2017 has been a year full of drama between pre-IPO tech companies and their backers, with Uber's many lawsuits and boardroom drama as the wildest example. But it's still a great time to invest in late-stage tech, says one of Silicon Valley's most influential enterprise tech investors, IVP General Partner Steve Harrick.
Although it doesn't get as much press as some other Silicon Valley VC firms, IVP has invested in big names ranging from Dropbox to Netflix, and Harrick himself led IVP's investment in AppDynamics, which Cicso bought earlier this year for $3.5 billion.
Harrick gave CNBC three reasons why now is a great time to make late stage investments: there's more capital available to help grow companies, more paths to liquidity for investors than ever before, and valuations are a lot more reasonable than they were couple years ago.
More capital to grow, including from Softbank. Since May, every venture investor and tech entrepreneur has been looking closely at the mammoth Softbank Vision Fund. The fund has promised to invest $100 billion in hyper-growth tech companies over the next five years, and has already invested large sums -- ranging from $100 million to $1 billion or more -- into startups. It's essentially flooding the market.
But while many see Softbank as "competition," Harrick sees them as more complementary to the overall market.
"It's a great thing for growing tech companies when capital is available," he said. Public markets are hungry for growth and are rooting for more companies to become public, at least those building predictable businesses. That takes capital."
Additionally, he said that Softbank "can also be a source of liquidity for larger companies in our portfolio, or others."
That's because, as private equity firms have been doing for years, large funds like Softbank's tend to buy up both primary and secondary shares in tech companies. The secondary shares can come from founders, employees or venture firms that hold shares in a company.
IVP has not yet sold shares in any of its portfolio start-ups to Softbank, Harrick said, but the firm previously sold 52% of its stake in online legal services company LegalZoom to a private equity fund called Permira. Harrick said the Permira investment helped LegalZoom improve operations and grow anew, and IVP remains the second largest shareholder in the online legal services company.
More paths to liquidity. Harrick is also encouraged by the fact that companies aren't necessarily waiting to go public. In fact, mergers and acquisitions are now the most common route to liquidity for venture-funded tech companies. And the M&A appetite remains strong this year as evidenced by Cisco's deal to acquire IVP-backed AppDynamics for more than $3.5 billion in March this year.
That's one of the deals that helped IVP market and close its latest fund at $1.5 billion. (The fund closed last week, but IVP announced it today.) IVP will generally use this capital to cut $10 million to $150 million checks to tech startups that have the promise of growing to or beyond $100 million in annual revenue. The firm does about 12 to 15 deals per year.
The unicorns have been tamed. Finally, Harrick suggests, valuations are looking more reasonable than they did just two years ago. In 2015, as a number of sovereign funds, mutual funds and hedge funds began striking late-stage venture capital deals, valuations spiked and a record number of "unicorns" were formed.
As CNBC previously reported, at least in the U.S., fewer start-ups are getting new valuations at over $1 billion these days.