Tech last week was a sea of red.
The Nasdaq 100 had its worst week since 2011. All 100 of its members fell, and about two-thirds of the index dropped by at least 5 percent.
The sudden turn, tied to a broader stock market selloff, threatens to derail a six-year rally, including five years of double-digit gains. The Nasdaq 100 is now down for the year.
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So what does all this mean for the private markets, where valuations have been stretched by hedge funds, private equity shops and mutual fund companies acting as late-stage venture firms? More capital was invested in start-ups in the second quarter than in any period since 2000.
Benchmark's Bill Gurley published his viewpoints in an eight-part tweetstorm on Thursday, focusing on the renewed emphasis on profitability—or at least potential to get there—with the money in the bank.
That was before Friday's rout, which was just as bad as its predecessor. China has been the catalyst. Since the government of the world's second-largest economy devalued its currency last week, the notion that global growth is at risk has been the talk of the market.
Joe Horowitz, managing partner at Icon Ventures, calls it the "x factor that you can't always anticipate."
For venture capitalists like Gurley and Horowitz, this likely goes one of two ways. Either it's a "correction" that brings some level of rationality to a period of insanity and thus allows investors to value companies on real metrics. Or it's the start of a severe downdraft that locks up the IPO market and rubs the bright shine off so many prized venture darlings.
In short, venture investors are crossing their fingers for a correction, and nothing more.
"The market has been so overpowered for such a long time that it's been a challenge for us to do the kind of deals we want to do," said Brian Jacobs, a partner at Emergence Capital, which invests in business software start-ups. "Ultimately a correction is healthy for the public markets and private markets as well. It gives us more room to grow from there."
There you have the positive spin. Deals that were too expensive a week or month ago all of the sudden become attractive as companies are forced to reel in their expectations. Valuation-conscious investors win.
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Venky Ganesan of Menlo Ventures offers up a driving analogy, which is appropriate given that his firm was an early investor in Uber.
"Greed is still driving the car, but fear is fighting for the steering wheel," he said.
In other words, just one ugly week isn't going to undo the greed that's been built up during an extended bull market. But you'd be ignorant to believe that start-up executives and board members aren't paying attention.
Is Ganesan nervous?
"One more week of this? You bet," he said. "This could very well turn out to be the inflection point."
For Horowitz, it largely comes down to having bet on the right teams and at the right times through this whole cycle. Doing deals with capital efficiency and valuation in mind means you're backing businesses with a greater ability to weather the storm, he says.
But it depends on the extremity of the storm.
When fear takes over, investors tend to flee risky assets, and few are as risky as growth-oriented tech companies that are still proving out their model. If there's no appetite for tech IPOs over a long period of time and late-stage capital dries up, even some of the most promising venture-backed companies can be forced to resize their expectations.
"When it becomes more than a correction, the pendulum swings so far in the opposite direction that appropriate valuations are no longer recognized and we go back into the dark ages," said Horowitz. "The ideal situation is this results in a correction and not more, and the IPO window stays open."
Either way, there was plenty for the tech world to ponder over the weekend.