the author green? Solomon is GGV Capital company managing partner. His latest investment company including Zendesk, Nimble Storage, Pandora, Successfactors, Isilon, Domo, Square, AlienVault, HashiCorp and Quinstreet. By wealth Chinese translation:
several has the support of venture capital, private enterprise obtained high valuation growth rapidly. In silicon valley and private technology enterprise, this kind of phenomenon obviously has existed for a period of time. Recently, however, its valuation amplitude and frequency of ascension is still makes me feel shocked. I have been trying to gather to form various factors in the environment, I finally came to the conclusion: scarcity, market power, and worry about psychology and returns to grieve when the chance is past.
although since the start of the stock market performance, but private market valuations continue to jump quickly. Why such a contrast? One of the main reasons is scarcity. The private enterprise is not every day. If you want to invest in a private company, the wind investment this year perhaps only a chance. Wholesale funding shows that these companies ever fierce competition will naturally these rare opportunity for the most attractive businesses. So well in the competition of the vc generally follows the logic: “although from the fundamentals (or due to a lack of fundamental), the investment is a big number now seems to be, but as the growth of the company, its value would increase greatly, so the investment may become very good value in the future.”
on the contrary, the stock market investors will not encounter such problem of scarcity. Every day in their areas of investment, the company stock can buy and sell according to certain price. For the investors, there is no scarcity, they need is wise and in a timely manner to make a choice. Listed stock valuations, therefore, often with the existing results and expectations of short-term financial performance as the foundation, so it is more reasonable. Listed companies, of course, there are very expensive, but they are high valuation from quite a wide range of requirements, even just the ipo, the same is true of the new shares limited liquidity, this and win the right of private sector investment in the vc is given, and the price is totally different.
2. Market power
the amplitude and frequency of such valuations rise has been weakened not seen (and perhaps growing) another reason is that when investment opportunities are scarce, using high bidding strategies are generally paid off. As more money into the high growth supported by the vc “asset class” (it really is beyond the scope of one type of asset), the power of competition to push the unabated. Therefore, as long as the company started to financing, attractive competition will be appeared, and in the competition of the vc will elevate valuation of these companies to another new level. Under higher valuations to inspire, the existing participants have become very radical, new funds are involved, the market power becomes increasingly strong.
3. Trademark first and worry about miss the boat psychological
the improving valuation’s third-largest power is for the best “brand”. In view of the vc firms pay more and more attention to the brand effect, therefore, their associated with successful enterprises will also more intense. In the long run, judging standard should be a return on venture capital fund. But in a shorter time, popular investment company also can be a success.
when made an offer to the best enterprises, venture capital firms are likely to know their price is high. In many cases, they all believed that such investment may not bring huge returns. But in some cases, the importance of linked with outstanding enterprises and achieve high returns. At present, because there is a market for protect the environment, such a strategy will not produce as much as it once did many high-profile cases lower valuations. Buy trademark be tried — in fact, the effect is so good, so that more and more VCS want to participate, they don’t want to miss such as alibaba group and Uber excellent enterprises.
for all this, what conclusion can we draw?
in the short term, the venture capital returns is expected to remain high. But in these return, how much is the paper gains, and how many can achieve? This is the problem.
paper gains has emerged, but they will disappear. Part of the vc has been quietly before the IPO selling some successful enterprises of the company. I think this may be increased, the reason is that under the condition of rapid rise in its price, hot private companies will continue to postpone IPO, because the starting price will inevitably lower than the current valuation.
in the market, popular, director of the company should be bold when appropriate. In almost all of the technology industry, the market valuation will lead far outweighs due level (in many cases) is nonlinear relationship between them. Through bold investment, therefore, is quite reasonable measures to maintain the leading position of market, popular, head of the company but also to develop alternative, so that companies can rely on existing funds to stay afloat. Once the market shift, the operator will be thankful, because they don’t have some disadvantages in the valuation of environment to raise money again.