How Will a Venture Capital Recovery Feel? Observations from 2008
Tomasz TunguzVenture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Will a Venture Capital Recovery Feel? Observations from 2008
What will a venture capital turnaround feel like? Will it be gradual or sudden? What will change the sentiment in the market? In 2008, I had just become a venture capitalist. Three months later, Lehman fell & the Global Financial Crisis started. CNBC played in the lobby of our office & I remember watching domino tip domino into a cascading collapse. Activity slowed to a crawl during the subsequent & I tried to understand their impact on private markets for the first time. With 15 years’ perspective, I plotted the QQQ (Nasdaq) value against venture Investing activity & venture Exits activity (all log normalized). The public markets & private markets are staggeringly correlated at 0.98 for QQQ/Investing & 0.93 for QQQ/Exits. But, it didn’t feel that way in the moment - at least not from my vantage point - the markets felt like molasses. Companies chewed gravel, gritting out each quarter. About 5 quarters later, the exit market offered a little sprig of hope. In Q4 2009, Amazon acquired Zappos for $1b. Then GreenDot’s IPO in Q2 2010 at $1.4b suggested the IPO market wasn’t icy. In the first two quarters of 2011, Cornerstone OnDemand waded into the IPO market in 2011, followed by LinkedIn at $4.2b, Homeaway at $2.1b, Fusion.io at $1.5b. That’s when people started to believe in better times ahead again, that the exit markets would support higher valuations, that businesses could thrive - when exits started to flourish again, liquidity returned to the system to founders, teams, & investors. I can’t predict when the exit market will thrive again. We do see some initial signs with the Mosaic acquisition & the New Relic take-private. The IPO market, aside from SEMRush, has been quiet. If the Nasdaq continues to strengthen, at some point, a few of the cadre of queued IPO candidates will leap. Successful offerings will invite others to join. |
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