Ran into an article written by Scott Maxwell from Insight Venture Partners, thought you might find his perspective interesting.
http://www.insightpartners.com/companies/#!shutterstock
The End Of The Startup Gold Rush, Absurd Burn Rates And Tourist VCs
Posted yesterday by Scott Maxwell Snip
In 15 years as a venture capitalist, Ive seen just about every market condition you can imagine. I started at Insight Venture Partners in 2000 at a time when the stock market was experiencing historic highs and tech companies were receiving massive private and public valuations. Capital markets were flush, startup burn rates were rampant, and the gold rush was on. Investors came out of every corner trying to get a piece of the pie.
We all know how that ended.
Fast forward to 2006, when I founded OpenView Venture Partners. Markets had rebounded from the 2001 disaster, and investment capital was beginning to flow back into VCs and tech startups. With a reasonably good idea and a solid team, most tech startups could secure growth capital. The environment wasnt quite as crazy as 2000, but it was close.
Then, 2008 happened and we all know how that ended.
Which brings us to today...
Snip
So, Where Are We Now?
In the financial world, this ebb and flow phenomenon is often referred to as risk-on, risk-off investing, and it tends to create herd-like behavior.
In my mind, theres little doubt that the VC and tech worlds are beginning to shift from greed to fear (or, risk-on to risk-off). Private valuations are beginning to normalize. Fewer tech startups are going public. And tourist VCs hedge funds, public asset managers, and corporate venture capital groups that dabble in tech VC when market conditions are favorable are starting to return home.
Additionally, there are several macroeconomic factors that are creating market uncertainty and, thus, less enthusiasm around riskier investments. Specifically:
Chinas growth has slowed, which is causing ripple effects across global capital markets and creating worries about volatility
Interest rates remain low and theres fear that wont last
Commodities are declining in price and the stock market isnt rocketing upward
Collectively, these factors are creating risk-off preference in the market, which is lowering investors appetite for investments with unclear opportunities for a return. In the short-term, this will accelerate the demise of startups with poor economic models that previously relied on investor euphoria and the tech industrys momentum to achieve sky-high valuations. And it will probably make it more difficult for some startups to acquire the runway necessary to test and prove the value of their ideas.
http://tinyurl.com/oargeqg
