Venture Capital News Roundup

The WSJ asks prominent VCs whether a startup funding crunch is likely in 2016. While a tiny rate increase is not likely to have an effect on the startup funding environment ("the move is an optical fiber’s diameter from being completely meaningless to Silicon Valley" - Charles Moldow), several more rate hikes over the next year could have an impact. The answers are very well thought out and worth the read. 

Related, Jeffrey Carter chimes in to list the ways interest rates could hurt VCs: preferences of limited partners, push companies into arms of VCs because of higher debt costs, dampen later stage valuations, make acquisitions more expensive, more pressure on funds to perform. 

The reality is interest rates have very little effect on venture capital. Stock market valuation has a stronger effect.  Venture backed companies have a very high beta or systematic risk.  Because the stock market is an exit valve and source of capital for many acquisitions, lower valuation spills into the VC market.

William Mougayar published a 67 slide deck that provides a thorough analysis of the blockchain industry. It includes topics such as outcomes for banking, themes from 2015, opportunities for banks going forward, and 2016 predictions. If you are a fintech investor this is not to be missed.  

The Kruger effect based on a study in 1999 shows that unskilled individuals overestimated their abilities and highly skilled individuals underestimated their abilities. 

The Kruger effect based on a study in 1999 shows that unskilled individuals overestimated their abilities and highly skilled individuals underestimated their abilities. 

Leo Polovets of Susa Ventures discusses the dangers of being overconfident and unreceptive. He states that founders must be receptive to advice. His advice for avoiding overconfidence comes in four points: 1.) Interact with amazing people as much as possible 2.) Delegate and resist the urge to micromanage 3.) Focus time on areas where you have the greatest comparative advantage 4.) Write all feedback down and look for patterns in what feedback you get over and over again. 

The pre-IPO dip is evidenced in this graph, which shows valuations of different companies for stages of financing relative to their IPO market cap (in percentages). 

The pre-IPO dip is evidenced in this graph, which shows valuations of different companies for stages of financing relative to their IPO market cap (in percentages). 

Thomas Grota of T-Venture Holding shares his thoughts on the Bubble 2.0. He believes we are in a third stage in internet investment history. The first was the dotcom era, where companies relied on public markets for cash and huge VCs and PEs were not investing in private companies. The second was the unicorn era ushered in by the Facebook IPO process (take as much private funding as allowed by SEC rules, see a short dip in IPO valuation). The third, which we are currently seeing, is the end of the unicorn era and companies will be forced to go public again to raise cash. No private money will flow in until the last pre-IPO round (a down round, maximum protections with first stage liquidation preferences, and huge amount of diligence that goes along with the IPO process).  

In probably the most culturally relevant venture post of the week, David Teten discusses how framing your startup's journey in the same narrative structure of the Star Wars movie can help you raise capital. People around the world find the monomyth, or the hero's journey, to be extremely powerful. This story is built on the departure, the initiation, and the return. Teten relates this to opportunity costs, the minimum viable product, and the IPO or exit. 

By Charles LaCalle