At our Vator Splash Spring event on Monday, Josh Stein, Partner at DFJ, sat down with Rolfe Winkler, a reporter for the Wall Street Journal, in a panel called “ What does Venture Capital look like in 2016?”
So, the first question is obvious: what does does venture capital look like in 2016?
“Interesting times, I'd say, in venture. As a starting point, if you are not a long term bull on technology, you're kind of out of your mind,” he said.
“I would say, if you take the mobile phone alone, and you think about the impact it has had on everybody in the world, if not the U.S., connected to a high-speed super computer, with fast Internet connection, personalization, payment, location and context awareness. If you think about how that's going to change pretty much every facet of our life and our economy, and how it already is, that alone would be enough. If you start breaking out into things like machine learning, artificial intelligence, or synthetic biology and personalized medicine, with things like immunotherapy, for example. Cancer seems curable in my lifetime, hopefully soon. I think the fundamental trends that gave driven venture since its inception are still there.”
In this moment in time, he noted some “interesting cross currents around the economic part of the cycle,” comparing Lotus, founded by Mitch Kapor, who spoke right before Stein went on, to companies being founded today.
That company was founded in 1982, and hit $53 million in revenue, even though he was only looking to make $1 million. That is because, Stein said, “he wasn't afraid to go and ask for a reasonable price deck.” Now that same company would launch as a free product, get scale and then montize.
In addition, at the time he was competing against “spreadsheets and manual processes.” Today, companies are going up against Facebook, Apple, Google and Microsoft who “don't look like the stodgy old incumbents that people were competing against in the 80s and 90s.”
“You have very strong technology trends, in a very different competitive environment, and some foolishness, really, in the capital markets. I would call it on both sides. I think some irrational exuberance in the last five or six years has led to some bad decision making,” said Stein.
“I think now we're seeing the flip side of that, which is, I think the public markets have, arguable, gone overly bearish, to the point where I would say pubic tech stocks are objectively cheap right now, on a risk adjusted basis.”
So how will that affect venture capital this year?
“I think you need to build real businesses that, over the mid to long term, can generate significant margins and profits. And you need to be cognizant of the capital environment as you do that. So, while technology is really the key thing, the capital markets will affect how you can build the companies," he said.
"I think, right now, a lot of things that we've taken for granted in the last five years, around what are reasonable office spaces, perks, salaries, for example, or pricing, or the length of time to get to positive gross margins or profitability, I think a lot of those things are going to have to be rethought. There's going to be a lot of trauma in the short term as people adjust their expectations.”
Thanks to our amazing top-tier Splash Spring 2016 sponsors: KPMG, Javelin Venture Partners, SAP Startup Focus Program, Bread and Butter, Kapor Center for Social Impact, Lyft, Avison Young, Tubemogul, Wendel Rosen and Dictionary.com.