2016, the Year of the Lukewarm Summer.
The Brenner Group Index
The Brenner Group measures the collective confidence of its financial consultants in the technology startup space on a quarterly basis through its Brenner Group Index. Going into Q3 the results overall came in as “we feel lukewarm about the market”. I wish I could use a more exciting adjective to describe our market sentiment, but lukewarm is as (non)descriptive as it seems to get this summer.
We saw overall confidence tick up slightly in Q2 after a lousy first quarter, only to drop down again in Q3. Our CFOs and controllers collectively agree that the market will slow down further, while also strongly rejecting the notion that a market crash is imminent. Startups continue to raise vast amounts of money, although our CFOs and controllers firmly believe it is harder to raise money now than it was a year ago.
There continues to be an ample supply of foreign and domestic investors that are in search of high yield. The continued inflow of funding is generating increased momentum in tech M&A activity (most recently Quip), and is keeping valuations for startups intact. This prevents later stage startups from having to seek out public market financing. Separately, this money supply has created somewhat of an asset bubble in public markets and real estate. A scenario in which both private and public valuations cool down simultaneously would present a significant challenge for a number of startups. A reverse scenario in which the slumbering tech IPO markets gains traction (think Twilio, Line Corp and Talend), could allow for some air to be released from the private valuation balloon. However, given the amount of market uncertainty in the overall economy (Brexit, election year, global geopolitical instability), we don’t expect market conditions to noticeably improve (or worsen) over the next few months.
Andries Verschelden is the Managing Director of The Brenner Group, one of Silicon Valley’s premier professional services firms. He has held a variety of consulting and management roles throughout his career, including work in New York, Brussels, Shanghai, and San Francisco.