6 ms·

I suspect it's because investors think that one of the few routes to 'exit' a company and cash out your investment just got closed down, at least in the short t

by po 14y ago

I suspect it's because investors think that one of the few routes to 'exit' a company and cash out your investment just got closed down, at least in the short term. That increases the risk of investing and therefore lowers the valuation.

philwelch 14y ago
Certainly the path to IPO is so long that someone seeking VC funding today won't be in a climate defined by Facebook. For all its faults, SOX did kill the "retail VC" style of IPO popularized in the last bubble. Getting to IPO now is a very long road.
- pedalpete 14y ago
  If people investment was purely logical, you'd be right, but I suspect it is the negative news surrounding the valuations of Facebook and Zynga that will put a bit more fear into the investors willingness to take risks.
  - philwelch 14y ago
    You know, you'd think someone who had a real job investing other people's money would be at least as rational as some guy on a message board....
- brianlynn11 14y ago
  Actually a cyclical stock market cycle typically last 4 years. It's generally accepted that we've been in a bull cycle for the last few years, which is prone to shift, with the lackluster Facebook IPO as "the warning sign". If you're raising VC now, you've probably been in business for 1 to 2 years, which means if you exit in another 4 years, it could very well be a terrible secondary market by then. At least some investors will think so. Poor market sentiment also affects M&A. I remember from my banking days in 2008, where one of my clients with $2 billion in cash wouldn't even fork over $100 million to acquire a company at 9x revenue with 80% revenue growth. So over all exit options are appearing less attractive for VCs, thus they're likely to fund less companies at lower valuations.
betterlabs 14y ago
I believe investors and startups that are / were looking for Facebook as an easy exit were not building a company / business anyway. Such a situation is better overall for everyone - only the teams that are focused on building a real business survive and create value for everyone involved.
- jkahn 14y ago
  It's not about a Facebook acquisition no longer being an exit, it's about an IPO no longer being an exit.
  - mcosta 14y ago
    Since long ago Facebook is too big to be adquired. Now even less. Who can pay so much money?
    - hdctambien 14y ago
      I believe he's referring to an acquisition by Facebook being an exit option, not an acquisition of Facebook.
      - BAH20202030 14y ago
        Investor sentiment (as irrational as it sounds) is very important. The "apparent" failure of FB IPO along with the less than impressive performance of web 2.0 companies in the public markets have casted a dark cloud in the industry. Nothing has changed in the material sense, but this narrative is a great opportunity for investors to bargain for better deals.
agotterer 14y ago
In the next few months Facebook will create over 1000 new millionaires. Is it to much too assume that many of them will get into inventing, which could actually cause the opposite affect of what you're suggesting where there is even more money available?
- thechut 14y ago
  Not sure if you meant investing or inventing (or both). But either one of those could have interesting implications in the valley.
  - agotterer 14y ago
    Whoops. Yea I meant investing. My assumption was that some part of a 1000 new millionaires would hopefully be putting some money back into the system through investments. I also think you'll see some people leave Facebook as they vest to go start companies of their own.
- gopsig 14y ago
  The number of millionaires created and the amount they have available to invest are directly related to the stock price. If the price is low, shareholders won't sell, so there won't be new cash to invest in other startups.
- ppop 14y ago
  At the rate FB is falling, there won't be 1000 new millionaires by that time
  - agotterer 14y ago
    FB is still going to be worth $40B?. Its not $100B+, but there are plenty of people that are going to make a lot of money if they sell. Also check out Fred Wilsons response (http://www.avc.com/a_vc/2012/06/some-perspective.html http://www.avc.com/a_vc/2012/06/some-perspective.html). He makes some good points about the returns still being pretty damn good.
  - 14y ago

by po 14y ago

philwelch 14y ago

Certainly the path to IPO is so long that someone seeking VC funding today won't be in a climate defined by Facebook. For all its faults, SOX did kill the "retail VC" style of IPO popularized in the last bubble. Getting to IPO now is a very long road.

pedalpete 14y ago
If people investment was purely logical, you'd be right, but I suspect it is the negative news surrounding the valuations of Facebook and Zynga that will put a bit more fear into the investors willingness to take risks.
- philwelch 14y ago
  You know, you'd think someone who had a real job investing other people's money would be at least as rational as some guy on a message board....
brianlynn11 14y ago
Actually a cyclical stock market cycle typically last 4 years. It's generally accepted that we've been in a bull cycle for the last few years, which is prone to shift, with the lackluster Facebook IPO as "the warning sign". If you're raising VC now, you've probably been in business for 1 to 2 years, which means if you exit in another 4 years, it could very well be a terrible secondary market by then. At least some investors will think so. Poor market sentiment also affects M&A. I remember from my banking days in 2008, where one of my clients with $2 billion in cash wouldn't even fork over $100 million to acquire a company at 9x revenue with 80% revenue growth. So over all exit options are appearing less attractive for VCs, thus they're likely to fund less companies at lower valuations.

betterlabs 14y ago

I believe investors and startups that are / were looking for Facebook as an easy exit were not building a company / business anyway. Such a situation is better overall for everyone - only the teams that are focused on building a real business survive and create value for everyone involved.

jkahn 14y ago
It's not about a Facebook acquisition no longer being an exit, it's about an IPO no longer being an exit.
- mcosta 14y ago
  Since long ago Facebook is too big to be adquired. Now even less. Who can pay so much money?
  - hdctambien 14y ago
    I believe he's referring to an acquisition by Facebook being an exit option, not an acquisition of Facebook.
    - BAH20202030 14y ago
      Investor sentiment (as irrational as it sounds) is very important. The "apparent" failure of FB IPO along with the less than impressive performance of web 2.0 companies in the public markets have casted a dark cloud in the industry. Nothing has changed in the material sense, but this narrative is a great opportunity for investors to bargain for better deals.

agotterer 14y ago

In the next few months Facebook will create over 1000 new millionaires. Is it to much too assume that many of them will get into inventing, which could actually cause the opposite affect of what you're suggesting where there is even more money available?

thechut 14y ago
Not sure if you meant investing or inventing (or both). But either one of those could have interesting implications in the valley.
- agotterer 14y ago
  Whoops. Yea I meant investing. My assumption was that some part of a 1000 new millionaires would hopefully be putting some money back into the system through investments. I also think you'll see some people leave Facebook as they vest to go start companies of their own.
gopsig 14y ago
The number of millionaires created and the amount they have available to invest are directly related to the stock price. If the price is low, shareholders won't sell, so there won't be new cash to invest in other startups.
ppop 14y ago
At the rate FB is falling, there won't be 1000 new millionaires by that time
- agotterer 14y ago
  FB is still going to be worth $40B?. Its not $100B+, but there are plenty of people that are going to make a lot of money if they sell. Also check out Fred Wilsons response (http://www.avc.com/a_vc/2012/06/some-perspective.html http://www.avc.com/a_vc/2012/06/some-perspective.html). He makes some good points about the returns still being pretty damn good.
- 14y ago