Andreessen Horowitz Says No Bubble In Tech (Shocker – sarcasm) presentation below

Andreessen Horowitz: U.S. Technology Funding

H/T Barry Ritholtz

2 What’s going on in the public markets?

What are all these “unicorns”?

What’s going on in venture capital?

The starting point – what’s going on?

34 years of US tech funding

U.S. Technology Funding

Source: Capital IQ, Jay Ritter, University of Florida, NVCA, a16z

…inflation adjusted (Can you spot the bubble?)

U.S. Technology Funding

Source: Capital IQ, Jay Ritter, University of Florida, NVCA, a16z

The argument against a tech bubble

Tech market indices are approaching the levels of 1999…

U.S. Technology Funding

Source: Bloomberg

But, earnings, not P/E multiples, are growing

This time, profits are driving returns – in fact, P/E multiples are at early 1990s levels

U.S. Technology Funding

Source: Bloomberg Forward P/E multiple Index

Tech’s contribution to S&P is flat

Public tech companies’ share of the overall US stock market is stable for 14 years

U.S. Technology Funding

Source: Bloomberg

And market size is for real this time

The internet is working now – from 40 million people online to 4 billion

U.S. Technology Funding

Source: ITU, a16z Smartphones People online

Funding per person online

US funding per internet user has been roughly flat since the bubble

U.S. Technology Funding

Source: Capital IQ, ITU, US Census, a16z Public $ / user Private $ / user

People are spending (lots of) money online

US ecommerce + online ad revenue has increased ~15x since 1999

U.S. Technology Funding

Source: US Census Bureau, IAB/PwC, a16z Online advertising Ecommerce

And there’s more to come

Ecommerce is still only 6% of US retail revenue – far more room to grow

U.S. Technology Funding

Source: US Census Bureau, a16z

So funding as share of GDP looks moderate

Steady growth in funding reflects the scale of the opportunity

U.S. Technology Funding

Source: Capital IQ, Jay Ritter, University of Florida, NVCA, BEA, a16z

“It’s different this time.”

U.S. Technology Funding

*2014 dollars, venture & IPO. Source: Capital IQ, Bloomberg, BEA, ITU, US Census, Jay Ritter, University of Florida, a16z

It’s different this time.

But, it’s always different!

So what’s going on now?

The unicorn hunt is a big difference

The headlines are ominous.

61 US tech “unicorns” (private company with >$1bn valuation).

75% of the largest VC investments have been raised in the last 5 years.

But, the funding surge is in late-stage only

The funding explosion in 1999-2000 was at every stage – in 2014 it isn’t

U.S. Technology Funding

Source: Capital IQ, a16z

Yes, there is more funding for larger deals

The top 20 private deals have suddenly become very large

U.S. Technology Funding

Source: Capital IQ, a16z

But, this is just a rebalancing from IPOs

The top 20 deals used to be mostly IPOs – now they’re almost all private

U.S. Technology Funding

Source: Capital IQ, a16z

And tech IPOs are essentially dead

The tech IPO market is at early 1980’s volumes

U.S. Technology Funding

Source: Jay Ritter, University of Florida

IPOs used to be the norm – but no more

For most of the ‘90s the majority of tech funding was public – this has reversed

U.S. Technology Funding

Source: Capital IQ, Jay Ritter, University of Florida, NVCA, a16z

The bar for an IPO is now much higher

It used to be routine to hit $20m revenues and go public – not any more

U.S. Technology Funding

Source: Jay Ritter, University of Florida

Many companies that would in the past have done an IPO are now doing late-stage private rounds.

As you get to $40+ million rounds, these are effectively “quasi-IPOs.”

These deals have different financials, investors, and risk profiles to classic venture.

See full slides below.