BOOM TIMES IN SILICON VALLEY FOR A CHOSEN FEW
Only ‘strong ’ firms are getting bought up by venture capitalists
For tech entrepreneurs, these are both the best of times and the gnarliest of times.
On the plus side, there’s still a lot of venture capital money chasing revolutionary ideas, with $15.3 billion flowing to start-ups in the second quarter of this year, a 20% pop over the first quarter, according to a MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.
But only standout ideas with either unique intellectual property or quantifiable traction are likely to benefit in the form of investments or acquisitions from this buoyant climate.
“Only strong companies are getting acquired,” Greylock Ventures’ Josh Elman told attendees at TechCrunch Disrupt Tuesday, citing the $1 billion price tags paid for self-driving car start-up Cruise Automation (General Motors) and Dollar Shave Club (Unilever).
Elman might have added another recent purchase to the list, Microsoft’s $26 billion spend for professional networking site LinkedIn, founded by Elman’s fellow Greylock colleague and panelist, Reid Hoffman.
“The pace of tech M&As (mergers and acquisitions) is speeding up, in part because (founders) looking to create durable long-term companies need to join up with companies with stronger balance sheets,” Elman added.
Nowhere is that more apparent than in the booming self-driving car space, where the past few months have seen companies ranging from Ford to Uber make large investments in, respectively, laser radar ($75 million into Velodyne) and autonomous trucks ($670 million into Otto).
“Clearly, the self-driving revolution is upon us,” Hoffman said, and the winning companies “will be all about the uniqueness of their talent and their tech.”
Netscape founder turned investor Marc Andreessen took the TechCrunch stage to talk about how his firm, Andreessen Horowitz, is “all about setting up highly organized speed dating between start-ups and big companies, which could be Ford or even the Department of Defense,” he said, a nod to previous speaker Secretary of Defense Ash Carter.
Andreessen said he is a big military history buff and often advises leaders of his portfolio companies “to borrow from the military when it comes to goals and tactics. I’ve found you have to have a very vivid idea of your goal but have to remain flexible on the tactics.”
The outspoken investor has made a fortune funding companies such as Facebook, Skype and Oculus Rift. Although some of those bets paid off fast — Oculus was bought by Facebook for $2 billion just two years after its 2012 Kickstarter campaign — Andreessen cautioned entrepre- neurs that “it still takes a decade or more to build something significant.”
Andreessen was quick to dismiss a Sept. 1 report in The Wall
Street Journal that suggested his VC firm was not yet in the elite company of Sequoia Capital and Benchmark, whose returns to investors exceed Andreessen Horowitz. The result of the article was “my phone started to ring ” with investors wanting to get in on Andreessen’s fund, he said.
“But it had closed,” he said, smiling. “My only request is the next time they write an article, it should be four months before we close a fund.”
Other tech sectors getting attention from VCs include drones, augmented reality and software as a service, said Jager McConnell, CEO of Crunchbase, a site that tracks tech start-up funding rounds.
“The rounds are getting larger, but there are also fewer rounds, so you need to have metrics and a proven path to success, and that’s why the Magic Leaps of the world are doing so well,” said McConnell, referring to the secretive Florida-based AR company that has raised $1.4 billion in three rounds thanks to sizable infusions from Google and Alibaba.
Along TechCrunch Disrupt’s Startup Alley, entrepreneurs were hoping to grab even a crumb of those VC billions.
“We know it’s tough out there, which is why we’re hoping that by getting users signed up maybe we can generate some interest,” said Joshua Coyne, co-founder with his wife, Malena Martinez, of Philadelphia-based start-up Plext, an app that allows users to send text messages to the owner of a particular license plate.
Coyne said so far 10,000 people have downloaded the app.
The assembled tech veterans did leave the entrepreneurial masses with hopeful parting words. Elman said that although Google, Amazon and Apple may seem like monolithic companies that are bound to come up with the next big innovation, “There is still plenty of room for a good start-up to help us interact with each other.”