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Google's Not Investing in Young Startups Anymore (qz.com)

Posted by msmash on from the don't-take-my-money dept.

GV, the division of Alphabet, is no longer investing in startups that are at their nascent stage. According to data from research firm CB Insights, GV completed no seed-stage deals in the first half of this year, down from 10 such deals last year. That represented a 77% drop from the number of deals it did in 2014. Quartz reports (edited and condensed): GV's former chief executive and co-founder, Bill Maris, who stepped down earlier this month, told the Wall Street Journal in December that he was cutting fewer checks at the seed stage because he thought that market was overheated. He also said that he was mystified by the reluctance of some portfolio companies to avoid a stock market flotation. "They would benefit from the rigor and discipline that the public market requires," he said.

14 of 26 comments (clear)

  1. shortsightedness and quarterly investors by climb_no_fear · · Score: 2

    mystified by the reluctance of some portfolio companies to avoid a stock market flotation. "They would benefit from the rigor and discipline that the public market requires," he said.

    Maybe an idea which needs a year to properly develop an idea is justifiably afraid of quarterly meddling at the beginning.
    That's discipline to avoid that short term trap

    1. Re:shortsightedness and quarterly investors by JaredOfEuropa · · Score: 1

      Besides, going public in itself is a pretty strenuous undertaking. If you're a small startup with limited resources (like financial experts), maybe you want to avoid this stuff.

      Besides, rigor and discipline is something that a good VC can bring... perhaps in the form of a "nestor", a highly experienced consultant who knows what it takes to grow and run a company, what to do and what to avoid, often a (semi) retired CEO or entrepreneur. Not sure how common it is in the US for a VC to provide (or even impose) someone like that, but with the right guy it can be a great help.

      --
      If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...
    2. Re:shortsightedness and quarterly investors by serviscope_minor · · Score: 1

      You only get to impose a VC if you give enough money to convince the founders to give up a controlling stake. If the guy doesn't like the direction then I think basically, he didn't invest enough money to force it but is whining that they're not doing precisely what he wanted. I believe it's time to play a really really tiny violin, because honestly I don't have a lot of sympathy for someone in charge of an immense amount of money complaining when a small investment doesn't buy everything he wants.

      But yes you're absolutely right, good investors can be really amazingly helpful.

      --
      SJW n. One who posts facts.
    3. Re:shortsightedness and quarterly investors by slew · · Score: 1

      mystified by the reluctance of some portfolio companies to avoid a stock market flotation. "They would benefit from the rigor and discipline that the public market requires," he said.

      Maybe an idea which needs a year to properly develop an idea is justifiably afraid of quarterly meddling at the beginning.
      That's discipline to avoid that short term trap

      I assume he's not talking about small companies, but GV portfolio companies like...

      Uber, Slack, Cloudera, Blue Bottle Coffee, etc...

      Which seem to be happy to continue to take new rounds of VC money leaving GV and early investors with no exit. W/o an IPO it is more challenging for GV to get their money back to invest in other companies which means their returns might look good on paper, but these companies are essentially holding GV's investment hostage and using the new VC money to invest in new projects w/o paying back the original investors for the risk they took on previous projects. Essentially these companies are effectively forcing GV to invest in their new projects (instead of taking that money and investing in another company).

      If you want a car analogy, it's like Slack telling GV about a plan to drive from SF to LA to sell a car but Slack doesn't have any money for gas. GV gives Slack the gas money with the promise that Slack will pay GV back the gas money and some part of the money from the sale of the car as a bonus when they get to LA. Somewhere near Bakersfield, Slack decides he wants to go to Las Vegas instead because Slack could get even more for the car in Vegas, much more than the cost of gas to get there.

      However, GV is starting to have second thoughts about Slack's Vegas plan and wants out of the car and Slack to pay back his gas money and suggests Slack crowdsource his trip to Vegas and use the money raised to payback GV (maybe use the money to fund someone else's trip to LA to sell a car). Instead, Slack decides to pick up a VC hitchhiker that willing to pay for the gas to go from Bakersfiled to Vegas, but not enough to pay back GV's gas money.

      GV thinks Slack won't crowdsource because they would price in the risk of Slack's plan to go to Vegas instead of LA to sell the car and reduce Slack's expected return of going to Vegas vs LA and it was simply easier to find some VC hitchhiker to get some Vegas gas money and hold GV's gas money hostage instead. GV thinks Slack could use the discipline of the crowdsource wisdom to see the error in it's way.

  2. How about not by Anonymous Coward · · Score: 1

    "They would benefit from the rigor and discipline that the public market requires,"

    If I'm trying to get a business off the ground, the last thing I want to be worried about is people probing around every square inch of my operation doing due diligence, SEC regulations, having to impress shareholders, having one piece of bad news or a missed earnings call tank my entire business overnight, etc. The scrutiny that comes with being a public company is absolutely not worth it in many cases.

  3. Re:Math by Anonymous Coward · · Score: 1

    That's why they're named "Alphabet" and not "Numerals"

  4. That's kind of funny by 93+Escort+Wagon · · Score: 1

    Given we've read a number of recent stories where Google/Alphabet has been cutting ties with acquisitions that can't turn a short term profit (e.g. Boston Dynamics), I'm rather puzzled as to how a Google employee would be "mystified by the reluctance of some portfolio companies to avoid a stock market flotation". You'd think he'd be intimately familiar with the reasoning.

    --
    #DeleteChrome
  5. Re:Math by imidan · · Score: 3, Informative

    10 such deals last year. That represented a 77% drop from the number of deals it did in 2014

    45 deals in 2014, 10 in 2015
    45-10=35
    35/45=0.7777

    Maybe it's actually reading comprehension that's hard? It's a story problem...

  6. Struggling to figure this out... by friesofdoom · · Score: 1

    "He also said that he was mystified by the reluctance of some portfolio companies to avoid a stock market flotation."

    "Reluctance to avoid" to me means that they want to do a stock market floatation, then he says...

    "They would benefit from the rigor and discipline that the public market requires,"

    Which implies the first sentence should have been: "He also said that he was mystified by the reluctance of some portfolio companies to WANT TO DO a stock market flotation."

    Is it just me confused?

  7. Artificial value by thisisauniqueid · · Score: 1

    he was mystified by the reluctance of some portfolio companies to avoid a stock market flotation

    Maybe some people have wised up to the fact that market valuations are completely artificial -- they are numbers picked out of the air, and being listed on the stock market places you at the mercy of mass psychology, media spin, gross subjectivity, market volatility, and trading algorithms that solely exist to milk profits from the market.

  8. FBI FRONT PAGE NEWS by Anonymous Coward · · Score: 1

    Microsoft Anniversary

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    More Russian Hackers might be Guccifer 3.0

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    fuck you.

  9. Re:Math by Noah+Haders · · Score: 1

    10 deals in first half of 2015, 0 deals in first half of 2016. (10-0)/10 = 1. 100% drop!

  10. Re:Math by imidan · · Score: 1
    The trouble is, according to the way you quoted the summary, you apparently abandoned the sentence after the word 'drop' and jumped to the conclusion that the authors can't compute simple percentages. If you actually read to the end of the sentence, you see

    GV completed no seed-stage deals in the first half of this year, down from 10 such deals last year. That represented a 77% drop from the number of deals it did in 2014.

    Which, given a little thought, tells you that they've completed no deals in 2016; 10 deals in 2015; and 45 deals in 2014. The word 'that' at the start of the second sentence could be considered to be a reference to an unclear antecedent: does 'that' refer to 'down from 10 such deals' or does it refer to '10 such deals last year'? Given that the former interpretation makes the summary nonsense, by the principal of charity, the best way to interpret the summary is that '10 deals last year represented a 77% drop from the number of deals in 2014.'

  11. Re:Devil's advocate -- what is there to invest in? by jonbryce · · Score: 1

    Things you haven't even thought of, but the start-up in question has.