a16z Podcast | Good Bubbles, Bad Bubbles -- and Where Unicorns Come from

TL;DR

Bill Janeway, a senior advisor at Warburg Pincus and expert in venture capital, discusses the current state of the industry and the potential risks of investing in unicorns.

Transcript

hi everyone welcome to the Asics insi podcast I'm sonal and I'm here today with Michael and we are talking to bill Janeway bill is a senior advisor at Warburg Pincus where he had headed up its high tech investment efforts starting in the late 80s so he was actually one of the early venture capitalists and he is also a visiting lecturer today in eco... Read More

Key Insights

• 👶 The current innovation economy is similar to the advent of electricity, with IT disappearing from the user's perspective and an explosion of startups and new services.
• 🔒 The availability of cheap capital and fear of missing out (FOMO) are enabling private companies to stay private longer and fund losses without concerns for profitability.
• 🤪 The IPO market is challenging, with few venture-backed companies going public, and the consolidation of investment banking making it harder to IPO.
• 😃 VC funding can be seen as distributed research and development for big companies, filling the innovation gap they have due to lost capacity.
• 👁️‍🗨️ Good bubbles, such as those in liquid markets and focused on promising technologies, can be productive and beneficial for the economy.
• 🥺 The current micro bubble in private funding for startups may lead to the disappearance of some companies but is unlikely to have a significant impact on the overall economy.
• 🦔 VC investing involves trial and error, with the need for sufficient cash and control to hedge against uncertainty and navigate the early stages of startups.

Questions & Answers

Q: How does Janeway compare the innovation economy to the advent of electricity?

Janeway believes that IT is disappearing from the user's perspective, just like electricity did in the 1920s. This is due to the low friction and cost of launching new web services, leading to an increase in startups and new applications.

Q: What does Janeway think about the current influx of capital into private companies?

He explains that the availability of cheap capital and fear of missing out (FOMO) are enabling private companies to stay private longer and fund losses. However, he warns that this environment may change in the future and that investors may face significant losses.

Q: How does Janeway view the current IPO market?

He notes that the IPO market is challenging, with few venture-backed companies going public. The average number of venture-backed IPOs per quarter has decreased, and the valuation of IPOs has increased. This is partly due to the consolidation of investment banking, making it harder for companies to go public.

Q: What is Janeway's perspective on the role of VC in R&D?

Janeway suggests that VC funding can be seen as distributed research and development for big companies. As big companies have lost innovation capacity, they need to acquire innovation from startups. However, he emphasizes the challenge of acquiring and supporting startups without smothering them.

Summary & Key Takeaways

• Bill Janeway compares the current innovation economy to the advent of electricity and how IT is disappearing from the user's perspective, leading to an explosion of startups and new services.

• He highlights the influx of capital flowing into private companies, allowing them to stay private longer and fund losses without concerns for profitability.

• Janeway emphasizes the challenges of the current IPO market and the role of VC firms in funding research and development for big companies.