OPINION: One of Australia’s top venture capitalists says success in the shadow of a US ‘tech wreck’ requires patience, and the winners will be split from the also-rans.
Australian tech entrepreneurs cannot ignore the falling valuations of tech companies in the US and must change how they operate.Anecdotally, we know that institutional investors believe that cross-funding between some of their managers contributed to a less disciplined approach to valuation., will be that an entire generation of entrepreneurs and tech investors will go through an “unlearning process that could be painful, surprising and unsettling to many”.
Entrepreneurs first need to recognise what investors already know: we have been in a highly unusual period when institutional capital has flooded into private markets in search of yield.This capital wanted to take advantage of an environment that combined cloud technology ubiquity with a global pandemic that compressed five years of technological adoption into 18 months.
Now, with high inflation and rising interest rates, there will be a shift in capital to lower risk options, and as this continues to happen, valuations in the private market will start to fall, lagging public markets by about six to 12 months.As a result, global VCs have slowed, if not stopped, their investment programs to reassess.
We are likely to see more bridge and convertible note rounds at discounts if immediate cash injections are required. VCs also need to consider the opportunity cost: should they invest today or hope for a better return tomorrow when valuations correct?
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