Andreessen Horowitz: No bubble but rebalancing from IPO to late stage venture

Earlier this week Benedict Evans/Andreessen Horowitz published a great deck with their thoughts on whether we are in a bubble or not. The whole thing is well worth a read, but two slides stood out for me.

Firstly this table comparing 1999 and 2014 on key bubble-related metrics. As you can see this time round the funding is both smaller in scale and more conservative, and we are operating in a much, much bigger market. Hence from a high-level macro perspective current funding levels look sustainable.Screen Shot 2015-06-16 at 09.11.16

 

But second there has been a big shift from IPOs to late stage private rounds.

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Investors in these late stage rounds are traditionally public market investors who have moved to the private markets because companies are going public later and the returns are now pre-IPO. That makes sense, but it looks to me as if they have less valuation discipline than we normally see in either the public markets or in smaller venture rounds.

So definite signs of a bubble in late stage private rounds.

However, Andreessen Horowitz conclude that so far the frothy late stage activity isn’t moving down the chain to smaller or earlier stage rounds, pointing out that the rise in the number of seed deals is a result of declining costs to start a company. I think that’s largely true. Here in the UK, we’ve seen some examples of heady activity in the early stages, but nothing widespread.