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The “adjustment” phase for private tech companies is beginning, and startup founders are starting to deal with the implications of falling valuations.
“For the public companies, the adjustment has happened. For private companies, it’s just beginning,” Byron Deeter, a partner at prominent VC firm Bessemer Venture Partners, told Bloomberg.
For a startup facing a declining valuation, there are a few options. The leadership can raise a “down round” at a lower valuation; accept “dirty” terms on their next round, which extract concessions that can lead to trouble down the line; or seriously consider acquisition. They could also try to claw their way toward profitability.
“There’s been a little denial, just like at the start of drug-addiction treatment programs,” Deeter said. “Now we’re rolling into the coping-and-reaction phase. For some, the best option may be entering into [mergers and acquisitions] discussions.”
Microsoft kicked off 2016’s M&A by buying LinkedIn for $26.2 billion ($196 per share). But expect to see late-stage startups getting in on the action. Bloomberg spoke to an M&A exec at a big US tech company who recently has had “at least four” meetings with late-stage founders about an acquisition. Last year, the founders were asking prices that were too high to even warrant a meeting, the exec said.
But the winds have changed in 2016.
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