Increased foreign investment and the rise of corporate VCs will help boost private market investing.
Winter isn’t coming, according to Mark Suster of VC firm Upfront Ventures.
Following the heady years of 2013-2015, when VC investments spiked and valuations rose even faster, many predicted that a harsh winter was coming. Instead, private markets continue to show strength. Funding may be down from 2015’s highs, but it has far from cooled off.
A number of factors have helped sustain the market, and they will continue to boost the market going forward, according to Suster, speaking at CB Insights’ Innovation Summit.
Decreasing oil prices have left Saudi and Kuwait wanting to invest more in the global tech sector, specifically the US tech sector, and this trend is poised to pick up even further in the next couple of years. In addition, the rise of corporate VC (CVC) funds has boosted, and will continue to boost the VC landscape. Suster noted that the number of corporations making their first VC investment more than doubled between 2011 and 2015.
“My prognosis for 2017 and 2018 for venture is very strong … leaving aside a black swan [event].”
And while Suster believes that corporate venture investing is a good thing for both the company and the VC environment, he believes corporates should identify the VC firms they respect and follow on their investments. “I think corporates should follow rather than lead. Find VCs you trust and respect and develop good relationships … You will get into better deals that way.”
Increased M&A activity, and the prospect of a stronger IPO market following Snap’s public offering is also encouraging more VC investment.
Finally, LPs are seeing returns on their VC investments and it’s encouraging them to put more money back into funds. As a result, VCs have lots of “dry powder,” Suster said. They’ve raised big funds, and they’re ready to place their bets on promising startups. “They’re deal junkies.”