a16z Podcast | The Rise of the Quasi-IPO

TL;DR

The analysis reveals that while there may not be a bubble in the technology industry, there are interesting trends in late-stage and seed funding, as well as a shift towards private investments due to longer time to IPO and lack of growth in public markets.

Transcript

hi there this is Scott Cooper and I'm here with a Morgan bender and Benedict Evans and we want to talk to you a little bit about the bubble the environment what's happening in technology and maybe we'll kick it off in Benedict maybe you can start with we put out this slide deck on Monday I think and would love to kind of just hear from you I guess ... Read More

Key Insights

• 🍿 The market size of technology has expanded significantly, driven by the shift from PCs to mobile as the dominant computing platform.
• 🌥️ The opportunity for growth and market share in the technology industry is much larger than in previous generations.
• 🪘 There is a trend of companies staying private longer, which allows for more investment in R&D and a longer period of hyper-growth.
• ❓ The distribution of funding has become more rational, with less concentrated funding in very young companies, indicating greater maturity and sustainability.
• 🧑‍🏭 Private market valuations may not reflect true value due to factors like liquidity preferences and other contractual arrangements.
• ⌛ The shift towards private investments and longer time to IPO poses challenges for liquidity and cash returns for venture capitalists.
• ❓ The establishment of a secondary trading market for early investors could provide additional liquidity options.

Questions & Answers

Q: How does the current technology bubble differ from the one in 1999-2000?

Unlike the previous bubble, the market size of technology, revenue from online advertising, and e-commerce has significantly increased without a corresponding spike in P/E multiples or inflated valuations in public companies.

Q: What challenges were faced in gathering data for the analysis?

The main challenge was determining reliable sources of structured data on venture investing and IPO funding. Different databases and sources were scoured to compile an accurate and comprehensive set of data.

Q: Why are companies staying private longer and how does this impact public investors?

Companies are staying private longer due to longer time to IPO and the desire to invest in R&D to take advantage of the growth opportunities in the market. This shift means public investors may miss out on the appreciation in private markets.

Q: What can be inferred from the increase in late-stage funding and seed financing?

The increase in late-stage funding reflects the longer time to IPO, as investors seek opportunities for appreciation. Similarly, the surge in seed financing allows for experimentation and innovation, although the actual amount of money invested is still relatively small.

Summary & Key Takeaways

• The analysis aims to debunk the notion of a bubble in the technology industry by examining trends in venture investing and IPO funding adjusted for inflation since the 1950s.

• It is found that while the market size and contribution of technology to the economy has increased significantly, there has been no spike in P/E multiples or inflated valuations in public companies.

• The analysis highlights the importance of considering factors such as age and funding rounds to understand the dynamics of the current technology environment.