Founder & CEO of KYield. Pioneer in Artificial Intelligence, Data Physics and Knowledge Engineering.
No surprise here for anyone involved in venturing, but a good overview of the situation and an opportunity to add my perspective. “We’ve raised a lot of money, and we’ve given very little back,” Thomas Laffont, co-founder of investment firm Coatue Management, said at a recent conference. “We are bleeding cash as an industry.” "There are currently more than 1,400 startups valued at $1 billion or more—so-called unicorns—according to a recent presentation from Coatue. All have investors waiting to get rich." “There are companies that are 13, 14, 15 years old. This is beyond any historic standard. And there are over a thousand of them,” said Bill Gurley, a partner at the venture firm Benchmark. There are several contributing factors that led to this situation, and I'll just list a few in order of importance: 1) There was way too much capital raised and invested by the venture capital 'industry' (hint as to the problem), which is best viewed and practiced as a discipline dependent on individual talent. 2) Valuations were falsely elevated due in no small part to excessive VC, and they still haven't corrected (see Gurley's comment -- most of these ventures are still valued far too high). 3) Big Techs became too big and crossed the antitrust line long ago. VC has become increasingly reliant on flipping to Big Techs in particular to achieve attractive ROIs when they should have been focused on building sustainable companies. M&A has always been a significant source of exits / liquidity / and ROI, but it reached 70% of total ROI for VC in the U.S. a couple years ago. If we were seeking to blame, there is plenty to go around. 1) Excessive monetary and fiscal stimulus inflated bubbles in all assets, including VC, and we still haven't seen a correction in most assets. 2) Big Techs have abused market power, engaged in regulatory capture, and generally behaved in a predatory manner, distorting and manipulating markets. 3) VCs had about as much discipline in managing capital as Congress... the level of fund raising in some funds is obscene, and that it's still centralized around SV is inexcusable. It's bad for the economy. 4) Like VCs, too many entrepreneurs became experts in raising capital, rather than building lasting companies. While I agree that the Trump admin will likely be friendlier to M&A, and we do need more of it, I really don't think it will be sufficient to bale out the majority of VC firms and unicorns that haven't marked their valuations to the actual market. Big Techs will likely still have handcuffs, as well they should. That said, we shouldn't punish entrepreneurs and VCs for what Big Techs, Congress and regulators have done. The 3rd and 4th tier in tech need to step up their game in M&A, as should other industries.
