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
Source: Capital IQ, Jay Ritter, University of Florida, NVCA, a16z
…inflation adjusted (Can you spot the bubble?)
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…
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
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
Source: Bloomberg
And market size is for real this time
The internet is working now – from 40 million people online to 4 billion
Source: ITU, a16z Smartphones People online
Funding per person online
US funding per internet user has been roughly flat since the bubble
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
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
Source: US Census Bureau, a16z
So funding as share of GDP looks moderate
Steady growth in funding reflects the scale of the opportunity
Source: Capital IQ, Jay Ritter, University of Florida, NVCA, BEA, a16z
“It’s different this time.”
*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
Source: Capital IQ, a16z
Yes, there is more funding for larger deals
The top 20 private deals have suddenly become very large
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
Source: Capital IQ, a16z
And tech IPOs are essentially dead
The tech IPO market is at early 1980’s volumes
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
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
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.
