Is Winter coming? Naw, its just a cold.
Facebook is up this week. :-0
No, you are not in the Twilight zone.
Since Paul Graham’s doomsday letter was sent to his portfolio, the mood in the Valley has felt a little muggy and snickery about Facebook’s “failed” IPO. Entrepreneurs and investors fear Winter 2.0 has arrived with several publicly traded tech firms are trading depressingly low and failed tech IPOs continue to mount.
At this time when $FB is looking up, a little perspective is needed on the markets.
First, Facebook’s IPO was a screwup, but it was hardly the Kardashian fest as portrayed in the media. The downward spiral of Facebook’s stock price seemed to egged more by investor sentiment turning pessimistic on Facebook’s advertising platform with insane engagement levels than fundamentals.
Second, the tech industry is not special. The wise saying “don’t watch the Dow” applies to tech startups. Markets are volatile, but with an abysmal interest rate, unstable currency markets, and flat indexes, private investing still looks quite attractive. People are looking for a good return in between 0.3% for CDs and 23% for Greek bonds.
Third, Goldman Sachs is expanding their high-growth tech portfolio with an investment in Spotify and AnchorFree. Goldman Sachs still believes there is massive opportunity in tech IPOs and M&A. One thing we learned from the 2008 crisis, Goldman Sachs doesn’t mess around.
Fourth, it is not rational to stop angel investing because the current IPO environment looks closed (in the short-term, I believe it is). I would ask an angel investor slowing his investments due to Facebook’s IPO troubles, “Are you expecting me to IPO in this year or in 10+ years?”. Either way, Bill Gurley from Benchmark Capital said, “It is relative. One door closed, means another one has opened.” The opportunity for M&A has picked up with companies sitting on $2 trillion in cash.
I would welcome a correction in seed-stage valuations, as would other people smarter than me: here, here, and here. If you still need some confidence that today is always the best day to start a company, read one from one of the wisest VCs in the world, Brad Feld, on “ignoring the bubble talk” and “ignoring the Dow”.
Paul Graham later clarified that the funding environment will be harder for startups with high valuations seeking angel or series A financing and persisted that he was not predicting the start of Winter. Either way, the fallout continues as 50% of tech companies planning an IPO over the coming months have placed everything on hold.
Lets assume Winter is here. In that case, the proverbial “buy low, sell high” never seemed so apparent. But, it still feels like a cold.
