all those others that have been tried” – Winston Churchill.

At the Upfront Summit this past week there was an electric interview of Fred Wilson led by well-researched and artful Dan Primack of Fortune Magazine that ended up making news.  The newsworthy moment was when Fred expressed his view that companies like Uber should go public. The video of the interview will be available this week and I will talk more about it then because the interview covered so many great topics

Is it a bad thing when public stocks get eviscerated (given USV has a few that have)?
Why could blockchain be a foundational technology that yields many great companies?
Do you need to be technical to be a great VC?
Why AI is an important technology and investment area
And there was a great discussion about generational change at Venture Capital firms handled so well by Benchmark & Sequoia and how Fred is thinking about it.

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“This is the year the tortoise may gain on the hare.”

There are a lot of data points that one can observer to get a sense of the venture capital markets – both LP fundings into venture and VC financings of startups. They point to some widely known facts: financings & valuations are up massively over the past 7 years and non-VC money has entered the system.

But these data points are often lagging indicators and perhaps a better barometer of the future would be to gather data on VC perceptions in the market right now. Of course sentiment can swing wildly with new information but I set out to take the pulse of the market as we enter 2016.

[note: to follow realtime conversations & engage with me on Facebook you can follow me here: https://www.facebook.com/msuster ]

State of the Market

The full presentation & data can be downloaded on SlideShare.

Let’s start with some basic data most people know.

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5 years ago I sat at our annual meeting bored beyond belief. It wasn’t just that I have ADD making boring meetings excruciatingly painful – it was that the format was tired, unimaginative, uninspiring and not very useful. We did what many VC funds did – we presented our annual results, we stood up and talked about our portfolio companies, we invited a few to also present and then we had dinner & drinks at some posh restaurant.

I have been evangelizing to founders for years to be more thoughtful about how startups update investors and run board meetings so I would be pretty hypocritical if I wasn’t willing to try and be more effective myself.

So I decided to change up our format a bit. Here’s a short sample of what we now do.

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