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Venture capital investors are still keen on the frothy, high-growth opportunities in technology, although some are tempering their optimism over fears of a bubble.
At the Fortune Brainstorm Tech Conference at a mountain resort in Aspen, Colorado this week a key topic of debate among tech leaders and investors were the risks and rewards in the fast-growing sector.
“We’re trying to be more disciplined in the terms of the bets we make,” said Byron Deeter, a partner in Bessemer Ventures, which has invested in startups including online star Pinterest.
Venture money has been flowing at an unprecedented rate into private placements in startups -- a phenomenon which has venture firms both excited and cautious.
A report by the research firm Mattermark showed venture funding for US startups jumped to US$17.1 billion in the second quarter from $15.65 billion in the prior three months.
“They (investors) are looking for that alpha,” Deeter said at a forum on the state of venture funding. “It’s worked so far, but when the music stops they will pull back lightning fast.”
The discussions come amid debate over the growth in “unicorn” startups, those valued at more than $1 billion, which may shake up some sectors or which may simply be overvalued. According to the research firm CB Insights, there are now 188 unicorn startups worldwide worth a collective $447 billion.
Bill Maris, managing partner at Google Ventures, told the forum he was not overly concerned about high valuations. Maris, whose firm has invested in one of the biggest unicorns, Uber, believes “the best and most exciting investments are the ones that feel the most uncomfortable, that seem the most overpriced at the time.”
Venture investors in Aspen appeared split on whether they see a repeat of the devastating dot-com collapse which devastated the tech sector in 2000.
John Doerr, general partner at the prominent Silicon Valley private equity firm Kleiner, Perkins, Caufield & Byers, said he still sees opportunities.
“People compare 2015 to the last bubble, but people lose sight of the fact there were no smartphones in 2000,” he said during a question-and-answer session in Aspen. “It wasn’t possible to distribute a billion copies of a new application globally in less than a week. So the markets we are trying to serve are much larger.”
 
Doerr, whose firm has a large portfolio of tech startups from Twitter and Nest to DoorDash and Coursera, did warn that investors should be “super careful” if investing in the late stages of a startup.
Of particular concern is the huge growth in funding for privately held startups which delay the more conventional approach to raising capital through initial public offerings on the stock market.
 
An IPO requires “really rigorously evaluating the financials,” said Dayna Grayson, a partner in New Enterprise Associates, which has investments in about 300 tech and health care firms.
“When they are doing a private placement, they are looking at the financials a couple of times and then they are out marketing the deal,” she told the Aspen forum. “It’s very different. They can delay the IPO and they can delay the financial rigor that they might otherwise have to put into the company.”
Nevertheless, Deeter said many venture investors are still being seduced by the lure of high growth, even if there is no clear path to profits. “We’re not value investors. We fall in love and close our eyes,” he said.
 
Nikesh Arora, president and chief operating officer for Japanese telecom giant SoftBank, also expressed caution. “We’ve looked at a lot of things in Silicon Valley,” the former Google executive said. “The valuations are rich.”
 
Prominent Silicon Valley firm Silver Lake, known for investing in China’s Alibaba and for helping take PC maker Dell private, said he is steering clear of the unicorn herd, managing partner Egon Durban told the conference.
 
But if the stock market starts to fall, privately held firms will see values slump. “So if the market drops 10 per cent the private market can go down from 30 per cent to no-bid,” he said.
 


Tech investors still keen, but bubble fears lurk

An Uber application used in the US as investor remain keen about technology companies even though valuations for some are getting rich. Photo: AFP

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