Winter comes when exits dry up. After all, the exit is where the VCs make their money. Valuations don't mean anything until a VC can get out of his equity position and into cash or another liquid asset.
We are starting to see valuation corrections with large funds writing down investments in startups in later rounds, and IPOs proving to be very tricky to sell correctly to the market.
A recent example: Square IPOd at $11.20 for a market cap of $3.5b (was valued at $5bn in 2014) and, more importantly, only floated 8% of its stock on the IPO. This means that supply was so low that they essentially guaranteed a pop in price as there was bound to be more demand at this lower price and for such a limited number of shares. This is not how an aggressive, confident IPO is structured.
So once the exit round starts to gum up, it will have a chain reaction on all earlier rounds as people re-evaluate the likelihood and size of an exit. The crash will be swift.
We are starting to see valuation corrections with large funds writing down investments in startups in later rounds, and IPOs proving to be very tricky to sell correctly to the market.
A recent example: Square IPOd at $11.20 for a market cap of $3.5b (was valued at $5bn in 2014) and, more importantly, only floated 8% of its stock on the IPO. This means that supply was so low that they essentially guaranteed a pop in price as there was bound to be more demand at this lower price and for such a limited number of shares. This is not how an aggressive, confident IPO is structured.
So once the exit round starts to gum up, it will have a chain reaction on all earlier rounds as people re-evaluate the likelihood and size of an exit. The crash will be swift.