VCs, Billion-Dollar Startups, Valuations, Backroom Agreements--
The Fuzzy, Insane Math That's Creating So Many Billion-Dollar Tech Companies - Bloomberg Business: "Here's the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up. For the most mature startups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they'll get their money back first if the company goes public or sells. They can also negotiate to receive additional free shares if a subsequent round's valuation is less favorable. Interviews with more than a dozen founders, venture capitalists, and the attorneys who draw up investment contracts reveal the most common financial provisions used in private-market technology deals today. The backroom agreements are becoming more common as tech companies stay private longer, according to the interviews and financial documents obtained by Bloomberg Business. The practice obfuscates the meaning of a valuation, which can become dangerous down the road because private investors aren't taking the same risks a public-market shareholder would. By the time a company does go public, the valuation it got from VCs may not align with its balance sheet. Just ask Box." (read more at link above)
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23 March 2015
Fundraising Acceleration, New VC Investment Thesis
Fundraising acceleration is the new modus operandi for top Venture Capital firms in Silicon Valley. So far, it has been carefully executed, generally targeting startups with strong growth potential. It’s not a bubble, and it is certainly not crazy. For founders who can take advantage of that early focus on success, the sky is the limit. (source infra)
An insightful article from TechCrunch on "Fundraising Acceleration" at link below (excerpt follows):
Fundraising Acceleration Is The New VC Investment Thesis | TechCrunch: There was a quite a jolt on Friday from the news that Slack, a company whose eponymous enterprise communications platform was first publicly launched this year, raised $120 million in new venture funding from KPCB and Google Ventures. Even more eye-popping was the valuation: $1.12 billion. Although Slack pivoted from an earlier incarnation as a games company called Tiny Speck, such a growth in valuation in just the first 8 months of a new product’s existence is almost completely unheard of in the annals of venture capital. This is even more true in the lethargic enterprise space, where there is significantly more friction in adoption and sales than in the consumer market. What might look like a frothy bubble though, is in fact a much more fundamental change in the way venture capitalists perceive investments. These fundraising accelerations are here to stay, and represent a far more nuanced view of startup performance than we have ever seen before from VCs..... (read more at the link above)
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An insightful article from TechCrunch on "Fundraising Acceleration" at link below (excerpt follows):
Fundraising Acceleration Is The New VC Investment Thesis | TechCrunch: There was a quite a jolt on Friday from the news that Slack, a company whose eponymous enterprise communications platform was first publicly launched this year, raised $120 million in new venture funding from KPCB and Google Ventures. Even more eye-popping was the valuation: $1.12 billion. Although Slack pivoted from an earlier incarnation as a games company called Tiny Speck, such a growth in valuation in just the first 8 months of a new product’s existence is almost completely unheard of in the annals of venture capital. This is even more true in the lethargic enterprise space, where there is significantly more friction in adoption and sales than in the consumer market. What might look like a frothy bubble though, is in fact a much more fundamental change in the way venture capitalists perceive investments. These fundraising accelerations are here to stay, and represent a far more nuanced view of startup performance than we have ever seen before from VCs..... (read more at the link above)
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16 March 2015
The Latest Biotech Boom in Venture Capital Investment
Scientific advances and new business models are spurring investor confidence in biomedical-related ventures--
The Size of the Latest Biotech Boom | MIT Technology Review: "Venture capital investment in U.S. life sciences companies soared 29 percent in 2014 from the year before, reaching $8.6 billion, the highest level since 2007. And there is reason to think 2015 will also be a big year for a sector having its third boom of the last two decades." (read more at link above)
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The Size of the Latest Biotech Boom | MIT Technology Review: "Venture capital investment in U.S. life sciences companies soared 29 percent in 2014 from the year before, reaching $8.6 billion, the highest level since 2007. And there is reason to think 2015 will also be a big year for a sector having its third boom of the last two decades." (read more at link above)
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09 March 2015
Warren Buffett on Investment Bankers, Arrogance, Bureaucracy, Complacency
Warren Buffett wants Berkshire-Hathaway to make acquisitions in the $5 billion to $20 billion range, but purchases could be even bigger with partners, such as Brazil's 3G Capital which received $3 billion from Berkshire to help its Burger King unit buy Canadian donut chain Tim Hortons, creating Restaurant Brands International Inc. Buffett has said that he expects to work with 3G Capital on more activities.
Buffett says 'sprawl' is good, but may not be good enough | Reuters: "He also questioned the wisdom of deferring too readily to investment bankers who advise what to buy and sell. "Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly-held businesses," he wrote. "A few years later, bankers - bearing straight faces - again appear and just as earnestly urge spinning off the earlier acquisition in order to 'unlock shareholder value,'" he added... Berkshire is sitting on $63.27 billion of cash and its most recent purchases have been comparatively small... Though [Berkshire] does shed... some businesses - the textile company that gave Berkshire its name was closed in 1985 - Buffett said spinoffs "make no sense," citing tax reasons and a belief that businesses are worth more within ... Berkshire than on their own. Buffett said his eventual successor at Berkshire... will need to monitor those businesses closely, and as Berkshire grows larger fend off the "arrogance, bureaucracy and complacency" that can destroy seemingly indestructible companies...."
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Buffett says 'sprawl' is good, but may not be good enough | Reuters: "He also questioned the wisdom of deferring too readily to investment bankers who advise what to buy and sell. "Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly-held businesses," he wrote. "A few years later, bankers - bearing straight faces - again appear and just as earnestly urge spinning off the earlier acquisition in order to 'unlock shareholder value,'" he added... Berkshire is sitting on $63.27 billion of cash and its most recent purchases have been comparatively small... Though [Berkshire] does shed... some businesses - the textile company that gave Berkshire its name was closed in 1985 - Buffett said spinoffs "make no sense," citing tax reasons and a belief that businesses are worth more within ... Berkshire than on their own. Buffett said his eventual successor at Berkshire... will need to monitor those businesses closely, and as Berkshire grows larger fend off the "arrogance, bureaucracy and complacency" that can destroy seemingly indestructible companies...."
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02 March 2015
Silicon Valley, Natural State of a Start-up Is To Die
"The natural state of a start-up is to die; most start-ups require multiple miracles in their early days to escape this fate. But the density and breadth of the Silicon Valley network does sometimes let start-ups cheat death. Silicon Valley works because there is such a high density of people working on start-ups and they are inclined to help each other. Other tech hubs have this as well but this is a case of Metcalfe’s law – the utility of a network is proportional to the square of the number of nodes on the network. Silicon Valley has far more nodes in the network than anywhere else. One of the biggest misconceptions about us is that you need to have pre-existing connections to get value from the network. Remarkably, you don’t. Silicon Valley is a community of outsiders that have come together. If you build something good, people will help you. It’s standard practice to ask people you’ve just met for help – and as long as you aren’t annoying about it, they usually don’t mind...." read more at Why Silicon Valley Works - Sam Altman
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