Many of the companies leading the technology boom, including Uber and Airbnb, have sought to stay private as long as possible, raising ever-larger amounts of money from successive rounds of private investment. But the mood is changing and investors are growing skittish.
Bill Maris, head of Google Ventures, one of California’s most active VC firms, warned some start-ups might rue deciding to exploit the private markets to push for high headline valuations, rather than selling shares to the public.
“They’re setting the bar so inordinately high they’re making life difficult for themselves,” Mr Maris said in an interview with the Financial Times. “There’s going to be some fallout: some of them will lose a lot of money.”
Next year, many will be unable to raise more cash in the private markets or will be forced to accept lower valuations, he said. Google Ventures, which is changing its name to GV, has backed more than 300 companies since its creation six years ago.
Investors who had stampeded into the private markets for a chance to back companies such as Uber, Airbnb and Snapchat have become far more risk-averse in recent weeks, especially after questions were raised about the validity of claims made by blood-testing start-up Theranos.
“There’s less money, more fear, more caution,” Mr Maris said.
The prospect of interest rate rises in the US will make the private markets even more hostile for start-ups, he said. “Suddenly, being a public company is going to look a whole lot more exciting”.
The warnings signal a reversal of what has become received wisdom during the tech boom, as venture capitalists courted entrepreneurs with promises of leaving them free to stay private rather than pushing them to cash out.