Conflicting Bull And Bear Signs Across Startupland

Morning Markets: Kicking off this nigh-holiday week, let’s take a look at what we’re seeing around the startup market. It’s hard to get a single feel for the pulse as both bullish and bearish sentiments abound.

Read the front page of influential technology news aggregator Techmeme this morning and you’d think that things are hot in startup land. OPay, a financial technology startup focused on the African market, raised a $120 million Series B from Chinese and Japanese investors. There’s a new $500 million fund focused on European startups. You can find $20 million more for self-driving technology as well.

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But if you started the day with a newspaper, you might have seen reporting on startups looking to raise extra rounds and conserve cash, and the latest from the WeWork implosion as the coworking startup looks to dramatically curtail its expenses.

Both sets of news are correct, but they tell slightly different stories. We might summarize both story collections by saying that while individual actions in the startup market paint a bullish picture, sentiment in startupland isn’t as strong as it was last year; there’s more fear in the market.

Of course, we’ve been here before. There was the famous SaaS crash of 2016, and tech stocks fell off a cliff so hard in late 2018 that everyone with a slide deck and venture dreams got nervous. And you can find “startup winter” worries in 2014, 2015, 2016, and, as we reported recently, 2019.

We raise all of this as a reminder that while some shrugging off macro (the global economic slowdown) and micro concerns (WeWork’s implosion), there is reason to be worried. Investment patterns can shift quickly in private markets. But while all of that is true, there’s still plenty of optimism and dry powder in the market. Shake a stick, and you find a new venture fund (some recent news here, here), while private equity has sharp stores of dry powder.

It seems fair to say that while Nasdaq remains near record highs, there’s little chance that the constitutionally-optimistic — founders and their private backers — slow down, there’s enough concern to warrant caution from the sidelines.

Before It Closes

Some companies are taking advantage of today’s warm waters even as concerns rise and the holiday season approaches. Most recently, payment software company Bill.com filed for an IPO on Friday. While the Bill.com IPO is a positive sign for startups in general, don’t be surprised if it isn’t quickly joined by other companies looking to debut; it would be surprising to see any more startups file to go public after this week, as most companies try to avoid a public market debut around the holidays.

In the meantime, startups may raise extra cash to raise their walls a bit. After all, why shouldn’t they? There’s so much money in the market, why not put it to good use if a company isn’t quite ready to go public.

But there is some real hope that the good times will last a bit longer. After all, there are still a bunch of unicorns that still need to go public (looking at you, Postmates and Airbnb). Postmates’ CEO said just last month that the company was waiting for the right market conditions to go public, as the markets haven’t been too friendly to unicorns like Uber and Lyft so far this year.

Heading into the end of 2019, there’s scant reason to expect a major correction in the short-term. So, we stay in the middle of caution and hope. How long we can stand on this particular edge, however, isn’t clear.

Illustration: Dom Guzman