Comments on: Tech winter maybe coming: Here is what it means for your startup

By: 08/25/15 – Tuesday’s Interest-ing Reads | Compound Interest-ing!

Tue, 25 Aug 2015 19:04:37 +0000

[…] If the funding market gets tighter what should founders do now. (alexiskold) […]

By: Karen Melonie Gould

Karen Melonie Gould — Sat, 22 Aug 2015 07:30:26 +0000

I started a Fintech Business Finance platform in the UK May 2014 when we started there were around 3 in the market one is in receivership and the other is the lead and they have always supported us as they only do Finance which is Pension led. There are now 36 and growing we have been advised by a major potential investor in Singapore as I am keen on smart VC investment that I need to change my Business Model ready for the Winter and we are doing just that concentrating on other streams of income and looking at mean with budgets so you seem to saying what the Investor advised us. I always felt that there would be another dot.com crash and in the last one my other business went from a 3.4m profit to having to sell it on at virtually a song and I thought that on this one I would be out within the next 4 years to avoid this can you advise thank you

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By: Alex Iskold

Alex Iskold — Sat, 22 Aug 2015 04:10:11 +0000

Yes, absolutely.

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By: pittrader1988

pittrader1988 — Sat, 22 Aug 2015 02:02:34 +0000

the mentality changes in bear markets. people tend to sit on their hands. if we enter a bear market, it won’t only squeeze tech valuations, but seed rounds are going to be tougher to raise

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By: Alex Iskold

Alex Iskold — Fri, 21 Aug 2015 20:17:08 +0000

Hey Ali,

Thats what VC capital is and has been. Larger fund have LPs that are mutual funds, universities, hedge funds, etc. i.e. larger pools of capital diversify portion of their portfolio into venture. In addition their are wealthy individuals/family offices who maybe deploying large chunks of their capital into VC. As well as foreign investors.

Alex

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By: Ali Al-Ebrahim (@mi3law)

Ali Al-Ebrahim (@mi3law) — Fri, 21 Aug 2015 19:37:37 +0000

Hey Alex,

Ah, my mistake, thank you for explaining. By saying private equity, I meant to lump together all non-traditional VCs who are putting their money into where there were only VCs before.

Not sure if that is right, but here is an article that does a better job of explaining: http://techcrunch.com/2015/07/26/the-mystery-money-creating-the-unicorn-herd/#.zje7mx:Zcim Have you read it, Alex? Would love your thoughts.

Here’s a quote:
“The cash that’s now being called “venture capital” isn’t truly venture capital. Instead, the mystery money is coming from asset classes such as mutual funds, hedge funds, private equity funds and corporate venture capital that have started actively investing in venture-backed technology companies. That money explains the rapid rise in investments into venture-backed companies during the past two years.”

The article author was assuming that unicorn valuations are nearing what the public market would value them. Bill Gurley assumed that IPOs might price unicorns lower than their huge valuations.

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By: Alex Iskold

Alex Iskold — Fri, 21 Aug 2015 18:12:08 +0000

Hey Ali,

VC and private equity play very different game. Private equity isn’t coming in to pick up those later rounds. I know this is confusing, but private capital in my post private equity, those are very different things.

Private equity typically buys later stage distressed companies or healthy ones that it can re-organize and optimize see here: https://en.wikipedia.org/wiki/Private_equity

Alex

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By: Ali Al-Ebrahim (@mi3law)

Ali Al-Ebrahim (@mi3law) — Fri, 21 Aug 2015 17:08:53 +0000

I remember what Bijan Sabet from Spark Capital said at Techstars– because funding rounds have gotten so large, at the series C+ level there are only a few VCs left who can put capital in.

My extension of that thought– The VCs that got squeezed out have been replaced by private equity, which is a very scary thought that will make this winter worse since private equity works on completely different risk / return mechanics.

They will bail out of tech very quickly at the first sign of trouble leaving many to dry.

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By: Alex Iskold

Alex Iskold — Fri, 21 Aug 2015 15:37:03 +0000

Amado,

Yes, and we are already seeing it. Seed extensions are becoming common. Alternatively, folks will re-define back series A as what we call now large seed.

Alex

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By: Amado Guloy

Amado Guloy — Fri, 21 Aug 2015 15:34:09 +0000

While the move from Seed to Series A will be more difficult, do you think one of the potential outcomes will be for young companies to go from Seed I to Seed II instead as an alternative?

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