Startup prices are rising like a snowball. Where are we going?

Original author: Alex Wilhelm
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Bill Gurley, general partner of Benchmark, allows himself to talk about what other venture capitalists can only say when they are pretty drunk. But on the other hand, Bill attracts attention and his statements do not leave indifferent.


More recently, Gurli has expressed the opinion that many capitalists invest huge amounts of 9 and 10 zeros in technological and innovative startups, not really delving into their financial situation. Now the problem is especially relevant when prices in the late investment rounds became simply indecently high.

“Pay attention,” says Gurley. “These companies have not passed a full test ... We are moving smoothly from a highly profitable business to an ever-growing low-profit business. Be careful. I don’t think that in this situation we will stay afloat "

Even if you leave alone an unprofitable business, the history of the audit of companies is somehow alarming. After all, the risk may turn out to be much greater than it seems if you invest huge amounts in companies that are not properly verified. And in this case, risk is not the prospect of a possible gain, it is a constant fear of loss and disappointment.

According to Gurli, some startups, starting the next round, claim a large amount, but consider it sufficient to show a regular presentation. And there are no S-1 forms and other documents that deserve more trust.
But this approach also works when the market is full of stagnant capital.

Maybe Gurley is wrong?

Looks like no. Other highly respected venture capitalists confirm his point of view in many respects.

Matt Murphy (Kleiner Perkins):

“Indeed, there are times when startups do not want to provide detailed information about their affairs.” But this is an alarming signal for the investor. Firms that invest without requiring such information are playing a dangerous game. ”

Jason Lemkin (Storm Ventures):

“I know that many successful venture capitalists did not make new investments last year due to poor forecasts and inflated prices. But those who are driven by the thirst for profit, pay very little attention to examination. They will burn out. And it's not just about venture capitalists. Do you think someone from AngelList is conducting an examination of startups? Not. No one!"

Josh Felser (Freestyle Capital):

“Fear of missing opportunities is what drives those who make deals without requiring detailed information. Of course, you can’t put this fear at the forefront, otherwise we will not have very bright prospects ”

Ron Hines (Signal Peak Ventures) was categorical:

“This epidemic literally swept over Silicon Valley and generated inflated prices that would not be stable in the long run. Nevertheless, we hope that competent investors will continue to insist on expertise, but, in some cases, they lend themselves to a general mood ”

Aziz Gilani (Mercury Fund):

“I agree with Bill. It reminds me of an old principle: you set a price - I set a date. That is, many investors are now ready to pay “unrealistic” money so that startups fit into their “unrealistic” terms. ”

Jacob Mulins (ex. Shasta Ventures, currently Exitround):

“Now we are witnessing a large influx of investors with insufficient experience compared to venture capitalists. Thus, more money became available in the markets, and prices began to rise. However, newly arrived investors do not understand all the risks or do not think about them. They invest behind large venture capitalists and hope that all this will get away with it. But in vain "

Chris Calder (Epic Ventures):

“I think the quality of the examination is acceptable. Another issue is that private assets are not liquid; the main profit is concentrated in only a few companies. Therefore, the rest were willing to pay more if only they were taken into business. Well, prices began to rise like a snowball. ”

This whole situation is gradually inflating, like a huge soap bubble. Therefore, many investors are in a hurry to invest in startups faster and get profit from them as soon as possible, until prices have risen even higher.

But, as you know, any soap bubble bursts sooner or later. So, now we will wait when prices begin to decline.

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