Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today let’s try to figure out where the startup and private markets stand, as there are a few different takes out there that I can’t reconcile. Our efforts to better understand how young companies are faring comes, of course, in the shadow of the impending $7 billion Intuit-Credit Karma deal — the second, multi-billion dollar fintech exit so far in 2020.
So where are we today in the startup business cycle? We’ll summarize a few different perspectives on the question, and then come up with our best synthesis of the group.
If you observe the behavior of the venture class, it’s a full-speed-ahead market. This is contrasted by a summary of recent private-market tech stumbles compiled by New York Times’s Erin Griffith. Bolstering Griffith’s take are a set of long-running complaints by select tech leaders regarding the health of some of the private market’s most valuable companies.
But as Credit Karma looks set to exit at a huge valuation, it’s hard to tease out which perspective is the most correct. So let’s try to answer that for ourselves.
Perspectives
It’s tricky to summarize others. But let’s be bold and do so, breaking the world into a few different viewpoints.
The following are constructed based on dozens of interviews over the past few months with founders, investors and operators. Weaved through them are the news of the last six or twelve months, replete with wins, losses, disappointments, mistakes and turnarounds. Here are our takes, explained:
- The optimist: Many founders and venture capitalists remain optimistic about the private markets and startups in general. There are hotspots around the technology world, including fintech, finservices, vertical SaaS, work with regulated industries, and more. The best example of the in-market impact of this particular view of the market is the galloping pace at which venture capitalists and startups continue to raise capital. While venture activity has slowed in China, there’s still so much activity that it’s hard to see much deceleration amongst startups building outside of that country.
- The mid-cycle pragmatist: There are some venture capitalists sounding notes of caution. Perhaps we’re in for a cloud growth slowdown; perhaps some valuations are a bit high; and perhaps some startups got a bit silly. This perspective loves baseball analogies, telling TechCrunch over the phone or in person that we’re in the fourth inning of key trends like the cloud takeover of enterprise software. This perspective often feels like our optimistic take, but with just enough caution included as to cover the speaker’s backside in case venture really does go off the rails.
- The caution-minded: Some private market players are nigh-shouting that some things aren’t going well. Bill Gurley is one of those folks, arguing in favor — over the years — of more healthy, stable, secure startups, and against unicorn excess. This perspective is not always markedly conservative, but the cautioned-minds are focused on the health of their startup or portfolio and worried about the rest of the market.
- The post-peak scold: While many private market players want to paint the media as generally censorious, no-fun and rude about startups, I can tell you that it’s not just journalists rolling their eyes at startup excess in recent years. Some founders and investors are spooked and annoyed as well. The WeWork implosion has scared more than a few folks, and they will tell you about it if you agree not to quote them. There are not mobs of individuals in the startup world who are irked at how some silly companies made the party worse by torching too much money to avoid notice and ridicule, but they exist. And, yes, the media is chronicling the downfall of a lot of folks who talked big on the way up and now want clemency on the way down. But the post-peak scolds aren’t a single group, and they don’t have a unified gripe.
It’s worth noting that this column winds up embodying each of those perspectives at times, depending on what the news is telling us. No single perspective is entirely correct or completely wrong.
In fact, and I am sure that you saw this coming, each has a pretty good partial argument about where we are today.
It’s fine to be an optimist in today’s startup market. Founders and venture capitalists are paid optimists. They can’t do their jobs unless they have that perspective; there are no short-selling private market investors. The mid-cycle pragmatists and cautioned-mind types are probably pretty close when we come down to it, each blending a mixture of selective positive expectation with the view that some other people are schmucks. Our final category is mostly filled with industry observers, focused on covering the market from the perspective of trends, along with some in-market players who are seeing their own efforts brought down by the mistakes of others.
I wanted to write all this to help the both of us remember that we’re never utterly correct, and that there is never a time in which all things go well or all things go poorly. Sure, there are startup layoffs, but there is also a startup talent crunch. At the same time, there are lots of new, highly-valued rounds, but we’ve also just seen a high-flying unicorn get its valuation cut to shreds in its debut. And while some valuations are coming back to earth, One Medical shows that there is still appetite for rich valuations for tech-enabled entities.
Enlightened centrism is crap, but I’d hazard that the most accurate take is probably a little of all the takes. A franken-perspective that says something like this:
We’re well past the halfway mark in the current startup cycle, and there are fewer great places to place bets. That’s leading to stiffer VC competition, faster rounds for winners, and rising valuations. VCs are raising more money, even as there are signs that the early-stage market is slowing down. And while there are some impressive exits, others are shit. So things are ok for now, clouds on the horizon notwithstanding. But the shakeout of weaker players in the market is causing some folks to put a bit too much faith in their perspectives, positive or negative.
I’d say that nothing much changes until the global macro climate falls apart. Then, all bets are off.
Tomorrow morning we’re back to normal. Thanks for your time.