Venture capital helps grease the wheels of industry, and in the case of the tech world, it's the life blood of many small companies that grow up to be disruptors and category killers.
With that in mind, I sat down with Rob Coneybeer, founder and managing director of Shasta Ventures, of Menlo Park, California, while he was in New York.
Shasta, which is on its third fund, tends to invest in Series A financing deals, typically between $3 million and $5 million. One of its best-known investments is Nest Labs, acquired by Google for $3.2 billion in January.
Over pizza at New York's Eataly, Coneybeer discussed what's exciting him now in the tech sector and why some technology trends, like wearable smart devices, seem like they're getting more attention than they merit. He also dished on what's changed in the funding world since the Great Recession.
Following is an edited transcript of our conversation:
Where are we in the economic cycle? Is it 1999 déjà vu for Silicon Valley?
Rob Coneybeer: I have been doing this for 18 years now and I really feel like this time around it is very different.
RC: The smart phone has changed everything. Having lived through the last boom in 1999 and 2000, there were maybe 20 million broadband connections worldwide. Now you have close to 1.5 billion people around the world with smart phones connected to broadband and connected to payment systems. So your ability to have reach and scale, and your ability to connect someone's wallet with products and services is unprecedented in the history of business.
So many of the building blocks are already in place that if you are small startup and you have a product that is compelling and rises above the noise, you can reach scale far more rapidly than you ever could before. It is the best that it has ever been for starting companies.
How much more quickly can you build a company today than 15 years ago?
RC: Take a look at a company like Nest Labs, they started just four years ago. They had a big outcome, and part of the reason is because they had gotten to real scale on product shipments for two major, world-class products. Take a look at Instagram and some of the social networks: They are able to grow and scale rapidly because they can get payments solutions off the shelf, and people have these devices for communication.
What about funding? Has that changed?
RC: If you look at the limited partners dollars going to venture capital over the last 20 years, there was a huge spike in the 1999-2000 timeframe. But when you look at the numbers, they have been very stable, about $15 billion to $20 billion annually. In the last 18 years, people have complained about valuations [being too high.] It has always been a point of pain.
Do you think that tech companies are overpriced today?
RC: People always complain about valuations, and they always think they are in this unique time. But there are sectors that get overheated, and what tends to happen is you have areas that are kind of overinvested, like connected hardware today, and all the hype and valuations for wearable companies don’t measure up to the opportunities. There are other areas that are fundamentally really interesting.
What are some of those?
RC: If you look at business-to-business and enterprise--especially software as a service--people have gotten very bullish about the sector, and it has retreated about 30 percent in the public markets over the last four to five months. But these are still highly valuable companies. You have this huge shift from enterprises having their own proprietary data centers to moving everything to the cloud. The idea of buying a paid-up, perpetual license, people don’t want to do that. They would rather it be software as a service, and have it be a variable cost, as opposed to a fixed cost.
What kind of companies interest you most today?
RC: Transportation is super-interesting, and one trend that people don’t fully appreciate is how profound the self-driving car will be. When I step back and think about the consumer proposition of the self-driving car, it is incredibly compelling (for safety and utilization reasons.)
The other interesting thing about it is that it is an industry that has one of the biggest consumer finance support systems. When you go in to buy a car, the sales person will steer you toward how much per month to buy the car, and the tech innovation sector has a huge amount of financing available. So it's likely when you went in to buy car, and you started at the high end, the salesperson might say, "We have a 'Drive You Home Drunk' package and that costs $14,000, but over time it is not too much," when it comes to the cost of a DUI, you might think about it.