Remember exactly a year ago when I said that Facebook will be fine but Zynga won’t be? Turns out I was right. Remember three years ago when Naval Ravikant of AngelList and I declared that Twitter was massively undervalued? Also correct. So I’m ready to make my next bold prediction: The Series A Crunch is over.
Mind you, I’m declaring this while at least half the venture capitalists I know are on vacation. Doesn’t matter. I believe the Series A Crunch is over because of discussions with many entrepreneurs at 106 Miles (a network of over 5,000 startup engineers and founders) as well as my own experiences as co-founder and CEO of Consumer Internet startup PandaWhale. I’ve had more inbound email from venture capitalists in the last month than I have ever gotten in a month. That’s a leading indicator. ESPECIALLY given that it’s summer.
Here are some more indicators:
1. Facebook stock closed at its highest closing ever this week. That’s right, even if you bought at the ridiculous $FB IPO price of 38 bucks a share, you’re above water. And that’s just the tip of the iceberg! (Ha — the tip of the iceberg is visible again because we’re above water. iunderstoodthatreference.gif !!! ahem…) Whispers around Silicon Valley abound for — I kid you not! — Facebook at $50, aka “Facebook Fitty”. In any case, Facebook’s surging stock creates angel investors, and we’re off to the races because the startup pipeline has its seed capital again.
2. Facebook is not alone. The whole Consumer Internet sector is en fuego. Lest you think that Facebook is alone in its surge, let’s look at the other big public Internet companies. The stocks of Google, Amazon, eBay, and LinkedIn are all at or near their all-time highs. Yahoo’s stock has made a massive comeback this year. (More on that later.) Why is this relevant to Series A? Because public markets drive private markets. Don’t let anyone fool you into thinking otherwise: Consumer Internet valuations are back in a big way.
3. Why are Facebook shares surging? Because it turns out embedding targeted ads in the newsfeed is a GREAT way to monetize. Effective CPM rates are DOLLARS instead of cents. Twitter knows this and is likely surging too for the same reason — when they file their S-1 to go public, I believe that everyone will be surprised at how great Twitter’s BUSINESS is. LinkedIn also knows this — which is why they are working so hard to build an engaging newsfeed and self-service ad platform of their own. Memo to Google: get yourself a newsfeed! Even Yahoo! knows this — which is why Tumblr’s newsfeeds — aka “Dashboards” — are such a valuable acquisition. Consumer Internet BUSINESS is back in a big way thanks to the feeds.
4. Speaking of Yahoo/Tumblr, Marissa Mayer brilliantly jump-started this new environment for Consumer Internet startup exits. Through Marissa’s leadership, Yahoo! has acquired two dozen Consumer Internet companies in the last year, and doing so has revitalized the culture, the potential, and the stock of Yahoo. This in turn has re-ignited the acquisition exit as a potential path for Consumer Internet startups. Separately but just as significantly, Twitter will re-open the IPO window for Consumer Internet startups. With more potential exits as outcomes, more investors are interested in Series A rounds in Consumer Internet…
5. …so new Consumer Internet A rounds are happening quickly as investors earnestly search for the next Pinterest, Wanelo, Snapchat, or WhatsApp to invest in. In just the last month, Sulia raised a $10 million Series A, and RebelMouse raised a $10 million Series A. And that is DURING THE SUMMER! Can Upworthy’s $10 million Series A be far behind, now that they have more than 10 million monthly uniques? Because of the nuclear winter created by the past year of Series A crunch, there are only a few Consumer Internet post-seed startups alive and available to invest in at Series A valuations in 2013. Awesome, unfunded Consumer Internet companies such as Reddit and Imgur will have many choices if they want. Small supply with increasing demand means higher valuations. That’s okay: Series A investors will still make a lot of money, because some of these new startups will be worth billions. To the “A” round go the spoils.
I could go on and on, but I won’t. I’m just going to enjoy the fact that the Series A Crunch is over.