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Funding in The Time of Coronavirus: Mark Suster Managing Partner Upfront Ventures @msuster
Funding in The Time of Coronavirus: Mark Suster Managing Partner Upfront Ventures @msuster
Coronavirus
Mark Suster
Managing Partner
Upfront Ventures
@msuster
We all woke up in February 2020 with a shock to the system
and with no idea what it means for our business or funding.
MarketWatch, CNN
The market hates uncertainty and the market hates deflation
(why buy today what will be cheaper to buy tomorrow?).
Valuation
? 1 Uncertainty
OR
2 Deflation
Today Time
A $40M pre-money deal today may fund at $20M pre-money
in 6 months even if financial performance hasn’t changed.
(not saying it will, but it’s possible)
Pre-$
10x Multiple
(Valuation of $4M trailing twelve-month revenue)
$40M
“Valuation Compression” or
“Reversion to the Mean”
5x Multiple
$20M
Time
If markets stabilize relatively quickly, capital markets tend to
move past an initial sell-off (but this event feels different)
Covid 19
Initial Sell Off
Dec 2018
“Correction”
Summer 2015
“Correction”
MarketWatch
While nobody knows for sure what will happen, I think
coronavirus is more likely to be seen as a “Black Swan” event
(like 9/11) where the world will be very different as a result.
Spanish Flu, Mortality Rates (UK)
Second Wave
Third Wave
1919
First Wave
“Social distancing” widely accepted mitigation technique
which will dramatically hit certain sectors and impact the
most vulnerable people in our society.
IBISWorld
But there are other factors at work that add to uncertainty
that should continue through 2020 and beyond. These are
just a few of them.
1 2 3 4
Worldwide
November 2020
BREXIT De-Globalization Populism from
Elections
the Right & Left
Great business are built in good markets and bad markets.
Running out of cash is still the #1 reason companies go
bankrupt – so plan accordingly!
Dow Jones US Total Stock Market Index
MarketWatch
A look back at the last
decade and some thoughts
on the next 2 years.
After an 11 year bull run it has to be acknowledged that so
far this is just a blip. On the other hand, there is a lot further
it could fall …
Coronavirus
Dow Jones US Total Stock Market Index stock sell off
MarketWatch
Startup funding is up massively in the VC funds have raised a lot of capital as
past 15 years and this innovation will value has shifted from publics to
persist … privates. They will still need to put $$
to work
$140B
$58B
$137B
$46B
$31B
$29B
2006 2008 2010 2012 2014 2016 2018 2006 2008 2010 2012 2014 2016 2018
Pitchbook
If public market valuations continue to decline it will undoubtedly come to private
markets. It takes longer to reset private valuations and those who don’t realize the
change may struggle to get funded.
Seed valuations have doubled in this Early stage venture rounds valuations
period. $8M have also gone up considerably.
$29M
$7M
$25M
$4.2M
$10M
2006 2008 2010 2012 2014 2016 2018 2006 2008 2010 2012 2014 2016 2018
Pitchbook
There are more billion dollar-valued private companies now
than ever, which is a sign of how pervasive the tech sector
has become and the value of “privates.”
54
Number of 1B+ Companies Created
42 43
34
22
11 12
9
3 4 4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Pitchbook
The public markets FAANG company stock has become a
major driver of our overall public returns in the past decade.
$60
$50
$40
$30
$20
$10
$0
2009 2010 2011 2012 2013 2014 2016 2017 2018 2019
Pitchbook
So your job is to stay funded past this initial phase of
portfolio triage and uncertainty.
Funding markets
Revenue /
Cash Balance
t=?
3 - 18 months
In a war of attrition, history rewards the early and decisive
actions. It sounds easy, of course it isn’t. But everybody says
“we’re cutting into muscle” – you seldom are.
+
CASH BURN
There are some reasons the tech industry should maintain
its optimism.
230
2800
100
250
United States 50
(Avg. Speed, Mbps) Kbps
11.1
96.3
2000
1500 1,189
1,000 1,057
1000
326
500
130 218 236 186
33
0
1999 2013 2018
Upfront Analysis
With everybody’s credit cards or banks now connected to
tech platforms, we’ve eliminated most purchase friction.
We’re one tap away from buying online.
5G
3G 4G
2G
<1 4 25
Mbps Mbps Mbps
?
Note: Represented AT&T’s average 3G an 4G download speed. 5G networks have the potential to be significantly faster but data is only
available from simulated environments. RootMetrics, Wikipedia, Upfront analysis
The world is aging rapidly as birth rates decline. We will
become more reliant on technology to drive productivity, not
less.
What we fear – drones,
robots, automation, AI: will
be strategic imperatives to
feed the world.
If this is a Black Swan, you
must shore up cash now.
When chaos is obvious
everybody hits the market at
the same time.