Rihanna Calls The Tech Bubble Like It Is

April 27, 2016

I’ve shelved this post for almost a year now because though I’ve been in venture for five years across both Wildcat Venture Partners and Mohr Davidow Ventures, it’s not lost on me that I’m still too early in my career to be “rocking the boat”. But thanks to Gurley’s recent article, the cat is out the bag and I finally have the cover to share this.

Yes, this started out as a joke between peers, but I’ve found Rihanna’s hit single, “Bitch Better Have My Money”, to be remarkably effective at explaining many elements of the current tech bubble. So for everyone who’s wondering “Is this even a bubble?”, “How did [fill in the blank startup] raise THAT much money?”, or “What happens when the bubble bursts?”, here is the metaphor for all to enjoy:

“Who y’all think y’all frontin’ on?”

Slide decks notwithstanding, we are in a private market bubble

By definition, bubbles occur when asset prices depart from their intrinsic value. Valuation multiples are one way to measure this: specifically, higher multiples can imply greater speculation (and are thus suggestive of a bubble). When one looks at the average multiples in tech (see figure below) across private rounds, IPOs, public market trading, and even our own team’s investments, there is a significant departure (250%+) between the average private rounds other funds are leading (20–25x) and public market trading (5–10x). I pulled this data in mid-2015, so with public multiples trending lower now, the divide is even greater.

Read the full perspective <here>.