The times seem to have become slightly tougher for startups.
Many of the concerns revolve around valuations — without satisfactory comps, and with results difficult to verify, new questions are being raised around what these companies are worth. As the Wall Street Journal reports: “The party in Silicon Valley may be winding down. Stock-market volatility and a weak crop of initial public offerings are encouraging some investors to push back against private technology companies trying to raise funding at lofty valuations, but whose businesses face challenges.”
Indeed, the challenge extends to last year’s crop of startups that were able to go public. The WSJ reports: “Among the nine U.S.-listed IPOs since 2014 by venture-backed technology companies that were valued at $1 billion in private fundraising rounds and have since reported annual results, only three have met or exceeded analysts’ consensus profit forecast for that year, according to FactSet.”
How hard is it to get a proper valuation? Another Wall Street Journal piece provided an analysis “of closely held technology startups worth at least $1 billion found 12 instances where the same company was valued differently by more than one mutual-fund manager on the same date.”
The piece adds that it is a problem that also affects individual investors: “For individual investors, the risks are mushrooming as mutual funds buy more startup stocks than ever. Such stocks are highly appealing to managers whose investment returns have been hurt by abnormally low interest rates and this year’s lackluster stock market. Many of those managers also are struggling to compete with lower-cost mutual funds that track a market index.”
The startup news comes as First Round Capital publishes an extraordinary presentation on the “State of Startups.” The firm “surveyed venture-backed founders from everywhere — less than 25% from the First Round community — and received over 500 responses, volunteering their experience and opinions.”
Among their insights:
- “Most think it won’t get easier to raise funding.”
- “73% say we’re in a bubble.”
- “No one has a clue about the IPO market.”
- “Women-led companies are more diversity focused.”
- “Founders see power shifting from entrepreneurs to investors.”
- “Hiring the right people and revenue growth top the list of founder concerns.”
- “Founders fear long-term failure, but not the short-term mistakes that lead to it.”
- “Elon Musk is the far-and-away most admired leader in technology.”