EXCLUSIVE: Top Trends in Silicon Valley – with Startup Lawyer Ivan Gaviria at Gunderson Dettmer
With the Nasdaq (QQQQ) back to 2007 highs, Silicon Valley has its swagger back. I caught up with Gunderson Dettmer startup lawyer specialist Ivan Gaviria to get some more insights from the ground…
Damien Hoffman: Ivan, what are the top trends for startups and early-stage investors in Silicon Valley right now?
Ivan Gaviria: An interesting trend recently is that Silicon Valley feels like a tale of two cities depending on the market. If you’re doing medical devices, pharma, life sciences or anything in that world, it’s still a very challenging financing environment. There’s been very low liquidity, and companies are having a hard time getting financings done.
The other extreme is the highly hyped “Lean Startup” world – especially in consumer, digital media and consumer-oriented apps. A lot has been written about how the cost of starting these companies has come down dramatically. People recognize you don’t need that $3 million Series A financing anymore to find out if something is potentially interesting.
That development has been a big driver behind the resurgence of angel investing. Several years ago, companies had trouble trying to raise half a million bucks. Now, there is a lot of activity in that space. There’s a lot of hype, too, but definitely a ton of legitimate activity, which I think has been terrific for entrepreneurs.
Another trend that has been fantastic for entrepreneurs in the last 18 months has been the way social media has infiltrated what used to be an unbelievably small club where it was very hard to get introductions to VCs. You really had to know a couple of key deal makers and it was very hard to get information about the industry.
I believe every marketplace gets better when there’s more and freer access to information. There are people like Mark Suster and Fred Wilson who are actively and prolifically blogging about the inner workings of how they make their decisions, how they structure their portfolios, what they look for in deals, and I think that’s great. That readily available information and the ability to reach investors is probably the most pro-entrepreneur development since I started doing this in the mid ’90s.
Damien: How are things developing with respect to the angels and VCs?
Ivan: A lot of the marketing and hype around the super angel phenomenon has created a binary perception that traditional VCs are all bad and super angels are all good. That’s silly because both communities need each other and, as angels raise and invest other people’s money and become “super angels,” the lines get blurry pretty quickly.
I’m also aware that many “traditional VCs” are either in the process of unveiling or have recently unveiled some type of seed fund or seed component of what they do. Or, if nothing else, they’re going out and telling people, “Hey, we can write small checks, too.”VCs don’t want to be boxed out of the cool deals early, and a little competition is good for the entrepreneur and our industry. I think it’s a safe bet that VC’s hate that they’re getting labeled as being out of touch, lame, or whatever the phrase is — depending on who’s blogging or tweeting about it.
So, I think both groups are circling each other and trying to figure out how they all are going to work together. From an entrepreneur’s standpoint, more capital available is great. A lot more companies are able to get formed and see what they can do. It will be interesting to see which companies ultimately get that next round of capital and grow. But it’s always good to have more choices.
The more interesting questions are : which of these seed stage investing models going to work? Which seed-funded companies will be able to access follow on capital? Are the ‘SuperAngels putting enough money to work to get “venture style returns” from their winners? That’s a hot debate and I think it all remains to be seen. But for the time being, consumer internet and digital media entrepreneurs are the big winners – money is more available.
Damien: Do you think ultimately the end game in this process is an active exchange like the Nasdaq where liquidity is high and investors and entrepreneurs can do business?
Ivan: I think the notion of the “end game” is rapidly evolving. We’ve now got a very interesting and recent phenomenon of active secondary markets for private company stock. Fifteen years ago, it was very unusual for a founder of a company to sell their founder stock to an outside third party. You either sold the company or you took it public.
But with Facebook, Zynga, Twitter, and a bunch of these other red-hot companies there is now a really active secondary market where entrepreneurs and employees are able to get liquidity. I think that’s going to be a fascinating thing to watch and see how that filters through the system. Right now, it’s highly concentrated in a small handful of companies. It will be interesting to see whether that becomes a real liquidity opportunity for a meaningful number of people, or whether it’s really just going to be that handful of super hot companies at the top of the foodchain.
Damien: Ivan, thanks for this great update from the ground. I look forward to staying in touch.
Ivan: My pleasure.