Today at TechCrunch Disrupt London, our own Connie Loizos sat down with a cadre of Silicon Valley investors to dig into what is going down on the American side of the pond, and how the group viewed the European startup scene.
The group agreed that things in the States might be just a bit too warm. Andy McLoughlin of SoftTech noted that many companies are having a difficult time raising at the valuation they want — something that could be predicated on picking up a too-high valuation during their last round. He used the example of a theoretical company that raised at a $20 million post-money valuation without revenue.
That’s bad for everyone, he continued, citing getting over your skis when it comes to price as an issue for the company involved, investors in the firm and “everyone else.”
David Hornik of August Capital was blunt: “A lot of these investments are not going to work.” He went on to say that some companies that looked like they were a figure in the billions may now appear to be worth a figure in the millions.
The valuation issue is more than just a private problem, of course. It’s an issue in the public sphere as well. Hornik cited Square as a company that had to go public due to capital concerns, and ended up valued during its offering at half its private sticker price, implying that it is something of a cautious example.
The Road Ahead
What’s next? Hornik thinks that we’ll have to see a “reasonable downturn” in private prices before we see a material uptick in M&A activity. That will be tough for entrepreneurs twice: They have to go down to get bought up.
Thomas Korte of AngelPad was blunt: “2016 is going to be interesting.”
McLoughlin noted that his firm is “advising” its portfolio company to reduce their spend. Summing sentiment from the panelists — if I can be so bold — it seems that they are bullish on the best firms, trepidatious about the middle tier, and completely done with anything further downgrade.
The SoftTech venture capitalist did offer one ray of light: “We know that companies with great metrics can raise cash.” So, what was always true remains correct.
The panel also answered the Europe question. It’s clear that technology in Europe is doing big and interesting things. But there is some turbulence to be found. Several European startups recently called off their march to IPO, for example, potentially highlighting market risk on the continent.
According to the group, not every company needs to kick off in Silicon Valley. The three also noted that in some market categories — fashion and music were highlighted — building in the Valley might not be an advantage at all. If you are starting a business with a focus, it may make more sense to be located near your customer base, after all.
Korte said that “you can build multibillion-dollar companies anywhere in the world.” It’s an encouraging remark, but he went on to say that he has a focus on Silicon Valley and New York, as he can work more closely with companies located in those areas. In other words: focus.
All told, the American crew were polite about Europe, but I did not leave with the impression that they felt a strong impulsion to transfer a new block of cash to an account in London, Paris or Berlin, to dig in.