Hisham Sarwar
For 2017, the technology world has high hopes for investors in startups to harvest their gains. Venture capital has been among the most enthusiastic backers for new private companies. Although investors showed reluctance in venture investing in 2016 but now this funding has a good chance of returning. But this funding will make a comeback in parts.
Venture capital is beneficial for new companies as it helps in their formation and provide them full support for utilize their full potential. Menlo, an early stage investor believes that these kinds of deals offer the best possible returns. Last year wasn’t all bad for such funding but it was staggering with falling valuations and weakening of the technology IPO market. But 2016 was considered to rebuild the foundations. In the first half of 2015, VC investing went up but came down in the second of the same year. In the first quarter of 2016, the VC investment came to the bottom at about $12 billion. In the second quarter the VC investments exceeded $15 billion and remained same for the entire third quarter.
The growth of unicorns or venture backed companies attracted a lot of media attention in the previous year valuing it at least $1 billion. From 23 only nine of the companies became unicorns in that quarter and the trend continued in 2016. However the leading unicorns such as SnapChat and Uber remained successful in attracting all the money they required. The weak IPO market worsened the trend and the Wall Street seems have a low demand for the technology IPOs. As many private funds at generous valuations were easily available, the best unicorns saw no need for going public.
In a 2016’s Silicon valley Bank study, only 17% of the companies claimed their goal was an IPO. Twilio, a venture backed technology company did not came forward till June but raised more money than it was anticipated. Currently the IPO market is strengthening and since Twilio, five successful technology IPOs have been added to the board.
Another reason for a high level of merger and acquisition deals is the penetration of Internet of Things (IoT) and big data analytics. This accounts to Microsoft’s $26 billion acquisition of LinkedIn and Symantec’s $5 billion acquisition of privately held blue coat system. For startups, M&A have been the main exit path and this technology can be bigger in 2017.
The reason is the more reasonable startups evaluations and an increasing tendency among various companies to inflate their possibilities with the purchase of smaller companies apart from their traditional way of business. Also, the intentions of president-elect Donald Trump to strengthen economy with the help of reduced taxes, reforming regulations along with major infrastructure development have fuelled the market.
In these circumstances, the non-traditional startups investors such as mutual funds, hedge funds, and sovereign health funds will remain investing in private tech companies. Also, the possibility for venture funds to revive the traditional passion for early-stage investing cannot be ignored. According to a research firm that studies the venture firm’s financial reports Cambridge Associates, since 1994 the early-stage investments have accounted for majority of the venture industry’s gains.
