- The current climate is one of a kind of question mark.
Everybody's asking, is this the end of the bubble?
- Right now, it's that moment when the party's ended
and somebody's flipped on the lights
and you don't know how the rest of the night's gonna go.
- I wouldn't say we're in a significant downturn right now,
but there's no question that the market has turned.
Every time that the market starts to get
a little bit more frothy, there's somebody out there
that's saying it's a bubble.
And everyone wants to be the person
who calls the next bubble.
- A downturn, a softening, whatever you wanna call it.
I think everybody's been trying to label this market
since Q4 of last year, even longer.
It's a mistake to even call it a bubble now in my opinion,
we need a new word.
(bright music)
- I start with the premise that a slow down
isn't necessarily a bad thing.
You need a little bit of scarcity to get people focused.
- We had sort of a bubble,
a mini-bubble that didn't quite pop, which is good,
where the market got over-valued.
There were too many unicorns,
too much money flowing into startups.
- We're seeing upstream markets starting to tighten,
we're seeing deals take slightly longer to close,
so we're definitely seeing a tightening in the market.
- What we've seen is this sort of contraction
in the number of growth rounds,
where, you know, those valuations
that were paid back in 2015
are no longer there.
- There's sort of the that thing you read in the papers,
you know, the sky is falling and the end is nigh out here.
It's not what we see.
Down rounds worth 3% of all rounds of funding a year ago,
and they're in the 20s now.
- For the companies that are able to to raise money,
even if that money is at a lower price than the last round,
so the dreaded down round,
if that money gets them to an end point
where they're self-sustaining,
then it's absolutely worth doing.
- There's a big fuss around down round.
And there's a stigma, you know, in the market
for anyone who goes through that.
The down round is better than going bust.
- The supposed bubble that we've had
over the last couple of years,
it's been called a dry bubble,
as opposed to the bubble in 1999, 2000.
- How was 1999 different from 2016?
Radically.
People felt like they needed to rush out to the internet
and stake their claim.
- I lived through the bubble in 1999 as an entrepreneur.
That bubble, a lot of those companies went public.
- When the ball drops on the year 2000,
it will be a momentous event for the world
and for the US economy,
which is closing in on its longest expansion ever.
- It was a public market, and it was a tech-driven bubble.
- Really bad behavior was happening across the board.
There were many companies that were highly unprofitable
that were being taken public by bankers,
that is was almost like if you got allocated IPO shares,
it was like making money for nothing.
- The first dot com bubble collapse
left a scar on a lot of older tech workers.
- The difference here, companies are just not going public.
And that's another problem.
- You have a lot of companies that should have gone public
still being valued at private valuations.
- Lacking a healthy IPO market,
the capital kind of gets stuck at the companies.
And so I've called this capital constipation.
- As a consequence, investors are getting very hesitant
and very nervous.
- If why look at the great kind of tech bellwethers,
you know, Microsoft, Apple, Amazon,
much of the economic value of those companies
is available to the public market.
One of the things I worry about is,
the unicorn market has become very selfish.
- I've had clients that were painting a picture
of 50 to 100 billion in their expected value someday.
That is changing.
- It really begs a question of, you know,
how are you gonna make money on these companies?
Because to go public, you're actually
taking a step backwards in valuation.
- If you look at the leaders in this trend
towards staying private longer,
people talk about Facebook,
but I think you can even look before Facebook, at Google,
who was really brought into the public market
somewhat kicking and screaming.
- Now we're almost in the anti-unicorn sort of movement,
where people will try and get
below a billion-dollar valuation,
because people have become extremely skeptical
and snarky about the unicorn valuation.
- I think as things slow down,
the rate of change of the rate of change slows.
It's like the top of the roller coaster where you get there,
you're still going up a little bit,
but you feel that dipping feeling in your stomach.
- If you look at history, every eight to 10 years,
you have a recession.
We're here.
- Everybody's looking for a bubble
and looking for the end of the bubble.
That means greed is winning over fear right now.
But fear isn't gone.