You might not think investors with huge piles of money would have much to worry about, but that’s increasingly the case in the competitive world of tech venture capital.
There is so much money chasing so few good deals that VCs need to work hard to get the choicest opportunities.
One way is by offering ridiculously huge valuations, such as the $1.12 billion that Slack is now worth — even though it has only 268,000 daily active users. (It’s important to note that, thanks to Slack’s freemium business model, these are not all paying customers.) That means Google Ventures and Kleiner Perkins Caufield & Byers, the lead investors, are valuing each Slack user at about $4,180. If Facebook got a similar valuation for its billion-plus users, it would have a market capitalization over $4 trillion.
For Slack’s founders, that’s a great deal — they got $120 million in operating capital and only had to give up about 10 percent of the company. For other VCs, it’s probably causing sticker shock and making them wonder how they can ever compete.
So if you’re a VC and you don’t want to pay top dollar just to get in on a promising new startup, you need to get creative.
“The venture model is evolving to a value-add [proposition],” Intel Capital president Arvind Sodhani told me this week at his company’s annual conference for portfolio companies and partners.
Intel Capital — the venture arm of the semiconductor giant — has pockets just as deep as Google’s or Kleiner’s. It has invested $300 million to $400 million every year for the past decade, making it one of the largest funders of startups in the tech world. In 2014 so far, Intel Capital has made 55 investments totaling $344 million. It has also seen three IPOs and 19 acquisitions among its portfolio companies.
But it’s not just cash that Intel Capital offers: For the past decade or more, Intel has offered a powerful “ecosystem” in addition to its capital. Taking an investment from this fund means. . . (READ MORE)
Article by: Dylan Tweney
Published at: venturebeat.com