In the technology world there are a few websites that most startups track to keep up with the latest financings, acquisitions, product announcements and gossip: BusinessInsider, TechCrunch, Mashable, GigaOm, etc. In the VC & Private Equity world there’s a small number, too, with one of the most respected being PEHub. That’s thanks to Dan Primack, founding editor.
I always wanted to have Dan on This Week in VC with Dan Primack (to see video click link) because he’s blunt, honest, opinionated and well informed. He’s been a tireless champion for causes that he believes in (reform of VC carry taxation being one of them). He’s a financial journalist and is damn good at his job.
So it was fun to get his perspective on topics that are sometimes too toxic for VCs to talk about publicly. We had a great hour-long chat about the industry and the deals of the week. For those that want the “cliffs notes” version – here’s what we covered (but if you have an hour to watch I don’t think you’ll regret it – Dan is informed and compelling).
We led off with a discussion about Slide being acquired by Google, which was breaking news in the time slot where we filmed this episode. Specifically we talked about Slide having gotten a $550 million valuation before being sold to Google for $182 million. Dan makes a point that you shouldn’t be telling everyone about your valuation as Slide did. He said it’s best to talk about valuation only when you sell (if at all). Minutes 4 – 8
Question: Some people are saying traditional VC is dead. What is going on?
Dan: “Let’s not forget that 50% of VC is still going to traditional VC like healthcare and hardware and this still requires the same amount of VC as it once did. There is an industry changing shift going on in the internet and mobile-based IT space for sure. But this gets all the space on prominent blogs because it’s what bloggers like to cover.” It’s self selecting. Dan believed that consumer internet entrepreneurs have a choice now: traditional VC vs. super seed investors. Minutes 8 – 10
Deals are getting done with a lot less capital which is creating a healthy debate in the industry. People like Fred Wilson who say let all the small companies fund and bloom, create more jobs, etc. But there are also going to be those companies that require capex and growth equity (Zynga, Facebook, etc).
I believe that the different stages need to right-size, but you will always need the various stage investors. Dan also agrees with this. You are seeing a lot more entrepreneurs OK with selling their companies to Google or Facebook and not waiting for billions. A large part of this is due to Sarbanes Oxley which has made running a public company so much more difficult. Not as many entrepreneurs are aspiring to do it any more. This is causing consternation with VCs who lament that entrepreneurs are “selling out too cheaply.” Minutes 23 – 26
Is there a bubble going on in seed investing?
Dan: Maybe in the future, but not now. Seed stage industry was left for dead over the last decade as VC investors moved later and later as they became risk-averse. This created a big gap for people to come in. A recent study said seed stage valuations have been quite static recently. Valuations have to be inflated to see a bubble. This could happen if every VC fund continues to launch a seed fund. Minutes 11-13
I actually think there is a small bubble going on in seed/angel rounds. Prices are creeping up and angels are feeling bullish. It is a lot harder than most people realize. Losses will come a few years from now and take steam out of the market. Minutes 28 – 31
The proliferation of seed funded companies will cause problems in the ecosystem in the future. Too many people have been burned in past and if angels get burned that will kill a lot of needed early investors. Angel investors need to be smart and not just follow-along. (ie. Retail investors were burned in IPOs in 2000, Consumers getting burned by services disappearing) Minutes 31-35
Is there a gap in Series B funding? (10-12mm fund raise at $25mm valuations)
Not many investors that specialize in series-B round. You are asking investors to take a little less risk than Series A and paying a lot more in dollars and valuation. DAG Ventures (follows 5 specific funds) and Scale ventures are two that do specialize in B’d There are more but there are certainly less than there used to be. We both felt there was a bit of a gap for B round funding. Minutes 36- 38
Deals. Minutes 41-56
o Yousendit raises $15mm Series D.
o Hot Potato