本文作者格林•所罗门是GGV Capital公司管理合伙人。他最近投资的公司包括Zendesk、Nimble Storage、Pandora、Successfactors、Isilon、Domo、Square、AlienVault、HashiCorp和Quinstreet。
3. Logos and FOMO
A third powerful driver of the current write-ups is the thirst for the best “logos.” As branding has become more important for VC firms, the desire to be associated with winning companies has intensified. In the long run, VC funds should be judged by the returns they generate. But, in the shorter run, success can be claimed by having investments in hot companies.
The best companies are attracting bids from firms that probably know they’re overpaying. In many cases, these firms believe they may not make a huge return on these investments, but being associated with great companies can be just as important as making a good return in certain circumstances. The current market momentum has ensured that this strategy hasn’t led to many high profile write-downs as of yet; buying logos has worked well — so well, in fact, that more and more firms want to play, not risking missing out on big winners such as Alibaba and Uber.
What can we take from all of this?
In the short run, venture returns are looking very strong. How much of these returns, however, are paper gains versus true realizations? That’s a critical question.
Paper gains have come but they can also go. Some firms have begun to quietly sell down some of their big winners, before IPOs. I suspect we may see even more of this activity as hot private companies see rapid price appreciation and continue to defer IPOs where prices will inevitably be lower.
While we’re in this market, entrepreneurs running popular companies should stay aggressive where warranted. In nearly all segments of technology, market leadership bestows disproportionately large (and in many cases non-linear) valuations. So, investing aggressively to stay ahead of the competition makes good sense. But have a back-up plan to live off of current cash. If the market turns, you’ll be glad to not have to raise another round in a tougher valuation environment!
Glenn Solomon is a Managing Partner with GGV Capital. Some of his recent investments include Zendesk, Nimble Storage, Pandora, Successfactors, Isilon, Domo, Square, AlienVault, HashiCorp and Quinstreet.
This post originally appeared on his blog.