What goes up, must go down
Sometimes all signs point to a bubble and it happens again and again and again. Back in the retail days when Macy’s was on the top of its game, the powers that be decided that they should go upscale in order to cast a wider net. And by doing that they chose to ignore their solid moderate everyday customers. Not exactly what data they were using to point in that direction but it was an unmitigated flop. It took sometime for Macy’s to regroup and return to their customer who had now left the store. I always think of that moment when C-teams start to move into the direction with the desire to be something sexy not just basic and not who their customer is. Reality works.
In the start-up world there isn’t the same thing but the concept is there. Companies with ridiculously high valuations that appear to be amazing but if someone actually looked behind the door I am not sure we would discover that most of the valuations were worthy of the price. At one point, let’s hope, that smart institutional investors realize that it is really hard to make money on valuations that don’t reflect the balance sheet. Many of the high valuations are being taken down to normal right now and it is unfortunate for the many who grew with disconnected expectations with doing everything right and now ending up being too expensive for the next round of investors. We should all be asking, what or who caused that?
There is also the rise of the mega-fund. Maybe I am missing something but I just don’t get it. There are very few companies who need that kind of capital to become big. They did in the 90’s when there wasn’t off-the-shelf products and open platforms to build your platform. Even if you don’t know how to code, you can take a course online and teach yourself. The world is your oyster and if you are entrepreneurial enough to figure out the whole shebang then it doesn’t cost hundreds of millions to build something.
I am also seeing consumer product companies that are being fueled by tremendous amounts of capital building a serious marketing machine. The hope is that they will grow quickly and then sell and everyone, including the founders and LP’s make some cash back. I wonder if those companies are built on solid foundations or shaky ones. Maybe it is my moral compass but I want to build companies that might take some time to really lock down that foundation so that ten years from now they are still around, employ people and make a difference in the economy.
There are so many start-ups and so many players in the industry that sometimes when we share all the companies we have invested in, I feel a little bit like I am in a card game. Who has what? Can we all really win? Lots of people jumping into this game and it is easy to take the ride up but it is oh so painful to take that ride down. Bottom line, what goes up, must go down and there are more than a few signs that make me feel like perhaps we are at the top of some type of roller coaster.