Category Archives: VC

15/11/18: The ‘New Normal’ is a Road to another Tech Sector Bust


The VC land of wonders and waste is awash with cash, thanks to a decade-long loose liquidity pumping across the markets by the Central Banks. Just as in the prior iterations of the same (the Dot.Com Bubble and the pre-GFC assets binge), the outrun will be the same as it was before: a crash.

TechCrunch reports that (https://techcrunch.com/2018/11/11/age-of-the-unicorn/):

  • Over the last 5 years, the number of 'unicorns' - startups with valuations in excess of USD1 billion - has grown from 39 to 376 - almost a ten-fold increase
  • The rate of 'unicorns' emergence is accelerating: in 11 months through November 1, 2018, we've added 81 new 'unicorns' to the roster, which means there is now a new 'unicorn' company launched every four days
  • Mega-deals for start ups - funding rounds in excess of USD100 million - are also on the rise, with their frequency up ten-fold on five years ago. "Back in 2013, there were only about four mega rounds a month, but now there are forty mega rounds a month based..." Thus, "starting from 2015, public market IPO has for the first time no longer been the major funding source for unicorn size companies."

As the chart above shows, there has been a power-law acceleration in the trend since mid-2017 and it is now clearly topping the asymptote.

Two countries dominate the 'unicorns' league: China (with 149 count) and the U.S. (with 146 count). Which implies two things: 
  • Given the close links between the PBOC policies, Chinese Government investment strategies and supports, and China's counts of 'unicorns', majority of these start ups are heavily dependent on debt, and political good will. They are sitting ducks for ESG risks and are extremely exposed to political and policy uncertainty.
  • The U.S. 'unicorns' are completely dependent on the markets ability to cycle cash from corporate and financial sectors debt and private equity into start ups funding, and M&As. There is zero rational valuation happening in this sub-sector.
A dramatic shift in risks from tangible tangible technologies (including strongly patentable innovation or defensible market shares) of the likes of Apple and Google toward less tangible, highly price and income elastic SaaS types of product offers is reflecting the massive buildup in valuations risks. This too is reflected in the article, albeit the authors fail to spot the implications. TechCrunch conclusion is perhaps even more alarming that the stats they present. "Mega rounds are the new normal; staying private longer is the new normal; and the global composition of the unicorn club is the new normal." We've heard exactly the same arguments at the tail end of the Dot.Com boom about the absurdly over-valued early internet age companies. We've heard exactly the same arguments about the real estate sector prior to 2008. We've heard exactly the same arguments about tulip bulbs in Amsterdam some centuries ago too. 

'The new normal' is the old road to a bust.

15/11/18: The ‘New Normal’ is a Road to another Tech Sector Bust


The VC land of wonders and waste is awash with cash, thanks to a decade-long loose liquidity pumping across the markets by the Central Banks. Just as in the prior iterations of the same (the Dot.Com Bubble and the pre-GFC assets binge), the outrun will be the same as it was before: a crash.

TechCrunch reports that (https://techcrunch.com/2018/11/11/age-of-the-unicorn/):

  • Over the last 5 years, the number of 'unicorns' - startups with valuations in excess of USD1 billion - has grown from 39 to 376 - almost a ten-fold increase
  • The rate of 'unicorns' emergence is accelerating: in 11 months through November 1, 2018, we've added 81 new 'unicorns' to the roster, which means there is now a new 'unicorn' company launched every four days
  • Mega-deals for start ups - funding rounds in excess of USD100 million - are also on the rise, with their frequency up ten-fold on five years ago. "Back in 2013, there were only about four mega rounds a month, but now there are forty mega rounds a month based..." Thus, "starting from 2015, public market IPO has for the first time no longer been the major funding source for unicorn size companies."

As the chart above shows, there has been a power-law acceleration in the trend since mid-2017 and it is now clearly topping the asymptote.

Two countries dominate the 'unicorns' league: China (with 149 count) and the U.S. (with 146 count). Which implies two things: 
  • Given the close links between the PBOC policies, Chinese Government investment strategies and supports, and China's counts of 'unicorns', majority of these start ups are heavily dependent on debt, and political good will. They are sitting ducks for ESG risks and are extremely exposed to political and policy uncertainty.
  • The U.S. 'unicorns' are completely dependent on the markets ability to cycle cash from corporate and financial sectors debt and private equity into start ups funding, and M&As. There is zero rational valuation happening in this sub-sector.
A dramatic shift in risks from tangible tangible technologies (including strongly patentable innovation or defensible market shares) of the likes of Apple and Google toward less tangible, highly price and income elastic SaaS types of product offers is reflecting the massive buildup in valuations risks. This too is reflected in the article, albeit the authors fail to spot the implications. TechCrunch conclusion is perhaps even more alarming that the stats they present. "Mega rounds are the new normal; staying private longer is the new normal; and the global composition of the unicorn club is the new normal." We've heard exactly the same arguments at the tail end of the Dot.Com boom about the absurdly over-valued early internet age companies. We've heard exactly the same arguments about the real estate sector prior to 2008. We've heard exactly the same arguments about tulip bulbs in Amsterdam some centuries ago too. 

'The new normal' is the old road to a bust.

28/6/17: Tech Financing and NASDAQ: Divorce Proceedings Afoot?

Based on the recent data from Kleiner Perkins,  there has been a substantial inflection point in the relationship between NASDAQ index valuations and tech IPOs around 2015 that continued into 2016-2017 period.

Over the period 2009-2014, the positive correlation between NASDAQ and global technology IPOs and PE/VC funding was largely a matter of regularity. Starting with 2015, this relationship turned negative. Which means one pesky thing when it comes to the real economy: the great engine of enterprise innovation (smaller, earlier stage companies gaining sunlight) as opposed to behemoths patenting (larger legacy corporations blocking off the sunlight with marginal R&D) is not exactly in a rude health.