The vc industry mad type hype startup valuations the logic behind


is a traditional holiday, venture capitalists in August they walked out of the sand hill road office, find a quiet place, reflect the results so far this year, and ready to fall the pains of a new round of financing.

this is enrich and perfect the year! We now have several is about more than $10 billion worth of companies, including reality, Dropbox and Uber. Countless startups than in the past few months like a wild animal raise money, the valuation seems like a domestication of wild animals. Medium in January has raised $25 million in A round of funding. In a few weeks ago, Secret received $25 million in financing, this is only in its nine months time.

such a generous gift is not just to give the sole consumer goods company, Slack, for example, in April, raised $53.5 million in the last two rounds of financing, the financing is simply introduced its software collaborative services after eight months of time.

this is driven by investment in silicon valley’s most favorite “indoor game”, announced a collapse of the economy in the future. Over the past 15 years, in many parts of the key statistics have risen to around 2000 Internet bubble level, including a large number of startups and venture capital investment into the high-tech field. These capital inflows are not driven the entrepreneurship rate rise. This is a very illogical phenomena.

venture capitalists, like all investors, can succumb to herd mentality and group think. With this is that they also face the same market incentive system. And this is let us know more about the high price dynamics and the high dynamic what mean for today’s startups.

the abnormal product expansion of fast speed

maybe for many start-ups, adopts the technology of accelerated dramatically, perhaps within the industry is a very important social change. Only they started a few years, such as WhatsApp, Snapchat and Line type of message application has be installed in hundreds of millions of mobile phone use. Due to hardware development is still ongoing, the cycle of compression applies to hardware. Like apple’s device, such as tablets, first introduced in 2010, and is fast becoming a saturated market.

we as consumers know about the ability of new products and services because of the influence of the density and depth of social networking has never been better than now, almost all the shallow understanding a product immediately after making a decision. Like once found we want to download or want to buy something, we can easily in a few seconds this desire. You can even call it “new game” legend: within 30 seconds, the founders can describe an app, and potential users to download and try it.

fast invasive means that entrepreneurship can indeed overnight success. Like a Secret company, was founded in October 2013, in a few short weeks have already reached the millions of users. This compression growth directly affects the valuation of the investors for startups. They no longer with the company’s continued growth prospects as a basis for the valuation, and the value of a company for a short period of time the user scale, due to the discontinuous valuation exploded.

complex data driven the rise of venture capital firms

startup rapid growth of the so-called valuations (explosion) is due to the risk of investors increasingly value only due to complex data. Similar to the Sequoia, Andreessen Horowitz and Google Ventures, the company is enabled for the entire team to analyze the popularity rankings and social networking data, to ensure that can grab on to the next breakthrough success of start-ups.

, for example, excessive dependence on data such as Bloomberg Beta vc firms, even before founding a company founder had learned of their entrepreneurial dynamics. In fact, in the hope that with the pure computing system to identify the trend of investment opportunities has spread, Deep Knowledge Ventures have even for its board developed an “investment” algorithm.

in hindsight, the vc in the ninety s, investment in the amazon, ebay and Google such star company, but they then the investment decision-making process looks like elusive to inspiration. Now there are no vc were willing to gather again, seriously insightful entrepreneurs powerpoint presentation. And after this carefully like toothpaste in the startup investment. Now investors are more likely to use the data to speak, have mastered more than entrepreneurial teams data, thus to investment decisions.

start first for strong, laid hands on him to suffer after

for investors, the rapid expansion and data driven investment decision-making, investment of a company’s decision as quick and rash. VCS have had to take a huge “valuation risk”, because you can master data, other vc can also hold to.

however, the existing challenges is risk investors lack in uncertain circumstances, the ability to make decisions quickly and accurately. Is not only a vc, ordinary people always tend to have more information and grasp, to make decisions. This kind of thinking mode in essence is valuable, but it is not applicable to law of the jungle of venture capital industry. In hot money quickly grab good investment projects, risk home must be incredible to make quick decisions under pressure.

Mark Suster wrote for us in detail about the modern changes in the vc industry. In my opinion, at present the vc industry presents two different investment trends. Early investors, the establishment of a wide range of portfolio and has its unique way of selecting co-founder; Advanced investors, more rely on data for judgment. Once the data conform to the requirements, they throw money poured into it.

the above situation explains how startups like Secret founded in two months after it was raised $1.4 million in financing, founded in the five months after A round of funding raised $8.6 million, the founding nine months after B received A $25 million round of funding.

when a start-up products and ideas is good, then there will be a group of early investors to enter, to help it put the product to the market. If the company soon found a reasonable mode of growth, will attract the investors in the late. If the company can keep growing, so there will be more investors into the late. These later participants including investment Banks or hedge funds, they even when he doesn’t care about exit, and crazy chase with the startup project.

discussion about whether market bubble continues, but it is undeniable that the motives of the vc industry explains the startup of the we are witnessing the crazy valuations. Through the use of data and algorithm, early investors rapid decision-making lest opponents start first. Advanced investors in order to be able to squeeze into a piece of, have to startup valuations to heaven.

in fact, for investors, we should be more care about, when we are out, whether can get generous returns from the company. For a startup investment of $25 million, may in the end find it hard to bring us out of earnings of $250 million. Although now venture investment valuation has reached all-time highs, but I think in the next five years, investor enthusiasm for start-ups are difficult to as high as in the past five years. Especially in developed countries, almost everybody is the Internet generation. Don’t say smartphones, is released only 4 years tablet also abound. This means that the former has unlimited potential markets are close to saturation.

unfortunately, carnival from sand hill road people are unaware of the upcoming dangers hidden. Like the disastrous collapse in 2000, after the crazy is the collapse of the great company records and budget deficits. Investment is one of the most professional investors, within the scope of their duties is to ensure that the controllable risk to maximize returns. If they don’t have the ability to do this, then their holiday just in August.

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