As one of Silicon Valley’s hottest start-ups, Confluent (an event streaming platform) expected to double in value when it began pitching to investors for new funding earlier this year. Its plans soon hit a bump following a coronavirus-led stock market decline. The company, which had sought a $5bn valuation, instead settled for a $4.5bn estimate following negotiations with the tech investor Coatue Management, which led to a $250m funding round last week. The recalibration of Confluent’s expectations reflects the increasing caution in Silicon Valley in the wake of the coronavirus crisis.
It’s been predicted Venture capital firms will be sitting on a record $120.4bn of unspent cash by the end of September, with the fear of missing out on the brightest prospects largely evaporating, slowing their pace of investment. Instead, company founders are having to accept tougher terms, if they can raise money at all. Many start-ups that were recently turning away ‘would-be investors’ are now announcing deep job cuts and spending freezes to prove they can be disciplined about costs. Tech advisers said many young companies face a difficult road ahead. Cynthia Hess, a partner at the law firm Fenwick & West, said she was working on a funding round carrying investor-friendly provisions she had not seen since the 2008 crisis. “It’s bold and risky to be giving a company a term sheet in this really uncertain environment, and to give that investor downside protection does not seem unfair,” Ms Hess said.
The start-ups in high demand currently are those in sectors benefiting from the lockdown, such as telemedicine, cloud computing and collaboration software. As investors going forward, from the fear of missing out, to a much more relaxed approach, where will this put tech start ups? Does it mean existing businesses generating revenue as opposed to riding the investment wave?
Read original source: https://www.ft.com/content/0a4a651e-8057-44f8-92e2-f23a89cd632a
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