Venture hangover: lessons of 2016 for start-ups and their investors

The situation on the venture capital market reminds of the dotcom crisis.
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The first crisis occurred on the market for start-ups turn of the millennium, the dotcom crisis in the late 1990s, left many stories of ruin technology companies. Investors believed that "just about online and take over the world" and were willing to invest huge sums in unproven model. But let down the pace of development of the Internet. For many newfangled models online business in the 2000s simply did not find customers. On the shortage of demand also affected by technical limitations - for example, the absence of smartphones and constant internet access mobile devices. At the same time many models were actually quite efficient - just the pace of development, which is waiting for investors, proved unrealistic.

Perhaps the most iconic startups that time began to support the delivery of food in the house Webvan, received $ 400 million from venture investors, and service fast local delivery Kozmo a $ 250 million investment. It is significant that both areas have now become one of the most fashionable trends in the venture world: Kozmo should be considered as the ancestor of on-demand segment ( "on-demand service", where Uber work, Postmates, etc.), And all are in the delivery of food, modern retailers from Whole Foods to Amazon. But in 2000, after a sharp fall of the NASDAQ (at the peak average exchange-traded company profit amounted to 200x versus 20x now), investors rethink the development of the Internet and the prospects do not become more supportive overpriced unprofitable companies. It all ended sadly, most startups that time, went bankrupt, and many investors have for years left the venture capital market.

What is happening in the market start-ups in the past few years has often been compared with the time. Like 20 years ago, one of the main causes of a bubble in the technology markets - a surplus of money. Venture Capital Industry - a tiny segment of large financial market. industry size does not exceed 1% of total financial assets (annual venture capital industry throughout the world - $ 100 billion - against the tens of trillions of broad financial market). And when, after the 2008 crisis regulators have begun to replenish liquidity in the global financial system, even a small flow of money in the venture segment led to its rapid growth. Especially rugged steel last few years, when from 2013 until 2015 the global venture capital industry has almost doubled and the volume of investments peaked with the collapse of the dot-com era. Over the years, it became fashionable terms such as "mega deals" (more than $ 500 million) and "megafondy" (over $ 1 billion). And if earlier for the company to "lift" a round of more than $ 1 billion seemed unattainable goal (and such companies were not even five years ago), but now Uber may hold several such transactions a year, and Chinese Ant Financial attracted at once on the whole $ 4.5 billion.

But it reminds us a lesson of the early 2000s, markets can not grow forever. At some point, investors will begin to look for their profitability, and considering that the cycle between venture rounds is usually no more than two years, the first demonstration of history of venture "hangover" began to appear at the end of 2015. A 2016 th was the first year in modern history of the venture capital industry, the market showed a significant drop in to find a whole heap of problems that have had a major impact on many very well-known startups. According to CB Insight and KPMG, the amount of venture capital market has returned to the level of 2014 - to the indicators in the area of ​​$ 25 billion of venture capital investments in the quarter (compared to nearly $ 40 billion invested in the record the III quarter of 2015). But despite the decline in activity, the global volume of venture capital investment in 2016 is likely to exceed $ 100 billion per year, which is still a fairly high level, which allows you to actively pursue funding for start-ups. Perhaps we - in the bubble, but the peak of its growth has already passed. 2016 was rich in events that should at least for some time to increase the effectiveness of venture capital investments. Investors usually have short memories, but presented to the lessons of the past year, hopefully, will be instructive.

Venture capitalists often say, there are good companies, but bad deal. In itself, participate in the capital of a successful start-up (even if the most successful) does not guarantee an excellent profitability. It seems that this year, many investors have realized that they have invested over the past few years in good company too high estimates. This caused a massive wave of revaluations startups in 2016. In the list of decliners for start-ups this year - the company worldwide. Thus, the American manufacturer of fitness trackers and acoustics Jawbone on the results of the round at the beginning of 2016 has lost half the cost (about $ 1.5 billion), and the end of the year the company faced problems in the payment of the supply of new devices, and now its future is very uncertain. Chinese smartphone maker Xiaomi, once the most expensive start-up of the world, according to experts, could ever fall in price by 10 times with pozaproshlogodnih $ 46 billion, unable to compete with other Chinese manufacturers. A group, which includes Russian Lamoda, Global Fashion Group, a German holding company Rocket Internet start-up factories in the last round of investment fell by more than three times this year - from last year's $ 3.4 billion to $ 1.1 billion.

The situation is indeed somewhat like what happened after the dotcom crisis. Having lost a significant part of the cost (because of the liquidity crisis in the industry and the general decline of multipliers, which assessed technology companies), many startups are not able to attract new rounds of investment and to continue to develop. Of course, it should not expect a repeat of the dotcom stories: could not at that time many companies, the economy, in principle, to work with then existing demand. Now even models such as «Uber for dogs» (DogVacay), attracted by fifty million dollars of investment and can be a good business. But like 15 years ago, the pursuit of business growth rate of any price can be costly startup with an unproven business model, and initially high score often does not allow companies to attract investors at a later stage or, worse still, generally closes the road to an additional financing.

Sometimes it is better to raise a smaller round at assessment than the other way around - a plot by defeating become very popular in recent years, the series "Silicon Valley." This rule for many entrepreneurs sounds counterintuitive, but it reflects the reality of the venture capital industry. The logic is simple: for a large number of startups scale requires a significant number of investment rounds (eg, pre-IPO companies typically spend at least four investment rounds). Strongly raised his rating of one of the first rounds, more will need to either show tremendous growth to attract these investments, or to agree to reduce the assessment, which is fraught with for the investment and business reputation can further scare other investors. That is the dilemma had to deal with many start-ups in 2016.

It happened in 2016 and another important event - Trump has succeeded as one of the most advanced in terms of IT presidents of the world of politics. This summer, in an interview with Bloomberg, Obama even hinted at a possible continuation of a career in the venture capital industry. And if policy venchurynoy industry were to Obama (for example, former US Vice President Al Gore, a partner working in one of the most famous KPCB venture capital funds), Obama could be the first former president among venture capitalists. In the last year in office, Obama has introduced visas for those who want to develop their start in the United States has allocated $ 4 billion to promote programming in US schools, writing articles about unmanned vehicles, missions to Mars and technological progress. In 2017 during the reign of the same comes Trump, who has already surprised many innovative solutions for the formation of the team. It includes and Peter Thiel (best known angel in the world, has received 10% Facebook for $ 500 thousand), and Elon Musk (founder of the Tesla), and Travis Kalanick (Chapter Uber). But overall technological community initially resisted Trump seriously intended. This is not surprising, given its ambiguous attitude to technology - often he simply does not understand how in the case of calls to ban iPhones in the wake of the scandal of the data encryption. Venture industry and so not the most quiet place. And with the coming to power in the USA Trump uncertainty in the new year will be just more.