Just as public investors are getting wary of how long the really long bull market in stocks will run, venture capitalists are starting to get more worried about whether their business--tech startup funding--is due for a fall.
Their concern was apparent at a panel this morning of VCs mostly focused on early-stage companies and how they should navigate the rapidly changing funding environment. And that worry came in stark contrast to general optimism about this year only about seven months ago in the same venue (and including one of the same VCs).
On the panel (a replay of which you can watch here) were Patrick Chung, cofounder and general partner at Xfund, an early-stage firm backed by Accel, NEA and Harvard University; Jonathan Heiliger, a general partner at the new fund Vertex Ventures; Ullas Naik, founder and general partner of Cota Capital, which closed its first fund last week; Stephanie Palmeri, a principal at the small VC firm SoftTech VC; and Collin West, a principal at Correlation Ventures. The audience of 150 or so looked about evenly split between investors and entrepreneurs.
Anyway, questions inevitably turned to the B word and how close we are to seeing the current startup funding bubble boom cool, or crash, depending on where you sit. Not surprisingly, most of these early-stage investors said early-stage investing is at least somewhat insulated from whatever happens in the larger venture or public markets, even if there's a downturn.
But you couldn't help but notice a greater tone of worry. "We spoke with a lot of family offices [translation: rich people] and there’s a lot of nervousness," said Naik. "I'm becoming more nervous. We’re entering a market top environment. Something may give in the next year."
West noted, as have very smart people like Marc Andreessen, that the situation is nowhere near the dot-com bubble that ended in ugly fashion in 2001. "But the more dollars raised, the tougher it is for everyone in the market to get returns," he said. "We're seeing much higher valuations. It’s very tough to know what’s going to happen."
Heiliger noted that the macro economy could have an impact. "There’s some great real estate deals in Greece to be had," he joked.
So far, noted Chung, "the bubble seems to be driven by a few very high-profile companies." In any case, he added philosophically, "it’s going to take years to get to an exit like an acquisition, an IPO or bankruptcy. So get back to work."
And it may be coming sooner than later. Naik said that just in the last month, his firm has been offered "very large" blocks of shares in high-profile private companies such as Airbnb, Spotify, and Dropbox--not just by employees but by hedge funds looking to sell their stakes, even ahead of any initial public offering. "Maybe that's a market top, maybe it's not," he said.
Either way, the VCs said entrepreneurs should raise money while the raising's good. "I don’t know a lot of founders who regret taking extra money," Palmeri said, because an extra $300,000 can make a difference between success and failure when the downturn comes.
Indeed, because he's a little nervous about the market, Naik said his firm won't invest in a company that doesn't have two years' worth of funding at its current burn rate. What's more, he expects the company to be prepared to cut costs to get another two years of runway if a downturn hits.
