Unicorn Count - from Pitchbook
The latest VC figures are out (from Pitchbook, see link). It strikes me as strange that the market continues its exhuberance in the face of so much global slowdown.
Is this being driven just by VCs having too much dry powder and nowhere to spend it?
Or do people still think things are going swimmingly economically-speaking? Because I sure don't. I think we're entering winter, what with trade war in full swing and taking a toll, China entering a potentially long slow-down, HK protests, and general fatigue in the economy following 10 years of expansion.
Yes, 1) too much dry powder looking at the same deals; and 2) Softbank
Agreed that valuations are quite frothy lately, but as a counterpoint, this data you're showing is largely being driven by companies going public later.
Also, if you look at new Unicorns versus cummulative unicorns in the chart, there isn't significant growth in new Unicorns lately either.
I'm more scared by public market pricing to be honest. If you look at ARR based valuations, things have run up SIGNIFICANTLY since the start of the year for SAAS companies across the board. 10x ARR isn't unusual now. Undoubtedly it's got to be a great company to deserve that valuation, but if growth slows or there is less runway than expected, the returns are going to disappoint.
Also SoftBank is fucking ridiculous as mentioned above. Once that blows up, things will probably fall back to "normal".
It's the Trump Economy
Guess people didn't get the sarcasm
I think what happened in VC specifically is:
Now IRR is fucking garbage for VC as an asset class. (Kaufman report) 4. Valuations are now way way up, and everyone is playing hot potato.
Here are the main reasons why valuations are absurd right now in both the public and private markets:
Too much dry powder. PE has done very well recently relative to HFs, so a ton of money has been thrown into this sector.
Massive inflow into passive investing from advent of roboadvisors and misperception that putting your money in the index and leaving it forever is the best way to invest.
Strong US economy relative to international economies - Relative macro performance has driven inflows into US equities and companies from international investors
Massive / unheard of quantitative easing program and easy fiscal policy by the fed has caused interest rates to decline to lowest level EVER
Lack of ability to get good returns through bonds given treasury yields are close to the lowest level ever
Tailwind from tax reform in 2018 increased company earnings signficantly
Dot com bubble two. venture capitalists get paid on management fee who gives a crap how the company does. Pension funds want to invest to pretend they will get good returns so they can hide how under funded they are. No one wants the music to stop until the bubble pops
Mgt fees keep the lights on. Nobody gets rich from mgt fees...
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