Continued fallout from WeWork's epic IPO meltdown and the underperformance of many once-touted, now-public unicorns has led to growing rumination in the venture industry about "what's next?"
We got the first indication of significant movement on Friday, with CNBC reporting that SoftBank CEO Masayoshi Son is considering reversing course and implementing a more cautious investment strategy with his second Vision Fund.
So, is change afoot in the venture world? Is SoftBank's potential U-turn the first domino? However it plays out, industry-wide introspection is one of six things you need to know from the past week:
1. Is it time for VC to hit reset?The VC industry's recent espousing of discipline over growth should come as no surprise, at least to some extent. WeWork and SoftBank are still front of mind, IPO withdrawal or not.
For WeWork, the week started with a damning Wall Street Journal report on more head-scratching inaccuracies, ambiguities and omissions—including failure to mention the company's $60 million Gulfstream jet—in its now-notorious IPO prospectus. It continued with details on former CEO Adam Neumann's lavish properties across the US and news that WeWork's private school, WeGrow, will shut down after this school year.
For SoftBank, the week started with self-effacement from a humbled Masayoshi Son (see our "Quote of the Week" below) and it continued with, well, more self-effacement (see the investment strategy considerations noted above).
But there's been plenty of disappointment to go around, even after so-called "successful" debuts. Uber (down 49% from its IPO price), Lyft (-45%) and Peloton (-23%) have all had discouraging rookie years so far as public companies—all had massive losses, of course, upon going public. And for Uber and others, stock performance might soon get worse as lockup periods are set to expire and more shares will soon flood the market.
One unicorn that was looking to enter the fray, Postmates, either delayed its IPO this week or it's just waiting for the best time to debut—based on your definition of the word "delay." (For what it's worth, Dan Primack of Axios reported that Postmates' IPO filing was part of a dual-track process that emphasized an acquisition. In a separate context, Postmates CEO Bastian Lehmann appeared to deny on Twitter that his company was bluffing an IPO to attract a buyer.)
So, does what does all this mean for the big picture?
Erin Griffith of The New York Times wrote a great piece, as always, covering this topic and bringing up the notion of a reset. And certainly reemphasizing a path to profitability and not rewarding billion-dollar losses seems like a rational and prudent approach in returning to some sense of normalcy.
We've already seen a bifurcation of the market as it relates to how enterprise tech and consumer non-quite-tech may be received on Wall Street. But I'll be honest, I struggle to wrap my head around a collective reckoning across the entire—often irrational—venture industry, especially with so much capital available and many metrics still pointing up.
In the US, VC-backed exit value this year has already reached a decade record—by far—with three months to go. VC distributions and net cash flows were way up in 2018 (the latest data available), which is hardly going to damper LP appetite for further investment into the asset class. Fundraising the past several years has already been consistently strong. There's a lot of money to go around, from traditional and nontraditional VC backers alike.
With all this capital to be spent, are investors all going to adopt the same renewed levels of discipline and risk aversion? (Remember that they're often able to negotiate downside protection into those riskier late-stage deals—which is how SoftBank has partially insulated itself from a WeWork valuation freefall.)
I tend to think many VC investors will view WeWork as a cautionary tale but ultimately an outlier. And fair or not, I also tend to think that many view SoftBank as the main player that needs to consider a reset—as Son has already indicated.
Because, ultimately, for the majority of venture investors, playing it safer and focusing mostly on businesses with clearer paths to profitability doesn't seem really all that venture-y at all.